Background

Beginning in 2018, CMS implemented a 28.5% reduction to payments for most drugs purchased through the 340B Program and paid under OPPS, lowering the reimbursement amounts from ASP plus 6% to ASP minus 22.5%. (PPS-exempt cancer hospitals, PPS-exempt children’s hospitals, and rural sole community hospitals that participate in the 340B Program and are paid under OPPS were not subject to the payment cuts. Critical access hospitals are not paid under OPPS and therefore were not subject to the payment cuts.)

The payment reduction was implemented in a “budget neutral” manner, such that the estimated dollars of the payment reduction for 340B drugs were used to increase payments on other items and services paid under OPPS. Hospitals subject to the reductions immediately sued the Department of Health and Human Services (HHS) in federal district court, alleging that HHS did not have the authority to reduce 340B reimbursement rates in this manner. Ultimately, the hospitals prevailed in the Supreme Court. Further litigation related to the remedies for the past payment cuts is continuing in the US District Court for the District of Columbia. (See our prior coverage of the payment cuts and litigation here, here, here, here and here. )

In the 2023 OPPS Proposed Rule, CMS formally proposed continuing the payment cuts, but noted that the Supreme Court decision occurred after the proposed rule had been prepared and that CMS actually intended to restore payments to the full ASP plus 6% rate in the Final Rule. CMS further indicated that the payment restoration would be accompanied by a reduction in the amount paid for other items and services under OPPS to ensure the payment increase was budget neutral. In addition to the 2023 payment rate proposal, CMS solicited comments from the public on how to remedy the payment cuts to 340B drug reimbursement rates for calendar years 2018-2022.

2023 Final Rule

As previewed in the Proposed Rule, the Final Rule restores payments for 340B drugs to ASP plus 6% and incorporates a corresponding budget neutrality adjustment to decrease payments on other items and services paid under OPPS by 3.09%. This adjustment amount is more favorable than the proposed budget neutrality adjustment of 4.04% set forth in the Proposed Rule, which would have canceled out the annual payment adjustment and resulted in lower payments under OPPS in 2023 than in 2022. The revised budget neutrality adjustment set forth in the Final Rule was calculated to correspond to (and therefore offset) the budget neutrality increase that was implemented in 2018, rather than to offset the costs associated with the restoration of the ASP plus 6% rate for 340B drugs.

CMS responded to submissions in response to its request for comments on remedies for 340B claims paid at the reduced rate between 2018 and 2022, but indicated that it will issue a separate proposed rule addressing the remedy at some point prior to the release of the 2024 OPPS proposed rule (which is typically released in July).

ANALYSIS

Although the decision to pay for 340B drugs at the full ASP plus 6% rate for 2023 is favorable to hospitals previously subject to the payment cuts, the Final Rule does not represent the end of discussions related to the payment rates. Several issues remain outstanding and subject to continued—and possible future—litigation, following the Final Rule.

A key concern for all hospitals paid under OPPS is the budget neutrality adjustment associated with both restoring the ASP plus 6% payment rate for 340B drugs as well as future adjustments implemented as part of any remedy to rectify the payment cuts for 340B drugs that were made from 2018 to 2022. Hospitals argued in the comments that CMS is not required to, nor does it have statutory authority to, make budget neutrality adjustments to offset the restoration of past and future payments for 340B drugs. CMS argues that it is required to ensure that the 340B payment policy does not result in additional outlays of federal funds, a view shared by the Medicare Payment Advisory Commission (MedPAC) in public comments on the Final Rule. MedPAC estimates the additional costs to the government if the payments are not budget neutral as approximately $2 billion for each year of the cuts. Rather than address the retrospective budget neutrality issue in the Final Rule, CMS opted to defer the issue until sometime in 2023.

The Final Rule does not clarify the period for which CMS will be making future decisions on remedies and the dates for which the ASP plus 6% payments have been restored. CMS began paying for 340B drugs at the full ASP plus 6% rate beginning on September 28, 2022, in response to a court order in the ongoing remedies litigation. Some Medicare contractors have indicated that they will also reprocess claims back to January 1, 2022, at the higher rate, but this policy is not reflected in the Final Rule. The Final Rule suggests that CMS is still evaluating possible remedies for claims in 2022 prior to September 28 of that year.

CMS also did not explicitly restore the full OPPS payment rate for 340B drugs dispensed at “non-excepted” off-campus outpatient locations. When CMS initially implemented the payment cuts in 2018, the payment cuts applied only to drugs dispensed at locations that were “excepted” from the “Section 603” site neutral payment provisions. This is because drugs dispensed at non-excepted locations (those off-campus locations that first billed Medicare after November 1, 2015) are considered to be paid under the Medicare Physician Fee Schedule, not OPPS. CMS expanded the 340B payment cuts to non-excepted locations in 2019 by reducing the payments under a different statutory provision than the one that applies to drugs paid under OPPS, and the Final Rule does not clearly address whether payments for 340B drugs at these locations will be returned to the full ASP plus 6% level in 2023.

Finally, CMS will still require use of the “JG” and “TB” modifiers on claims for 340B drugs for informational purposes (both modifiers were introduced in 2018 to identify 340B drugs, and the use of modifier “JG” was intended to automatically trigger the payment cut for 340B drugs). CMS states that it still needs to collect information on 340B drugs dispensed to Medicare beneficiaries, even though no payment adjustment will be applied to claims with the modifiers.