CMS Guidance

Under the 2018 Outpatient Prospective Payment System (OPPS) final rule that went into effect January 1, 2018, Medicare reduced by nearly 30 percent reimbursement to certain 340B hospitals for separately payable Part B drugs without pass-through status: from average sales price (ASP) plus 6 percent, to ASP minus 22.5 percent. The payment cut applies to 340B hospitals that are disproportionate share (DSH) hospitals, rural referral centers (RRCs), and non-rural sole community hospitals (SCHs). Children's and cancer hospitals and rural SCHs are exempted from the payment cut, and the payment rules do not apply to critical access hospitals and Maryland hospitals as they are not paid under the OPPS.

The 2018 OPPS final rule also requires 340B hospitals paid under the OPPS, including those exempted from the payment reduction, to use modifiers when billing Medicare to identify 340B-acquired drugs.

As discussed in our previous Payment Matters article, CMS issued an FAQ document in December 2017, providing details related to the 340B billing and the payment rules in the final rule. On April 2, 2018, CMS updated the FAQ document with a new FAQ #9 that addresses the implications of the payment reduction for MA plans.

The new guidance confirms that the payment reduction does not apply to 340B drugs administered to MA enrollees when a hospital is contracted with an MA plan. However, the FAQ states that MA plans will pay non-contracted hospitals "the amount they would have received under Original Medicare payment rules less the plan allowed cost sharing collected from the MA enrollee." This language mirrors the MA regulations, which state that non-contracted providers "must accept, as payment in full, the amounts that the provider could collect if the beneficiary were enrolled in original Medicare." 42 C.F.R. § 422.214. Therefore, MA plans treat enrollees seen at non-contracted hospitals as traditional Medicare beneficiaries for payment purposes and will pay providers the traditional Medicare rates.

As such, if a hospital administers a 340B drug to an out-of-network MA enrollee, the OPPS payment reduction will apply. The FAQ does not address how hospitals should bill MA plans for 340B drugs administered to out-of-network MA enrollees. Hospitals may wish to consult MA plan billing instructions or contact MA plans to determine billing expectations.

As discussed in our previous Payment Matters article, other FAQs in the CMS document outline CMS's expectations for how hospitals should bill under OPPS for 340B-acquired drugs. The 2018 OPPS final rule created two new modifiers to identify 340B drugs: a "JG" modifier that triggers reduced payment for the 340B hospitals subject to the payment reduction, and an informational "TB" modifier that CMS will use for tracking purposes. Based on the final rule, hospitals understood the JG modifier to apply to hospitals subject to the payment reduction and the TB modifier to apply to hospitals exempted from the payment cut. However, the FAQ document makes clear that CMS expects hospitals subject to the payment reduction to use both the JG and TB modifiers.

To determine a drug's status indicator and evaluate which modifier is required, if any, hospitals can refer to CMS's quarterly update of Addendum B of the OPPS final rule. 

Hospitals' Legal Challenges

On November 13, 2017, hospital associations and hospital co-plaintiffs filed a lawsuit in the U.S. District Court for the District of Columbia, asking the court to grant a preliminary injunction to stop the cuts from going into effect, asserting that CMS does not have the authority to reduce payments in this manner.

The Court dismissed the challenge on procedural grounds, finding that the hospitals failed to present a ripe claim for reimbursement, as Medicare had not yet paid the hospital plaintiffs at the reduced rates. The American Hospital Association, et. al., v. Hargan, Civ. Act. No. 17-2447 (RC) (D.D.C. 2017) (memorandum opinion). On January 9, 2018, the plaintiffs appealed to the U.S. Court of Appeals for the D.C. Circuit, arguing that the District Court erred in dismissing the case as premature. The American Hospital Association, et. al., v. Hargan, Civ. Act. No. 17-2447 (RC) (D.D.C. 2017) (notice of appeal). Oral arguments are scheduled for May 4, 2018. 

In response, HHS argues it has the statutory authority to issue the cuts and also contends that the Medicare statute precludes review of the payment reduction. It also argues that the plaintiffs have failed to satisfy the necessary jurisdictional requirements. In particular, the government argues that the plaintiffs must exhaust all administrative remedies before seeking judicial review. Moreover, even if plaintiffs met the procedural requirements to bring suit, HHS contends that the Court should deny the request for an injunction because stopping the payment cut mid-year would disrupt OPPS payments and require CMS to recalculate payments for all hospitals. 

On April 2, 2018, plaintiffs filed their rebuttal, responding that the Court should not require plaintiffs to exhaust all administrative remedies before bringing suit because challenging the payment cuts through the administrative process would be futile. HHS agrees on this last point. In a response filed in a different lawsuit, the government said that the 340B payment cuts are "non-reviewable determinations" (on a claim by claim basis) that would be dismissed. As such, the plaintiffs argue the Court has the discretion to take immediate jurisdiction.

The plaintiffs also address HHS's claim that granting an injunction to stop the payment cuts would disrupt OPPS payments, noting that relief could be provided retroactively through next year's payment rates to avoid disruption to the current year's rates and that there is precedent for HHS using future rates to repay providers for past payment errors. The plaintiffs ask the Circuit Court to find that the plaintiffs are entitled to an injunction, remand the case to District Court, and direct that the lower court order HHS to, at a minimum, issue 2019 payment rates that do not include the payment cut and are at a level that would compensate hospitals for the losses they incurred while the cuts were in place.

Legislative Activity

Meanwhile, bipartisan efforts in Congress to undo the payment cuts legislatively continue. After CMS initially proposed reducing 340B hospital payments in July 2017, 228 members of the House wrote to CMS opposing the proposed cuts and 57 Senators wrote to CMS expressing concern. In November 2017, after CMS finalized the payment reduction, a bipartisan group of House members led by Reps. David McKinley (R-WV) and Mike Thompson (D-CA) introduced H.R. 4392, which would prohibit HHS from implementing the cuts. A bipartisan group of six Senators also wrote to Senate leadership in December to support legislative action to stop the payment cuts from taking effect.

Although Congress has to date failed-to-enact legislation to stop the cuts from moving forward, H.R. 4392 continues to garner support and currently has 194 cosponsors. However, Energy and Commerce Committee Chairman Walden has indicated that Congressional action to address the payment cuts would not likely occur without other changes to the 340B program to address the Committee's concerns about the program.  

Baker Donelson Comments

We will be monitoring the oral argument of the plaintiffs' appeal, scheduled for May 4, 2018, and will also be watching Congressional activity. Given the indications that Congress is not likely to enact legislation addressing the payment cuts without considering other changes to 340B, we will continue to monitor the broader Congressional inquiry into the 340B program.