The Centers for Medicare & Medicaid Services (CMS) released the Hospital Outpatient Prospective Payment System: Remedy for 340B-Acquired Drugs Purchased in Cost Years 2018-2022 Proposed Rule on July 7, 2023. CMS has published a fact sheet that provides additional information on the Proposed Rule. The 340B program – which refers to Section 340B of the Public Health Service Act requires significant discounts on outpatient drugs for "covered entities," including safety-net providers and programs.
In a 2017 rulemaking, CMS altered Medicare's payment methodology for separately payable outpatient drugs (including biologics) acquired through the 340B Drug Pricing Program. This change, effective calendar year (CY) 2018, reduced reimbursement for these discounted drugs under the hospital Outpatient Prospective Payment System (OPPS) from the default rate of average sale price (ASP) plus 6 percent to ASP minus 22.5 percent, following a Medicare Payment Advisory Commission (MedPAC) recommendation that the cuts would bring 340B payments closer to the drug acquisition costs. CMS continued this policy in CYs 2019 through 2022. Critical access hospitals, rural sole community hospitals, PPS cancer hospitals and children's hospitals were exempt from this policy.
Due to budget neutrality requirements, the savings from these 340B hospital cuts were then redistributed via increased payments to all hospitals under the OPPS. CMS redistributed these savings by increasing the conversion factor to determine the payment amounts for non-drug items and services within the OPPS. That conversion factor increase was 3.19 percent each year.
Background and the Proposed Rule
The 340B payment policy has been the subject of extensive litigation. In a lawsuit brought by a hospital industry group, the U.S. District Court for the District of Columbia (District Court) concluded on Dec. 27, 2018, that Health and Human Services (HHS) Secretary Alex Azar exceeded his statutory authority by adjusting the Medicare payment rates for drugs acquired under the 340B Program to ASP minus 22.5 percent for CY 2018. (District Court) subsequently came to the same conclusion for CY 2019. On July 10, 2019, the District Court entered final judgment. HHS then appealed to the U.S. Court of Appeals for the District of Columbia Circuit (the D.C. Circuit). On July 31, 2020, that court issued an opinion reversing the District Court's judgment. Then on June 15, 2022, the U.S. Supreme Court reversed the decision of the D.C. Circuit, holding that if CMS has not conducted a survey of hospitals' acquisition costs, it may not vary the payment rates for outpatient prescription drugs by a hospital group.
Notably, the Supreme Court left open the question of the appropriate remedy. In response, this month's CMS Proposed Rule outlines a potential remedy for cuts to 340B payments from 2018, when the cuts began, to 2022, when the cuts were blocked.
The Proposed Rule contains two primary components that maintain budget neutrality. For the OPPS, the Medicare statute requires that any payment adjustments in a given year not change the total "estimated amount of [OPPS] expenditures" for the year. In this proposal, CMS notes "a budget neutrality adjustment is statutorily required and, even if not statutorily required, warranted as a matter of sound public policy." CMS also notes, "even if this remedy rule were exempt from budget neutrality requirements as a matter of statutory interpretation, we would still exercise our authority under section 1833(t)(2)(E) of the Act to offset the extra payments we made for non-drug items and services from 2018 through 2022."
Under the proposal, HHS would first repay 340B hospitals unlawfully underpaid from 2018 to 2022 in a single-lump sum payment. The proposed rule contains the calculations of the amounts owed to the approximately 1,649 affected 340B-covered entity hospitals. CMS emphasizes that affected 340B-covered entity hospitals may not bill beneficiaries for coinsurance on remedy payments if the rule is finalized as currently proposed. CMS suggests it will issue instructions (such as a Change Request or a Technical Direction Letter to the 340B-covered entity hospital's Medicare Administrative Contractor (MAC)), instructing the MAC to issue a one-time lump sum payment to the hospital within 60 days of the MAC receiving that instruction. CMS is open to stakeholder input on other timelines, such as 30 days.
Second, CMS estimates that hospitals were paid $7.8 billion more for non-drug items and services during the affected period than they would have been without the 340B payment policy. To carry out the $7.8 billion budget neutrality adjustment, CMS proposes reducing future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5 percent starting in the CY 2025 until the full amount is offset, which CMS estimates will take 16 years. CMS seeks comments on their proposed approach to implementing budget neutrality.
Conclusion and Takeaways
Hospitals that enrolled in Medicare after 2018 will be exempt from the proposed cuts to non-drug services reimbursement. CMS also seeks comment on their proposal to exempt new providers from the annual adjustment to the conversion factor and solicit comments on whether there are any other easily identifiable categories of providers who should be similarly exempted from the annual adjustment to the conversion factor.
Providers and other stakeholders have until Sept. 5, 2023, to comment on the proposal. Impacted stakeholders should examine and comment on any ambiguity in statutory language regarding whether retrospective remedies pursuant to a Supreme Court case must be implemented in a budget-neutral manner. CMS anticipates issuing the Final Rule before the CY 2024 OPPS Final Rule is published later this year.
