340B Update: CMS Finalizes 340B Program Reimbursement Cut on Part B Drugs

by K&L Gates LLP
Contact

K&L Gates LLP

On November 1, 2017, the Centers for Medicare and Medicaid Services (“CMS”) issued a final rule updating the Medicare hospital Outpatient Prospective Payment System (“OPPS”) for the calendar year 2018.[1] As part of this update, CMS finalized its proposal to reduce Medicare Part B drug reimbursement for drugs purchased under the 340B Drug Pricing Program (“340B Program”) to the drug’s average sales price (“ASP”) minus 22.5%;  a change from the current reimbursement rate of ASP plus 6%. This reduction, which drew criticism from 340B Program stakeholders and Congress when CMS proposed it earlier this year, is expected to limit the financial benefit of the 340B Program to safety net providers across the country and may have ripple effects on payor reimbursement policies outside of Medicare.

Background

As discussed in our prior alert, CMS proposed in July 2017 as part of its calendar year 2018 update to the OPPS to apply a discount of 22.5% off of ASP for non-pass-through, separately payable drugs purchased under the 340B Program, compared to the current reimbursement rate of ASP plus 6%.[2]  CMS also proposed to implement the reimbursement cut through the use of a new claims modifier for hospitals to use with separately payable drugs under the OPPS that were not acquired under the 340B Program.[3] Further, in order to comply with budget neutrality rules under the OPPS, CMS proposed to offset the decrease in 340B Program payments by increasing non-drug payments under the OPPS, thereby redistributing the funds saved from 340B Program payments to both 340B Program and non-340B Program hospitals.[4] Discussing the proposal, CMS explained that its goal was to “make Medicare payment for separately payable drugs more aligned with the resources expended by hospitals to acquire such drugs while recognizing the intent of the 340B program to allow covered entities, including eligible hospitals, to stretch scarce resources while continuing to provide access to care.”[5]

The proposal generated significant criticism from 340B Program stakeholders including safety net facilities and patient advocacy groups, which generally opposed the proposal. For example, CMS received comments from hospital organizations questioning its authority to implement the new policy, challenging the substance of the proposal, and raising concerns about the administrative process through which CMS sought to implement the change.[6] Additionally, a majority of the members of the House and Senate signed on to separate letters to CMS opposing the cut and arguing that CMS’s proposal to redistribute Medicare’s savings on 340B Program drugs to all OPPS hospitals is inconsistent with Congress’ intent for the 340B Program to benefit specific categories of covered entities.[7]

The Final Rule

Notwithstanding the above criticism and congressional feedback, CMS is finalizing the proposal to reduce Part B reimbursement for 340B Program drugs under the OPPS from ASP plus 6% to ASP minus 22.5% effective January 1, 2018. CMS justified the decision by noting that the new policy will “allow the Medicare program and Medicare beneficiaries to pay less for drugs”[8] and that the previous payment rate of ASP plus 6% did not recognize the “significantly lower acquisition costs of such drugs incurred by a 340B participating hospital.”[9] In this regard, CMS relied on supportive commenters who agreed that ASP minus 22.5% is the most appropriate reimbursement rate for 340B Program drugs because it allows hospitals to “retain a profit on those drugs for use in care of low-income and uninsured patients,” without creating an incentive for the use of overpriced drugs.[10] Based on its own analysis, CMS believes that the new payment rate is actually a lower bound estimate.[11]

Responding to critics who commented that the reimbursement cut would “effectively eviscerate the 340B Program” and will “greatly undermine 340B hospitals’ ability to continue programs designed to improve access to services—the very goal of the 340B Program,”[12]  CMS argued that the change will not punitively target safety-net hospitals because 340B Program discounts can be as much as 50% below ASP (or greater through the Prime Vendor Program).[13] CMS also rejected arguments put forth by commenters who questioned CMS’s statutory authority to implement the new policy, stating that specific language in the Social Security Act that allows the Secretary to “calculate and adjust” drug payments “as necessary” gives the Secretary broad discretion to adjust payments for drugs, including when certain drugs are acquired at a significant discount.[14] In further defending the proposal against claims that it will undermine the 340B Program, CMS emphasized that it decided to exempt certain categories of hospitals from the new alternative payment methodology. In the Final Rule, CMS specifically exempts rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals.[15]

Changes from the Proposed Rule

Although the reimbursement cut was finalized as initially proposed, the Final Rule does make some significant changes in how providers must identify these claims.  Most significantly, in the proposed rule, providers would have been required to use an OPPS claims modifier to identify when drugs were not purchased under the 340B Program. In the Final Rule, however, CMS reversed course and is now requiring that covered entities include a claims modifier “JG” (drug or biological acquired with 340B Drug Pricing Program Discount) for drugs that are acquired under the 340B Program.  This modifier must appear on the same claim line as the drug’s HCPCS code. CMS argues that this approach will pose less of an administrative burden, will allow better tracking of the Program overall, and will better align CMS’s payment policies with existing modifier requirements imposed by various Medicaid programs.[16]  Similarly, even though rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals are exempt from the reimbursement cut (as noted above), those hospitals are required to report an informational claims modifier “TB” for tracking and monitoring purposes.[17]

Impact of the Final Rule

The Final Rule generated an immediate reaction from hospital organizations, with the American Hospital Association, Association of American Medical Colleges, and America’s Essential Hospitals announcing that they intend to pursue litigation against CMS challenging the 340B Program reimbursement cut.[18] As noted above, many commenters questioned whether CMS has the statutory authority to selectively target 340B Program covered entities for an alternative payment methodology.

There is also concern that CMS’s new policy will accelerate a trend that has seen commercial payors and PBMs pursue two-tier payor reimbursement policies that pay 340B Program covered entities less than non-340B Program covered entities. With CMS pursuing a two-tier reimbursement approach in the Final Rule, other payors may more aggressively pursue similar policies, to the detriment of 340B Program covered entities and their patients notwithstanding that the Health Resources Services Administration has historically viewed such two-tier reimbursement models as inconsistent with congressional intent that the margin on 340B Program drugs should accrue to the benefit of safety net providers.[19]

More broadly, the Final Rule suggests that the Trump administration may move forward with other proposals aimed at cutting back on the 340B Program in the face of opposition from hospitals and Congress. For example, as discussed in prior alerts, the Trump administration is considering such ideas as cutting back on contract pharmacy arrangements and new legislation to limit the ways in which covered entities are permitted to make use of 340B Program discounts. As a result, it will be critical to monitor developments from the administration and Congress in the coming months to ensure that key decision makers receive meaningful input on these proposals from 340B Program stakeholders.

Next Steps for Providers

340B Program hospitals will need to immediately begin preparing for implement the systems needed to identify and bill 340B Program drugs with the “JG” modifier   (or “TB” modifier if exempt from the Final Rule). Additionally, covered entities will want to closely monitor litigation brought by stakeholder representative entities and may wish to participate in a more active role in that litigation and/or pursue simultaneous litigation. Finally, covered entities may wish to continue to pursue a congressional fix for the reimbursement cut through lobbying efforts, given the significant congressional support that opponents of the proposed rule were able to generate.


[1] Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-23932.pdf (scheduled for publication Nov. 13, 2017) (hereinafter “Final Rule”).

[2] Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Systems, 82 Fed. Reg. 33,558 (July 20, 20 17), https://www.gpo.gov/fdsys/pkg/FR-2017-07-20/pdf/2017-14883.pdf.

[3] Id. at 33,633.

[4] Id. at 33,712.

[5] Id. at 33,633.

[6] See generally Final Rule at 554-613 (discussion of comments received on the proposed rule).

[7] See Letter to Acting Secretary Don J. Wright and CMS Administrator Seema Verma from Members of the United States Senate, Oct. 6, 2017, http://www.aha.org/advocacy-issues/letter/2017/171006-senate-hhs-cms-final-340b.pdf (signed by 57 members of the Senate); see also Letter to CMS Administrator Seema Verma from Members of the United States House of Representatives, Sept. 27, 2017, https://mikethompson.house.gov/sites/mikethompson.house.gov/files/340B%20Letter%20FINAL%20Signed.pdf (signed by 228 members of the House).

[8] Final Rule at 548.

[9] Id. at 553.

[10] Id. at 557.

[11] Id. at 561.

[12] Id. at 562.

[13] Id. at 562.

[14] Id. at 566-68.

[15] Id. at 594-95.

[16] Id. at 604-08.

[17] Id. at 608.

[18] See Press Release, American Hospital Association, Statement on Final CY 2018 OPPS Rule, Nov. 1, 2017, http://www.aha.org/presscenter/pressrel/2017/110117-pr-opps.shtml.

[19] Previous 340B Program guidance from HRSA’s prime vendor, Apexus, explicitly advised covered entities that they are not required to accept 340B Program price discrimination by Medicaid managed care organizations (“MCOs”) and directed covered entities to report MCO 340B Program price discrimination to HRSA. This guidance currently states, “If your entity receives a discriminatory contract, you do not have to agree to the terms.” Apexus, 340B & Medicaid, https://docs.340bpvp.com/documents/public/resourcecenter/340B_Medicaid.pdf (accessed on Aug. 9, 2017).

Written by:

K&L Gates LLP
Contact
more
less

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.