CMS recently published its remedy in response to the Supreme Court’s decision that CMS’s 340B outpatient drug payment policy violated the Medicare statute. Many hospitals that are 340B covered entities will now receive tens of millions of dollars in lump sum payments as reimbursement for what Medicare was required to pay 340B hospitals for outpatient drugs between January 1, 2018, and September 28, 2022. But unlike CMS, Medicare Advantage plans are refusing to compensate hospitals for 340B underpayments, leaving covered entities with millions of dollars of uncollected reimbursement for outpatient drugs provided to Medicare Advantage enrollees.

In September 2022, the United States Supreme Court unanimously held that CMS violated the Medicare statute when it reduced reimbursement rates for outpatient drugs for 340B hospitals. That Court, and the U.S. District Court for the District of Columbia on remand, left the issue of remedying past underpayments to CMS.

This November, CMS issued its long-awaited final rule (the Final Rule) outlining the remedy for underpaid 340B drugs for dates of service from January 1, 2018 to September 28, 2022. The Final Rule provides affected covered entities with a lump sum payment intended to pay the difference between what the hospital should have been paid and what the hospital was paid based on claims data submitted between 2018 and 2022.

Since the Supreme Court’s 2022 decision, Medicare Advantage payors have delayed taking action to remedy their underpayments dating back to 2018, saying they were awaiting instructions from CMS. As of now, many Medicare Advantage payors have not voluntarily corrected their underpayment of outpatient drugs purchased on a discounted basis through the 340B program.

King & Spalding has formed a response team to assist 340B hospitals with recovering these 340B underpayments. Our response team has evaluated the language in various Medicare Advantage contracts to determine providers' contractual rights considering the Supreme Court’s ruling and the Final Rule. To date, we have either worked out a contractual resolution or are pursuing reimbursement of underpayments in binding arbitration where payors have refused to honor their contractual obligations.

We invite you to attend our upcoming Roundtable, “Managed Care Update: The Latest in Medicare Advantage Reimbursement Issues and How to Stay Ahead,” to learn more about the Final Rule and its impact on how Medicare Advantage plans reimburse for 340B drugs. We will also discuss several other Medicare Advantage topics as well as contractual and litigation strategies to address arguments from Medicare Advantage plans that attempt to decrease hospital revenue. The link to register is available here.