CMS Returning $9 Billion to 340B Hospitals; All OPPS Hospitals Face 16 years of Cuts
Today’s blog is from CLA’s lead 340B consultant Kim Doud and Jennifer Boese
The Centers for Medicare and Medicaid Services (CMS) released its proposed remedy for years of payment cuts to certain 340B hospitals.
Quick Look
- CMS proposes to provide an additional, one-time, lump sum payment to affected 340B providers related to payment cuts they saw between Calendar Year (CY) 2018 and Q3 CY 2022.
- CMS indicates the cuts amount to $10.5 billion in affected Outpatient Prospective Payment System (OPPS). CMS states it has already addressed roughly $1.5 billion, leaving $9 billion left to remedy for impacted hospitals.
- Medicare beneficiary cost-sharing will be included when calculating a provider’s one-time lump sum payment.
- CMS continues to indicate budget neutrality applies and, therefore, proposes a 0.5% reduction to the OPPS conversion factor to all non-drug items and services for approximately the next 16 years.
| Wondering how much CMS calculates your hospital will see in a lump sum payment? Have other 340B questions? Reach out. We have answers. |
Background
Beginning in 2018, CMS began reducing payments to certain 340B hospitals, primarily disproportionate share hospitals (DSH). The rationale was that because these hospitals were not paying the full amount for drugs under the program, they should not be reimbursed the normal amount either. CMS determined the rate it should pay was the Average Sales Prices (ASP) minus 22.5%. In subsequent regulations, CMS also clarified that drugs paid using the Wholesale Acquisition Cost (WAC) would also be WAC minus 22.5% as well as reimbursing Average Wholesale Price (AWP) drugs at an adjusted amount of 69.46% of AWP.
Due to budget neutrality requirements, the savings from these 340B hospital cuts were then redistributed via increased payment to all hospitals under the OPPS. CMS finalized that it would redistribute these savings by increasing the conversion factor used to determine the payment amounts for non-drug items and services within the OPPS. That conversion factor increase was 3.19% each year.
There were some exemptions to the 340B policy: critical access hospitals, rural sole community hospitals, PPS cancer hospitals, children’s hospitals, drugs with pass-through payment status, and vaccines.
Affected 340B hospitals and the American Hospital Association sued under American Hospital Association v. Azar. In September 2022, the U.S. Supreme Court ruled in their favor. Review CLA’s earlier blog on the U.S. Supreme Court ruling for additional background.
Detailed Look: Proposed Remedy
CMS is now proposing how to handle the judicial requirement to repay impacted hospitals.
CMS complied with the Court’s September 28, 2022, decision by uploading revised OPPS drug files to pay the default rate (generally ASP plus 6%) for all CY 2022 claims for 340B-acquired drugs paid from September 28, 2022, through the end of CY 2022. For CY 2023, CMS finalized that drugs acquired through the 340B program would be paid at the default rate (generally ASP plus 6%). Correspondingly, to ensure budget neutrality for CY 2023 OPPS payment rates, CMS finalized a reduction of 3.09% to the 2023 OPPS conversion factor.
CMS indicates it had generally reprocessed all 2022 claims at the higher rate, equaling $1.5 billion of the estimated $10.5 billion that had been cut over the four years the policy was in place. This leaves $9 billion left to pay back.
In terms of repayment, CMS is proposing to provide some 1,649 impacted 340B hospitals with lump sum payments. CMS proposes to make one-time lump sum payments to affected 340B covered entities calculated as the difference between what they were paid for 340B drugs at the reduced rates and what they would have been paid had the 340B payment policy not applied.
CMS will include an estimated amount into these lump sum payments that reflect what hospitals would have seen due to higher Medicare beneficiary cost-sharing amounts. CMS emphasizes that affected 340B covered entity hospitals may not bill beneficiaries for coinsurance if this is finalized in the rule.
CMS proposes 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.
With respect to budget neutrality, CMS believe it applies and states among other reasons:
“We do not believe Congress intended the statute to permit regulated entities to achieve policy outcomes through litigation that would be statutorily unavailable to them through the regular rulemaking process— especially policy outcomes that increase total Medicare expenditures.”
Therefore, CMS proposes to institute an annual, prospective negative adjustment of 0.5% beginning in CY 2025. CMS estimates this 0.5% reduction will occur every year for roughly 16 years in order to recapture the increased payments from 2018-2022. CMS believes a small decrease is more feasible rather than requiring hospitals to pay back larger lump sums, though it is open to other options from stakeholders.
New providers that did not enroll in Medicare until after January 2018 would be excluded from the prospective rate reduction since they did not fully benefit from the increased payment for the non-drug items and services.
How CLA Can Help
Stakeholders will have 60 days, until September 5, 2023, to submit comments on the proposal. CMS expects to issue the final 340B remedy rule before the final CY2024 OPPS. You can review the proposed rule and fact sheet for additional details.
Reach out to CLA if you have 340B questions, need assistance in writing comment letters or wonder how much CMS has calculated for your lump sum payment.
Jennifer Boese is the Director of Health Care Policy at CLA. She is a highly successful public policy, legislative, advocacy and political affairs leader, including working in both the state and federal government as well as the private sector. She brings over 20 years of government relations and public policy knowledge with her to CLA. Well over half of her career has been spent dedicated to health care policy and the health care industry, affording her a deep understanding of the health care market and environment, health care organizations and health care stakeholders. Her role at CLA is to provide thought leadership, policy analysis and strategic insights to health care providers across the continuum related to the industry's ongoing transformation towards value. A key focus of that work is on market innovations and emerging payment models. Her goal is to help CLA clients navigate and thrive in an increasingly dynamic health care environment.
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