Hospitals to get $9 billion in proposed remedy to 340B ruling

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Hospitals in the 340B program will get $9 billion under a proposed rule to make them whole in a lump sum payment, according to the Centers for Medicare and Medicaid Services.

An estimated $9 billion is owed to affected 340B providers for claims from 2018 through 2022, CMS said. The proposed rule contains the calculations of the amounts owed to each of the approximately 1,600 affected 340B covered entity hospitals.

CMS estimates that for 2018 through the approximate third quarter of 2022 certain providers received $10.5 billion less in 340B drug payments than they would have without the 340B policy.

However, many 340B drug claims for 2022 have been processed, or reprocessed through standard claims processing, at the higher default payment rate since the 340B payment policy was vacated on September 27, 2022. 

As a result, affected 340B providers have already received from Medicare and beneficiaries $1.5 billion of the $10.5 billion that would otherwise have had to be remedied through these reprocessed claims. 

REACTION

The budget neutrality aspect of the proposed rule is an issue with provider groups and other groups.

American Hospital Association president and CEO Rick Pollack said, "After more than five years of litigation and a unanimous Supreme Court victory, the AHA is extremely pleased that 340B hospitals will finally be paid back what they deserve so they can continue providing care to their patients and communities. We are especially gratified that HHS agreed with the AHA's position that these hospitals must be promptly repaid in full with a single lump-sum.

"At the same time, the AHA is disappointed that HHS has chosen to recoup funds from other hospitals that cannot afford additional Medicare payment cuts, including rural sole community, cancer and children's hospitals that were initially exempted from HHS' illegal policy."

Dr. Bruce Siegel, president and CEO of America's Essential Hospitals said, "We are disappointed the remedy payments would include no interest and be budget neutral. The administration's plan to cut non–drug payments to hospitals to achieve budget neutrality unnecessarily blunts the impact of the remedy by ensuring years of future underpayments.

"The proposed remedy is a positive step to compensate hospitals for the difference between the cuts and what they would have received otherwise. We urge CMS to reconsider its proposed budget neutrality policy and make the remedy payments as soon as possible."

Soumi Saha, senior vice president, for government affairs at Premier, said, "Today's proposed rule can only be described as one step forward and two steps back. While Premier appreciates CMS proposing a one-time lump sum payment to affected providers for 340B-acquired drugs for calendar years 2018-2022, doing so in a budget-neutral manner over 16 years is a clawback in disguise."

WHAT HAPPENED

Some 340B-covered entity hospitals were paid less due to CMS policy invalidated by the Supreme Court in American Hospital Association v. Becerra and the district court's remand back to the agency.

This proposed rule is CMS's proposal to remedy the payment rates that were ruled invalid. Aspects of this proposed policy will affect nearly all hospitals paid under the Outpatient Prospective Payment System, CMS said.

This proposed rule will have a 60-day comment period, which will end on September 5. 

CMS anticipates issuing the final rule before the 2024 Outpatient Prospective Payment System/Ambulatory Surgery Center final rule is published in the fall of 2023.  

BACKGROUND: THE LARGER TREND

Section 340B of the Public Health Service Act allows participating hospitals and other providers to purchase certain covered outpatient drugs or biologicals from manufacturers at discounted prices. 

Prior to 2018, the Medicare payment rate for Part B covered outpatient drugs provided in outpatient hospitals was generally the statutory default of average sales price plus 6%. 

In the payment rule finalized in 2017, CMS adjusted the payment rate for 340B drugs to the average sales price minus 22.5% to more accurately reflect the actual costs incurred by 340B hospitals when acquiring 340B drugs, CMS said. This rate applied from 2018 through approximately the third quarter of 2022. 

To comply with statutory budget neutrality requirements, CMS made a corresponding increase to payments to all hospitals (340B hospitals and non-340B hospitals) for non-drug items and services, which was also in effect from 2018 through 2022.

On June 15, 2022, the Supreme Court unanimously ruled that the differential payment rates for 340B-acquired drugs were unlawful because, prior to implementing the rates, HHS failed to conduct a survey of hospitals' acquisition costs under the relevant statute. 

On September 28, 2022, the District Court for the District of Columbia vacated the differential payment rates for 340B-acquired drugs going forward. As a result, all CY 2022 claims for 340B-acquired drugs paid on or after September 28, 2022, were paid at the default rate of ASP plus 6%.

In the 2023 final rule, CMS finalized a general payment rate of ASP plus 6% for drugs acquired through the 340B Program, which is consistent with the agency's policy for drugs not acquired through the 340B program. 

As required by statute, CMS implemented a 3.09% reduction to the payment rates for non-drug items and services to achieve budget neutrality for the 340B drug payment rate change for 2023. This budget neutrality change ensured the conversion factor was equivalent to the conversion factor that would have been in place had the 340B drug payment policy never been implemented.

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org