The CMS’ long-awaited fix to repay hospitals for what the Supreme Court in 2022 determined to be years of underpayments in the 340B drug discount program is garnering a mixed reaction from hospital groups.
The remedy proposed by regulators Friday would have Medicare send $9 billion in lump-sum payments to more than 1,600 hospitals that participate in 340B. To pay for the proposal, which needs to be budget-neutral, the CMS would cut payments to all hospitals for non-drug items and services by 0.5% over the next 16 years.
Hospitals and purchasing associations said the rule is an important step towards rectifying the 340B underpayments, but criticized the CMS for the lack of additional interest payments and proposed rate decreases that some called a clawback in disguise.
The 340B dilemma
The 340B drug discount program requires pharmaceutical companies to give discounts on outpatient drugs for providers serving low-income communities. The discounts, which can range from 25% to 50% of the cost of the drugs, can be a big financial aid to those providers.
In a 2018 payment rule, the Trump administration lowered Medicare payments for prescription drugs in the program by roughly 30%. The lower payments were in place until 2022, when the the Supreme Court ruled in June that year that CMS didn’t have authority to lower 340B reimbursement because regulators didn’t survey hospitals about their drug acquisition costs.
The ruling left the CMS in the hole for roughly $10.5 billion in underpayments. Regulators estimate affected 340B providers have already received $1.5 billion of that tranche through the higher default payment rate that was put in place after the 340B payment policy was vacated.
As a result, the CMS is on the hook for $9 billion in restitution. Regulators said this type of payment is required by law to be budget-neutral, meaning Medicare needs to decrease reimbursement for other services and products so annual expenditures remain unchanged.
Under the new proposal, regulators plan to calculate how much hospitals should have been reimbursed for 340B drugs, subtract how much they were actually reimbursed and then pay the remaining balance in a one-time payment.
“We believe this approach comes as close to providing 340B covered entities with make-whole relief as CMS can reasonably accomplish, without the massive burden that would be associated with manually reprocessing all claims,” the rule says.
The agency also plans to reduce outpatient payment rates by 0.5% from 2025 through 2041 to solve the budget-neutrality issue. Affected 340B hospitals will not be allowed to bill beneficiaries for coinsurance on remedy payments, since the CMS is covering those costs, regulators said.
340B Health, which represents hospitals in the program, said it appreciates the proposed rule, but urged the CMS to reconsider the rate decreases for non-drug items, arguing they “represent a financial penalty for many hospitals.”
Similarly, Bruce Siegel, the CEO of safety-net hospital group America’s Essential Hospitals, said in a statement that AEH is “disappointed” the payments include no interest and are budget neutral.
Other groups took a stronger stance against the rate decrease.
"Notwithstanding their efforts to protect hospitals through a lengthy transition, we remain concerned that the proposal to claw back 5 years of payments sets a dangerous precedent. It runs counter to the law and violates the finality and predictability principles that are foundational to the Medicare outpatient prospective payment system,” said Chip Kahn, CEO of the Federation of American Hospitals.
Premier, a group purchasing organization for providers, said it looks forward to “fleshing out ambiguity that exists in statutory language” regarding whether the remedies have to be implemented in a budget-neutral way.
The 340B program, which was established in 1992 to lower drug prices for safety-net providers, has been at the center of recent legal and regulatory controversy. Pharmaceutical companies say the program doesn’t require hospitals to account for their savings or ensure they’re reinvested in patient care, a complaint shared by some lawmakers.
Some drugmakers have stopped giving the 340B discounts to providers that use community and specialty pharmacies, despite HHS lawsuits.
Comments on the CMS proposed rule are open until Sept. 5.