Proposed Medicare 340B payment cuts would hurt nonprofit hospitals’ margins, Moody’s Investors Service said in a new report.
Moody’s predicts the outpatient drug reimbursement change will result in a 30% cut for 340B hospitals, which would be “another headwind” for those hospitals. Inpatient drug costs will continue to rise for nonprofit and public hospitals, but not as aggressively “amid growing scrutiny of pharmaceutical markers’ pricing practices,” said Moody’s.
The HHS said Thursday it is planning to delay a different proposed rule for 340B that sets drug price ceilings and penalties for manufacturers who charge hospitals above the ceiling. The American Hospital Association (AHA) opposes the delay, but HHS said it needs additional time to “allow a more deliberate process of considering the alternative and supplemental regulatory provisions and to allow for sufficient time for additional rulemaking.”
Hospitals strongly oppose the 340B cut, and applauded a group of more than 200 members of the House of Representatives who sent a letter this week asking CMS to abandon the proposal. The lawmakers said they are concerned the "misguided policy will directly limit the ability of hospitals to offer necessary services to vulnerable patients and their communities, especially low-income individuals and rural communities."
Diana Lee, a Moody’s vice president, said hospitals with “limited financial flexibility” would be the most at risk with the possible changes to the 340B program, which requires drug companies to provide outpatient drugs to certain providers at a reduced cost.
Nonprofits have seen weaker operating margins in general lately, partly because of the rising cost of pharmaceutical drugs. Lee said certain branded hospital inpatient drugs have seen huge price spikes in recent years, but Moody’s expects the U.S Food and Drug Administration will approve more generic drugs for the first time, which will ease pressure on hospitals.
About half of U.S. hospitals are 340B providers, as the program grew substantially over the past decade. Participating organizations grew from 583 in 2005 to 2,140 in 2014. Covered entities and their affiliated sites spent more than $7 billion to purchase 340B drugs in 2013, which was three times the amount in 2005.
The cut to the program was included in the 2018 Medicare Outpatient Prospective Payment System proposed rule, which CMS released in September. The proposal includes paying hospitals 22.5% less than the average sale price for drugs in the 340B program. The CMS said the move would reduce physician burdens, promote better patient relationships and lower beneficiary out-of-pocket drug costs for certain drugs. The agency estimated the cuts would save about $900 million next year.
But the AHA and other hospitals groups will no doubt continue to campaign against the proposed changes. The Advisory Panel for Outpatient Hospital Payments also recommended more research on the proposal’s effects and asked CMS to provide a plan explaining how it would use the program savings.