The Centers for Medicare and Medicaid Services (CMS) recently proposed a $9 billion lump sum payment to remedy illegal payment cuts for 340B drugs from 2018 to 2022. In general, hospital groups have reacted positively to the fact that 340B providers will receive lump sum payments but have expressed concern about CMS’ methods for maintaining budget neutrality with this plan.

The 340B program — which refers to Section 340B of the Public Health Service Act — enables eligible hospitals and providers to purchase certain outpatient drugs at discounted prices from manufacturers. The program aims to support the availability of affordable medications for vulnerable patient populations while also promoting cost control measures for providers.

Before 2018, the Medicare payment rate for Part B covered outpatient drugs was the average sales price plus 6%. However, CMS adjusted the payment rate for 340B drugs in 2018 to the average sales price minus 22.5%. 

Last June, the Supreme Court ruled that these payment cuts were unlawful. This decision came after hospital groups sued the Department of Health and Human Services (HHS), arguing that CMS does not have the authority to make cuts to the 340B program under its Outpatient Prospective Payment System (OPPS). The Supreme Court sided with hospitals, deeming the reimbursement cuts illegal because HHS failed to conduct a survey of hospitals’ acquisition costs prior to enacting the rates.

In late September, the District Court for the District of Columbia put an end to the payment rates CMS implemented in 2018, and the 340B program reverted to paying providers a default rate of the average sales price plus 6%.

The $9 billion lump sum that CMS recently proposed seeks to rectify the nearly four years of unlawful payment cuts for 340B drugs.

The agency estimated that the cuts resulted in providers receiving $10.5 billion less in 340B drug payments. However, CMS said that many 340B drugs claims from last year have been reprocessed at the higher default payment rate — it argued that 340B providers have received already $1.5 billion back.

For the remaining $9 billion it owes providers, CMS plans to make a one-time lump-sum payment to each of the approximately 1,600 340B-covered providers that was paid less due to the unlawful policy. 

CMS said it will maintain budget neutrality while carrying out this proposed remedy. To do this, the agency will have to make payment cuts in another area. 

When CMS rolled out its 340B drug payment cut plan in 2018, the agency increased its payments for non-drug items and services. The agency estimates that hospitals were paid $7.8 billion more for non-drug items and services during the nearly four years the 340B cuts were in place. To achieve the $7.8 billion budget neutrality adjustment, CMS is proposing to decrease non-drug item and service payments going forward. This plan to offset costs is slated to begin in 2025, and the agency expects it to take 16 years.

Providers’ comments on the proposed rule are due by September 5. Several industry groups have already reacted to CMS’ plan.

Rick Pollack, the American Hospital Association’s CEO, wrote that the agency “is extremely pleased that 340B hospitals will finally be paid back what they deserve.” However, the organization isn’t completely thrilled with the entirety of CMS’ plan.

“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,” Pollack wrote.

340B Health, an organization representing providers taking part in the 340B program, also took issue with the CMS’ proposal to reduce payment rates for non-drug items. The group’s CEO, Maureen Testoni, wrote that CMS should reconsider these cuts because they “would represent a financial penalty for many hospitals that had no option for avoiding those payments.”

She also wrote that 340B Health is seeking repayment with interest. Another hospital group, America’s Essential Hospitals, is asking for this as well.

Photo: cagkansayin, Getty Images