CMS Proposes Cuts to 340B Hospital Reimbursement

CMS has recently issued a proposed rule for the OPPS Payment System that included a proposal to significantly scale back reimbursement for Part B drugs to hospitals participating in the federal 340B Drug Discount Program.  CMS believes hospitals are being overpaid and are potentially overutilizing the Program; therefore, it wants to reduce reimbursement rates for separately payable, non-pass-through Part B drugs purchased through the 340B Program.

For those that may not be familiar with the Program, the 340B Program is a federal drug discount program (Section 340B of the Public Health Service Act).  The 340B Program requires drug manufacturers to sell drugs at a statutorily-set discounted rate to certain health care providers (designated in the statute as “covered entities”) that serve indigent populations. Covered entities are not required to pass these discounts on to insurers or patients.  The intent is to allow covered entities to use these savings to stretch scarce resources in order to better serve their patients.

For 340B Hospitals, Medicare reimbursement for Part B drugs often exceeds the acquisition cost of the drugs by a substantial margin. As a result, 340B hospitals realize high profits on these Part B drugs.  CMS believes there is a correlation between participation in the 340B Program and overutilization of certain drugs, such as potentially higher Medicare spending for chemotherapy drugs among 340B participating hospitals than those that do not qualify for 340B.

CMS is also concerned with rising costs to Medicare beneficiaries. Medicare beneficiaries are responsible for paying 20 percent of the Medicare payment rate for Part B drugs, and those co-payments, in some instances, may exceed what 340B hospitals pay to acquire the drugs.

To address these concerns, CMS has proposed to reduce reimbursement to an amount that is more aligned with the resources expended by hospitals to acquire the drugs.  CMS believes a reduction in reimbursement to equal the Average Sales Price minus 22.5% will adequately represent the minimum discount that a 340B participating hospital receives for separately payable drugs under the OPPS.  The reduction will only apply to Part B drugs that are separately payable, and excludes drugs on pass-through status and vaccines.

CMS is certain to receive a huge number of comments by potentially impacted facilities and their representatives seeking either exclusions for certain types of facilities, for certain types of drugs or simple reductions in the size of the cuts.  Comments must be received by their September 11, 2017 deadline.

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