CMS Issues Final Rule Remedying Underpayments to 340B Covered Entities

The Centers for Medicare & Medicaid Services (CMS) released a final rule on Nov. 2, 2023, detailing how the agency will remedy underpayments from 2018 to 2022 for drugs acquired via the 340B Drug Pricing Program. The final rule goes into effect 60 days after it is published in the Federal Register.

The final rule is largely consistent with what the agency proposed in July 2023. Effective for claims spanning calendar years (CY) 2018-2022, 340B entities impacted by the ruling will be provided a one-time, lump sum payment for applicable 340B-acquired drugs. Notably, CMS affirms that these payments will not affect beneficiary cost-sharing and that Medicare is accounting for beneficiary cost-sharing within the one-time lump payments to affected 340B entities.

Background

The 340B program – which refers to Section 340B of the Public Health Service Act – requires significant discounts on outpatient drugs for "covered entities," including safety-net providers and programs.

In a 2017 rulemaking, CMS altered Medicare's payment methodology for separately payable outpatient drugs (including biologics) acquired through the 340B Drug Pricing Program. This change, effective CY 2018, reduced reimbursement for these discounted drugs under the hospital Outpatient Prospective Payment System (OPPS) from the default rate of the average sale price (ASP) plus 6 percent to ASP minus 22.5 percent, following a Medicare Payment Advisory Commission (MedPAC) recommendation that the cuts would bring 340B payments closer to the drug acquisition costs. CMS continued this policy in CYs 2019 through 2022. Critical access hospitals, rural sole community hospitals, Palliative Performance Scale (PPS) cancer hospitals and children's hospitals were exempt from this policy.

Due to budget neutrality requirements, the savings from these 340B hospital cuts were then redistributed via increased payments to all hospitals under the OPPS. CMS redistributed these savings by increasing the conversion factor to determine the payment amounts for non-drug items and services within the OPPS. 

In June 2022, litigation was brought by hospitals subject to the payment cuts and was ultimately heard by the U.S. Supreme Court, which issued a ruling finding that the 2018 payment cuts were not consistent with CMS' authority to set Medicare payments to hospitals for outpatient drugs. Under the CY 2023 OPPS final rule, CMS restored payments for 340B drugs under OPPS to the total ASP plus 6 percent rate. Notably, the Supreme Court left open the question of the appropriate remedy for repayment. This final rule now addresses that remedy.

Details of the Final Rule 

HHS will repay 340B hospitals unlawfully underpaid from 2018 to 2022 in a single lump sum payment to each affected hospital. CMS estimates these repayments will total $10.6 billion in the aggregate and be made to 1,686 340B hospitals. With $1.6 billion in claims already reconciled for 2022, approximately $9 billion will be paid to 340B hospitals for CYs 2018 to 2021. These payments, in addition to remedying underpayments, are intended to capture additional beneficiary cost-sharing that 340B covered entities would have earned without the 340B reimbursement policy.

CMS requires that Medicare Administrative Contractors (MACs) issue the one-time lump sum payments to affected 340B hospitals within 60 calendar days of receiving the payment instruction from CMS. CMS will likely make the lump sum payments at the beginning of CY 2024, after the MAC instructions for each affected 340B covered entity hospital have been issued.

To adhere to the rule's budget-neutrality requirement, CMS will collect $7.8 billion from hospital outpatient providers starting in CY 2026 (a delay from the initially proposed implementation year of 2025) by adjusting the OPPS conversion factor for non-drug items and services by minus 0.5 percent. CMS estimates it will take approximately 16 years to recoup the $7.8 billion. Providers enrolled in Medicare after Jan. 1, 2018, will not be subject to these payment adjustments.

The final rule updates the Addendum AAA with new hospital-specific payment amounts and accounts for all payment activity that has occurred since the proposed rule was issued. Hospitals may dispute their repayment schedule as outlined in Addendum AAA until Nov. 30, 2023, by emailing CMS at outpatientpps340b@cms.hhs.gov. Submissions must include a description of the nature of the error, a designated contact person for the purposes of addressing the error and relevant supporting data.

Conclusion and Takeaways

Providers subject to OPPS who are not 340B covered entities may be impacted by CMS' budget neutrality adjustment, which decreases the conversion factor by 0.5 percent for an estimated 16 years. During the comment period, stakeholders voiced concern about the payment adjustment for non-drug items and services. This underpayment will likely attract further ire before its implementation in CY 2026.

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