CMS Unveils Long Awaited and Far Reaching 340b Final Rule

Press releases from the Centers for Medicare & Medicaid Services (CMS) are typically rather straightforward, easily summarized as: here’s what we’re doing, why we’re doing it, and the effect it might have on the nation’s various healthcare providers and federally insured patients.

Last Thursday’s press release marked an exception.

A full seven paragraphs of explanatory background preceded the thoroughly buried lede: the agency announced its new Final Rule outlining a remedy for the invalidated Outpatient Prospective Payment System (OPPS) 340B acquired drug payment policy for 2018 through 2022, a byproduct of last year’s unanimous U.S. Supreme Court ruling in the matter of American Hospital Association (AHA) v. Becerra.

“Aspects of this finalized policy will affect nearly all hospitals paid under the OPPS,” the press release read.

It’s certainly not as though the background wasn’t worth including, however – much of it appears in the below bullet points, which include a timeline of the creation of 340B and the relevant events of the last 17 months:

• In 1992, Section 340B of the Public Health Service Act was passed, allowing participating hospitals and other providers to purchase certain covered outpatient drugs or biologicals from manufacturers at discounted prices.
• Prior to 2018, the Medicare payment rate for Part B covered outpatient drugs provided in outpatient hospitals was generally the statutory default of average sales price (ASP) plus 6 percent. In guidance passed in 2017, CMS adjusted the payment rate for 340B drugs to ASP minus 22.5 percent to reflect more accurately the actual costs incurred by 340B hospitals when acquiring 340B drugs.
• On June 15, 2022, the Supreme Court unanimously ruled that the differential payment rates for 340B-acquired drugs were unlawful because, prior to implementing the rates, the U.S. Department of Health and Human Services (HHS) failed to conduct a survey of hospitals’ acquisition costs under the relevant statute.
• On September 28, 2022, the District Court for the District of Columbia vacated the differential payment rates for 340B-acquired drugs going forward. As a result, all 2022 claims for 340B-acquired drugs paid on or after September 28, 2022, were paid at the default rate (generally ASP plus 6 percent). CMS then finalized that change.
• On July 7, 2023, CMS issued a proposed rule outlining the aforementioned proposed remedy for the 340B-acquired drug payment policy for 2018-2022. The public comment period ended a little less than two months ago.

All of this brings us to the new Final Rule, which features a policy involving affected providers receiving a one-time lump-sum payment.

“CMS estimates that for 2018 through the approximate third quarter of 2022, certain OPPS 340B providers received $10.6 billion less in 340B drug payments than they would have without the 340B policy,” officials explained. “However, many 2022 340B drug claims have been processed, or reprocessed through standard claims processing, at the higher default payment rate since the 340B payment policy was vacated on September 28, 2022. As a result, affected 340B providers have already received from Medicare and beneficiaries $1.6 billion of the $10.6 billion that would otherwise have had to be remedied through these reprocessed claims.”

For the remaining $9 billion owed to affected 340B providers for claims covering 2018 through 2022, the agency said, CMS is making a one-time lump-sum payment to each 340B-covered entity hospital that was paid less due to the now-invalidated policy. The Final Rule contains the calculations of the amounts owed to each of the approximately 1,700 affected 340B covered entity hospitals.

Then there’s the matter of beneficiary copayments, which make up approximately 20 percent of the payments affected 340B-covered entity hospitals did not receive due to the 340B payment policy.

“Because CMS is structuring the remedy as a lump-sum remedy payment, providers are not able to bill beneficiaries for that cost sharing,” officials said. “To account for that fact, and to ensure that affected 340B providers are put in as close to the same position as if the 340B payment policy had never existed, Medicare is accounting for beneficiary cost-sharing within the one-time lump-sum payment to affected hospitals. Consequently, affected 340B covered entity hospitals may not bill beneficiaries for coinsurance on remedy payments.”

Yet all of this has to happen as CMS maintains budget neutrality, as required by federal statute.

“Because CMS is now making additional payments to affected 340B covered entity hospitals to pay them what they would have been paid had the 340B policy never been implemented, CMS is making a corresponding offset to maintain budget neutrality as if the 340B payment policy had never been in effect,” CMS’s press release read. “To carry out this required $7.8 billion budget neutrality adjustment, CMS will reduce future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5 percent, starting in 2026. We selected (this rate) in an effort to minimize the financial burden of this required offset on impacted hospitals.”

CMS originally proposed for the offset to start in 2025, but acknowledged that commenters “argued for a 2026 start date to give hospitals additional time to make necessary arrangements given the financial challenges of unprecedented workforce shortages, inflation, supply chain disruptions, eroding margins, cost increases due to increases in supplies and staffing costs, and the lingering effects of the COVID-19 Public Health Emergency (PHE).”

So, how long will CMS have to continue the adjustment, until the full $7.8 billion is offset?

The current estimate is 16 years.  

That might help explain why, atypically, this CMS press release didn’t include an optimistic prepared statement from an executive.

But AHA President and CEO Rick Pollack had one ready the same day.

“Following years of litigation and a unanimous Supreme Court win, the AHA is very pleased that 340B hospitals finally will be reimbursed in full for what HHS unlawfully withheld from them for five years. The one-time, lump-sum repayment hospitals will soon receive will help them to continue providing high-quality care to their patients and communities,” Pollack said. “However, HHS made a grievous mistake in choosing to claw back billions of dollars from America’s hospitals, especially those that serve rural, low-income, and other vulnerable communities. HHS decided to ignore hundreds of comments from hospitals and other providers explaining why this Medicare cut is both illegal and unwise. The AHA will continue to review this rule and consider all available options going forward.”

The Health Resources and Services Administration (HRSA) has estimated the value of the 340B program at 5 percent of the total massive U.S. drug market, with one estimate citing $38 billion in 340B drugs purchased in 2020, and consistently high spending increases from year to year. Champions of the program laud its benefits for outpatients from underserved communities, while critics decry what they describe as a lack of oversight and clear regulatory framework.

A fact sheet focusing on the new provisions of the Final Rule (CMS- 1793-F) can be downloaded at https://www.federalregister.gov/documents/current.