The Centers for Medicare & Medicaid Services (CMS) released a final rule in early November detailing how the agency will remedy underpayments from 2018 to 2022 for drugs acquired via the 340B Drug Pricing Program. 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 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 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. CMS continued this policy in CYs 2019 through 2022. 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 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 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 January 1, 2018, will not be subject to these payment adjustments.