On November 2, 2023, in light of the Supreme Court’s decision in American Hospital Association v. Becerra (142 S. Ct. 1896 (2022)) and the district court’s remand to the agency, the Centers for Medicare & Medicaid Services (CMS) issued a final rule outlining the remedy for the invalidated OPPS 340B-acquired drug payment policy for Calendar Years 2018-2022. CMS is publishing this final rule to remedy the payment rates the Court held were invalid. Aspects of this finalized policy will affect nearly all hospitals paid under the OPPS.
This fact sheet discusses the provisions of the final rule (CMS- 1793-F), which can be downloaded at https://www.federalregister.gov/documents/current.
Background
Section 340B of the Public Health Service Act (340B) allows participating hospitals and other providers to purchase certain covered outpatient drugs or biologicals (hereinafter referred to collectively as “drugs”) 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%. In the CY 2018 OPPS/ASC final rule that was finalized in 2017, CMS adjusted the payment rate for 340B drugs to ASP minus 22.5% to reflect more accurately the actual costs incurred by 340B hospitals when acquiring 340B drugs. This rate applied from CY 2018 through approximately the third quarter of CY 2022. To comply with statutory budget neutrality requirements under the OPPS, CMS made a corresponding increase to payments to all hospitals (340B hospitals and non-340B hospitals) for non-drug items and services, which was in effect from CY 2018 through CY 2022.
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, 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 CY 2022 claims for 340B-acquired drugs paid on or after September 28, 2022, were paid at the default rate (generally ASP plus 6%).
In the CY 2023 OPPS/ASC final rule, CMS finalized a general payment rate of ASP plus 6% for drugs acquired through the 340B Program, consistent with the agency’s policy for drugs not acquired through the 340B program. As required by statute, CMS implemented a 3.09% reduction to the payment rates for non-drug items and services to achieve budget neutrality for the 340B drug payment rate change for CY 2023. This budget neutrality change ensured the CY 2023 OPPS conversion factor was equivalent to the conversion factor that would have been in place had the 340B drug payment policy never been implemented.
On July 7, 2023, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule outlining the proposed remedy for the 340B-acquired drug payment policy for Calendar Years 2018-2022. The public comment period ended on September 11, 2023.
Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022
Lump Sum Payments to Affected Providers for 340B-Acquired Drugs
In the final rule, CMS is finalizing a policy to make an additional payment to affected providers for 340B-acquired drugs as a one-time lump sum payment. CMS estimates that for CY 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. However, many CY 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 27, 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 $9.0 billion owed to affected 340B providers for claims covering CYs 2018 through 2022, 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.
Beneficiary Copayments
Beneficiary copayments make up approximately 20% 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. 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.
Prospective Offset for Higher Payments for Non-Drug Items and Services from CY 2018-2022
As part of this remedy, CMS is maintaining budget neutrality as required by statute. As described above, CMS finalized the 340B policy for CY 2018 in 2017 in a budget neutral manner that included increasing payments for non-drug items and services; this payment increase was in effect from CY 2018 through CY 2022. CMS estimates that hospitals were paid $7.8 billion more for non-drug items and services during this time period than they would have been paid in the absence of the 340B payment policy. 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. 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% starting in CY 2026. We selected minus 0.5% in an effort to minimize the financial burden of this required offset on impacted hospitals. CMS originally proposed for the offset to start in CY 2025 but sought comment on an alternative start date such as CY 2026. Many commenters argued for a CY 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. After consideration of the comments received, CMS is finalizing for the prospective offset to start for CY 2026. CMS will continue this adjustment until the full $7.8 billion is offset, which CMS estimates to be 16 years.
For Medicare Advantage payment, more information is in the Hospital Outpatient Prospective Payment System Update on Payment Rates for Drugs Acquired through the 340B Program - Informational for MAOs memorandum that was issued by CMS on December 20, 2022.
Beneficiary copayments for non-drug items and services will decrease slightly in upcoming years as a result of the prospective offset to the OPPS conversion factor.
New Providers
CMS is finalizing that providers that did not enroll in Medicare until after January 1, 2018, and thus did not fully benefit from the increased payment for non-drug items and services from CY 2018 through CY 2022, are excluded from the prospective rate reduction.
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