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CMS Proposes Reimbursement Reduction for 340B Drugs

Payment Matters
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When CMS issued its proposed rule for OPPS and ASC Payment System on July 13, the agency included a proposal to substantially scale back reimbursement for Part B drugs to hospitals participating in the federal 340B Drug Discount Program. CMS cites three government reports issued in May through November of 20151 in support of its proposal to reduce reimbursement rates for separately payable, non-pass-through Part B drugs purchased through the 340B Program. The rates would be reduced from average sales price (ASP) plus six percent to ASP minus 22.5 percent and only affect hospitals participating in the 340B Program. This reduction in rates is intended to address concerns reflected in the government reports, including potential overutilization by hospitals and excessive copayments for Medicare beneficiaries. Comments on the proposed rule are due by September 11, 2017.

The 340B Program is a federal drug discount program established in 1992 when Section 340B was added to the Public Health Service Act. See 42 U.S.C. § 256b. 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). Rather, the intent of the program is to allow covered entities to use these savings to stretch scarce resources in order to better serve their patients. For hospitals participating in the 340B Program, 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 Part B drugs that non-340B hospitals may not. Further, according to the reports and studies referenced by CMS, there may be a correlation between participation in the 340B Program and overutilization. Studies referenced in the MedPAC Report indicate that Medicare spending for chemotherapy drugs and drug administration services is markedly higher among 340B participating hospitals.

CMS is not only concerned with potential overutilization, but also with rising costs to 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. The 2015 OIG Report references findings from a 2013 study on the difference between Part B reimbursement and the 340B ceiling price, and noted that, in some instances, the beneficiary's copayment was "greater than the amount a covered entity spent to acquire the drug."

To address these concerns, CMS is proposing a reduction in reimbursement for 340B hospitals that is "more aligned with the resources expended by hospitals to acquire the drugs" but will still permit covered entities to benefit from the 340B Program. The reduction (to 22.5 percent of the ASP) is described by CMS as "adequately represent[ing] the minimum discount that a 340B participating hospital receives for separately payable drugs under the OPPS." (emphasis added). The reduction will only apply to Part B drugs that are separately payable, and excludes drugs on pass-through status and vaccines. Accordingly, CMS believes that the limitations on the reduction will allow covered entities to continue to benefit from participation in the 340B Program.

Because separately payable Part B drugs that are not acquired through the 340B Program will not be subject to the reduced rates, CMS intends to require the use of a modifier to identify such drugs in Medicare claims. CMS indicates that it will provide further details regarding this modifier, which is to be effective January 1, 2018, in the upcoming CY 2018 OPPS/ASC final rule.

CMS is soliciting comments on the proposed payment rate and whether it should be phased in over time. In addition, CMS is seeking input on whether (1) hospitals should be required to report their acquisition costs on the Medicare claim; (2) certain groups of 340B hospital covered entities (e.g., rural sole-community hospitals) or categories of drugs (e.g., blood clotting factors) should be exempt from the rate reduction; and (3) hospital-owned or affiliated ASCs have access to 340B drugs.

For hospitals participating in the 340B Program, the impact on reimbursement will be significant. CMS is accepting comments on the proposed rule until September 11, 2017.

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1Those reports include a Medicare Payment Advisory Commission (MedPAC) Report to Congress, "Overview of the 340B Drug Pricing Program" (May 2015) ("MedPAC Report"); a Government Accountability Office (GAO) report to Congress, "Medicare Part B Drugs: Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals" (June 2015) ("GAO Report"); and a report from the Office of Inspector General (OIG), "Part B Payments for 340B-Purchased Drugs" (November 2015) ("OIG Report").

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