Proposed 340B Remedy Includes Lump Sum Payments, Budget Neutrality Adjustment

July 7, 2023

On July 7, 2023, the Centers for Medicare & Medicaid Services (CMS) released its proposed rule to reimburse hospitals that were underpaid under the 340B drug pricing program since 2018.   


In 2018, CMS adopted a policy generally, to pay an adjusted amount of average sales price (ASP) minus 22.5% for certain separately payable drugs or biologicals acquired through 340B. This adjusted amount was based on the agency’s concurrence with an analysis by the Medicare Payment Advisory Commission (MedPAC) that concluded that the estimated average minimum discount of 22.5% of ASP adequately represented the average minimum discount that a 340B participating hospital received for separately payable drugs under the Hospital Outpatient Prospective Payment System (OPPS). This policy change did not apply to drugs with pass-through payment status or vaccines.  

In the 2018 OPPS/Ambulatory Surgical Center (ASC) final rule, to comply with statutory budget neutrality requirements, CMS also finalized its proposal to redistribute the estimated reduction in payments for separately payable drugs as a result of the 340B payment policy by increasing the conversion factor used to determine the payment amounts for non-drug items and services. That resulted in $7.8 billion in additional spending on non-drug items and services during that time period.

In the 2019 OPPS/Ambulatory Surgical Center (ASC) final rule, CMS continued the 340B payment policies that were implemented in 2018 and expanded the drugs that would be reimbursed at ASP minus 22.5%. The list was expanded to include non-pass-through 340B-acquired biosimilars and 340B-acquired drugs furnished in non-exempted, off-campus, provider-based departments (PBDs) paid under the Medicare Physician Fee Schedule (PFS).

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 Department of Health and Human Services (HHS) failed to conduct a survey of hospitals’ acquisition costs under the relevant statute. The district court remanded the issue back to CMS, which has now issued a proposed rule outlining a remedy for hospitals that were underpaid under 340B-acquired drug payment policies for  2018-2022. Aspects of this proposal will affect nearly all hospitals paid under the OPPS.

Proposed Remedy

Lump Sum Payments to Affected Providers for 340B-Acquired Drugs

CMS is proposing to make an additional payment to affected providers for 340B-acquired drugs as a one-time lump sum payment. CMS estimates that for 2018 through the approximate third quarter of 2022, certain OPPS 340B providers received $10.5 billion less in 340B drug payments than they would have without the 340B policy. 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 27, 2022. As a result, affected 340B providers have already received (from Medicare and beneficiaries) $1.5 billion of the $10.5 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 from 2018 through 2022, CMS is proposing to make a one-time lump-sum payment to each 340B-covered entity hospital that was paid less due to the now-invalidated policy. The proposed rule contains the calculations of the amounts owed to each of the approximately 1,600 affected 340B covered entity hospitals.

Beneficiary Copayments

Beneficiary copayments make up approximately 20% of the payments that affected 340B covered entity hospitals did not receive due to the 340B payment policy. 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 proposes to account for beneficiary cost sharing within the one-time lump sum payment to affected hospitals.

Under this proposal, affected 340B covered entity hospitals may not bill beneficiaries for coinsurance on remedy payments.

Offset for Non-Drug Items and Services from 2018-2022

As part of this proposed remedy, CMS suggests maintaining budget neutrality as required by statute. Since the agency finalized the 2018 340B policy in a budget neutral manner that included increasing payments for non-drug items and services—a payment increase that was in effect from 2018 through 2022—CMS estimates that hospitals were paid $7.8 billion more for non-drug items and services during this time than they would have been paid in the absence of the stuck 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 struck 340B policy never been implemented, CMS proposes to make a corresponding offset to maintain budget neutrality as if the policy had never been in effect. To carry out this required $7.8 billion budget neutrality adjustment, CMS is proposing to reduce future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5% starting in 2025. The agency proposes to continue making this adjustment until the full $7.8 billion is offset, which it estimates will take 16 years.

The Association for Clinical Oncology will submit comments on the proposed rule during the 60-day comment period, which ends on September 5, 2023.

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