September 13, 2023 / By

The CMS Reimbursement Controversy: A Mixed Bag for 340B Hospitals

The CMS Reimbursement Controversy: A Mixed Bag for 340B Hospitals

Dr. Jonathan Harrison, PharmD | President & COO

In 2022, a landmark decision by the Supreme Court shook the healthcare industry: the Centers for Medicare & Medicaid Services (CMS) did not have the authority to cut reimbursement rates to hospitals participating in the federal 340B Drug Pricing Program. A year later, CMS has proposed a one-time restitution payment of $9 billion to these hospitals, but the path forward is far from straightforward.

The 340B Program and Medicare Payments

Initiated in 2018 under the Trump administration, a payment rule significantly slashed Medicare payments for prescription drugs in the 340B program by around 30%. From January 1, 2018, to September 27, 2022, providers in the Outpatient Prospective Payment System (OPPS) were reimbursed at an average sales price (ASP) minus 22.5%. The Supreme Court deemed these cuts unlawful in June 2022, and a District Court later vacated these reduced rates.

The Lump-Sum Payment: A Partial Resolution

To rectify the financial imbalance, CMS has proposed reimbursing the approximately 1,600 affected hospitals with a one-time lump-sum payment. The calculations for reimbursement amounts have been done, and payments are expected to be made later this year or early in 2024.

The Caveats: Budget Neutrality and Future Adjustments

However, the good news comes with strings attached. CMS is legally mandated to maintain budget neutrality across the OPPS. Between 2018 and 2022, payments were increased across the board to counterbalance the cuts, to the tune of $7.5 billion. Now, CMS plans to recoup this amount by reducing future non-drug item and service payments by 0.5% starting in 2025. This adjustment is expected to continue until the full $7.8 billion is offset, which is estimated to take 16 years.

Mixed Reactions from Industry Groups

Responses to this proposal have been divided. Maureen Testoni, CEO of 340B Health, called it “a significant step” towards resolving the issue but also urged CMS to reconsider the rate reductions for non-drug items. A similar sentiment was echoed by the American Hospital Association (AHA), which expressed disappointment at the proposed future cuts affecting other hospitals, particularly rural and specialized care facilities.

Exclusions and Omissions

Furthermore, the proposal has a glaring loophole: it excludes hospitals that joined the 340B program after January 2018. Its important to point out that excluding these entities could result in a loss of 23 quarters of reimbursement for some.

The Road Ahead

The proposal’s 60-day comment period ended on September 5, 2023, and the healthcare sector awaits the next steps with bated breath. However, the question remains: are these trade-offs fair, and do they serve the ultimate purpose of healthcare—providing accessible, quality care for all?

In a landscape where the stakes are high and the resources limited, the CMS’s reimbursement proposal for 340B hospitals raises as many questions as it attempts to answer.