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Summary of the Hospital Outpatient Prospective Payment System: Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022 Proposed Rule (CMS 1793-P)

On July 7, 2023, the Centers for Medicare & Medicaid Services (CMS) issued the Hospital Outpatient Prospective Payment System: Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022 proposed rule (CMS 1793-P) outlining its proposed remedy for the 340B-acquired drug payment policy for Calendar Years (CY) 2018-2022. The proposed rule and fact sheet are available for review. Comments on the proposed rule are due on September 5, 2023.


CMS released this proposed rule as a result of the United States Supreme Court’s decision in American Hospital Association v. Becerra (142 S. Ct. 1896 (2022)). Prior to 2018, the Medicare payment rate for Part B covered outpatient drugs provided in outpatient hospitals, or 340B drugs, was paid at the statutory default of average sales price (ASP) +6%. Then, from 2018-2022 CMS adjusted the payment rate for 340B drugs to ASP -22.5% to more accurately reflect the actual costs incurred by 340B hospitals when acquiring 340B drugs. This change resulted in Medicare payment cuts of nearly 30% for 340B drugs billed by hospitals under the Hospital Outpatient Prospective Payment System (OPPS).

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. Therefore, all CY 2022 claims for 340B-acquired drugs paid on or after September 28, 2022, were paid at the default rate (generally ASP +6%).

In the CY 2023 OPPS final rule, CMS finalized a policy that drugs acquired through the 340B program would be paid at the default rate (ASP +6%) for CY 2023. Additionally, CMS promised to address the remedy for 340B drug payments from CY 2018-2022 in rulemaking prior to the release of the CY 2024 OPPS proposed rule.

Proposal to Remedy Payment Adjustment for 340B-Aquired Drugs from CY 2018 through September 27 of CY 2022 – Page 9

CMS proposes to make a one-time lump sum payment to address the shortfall in payments to certain hospitals participating in the 340B drug discount program. They estimate that these providers received $10.5 billion less in 340B drug payments from 2018 to the third quarter of 2022 due to the policy. CMS stated that many of the 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, CMS estimates that affected 340B providers have already received from Medicare and beneficiaries $1.5 billion of the $10.5 billion. While some claims have been processed at higher rates since the policy was vacated, CMS plans to make a one-time lump-sum payment of $9 billion to the affected hospitals to address the remaining owed amount. The proposed rule includes calculations for each of the approximately 1,600 affected hospitals. CMS seeks comment on its proposal to make one-time lump sum payments of $9 billion to these hospitals.

CMS notes that beneficiary copayments make up approximately 20% of the payments affected 340B covered entity hospitals did not receive due to the 340B payment policy. CMS proposes to account for beneficiary cost sharing within the one-time lump sum payment to affected hospitals. Therefore, affected 340B covered entity hospitals may not bill beneficiaries for coinsurance on remedy payments. Additionally, CMS also considered its authority to pay interest on the remedy payments but does not believe it has the authority to do so. CMS seeks comment on these proposals.

CMS proposes to issue instructions to Medicare Administrative Contractors (MACs) to make one-time lump sum payments to each 340B covered entity hospital within 60 calendar days of receiving the instruction. Consistent with this timeline, CMS believes these payments will be made by the end of CY 2023 or beginning of CY 2024. CMS seeks comment on this timeline.

Proposed Prospective Adjustment to Payments for Non-Drug Items and Services to Offset the Increased Payments for Non-Drug Items and Services Made in CY 2018 through CY 2022 – Page 31

CMS finalized the 340B policy for CY 2018 in a budget neutral manner. Specifically, when CMS reduced payments for 340B drugs, CMS increased payments for all other non-drug items and services paid under the OPPS by 3.19%. CMS has estimated that $7.8 billion of OPPS spending was associated with the payment increase for non-drug items and services from CY 2018 to September 27, 2022. Now, CMS is proposing a remedy that maintains budget neutrality as required by law. To do this, CMS proposes a 0.5% annual reduction to the OPPS conversion factor, starting in 2025. This adjustment will continue until the full $7.8 billion is offset, which is estimated to take 16 years. CMS is proposing to implement this adjustment prospectively to reduce the burden on providers. CMS also believes that starting this reduction in CY 2025 would allow CMS time to finalize the appropriate methodology, and then calculate and publish the payment rates derived from this policy in the CY 2025 OPPS proposed rule, allowing adequate time for impacted parties to assess and prepare for the new payment rates that would be calculated using a reduced conversion factor. CMS seeks comment on the proposed annual adjustment, their recoupment authority, and the proposed timeline.

CMS proposes to designate any hospital that enrolled in Medicare after January 1, 2018, as a “new provider” for the purposes of the conversion factor reduction. CMS recognizes that providers who did not enroll in Medicare until after January 1, 2018, did not receive the full amount of increased non-drug items and service payments from CY 2018 through 2022. Therefore, CMS proposed that new providers would be excluded from the prospective rate reduction. This means that CMS would calculate payment rates for new providers using the OPPS conversion factor before applying the proposed 0.5 percent annual adjustment that would apply for hospitals that are not “new providers” for purposes of this policy. CMS seeks comments on this proposal.