On November 2, 2023, the Centers for Medicare and Medicaid Services (CMS) finalized the rule Medicare Program; Hospital Outpatient Prospective Payment System: Remedy for the Calendar Years 2018–2022 to addresses how the agency will restore payments to hospitals affected by a 2018 decision to cut reimbursement amounts on 340B drugs to certain hospitals paid under the Outpatient Prospective Payment System (OPPS). This rule is responsive to a Supreme Court of the United States opinion finding that the 2018 payment cuts were not consistent with CMS authority to set Medicare payments to hospitals for outpatient drugs. The rule is largely consistent with what the agency proposed in July 2023.
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- CMS estimates that 1,686 340B hospitals were paid at the lower 340B payment for drugs under OPPS from CY 2018 through September 27, 2022 (the date on which CMS restored reimbursement for 340B drugs to the full OPPS rate).
- CMS finalized its proposal to refund hospitals that had payments reduced with a one-time lump sum payment intended to account for the difference in what was paid to the hospitals and what should have been paid had the cut not been implemented. CMS estimates that the total payments will be $9 billion.
- CMS will not apply interest to these remedy payments.
- CMS estimates that hospitals were paid $7.8 billion more for non-drug items and services from CY 2018 through September 27, 2022, because of implementation of the cuts in a “budget-neutral” manner that increased rates on all other OPPS items and services to all hospitals. To maintain budget neutrality for the payment cuts remedy, CMS will offset the $7.8 billion by adjusting the OPPS conversion factor by -0.5% starting in CY 2026. (This offset will occur one year later than CMS originally proposed.) CMS will continue making this adjustment until the full $7.8 billion is recouped, which CMS estimates will take 16 years.
- The $9 billion lump sum payment amount and the $7.8 billion offset are different because the budget neutrality adjustment applied to increase payments for non-drug items and services underestimated the actual amount of the reductions in payment for 340B drugs.
- In order to hold beneficiaries harmless as to cost-sharing obligations associated with the remedy, CMS finalized its proposal to include the value of that uncollected cost-sharing in the $9 billion lump sum payment to 340B hospitals.
- CMS did not address how the remedy will be applied to payments from Medicare Advantage plans.
- CMS will likely begin to make lump sum payments at the beginning of CY 2024, after instructions have been given to Medicare Administrative Contractors (MACs), which will then administer the payments.
- The final rule updates the Addendum AAA with new hospital-specific payment amounts and accounts for all payment activity that has occurred since the proposed rule was issued.
- The rule is effective 60 days after it is published in the Federal Register.
For more information, please contact Katie Waldo, Debra Curtis, Rodney Whitlock, Leigh Feldman, Eric Zimmerman or Emily Jane Cook (McDermott Will & Emery—Partner).