On July 7, 2023, the Centers for Medicare and Medicaid Services (CMS) released the proposed rule Hospital Outpatient Prospective Payment System: Remedy for 340B-Acquired Drugs Purchased in Cost Years 2018-2022 to address 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.
Comments on the proposed rule are due September 5, 2023.
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- CMS estimates that 1,649 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 proposes 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 proposes to offset the $7.8 billion by adjusting the OPPS conversion factor by -0.5% starting in CY 2025. CMS proposes to 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 proposes to include the value of that uncollected cost-sharing in the $9 billion lump sum payment to 340B hospitals.
- CMS aims to make the lump sum payments by the end of CY 2023 or the beginning of CY 2024, after this rule has been finalized and instructions have been given to Medicare Administrative Contractors (MACs), which will then administer the payments.
For more information, contact Katie Waldo, Debra Curtis, Rodney Whitlock, Leigh Feldman, Eric Zimmerman or Emily Jane Cook (McDermott Will & Emery—Partner).