MedPAC Votes to Recommend Changes to 340B Drug Payment Under Medicare Part B

January 27, 2016

McDermott+Consulting

MedPAC proposes changes that would reduce Medicare Part B spending on 340B drugs by 10 percent, reallocating almost $300 million to pay for uncompensated care.

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For most of the past year, the Medicare Payment Advisory Commission (MedPAC) has been examining Medicare Part B payments to hospitals that participate in the 340B drug purchasing discount program in an effort to better align program payments with drug acquisition costs while enhancing funds available to reimburse hospitals for uncompensated care.

In July 2015, MedPAC evaluated two policy alternatives intended to address these goals: changing Medicare payment to 100 percent of the drug’s average sales price (ASP) + $24, or to 102 percent of ASP + $14 per administration day. Both options would have the effect of increasing the payment for very low priced drugs and decreasing the payment for higher cost drugs, which MedPAC believes would incentivize use of lower priced drugs.

In November and December 2015, MedPAC refined its recommendations to allow certain hospitals to share in a portion of the savings that would result from lowering Medicare Part B payments for drugs purchased under the 340B program. Under this revised proposal, MedPAC recommended that Medicare payment rates be reduced by 10 percent, resulting in decreased payments of almost $300 million overall, and that the reduced spending be redistributed to hospitals through increases to Medicare’s uncompensated care fund. MedPAC also recommended changing the way the money in the uncompensated care fund is distributed by apportioning funds based on a hospital’s audited uncompensated care costs instead of a hospital’s proportion of Medicaid inpatient days. While MedPAC did not release specific details about the redistribution of funds, the panel estimated that this change would decrease payments to the average hospital by $30,000, while increasing payments to 340B and rural hospitals by an average of $170,000 and $240,000, respectively.

MedPAC also suggests that beneficiaries could benefit from this proposal through reduced co-insurance amounts. According to MedPAC, beneficiaries without Medigap plans would realize lower out-of-pocket costs, while those with Medigap plans would realize lower claims costs. MedPAC also noted that lower Medigap costs could translate into lower premiums for beneficiaries.

Public commenters generally objected to the proposal. Comments disagreed with MedPAC’s assertion that beneficiary out-of-pocket costs would meaningfully decrease, citing an estimated savings of only $6 per year and stating that the proposal ignores the overall trend of increasing drug prices. Hospitals that rely on savings from the 340B program to fund ongoing operations also objected to the potential loss of money and the impact on their ability to continue to provide uncompensated care to patients.

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