CMS proposing $9B lump sum payment for unlawful 340B cuts

CMS is proposing a $9 billion lump sum payment to hospitals participating in the 340B Drug Pricing Program to make them whole from unlawful payment cuts from 2018 to 2022.

The proposal comes after the Supreme Court in June 2022 sided with hospital groups challenging the payment cuts. The case centered around whether CMS has the authority to make cuts to the program under its Medicare Outpatient Prospective Payment System. Under the payment rule, HHS cut the reimbursement rate for covered drugs by 28.5 percent in 2018, but it later lowered the reimbursement rate cut to 22.5 percent.    

CMS estimated that unlawful cuts resulted in 340B providers receiving $10.5 billion less in drug payments between 2018 and the third quarter of 2022, according to a July 7 CMS fact sheet. The agency said many drug claims have been reprocessed at the higher default payment rate since the policy was vacated, resulting in 340B providers already receiving $1.5 billion of that total. 

CMS said it is proposing to maintain budget neutrality, as required by statute, according to the fact sheet. The agency estimates that hospitals were paid $7.8 billion more for non-drug items and services during the affected time period than they would have been in the absence of the 340B payment policy. To carry out the $7.8 billion budget neutrality adjustment, CMS is proposing to reduce future non-drug item and service payments by adjusting the OPPS conversion factor by -0.5 percent starting in 2025. The full adjustment is estimated to take 16 years.   

Comments for the proposed rule are due by Sept. 5. 


American Hospital Association CEO Rick Pollock said in a July 7 statement that the group is gratified that hospitals are being paid promptly with a single lump sum payment but is disappointed HHS has "chosen to recoup funds from other hospitals that cannot afford additional Medicare payment cuts, including rural sole community, cancer and children's hospitals that were initially exempted from HHS' illegal policy."

America's Essential Hospitals CEO Bruce Siegel, MD, said in a July 7 statement that the organization is pleased with the proposed lump sum reimbursement but is disappointed that the remedy does not include interest and is budget neutral. 

"The proposed remedy is a positive step to compensate hospitals for the difference between the cuts and what they would have received otherwise," Dr. Siegel said. "We urge CMS to reconsider its proposed budget neutrality policy and make the remedy payments as soon as possible."

340B Health said it appreciates CMS' recognition of the need for accountability and their commitment to providing lump sum reimbursements but is urging the agency to "reconsider its proposed remedy of rate decreases for non-drug items, which would represent a financial penalty for many hospitals that had no option for avoiding those payments." The organization said it is also seeking repayments with interest.  

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