The 340B drug pricing program: The impact of the payment cuts and implications for the future

CMS issued its 2018 Medicare Hospital Outpatient Prospective Payment System final rule on Nov. 1, 2017, mandating a significant reduction in 340B reimbursement of hospitals by CMS from Average Sales Price plus 6 percent to ASP minus 22.5 percent, in accord with the recommendation of the Medicare Payment Advisory Committee. The payment reduction, effective Jan. 1, 2018, impacts the roughly 45 percent of all U.S. hospitals that participate in the 340B Drug Pricing Program.

Saliently, the final rule for the OPPS also stipulated an offsetting 3.2 percent increase in non-drug Medicare Part B reimbursements (e.g., for emergency and observation services, laboratory tests, X-rays and other radiology services billed by the hospital, medical supplies such as splints and casts, and preventive and screening services).

Avalere Health study

In January, Avalere Health released an analysis of the impact of the 340B payment cuts and the offsetting increases in non-drug Part B reimbursements. The Avalere study, "2018 OPPS Medicare Part B Payment Impact Analysis," concluded that 85 percent of 340B hospitals will see overall net payment increases in 2018, with rural hospitals benefiting the most, since 80 percent of them are exempt from the 340B cuts yet will receive the increases in non-drug Part B reimbursements. Avalere concluded that in 2018 all hospitals on average will see a net payment increase of 1.5 percent, and rural hospitals will receive a 2.7 percent net payment increase, while urban hospitals will see a 1.4 percent net increase.

The American Hospital Association and America's Essential Hospitals criticized Avalere's study, with AHA asserting that the 340B payment cuts have actually increased copayments for 97 percent of Medicare patients treated at 340B hospitals. The AHA claim is probably a projection that assumes widespread departures of hospitals from the 340B program.

Implications

  • The Avalere study's conclusion that most hospitals will see net payment increases overall — due to non-drug payment increases outweighing the 340B reimbursement cuts — should reinforce CMS' decision to reduce 340B payments and may discourage the filing of future lawsuits by hospital associations, such as AHA and AEH, against CMS.
  • The economics of the 340B program by itself are obviously less attractive to hospitals, which could lead to departures from the program and/or dissuade non-340B hospitals from joining.  
  • Medicare beneficiaries' out-of-pocket drug costs should decrease materially, since their copayments are pegged at 20 percent of what Medicare pays, and Medicare is projected to pay about $1.6 billion less for 340B drugs in 2018 (according to separate analyses by the AHA and CMS), which would imply savings of $320 million for Medicare beneficiaries in 2018.

The Trump administration's fiscal year 2019 federal budget

The Trump administration, which has repeatedly pronounced decreasing drug costs for the public as a top goal, has already highlighted the $320 million Medicare copayment savings in its fiscal year 2019 federal budget released in February by the Office of Management and Budget. Avalere's conclusion that net OPPS payments to a large majority of hospitals are higher will obviously reinforce the Trump administration's stance.

Omnibus appropriations bill

The latest omnibus appropriations bill, passed by Congress on March 22 and signed into law by President Trump on March 23, authorized $1.3 trillion in discretionary spending, enabling the federal government to operate through Sept. 30, 2018.

The law includes $7 billion in funding for the Health Resources and Services Administration (9 percent or $550 million above the fiscal year 2017 enacted level). That sizable hike in HRSA funding will support increased reporting requirements and audits of the 340B program — as recommended by the U.S. Government Accountability Office and the Office of the Inspector General — much to the chagrin of hospitals.

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