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Stakeholders offered CMS conflicting advice about how to reverse a nearly 30% cut in Medicare Part B drug reimbursement for hospitals’ 340B-purchased drugs since 2018. | Flickr.com/photos/rxb

CMS Gets Conflicting Advice About Unwinding Drug Payment Cuts for 340B Hospitals

Key stakeholders have offered federal healthcare officials conflicting advice about how best to respond to the U.S. Supreme Court’s June decision striking down a nearly 30% cut in Medicare Part B drug reimbursement for hospitals’ 340B-purchased drugs.

Tuesday was the deadline for public comments on the Centers for Medicare & Medicaid Services’ (CMS) proposed rule for Medicare hospital outpatient prospective payments in 2023. CMS said in July it fully expects next year to resume paying average sales price plus 6% for hospitals’ 340B purchased drugs after paying ASP minus 22.5% since 2018. It solicited the public’s advice about how to apply the Supreme Court’s decision to payments it made during the past five years.

According to the federal Regulations.gov portal, CMS received more than 1,600 comment on its hospital outpatient prospective payment system (OPPS) proposed rule for 2023. Only about half had been posted on the website as of early this morning. CMS is expected to release its final rule in early November.

The following is a recap of some key 340B stakeholders’ comments:

AHA, AAMC, and America’s Essential Hospitals

The three national hospitals groups—American Hospital Association, Association of American Medical Colleges, and America’s Essential Hospitals—that successfully challenged the cuts’ legality in court urged CMS in their separately submitted comments to:

  • Swiftly repay 340B hospitals for all five years of illegally withheld drug reimbursement, with interest.
  • Apply the same -3.19% ($1.6 billion) budget neutrality adjustment next year to non-drug reimbursement that has been in place since 2018. CMS proposed cutting non-drug reimbursement next year by -4.04% ($1.96 billion).
  • Not claw back funds retroactively from the rest of the hospital field to achieve budget neutrality.
  • Stop requiring hospitals to use modifiers to identify 340B-purchased drugs on claims submitted to Medicare.
  • Not use its controversial 2020 drug acquisition cost survey of 340B hospitals in connection with its remedy for underpaying 340B hospitals.

America’s Essential Hospitals additionally urged CMS “to stop its unlawful underpayments for the remainder of CY 2022 and apply the same payment rate to 340B hospitals that currently apply to all other hospitals.”

Individual 340B hospitals and health systems also have offered CMS their advice and described how the cuts have harmed them and their patients.


The Medicare Payment Advisory Commission (MedPAC), the nonpartisan legislative agency that provides Congress with analysis and policy advice on the Medicare program, said that for 2023 and future years it “continues to support reducing Medicare payment rates for 340B drugs to allow beneficiaries to share in the discounts 340B hospitals receive from drug companies and to use the Medicare program savings to support safety-net hospitals.”

“We continue to believe that this approach is appropriate, and the specific level of payment reduction could be considered further as newer data become available,” the commission said. “We recognize that CMS would likely require additional statutory authority to set payment rates at slightly above hospitals’ acquisition costs for 340B drugs and to target the savings to safety-net hospitals; we encourage CMS to request that Congress enact enabling legislation.”

Regarding any changes CMS must make to OPPS payments from 2018 through 2022 in response to the Supreme Court’s ruling, MedPAC said that “given scarce fiscal resources, it would be fiscally imprudent to increase Medicare spending by approximately $2 billion in each year that CMS applied the overturned 340B policy.” Any adjustments “should be made in a budget-neutral manner, consistent with OPPS statute and CMS’s longstanding policy,” the commission said.

Federation of American Hospitals

The Federation of American Hospitals (FAH), which represents for-profit hospitals, said CMS’s 2018 decision to cut 340B hospitals’ Part B drug reimbursement reduced copayments for Medicare beneficiaries and ended “comparatively inflated payments relative to costs to 340B hospitals” that “came at the expense of non-340B hospitals.”

The decision in 2018 to reduce 340B hospitals’ drug payments also gave 340B and non-340B hospitals “a much-needed 3.2% bump in Medicare payment for primary and emergency care, as well as outpatient procedures and other non-drug services,” FAH said. 

CMS’s proposal to balance higher 340B drug reimbursement next year by reducing payment for non-drug items and services by 4.04%, not by the current 3.2% budget neutrality adjustment, would “produce a net permanent reduction to the OPPS conversion factor,” FAH said. “A simple reversal of [the 3.2%] budget neutrality adjustment is appropriate.”

Regarding remedies for payments made from 2018 through 2022, FAH urged CMS to “not seek to retroactively recoup OPPS reimbursements or to prospectively offset relief to 340B hospitals with payment reductions.” It urged CMS instead to “make each 340B hospital whole with a lump sum payment based on its actual claims for 340B-acquired drugs in CY 2018 through CY 2022.”

FAH said this “would provide finality after five years of litigation. Critically, the simple payment of make-whole relief to 340B hospitals holds non-340B hospitals harmless for the five years they rightfully relied on OPPS payment rates for non-drug items and services.”


Pharmaceutical Research and Manufacturers of American (PhRMA) told CMS it “is disappointed that CMS stated it plans to depart from its policy of reimbursing for 340B-acquired drugs at average sales price (ASP) minus 22.5% and will instead reimburse for those drugs at ASP+6%.”

“PhRMA urges CMS to continue to require that hospitals use a 340B billing modifier to report separately payable drugs that were acquired under the 340B program even if CMS reimburses for 340B drugs and non-340B drugs at the same rate,” the trade association said.

It said reverting to reimbursing hospitals for 340B drugs at ASP+6% would:

  • raise out of pocket costs for medicines for some beneficiaries
  • result in “a substantial overpayment that creates a profitable arbitrage ‘spread’ for 340B hospitals”
  • create incentives that drive up spending on medicines
  • contribute to provider consolidation that increases private health insurance costs.

PhRMA said continuing to require hospitals to use a modifier to report 340B-purchased drugs billed to Medicare would help payers and states apply payment policies properly.

The requirement also “will be a key part of operationalizing new statutory requirements for key drug provisions in the Inflation Reduction Act of 2022,” PhRMA said. “Specifically, a 340B claims modifier on Part B claims will be necessary to help ensure that 340B units are identified and excluded from the calculation of the Part B inflationary rebates. A claims modifier will also be needed to help enforce the new duplicate discount prohibition for medicines subject to the Maximum Fair Price. We note, while outside the scope of this rule, a claims modifier will also be needed to ensure that 340B units are excluded from the Part D inflation penalty starting in 2026, as required by the statute.”

Cancer Care Professionals 

The Association of Community Cancer Centers (ACCC), which represents cancer care professionals employed by hospitals and in private practice, urged CMS “to engage in a formal rulemaking process with opportunities for public input prior to finalizing any decision around retrospective payments to 340B covered entities.”

“Moreover, we strongly request that CMS not attempt to recoup funds from other hospitals nor implement any policy change that will unfairly penalize non-340B facilities if it decides that CY 2018-2022 adjustments are necessary,” ACCC said.

Community Oncology Alliance (COA), which represents oncologists in private practice and has about 40 drug manufacturers as corporate members, said “there is simply no justification for CMS to exorbitantly overpay 340B hospitals for drugs at ASP plus 6 percent.”

Not using CMS’s 2020 survey of 340B hospitals acquisition costs for separately payable drugs “would be an arbitrary and capricious action by CMS,” and violate the Administrative Procedure Act, COA said. The survey “documents the appropriate 340B reimbursement rate at ASP minus 28.7 percent,” it said.

“COA is adamantly opposed to hospitals leveraging the profits borne of any increase in 340B drug reimbursement rates to further the acquisition and consolidation of independent community cancer practices,” the group also said.

Group Purchasing Organizations

Hospital group purchasing and healthcare improvement company Premier urged CMS “to utilize notice-and-comment rulemaking to implement any remedies to the 2018-2022 payment cuts” absent a court ruling. “Proper notice and comment is necessary to help flesh out ambiguity that exists in statutory language regarding whether retrospective remedies pursuant to a Supreme Court case are required to be implemented in a budget neutral manner,” it said.

Premier urged CMS in crafting its remedy to consider:

  • Giving eligible 340B hospitals “a lump sum payment equal to the difference in payment that these hospitals would have received if CMS had paid ASP+6 percent in 2018-2022.
  • Holding all hospitals harmless in the development of a remedy. “Specifically, no dollars should be clawed back from hospitals in the development of a remedy.”
  • Not pursuing “yet another survey of acquisition costs.”
  • Applying a -3.19% adjustment for budget neutrality for reversal of its 340B policy in 2023.
  • An additional one-time increase in 2023 OPPS rates to compensate hospitals for past OPPS underpayments “much as CMS did when reversing a budget neutrality adjustment of -0.2% percent for application of the two-midnight rule under the inpatient prospective payment system (IPPS).”

Health system group purchasing and supply chain company Vizient discouraged CMS from advancing rulemaking regarding the remedies for 2018 through 2022 “as this would be inconsistent with the Supreme Court’s decision to remand the case to a lower court to determine the remedy.” 

“Vizient emphasizes to CMS the importance of the agency working with hospitals and reconsidering its approach to the budget neutrality adjustment so that hospitals are not penalized for CMS’s invalidated policy,” Vizient said.

Vizient urged CMS to not use its 2020 survey of 340B hospitals drug acquisition costs “to set payment rates as it was flawed and poorly administered” and to “remove the requirement that hospitals report the ‘JG’ and ‘TB’ modifiers to identify separately payable drug claims.”

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