The Federation of American Hospitals, led by its President and CEO Chip Kahn, is making its strongest effort to date to preserve Medicare drug reimbursement cuts for 340B hospitals.

For-Profit Hospitals Back Medicare’s 340B Hospital Cuts in Legal Brief, Study, and Blog

The association for U.S. for-profit hospitals yesterday made its strongest pitch yet to preserve the nearly 30 percent cut in what Medicare pays many public and private nonprofit hospitals for physician-administered, 340B-purchased drugs.

The Federation of American Hospitals (FAH) submitted a brief to the U.S. Supreme Court and released a study backing the U.S. Centers for Medicare & Medicaid Services’ (CMS) decision under President Trump to reduce Medicare Part B reimbursement for 340B-purchased drugs under the hospital Outpatient Prospective Payment System (OPPS). The cuts began in 2018, and it is estimated they total about $1.6 billion annually. They apply to 340B disproportionate share hospitals, urban sole community hospitals, and rural referral centers.

Groups that represent affected 340B hospitals have been fighting the cuts in federal court. They won the first round in federal district court in December 2018, then lost the second in federal appeals court in July 2020. After the appeals court denied their request for a rehearing in October, the groups in February asked the Supreme Court to hear their case. They say (1) Congress never authorized CMS to make the cuts in the manner it did, and (2) If the appeals court decision stands, the cuts “will devastate 340B hospitals and the communities they serve.”

FAH, which represents more than 1,000 hospitals, backs public and private nonprofit hospitals on some issues and opposes them on others. The Medicare Part B cuts to 340B hospitals fall into the second category. FAH’s support for the cuts has been low-key until now. It issued a short statement in January 2019 calling the district court decision in the case “unfortunate,” and quietly filed a friend-of-the-court brief in September 2019 backing the cuts when the case was before the appeals court.

The federal government defended the cuts during the Trump administration, but it has not yet said whether it will continue to do so under President Biden. Its response to the hospital groups’ petition seeking Supreme Court review was due on March 15, but it asked for and got an extension to April 14.

FAH yesterday also released a study it commissioned from consulting firm Avalere Health that found that reversing the cuts would significantly increase Medicare beneficiaries’ drug costs, and decrease net payments for more than 80 percent of hospitals that get Medicare reimbursement for outpatient services and physician-administered drugs through OPPS. FAH ran a long article about the study on its blog, created a large infographic to highlight the study’s findings, and tweeted about them.

FAH Blog Post

It its blog, FAH said the hospital industry “is united in the effort” to bring rapidly rising drug costs down, and that 340B is an “important program that has helped eligible public and nonprofit hospitals” buy drugs “at substantial discounts.”

“However, 340B hospitals are not required to pass on these savings to patients in the form of lower copayments,” it said.

FAH said CMS’s decision to align Medicare OPPS drug payments with 340B hospital drug acquisition costs resulted in lower copayments for Medicare beneficiaries. Also, “all hospitals, including 340B hospitals, get a much-needed bump in Medicare payment for primary and emergency care, as well as outpatient procedures and other non-drug services—a welcome increase in a chronically underfunded system,” it said.

“CMS’s actions level the playing field across all OPPS hospitals, reinforcing the purpose of the Medicare OPPS to incentivize efficient and equitable behavior,” it said. “CMS’s Medicare OPPS payment change does not affect the 340B program nor hospitals’ ability to participate in it. 340B hospitals continue to benefit from the significant discounts they get when they purchase drugs through that program.”

“FAH strongly supports the current CMS policy, which strengthens the OPPS,” the group said. “We also believe in the benefits of the 340B drug payment program, which is not impacted by the CMS payment policy.”

FAH said “all hospitals, 340B and non-340B alike,” provide necessary clinical services, and provide uncompensated care at comparable rates.

“The current CMS policy works for Medicare and America’s seniors,” it concluded. “Reversing it would not only substantially increase Medicare patients’ cost burden for drugs acquired under the 340B program, but also would lower net total payments to most OPPS hospitals, restoring the inefficiencies that the current policy corrects.”

Avalere’s Study for FAH

Avalere Health’s analysis for FAH found that reverting back to the pre-2018 OPPS payment policy for 340B-purchased drugs would increase Medicare beneficiary cost sharing by nearly 37 percent, or $472.8 million in total.

Avalere said the cuts in 340B drug reimbursement total an estimated $1.6 billion annually. The money saved is redistributed among all hospitals in OPPS in the form of higher payments for non-drug services, it said. CMS estimates that OPPS payments rates to all hospitals for non-drug items and services are 3.2 percent higher due to the reduced drug payment rate for 340B hospitals, it said.

If CMS returns to its former payment policy for 340B drugs, Avalere said, 81.9 of all hospitals in OPPS would see a reduction in net total payments, including 88.8 percent of all rural hospitals in OPPS nationally, and 100 percent of rural hospitals in OPPS hospitals in 21 states. Eighty percent of all urban hospitals in OPPS would experience a reduction in net payments, it found. It said nearly half (49.4 percent) of all 340B hospitals in OPPS would be worse off financially if the policy is reversed. Although their OPPS drug payments would rise, their OPPS payments for non-drug items and services would decline by and even greater amount, it said.

FAH’s Supreme Court Brief

FAH told the Supreme Court in its friend-of-the-court brief that, “As non-340B providers, FAH member hospitals are deeply affected by the payment adjustments for 340B drugs at issue in this appeal.”

Before 2018, it said, “inefficiencies and inequities in Medicare payments to hospitals…increased the financial burden on FAH members and other similar non-340B hospitals despite serving similar patient populations and providing comparable or greater levels of uncompensated care compared to 340B hospitals.” 

“In a straightforward matter of statutory interpretation,” it said, the appeals court correctly decided that HHS legally exercised its authority “to adjust payment rates under the OPPS to address these inefficiencies.”

“The revised and now current payment policy recaptures savings that benefitted only 340B hospitals and reallocates those savings across all acute care hospitals, including 340B hospitals,” FAH said. “The positive rate adjustment for non-drug items and services benefits acute care hospitals across the board.”

The Other Side

340B hospitals are expected to strongly dispute FAH’s findings. They argue that they serve a much larger volume of low-income and uninsured patients, have a higher uncompensated care burden, and that the cuts have caused major pain.

Nonetheless, while FAH’s moves yesterday are certain to cause consternation with fellow hospitals groups, the 340B hospital community has remained silent so far. The groups have not challenged the findings from the study or commented on the amicus brief. The American Hospital Association, the Association of American Medical Colleges, and 340B Health declined to comment. We are awaiting comment from America’s Essential Hospitals.

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