The CMS 340B Drug Cost Survey Is a Wrap. So, What Happens Now?

Editor’s note: Our next regularly scheduled edition will be on Thursday, May 28 due to the Memorial Day holiday weekend. We’ll publish an extra edition for any breaking news.

A note from 340B Report Publisher and CEO Ted Slafsky: Today’s issue continues our ongoing series of articles by 340B Report sponsors that draw on their deep expertise. Click on the button below or reach me at to learn more about the many benefits of becoming a sponsor.

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The CMS 340B Drug Cost Survey Is a Wrap. So, What Happens Now?

Last week Friday, May 15, was the deadline for hospitals to respond to the Centers for Medicare & Medicaid Services’ (CMS) 340B drug acquisition cost survey. Many 340B hospital senior executives and pharmacy directors probably are asking themselves, “What happens next?”

We put that question to health care attorneys paying close attention to the survey and the underlying issue of CMS’s huge cuts in Medicare Part B drug reimbursement for 340B purchased drugs. You can read their answers below. First, here’s a recap to help frame the experts’ comments.

How We Got Here

In 2018, CMS began paying hospitals average sales price (ASP) minus 22.5 percent for 340B drugs reimbursed by Medicare Part B under Medicare’s hospital outpatient prospective payment system (OPPS). CMS previously paid them ASP plus 6 percent. Hospital groups sued in federal district court to reverse the cuts and won. CMS has continued the cuts while the decision is appealed. A federal appeals court in Washington, D.C., heard the case on Nov. 8, 2019. The median time it takes this court to decide a case after oral argument is 3.7 months. By that mark, its decision in this case is overdue.

Last August in its 2020 OPPS proposed rule, CMS said if it lost its appeal, it anticipated proposing its remedy for the cuts in its OPPS proposed rule for 2021. Its draft 2021 OPPS proposed rule is under White House review now. CMS is expected to release it next month.

Last November in its 2020 OPPS final rule, CMS set in motion the hospital 340B drug acquisition cost survey that was completed last Friday. CMS said it might use the findings to craft an “appropriate” remedy for the cuts. It has said it expects the survey to show that the ASP minus 22.5 percent payment rate “overcompensates” 340B hospitals. The groups suing CMS say hospitals should be paid back in full.

By how much might the ASP minus 22.5 percent reimbursement rate pay 340B hospitals above cost? A 2015 U.S. Health and Human Services (HHS) Department Office of Inspector (OIG) study might hold a clue. It found that, in 2013, “in the aggregate, Part B payment amounts were 58 percent more than the statutorily based 340B ceiling prices that year, which allowed covered entities to retain approximately $1.3 billion.” Hospital groups argue that the 340B program was never intended to subsidize the Medicare program, and that the savings enable them to provide important health care services to low-income and otherwise vulnerable patients.

In the instruction sheet for its 340B drug cost survey, CMS said all hospitals enrolled in 340B except critical access hospitals had to take the survey. It’s not clear if CMS can punish noncompliance. CMS gave hospitals a “quick survey” option, under which a hospital could authorize CMS to use 340B ceiling prices as a proxy for the hospital’s 340B average acquisition costs. CMS is using 340B ceiling prices for hospitals that didn’t complete the survey. A number of hospitals wrote to CMS raising objections to the timing and quality of the survey.

The White House Office of Management and Budget let CMS field the survey with conditions. It said CMS has to “prepare a report providing a nonresponse bias and standard error analytical results and share with OMB prior to utilization of data for future publications, including rulemaking. The agency will clearly describe the scope and characteristics of the responding hospitals, as well as any limitations in the generalizability of the information collected, in any publications and documents utilizing this data.”

What Happens Next? The Experts Speak.

Barbara Straub Williams, Principal, Powers Law (a 340B Report Sponsor)

If the appeals court rules in favor of hospitals in the legal action, hospitals should anticipate that CMS will issue a proposed rule to devise a remedy to repay 340B hospitals, to set payment rates for 340B drugs in the future, or both. Hospital groups likely will challenge using the survey data to set future payment rates.

When OMB approved the survey form, it said that before CMS could use the data, it had to report to OMB on the “nonresponse bias” and “standard analytical results” for the survey. So, CMS will have to comply with the requirement set out by OMB before using the survey data in a proposed rule.

It appears many hospitals chose the “quick survey” option (because completing the long survey was impossible in the short time provided), but also sent a letter saying 340B ceiling prices did not accurately reflect the hospital’s costs for 340B drugs. These letters will be very useful if CMS tries to base Medicare payment for 340B drugs on the ceiling prices and hospitals challenge the rule.

Peggy Tighe, Principal, Powers Law

There are valid, important policy arguments against collecting this information from hospitals in this way, at this time. But we are in an era of “more transparency is better.” It makes opposing this information collection an uphill battle with policymakers.

It is fair to say that the real reason behind advancing the survey is to gather information that ultimately would be used to undermine 340B hospitals. Doing so now when many of these hospitals are struggling to care for patients and stay afloat is reprehensible.

Todd Nova, Shareholder, Hall Render

Some 340B covered entity trade associations still dispute the survey’s validity on procedural grounds. But the fact CMS issued the survey through notice and comment likely means it cannot be challenged on such grounds.

It will be interesting to see if the survey response rate was large enough for CMS to show the data is statistically significant. While we did not recommend that hospitals ignore the survey request, it came at a bad time as hospitals were coping with significant COVID-19 issues and challenges.

Some argue the survey is invalid because the applicable statute requires a “justification for the size of the sample used” and that this survey was too broad to meet that standard. That standard does not apply to this type of data survey, however. But, if enough covered entities selected the quick survey option, it may be possible to argue that the survey failed to meet the statutory requirement that it show a statistically significant estimate of the average acquisition cost. This argument would be based in part on the lack of clarity in the survey submission instructions regarding the relationship between 340B covered entity actual acquisition costs and the proxy 340B ceiling price data that will be used for quick survey responses.

Finally, we certainly expect CMS to use this survey data to continue the 340B ASP minus 22.5 percent payment reduction on a prospective basis. We think it would be difficult for CMS to apply this pricing retroactively, however, based on the statutory provisions governing outpatient hospital drug reimbursement in spite of CMS’ comments indicating that it intends to do so. As such, we will continue to closely monitor the ongoing litigation related to prior CMS rules but continue to believe that the American Hospital Association may be able to obtain a favorable resolution for prior reductions. The ability to prevent future 340B-related OPPS payment reductions is less certain.

A partner at a large law firm that represents many health systems who requested anonymity

Many lawyers have been pointing out to their clients that CMS does not have any sanction authority for institutions that opt not to fill out the survey. Indeed, CMS shouldn’t even be asking for the survey. It is already collecting other data regarding drug costs. CMS’s goal, of course, is to, perhaps as soon as this year’s OPPS rulemaking, tally the results, which undoubtedly will refer in large numbers to 340B pricing as the default, and then use that to set the rate for 340B drugs going forward (either by actually incorporating 340B pricing into that rate, assuming confidentiality issues can be overcome, or by coming up with a percentage proxy). If enough systems heeded the advice of their lawyers and decided to forego completing the survey, hospitals and their trade associations may be able to claim that CMS did not have a valid statistical sampling, and therefore prevail yet again in their case to get this policy overturned. CMS would then need to seek legislative authority to require hospitals to complete the survey, which would be several years out.

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Four immediate strategies covered entities can implement to optimize cash flow and 340B savings

Jeff Spencer, Senior Vice President, PSG

As 340B covered entities continue to struggle financially as a result of the COVID-19 pandemic, PSG has been working diligently to identify opportunities and best practices for our clients to optimize their 340B program for immediate operational efficiencies, cash flow enhancement and savings. To build upon the 340B program-level recommendations we shared recently on our blog, we have turned our focus to high-value prescriptions, replenishment and ordering opportunities to optimize cash flow and 340B savings.

Here are some strategies we have rolled out to clients and recommend other covered entities consider:

Capturing 340B Savings Through Manual Claims Qualification

Most covered entities have a subset of 340B-eligible claims that fall outside of standard workflows, including:

  • Referral claims that require additional documentation
  • Scripts that require pre-authorization
  • Infusion claims with multiple formulations
  • Specialty claims that fall outside of standard date-written windows

Check with your TPA for assistance identifying these claims and holding them for manual review and validation. If the encounters meet qualification requirements, you can still recognize 340B savings after completing additional documentation and approval steps.

Prepare Your Program for an Increase in Mail Order Scripts

Even if you’ve previously decided against adding a mail-order pharmacy to your contract pharmacy program, you might want to reconsider in light of new patterns emerging as a result of COVID-19. Since March, some entities have noticed a dip in contract pharmacy prescriptions and an increase in mail-order utilization as patients and providers adjust to an increase in 90-day prescriptions and mail-order fulfillment for their prescriptions. In fact, The Wall Street Journal reports that mail-order prescription volume grew 21 percent during the last week of March—a level expected to continue to some degree post-pandemic.

We’re seeing covered entities successfully leverage the immediate registration and eligibility provisions of HRSA’s 340B public health emergency rules during the current pandemic to add new mail-order and non-mail-order pharmacies. Adding a mail-order pharmacy is a critical, immediate step that can help capture traditional contract pharmacy scripts that are moving to this channel. In our first post in this series, we detail the processes for immediate registration and eligibility.

Minimizing Unnecessary WAC Spend

Now is a great time to analyze your top 20 drugs, looking for NDCs with unnecessary WAC purchases. By working with your administrator to identify any of these products which may not be cross-walked correctly, you can capture the associated 340B savings on these items simply by correcting your charge code or NDC crosswalk and placing orders for NDCs with eligible 340B accumulations.

Negotiating Changes to Contract Pharmacy Operational Parameters

Some contract pharmacies are open to temporary operational changes that can accelerate the realization of your earned 340B savings during this emergency. While options are pharmacy-dependent and may require a change to your pharmacy services agreement (PSA), some options to consider include:

  • Increasing the frequency of billing to accelerate 340B payments from pharmacies
  • Increasing the frequency of ordering to speed up 340B replenishment and savings
  • Extending the reprocessing window to accommodate replenishment of eligible claims that fall outside of the automatic qualification process
  • Extending the window for true-ups to allow more NDCs an opportunity for replenishment in light of drug shortages and supply chain delays

Our Efforts Continue

As we continue to seek ways to maximize the financial impact of your 340B program, we will be turning our attention next to opportunities such as automating qualifications within certain drug therapy classes or locations and navigating missing 340B pricing in wholesaler catalogs. In addition, for a look back at the recommendations included in our last blog.

Unprecedented times call for unprecedented collaboration to meet the challenges you’re facing. The work you do is even more valuable in these times, and we are here to support you.

This is part two of a three-part series highlighting ways for 340B covered entities to maximize cash flow and savings opportunities during the COVID-19 public health emergency. Read part one of the series here

AHF, a National 340B Champion, Draws Fire at Home in California for its Affordable Housing Advocacy

The California Assembly Health Committee this week unanimously passed legislation backed by the state’s rental housing industry to bar AIDS Healthcare Foundation (AHF) from using revenues from the 340B program and certain state and federal contracts to “fund any efforts to influence any ballot measure action relating to housing.” AB 1938, passed 11-0 on May 18, now goes to the Assembly Appropriations Committee for further consideration.

In 340B circles, California-based AHF is perhaps best known for its “Let it B” national advertising campaign urging support for the 340B program and decrying drug industry efforts to scale 340B back. In 2017, it began campaigning against gentrification in Los Angeles and San Francisco, saying that “California’s housing affordability and homeless crises increasingly threatened the health of AHF patients.”

AHF currently is advocating passage of an initiative on the California state ballot in November that would let local governments implement rent control policies “that ensure that renters can find and afford rental housing in their jurisdictions.” In 2018, AHF advocated passage of Proposition 10, an earlier rent-control citizen initiative that was defeated at the polls. That same year, it successfully opposed state legislation that would have let developers build high-density condos and apartments near public transit over local objections. The fight over the bill, SB 827, drew national attention.

In 2019, AHF unsuccessfully sued the city of Los Angeles under a state environmental quality law to block a $1 billion real estate development in Hollywood that would have demolished buildings with rent-controlled units. AB 1938 would prevent AHF from funding such suits with 340B and certain state and federal contract revenues.

A fact sheet prepared by one of AB 1938’s sponsors, Assembly Member Evan Low (D-Cupertino), says AHF “has consistently spent millions of public dollars received through Medi-Cal and Medicare to insert itself into the housing arena. While the organization and its founder have consistently conflated health and housing, arguing that its work will provide housing to people who are suffering from HIV or AIDS, the foundation’s work has done just the opposite.” The document says the legislation is supported by the California Apartment Association, which represents apartment and rental-home owners, investors, developers, managers, and suppliers.

We reached out to AHF for comment on AB 1938.

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Group That Builds Grassroots Support for 340B Holding its First Two Virtual Events

Community Voices for 340B (CV340B), a national nonprofit group that works to build grassroots support for the 340B program in states and localities, is holding its first two virtual opinion leader forums next month.

The first, for business leaders, civic leaders, clergy, students, and elected officials in Michigan, is scheduled for June 9 from 3:00 p.m. to 4:00 p.m. Eastern. Registration is required. The second, which has not yet been formally announced, will be held later in June for local opinion leaders in the Austin, Texas area. Both forums were intended to be live events before the COVID-19 pandemic began.

Next month’s CV340B online forums are follow-ups to in-person forums the group held in Fort Worth, Texas, in September 2019 and in Lansing, Mich., in December 2019. At the forums, national 340B advocates and executives and practitioners at state and local 340B health care providers explain how the 340B program meets the need of patients in local communities. “Our goal is to broaden support for 340B beyond its traditional champions,” explains Peggy Tighe, a principal at Powers Law and CV340B adviser.

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Drug Company Lifts Limits on Immunosuppressant Sales

Drug manufacturer Astellas Pharma US has lifted the limited distribution system it implemented in June 2019 for its immunosuppressants Prograf (ampules and granules) and Astragraf (capsules) due to another manufacturer’s anticipated shortage of its generic substitute products. It announced the resumption of normal sales on the Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs (OPA) website.

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Tweets of Note

Anthony Fortenberry @AF_NYC

New York State must reverse the decision to transition #340B pharmacy benefit from #Medicaid managed care to fee for service. Community Health Centers and the care they provide must be protected. #COVID #ValueCHCs #ProtectMedicaid #NoMedicaidCuts

Andrew L Wilson @AndyWilson340B

As will the corresponding #340B discounts

Adam J. Fein @DrugChannels

New @IQVIA_US survey of U.S. payers (n=43) suggests #COVID19 will trigger more formulary & #rebate #PBM pressure for brand-name #drugs

The #GrossToNetBubble will keep inflating!

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