CMS Finalizes Reform That Will Adjust Payments for the 340B Program

New reform is coming for the 340B program. Yesterday, CMS finalized the Hospital Outpatient Prospective Payment System (OPPS) as part of its initiative to put patients first and ensure that payments support access to high quality, affordable care.

OPPS will adjust payment for drugs purchased through the 340B program to the average sales price (ASP) minus 22.5%, a change from the current rate of ASP plus 6%. Rural sole community hospitals, certain cancer hospitals, and children’s hospitals will, however, be exempt from the reductions. A provision of the ruling will reduce some administrative burdens that rural providers face.

Two modifiers will be put in place in order to identify whether a drug was purchased under the 340B program­­—one for hospitals subject to the payment reduction and another for exempted hospitals.

The 340B program, which has been controversial since its initiation 25 years ago, requires drug manufacturers participating in the Medicaid Drug Rebate Program to provide a discount to covered safety net health providers. It enables these covered entities to stretch scarce federal resources as far as possible to reach more low-income patients who are uninsured and to provide more comprehensive services. Outpatient prescription drugs, over the counter drugs, and clinic-administered drugs within eligible facilities are covered, but vaccines and inpatient drugs are not. However, the program does not specify or control how hospitals use the money generated from the program.

Yesterday’s ruling has brought mixed reactions from the health industry.

According to CMS, the rule will help lower the cost of prescription drugs for seniors and other Medicare beneficiaries by reducing the payment rate for certain Medicare Part B drugs purchased through the 340B program. The savings from this will be redistributed equally to hospitals covered under the OPPS. A provision of the OPPS will alleviate some burden rural hospitals face by placing a 2-year moratorium on the direct physician supervision requirements for rural hospitals and critical access hospitals.

The Community Oncology Alliance (COA) commended CMS for the reform, saying it is good for both patients and taxpayers and represents an important first step in stopping abuse of the program by certain hospitals.

“COA strongly supports this new policy because it will reduce drug costs for seniors by an estimated $320 million on copayments for drugs in 2018 alone; help to curb outrageous abuse of the 340B program by some large hospitals; and, hopefully, start to reverse the profit incentives that dismantled our nation’s community cancer system,” the statement says.

The reform will also follow COA’s initial recommendation that CMS should allocate funds from the program to support rural hospitals and providers. Meanwhile, the nation’s leading hospital associations have joined together to sue CMS over the payment cuts.

America’s Essential Hospitals, the American Hospital Association, and the Association of American Medical Colleges said that they believe CMS has overstepped its authority by cutting the drug payments.

“CMS’ decision in today’s rule to cut Medicare payments to hospitals for drugs covered under the 340B program will dramatically threaten access to healthcare for many patients, including uninsured and other vulnerable populations,” Tom Nickels, executive vice president of the American Hospital Association, said in a statement yesterday. “It is not based on sound policy and punishes hospitals and patients for participation in a program outside of CMS’ jurisdiction.”

Similarly, Ted Slafsky, president and CEO, 340B Health, denounced the reform, calling it “a backdoor effort to undermine an important drug discount program.”

According to Slafsky, the rule will benefit for-profit cancer clinics who turn away the poor, uninsured, and underinsured. It will not lower the cost of drugs for patients or providers and will not expand access to care.

Earlier this year, 304B hospitals unanimously said the implementation of this rule would cause them to cut back services.

According to Rena M. Conti, PhD, assistant professor of health policy and economics, University of Chicago, the implementation of this reform will provide relief in 3 major areas. One of the biggest benefits will be for patients who are undergoing infused injected cancer therapies and other specialty drug therapies where they are required by Medicare to pay for their care, said Conti in an interview with The American Journal of Managed Care^®.

Second, the reform acts to more closely align what Medicare pays for the therapies with what these drug manufacturers purchase them for, which will eliminate both waste and incentive to profit off products by choosing more expensive ones over cheaper ones, Conti added. She also believes that the rule will automatically exempt institutions that are particularly focused on providing safety net care for the vulnerable populations, and it will squarely put on notice institutions that are diverse and are believed to have strategically been revenue driven.

“Overall, it provides transparency into the program,” said Conti. “First, because hospitals will be required to provide more information and use this revenue to provide care to the community. It also provides more transparency to which drugs are eligible to discount because we haven’t really known before. There was no public accounting of that until now.”

The changes to the 340B program will begin on January 1, 2018.