Medicare’s final $9 billion remedy plan for 340B providers doesn’t address hospitals’ key concerns

Hospitals received final details on a $9 billion remedy payment plan for participants in the 340B Drug Pricing Program, with advocates expressing disappointment that corresponding reductions to other payments will go through as previously proposed.

CMS issued a Nov. 2 final rule describing the terms of the remedy payment, which was necessitated after the Supreme Court unanimously ruled in 2022 that the U.S. Department of Health and Human Services (HHS) had unlawfully reduced Medicare reimbursement for Part B drugs purchased by 340B-participating hospitals starting in 2018.

In a proposed rule published in July, CMS computed the lump-sum total based on drug payment claims filed by 340B hospitals from January 2018 through September 2022. The payments are intended to provide each hospital with the additional sum it would have received if the rate had stayed at average sales price (ASP) plus 6% instead of being unlawfully lowered to ASP minus 22.5%.

Medicare administrative contractors will remit the payments within 60 days of receiving instructions from CMS. The rule states that payments cannot start going out until the final regulations take effect, which by law isn’t until 60 days after publication in the Federal Register (scheduled for Nov. 8). Thus, payments are likely to begin reaching hospitals around mid-January.

A file listing each hospital’s final payment is available on a CMS webpage (click on Addendum AAA) and indicates more than 240 hospitals are in line for a payment of more than $10 million. The rule sets a deadline of Nov. 30 for alerting CMS to technical errors in a hospital’s calculated payment.

The rule also states that CMS lacks authority to pay interest on the remedy amounts.

The price of the remedy

In the proposed and final rules, CMS said its reading of the Medicare statute indicates any payment adjustment linked to the payment system for hospital outpatient services — which incorporates the 340B program — must be budget-neutral. The agency added that it would seek to offset the remedy payments even in the absence of budget neutrality requirements because of the impact to the Medicare Trust Fund and the need to prevent “an unwarranted windfall” from going to providers.

The agency calculated that when the payment rate for 340B drugs was lowered starting in 2018, budget neutrality spurred a 3.19% increase in the payment rate for nondrug outpatient items and services. As a result, spending rose by $7.8 billion during the 4 ¾-year period in question.

That money will be recouped over an estimated period of 16 years by trimming the outpatient payment rate for nondrug items and services by 0.5% per year. Hospitals that enrolled in Medicare after Jan. 1, 2018, would be exempt from the decrease.

One accommodation made in the final rule was to push back the start of the recoupment from 2025 to 2026.

“We believe finalizing a 2026 start date for the initiation of the adjustment to the conversion factor is appropriate to provide entities additional time to prepare for the new payment rates,” CMS wrote.

The hospital perspective

HFMA was among the stakeholders pushing back on the budget neutrality component of the remedy plan. In a comment letter to CMS, HFMA expressed support for the American Hospital Association’s (AHA’s) position “that neither legal nor policy frameworks currently endorse the suggested ‘budget neutrality adjustment.’”

Alternatively, states the letter signed by Richard L. Gundling, FHFMA, CMA, senior vice president for professional practice, HHS could limit the recoupment to $1.8 billion. That’s the share of the remedy that was based on the additional amount of beneficiary cost-sharing that providers would have collected in the absence of the unlawful lower rate.

The department also could consider excluding 2020-22 payments from the calculation, since those years brought significant financial challenges to hospitals amid the COVID-19 pandemic, HFMA wrote.

HFMA also took issue with the lack of guidance on the 340B payment shortfalls that came from Medicare Advantage health plans during the time frame in question. CMS’s remedy plan encompasses only payments made through Medicare fee-for-service.

“HHS should assert its MA plan oversight authority and require MA payers to promptly reimburse hospitals and providers for the MAP [Medicare Advantage plan] portion of the 340B underpayment covering the period from 2018 to September 2022, in a single comprehensive disbursement,” the comment letter states.

In the final rule, CMS stated that it “may not require MAOs [Medicare Advantage organizations] to contract with a particular healthcare provider or use particular pricing structures with their contracted providers. Therefore, MAOs that contract with a provider or facility eligible for 340B drugs can negotiate the terms and conditions of payment directly with the provider or facility and CMS cannot interfere in the payment rates that MAOs set in contracts with providers and facilities.”

Concerns about financial viability

AHA, which led the litigation that resulted in the 2022 Supreme Court ruling, said the budget-neutral approach represents “a grievous mistake” that especially will hamper hospitals “that serve rural, low-income and other vulnerable communities.” The statement added that the association is considering “all available options” in response, suggesting the possibility of future legal action.

Non-340B hospitals will come out behind since they face a negative long-term payment adjustment without reaping the corresponding remedy payment.

“The law does not allow Medicare to go backwards [in determining future payment adjustments], and this statutory predictability and stability of payment is mission-critical to sustain patient access to care,” the Federation of American Hospitals said in a statement.