By Ken Perez, vice president of healthcare policy and government affairs, Omnicell, Inc.
The 340B Drug Pricing Program was created in 1992 to give safety net providers—those that deliver a significant level of both healthcare and other health-related services to the uninsured, Medicaid, and other vulnerable populations—discounts on outpatient drugs to “stretch scare federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”
In brief, the program requires drug makers participating in Medicaid and Medicare Part B to provide discounts on outpatient drugs to 340B providers, which include various types of hospitals and certain federal grantees, such as federally qualified health centers and comprehensive hemophilia treatment centers.
The change to the reimbursement rate and ensuing debate
On Nov. 1, 2017, the Centers for Medicare and Medicaid Services (CMS) issued its final rule for the calendar year (CY) 2018 Outpatient Prospective Payment System (OPPS), the system through which Medicare decides how much money a hospital or community mental health center will get for outpatient care provided to patients with Medicare. That rule included a 28.5% reimbursement rate cut—from average selling price (ASP) plus 6% to ASP minus 22.5% for the 340B Program. The American Hospital Association estimated that the cut aggregated to $1.6 billion annually for 340B hospitals.
On July 31, 2020, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), by a 2-1 vote, upheld the U.S. Department of Health and Human Services’ (HHS) decision to allow CMS to implement the 28.5% reimbursement rate cut, ruling against the American Hospital Association (AHA), the Association of American Medical Colleges (AAMC), America’s Essential Hospitals (AEH), and hospital plaintiffs Northern Light Health in Brewer, Maine, Henry Ford Health System in Detroit, Mich., and AdventHealth Hendersonville in Hendersonville, N.C.
By Ken Perez, vice president of healthcare policy, Omnicell.
Ken Perez
The 340B Drug Pricing Program was created in 1992 to give safety net providers — those that deliver a significant level of both healthcare and other health-related services to the uninsured, Medicaid, and other vulnerable populations — discounts on outpatient drugs to “stretch scare federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” In brief, the program requires drug makers participating in Medicaid and Medicare Part B to provide discounts on outpatient drugs to 340B providers, which include various types of hospitals and certain federal grantees, such as federally qualified health centers and comprehensive hemophilia treatment centers.
For years, the 340B program has been fraught with controversy, with concerns raised about the program’s lack of accountability and oversight, and findings of widespread diversion of benefits (discounted drugs) to ineligible patients.
The nonpartisan Medicare Payment Advisory Committee (MedPAC) found that hospitals in the 340B program receive a minimum discount of 22.5 percent of Average Sales Price (ASP) for drugs paid under the Medicare Hospital Outpatient Prospective Payment System (OPPS). The Office of the Inspector General of the U.S. Department of Health and Human Services (HHS) found that the average 340B discount was 34 percent of ASP, and at least two organizations with 340B members estimated that 340B discounts could be as high as 50 percent of ASP.
Based in part on these findings, in 2017 HHS proposed and finalized a rule implementing a sharp reduction in 340B reimbursement of hospitals by the Centers for Medicare and Medicaid Services from ASP plus 6 percent to ASP minus 22.5 percent, along with an offsetting payment rate increase for non-drug items and services. It was estimated that 85 percent of 340B hospitals would see overall net payment increases in 2018 as a result of these changes, and that 340B hospitals would continue to benefit financially from the program.
Nevertheless, the American Hospital Association (AHA), America’s Essential Hospitals, and the Association of American Medical Colleges—all non-profit hospital associations—filed suits against HHS to block the change.
On Dec. 27, 2018, Washington, D.C. federal district court judge Rudolph Contreras (a Democrat nominated by President Barack Obama), issued a 36-page ruling in favor of the AHA, et al. and struck down the 340B payment reduction, contending that HHS Secretary Alex Azar exceeded his statutory authority by issuing a policy that would “fundamentally rework the statutory scheme.”
Contreras issued a permanent injunction of the new reimbursement policy, but he did not grant the plaintiff’s request for retroactive OPPS payments based on the original reimbursement formula. (HHS is unable to come up with the monies to pay back the hospitals, as they have already been spent.) Contreras ruled that the plaintiffs “are entitled to some relief,” but, recognizing “the potentially drastic impact of …[his] decision on Medicare’s complex administration,” he ordered a supplemental briefing to come to a “proper remedy.”
