or Medicare & Medicaid Services (CMS) issued a proposed rule outlining a one-time lump sum payment of $9 billion dollars to be given to approximately 1,649 participating 340B hospitals.[1] The proposed remedy comes after last year’s Supreme Court decision of the American Hospital Association v. Becerra where the court ruled in favor of the hospital associations in regard to the new reimbursement rate for 340B claims and remanded the case back to the trial court to address the remedial issues.
Section 340B of the Public Health Service Act is a federal law that requires pharmaceutical manufacturers to provide discounts and outpatient drugs to providers serving a large number of uninsured, underinsured, and/or low-income patients. Section 340B was passed mainly to protect safety-net hospitals, which are hospitals that were created to provide services to patients regardless of their ability to pay. Section 340B was also meant to promote community-based health services.
The case dates back to 2018, when the Department of Health & Human Services (HHS) issued a final rule establishing a new reimbursement rate which constituted a 30% cut to all outpatient Medicare drug reimbursements of 340B hospitals. The American Hospital Association challenged the new reimbursement rate as illegal, arguing that HHS acted outside of its statutory limits because it failed to conduct a survey of hospitals’ acquisition costs for each covered outpatient drug and to set rates based on the average acquisition cost of the drugs. As a result, all claims for 340B-acquired drugs that occurred on or after September 28, 2022, must be paid at the default rate of the average sales price of the drug plus 6%. But what happens to the claims that were submitted after the illegal rate change and before the reversal to the original rate? This is where CMS’s proposed rule comes into play. In an attempt to remedy the wrongdoing, CMS has proposed a $9 billion dollar reimbursement plan for all affected 340B hospitals.
However, CMS’s proposed rule is just what its title suggests: a proposal. To date, there is no guarantee that the 340B hospitals will be reimbursed $9 billion dollars. The proposal’s comment 60-day comment period expired on September 5, 2023, and the next phase is underway. During the comment period, the general public, advocacy groups, and other interested parties made suggestions, comments, and changes to HHS and CMS’s original policy concerns regarding reducing reimbursement rates. While the final rule is likely to retain a lot of the same elements of the current proposal significant changes are possible post-comment period. Further, the Supreme Court did not explicitly prohibit HHS from changing the reimbursement rates for 340B drugs. The Supreme Court issued this ruling because HHS failed to follow its statutory requirements, namely, that they were required to conduct a survey of hospitals’ acquisition costs for each covered outpatient drug and to set rates based on the average acquisition cost of the drugs. HHS may still be permitted to change the reimbursement rates (e.g., lower them) by conducting the necessary surveys and setting rates based on the actual costs of the drugs as required under the law.
While it is unclear when 340B hospitals will receive their lump-sum remedy payments; overall, the proposed rule represents a positive step forward for hospital systems that greatly depend on these discounts to function and serve their low-income patient populations.
[1] Center for Medicare and Medicaid Services, “Medicare Program; Hospital Outpatient Prospective System: Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022.”
