Life Science Compliance Update

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November 14, 2017

Changes to 340B Program Reduces Hospital Reimbursement for Pharmaceutical Products by 28.5%


Recently, the Centers for Medicare & Medicaid Services (CMS) issued the Calendar Year (CY) 2018 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System final rule with comment period (CMS-1678-FC), which includes updates to the 2018 rates and quality provisions, and other policy changes. CMS adopted many policies that will support care delivery; reduce burdens for health care providers, especially in rural areas; lower beneficiary out of pocket drug costs for certain drugs; enhance the patient-doctor relationship; and promote flexibility in healthcare. This final rule puts forth a change to the reimbursement rate for Part B medicines purchased by 340B hospitals.

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% constituting a 28.5% change of reduced reimbursement for some clinics and health systems. 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.  

Mixed statements have been issued by the healthcare community since the release of this news. A sampling of the responses are included below.

CMS Stance

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.

Community Oncology Alliance

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.

Hospital Associations

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.”


PhRMA also released on statement on the news,

The announcement from the Administration regarding changes to the Hospital Outpatient Prospective Payment System aims to improve the payment policy for Part B medicines purchased by certain 340B facilities and used by Medicare beneficiaries. There is growing evidence that in certain instances Medicare is vastly over-paying for medicines used at some 340B facilities, and moreover patients are not always seeing any benefit. This rule corrects the overpayment problem, and Medicare patients will also see a reduction in their costs.

There is still more work to be done to fix the 340B program so that patients do in fact benefit and it no longer drives up health care costs. We encourage Congress and the Administration to build on this momentum and continue to push for changes to the program.

According to PhRMA, there is growing evidence that the 340B program is structured in a way that benefits hospitals at the expense of patients. With that in mind, the group created a new resource that outlines flaws with the 340B program and suggested reform.

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

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