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CMS Finalizes Restoration of 340B Hospital Reimbursement Rate

Updated: May 2, 2023

This week, the Centers for Medicare and Medicaid Services finalized changes to hospital outpatient prospective payment system (“OPPS”) reimbursement for separately payable drugs and biologicals acquired through the 340B program. The 340B program requires pharmaceutical manufacturers to provide outpatient drugs to eligible facilities such as safety net hospitals at substantially reduced prices.

Beginning in 2018, CMS cut the 340B payment rate to most participating hospitals from the default rate of average sales price (“ASP”) plus 6% for separately payable drugs to ASP minus 22.5% in order to approximate the average discount for 340B drugs. In essence, this rate cut eliminated the 340B program’s financial benefit for participating hospitals and negated the program’s purpose of enabling safety net providers to stretch scarce federal resources as far as possible. In its CY 2023 OPPS proposed rule, CMS anticipated restoring the payment rate for 340B drugs to ASP plus 6% in response to the Supreme Court’s ruling in American Hospital Association v. Becerra, which reversed the rate cuts for CYs 2018 and 2019. CMS proposed decreasing the OPPS conversion factor to make up for the estimated $1.96 billion in payments to participating hospitals from increased 340B payments. Our analysis regarding the proposed changes can be found here.

The OPPS Final Rule establishes the payment rate of ASP plus 6% for 340B drugs and biologicals in CY 2023, bringing the rate back in line for drugs acquired outside the 340B program. To offset the increased expenditures for 340B drugs, CMS finalized a decrease to the OPPS conversion factor of 3.19%, which will reduce payment rates for non-drug items and services to all hospitals under OPPS. Notably, this is less than the negative 4.04% adjustment proposed in July that was based on the CY 2023 increase in expenditures. Rather, the negative 3.19% adjustment reflects the positive 3.19% adjustment applied in CY 2018 when the 340B rate cuts were first implemented. This alternative budget neutrality methodology provides some relief to nonparticipating hospitals, which will feel the impact of the negative adjustment without a corresponding increase to their drug reimbursement. These adjustments fall under a backdrop of an across-the-board increase in OPPS rates of 3.8% for hospitals that meet applicable requirements for quality reporting.

The majority of participating hospitals will still be required to use the “JG” modifier on claims to indicate a drug is acquired under the 340B program. The modifier will be for informational purposes only rather than to trigger a payment adjustment. Other hospitals that were historically excepted from the rate reduction (rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals), will continue to use the “TB” modifier for informational purposes.

The final rule also provided an update on 340B payments for CY 2022. Since the proposed rule was published, the United States District Court for the District of Columbia vacated the reimbursement rate of ASP minus 22.5% still in effect for the remainder of CY 2022. CMS announced in the final rule that it had taken the necessary steps to implement the court’s decision, and that all claims for 340B drugs paid after September 28, 2022, will be paid at the default rate of ASP plus 6%.

CMS did not provide any remedy for claims already paid at the reduced rate for CYs 2018-22. Rather, CMS intends to initiate a separate notice-and-comment rulemaking process to address these underpayments prior to the CY 2024 OPPS Proposed Rule in July 2023. The district court has also announced its intention to rule on a remedy for the reduced payment amounts in a separate decision, which may negate the need for CMS to pursue additional rulemaking. In any event, any potential remedy is complicated by the budget neutrality requirements and the threat of controversial takebacks from non-participating hospitals.

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For more information on the proposed 340B OPPS rate adjustment and its impact on providers, please contact Felicia Sze or Kyle Brierly.

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