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CMS Proposes Remedy for Unlawful Reduction to 340B Hospital Payments

Updated: Apr 9

Last June, the Supreme Court in American Hospital Association v. Becerra reversed cuts made to hospital outpatient prospective payment system (“OPPS”) reimbursement for separately payable drugs and biologicals acquired through the 340B for CYs 2018 and 2019. Subsequently, the United States District Court for the District of Columbia vacated the reduced reimbursement rate for the remainder of CY 2022.

In response to these decisions, in its 2023 OPPS final rule the Centers for Medicare and Medicaid Services (“CMS”) restored the payment rate of ASP plus 6% for 340B drugs and biologicals for CY 2023, bringing the rate back in line for drugs acquired outside the 340B program. To offset the increased expenditures for 340B drugs and satisfy the 340B program’s budget neutrality requirement, CMS finalized a decrease to the OPPS conversion factor that reduced payment rates for non-drug items and services to all hospitals under OPPS. Our analysis on these changes can be found here.

Notably, The OPPS final rule did not propose a remedy for 340B claims already paid at the reduced rate between CYs 2018-22. Rather, CMS this week issued a new proposed rule to address these underpayments. CMS proposes to make a lump sum settlement to 340B hospitals paid under the reduced rate, which will result in a total of $9 billion in additional payments to participating hospitals.

Similar to the budget neutrality measures taken for CY 2023, the proposed rule seeks to offset the increased 340B expenditures by reducing payments for non-drug OPPS items and services for all OPPS hospitals. CMS will recoup $7.6 billion by reducing the OPPS conversion factor by .5% for an estimated 16 years beginning in CY 2025. This equates to the extra amount hospitals have been paid for non-drug items as a result of the 340B rate cuts between CY 2018-22.

Once again, the main losers of this remedy will be non-safety net hospitals. In essence, the prospective rate reduction will have the effect of recouping funds from those hospitals that do not participate in the 340B program. While this will be unwelcome news for such hospitals already facing financial duress, the recoupment at the very least will be spread out over the next two decades and will not result in a retroactive takeback.

CMS is currently soliciting public comments on the proposed rule. The period for comment is open until September 5, 2023, and may be submitted online or by mail.

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

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