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CMS 340B Changes CMS 340B Changes

CMS 340B Changes

On Nov. 1, 2017, the Centers for Medicare & Medicaid Services (“CMS”) issued the “Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System and Quality Reporting Programs Changes” final rule (the “Final Rule”). Among many other changes, the Final Rule adjusts the reimbursement rate for certain Medicare Part B drugs and biologics purchased by hospitals, clinics, and other covered entities through the 340B Drug Pricing Program. These changes are scheduled to be effective Jan. 1, 2018.
The 340B Drug Pricing Program (its name derived from its codification at § 340B of the Public Health Service Act), is a federal drug-pricing system that has historically operated to benefit participating providers. Signed into law in 1992 by President George H.W. Bush, the law requires pharmaceutical companies to provide significant discounts on sales of certain drugs and biologics to hospitals and clinics with significant numbers of low-income patients. 340B also requires Medicare to reimburse providers for those drug purchases at rates higher than the discounted purchase price.
The spread between actual cost and Medicare reimbursements here is intentional: the impetus driving the 340B Program’s creation was a desire to recognize and subsidize hospitals’ efforts to serve low-income and uninsured populations. Over time, the Program has become an important source of revenue for cash-strapped providers. However, critics of the Program have argued some providers use the Program to increase their profits and market power and the money saved is not always used by the providers to serve disadvantaged patients.
The number of covered entities participating in the 340B Program has increased significantly. In a recent report, the Medicare Payment Advisory Commission found the number of hospital organizations participating in the 340B Program grew from 583 in 2005 to 2,140 in 2014. Predictably, as the number of covered entities participating in the 340B Program has grown, so too have 340B drug purchases grown relative to the total U.S. drug market. In 2007, 340B drug purchases amounted to 1.6% of the total U.S. pharmaceutical market; in 2016, that share had jumped to 5%.
In recent years, growth in the 340B Program has been haunted by the specter of additional regulatory scrutiny. Since 2010, both the Government Accountability Office and the Office of Inspector General have stepped up inquiries into the 340B Program, and the U.S. House of Representatives Energy and Commerce Committee held two hearings on the Program in the fall of 2017. This increased scrutiny has led, in part, to the adoption of the Final Rule.
The current reimbursement rate for purchases made through the 340B Program is the nationwide average sales price (“ASP”) of the drug plus 6 percent (6%). Under the newly-issued Final Rule, CMS is reducing the amount providers are reimbursed for drugs purchased through the 340B Program to the nationwide ASP minus 22.5%. Therefore, under the Final Rule, providers, in the aggregate, stand to lose approximately $1.6 billion in reimbursement payments.
The impact of the changes to the 340B Program is expected to be more pronounced for smaller, more rural providers, who have likely relied more heavily on reimbursements provided by the 340B Program than their larger counterparts. Almost immediately following the release of the interim final rule, many of the associations representing hospitals, including the American Hospital Association, banded together to sue CMS over the Final Rule while other groups are lobbying Congress to block CMS’ move legislatively. In the interim, it is important for all hospitals, clinics, and other covered entities to understand the full financial ramifications of the Final Rule and make operational adjustments, if necessary. 
For more information, please contact Taryn Stone or Kevin Woodhouse.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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