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Hospitals Look to Sue CMS Over 340B Drug Program Cuts

By Revenue Cycle Advisor  
   November 02, 2017

A policy in the 2018 OPPS final rule will likely have major financial implications for hospitals purchasing drugs through the 340B drug discount program. 

Despite opposition from many stakeholders, a bipartisan contingent of Congress, and CMS’ own advisory panel, the agency is moving forward with its plan to drastically cut payments for drugs acquired through the 340B drug discount program, according to the 2018 OPPS final rule, released November 1. 

Beginning January 1, CMS will pay for drugs acquired through the 340B program at the average sales price (ASP) minus 22.5%, which is a significant change from the ASP plus 6% rate it is currently paying. The American Hospital Association, along with the Association of American Medical Colleges and America’s Essential Hospitals, have already announced a plan to pursue litigation against CMS to prevent the cuts.

“I’m not surprised to hear the threat of lawsuits already,” says Jugna Shah, MPH, president and founder of Nimitt Consulting. “Considering just the change in CMS’ projection of a $900 million savings from the proposed rule to $1.65 billion should, at a minimum, have resulted in the agency releasing an interim final rule with comment period rather than finalizing a payment policy that is fraught with many significant financial and operational issues.”

CMS is implementing the policy in a budget neutral manner which means the $1.65 billion in savings will be redistributed across the OPPS to other separately payable, non-drug items and services.

“This is maybe the one bit of good news in the finalized 340B policy, since CMS had considered taking the money out of the OPPS, which would have been a disaster,” says Shah.

CMS defends the 22.5% reduction by citing that number as an estimate from a May 2015 report by the Medicare Payment Advisory Commission of the average discount it says hospitals purchasing drugs under the program receive. CMS admits it doesn’t actually have claims data to support the percentage, writing in the rule:

Data limitations inhibit our ability to identify which drugs were acquired under the 340B Program in the Medicare OPPS claims data. This lack of information within the claims data has limited researchers’ and our ability to precisely analyze differences in acquisition cost of 340B and non-340B acquired drugs with Medicare claims data.

As many stakeholders and hospitals groups opposed the policy outright and did not suggest alternative reduction amounts, CMS says it is confident 22.5% is “the low bound of the estimate and keeps Medicare payment within the range where hospitals will not be underpaid for their acquisition costs of such drugs.” 

“It is simply wrong for CMS to think that because providers did not engage in a discussion about the reduction percentage that they were OK with it,” says Shah. “In fact, the opposite is true—commenters engaged wholeheartedly with CMS about all their concerns associated with the proposal, and because the concerns were so significant, it made no sense to quibble about the percentage reduction or the timing. So it seems wrong for the agency to take this tack.”

Payment reductions will be triggered by the inclusion of modifier -JG (drug or biological acquired with 340B drug pricing program discount), which will be required on all separately payable drugs (status indicator K) acquired under the 340B program. The non-excepted providers, such as rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals will not have to report this modifier, but will need to report new informational modifier –TB (drug or biological acquired with 340B drug pricing program discount, reported for informational purposes). Drug codes appended with this modifier will continue to be paid at ASP plus 6%.


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