Skip to main content

Hospitals Look to Sue CMS Over 340B Drug Program Cuts

News  |  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%.

This data collection could lead to further price adjustments on 340B drug payments in the future, as CMS writes it is “interested in exploring ways to more closely align the actual acquisition costs that hospitals incur rather than using an average minimum discounted rate that would apply uniformly across all 340B hospitals.”

The policy does not apply to vaccines (status indicators L or M) or drugs with transitional pass-through payment status (status indicator G). The modifier can be reported on packaged drugs (status indicator N), but will not impact payment.

In the proposed rule, CMS suggested a modifier to be used on drugs not purchased under the 340B drug discount program, but listened to commenters suggesting this would be burdensome and run counter to some state Medicaid provisions for identifying 340B drugs.

While providers at CMS’ Hospital Outpatient Payment (HOP) Panel, along with commenters, said identifying these drugs in order to apply the modifier would be costly and difficult to implement by January, CMS wrote:

Under section 1835(a) of the Act, providers have 12 months after the date of service to timely file a claim for payment. Therefore, for those hospitals that may need more time to ensure that they are in compliance with the modifier requirements, they have 12 months from the date of service to do so.

“While true, CMS’ tone is frustrating, as it is basically saying that if providers can’t get it together operationally, then they can wait to submit claims, which really flies in the face of this administration wanting to reduce provider operational burden,” Shah says. “CMS’ statement is simply not reasonable either operationally or financially.”

Packaging of drug administration services

Finalizing another proposal opposed by the HOP Panel and numerous commenters, CMS will conditionally package drug administration services assigned to APC 5691 (Level 1 Drug Administration) and APC 5692 (Level 2 Drug Administration) in current year (CY) 2018, which includes both chemotherapy and non-chemotherapy services.

The agency will still separately pay for these services when they are not provided with another separately payable service. Vaccine administration will still be separately paid, as preventive services are excluded from packaging.

CMS says these drug administration services are often reported on claims with other separately payable services and have geometric mean costs that are low, making them good candidates for packaging.

“The proposal excludes add-on codes associated with the APCs, such as additional hours of hydration or infusion, for now, but CMS is already talking about expanding its policy in CY 2019,” says Shah.

The 2018 OPPS final rule is available here and CMS has also released a fact sheet summarizing the major provisions. 

Revenue Cycle Advisor combines all of HCPro's Medicare regulatory and reimbursement resources into one handy and easy-to-access portal. News is not just repeated from other sources. It is analyzed by our Medicare experts so professionals can comprehend any new rule and regulatory updates thoroughly. Learn more.

Get the latest on healthcare leadership in your inbox.