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Money Cut from 340B Will be Redistributed to Most Hospitals: Report

By Jack O'Brien  
   January 29, 2018

Despite a 28% 340B funding reduction from CMS, an estimated 85% of hospitals will receive offsetting OPPS reimbursements, according to a new study. 

Four weeks after CMS enacted a rule reducing Medicare payments for the 340B Drug Pricing Program, a new report indicates that a majority of hospitals will see those cuts offset by redistributed funds.

Avalere Health, a healthcare consulting firm in Washington, D.C., released a report Monday analyzing the impact of the 2018 OPPS Medicare Part B payment plan.

While the final rule issued by the Medicare Outpatient Prospective Payment System (OPPS) in December reduced payments to 340B hospitals by 28%—resulting in a $1.6 billion cut—Part B non-drug payments will more than offset the cuts for 85% of hospitals.

The 19.1% increase in non-drug payments for fiscal year 2018 is expected to exceed FY 2017 levels by $690 million.

Matt Brow, executive vice president and managing partner at Avalere, said the report indicates the biggest winners are rural non-340B hospitals and other non-340B hospitals, largely at the expense of urban and 340B hospitals. Despite the distinction between those who stand to gain or lose from the decision, the rule is unlikely to drive participating health systems from the program, Brow said.

“This will lessen the incentive to participate in the program, but it’s important to keep in mind they can use the 340B pricing for commercial payers as well,” Brow said. “This policy doesn’t change reimbursement [rates] for commercial payers or contracts, so to the extent that that incentive remains in place I’m not sure this will cause a lot of hospitals to drop out of the program.”

Rural hospitals will see a 2.7% net increase in Part B payments, the largest average increase, while urban hospitals will see only a 1.4% increase. It is important to note, however, that 80% of rural hospitals are not subject to the 340B cuts from CMS.  

The 340B program disburses Medicare payments to qualified disproportionate share hospitals (DSH) for the cost of outpatient drug purchases. The program has been the subject of criticism for lack of oversight, rampant abuse, and profiteering, according to a private study and a recent congressional report.

The Avalere research found that 55% of DSHs will see payment increases more than offsetting the 340B drug reimbursement cuts. DSH hospitals represent 93% of all 340B hospitals impacted by OPPS payment cuts.

The level of activity in the 340B program will also dictate how hospitals respond to the analysis detailed in the report. Brow said hospitals with minimal investment in 340B would likely see an increase in the redistribution funds while those facing a significant decrease, approximately half of hospitals, would be more likely to reexamine their participation in the program.

“It really depends where you sit on that 340B hospital range,” Brow said. “If you’re in the more than 10% [decrease] impact, you probably won’t have much solace in that. But if you’re in the increase set or less than 5% impact set, you might feel a little bit better about it.”

Outside of the effects on health systems, the new policies have the potential to invite patients to share in the savings, a scenario that has not existed in the past. Brow said the rule will result in lower out-of-pocket costs for beneficiaries, continuing with the Trump administration’s push to advance drug affordability.

The discussions surrounding the program and future policy proposals are far from done. Brow said CMS requested public comment on the redistribution payments during the initial rule process and is likely to hear from providers, specifically 340B hospitals, about how the rule should be enacted for 2019.

Advocacy groups like the American Hospital Association (AHA), swiftly responded after the Avalere report was released. 

In a statement provided to HealthLeaders Media, Tom Nickels, executive vice president of AHA, called the report "an attempt to again justify the industry’s agenda to misdirect and mislead."

"Perhaps more importantly, Avalere completely misses the point: CMS’s nearly 30% payment reduction for 340B drugs is unlawful and in excess of their authority under the law. The dramatic reduction to 340B drug payments is not permitted by the Medicare statute and the agency cannot concoct its own reimbursement rules that effectively eviscerate the benefits and intent of the 340B program."

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


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