Avalere previously estimated the impact of increasing reimbursement for 340B drugs in Medicare Part B to average sales price (ASP) + 6% as finalized in the calendar year (CY) 2023 Outpatient Prospective Payment System (OPPS) final rule using the Centers for Medicare & Medicaid Services’ (CMS) impact files. An updated analysis of Part B spending using claims data examines how overall hospital payment would be affected by using an alternative reimbursement approach. The alternative approach, based on a survey of acquisition costs conducted in 2020, would have increased Part B payment for 80% of all hospitals compared to the finalized policy.

Background

In the CY 2023 OPPS final rule, CMS increased payment for separately payable drugs acquired through the 340B Drug Pricing Program and administered during an outpatient hospital visit. The 340B program allows eligible hospitals to purchase outpatient drugs at a significant discount to serve vulnerable patients.

This policy change will mark an increase in payment for 340B drugs compared to recent years. In CY 2018, CMS reduced reimbursement for products purchased through the 340B Program from ASP + 6% to ASP – 22.5% to align more closely with estimated acquisition costs for 340B hospitals.

The policy was the subject of litigation, culminating in a June 2022 Supreme Court decision in American Hospital Association v. Becerra. The court ruled that CMS unlawfully reduced reimbursement for 340B products and may not vary payment rates for drugs and biologicals among groups of hospitals without conducting a survey of hospital acquisition costs. This case pertained only to the cuts applied in 2018 and 2019, although ongoing litigation relates to other years.

When changing payment rates under OPPS, CMS adheres to budget neutrality requirements, meaning that increases in spending on drugs are used to support decreased payment rates for non-drug services. This objective is achieved by adjusting the “conversion factor” that serves as a base rate for outpatient services. In increasing the reimbursement from ASP – 22.5% to ASP + 6% for 340B-acquired drugs, CMS is applying a negative 3.2% adjustment to the conversion factor to reduce reimbursement for non-drug services (a reduction that would be borne by all outpatient hospitals, not just 340B sites).

Survey-Based Reimbursement

Although CMS finalized a policy to return to a payment rate of ASP + 6% for 340B-acquired drugs based on the outcome of American Hospital Association v. Becerra, the Supreme Court’s opinion specifically notes that drug reimbursement may be altered among hospitals when utilizing survey data on drug acquisition costs. CMS conducted a survey in 2020 to estimate hospital acquisition costs for 340B drugs, and survey findings were summarized in the CY 2021 OPPS proposed rule.

Based on the April–May 2020 CMS survey, the agency estimates that the typical hospital acquisition cost for 340B drugs is ASP – 34.7%. In accordance with these results, CMS proposed a net payment of ASP – 28.7% in the CY 2021 OPPS proposed rule, incorporating a 6% of ASP add-on amount to maintain parity with Part B drugs outside of 340B. In the CY 2022 OPPS final rule, however, CMS adopted a payment rate of ASP – 22.5% instead of following the survey data.

The goal of Avalere’s analysis was to consider how hospital reimbursement would be affected if CMS were to use the survey findings and apply a reimbursement rate of ASP – 28.7% rather than the recently finalized ASP + 6% rate.

Findings by Hospital Type

Avalere used Part B claims from 2021 to assess the impact on Part B payments if CMS were to leverage the survey findings for reimbursement. Reducing payment to ASP – 28.7% from ASP + 6% would create an estimated $2.4 billion in savings on drug spending, which could be used to increase payment for non-drug services. Avalere distributed those savings between OPPS hospitals based on their share of total non-drug spending in CY 2021 to better understand the impact that using a survey-based methodology would have had.

Based on the annualized CY 2021 claims, Avalere estimates that if the agency had adopted the survey-based reimbursement level (ASP – 28.7%), 80% of all hospitals would have received a payment increase that they will now not see due to the finalized policy. Specifically, 79% of rural, 82% percent of urban, and 58% of 340B hospitals would have seen an increase in OPPS payments based on 2021 volume. On average, payment increases would have been between 2.5% for rural hospitals and 2.9% for urban hospitals if 2023 reimbursement for 340B drugs were finalized at ASP – 28.7% compared to ASP + 6%. Among 340B hospitals, Rural Referral Centers would have experienced a 2.9% increase on average, while Sole Community Hospitals would have seen a 4.3% increase in Medicare Part B payment on average compared to maintaining the finalized reimbursement policy.

Among 340B entities, which are intended to care for indigent patients, adopting the survey-based payment approach would have a smaller effect than other hospital types, with an average decrease of 0.1% overall. Disproportionate Share Hospitals would have seen a projected payment decrease of 0.9% on average.

Findings by Hospital Size

Avalere’s research indicated that hospitals with fewer than 100 beds have the biggest impact resulting from the finalized policy compared to the survey-based approach, as they would have seen an average 4.0% increase in payments. Providers with 100-500 beds would have had a 2.3% increase, and hospitals with more than 500 beds would have faced an average decrease of 1.3%.

Funding for this research was provided by the Community Oncology Alliance. Avalere maintained full editorial control.

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Methodology

Avalere annualized claims from the Medicare Part B Standard Analytic File from Q1 to Q3 of CY 2021, isolating payment for 340B drugs using the “JG” modifier billed on separately payable drug claims. Claims from 2021 reflected payment at the rate in place at the time of ASP – 22.5%. Spending was then adjusted to reflect the alternative survey-based approach of ASP – 28.7% and the finalized CMS approach of ASP + 6%. In both scenarios, changes in 340B spending were attributed to non-drug spending for each hospital based on their proportional share of total non-drug Part B spending. The two approaches (survey-based and CMS-finalized) were then compared to understand the impact of electing for the increased payment policy compared to utilizing the 2020 survey results. Avalere assessed current (as of July 2022) hospital 340B participation using the Health Resources and Services Administration’s Office of Pharmacy Affairs Information System.