For a more up-to-date treatment of this topic, please see 340B Drug Payment Increase Would Reduce Most Hospitals’ Part B Pay.

Background

As stakeholders submit comments to the Centers for Medicare & Medicaid Services (CMS) on the Calendar Year (CY) 2023 Outpatient Prospective Payment System (OPPS) proposed rule, a key topic of concern is how the agency will approach payments for 340B drugs in Medicare Part B. In the final 2023 OPPS rule, CMS will determine the payment method for separately payable drugs that are administered during an outpatient hospital visit, including drugs that were acquired through the 340B Drug Pricing Program. The 340B program allows eligible hospitals to purchase outpatient drugs at a significant discount to serve vulnerable patients.

Because 340B hospitals can purchase drugs at a discount, CMS finalized a proposal in the CY 2018 OPPS final rule (and subsequent annual rules) to reduce Part B reimbursement for separately payable, non-pass-through Part B drugs (excluding vaccines). Medicare payment for products purchased through the 340B Program was reduced from Average Sales Price (ASP) + 6% to ASP – 22.5% to align more closely with estimated acquisition costs for 340B hospitals.

The policy has been the subject of litigation, culminating in a June 2022 Supreme Court decision in American Hospital Association v. Becerra. The court ruled that CMS had unlawfully reduced reimbursement for 340B products and may not vary payment rates for drugs and biologicals among groups of hospitals without first 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.

In the CY 2023 OPPS proposed rule, CMS formally proposed to maintain a payment rate of ASP – 22.5% for drugs and biologicals acquired through the 340B program. The agency has since stated that it ultimately anticipates applying a rate of ASP + 6% in the final rule, likely due to the potential impact of additional ongoing litigation.

When changing payment rates under OPPS, CMS adheres to budget neutrality requirements, meaning that reductions in spending on drugs are used to support increased payment rates for non-drug services. This objective is achieved by increasing 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 estimates that this policy change would result in increased drug spending of $1.96 billion in 2023. Because of budget neutrality requirements, the conversion factor would then be lowered to reduce reimbursement for non-drug services by $1.96 billion (a reduction that would be borne by all outpatient hospitals, not just 340B sites). Avalere conducted an analysis to assess how all hospitals and Medicare beneficiaries would be affected by this policy change to increase reimbursement to 340B hospitals for drugs.

Findings by Hospital Type

Based on a review of CMS’s published OPPS impact files, Avalere found that if the agency reverses the 340B drug payment reductions next year and offsets that reversal by reducing reimbursement across other (non-drug) services, 80% of all hospitals will experience a net decrease in payment. Specifically, 86% of rural, 79% percent of urban, 99% of non-340B, and even 52% of 340B hospitals will see a reduction in total OPPS payments. On average, payment decreases will be between 1.7% for rural hospitals and 1.24% for urban hospitals if 2023 reimbursement for 340B drugs is finalized at ASP + 6%. Among 340B hospitals, Rural Referral Centers are estimated to experience a 1.1% reduction on average, while Sole Community Hospitals would see a 2.3% decrease in Medicare Part B payment on average compared to maintaining current reimbursement levels.

Notably, payment cuts for rural hospitals would coincide with CMS’s expression of concern, in the CY 2023 OPPS proposed rule, that rural hospitals face steep financial challenges. Among 340B entities, which are intended to care for indigent patients, payment will increase only for disproportionate share hospitals as a result of the proposal with a projected payment increase of 1.75% on average. However, these benefits tend to flow to larger disproportionate share hospitals while smaller disproportionate share hospitals (those with <100 beds) will face only a modest average pay increase.

Findings by Hospital Size

Avalere’s research indicated that hospitals with fewer than 100 beds would face an average OPPS payment decrease of 2.29%, providers with 100-500 beds would face a decrease of 0.97%, and hospitals with more than 500 beds would face an average increase of 2.03%.

Survey-Based Reimbursement

Although CMS stated its intent 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. In the CY 2020 OPPS final rule, CMS confirmed its intention to conduct a 340B hospital survey to inform the Medicare payment amounts for drugs acquired by 340B hospitals. CMS conducted a survey in April and May 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 and May 2020 CMS survey, the agency estimates that the typical hospital acquisition cost for 340B drugs is ASP – 34.7%. CMS arrived at this estimate through an approach that was said to yield the “most conservative reduction to ASP” and would be “most generous to hospitals,” meaning that average discounts likely exceed the 34.7% established in the survey. In proposing reimbursement rates for 340B drugs, CMS also aimed to ensure payment parity with the add-on amount that applies to Part B drugs outside of 340B (6% of ASP). Therefore, in the CY 2021 OPPS proposed rule, CMS proposed a net payment of ASP – 28.7% based on the results. Ultimately, in the CY 2022 OPPS final rule, CMS adopted a payment rate of ASP – 22.5%, maintaining the status quo and opting not to leverage the survey data.

Avalere used estimates from CMS’s survey to consider the impact on Part B payments if CMS were to leverage the findings and apply a reimbursement rate of ASP – 28.7% in 2023. If CMS were to adopt new OPPS reimbursement at ASP – 28.7%, it would represent an overall 8% decrease in reimbursement from current levels for 340B-acquired drugs, ASP – 22.5%. In comparison, finalizing OPPS reimbursement at ASP + 6% would represent a 37% increase from current levels. Assuming a proportional impact, finalizing OPPS reimbursement at ASP + 6% could generate $426 million in savings on Medicare Part B drug spending, which would likely be used to further increase the conversion factor. Therefore, the overall budget at play between the two reimbursement approaches would amount to $2.4 billion, or up to $47 billion over 10 years, assuming current growth trends continue.

Beneficiary Cost Sharing

Drug cost sharing for Part B beneficiaries is directly affected by the reimbursement level set for drugs by CMS. Under original Fee-for-Service (FFS) Medicare, 80% of a drug’s cost is covered by Medicare while beneficiaries are responsible for 20% coinsurance after the Part B deductible. FFS-enrolled beneficiaries with no supplemental coverage must pay the remaining 20% cost sharing with no out-of-pocket limit. Therefore, fluctuations in reimbursement levels for Part B drugs have an impact on out-of-pocket costs for some beneficiaries.

Using CMS’s estimate of $1.96B in additional 340B drug spending associated with a payment methodology of ASP + 6%, Avalere extrapolated that the change could increase aggregate FFS patient out-of-pocket liability by up to $66.6 million for those products, after accounting for the 83% of traditional Medicare beneficiaries with supplemental insurance. However, if CMS were to finalize the OPPS reimbursement rate using drug acquisition cost survey data at ASP – 28.7%, total FFS beneficiary liability for Part B drugs could decrease by $14.5 million, for a total net difference of $81 million in drug cost sharing between the two reimbursement approaches in 2023. However, because of budget neutrality requirements that would result in changes to the conversion factor along with drug reimbursement changes, savings would be mitigated by cost sharing changes for non-drug services.

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

Methodology

Avalere analyzed two sets of CMS’s CY 2023 OPPS Proposed Rule Impact files that were provided to reflect the current payment policy for 340B-acquired drugs of ASP – 22.5% and a conversion factor of $86.875. The “Alternative 340B Hospital Impact File” reflects a payment policy for 340B-acquired drugs of ASP + 6% and a conversion factor of $83.865. Some facility data were sourced from the 2022 Hospital General Information file.

Avalere assessed current (as of July 2022) hospital 340B participation using the Health Resources and Services Administration’s Office of Pharmacy Affairs Information System.

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