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OPPS 340B Policy Reversal Lowers Hospital Payment and Increases Copays

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A new analysis from Avalere estimates the impact of reverting back to the Calendar Year (CY) 2017 Medicare Outpatient Prospective Payment System (OPPS) payment policy that reimbursed all separately payable drugs at average sales price (ASP) plus 6%. Key findings suggest beneficiary cost sharing for separately payable drugs at 340B OPPS hospitals would increase by $472.8 million. Also, 82% of all OPPS hospitals—specifically 89% of rural, 80% of urban, and 49% of 340B hospitals—would see net total payment decreases.

The Centers for Medicare & Medicaid Services (CMS) uses the OPPS to reimburse for Medicare-covered outpatient hospital services and pay separately for certain drugs that are administered during an outpatient hospital visit. Certain hospitals are eligible for and participate in the 340B Drug Pricing Program (340B Program). This separate program, administered by the Health Resources and Services Administration allows entities to purchase outpatient drugs at a discount—averaging 34%, but the discount range varies among facilities and drugs.1

The CY 2018 OPPS final rule and subsequent annual rules, including the CY 2021 rule, reduced Part B reimbursement to separately payable, non-pass-through Part B drugs (excluding vaccines) purchased through the 340B Program from ASP plus 6% to ASP minus 22.5%. The CMS’s reasons for the reimbursement change included increases in patient copayment amounts, the number of 340B covered entities, and Part B drug prices. An estimated $1.6 billion in reduced payments for drugs purchased by 340B hospitals were reallocated to increase OPPS payment rates by 3.2% to all OPPS hospitals for non-drug items and services due to the OPPS statutory budget neutrality requirement.

A federal district court ruled that the OPPS payment reductions for 340B drugs are unlawful. However, the US Court of Appeals reversed that decision and upheld the OPPS rule changes. Stakeholders filed a petition with the US Supreme Court requesting that the court review the case. The Federation of American Hospitals commissioned Avalere to examine the implications to hospitals of a reversal of the current OPPS payment policy for 340B drugs.


Reversing the current OPPS payment policy could increase beneficiary drug cost sharing for separately payable drugs purchased under the 340B Program by nearly 37%, as illustrated in the example below.

Figure 1. 340B Hospital Drug Price and Medicare Payment
Figure 1. 340B Hospital Drug Price and Medicare Payment

Approximately 82% of all OPPS hospitals analyzed would see a reduction in net total payments as a result of a policy reversal. Specifically, nearly 90% of rural OPPS hospitals would see a net payment decrease—those hospitals benefited from the increase in OPPS base payment rates for non-drug items and services while largely not being subject to the 340B drug payment cut.

Table 1. Total OPPS Net Payment Change, All Hospitals
Hospital Type Total Hospitals Number of Hospitals Estimated to See Decrease in Net Payment Percentage of Hospitals Estimated to See Decrease in Net Payment
Rural 725 644 88.8%
Sole Community and Essential Access 427 427 100.0%
Urban 2,729 2,184 80.0%
Total 3,454 2,828 81.9%

In addition, nearly half (49.4%) of all OPPS 340B hospitals would see a net payment decrease in total OPPS payments under a policy reversal. This occurs because the corresponding budget neutrality payment reduction for all non-drug items and services would outweigh the drug payment increase. The aggregate beneficiary cost-sharing amount for separately payable drugs across all OPPS 340B hospitals is estimated to increase by $472.8 million under a policy reversal. Of note, the specific cost-sharing amount a beneficiary pays for a drug or a service under OPPS is capped at the amount of inpatient hospital deductible, which is $1,484 in 2021.

Table 2. Net Impact of the OPPS 340B Payment Policy Reversal, 340B Hospitals
Hospital Type Total Hospitals Number of Hospitals Estimated to See Decrease in Net Payment Percentage of Hospitals Estimated to See Decrease in Net Payment
Rural 356 275 77.2%
Urban 876 334 38.1%
Total 1,232 609 49.4%

Note: Numbers may not add up due to rounding

Funding for this research was provided by the Federation of American Hospitals. Avalere maintained full editorial control.

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The analysis includes 3,454 hospitals paid under OPPS and included in the CY 2021 OPPS final rule’s facility-level Impact File. The analysis excludes 104 hospitals that did not participate in 340B in 2019 but are participating in the program as of February 2021 and that meet criteria for the reduced drug payments in 2021. This exclusion criterion prevents overstating the impact of a policy reversal.

Avalere analyzed the 2019 Medicare Standard Analytical File that includes 100% of fee for-service claims from hospital outpatient departments to estimate total reimbursement for Part B drugs (government and beneficiary portion), separating between non-340B and 340B volume. Avalere then projected claims-based drug reimbursement through 2021 using historical trend in OPPS drug payment rates. Avalere used the CMS-estimated hospital-level total OPPS payments for CY 2021 as a baseline to model the impact of the policy reversal that captures both the 340B drug payment increase back to ASP plus 6% for impacted hospitals and the reduction in annual base rate updates implemented back in 2018 for budget neutrality.


  1. MedPAC’s Report to the Congress: Medicare Payment Policy, March 2016, Chapter 3.
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