CMS finalizes changes to payment policy under the 340B drug discount program

The Centers for Medicare and Medicaid Services (CMS) on November 1, 2017, released the 2018 Hospital Outpatient Prospective Payment System (OPPS) final rule, moving forward with a significant change in payment policy under the 340B drug discount program that was included in the proposed rule earlier released in July.

Beginning January 1, 2018, CMS will no longer reimburse most 340B-purchased drugs at the standard Part B rate of Average Sales Price (ASP) plus 6 percent, and instead will pay a rate of ASP minus 22.5 percent. The change in payment policy has drawn sharp criticism from hospital organizations, including litigation by the American Hospital Association, the Association of American Medical Colleges, America’s Essential Hospitals and member hospitals to block the change in payment policy.

The change in payment policy was generally supported by the pharmaceutical industry in CMS’ proposed rule.

CMS said the policy change is intended to help reduce out-of-pocket costs for Medicare Part B enrollees, whose cost sharing under Part B is based on Medicare-approved charges for covered goods and services. Because Medicare statute requires that any regulatory changes to Medicare payment be budget neutral, this change is projected to shift $1.6 billion in Part B dollars away from 340B hospitals to an across-the-board upward adjustment of 3.2 percent for all non-drug OPPS payment rates, regardless of 340B participation.

Scope of the change in payment policy

Rural sole community hospitals, children’s hospitals, and Prospective Payment System-exempt cancer hospitals are excluded from this change in payment policy in 2018.

For other hospitals participating in 340B, the final rule explains that this change in payment policy will apply to any separately payable drugs and biologicals other than vaccines and drugs with “pass‑through” status that meet certain requirements relating to newness and relative cost. In addition, the policy will apply only to separately payable drugs, leaving payment policy for drugs purchased under a procedure code unchanged.

Operational considerations

In order to ascertain whether a drug was purchased under 340B, the final rule institutes a requirement that a modifier be applied to the Healthcare Common Procedure Coding System (HCPCS) code for the drug on any Part B 340B claims, as well as an informational modifier for use by 340B-participating providers who will be exempt from the 340B payment reduction.

In an accompanying fact sheet, CMS states that it “may revisit these policies for CY 2019 and is especially interested in exploring policies addressing the needs of safety net hospitals, which play a critical role in serving the most vulnerable populations.”

With respect to the 340B adjustment amount, CMS cites a recent Medicare Payment and Advisory Commission study1 indicating that 22.5% is the minimum discount that 340B providers are likely to have available, with the Government Accountability Office placing discounts in the range of 20 to 50 percent. Given the wide range of potential 340B discounts from market rates, the impacts of this payment modification will be highly dependent on a provider’s specific drug purchasing patterns.

Over the coming months, Deloitte will closely monitor the reaction from the life sciences and provider communities, continued congressional activity related to the program, and any subsequent changes to commercial reimbursement strategies.

Authors:

Anne Phelps
Principal | Deloitte Risk and Financial Advisory
US Health Care Regulatory Leader
Deloitte & Touche LLP
Latest conversations from Anne Phelps on Twitter

Karolyn Woo
Principal | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Daniel Esquibel
Senior Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Tony Lesser
Senior Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Ethan Joselow
Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

1Medicare Payment Advisory Commission (MedPAC) March 2016 Report to the Congress: Medicare Payment Policy

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

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