by Tiffany A. Hetland and Libby J. Orendorff
Husch Blackwell LLP is an IMA member full-service litigation and business law firm…
On July 13, the Centers for Medicare & Medicaid Services (“CMS”) put out its 2018 Medicare Hospital Outpatient Prospective Payment System Proposed Rule. The Rule proposes, among other things, to dramatically reduce Medicare Part B reimbursement of drugs procured by hospitals at 340B prices—from the current rate of Average Sales Price (“ASP”) plus 6 percent to ASP minus 22.5 percent. By CMS’s estimate, this could result in savings to the Part B program of $900 million and a corresponding cut to the 340B hospitals which currently receive those payments (and ostensibly use them in furtherance of the 340B program’s goal of assisting safety net providers in stretching their scarce resources).
As rationale for its proposal, CMS noted that Part B beneficiaries pay a coinsurance amount of 20 percent of the Part B reimbursement. By lowering the reimbursement amount, beneficiaries will directly realize a portion of the savings currently realized by the hospital. CMS also cited recent agency reports, including the Office of Inspector General’s November 2015 report on Part B reimbursement for 340B drugs (“Part B payments were 58 percent more than 340B ceiling prices” for the applicable period), the Government Accountability Office’s June 2015 report on 340B prescribing practices at hospitals (per beneficiary Part B spending was substantially higher at 340B DSH hospitals than non-340B hospitals), and the Medicare Payment Advisory Committee’s (“MEDPAC”) 2015 report to Congress on 340B pricing (noting exponential growth in the number of hospitals participating in the 340B program over the past few years and estimating that “the lower bound of the average discount is 22.5 percent of the average sales price for drugs paid under the OPPS”—the basis for the proposed new reimbursement rate).
In order to track 340B purchases and apply the lower 340B reimbursement, CMS proposes developing a modifier that would be placed on non-340B outpatient drugs purchased by 340B hospitals. CMS will take the general default position that outpatient drugs that are eligible for 340B pricing have been purchased at the 340B discount by a 340B hospital unless it’s indicated otherwise by the modifier. CMS intends to provide more information about this modifier in the Final Rule or subregulatory guidance.
Excluded from the proposed cut are vaccines and drugs that are on pass-through status. CMS is seeking comments on whether other kinds of drugs (including clotting factors) should also be excluded from the cut. In addition, it is seeking general comments on MEDPAC’s analysis and the ASP minus 22.5 percent estimate, such as whether the reduction should be phased in over time, whether a different payment rate should be adopted, ways to identify hospitals’ actual acquisition cost of drugs while still maintaining ceiling price confidentiality, and whether certain types of hospitals should be excepted from the reduction.
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