CMS proposed a rule to reimburse over 1,600 hospitals an estimated $9 billion following a decision that deemed Medicare 340B payment cuts to be "unlawful." Advisory Board's Chloe Bakst, Julia Elder, and Lindsey Paul reflect on the future of the 340B program, what they got right following the court ruling last fall, and their predictions on what's next.

CMS proposes $9B reimbursement for 340B payment cuts

Between 2018 and Sept. 27, 2022, CMS cut 340B payments by around 30% for most outpatient drugs. In June 2022, the U.S. Supreme Court ruled that these cuts were "unlawful," and said CMS did not have the authority to reduce reimbursement rates.

On July 7th, CMS proposed a new rule that would reimburse 1,649 safety-net hospitals for roughly $9 billion in Medicare 340B payment cuts. 

If approved, the repayment plan will reimburse the affected hospitals through a lump sum payment by the end of 2023 or early 2024.

Because the proposed rule needs to be budget-neutral, CMS plans to decrease reimbursements for other services and products, including a 0.5% reduction in outpatient payment rates from 2025 to 2041. 

While some stakeholders have spoken out in support of the new rule, others have voiced concern over potential clawbacks.

American Hospital Association (AHA) President and CEO Rick Pollack said, "After more than five years of litigation and a unanimous Supreme Court victory, the AHA is extremely pleased that 340B hospitals will finally be paid back what they deserve so they can continue providing care to their patients and communities."

However, Pollack noted that while AHA is "especially gratified that  HHS  agreed with the AHA's position that these hospitals must be promptly repaid in full with a single lump sum," the agency "is disappointed that HHS has chosen to recoup funds from other hospitals that cannot afford additional Medicare payment cuts, including rural sole community, cancer and children's hospitals that were initially exempted from HHS' illegal policy." (Kacik, Modern Healthcare, 7/7; Dreher, Axios, 7/10; Asser, HealthLeaders, 7/7; Cass, Becker's Hospital CFO Report, 7/10; AHA News, 7/7; Morse, Healthcare Finance, 7/7)

3 predictions about the future of 340B 

By Chloe Bakst, Julia Elder, and Lindsey Paul 

After the 340B court decision last fall, we gave our take on three lingering questions about the future of the 340B program.

Now, with CMS' proposed remedy payment and offset plan, we're starting to see a clearer picture of where the program is heading. Here's what we got right last fall (and which answers have yet to be revealed).

1. How will this impact reimbursement?

Last fall, we predicted that CMS would cut rates for non-drug services to ensure budget neutrality, likely through a lowered conversion factor. The proposed remedy rule does exactly that. 

The policy will impact both 340B and non-340B hospitals. And this approach will have a different impact on each hospital depending on the past and future mix of drug and non-drug services the hospital offers. Qualifying hospitals should take this into consideration when preparing for the potential change.

During the comment period on the proposed rule, we expect to see many health systems express frustration or alarm with the reduced payments for non-drug items and services. Given the history of 340B legislation, another lawsuit is not out of the question (though this would not occur until after the rule is finalized). While CMS is likely to insist on budget neutrality, the agency may alter the timeline of the rollout of the lowered conversion in the final rule based on stakeholder comments.

2. How long can 340B entities expect to see an increased reimbursement rate?

In the proposed rule for CY 2024, CMS will continue to pay 106% of the average sales price to 340B-covered entities. Given CMS' actions over the last five years, it's unclear whether the agency will maintain this higher 340B reimbursement rate in the coming years. The decision to go with one lump payment rather than a longer-term payment schedule gives the impression that CMS is looking to remedy the underpayments and move forward with a new 340B payment approach.

For 340B-covered entities, the remedy payment will be a short-term boon coming at an opportune time, as many 340B hospitals have also seen decreased margins this year from other pharmacy services due to ongoing disputes over the use of contract pharmacies. Still, these organizations must think strategically and prepare for potential legal reductions in 340B reimbursements — instead of assuming that the higher rate is the new status quo.

3. What does this mean for the future of 340B?

Currently, 340B hospitals are in a good position. They receive full Medicare reimbursement, and they are likely to receive a lump sum payment by the end of the year. However, we don't know if either of these factors will impact overall volumes at 340B hospitals.

In the past, 340B reimbursement has driven additional infusion volumes into the hospital setting as hospitals acquired physician practices — but it's unclear whether this pattern will continue or whether hospital-based infusion is nearly maxed out.

While this chapter of the 340B controversy seems to be nearing resolution, we still don't know if the outcome will have any influence over the ongoing 340B payment dispute between manufacturers and contract pharmacies.