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CMS Advances 340B Drug Acquisition Cost Survey to OMB and Solicits Final Comments Directly to OMB

On February 7, 2020, the Centers for Medicare and Medicaid Service (CMS) published a notice signaling that it has submitted its previously published September 2019 proposed survey of hospital 340B drug costs for Office of Management and Budget (OMB) approval. Through the Survey, CMS plans to collect information on hospitals’ acquisition costs for 340B drugs, and it may use that data to set future reimbursement rates for 340B drugs furnished by hospitals to Medicare beneficiaries.

IN DEPTH


On February 7, 2020, the Centers for Medicare and Medicaid Service (CMS) published a notice (the Notice) signaling that it has submitted its previously published September 2019 proposed survey (the Survey) of hospital 340B drug costs for Office of Management and Budget (OMB) approval. Through the Survey, CMS plans to collect information on hospitals’ acquisition costs for 340B drugs, and it may use that data to set future reimbursement rates for 340B drugs furnished by hospitals to Medicare beneficiaries. The Notice advises the public of its opportunity to submit final comments to the survey directly to the OMB by March 9, 2020.

Background

In the Calendar Year 2018 Medicare Hospital Outpatient Prospective Payment System (OPPS) final rule (2018 Final Rule), CMS reduced the Medicare reimbursement rate for drugs purchased through the 340B program from the Average Sales Price (ASP) plus 6% to ASP minus 22.5%. CMS explained in the 2018 Final Rule that it did not have hospital acquisition cost data for 340B drugs, but it would nonetheless set the reimbursement rate at an approximation of hospital acquisition cost for 340B drugs, as previously calculated by MedPAC to be 22.5% less than ASP. CMS characterized the reimbursement rate reduction as an “adjustment” from the standard ASP plus 6%.

The rate reduction was challenged in federal court. In December 2018, the US District Court for the District of Columbia ruled that the Department of Health and Human Services (HHS) exceeded its statutory authority to adjust payment rates under the OPPS for separately payable, 340B-acquired drugs from ASP plus 6% to ASP minus 22.5% (American Hospital Ass’n v. Azar, 348 F. Supp. 3d 62, 82-83 (D.D.C. 2018). The ruling was made, in part, on the basis that HHS had not collected the necessary data to set payment rates for 340B drugs at rates lower than non-340B drugs because CMS has not obtained 340B drug acquisition cost data. HHS has appealed the ruling. While the case is under appeal, CMS has continued to reimburse 340B drugs at ASP minus 22.5%.

The Initial Notice

In September 2019, CMS published notice of its intent to collect information on 340B drug acquisition costs from hospitals participating in the 340B Program. CMS would require responses from all hospitals that were enrolled in the 340B program in the last quarter of 2018 and/or the first quarter of 2019 to respond to the survey. Hospitals would be required to submit the net acquisition costs for each drug acquired under the 340B Program. This cost may be the 340B ceiling price, a 340B sub-ceiling price, or another amount, depending on the discounts the hospital received when acquiring a particular drug. In instances where the acquisition price for a particular drug is not available or submitted in response to the survey, CMS indicated that it intends to use the ceiling price for that drug as a proxy for the acquisition cost. The acquisition cost would need to be reported regardless of whether the drug was dispensed, whether it was dispensed in multiple settings, or how it was purchased.

More specifically, the Survey would require respondents to complete an Excel spreadsheet with the following information:

  • Hospital name, address, and contact information

  • Provider CCN Number

  • HCPCS code for each drug

  • Drug name / short descriptor

  • Dose (as reflected in HCPCS dose descriptor)

  • National Drug Code (optional)

  • Q4 2018 Payment Rate

  • Q1 2019 Payment Rate

  • Average 340B price of drug for Q4 2018

  • Average 340B price of drug for Q1 of 2019

Originally, the Survey response period was proposed to begin on February 17, 2020, and end on March 16, 2020.

The Republished Notice

Despite significant opposition from 340B hospital stakeholders to the CMS data collection effort and identification of material concerns regarding the Survey content and methodology, on February 7, 2020, CMS republished the Survey with only minor, non-substantive revisions. The republication is consistent with standard procedures under the federal Paperwork Reduction Act (PRA) that require federal agencies to provide the public with an opportunity to provide comments directly to OMB in connection with proposed data collection activities. The republished notice permits the public to submit comments directly to OMB until March 9, 2020. The PRA provides OMB with 60 days to review comments before finalizing the Survey.

Notably, the Survey materials published on the CMS website indicate that Survey response period will run from March 23, 2020, through April 10, 2020. Therefore, it is possible that the OMB review period may extend beyond the currently identified data collection period. If the OMB review extends beyond March 23, 2020, it is unclear whether the data collection period will be modified and, if so, to what dates.

Takeaways

Although comments to the initial notice did not appear to materially alter CMS’s plan to survey hospitals for 340B drug acquisition cost data, stakeholders that expect to be affected by the collection and its potential implications should consider submitting comments to OMB regarding the proposed collection. The collection will proceed if the Survey is approved by OMB. Stakeholders should consider specifically focusing on considerations relevant to the OMB’s review (e.g., whether CMS has taken every reasonable step to ensure the proposed collection of information is the least burdensome necessary for the proper performance of its functions to comply with legal requirements and achieve program activities; is not duplicative of information otherwise accessible to the agency; and has practical utility).

CMS has indicated that the purpose of the Survey is to collect data necessary to establish lower “acquisition cost” payment rates for 340B drugs dispensed to hospital Medicare patients. While it remains uncertain whether a court would agree that the Survey meets the statutory requirements necessary to use the data for such purposes, if CMS is unsuccessful in its appeal of the prior 340B rate cuts, it is highly likely that CMS will use the data for both prospective rate cuts and possibly in connection with any remedies required for the prior rate cuts. Further, if the Survey data reflects rates below the prior 22.5% rate cut, CMS could proceed with even more significant cuts to 340B payments.

While it remains unclear what authority CMS would rely on to enforce the reporting requirement, hospitals’ failure or refusal to submit their acquisition costs may result in CMS relying on ceiling prices or otherwise inaccurate prices for purposes of future rate setting.

© 2020 McDermott Will & Emery

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About this Author

Emily J. Cook, McDermott Will Emery Law Firm, Health Care Attorney
Partner

Emily J. Cook is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Los Angeles office.  She focuses her practice on Medicare provider certification, reimbursement and regulatory compliance.

310-284-6113
Steven J. Schnelle, Mcdermott, healthcare lawyer
Associate

Steven Schnelle focuses his practice on regulatory and transactional matters involving health care providers and suppliers, as well as pharmaceutical firms and medical device manufacturers.

Steven provides counsel on a variety of issues involving the Centers for Medicare and Medicaid Services (CMS), the HHS Office of Inspector General (OIG), the Department of Justice (DOJ), as well as state and local government agencies. He advises private equity firms, investment banks, commercial lenders, and health care and life science companies on health care regulatory issues relating to mergers and acquisitions, securities filings, and financing in the United States. Steven also counsels clients on audits and investigations of health care and life sciences companies, as well as administrative filings and appeals.

While in law school at Georgetown University Law Center, Steven served as an editor of The Georgetown Law Journal.

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