December 11, 2019

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CMS Ignores the Courts: 2020 Hospital Outpatient Prospective Payment System Final Rule Includes 340B Rate Cuts Already Ruled Unlawful

The Centers for Medicare and Medicaid Services (CMS) recently published the 2020 Hospital Outpatient Prospective Payment System (OPPS) rule, which finalizes a proposed reduction in Medicare Part B reimbursement for certain drugs provided by hospitals to outpatient beneficiaries that are acquired through the 340B drug discount program. Through the final rule, CMS purports to continue Medicare reimbursement cuts for 340B drugs first implemented in 2018, despite the fact that those cuts (and the 2019 OPPS rule continuing those cuts) are the subject of ongoing litigation in which the cuts were determined to be unlawful. That ruling, and a Court-imposed stay of the cuts, are the subject of a just-argued appeal.  For a detailed walk-through of the litigation up to this point, please see our prior blog post.

Background on the OPPS and 340B

Medicare Part B provides coverage for outpatient hospital care. The OPPS is a component of Part B that reimburses hospitals for outpatient services and drugs rendered to beneficiaries. Annually, CMS sets the rates for services covered by the OPPS for the upcoming year. Among other hospital services and products, Part B reimburses hospitals for separately payable outpatient drugs (SPODs). These are drugs reimbursed by Part B on an individual drug basis, rather than bundled together with other outpatient services.

As regular readers of our blog know, CMS sets the reimbursement rate for SPODs in the annual OPPS final rule. CMS has two methodologies through which it may set SPOD reimbursement rates. First, if CMS has access to “hospital acquisition cost survey data,” CMS is required to set the reimbursement rate for each SPOD as the drug’s average acquisition cost, “adjusted by the Secretary as necessary . . . .” If that data is not available, however, CMS’s fallback option is to calculate SPOD reimbursement by reference to the drug’s average sale price (ASP), “adjusted by [CMS] as necessary.” By statute, the default reimbursement rate for this fallback methodology is ASP plus 6%.

The 340B drug discount program sets a ceiling price for drugs that manufacturers can charge certain health care facilities, including disproportionate share hospitals, children’s hospitals, rural hospitals, and free-standing cancer hospitals. The 340B ceiling price is entirely independent of the SPOD reimbursement rates established by CMS. As a result, there can be a significant spread between a hospital’s 340B acquisition cost and the reimbursement rate paid under Part B.

Which is why CMS proposed cutting the OPPS reimbursement rate for 340B drugs from the default ASP plus 6% to ASP minus 22.5% in the 2018 Hospital OPPS Final Rule. Although 340B ceiling prices are considered confidential, CMS relied on a variety of studies and reports to substantiate the assertion that ASP plus 6% greatly exceeds the hospital’s acquisition cost for the 340B drugs.  CMS, therefore, justified the reduction on the OPPS authority to adjust reimbursement to approximate the drug’s average acquisition cost. 

340B Rate Cut Litigation

As detailed in our prior blog post, in a successful legal challenge to the reimbursement cut, the Court did not rule that Part B reimbursement of 340B drugs at ASP minus 22.5% failed to approximate acquisition cost.  Instead, the Court found that a Part B reimbursement cut of almost 30% was just too extreme to qualify as an “adjustment,” and CMS thus exceeded its authority by justifying the reduction through rulemaking.

Days later, on January 1, 2019, CMS’s 2019 OPPS Final Rule went into effect. The 2019 rule contained the same 340B rate cuts as the enjoined 2018 rule. The hospitals supplemented their Complaint, and on May 6, 2019 the Court extended its ruling, and the stay, to the 2019 OPPS rate cuts.

After dueling briefing on the proper remedy, the District Court finalized the injunction on the 2018 and 2019 reimbursement cut to allow for expedited appellate review.  Briefing in the Court of Appeals for the D.C. Circuit Court commenced on September 3, 2019, and oral arguments were held on November 8th.  Regardless of the decision, the ruling will likely be subject to requests for rehearing and an eventual request for Supreme Court review. 

The 2020 OPPS Final Rule

In the 2020 OPPS Final Rule, CMS finalized its proposal to continue paying 340B drugs at ASP minus 22.5%, despite the ongoing litigation and the fact that the rate cut is the subject of Court-imposed stays. The agency acknowledged, however, that if it is ultimately unsuccessful in the current litigation, CMS will face two challenges: 1) crafting a remedy to make the plaintiffs whole for the period of time during which the 2018 payment cut was in effect; and 2) determining whether there is any less drastic reduction in Part B 340B reimbursement that might pass legal muster going forward.

The 2020 OPPS Final Rule addresses both of these issues. In the event that CMS loses the litigation, CMS intends to conduct a 340B hospital survey to collect drug acquisition cost data from 2018 and 2019. This data may be used in setting the Medicare payment amount for 340B drugs going forward and may also be used to make the plaintiffs whole for the 2018 payment cut. The agency anticipates that survey data collected for CY 2018 and 2019 will confirm that the ASP minus 22.5 percent rate currently subject to litigation is, in fact, a conservative measure that overcompensates 340B hospitals.

In the alternative, CMS anticipates proposing a specific remedy in the 2021 OPPS proposed rule and will base that proposal on comments solicited in the 2020 proposed rule. In the 2020 Proposed Rule, CMS solicited public comment on potentially implementing a payment reduction that is a fraction of what it originally implemented in 2018: reducing Part B reimbursement for 340B drugs from ASP plus 6% to ASP plus 3%, which is a 3% reduction in Part B reimbursement rather than 30%. The agency notes that reimbursement at ASP plus 3% could be used both to make hospitals whole for the 2018 rate cut and to calculate 340B drug reimbursement levels going forward. However, a 3% reduction in 340B reimbursement would do little to redress one of the purported issues that CMS was trying to rectify through the original payment reduction:  Medicare beneficiaries are responsible for 20% of the cost for 340B drugs through co-pays and deductibles. A 3% reduction in the 340B reimbursement rate does little to reduce the out of pocket burden on beneficiaries.

Future Impacts and Considerations

Once the 2020 OPPS Final Rule takes effect, the hospitals will likely move for an injunction in the current litigation.  If there has been no ruling from the Court of Appeals by that time, the injunction will likely be granted.  If there has been a ruling from the Court of Appeals, the outcome of any request to stay the 2020 OPPS reimbursement cut will be heavily influenced by that decision. 

We cannot think about these efforts without reflecting on the situation involving CMS’ efforts regarding Medicaid work requirements.  CMS keeps approving State Medicaid Plans that condition Medicaid eligibility on the recipient’s employment status, and courts keep shooting down the CMS approvals as beyond the regulatory authority of the agency (and the state).  For now, it appears that CMS is going to keep trying until the agency gets a Judge to buy off on its agenda.  This also seems to be true with 340B reimbursement cuts.  CMS continues to adopt rules that cut Part B reimbursement rates for 340B drugs, despite Court rulings that the cuts are beyond the Agency’s regulatory authority.  

For now, the 2018 and 2019 reimbursement rates remain subject to a stay, meaning Medicare Part B reimbursement for 340B drugs remains at ASP plus 6%. 

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About this Author

Ellyn Sternfield, Mintz Levin, Law Firm, Washington DC, Health Care Law Attorney
Special Counsel

Ellyn has more than 30 years of legal experience, with an extensive background in the field of government health care enforcement.

Ellyn’s experience enables her to provide valuable insight to clients facing potential state or federal investigations, or who have general compliance concerns. Ellyn currently represents a variety of health care product and service providers in federal and state administrative, civil, and criminal matters around the country. She conducts internal reviews and investigations for clients concerned about potential compliance issues. Ellyn advises clients on...

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Daryl M. Berke Health Care Compliance Attorney Mintz
Associate

Daryl advises on compliance matters pertaining to federal and state health law statutes and represents clients in health law matters before state and federal courts.

He has counseled clients on transactional and regulatory issues relating to the Beneficiary Inducement Prohibition, federal and state anti-kickback statutes, the Stark Law, and Medicaid and managed care reimbursement. He conducts regulatory analyses on health care transactions and regularly reviews and drafts hospital affiliation agreements, provider group agreements, and managed care contracts. 

Prior to joining Mintz, Daryl was an associate in a DC-area law firm with a significant focus on health law. While attending law school, he served as an articles editor for the American Journal of Law & Medicine and as an intern with the Children’s Disability Project at Greater Boston Legal Services, where he assisted with Supplemental Security Income appeals for low-income families of children with disabilities.

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