September 21, 2020

Volume X, Number 265

September 18, 2020

Subscribe to Latest Legal News and Analysis

CMS Proceeds With Controversial 340B Acquisition Cost Survey During COVID-19 Pandemic – Due May 15, 2020

Hospitals that purchase certain covered outpatient drugs at 340B pricing received notice late last week that they must quickly compile and submit their net acquisition costs for 340B-purchased drugs to their Medicare Administrative Contractors (MAC) in just over two weeks, with submissions due by May 15, 2020. CMS’s Hospital Survey for Specified Covered Outpatient Drugs (SCODs) excludes critical access hospitals. This comes at a time when 340B safety-net hospital resources are under tremendous pressure given the current COVID-19 pandemic.

It is extremely important that hospitals carefully consider how they respond to this survey, if at all. Given the legal and policy considerations at issue, we surmise that hospitals should consider 1) not responding or 2) using the Detailed Survey option, AND 3) submitting correspondence to their respective MACs stating their objections to the survey.

As we previously described here, CMS’s Hospital Survey for SCODs continues to be riddled with potential for hospitals to inadvertently make inaccurate affirmative public disclosures of pricing data. The outcome is very likely to negatively influence future Medicare reimbursement rates and the potential “fix” to prior underpayments by CMS that relate to ongoing litigation of CMS’s controversial ASP minus 22.5% payment reduction described here.

The timing and content of the survey raise a number of key considerations that respondents should carefully analyze before completing CMS’s survey. Given the potential implications noted above, rapidly completing the survey may have unintended and long-term reimbursement consequences.

Key Survey Details

  • On April 23, 2020, Office of Management and Budget (OMB) issued notice that it approved CMS’s Hospital Survey for SCODs for a limited period (18 months) after which CMS must request approval to extend or revise the survey further.

  • The survey intends to collect the “net acquisition cost” for SCODs acquired under the 340B program. CMS defined the net acquisition cost as the 340B ceiling price after all applicable discounts. Survey responses should exclude SCODs that are purchased outside of the 340B program – meaning at a rate higher than the 340B ceiling price which may often occur in the marketplace.

  • CMS purports to collect 340B pricing data per Section 1833(t)(14)(D)(ii) of the Social Security Act (SSA Section 1833). As noted in CMS’s survey instruction sheet, any hospital that was enrolled in the 340B program in Q4 2018 and/or Q1 2019 is required to complete the survey. As discussed below, hospitals should consider whether the Social Security Act actually provides CMS with authority to conduct its survey in the manner presented and, related, whether hospitals have a duty to respond.

  • To complete the survey, hospitals must log into the 340B Drug Survey Gateway here, with their Medicare Provider Number, NPI, and the last 5 digits of their Tax ID Number. Once logged in, hospitals have two options to complete the survey:

    • Quick Survey - Hospitals may choose to provide identifying information only but have to affirm that they prefer that CMS utilizes HRSA’s 340B ceiling prices for all SCODs. This option does not provide hospitals with the ability to verify the accuracy of CMS’s data. As a result, a hospital may ultimately report incorrect data if, for example, (i) the hospital actually purchased any or all of the drugs at issue at sub-ceiling prices after all applicable discounts or (ii) the hospital’s net acquisition cost is actually above the 340B ceiling price after factoring in circumstances where hospital was unable to purchase a drug at the 340B price. While CMS specifically stated that costs for drugs purchased outside of the 340B program should not be included, failure to account for non-340B purchases in the net acquisition cost of a drug fails to recognize that hospitals may and often do have to purchase SCODs at non-340B prices.

    • Detailed Survey- Hospitals also have the option of reporting their net acquisition cost of individual SCODs. As we’ve previously described here, the detailed survey option continues to present a number of issues:

      • Due to continued flaws in CMS’s source data and survey methodology, even those hospitals that are willing to complete the detailed survey will face challenges in doing so.  Hospitals that choose the detailed survey option should know that if they do not report costs for any of the SCODs, CMS will apply the 340B ceiling price as a proxy.

      • Covered entities’ reporting is susceptible to errors – for example, multiple NDCs are billed under a single HCPCS code. CMS’s instructions still do not fully account for this scenario.

      • Certain contractual confidentiality issues remain.

      • The detailed survey does not contemplate hospitals paying above 340B ceiling prices when drugs are not purchased through a 340B account as briefly discussed above.

Key Takeaways

Hospitals that are faced with completing CMS’s survey need to consider all options, including the impact and repercussions, if any, of not responding to the survey. There are very specific requirements and limitations contained in SSA Section 1833, and it’s unclear whether CMS’s survey adheres to the applicable parameters. If not, hospitals may have a basis not to respond and to challenge the validity of the survey.

One example includes whether CMS’s survey is sufficiently broad. In other words, does SSA Section 1833 allow CMS to limit the survey to a very specific subset of hospitals and, within that subset, to limit the requests to a specific category of drugs? Further, does the survey reasonably account for scenarios and resulting enhanced costs when hospitals cannot purchase a product at or below the 340B ceiling price? These are critical questions that may be addressed in the ensuing weeks or once CMS issues a proposed rule that relies on the survey data.

Likewise, it’s possible that OMB and courts would deem CMS’s survey invalid if CMS receives insufficient responses.  SSA Section 1833 requires that the survey must have a “large sample of hospitals that is sufficient to generate a statistically significant estimate of the average hospital acquisition cost for each [SCOD].” Likewise, the survey itself does not mention any implications or penalties for not submitting the survey.  Reading the tea leaves, we believe OMB is aware of this potential problem as OMB’s approval of CMS’s survey stated that: “CMS must prepare a report providing a nonresponse bias and standard error analytical results and share with OMB prior to utilization of data for future publications, including rulemaking.” If enough hospitals opt not to respond to the survey on the basis that CMS lacks authority under SSA Section 1833, CMS may have to answer to OMB before rulemaking on the basis of the survey can occur.

On the other hand, it is reasonable to assume that CMS will attempt to use the 340B ceiling price in circumstances where hospitals fail to respond to the survey. As noted in CMS’s instructions, if a hospital chooses to use the quick survey method or the detailed survey method but doesn’t report the net acquisition cost for a SCOD, CMS will use the 340B ceiling price as a proxy. That approach seems problematic under the survey requirements noted above because it may result in a sample that is not large enough to generate a statistically significant estimate of the average acquisition cost required under SSA Section 1833. Hospitals must carefully consider the risk that CMS appears focused on using the ceiling price to set future 340B reimbursement. We would encourage all affected hospitals to submit a letter to their MACs identifying their ongoing objections to the survey for purposes of establishing a record in the event legal challenges come to fruition.

Another key question is whether respondents should proceed with the “Quick Survey” or the “Detailed Survey.”  Based on comments from many of our contacts, we believe hospitals initially prefer CMS’s Quick Survey option due to the lower administrative burden. We urge caution here for the reasons described above. The Quick Survey option lacks the transparency needed to ensure that CMS has accurate ceiling price data and that the data has been correctly applied to each HPCPS code, particularly when there are multiple NDCs (i.e., unique drug products/packages) that role up to a single HPCPS code. Using the Quick Survey option when a hospital has access to sub-ceiling prices could result in reporting inaccurate information. Many hospitals have already raised the latter scenario as a concern.

CMS’s authority to conduct the survey is questionable, but the results are very likely to disproportionately represent the lowest of 340B drugs acquisition costs that will inform and support CMS’s proposed Medicare 340B payment rates for CYs 2021 and/or 2022, as well as the remedies for the 2018-2020 340B underpayments.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 121

TRENDING LEGAL ANALYSIS


About this Author

Kyle A. Vasquez, Polsinelli, Compliance Support Lawyer, Health Care Reform Attorney
Counsel

Kyle Vasquez provides pragmatic legal and compliance support to a wide range of health care clients. He utilizes his background in health law and his prior experience as a health care consultant to develop creative approaches that address the unique challenges that health care providers face. Kyle works collaboratively with health care stakeholders to assist in identifying forward-thinking models that meet their financial and operational needs. Kyle represents a broad set of health care entities including multi-hospital health systems, community hospitals, FQHCs,...

312.463.6338
Associate

Lidia Niecko-Najjum helps clients solve problems through pragmatic and business-focused client counseling and advising. With 10 years of cumulative experience in nursing, policy, and law, her practice focuses on health care regulatory, coverage and payment, compliance, transaction, and policy matters. 

202-626-8396
William D. Galvin III Polsinelli Associate Kansas City HealthCare
Associate

William D. Galvin is dedicated to providing effective, efficient and innovate legal solutions to health care clients. He applies his understanding of health care issues towards representing hospitals, physician groups, and other health care professionals and organizations in a variety of health care matters.

William’s past experience includes working for a large health information technology vendor negotiating contracts with third party suppliers and coordinating with internal stakeholders and the legal and finance departments. While pursuing his Master of Laws (“LL.M.”) William...

816.572.4693
Mary Buckley Tobin Health Care Attorney
Associate

Mary Buckley Tobin is an associate in the Health Care Operations practice group. Her practice focuses on regulatory issues affecting health care providers, including reimbursement, fraud and abuse and clinical research.

Mary advises health care providers and practitioners on a variety of complex regulatory and compliance issues, including:

• Licensing rules

• Telehealth reimbursement rules

• Fraud and abuse laws, including Stark Law, Anti-kickback statues and False Claims Act

•...

312.873.2967