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CMS Proposes Additional Cuts to Part B Reimbursement of 340B Drugs

On August 4th, the Department of Health and Human Services (HHS) Centers for Medicare and Medicaid Services (CMS) published the 2021 Hospital Outpatient Prospective Payment System (OPPS) proposed rule. The rule proposes to cut Medicare Part B reimbursement for 340B drugs by an additional 6% in 2021 and comes days after the D.C. Court of Appeals upheld a 340B rate reduction of nearly 30% in the 2018, 2019, and 2020 OPPS rules. The agency is relying on data collected through a recent 340B acquisition cost survey to justify the additional rate reduction.

The OPPS and 340B Rate Cuts

The OPPS proposed rule adopts a 340B reimbursement rate of Average Sales Price (ASP)-34.7%, with a 6% add-on amount for overhead and handling costs, for a net proposed rate of ASP-28.7%. This cut represents an additional 6% reduction in reimbursement from the 340B rate cuts introduced in 2018 that were upheld in a split decision from the Court of Appeals on July 31, 2020.

As regular readers of our blog know, HHS can set hospital reimbursement for Part B drugs in one of two ways. First, HHS may set reimbursement by relying on acquisition cost data to approximate hospitals’ average acquisition cost for drugs. If that data is not available, the relevant statute permits HHS to calculate reimbursement using the average price for the drug, adjusted as necessary by HHS.

HHS previously lacked adequate data on 340B acquisition cost because historically that information was considered confidential. As a result, the agency was forced to rely on an estimate of average drug price when it initially reduced the OPPS reimbursement rate for 340B drugs by nearly 30% (to ASP-22.5%) in the 2018 OPPS Final Rule. Covered entities sued to overturn the 2018 rate cut.

While the case was on appeal at the Court of Appeals for the D.C. Circuit, HHS hedged its bets by instituting a hospital acquisition cost survey of 340B drugs. On April 24, 2020, as hospitals grappled with the COVID-19 pandemic, HHS circulated the survey, and permitted covered entities just three weeks to respond.  Hospitals were asked either to provide detailed information on their 340B acquisition costs, or to certify that they purchase 340B drugs at the ceiling price (this second option, the so-called “quick survey”). Given the timing of the survey, it is no surprise that just 7% of hospital covered entities provided a detailed response. 55% of hospitals completed the quick survey option, and 38% did not respond at all. Subsequently, HHS prevailed on appeal, and the initial 340B rate cuts were upheld. Now, the agency is relying on data from the survey to further reduce net reimbursement rates by an additional 6%.

Future Impacts and Considerations

Although HHS is proposing to adopt a net reimbursement rate of ASP-28.7%, the agency is soliciting comment on continuing the current Medicare payment policy of paying ASP-22.5% as an alternative to the additional rate cut for 2021.

It is important to note that this cut is part of a proposed rule and is not final. Additionally, we expect the hospital plaintiffs in the 2018 rate cut litigation to seek a rehearing on the split decision from the Court of Appeals. If the Court of Appeals were to grant that rehearing, in all likelihood any implementation of those cuts would be stayed until the court delivers a final ruling. 

The one thing that remains certain with 340B is that nothing is certain. Comments to the proposed rule are due by 5 pm EST on October 5, 2020. We will continue to provide updates on these reimbursement cuts and other hot topics in 340B.

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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...

Daryl M. Berke Health Care Compliance Attorney Mintz

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.