This past week, CMS confirmed it will continue the 2018 and 2019 underpayment policy for certain 340B covered entities unless the D.C. Court of Appeals upholds the lower court’s ruling that it is unlawful. In that case, CMS signaled its intent to implement the highest permissible payment reduction, which it appears to interpret as 3%. CMS also signaled its intent to use the Administrative Procedure Act (APA) to delay any corrections to the underpayment until at least CY 2021, depending on when the D.C. Court of Appeals will issue its decision.

On Monday July 29, 2019, the Centers for Medicare and Medicaid Services (CMS) released several highly-anticipated proposed Medicare payment rules: the CY 2020 Medicare Hospital Outpatient Prospective Payment System (OPPS) Proposed Rule, the Medicare Physician Fee Schedule (PFS) CY 2020 Proposed Rule, and the End Stage Renal Disease (ESRD) and Durable Medical Equipment Prosthetics, Orthotics and Supplies (DMEPOS) CY 2020 Proposed Rule. While the rules contain a variety of proposed payment changes for CY 2020, below are key updates affecting 340B Program covered entities. Polsinelli’s health care team will release a series of alerts this week that highlight key CMS proposals contained in the 2020 proposed payment rules. 

Part B 340B Drug Payment Rates for Urban Hospitals

According to the 2020 OPPS proposed rule, CMS’s payment policies for 340B drugs and biosimilars would remain unchanged:

1. Continue to pay average sales price (ASP) minus 22.5% for all separately payable, non-pass-through 340B drugs and nonpass-through biosimilar biological products (biosimilars); and

2. Continue to make all biosimilars eligible to apply for temporary pass-through payment at ASP plus 6% of the reference product’s ASP.

CMS’s ASP minus 22.5% payment rate is a continuation of a reduced payment rate CMS established in its CY 2018 OPPS Final Rule and expanded in its CY 2019 OPPS Final Rule. Following a challenge from a group of hospital associations and nonprofit hospitals, the D.C. District Court ultimately held that the reimbursement cuts to Part B 340B drugs in 2018 and 2019 were both unlawful. Although the Court granted an injunction, it refused to vacate the rules and remanded the issue back to CMS to take the first crack at crafting appropriate remedial measures. The case is now on appeal before the D.C. Circuit Court of Appeals. In the meantime, CMS continues to reimburse applicable covered entities at ASP minus 22.5% and require reporting of applicable modifiers.

The Good News and Potential Comment Areas

While CMS continues to propose the same reimbursement methodology for 340B drugs that was previously held unlawful by a D.C. District Court, the 2020 OPPS Proposed Rule indicates that CMS is actively considering its options should CMS ultimately lose on appeal:

1. Appropriate payment rate. CMS is soliciting comments on whether a rate of ASP plus 3% could be an appropriate remedy, both for CY 2020 and for purposes of determining the remedy for CYs 2018 and 2019 underpayments created by its ASP minus 22.5% policy. Notably, CMS cited to the District Court’s December 27, 2018 opinion supporting the proposition that a payment reduction of between 0.2-2.9% is “not significant enough” to fall outside the Secretary’s authority to “adjust” ASP.

2. Structuring the remedy. CMS is requesting comments on (i) whether such a remedy should be retrospective in nature (e.g., made on a claim-by-claim basis), (ii) whether such a remedy could be prospective in nature (e.g., an upward adjustment to 340B claims in the future to account for past underpayments) or (iii) whether there is a different mechanism that could produce equitable results while respecting budget neutrality.

3. Beneficiary cost-sharing responsibilities. CMS is also interested in public comments on the most appropriate way to address the issue of Medicare beneficiary cost-sharing responsibilities (20% of the total Medicare payment rate) under any proposed remedy.

CMS’s continuation of its current payment methodology is disappointing to covered entities, but its proposal of ASP plus 3% may be a sign of things to come. If the D.C. Circuit Court of Appeals affirms the lower court’s decision in favor of covered entities, CMS may will likely push to reimburse applicable 340B drugs at ASP plus 3% barely meeting the range laid out by the D.C. Circuit Court.

We encourage covered entities to quantify the impact of CMS’s ASP plus 3% proposal versus the statutory requirement of ASP plus 6% and offer feedback to CMS in the form of comments. Comments should include potential monetary and patient impacts as well as reasonable alternatives to CMS’s proposal. If history is any indication of the current administration’s intent, covered entities should expect CMS to finalize its ASP plus 3% proposal, or even a lower payment amount, unless stakeholders suggest alternatives and offer support for those alternatives.

Key takeaways for 340B Program covered entities:

• Submit comments on the proposed rule regarding an appropriate 340B drug payment rate and remedy structure. Comments must be submitted by 5 p.m. EST on September 27, 2019.

• Continue to report JG/TB 340B drug modifiers and expect ASP minus 22.5% for CY 2020 until the Court of Appeals rules on HHS’s appeal.

• Especially in light of CMS’s persistent lack of urgency to resolve the underpayments, continue to preserve rights on underpayments of individual Part B 340B drug claims by filing appeals with your Medicare Administrative Contractors (MACs). We are aware that several MACs have published formal statements indicating that they will deny 340B appeals; covered entities may still appeal to potentially reach later and more effective stages in the appeal process.