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Volume XII, Number 277


October 03, 2022

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MedPAC Report Recommends Reduction in Medicare Part B Payments to 340B Hospitals

On March 15, 2016, the Medicare Payment Advisory Commission (MedPAC) released its latest report to Congress that included 340B Implications for Medicare Part B Drugs along with a quick fact sheet regarding the report. Key highlights, as they relate to 340B entities, include:

  • MedPAC recommended that Congress reduce Medicare Part B payments to 340B hospitals by 10 percent of the average sales price (ASP) for separately payable 340B drugs. Currently, Part B pays 106 percent of ASP. The recommendations apply to all 340B hospitals (disproportionate share, critical access, sole community, children’s, freestanding cancer hospitals, and rural referral centers) but not grantees (Ryan White, FQHCs, etc.).

  • MedPAC also recommended that the 10 percent savings be allocated to the Medicare-funded uncompensated care pool for distribution to those hospitals that provide high amounts of uncompensated care.

  • Although MedPAC did not go into great detail in its report, it stated that 340B hospitals with high levels of uncompensated care (charity care and bad debt) would potentially experience an overall average increase in Medicare payments post-payment reduction while those facilities with low uncompensated care costs may see a slight overall decrease in Medicare reimbursement due to the drug reimbursement reduction.

Below are some key issues regarding MedPAC’s recommendations, should they be adopted by Congress:

  • MedPAC’s scope and ability to issue a 340B recommendation. Various trade associations and covered entities have expressed concern that MedPAC exceeded its statutory mandate by analyzing policy and recommending changes that impact a program beyond the scope of their review (i.e., 340B).

  • Misapplication of the payment reduction to non-340B drugs. MedPAC’s recommendation could result in greater payment reductions than MedPAC anticipated. Unless CMS implements a modifier that identifies each individual 340B drug on a claim for Medicare reimbursement, it is likely CMS would simply apply the payment reduction to all drugs on all claims submitted under a hospital’s Medicare provider number. These reductions would be applied in situations where a 340B hospital may not have actually acquired the underlying drug at 340B rates. For example, not all outpatient campuses can/do take advantage of 340B pricing, but they bill under the hospital’s Medicare provider number.

  • Negative impact on hospital-based hemophilia programs and other clinics. MedPAC’s recommendation could harm hospital-based hemophilia treatment programs and other entities that are “grantees” under the 340B program, but bill under a hospital provider number.

  • Impact on drug pricing calculations and other reimbursement models. The recommendation could impact drug pricing methodologies overall and create broader unintended consequences.

Given the current political environment in Washington and due to the upcoming election, many believe that it’s unlikely Congress would act on this specific recommendation until the election is over.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume VI, Number 81

About this Author

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

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,...

Julius W. Hobson, Jr., Polsinelli PC, Public Policy Attorney, Long Term Care Regulation Lawyer,
Senior Policy Adviser

Julius W. Hobson, Jr., strives to meet client public policy goals and objectives based upon the client needs and capabilities. Julius has more than 40 years’ experience in public policy, working both inside and outside of government. He has a deep-rooted understanding and compassion about the public policy process — both legislative and administrative. He primarily serves health care clients with particular emphasis on physicians, hospitals, home health, and long-term care providers. 

Travis F. Jackson, Polsinelli, Hospital Organization Lawyer, Transactional Matters Attorney

Travis Jackson identifies practical options to address the challenging issues facing hospitals and nonprofit organizations in today’s rapidly changing environment. He assists clients with a variety of tax and transactional matters that satisfy their business objectives while also furthering their missions. He has counseled health systems and hospitals in:  

  • Pursuing mergers and acquisitions that enable hospitals to develop the economies of scale necessary to succeed under federal health reform and ensure the continuity of care in their...

Mary Beth Blake, Polsinelli, physician groups attorney, hospice organizations lawyer
Senior Partner

Mary Beth Blake is a creative problem solver who works with health systems, hospitals, physician groups, hospice organizations, and dental groups. She is an active participant with clients as they plan for the future and update their operations and policies to comply with the ever changing health care environment or respond to regulatory issues and requirements. 

Mary Beth's experience as in-house counsel for a large medical school and teaching hospital forms the basis of her understanding and knowledge of various parts of the health care...

Lauren Z. Groebe, Polsinelli, HIPAA Compliance Attorney, Health Care Provider Lawyer

Lauren Groebe tackles client’s issues with a high level of commitment and enthusiasm every time. She brings a passion for the practice of health care law and a genuine interest in its business and compliance components.

With a master’s degree in health administration and a Health Law Certificate from St. Louis University, Lauren understands the numerous changes and ongoing issues facing health care providers from a variety of perspectives. Lauren works with clients on operational, compliance, and regulatory issues with a focus on the 340B...