January 26, 2022

Volume XII, Number 26

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Newly-Announced 340B Payment Rule Presents Financial & Operational Challenges to All Covered Entities

In its 2018 Outpatient Prospective Payment System final rule (Final Rule) issued Nov. 1, Centers for Medicare and Medicaid Services (CMS) implemented a significant Medicare Part B payment reduction for separately payable, non-pass-through drugs provided in the hospital outpatient setting. CMS also finalized several new modifiers that will present significant operational challenges, given a very short turnaround time to implement. 

It is critical that all covered entities take action now to combat implementation of the 340B provisions in the Final Rule and to develop an action plan to implement the use of CMS’s new modifiers.

Find the Final Rule here. Read Polsinelli’s analysis of CMS’s initial proposal here.

Below is a high-level analysis of some key concepts in the Final Rule:

  • In 2018, CMS will cut Part B reimbursement for certain 340B drugs from ASP plus 6% to ASP minus 22.5% – the reduction applies to separately payable, non-pass-through drugs with status indicator “K”. CMS selected the reimbursement rate of ASP – 22.5% based on previous analysis by MedPAC. Interestingly, even MedPAC commented on the proposed rule, reiterating its recommendation to set the reimbursement at ASP – 4% and not ASP – 22.5%.

  • The scope of the reduction is limited to disproportionate share and rural referral center hospitals – sole community, children’s and cancer hospitals are exempt, but they still must use the modifiers discussed below. The Final Rule does not apply to critical access hospitals (CAHs).

  • Non-excepted provider-based sites under Section 603 of the Bipartisan Budget Act are exempt from CMS’s Part B drug reimbursement reductions and will continue to be paid at ASP plus 6% - CMS indicated that they will revisit this policy in CY 2018.

  • The proposal is budget neutral – CMS will increase the non-drug OPPS conversion factor for all hospitals in 2018 by 3.2 %. CMS believes the overall OPPS payment increase in 2018 will be 1.4% (1.3% urban; 2.5% rural). Effectively, 340B entities will face substantial decreases in drug reimbursement, and these dollars will be allocated to all hospitals (for-profit and non-profit).

  • All 340B hospitals must implement OPPS claim modifiers by 1/1/18 – Non-exempt hospitals must report modifier “JG” on all OPPS claims for 340B-acquired drugs; exempt hospitals must report modifier “TB” for all 340B-acquired drugs (excluding CAHs).

  • The Final Rule included an unusually detailed discussion of CMS’s statutory authority to cut the drug payment rate – Commenters argued that CMS lacked the legal ability to enact its proposal on a number of grounds, each of which CMS rejected. These comments may provide a useful preview of legal arguments that will be made in challenges to the rulemaking. Polsinelli presented a number of these legal arguments in comments to CMS’s original proposal. As of today, several parties have publicly threatened litigation to enjoin the 340B components of the Final Rule.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume VII, Number 310
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About this Author

Gabriel Scott, Polsinelli Law Firm, Raleigh, Health Care Law Attorney
Associate

Gabriel Scott has a deep understanding of the evolving health care regulatory environment and the changes occurring at both the national and state levels. Prior to joining Polsinelli, Gabriel spent several years in federal civil service and the private industry. His experience, with both payor and provider sides, allows him to offer a unique perspective to clients’ regulatory and transactional challenges. Gabriel previously worked at the Centers for Medicare and Medicaid Services (CMS), first in the Center for Medicare & Medicaid Innovation (CMMI) and later in the...

919-835-3403
Neal Shah, Polsinelli Law Firm, Healthcare Law Attorney
Associate

Neal Shah applies his experience in government, private practice, and health care delivery to help identify practical legal solutions to complex regulatory and transactional problems, including:

  • Helping clients comply with the Stark Law, Anti-Kickback Statute, and similar federal and state fraud and abuse laws
  • Establishing and operating Accountable Care Organizations and other coordinated care arrangements
  • Completing self-disclosures of over payments of fraud and abuse liability, including through the CMS Voluntary Self-Referral Disclosure Protocol (SRDP) and...
312-463-6233
Associate

Emily Shaw approaches problems with diligence, creativity, and enthusiasm. She combines her passion for health care law with her commitment to each client’s individual business needs to identify legal options to help them overcome challenges within their organizations, as well as within the industry. She assists a broad range of health care organizations with complex transactional and regulatory matters. Prior to joining the firm, Emily gained health care administrative experience through an internship with a large non-profit hospital.

Emily is committed to...

816-218-1291
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
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