What you need to know about the forces reshaping our industry.


July 21, 2017

$900M cut in 340B payments could hurt safety-net hospitals, stakeholders say

Daily Briefing

Health care industry stakeholders during a House subcommittee hearing on Tuesday expressed concerns about a CMS proposal that would reduce hospital payments for drugs purchased under the federal 340B drug discount program.

What you need to know about the proposed OPPS rule

The federal 340B program requires drug manufacturers to provide outpatient drugs to eligible health care providers at discounts ranging from 20 to 50 percent. The program, created by Congress in 1992 and expanded under the Affordable Care Act, focuses on hospitals with disproportionately low-income patient populations. About 40 percent of U.S. hospitals are eligible to participate in the program, which saved providers about $3.8 billion in medication costs in 2013, according to the Health Resources and Services Administration.

However, the program has come under scrutiny, with some questioning the amount of charity care participating hospitals are providing.

CMS proposes 340B payment changes

CMS last week released a proposed rule to update Medicare's hospital outpatient (OPPS) and ambulatory surgical center payment systems for calendar year (CY) 2018, which also included proposed changes to the 340B program. Under the proposed rule, CMS would:

  • Adjust payment rates under the program down from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent; and
  • Establish a new claims modifier to better track drugs that are billed under OPPS and purchased under 340B.

CMS said it proposed the changes to address rising costs under the program. According to Modern Healthcare, the Medicare Payment Advisory Commission has estimated that the program's costs increased by 543 percent from 2004 to 2013.

CMS estimated that under the proposed rule OPPS payments for those drugs could decrease by $900 million in CY 2018. According to Modern Healthcare, CMS said it would redistribute those savings by raising Medicare payments to hospitals by 1.4 percent in CY 2018.

Stakeholders express concerns

Rep. Diana DeGette (D-Colo.) during a House Energy and Commerce Committee Subcommittee on Oversight and Investigations hearing Tuesday said the proposed changes would not "get to the root of the issue of high drug prices" and instead would "creat[e] many othe[r]" problems.

For instance, Karen Fisher, chief public policy officer at the Association of American Medical Colleges, said the proposed changes would amount to "a cut" for hospitals participating in the 340B program. "You're taking funds from hospitals that treat the most fragile populations and spreading it across all hospitals," she said, adding that payment cuts to safety net hospitals, which already face tight margins, could drive them to close.

Shahid Zaman, senior policy analyst at America's Essential Hospitals, said "a large portion of the savings" generated by the proposed changes "would be diverted to non-340B hospitals as higher payments for services unrelated to the 340B program and low-income patients." He added, "Even for-profit hospitals, which are intentionally excluded from the 340B program, would see increased payment under CMS' plan."

How to sell individual physician documentation training to key stakeholders

Similarly, Rep. Frank Pallone (D-N.J.) said, "This proposal is nothing more than a deep cut to hospitals that serve as the bedrock of our safety net."

Ted Slafsky—CEO of 340B Health, which represents hospitals and health systems that participate in the program—said cuts in hospitals' 340B payments could mean the facilities would have fewer resources to spend on providing care management for chronic conditions.

The American Hospital Association (AHA) in comments submitted to the subcommittee wrote that the 340B program "has been critical in helping hospitals expand access to lifesaving prescription drugs and comprehensive health care services to low-income and uninsured individuals in communities across the country." Molly Collins Offner, director of policy at AHA, said, "We have many questions regarding CMS' rationale for this policy recommendation, not the least of which is how Medicare beneficiaries would be affected" (Dickson, Modern Healthcare, 7/18; AHA News, 7/18).

What you need to know about the proposed OPPS rule

Join us on Aug. 7 to examine CMS' changes to Hospital Outpatient and Ambulatory Surgical Center Payments in CY 2018, including standard updates to payment structure, payment rates, quality updates, and the broader implications of these changes.

You'll learn about CMS' changes to hospital outpatient payment rates, the structure of outpatient payment, and outpatient quality reporting. Download the study to learn more.

Register Now

Have a Question?


Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.