On April 1, 2024, the Centers for Medicare & Medicaid Services (CMS) released the Announcement of Calendar Year (CY) 2025 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies, otherwise known as the rate announcement. The rate announcement is released annually and includes updates to the methodologies used to calculate MA plan payments, as well as other payment policies that impact Part D. The CY 2025 rate announcement finalizes the policies proposed in CMS’s January 2024 advance notice.

In both the advance notice and the rate announcement, CMS discusses the remedy for the 340B drug payment policy that is in effect for payments under the Medicare Outpatient Prospective Payment System (OPPS) for CYs 2018 – 2022 (340B remedy rule) and contemplates how the 340B remedy rule might impact MA rates for future years, although it does not impact MA payments for 2025. Notably, 340B hospitals that received lump-sum payments under the 340B remedy rule that are contemplating legal action against MA plans or CMS to compel similar payments from MA plans should be aware that while CMS made retroactive adjustments to certain rate-setting metrics for 2018 – 2022 to account for the lump-sum payments and has indicated that it will incorporate the downward budget neutrality adjustment beginning in 2026 to offset the lump-sum payments, it has not yet completely determined how it will address the 340B payment cut remedy as to MA plans and has indicated that it expects to address this issue in future policymaking communications.

IN DEPTH

REMEDY FOR THE 340B-ACQUIRED DRUG PAYMENT POLICY FOR CYs 2018 – 2022

Under the Social Security Act, the Medicare payment rate for Part B covered outpatient drugs provided to outpatient hospitals is typically set at the default rate of average sales price (ASP) plus 6%. In the CY 2018 Hospital OPPS rule, CMS reassessed whether to continue paying ASP plus 6% for drugs acquired through the 340B Drug Pricing Program, in light of findings that 340B hospitals were already acquiring such drugs at a discounted rate. For 2018 – 2022, CMS decided to adjust the OPPS payment methodology and to reduce payments for certain drugs or biologicals acquired through the 340B Program from ASP plus 6% to ASP minus 22.5%.

At the same time, CMS increased the amounts paid for all other OPPS items and services to maintain budget neutrality. Because the payment cut and corresponding increase were budget neutral, the changes in 340B payment rates did not change the amounts paid to MA plans, which are based on overall OPPS payments and not on payment rate adjustments to specific items and services. The specific amounts paid by MA plans to hospitals for outpatient services are subject to contractual negotiations between the MA plan and each hospital.

In 2022, the Supreme Court of the United States determined that CMS’s 340B payment cuts were illegal. CMS implemented a remedy that involved making lump-sum payments to 340B hospitals to account for the reduced payments in 2018 – 2022, as well as a 16-year conversion factor reduction to “recoup” the budget neutrality payments previously made based on the dollars generated from the 340B payment cuts. CMS reverted to paying the default rate – ASP plus 6% – for the remainder of CY 2022 and reprocessed claims at that higher rate.

CMS has estimated that this “340B remedy” will result in an additional $1.2 billion outlay in federal funds, since the total amount of the 340B payment cuts was $9 billion and the corresponding budget neutrality adjustments to all other items and services totaled only $7.8 billion.

340B REMEDY AND MA RATES

MA rates are set based on the national average per-capita fee-for-service (FFS) payments, adjusted for geography based on a five-year period. As related to payments for 340B drugs, the rate announcement clarifies that while the FFS data for years 2018 – 2022 reflects the lump-sum payments for services rendered from January 1, 2018, through September 27, 2022, as well as payments related to 340B drug claims reprocessed and paid during CY 2022 at the full OPPS rate, these adjustment have no impact of CY 2025 MA payments or growth rates. The 2025 rate calculations do not incorporate data from CY 2024, so they do not otherwise reflect the lump-sum remedy payments that are being made in early 2024. The 2025 rates also do not reflect the downward budget neutrality adjustment to the conversion factor, because it will not be implemented until 2026.

In the rate announcement, CMS addresses feedback from stakeholders regarding the remedy payments, including one stakeholder who advocated that CMS incorporate the amounts into 2025 rates. Another stakeholder urged CMS to either make lump-sum payments directly to hospitals or to direct MA plans to pay providers in a way that incorporates additional funding for such payments. In response, CMS reiterates that the 340B remedy rule does not impact MA payments for 2025 and that the agency anticipates addressing how aspects of the remedy might impact MA rates for other years in future policymaking.

CONSIDERATIONS UNDER EXISTING MA CONTRACTS

Most 340B hospitals did not contemplate the implementation and/or subsequent termination and remedy of the 340B payment cuts when entering contracts with MA plans. Many 340B-participating hospitals have MA contracts that indicate that claims for hospital outpatient services will be paid at some percentage of the OPPS payment rate in place on the date of service or at the time the claim was paid, which resulted in these hospitals receiving reduced payments for 340B drugs from CYs 2018 – 2022. Many of these 340B hospitals are now exploring options for obtaining recovery from MA plans for the difference between what they were paid during the period the 340B payment cuts were in place and the amount they should have been paid had CMS not unlawfully imposed the 340B payment cuts.

At this time, CMS has not provided MA plans with additional funds to make remedy payments similar to the lump-sum payments made by CMS. Further, CMS may make adjustments to MA rates in future years to account for the 340B remedy, although what that may look like remains unclear.

NEXT STEPS

340B hospitals that are not able to work with MA plans to address payment adjustments under their existing MA contracts to appropriately account for unwinding the 340B payment cuts may want to consider the following next steps:

• Evaluating the delta between the reductions in payments for 340B drugs and the increased payments for all other items and services to determine the actual net loss under MA contracts due to the 340B payment cuts and corresponding budget neutrality adjustment
• Working with their MA plans to negotiate a process for addressing this delta
• Providing comments to CMS and engaging in other advocacy efforts to ensure that MA plans receive payments that account for the MA plan equivalent of the $1.2 billion difference in the 340B payment cuts and budget neutrality adjusted payments on all other items and services, and that any such payments to MA plans be used to make payments to 340B hospitals subject to the payment cuts
• Providing comments to CMS to address the best options for reflecting the 340B payment remedies in future year MA plan rates in a manner that does not adversely affect 340B hospitals
• Working with MA plans to ensure that any downward adjustment to the OPPS conversion factor is not applied under the hospital’s MA contract, unless the MA plan is also making a corresponding lump sum or other payment to offset the downward adjustment
• For 340B hospitals that are not subject to the downward adjustment due to opening during or after 2018, ensuring that their MA plans are aware of that fact and that any necessary revisions are made to the contractual payment terms to ensure that payment adjustments associated with the 340B remedy are not improperly applied