Along with its calendar year (CY) 2024 Medicare Outpatient Prospective Payment System (OPPS) proposed rule, the Centers for Medicare & Medicaid Services (CMS) have also published the long-awaited proposal to remediate the violations that arose from Medicare’s rate cuts for 340B drugs dispensed by 340B hospitals from January 1, 2018 through September 27, 2022. The proposal comes more than a year after the Supreme Court ruled against the Department of Health & Human Services (HHS) on June 15, 2022 (American Hospital Association et al. v. Becerra et al.), finding that the rate cuts exceeded HHS’ authority. The proposed remedy would “unwind” the rate cuts, resulting in an estimated additional $9 billion paid to 340B hospitals as well as reduction s in payments for all non-340B drug services reimbursed under the OPPS, which would affect Medicare rates for all participating hospitals for the next 16 years.

Lump-Sum Payment for 340B Hospitals

After evaluating multiple options for how to structure the proposed remedy, CMS proposes to make one-time lump sum payments to affected 340B covered entities to make them whole for the historical underpayments. The payment amount would be calculated as the difference between what the hospital was paid for 340B drugs during the period of the rate cuts and what they would have been paid had the rate cuts for 340B drugs not applied (generally, the difference between Average Sales Price (ASP) minus 22.5% and ASP plus 6%).CMS believes this remedy is as close to make-whole relief as CMS can reasonably accomplish, without reprocessing all individual claims.

The impact of this remedy is far reaching. CMS estimates that 1,649 340B covered entity hospitals were paid reduced rates as a result of the 340B rate cuts, resulting in a loss of approximately $10.5 billion. CMS estimates that 340B providers have already received $1.5 billion by reprocessing claims for services in CY 2022. Therefore, CMS estimates the remaining remedy at approximately $9.0 billion.

Under the proposal, the additional lump sum payments would be made by issuing instructions to the 340B covered entity hospital’s Medicare Administrative Contractor (MAC). The MAC would be instructed to issue a one-time lump sum payment to the hospital in the amount calculated in accordance with the above-described methodology, within a proposed 60-calendar-day period from the MAC’s receipt of instructions. CMS anticipates that, if the proposed rule is finalized, the payments would be made at the end of CY 2023 or beginning of CY 2024.

Offsetting Adjustments Applied to future OPPS Payments for 340B and non-340B Hospitals

The proposed remedy for 340B hospital covered entities would also impact other, non-340B covered entity hospitals. This is because, per CMS,

[t]he reduction in 340B drug payments made to affected 340B covered entity hospitals from CY 2018 through CY 2022 was offset by an increase in nondrug item and service payments made to all hospitals paid under the OPPS during the same time period to comply with statutory budget neutrality requirements. In other words, all hospitals were paid more under the OPPS for non-drug items and services for CY 2018 through CY 2022 than they would have been paid in the absence of the 340B payment policy.

CMS indicates in the proposed rule that it must remedy these additional payments as part of unwinding the 340B rate cuts. Thus, CMS proposes to reduce all payments for non-drug items and services to all OPPS providers (except new providers, discussed below) by 0.5% each year beginning in CY 2025 until the total offset is reached (approximately 16 years). The same offsets are applied to 340B hospitals and to non-340B hospitals.

CMS proposes to exclude from the recoupment any hospital that enrolled in Medicare after January 1, 2018 (deemed a “new provider”) from the proposed reduction of payments for non-drug items and services beginning in CY 2025. CMS recognizes that any hospital that enrolled in Medicare after January 1, 2018 received less than the full amount of the increased non-drug item and service payments made during that time than they otherwise would have received if enrolled prior to that date. Because the increased payments were made during CY 2018 through CY 2022, any hospital that was not enrolled in Medicare for the full duration of this time period did not receive the full amount of increased non-drug items and service payments. CMS does not find it feasible, or believe that providers would prefer for them to, create many different sets of payment rates to distinguish the length of time that individual hospitals were enrolled in Medicare during this time period.

Next Steps

Both the lump sum payments for 340B hospitals and the reductions for all OPPS services that would be applied in beginning in CY 2025 are dependent on CMS finalizing the rule just proposed. Until it is finalized, the proposal is subject to modification or withdrawal. CMS is soliciting public comment to the proposed rule. Comments are due by Monday, September 11, 2023.