CMS proposes slashing 340B rates, paying for joint procedures at outpatient facilities

(Story updated on July 17)

The CMS wants to slash 340B drug payments to hospitals and is considering paying for hip and knee replacement surgeries that take place in ambulatory surgical centers, according to a proposal released Thursday.

The agency proposes paying hospitals 22.5% less than the average sales price for drugs acquired under the 340B program. The CMS is looking to cut its budget for drug through this program, which is intended to lower operating costs for hospitals with disproportionate numbers of low-income patients.

The 340B program is controversial because it does not specify or restrict how hospitals can use money generated by the program and critics say that leads to some hospitals taking advantage of the savings.

The current 340B payment for drugs is 6% on top of the average sales price, which is Medicare's longstanding pricing method, despite rising drug costs.

With the proposed changes, if a drug costs $84,000, the CMS would pay just over $65,000, instead of $89,000. Vaccines would continue to be paid at the current rate.

Industry stakeholders immediately slammed the suggestion and noted it put safety-net hospitals at risk. Hospitals participating in the 340B program provide 60% of uncompensated care, even though they comprise only 36% of the nation's hospitals.

"The data show 340B hospitals provide significantly higher levels of care to low-income patients, including low-income Medicare beneficiaries," Ted Slafsky, CEO of 340B Health, an association of more than 1,300 participating hospitals, said in a statement. "With the uninsured rate rising again and so much uncertainty about the healthcare marketplace, this is no time to cut reimbursement to hospitals that serve patients in need."

Dr. Bruce Siegel, CEO of America's Essential Hospitals, said the proposal threatens hospitals' ability to maintain critical services to patients and communities.

It was the Medicare Payment Advisory Commission that said hospitals on average were receiving ASP minus 22.5%. The CMS took that metric and used it as a way to reach savings in the program. The agency proposed the change earlier this year to combat costs that have grown 543%.

From 2004 to 2013, Medicare spending for Part B drugs at hospitals that participate in 340B grew from $500 million to $3.5 billion. Hospitals in the 340B program accounted for 22% of Medicare spending for Part B drugs at acute care hospitals in 2004. That grew to 48% in 2013, according to MedPac.

The rule released on Thursday also seeks comments on the impact of hip and knee replacement surgeries taking place ambulatory surgical centers. The procedures already increasingly take place in outpatient units of acute care hospitals.

Total joint replacements are one of the largest and most profitable service lines at many hospitals. In 2014, more than 400,000 Medicare beneficiaries received a hip or knee replacement, costing the government more than $7 billion for the hospitalizations alone—over $50,000 per case.

The move to outpatient settings also raises questions about the future of Medicare's mandatory bundled-payment initiative for inpatient procedures in 67 markets around the country, called the Comprehensive Care for Joint Replacement program, which began last April. The CMS rule appears to undermine that initiative.

The CMS is asking for feedback on how reimbursement of the procedures at outpatient facilities could harm the bundle pay initiative. Comments on the rule are due Sept. 11.

Correction: This story was updated on July 17 to clarify the proposed 340B cuts and their impact.