Hospital groups to sue CMS over $1.6 billion cut to 340B program

(Updated at 5:55 p.m. ET)

The nation's leading hospital associations are banding together to sue the CMS over the agency's plan to slash 340B drug payments to hospitals.

Less than an hour after the CMS released the final rule, America's Essential Hospitals, the American Hospital Association and the Association of American Medical Colleges said they believe the agency has overstepped its statutory authority by cutting 340B drug payments by $1.6 billion, or 22.5% less than the average sales price.

"CMS' decision in today's rule to cut Medicare payments to hospitals for drugs covered under the 340B program will dramatically threaten access to healthcare for many patients, including uninsured and other vulnerable populations," Tom Nickels, executive vice president of the American Hospital Association, said in a statement. "It is not based on sound policy and punishes hospitals and patients for participation in a program outside of CMS' jurisdiction."

The CMS is looking to cut its budget for drugs through the program, which is intended to lower operating costs for hospitals with disproportionate numbers of low-income patients. Rural, children's and cancer hospitals will not see a payment decrease.

The final rule also establishes two modifiers to identify whether a drug was purchased under the 340B program—one for hospitals that are subject to the payment reduction and another for exempted hospitals that purchase drugs under the 340B program. The goal is to better track what drugs are being purchased under the program. Without that change, hospitals might have received a cut in reimbursement for drugs not purchased under the discount program.

The current 340B payment calculation is the same as Medicare's long-standing policy—6% on top of the average sales price. Under the proposed changes, if a drug costs $84,000, the CMS would pay just over $65,000, instead of the current $89,000. Payment for vaccines would not change. The decrease in payment would save approximately $1.6 billion in 2018, according to the CMS. That's up from the $900 million it initially estimated.

The 340B program is controversial because it does not specify or restrict how hospitals can use money generated by the program. Critics say some hospitals exploit the savings.

Providers slammed the proposed rule, saying it put safety-net hospitals especially at risk. 340B hospitals provide 60% of uncompensated care in the nation, even though they make up only 36% of U.S. hospitals.

In August, HHS' Advisory Panel on Hospital Outpatient Payment also asked the CMS to rescind the proposal over concerns it would harm the ability for safety-net hospitals to care for patients.

As part of the rule, which covered payments to outpatient facilities, the CMS also will remove total knee arthroplasty from the list of procedures that can only be performed in inpatient facilities.

Joint replacement surgeries among non-Medicare beneficiaries are increasingly taking place in cheaper hospital outpatient settings and this change reflects that trend. Healthcare consulting firm Sg2 estimated last year there was 47% increase in elective outpatient hip and knee replacement procedures between 2012 and 2015.

Hospitals warned the CMS this summer that the change could hamper patient safety. Patients undergoing outpatient knee surgeries are younger. Seniors 65 and over, which make up most of the Medicare population, could have more complications.

Nearly 50% of all Medicare beneficiaries live with four or more chronic conditions, and one-third have health issues that limit their ability to function independently, according to the hospitals.

The changes above go into effect on Jan. 1.