Providers participating in the 340B drug discount program will receive approximately $9 billion to compensate them for reductions in previous years under a final rule the Health and Human Services Department and the Centers for Medicare and Medicaid Services published Thursday.
CMS will distribute the money in lump sums to eligible providers to undo reimbursement cuts from 2018 to 2022, which the Supreme Court ruled invalid last year. About 1,700 hospitals are due to receive funds by Jan. 8. But because federal law requires this spending to be budget-neutral, CMS offset the cost by reducing reimbursements for other outpatient products and services by $7.8 billion.
Related: Hospitals disagree with 340B pay remedy's 'clawback'
In the final rule, regulators lowered payments for non-drug item and services to all hospitals by $7.8 billion over a 16-year period starting in 2026. The reductions would have begun in 2025 under the draft regulation HHS and CMS issued in July. Hospitals that were not Medicare providers before Jan. 1, 2018, are exempt from the offsetting cuts.
The $9 billion total for lump sum payments is the same in the final rule as in the earlier version.
The 340B program offers estimated 25%-50% discounts on outpatient prescription medicines to safety-net hospitals and other providers that treat low-income and uninsured patients.
The federal government spent $106 billion on drugs under 340B last year, nearly twice as much as in 2018, according to the healthcare research company IQVIA. That spending reflects massive growth in participating providers: From 2000 to 2020, the number of 340B-eligible hospitals and clinics increased sixfold to 50,000, according to data the University of Southern California Schaeffer Center published in 2021.
CMS sought to rein in spending in 2018 by slashing reimbursements almost 30% from 2018 through Sept. 27, 2022, and redistributing the money to finance non-drug items and services. This prompted the American Hospital Association, the Association of American Medical Colleges and America's Essential Hospitals to sue the government. The Supreme Court sided with the plaintiffs last year, concluding that CMS failed to collect the necessary data to impose cuts and ordering the agency to devise a remedy.
Although hospital groups expressed support for the $9 billion the government planned to distribute to 340B participants, they oppose the corresponding cuts in other areas. They also asked to be paid interest on the lump-sum payments, but HHS and CMS asserted that would be outside of their statutory authority.
"Following years of litigation and a unanimous Supreme Court win, the AHA is very pleased that 340B hospitals finally will be reimbursed in full," AHA President and CEO Rick Pollack said in a news release. Yet the AHA rejected the cuts that finance the 340B remedy and hinted that further litigation is possible. "The AHA will continue to review this rule and consider all available options going forward," Pollack said.
America's Essential Hospitals and the Federation of American Hospitals had similar reactions to the final rule.
"We thank the administration for timely action on a final rule to remedy its unlawful cuts to Medicare outpatient drug payments for hospitals in the 340B drug pricing program," Beth Feldpush, senior vice president of policy and advocacy at America's Essential Hospitals, said in a news release. "However, we continue to disagree with the position of the Centers for Medicare and Medicaid Services that it must recoup repayments in the name of budget neutrality."
The Federation of American Hospitals likewise objected to CMS' plan to cut other reimbursements for the sake of remedying 340B payments. "This sets a dangerous precedent by breaking a promise to seniors and their providers that care will be covered," President and CEO Chip Kahn said in a news release. "The law does not allow Medicare to go backwards, and this statutory predictability and stability of payment is mission critical to sustain patient access to care."
Providers participating in 340B are also dealing with challenges stemming from a U.S. Court of Appeals for the 3rd Circuit ruling in January. Pharmaceutical companies won the case, which enabled drugmakers to withhold 340B discounts on medicines distributed through pharmacies that contract with providers and limit them to registered 340B participants. More than 20 pharmaceutical companies have since offered 340B pricing only to hospitals and affiliates designated as 340B providers.
