Providers participating in the 340B drug discount program will receive $9 billion by early next year under a regulation finalized Thursday designed to compensate hospitals for 340B payment cuts in previous years.
Industry pushback could set the stage for another protracted legal battle surrounding the program, which offers estimated 25%-50% discounts on outpatient prescription medicines to safety-net hospitals and other providers that treat low-income and uninsured patients.
The lump sum remedy payments are tied to $7.8 billion in reduced reimbursement for other outpatient products and services because federal law requires the spending to be budget-neutral.
Hospitals continue to fight back against the outpatient pay cuts, arguing that the federal government may have understated their downstream financial impact. That potential impact is, in part, related to the rapidly growing Medicare Advantage population.
The remedy payments, as spelled out in the final rule issued by the Centers for Medicare and Medicaid Services and the Health and Human Services Department, are intended to undo reimbursement cuts from 2018 to 2022, which the Supreme Court ruled invalid last year. The “clawbacks,” as described by hospital associations, are many providers’ main sticking point about the regulation.
CMS will spread the 0.5% reimbursement rate reduction for other outpatient products and services over a 16-year period, starting in 2026. The pay cut affects a wide range of treatments, such as clinic visits, knee replacements and colonoscopies, as more care moves from inpatient to outpatient settings.
Hospitals argue that those cuts, which affect nearly all Medicare-enrolled providers, will limit access to care. If hospitals receive lower outpatient reimbursement, they may be forced to cut services, hospitals argue.
Also, since Medicare Advantage contractors use traditional Medicare rates to set reimbursement levels, the 0.5% reduction will potentially have a larger impact on hospital revenue, said Katrina Pagonis, a healthcare attorney at the law firm Hooper, Lundy & Bookman. The Medicare Advantage population continues to grow—more than half the eligible Medicare population is enrolled in Medicare Advantage plans, up from 29% in 2013, according to KFF data.
The 16-year recoupment period is also uncertain, said Kelly Cleary, a healthcare attorney at law firm Akin Gump Strauss Hauer Feld. As more people move to Medicare Advantage plans from traditional Medicare, the number of Medicare claims are expected to shrink, potentially affecting the recoupment timeline, she said.
In the final rule, CMS and HHS acknowledged hospitals’ concerns about the regulation’s effect on Medicare Advantage contracts. But the agencies said in the rule that the contracts between providers and Medicare Advantage organizations fall outside of the scope of the regulation, citing federal law that prevents CMS from "requiring Medicare Advantage organizations to contract with a particular healthcare provider or use particular pricing structures with their contracted providers."
The outpatient pay cuts and related Medicare Advantage impact may be part of providers’ potential legal argument if they decide to sue to block the recoupment portion of the final rule.
While the American Hospital Association declined to say whether it plans to sue, the association hinted that litigation is possible. "The AHA will continue to review this rule and consider all available options going forward," AHA President and CEO Rick Pollack said in a news release issued Thursday.
The AHA, the Association of American Medical Colleges and America's Essential Hospitals brought the initial 2017 suit against the federal government, alleging that the 340B reimbursement cuts exceeded HHS’ statutory authority.
In a news release issued Thursday, Federation of American Hospitals President and CEO Chip Kahn took note of the Medicare Advantage issue. “CMS’ $7.8 billion fee-for-service recoupment through outpatient rate cuts has a shadow Medicare Advantage impact, increasing the total recoupment and most certainly reducing MA plan payments to hospitals,” Kahn said in the release.
340B Health, which represents 340B-eligible providers, expressed similar concerns. “The CMS rule fails to address hospital concerns that Medicare private plans, that followed CMS in imposing their own 340B cuts, will not be required to repay hospitals for those reductions,” 340B Health President and CEO Maureen Testoni said in a news release.