OPPS Rule Proposes to Reduce Part B Reimbursement for 340B Drugs

Clients and Friends:

Yesterday, CMS released the 2018 Medicare hospital outpatient prospective payment system proposed rule (“OPPS Proposed Rule”). Among many other things, CMS proposes to dramatically reduce reimbursement to ASP-22.5% for separately payable Medicare Part B drugs purchased under the 340B program. No changes are proposed to manufacturer obligations under 340B, or to the Best Price exemption for sales to covered entities. 

Relying on studies from MedPAC, OIG and GAO, CMS came to three conclusions that led them to propose reducing Part B reimbursement for 340B drugs. First, Part B reimbursement at ASP+6 significantly exceeds average 340B hospital acquisition cost. This conclusion is almost unassailable: 340B ceiling prices are 20-100% discounts from AMP (particularly when subceiling prices are taken into account). Second, Part B spending increases are correlated with participation in 340B. This suggests that “beneficiaries at 340B DSH hospitals were either prescribed more drugs or more expensive drugs than beneficiaries” at non-340B hospitals. OPPS Proposed Rule at 302. Third, Part B beneficiary co-pays are tied to Medicare reimbursement (currently 20% of ASP+6). Indeed, for 35 drugs in a study cited by CMS, “the beneficiary’s coinsurance alone … was greater than the amount a covered entity spent to acquire the drug.” Id. at 303.

Accordingly, CMS wrote: “we believe it is timely to reexamine the appropriateness of continuing to pay the current OPPS methodology of ASP+6 percent to hospitals that have acquired those drugs under the 340B program at significantly discounted rates. This is especially important because of the inextricable link of the Medicare payment rate to the beneficiary cost-sharing amount… [W]e are concerned about the rising prices of certain drugs and that Medicare beneficiaries, including low-income seniors, are responsible for paying 20 percent of the Medicare payment rate for these drugs. We are concerned that the current payment methodology may lead to unnecessary utilization and potential overutilization of separately payable drugs.” Id. at 304-05.

Aware of the sensitivity of ceiling price data, CMS decided not to propose a reimbursement methodology that is tied directly to specific 340B prices. Instead, Medicare would reimburse covered entities at a rate of Average Sales Price less 22.5% no matter what the covered entity’s actual acquisition cost was. This rate is seen by CMS as reflective of the average discounted price enjoyed by covered entities. Id. at 306.   Clearly, this is a substantial discount to the existing ASP+6 rate for both the government and Medicare beneficiaries. CMS seeks comment on the appropriateness of this 22.5% reduction to ASP. Id. at 310. Drugs subject to pass-through reimbursement would be exempt from this new regime (and CMS invites comment on whether blood clotting factors or other types of drugs should also be excluded).

Currently, Medicare OPPS claims data does not identify which drugs have been acquired under the 340B Program. CMS proposes to assume that all drugs purchased by a hospital are acquired at 340B prices unless the provider affirmatively indicates otherwise (using a special new modifier in the claims submission). Id. at 306. It is fascinating that the default in the OPPS Proposed Rule is to assume that all hospital drug purchases are made at the 340B discount. This is testimony to the growth and reach of the 340B Program in 2017.

Not surprisingly, the covered entity community has already reacted very negatively to this proposal. 340B Health released a statement saying the proposed reimbursement arrangement “would gravely harm 340B hospitals’ ability to treat their low-income patients, including low-income Medicare beneficiaries.” Further, the 340B hospital association contends that “roughly 60 percent of hospitals would be likely or very likely to withdraw from 340B as a result of a payment cut that would take away all of their 340B savings on Part B drugs.” Is their theory that non-Part B outpatient drug savings to these hospitals (and the spreads they generate) are insufficient to warrant continued participation?

The costs and benefits to manufacturers are less clear. Reduced reimbursement may lead to reduced utilization of physician-administered products. On the other hand, that reduction in utilization will be of 340B-priced sales, of particular benefit to tenured products with deep 340B discounts. A reduction in beneficiary co-pays may act to spur utilization. How this will impact each manufacturer’s gross-to-net will require portfolio-specific thought and analysis.              

Comments are due by 5 p.m. on September 11. If we can be of any help to you in understanding the implications of the OPPS Proposed Rule, or in crafting a comment for submission, please don’t hesitate to reach out.

Best,

John