340B Update: Proposed Rule on Drug Acquisition Cost Cuts Suggests Lump Sum Repayment

The Department of Health and Human Services has published a proposed rule to address short payments on drug acquisition costs for 340B hospitals from 2018 to September 2022.

On June 15, 2022, the Supreme Court unanimously held that the HHS failed to follow the requirements of the Medicare Statute for changing reimbursement methodology for drug acquisitions for hospitals that participate in the 340B discount drug program. Because HHS failed to follow the Statute’s requirements, the Court ordered that the underfunded amounts resulting from the 22.5% drug acquisition reimbursement cut for 340B providers from January 2018 through September 2022 must be reimbursed to 340B providers by HHS.

In the proposed rule, HHS estimates that the reimbursement cut to 340B providers from January 2018 to September 2022 was approximately $10.5 billion. HHS estimates that the reimbursement methodology change put in place by HHS starting September 27, 2022 has corrected $1.5 billion of that amount. Thus, HHS is proposing lump sum payments to 340B providers totaling approximately $9 billion.

HHS is proposing to pay this shortfall by examining claims data for each 340B provider from January 1, 2018 to September 27, 2022. HHS will calculate these payments based on the full amount a 340B provider should have been reimbursed had the payment reductions not gone into effect, and then subtract from that total what HHS has already compensated the 340B provider for the claims. The difference for all claims for each 340B hospital will be the amount of the lump sum payment. HHS states in the proposed rule that it does not believe it has the authority to account for interest on these claims, thus no interest calculation will be included in the lump sum payment.

A $9 Billion windfall is welcome news for 340B hospitals still recovering from the COVID-19 pandemic. It is not all positive news for hospitals, however.

Due to budget neutrality provisions in the Medicare Act, HHS must account for these lump sum payments to 340B providers via cost reductions in other areas of the Medicare program. HHS is proposing to account for this by targeting the program that saw increased payment when the 340B drug acquisition cuts were announced: non-drug item and service payments made to all hospitals paid under the Hospital Outpatient Prospective Payment System (OPPS). In FY 2018, HHS increased these OPPS payments to hospitals by 3.19% when the cuts to drug acquisition costs for 340B hospitals were enacted. In the proposed rule, HHS estimates that acute care hospitals received an estimated $7.8 billion in additional spending on non-drug items and services for Medicare beneficiaries.

In order to recoup such payments, HHS is proposing a 0.5% reduction in the OPPS fee schedule for non-drug items and services for all hospitals (340B and non-340B) for each year until the $9 Billion in lump sum payments to 340B hospitals is fully repaid. HHS estimates the 0.5% reduction will take place for the next 16 fiscal years from 2025 to 2040.

Overall, 340B hospitals will look for a short-term boost to their finances once the lump sum amount is processed by their fiscal intermediary. While the reductions to OPPS payments for non-drug items is not ideal, the extended term on the repayment may help hospitals navigate these cuts.  

It is important to remember that this is only a proposed rule and is not the final determination by HHS to resolve the 340B drug acquisition cost issue. HHS will hold the proposed rule open for industry comment until September 5th, 2023. Comments may be submitted here. 340B Hospitals should expect a final rule to be issued early in 2024.