CMS finalizes massive cuts to the 340B Program: Hospital associations plan legal challenges

On November 1, 2017, CMS issued a final rule effective January 1, 2018, that will pay hospitals serving a disproportionate share of low-income patients 22.5 percent less than the average cost for drugs purchased under the auspices of the 340B Program. Reimbursement for drugs purchased by other types of hospitals under the 340B Program would remain unchanged at average cost plus 6 percent.

The final rule follows up on a proposed rule published July 20, 2017. The proposed rule was heavily criticized by the provider community, but its provisions were predicted to save the government approximately $900 million in the first year of implementation. Some estimates from the final rule predict savings of roughly $1.6 billion in 2018.

Within hours of the release of the final rule, several national hospital associations, including the American Hospital Association, announced plans to challenge the rule as an impermissible overreach of statutory authority.

The dramatic cuts embodied in the final rule are motivated by CMS’ desire to save money on the 340B Program, which has grown significantly in size and expense since its inception nearly twenty-five years ago, particularly since the Affordable Care Act increased the scope of eligible provider types. There has also been a periodic policy question from lawmakers and regulators about the 340B Program’s lack of specifics on how hospitals use savings from the program.

Many safety-net hospitals have come to rely on the revenue from the 340B Program and would be seriously hampered by the type of dramatic cuts embodied in the final rule.

The comment period for the final rule will remain open through December 31, 2017.