CMS Proposes Cut for 340B Hospitals

August 3, 2017

On July 13, 2017, in its Calendar Year (CY) 2018 Hospital Outpatient Prospective Payment System (OPPS) Proposed Rule, the Centers for Medicare & Medicaid Services (CMS) issued a surprise proposal to reduce 340B reimbursement for certain Medicare Part B drugs purchased by 340B-eligible hospitals, hospitals, community mental health centers, and ambulatory surgical centers, starting January 2018. The Proposal indicates that the payment change is necessary to address growth in the number of providers participating in the 340B program, the potential for over utilization of drugs, and high drug prices with related increases in Medicare beneficiary cost-sharing. Hospitals and other affected providers will also have to identify Medicare claims for drugs purchased at the 340B discount with a new modifier.

CMS is proposing to cut Medicare Part B payments for most separately-payable drugs purchased under the 340B program and dispensed to hospital outpatients, with the exception of “pass through” drugs, vaccines and drugs identified with a to-be-established modifier indicating that the drug was not purchased at the 340B price. These claims would be subject to a reduction in payment from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent.

This has been calculated as a 27% reduction in current Medicare reimbursement for Part B drugs purchased at 340B.

To explain this action, CMS references studies from the Office of Inspector General (OIG), the Government Accountability Office (GAO), and the May 2015 Medicare Payment Advisory Commission (MedPAC) report to Congress, outlining perceived problems in the operation and oversight of the 340B program. CMS derived the proposed reduction from the MedPAC report, in which the advisory panel found that ASP minus 22.5 percent represents the average minimum discount that 340B-participating hospitals receive for separately payable drugs under the OPPS. The CMS proposal addresses Part B reimbursement for hospitals, and does not affect reimbursement for 340B hospitals’ contract pharmacies.

CMS states that this proposal is designed to be “budget neutral,” and that manufacturers will not gain from this proposal. CMS estimates that the proposed payment reduction will result in a reduction in OPPS payments to hospitals of up to $900 million. CMS stated that these savings would be used to increase payments for all other services paid under OPPS, and would be applicable to all hospitals. CMS estimates that the redistribution in payments would result in an increase in other payments under OPPS by approximately 1.4 percent. CMS is soliciting public comments on whether and how the savings “could be targeted to hospitals that treat a large share of indigent patients, especially those patients who are uninsured.” The proposal would reduce patients’ coinsurance obligations, since a Medicare Part B beneficiary’s coinsurance is based on the amount that Medicare pays the hospital.

This proposal represents a significant change in Medicare policy impacting the continued viability of the 340B program, and would have an enormous impact on a large number of hospitals that acquire their drugs through the 340B drug discount program.

CMS is accepting public comments on the proposed rule through September 11, 2017. Comments may be submitted at

Please contact Barbara Knothe or your Garfunkel Wild lawyer for guidance in understanding this proposal and preparing comments by the September 11, 2017, deadline.