Medicare Proposes Massive Cuts to Reimbursement for Hospital-Administered 340B Drugs

By | Published On: July 17, 2017

The Centers for Medicare and Medicaid Services (CMS) is poised to propose massive cuts to Medicare Part B reimbursement rates for hospitals and hospital-based grantees participating in the federal 340B drug discount program.  In the fiscal year 2018 update to the Hospital Outpatient Prospective Payment System (OPPS), slated to be published in the Federal Register on July 20, CMS is proposing to cut reimbursement for hospital physician-administered drugs from 106% of average sales price (ASP) to 77.5% of ASP.[1]

CMS explained that it intends for the new reimbursement rate to more accurately reflect 340B drug acquisition costs while also preserving some margin for the covered entity.[2]  The agency cited reports from the Medicare Payment Advisory Commission (MedPAC), Government Accountability Office (GAO) and Office of the Inspector General (OIG) in support of the magnitude of the change.[3]

The reimbursement rates would apply to all Part B outpatient drugs except vaccines and pass-through drugs.  CMS estimates that it would spend $900 million less on 340B drugs as a result of the change, which would increase non-drug OPPS payments by 1.4%.[4]  CMS proposes to develop a billing modifier, to be effective January 1, 2018, that can be used to identify claims involving 340B drugs.[5]  The changes would also result in lower cost-sharing burdens, due to lower charges on which the cost-sharing amount is based, for patients who receive services at 340B hospitals.

Though the proposal would significantly reduce 340B drug reimbursement, the rule does not propose any changes to non-340B Part B reimbursement.[6]  If the rule is finalized, 340B hospitals would have to choose between using 340B drugs for Part B beneficiaries (and accepting the reduced reimbursement) or using non-340B drugs (and receiving 106% of ASP).  Hospitals participating in the 340B program (other than rural hospitals) may not purchase any outpatient drugs through a GPO.[7]  They typically pay wholesale acquisition cost (WAC), or the “sticker price,” which can easily exceed 106% of ASP.

In addition to 340B-eligible hospitals, many 340B-eligible Ryan White HIV/AIDS clinics, hemophilia treatment centers, and family planning clinics are hospital-based and would be impacted by the reduction.  In the proposed rule, the reimbursement cuts apply to clotting factor, a proposal that is sure to distress hospital-based hemophilia treatment centers.  CMS is seeking comment specifically on whether clotting factor should be excluded from the reduced reimbursement rates, or if specific sub-classes of 340B providers should be excluded.[8]

CMS is seeking comments on the proposed rule by September 11, 2017.  With respect to the 340B program component of the rule, CMS is asking for comments on whether there should be special adjustments to the rule for certain provider types, whether certain types of drugs should be excluded (namely, clotting factor), and whether hospital-owned ambulatory surgical centers (ASCs) have access to 340B drugs.[9]  CMS is also seeking comments on its methodology for estimating 340B acquisition costs and suggestions for how the savings might be directed toward specific services or hospitals that focus on indigent patients.[10]

For more information, if you are interested in commenting on the proposed rule, or if you have any questions regarding this topic, please contact Michael Glomb at or the Feldesman Tucker Leifer Fidell LLP attorney with whom you regularly work.

[1] Medicare Program:  Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, 82 Fed. Reg. _____, Preview Copy at 298-311 (July 20, 2017), at  The ASP is essentially what it sounds like – the average price that a manufacturer charged for a given National Drug Code (NDC).  42 C.F.R. § 414.904.

[2] Preview Copy at 300-05.

[3] Id.

[4] Id. at 616-17.

[5] Id. at 306.

[6] Last year, CMS unveiled a Part B drug reimbursement demonstration that would have reduced all Part B drug payments to 102.5% of ASP, plus a flat $16.80.  See CMS, CMS Part B Demonstration Fact Sheet (Mar. 8, 2016), at  PhRMA and oncologists swiftly opposed the proposal, and it was eventually withdrawn.  Politico, The Part B Demo Is Dead; Here’s What’s Next (Dec. 16, 2016), at  The demonstration project was similar to MedPAC proposals critical of the incentives created by the 106% of ASP methodology. MedPAC Report to Congress, Medicare Part B Drug and Oncology Payment Policy Issues, ch. 5 (June 2016), at

[7] See 42 U.S.C. § 256b(a)(4)(L)(iii).

[8] Federally qualified health centers and other community health centers are paid through a separate prospective payment system and are not affected by the cuts.

[9] Id. at 311.

[10] Id. at 617-18.

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