CMS Cuts in Drug Payment to Hospitals for 340B Drugs – Post Script

By Alan M. Kirschenbaum

Our post was a day too early.  Yesterday, we posted an article on a D.C. Circuit decision upholding CMS’s payment cuts to hospitals for drugs purchased under the 340B Drug Discount Program.  We wrote in that post that CMS was expected very soon to issue its proposed rule on the Hospital Outpatient Prospective Payment System (HOPPS) for 2021, and that the Court’s decision opened two options for CMS: continuing to implement its current ASP minus 22.5% rate for 340B drugs in 2021; or basing payment rates to hospitals for 340B drugs on CMS’s recent survey data on drug acquisition costs, which could result in even larger cuts.  CMS did indeed issue its HOPPS proposed rule very soon – today –  and somewhat surprisingly, CMS did not choose between these options but instead proposed them as two alternatives.

As predicted, CMS used its acquisition cost data gathered in a survey of 1,422 340B hospitals in April and May of this year to arrive at an average acquisition cost of ASP minus 34.7%.  To this amount CMS proposes to add a 6% add-on for handling, storage, and other overhead (similar to the add-on for non-340B drugs under Medicare Part B), for a net payment rate of ASP minus 28.7%.  However, referring to its win in the D.C. Circuit last Friday, CMS argues, as it did successfully to the Court, that its current ASP minus 22.5% payment rate also represents a reasonable interpretation of the statute.  The result is that the two payment rates, ASP minus 28.7% and ASP minus 22.5%, are proposed as alternatives.  The likelihood of an ASP+6% rate for 340B drugs (i.e., zero cuts) has faded as a result of CMS’s use of survey data, which would be authorized under the statute even if the hospitals requested reconsideration by the D.C. Circuit and won.

Excluded from the payment cuts would be children’s hospitals, PPS-exempt cancer hospitals, and rural sole community hospitals, which would preserve their payment rate of ASP+6% for 340B drugs and other separately paid drugs.  See pp. 296-323 of the preamble.  The deadline for comments on the HOPPS proposed rule is October 5, 2020.