What you need to know about the forces reshaping our industry.


November 2, 2017

CMS wants to cut $1.6B from drug payments. Hospitals say, 'We'll see you in court.'

Daily Briefing

    Three of the nation's leading hospital groups on Wednesday signaled they will take legal action to stop CMS from implementing a $1.6 billion cut in 2018 to payments to hospitals for drugs provided under the 340B drug discount program.  

    Here's your cheat sheet for understanding health care's legal landscape

    About the 340B cuts

    The announcement came the same day CMS issued its final rule for the Hospital Outpatient Prospective Payment System (OPPS). The final rule significantly reduces hospital reimbursements under the 340B program, which requires drug manufacturers to provide outpatient drugs to eligible health care providers at discounts ranging from 20% to 50%. About 40% of U.S. hospitals are eligible to participate in the program.

    Currently, hospitals under the program purchase drugs at a discounted rate and are reimbursed at 6% on top of a drug's average sales price, but beginning in CY 2018 hospitals will be reimbursed at average sales price minus 22.5%. CMS projected the change will reduce hospital payments under the program by $1.6 billion—though the agency said that Prospective Payment System-exempt cancer hospitals, children's hospitals, critical access hospitals, rural sole community hospitals, and non-excepted hospital outpatient departments reimbursed under the Medicare Physician Fee Schedule will be exempt from the payment cuts. The reimbursement cuts also will not apply to vaccines, according to a fact sheet.

    CMS said it would redistribute those savings by raising Medicare payments to hospitals for non-drug items and services under OPPS in calendar year (CY) 2018. The agency said it may revisit the payment rate changes in CY 2019.

    CMS previously has said the changes would address rising costs under the program. The Medicare Payment Advisory Commission has estimated that the program's costs increased by 543% from 2004 to 2013. However, hospital groups have said the cuts could jeopardize services at safety-net hospitals.                               

    Hospital groups signal legal action

    The American Hospital Association (AHA), the Association of American Medical Colleges (AAMC), and America's Essential Hospitals (AEH) on Wednesday said they will challenge the 340B payment change in court, arguing that the new policy subverts Congress' intent for the program.

    AHA Executive Vice President Tom Nickels in a statement said the payment change "will dramatically threaten access to health care for many patients, including uninsured and other vulnerable populations." He added, "It is not based on sound policy and punishes hospitals and patients for participation in a program outside of CMS' jurisdiction."

    Citing September letters signed by 228 House lawmakers and 57 senators opposing the cuts, Nickels said, "Congress intended for 340B hospitals to get a discount," and CMS' action has "unilaterally taken away that discount."

    AAMC President and CEO Darrell Kirch similarly said the policy change "ignores concerns about the plan expressed by a majority of members of the House and Senate.,"

    AEH President and CEO Bruce Siegel added that CMS "has offered no evidence these payment cuts would achieve its stated policy goal: to combat rising drug prices. Instead, this policy weakens the 340B program's value as a tool to lower prices while raising costs and administrative burdens on hospitals least able to absorb these changes."

    According to Politico's "Pulse," it is unclear when the groups could file their lawsuit. Nickels said AHA also was considering legislative solutions.

    Other reaction

    However, some industry stakeholders who have raised concerns about the 340B program welcomed the changes, the Wall Street Journal reports. 

    For instance, the Community Oncology Alliance, a nonprofit advocacy group for local oncology practices—praised the 340B changes, saying they "will help steer the program back to its original course—acting as a safety net to help patients in need"(Dickson, Modern Healthcare, 11/1; Evans, Wall Street Journal, 11/1; Diamond, "Pulse," Politico, 11/2; Community Oncology Alliance release, 11/1; AHA release, 11/1, AEH release, 11/1; AAMC release, 11/1).

    How will your Medicare reimbursement change next year under HOPPS?

    Many providers are wondering how their Medicare reimbursement will change next year under the Hospital Outpatient Prospective Payment System and ASC Fee Schedule.

    Join our webconference on Friday, Nov. 10 at 1 pm ET to discuss CMS's changes to hospital outpatient and ambulatory surgical center payments in CY 2018.

    Register Here

    Have a Question?


    Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.