Pharmacist Checking Inventory Using Tablet

Bipartisan majorities in both the House and Senate have already expressed concerns with the new rule. Hospitals should contact their representatives and join the conversation.

Navigating health reform

340B Drug Program Reimbursements Reduced in 2018

  • Cheryl Hetland
  • 11/17/2017

As of January 1, 2018, Medicare payments will be reduced for non-pass-through, separately payable drugs, and biologics purchased under the 340B Program and dispensed to 340B hospital outpatients. This change is a result of The Center for Medicare and Medicaid Services’ (CMS) Department of Health and Human Services (DHHS) Calendar Year (CY) 2018 Medicare Hospital Outpatient Prospective Payment System (OPPS) Final Rule, which mandates an alternative payment methodology for drugs purchased under the 340B Drug Discount Program.

The payment reduction is based on an estimated amount resulting from a report by the Medicare Payment Advisory Commission (MedPAC) that calculated the average minimum discount received by hospitals for drugs paid under the OPPS to be 22.5 percent of the average sales price (ASP). This new rule will decrease the payment amount to 340B covered entities (which is currently set at the ASP plus 6 percent) to ASP minus 22.5 percent.

Bipartisan majorities in both the House and Senate have already raised concerns over these payment reductions. Industry leaders should contact their representatives to help them understand the financial impact this rule will have on their organization.

Some hospitals will not be affected

The payment reduction will only be applicable to covered entities that are disproportionate share hospitals (DSH) and rural referral centers. Payments for drugs not reimbursed under the OPPS, including critical access hospitals and hospitals paid under the alternative payment rates, will not be affected by the proposed cuts. In addition, CMS is allowing an exemption for rural sole community hospitals, children’s hospitals, and prospective payment system (PPS) exempt cancer hospitals for CY 2018, and these hospitals will not be subject to the payment reduction.

Modifiers required for billing drugs

Beginning January 1, 2018, DHHS will be requiring a modifier to identify whether a drug billed under the OPPS was purchased under the 340B Drug Discount Program.

  • All drugs purchased by DSH and rural referral centers through the 340B Drug Discount Program will have to be billed to Medicare with a “JG” (drug or biological acquired with 340B drug pricing program discount) modifier.

  • Rural sole community hospitals, children’s hospitals, and PPS–exempt cancer hospitals will be required to report an informational modifier “TB” (drug or biological acquired with 340B drug pricing program discount, reported for informational purposes) for tracking and monitoring purposes to identify OPPS separately payable drugs purchased with a 340B discount.

Without alternative recommendations, CMS moves forward

In the proposed rule, CMS solicited responses on how 340B hospitals would be impacted by these payment reductions and asked them to submit comments, along with acceptable alternative methodologies during this comment period. CMS stressed in its final rule that hospitals and stakeholder groups did not suggest alternative payment methods, so they are confident that the 22.5 percent “… keeps Medicare payment within the range where hospitals will not be underpaid for their acquisition costs of such drugs.”

While many organizations submitted comments during the open comment period, it is unclear why hospitals did not offer alternative suggestions. The American Hospital Association, the Association of American Medical Colleges, and America’s Essential Hospitals have already filed litigation against CMS to stop the payment reductions.

New rule will save Medicare more than $1 billion

DHHS sees this change in methodology as a cost savings measure for the Medicare program, as well as a reduction in the amount of Medicare beneficiary cost-sharing. The estimated savings to the Medicare program as a result of the payment reduction will be $1.65 billion in 2018, which is an increase from $900M in the proposed rule. The payment reductions to 340B hospitals will be implemented in a budget-neutral manner and redistributed to all hospitals (340B and non-340B) as an increase in Medicare payments for separately payable outpatient non-drug items and services.

Preparing your organization

Despite the payment reductions, there are steps to take to help reduce the impact on your hospital and maintain compliance.

  1. Contact your senators and representatives and help them understand the impact this will have on your organization.

  2. Work with information technology and hospital billing teams to ensure that the appropriate modifiers will be added to the Medicare bills. You’ll want to ensure the modifier is not added to claims for orphan drugs not covered under the 340B program or to claims from any off-site, non-340B eligible clinics.

  3. If you are subject to the payment reduction, make sure your organization is optimizing your 340B spend and minimizing your wholesale acquisition cost.

  4. Determine the financial impact of the payment reductions to your 2018 budget.

How we can help

CLA’s health care professionals have been closely monitoring this change, and we understand how it will impact 340B hospitals. We can work with your hospital to determine the steps necessary to maintain your financial position despite decreasing reimbursement.