Three hospital groups are planning a lawsuit against the 340B cuts, and one attorney says they have a good argument.


Nov. 2—Hospitals are expected to see financial losses from Medicare payment changes related to drugs and knee replacements under a rule finalized this week.

The Hospital Outpatient Prospective Payment System (OPPS) final rule, published Nov. 1, will cut the payment rate for Medicare Part B drugs purchased by hospitals through the 340B program. Specifically, the change will reduce the payment rate for non-pass-through drugs and biologicals (other than vaccines) purchased through the 340B program to the average sales price (ASP) minus 22.5 percent. The current standard is ASP plus 6 percent.

The Centers for Medicare & Medicaid Services (CMS) said it will reallocate $1.6 billion that 340B hospitals would have received to all hospitals paid under the OPPS. The rule exempts children’s hospitals, certain cancer hospitals, and rural sole-community hospitals from the change, which goes into effect at the beginning of 2018. The change also does not apply to critical access hospitals, according to the rule.

The new policy drew sharp concerns from hospitals over its financial impacts, in part because the savings from the 340B program would be redistributed to all hospital types.

“Essential hospitals operate with an average margin less than half that of other hospitals and depend on 340B program savings to stretch resources for patient care and community services,” said Bruce Siegel, MD, president and CEO of America’s Essential Hospitals (AEH), which represents safety net hospitals. “Given their fragile financial position, essential hospitals will not weather this policy’s 27 percent cut to Part B drug payments without scaling back services or jobs.”

According to CMS, the change will cut 2018 Medicare payments to 1,979 not-for-profit hospitals by 0.3 percent and to 493 government-run hospitals by 1.6 percent, while increasing payments to 1,293 for-profit hospitals by 2.7 percent. Additionally, hospitals that Medicare classifies as teaching hospitals or disproportionate share hospitals will have a 1.1 percent cut under the policy.

Darrell Kirch, MD, president and CEO of the Association of American Medical Colleges (AAMC), said the financial losses under the new 340B policy would eliminate funding used for community health services.

For instance, Genesis Healthcare System in Zanesville, Ohio, estimated it would lose $3 million from the 340B change and would have to cancel some substance abuse treatment, cancer treatment, and behavioral health programs, according to 340B Health, which is an alliance of 340B hospitals. MetroHealth System Cancer Center in Cleveland projected an $8 million loss that would raise patients’ costs and lead to cuts in access to services, such as transportation and care navigation.

Lawsuit Coming

The American Hospital Association, AEH, and AAMC said they were planning to file suit to reverse the policy changes.

“There are very good arguments that what CMS has done is unlawful,” said Ronald Connelly, principal with the law firm Powers, Pyles, Sutter & Verville.

The hospitals’ case would be bolstered by congressional intent in establishing the 340B program, which specifically defined the “covered entities” that were entitled to the drug discounts. The redistribution of the 340B discount savings among all hospitals appears to run counter to that legislative intent, he said.

“That really subverts Congress’s expressed intent to give the benefits of these discounts to very specifically defined hospitals within the 340B program,” Connelly said in an interview.   

Letters to CMS that were signed by many members of the Senate and House of Representatives in recent weeks underscored that intent and particularly highlighted the detrimental anticipated impacts of the new 340B policy on rural hospitals.

CMS projected that the reduced 340B discounts would not cut 2018 Medicare payments to nonexempt rural hospitals after accounting for the redistribution of 340B savings across all hospitals. Meanwhile, the policy change would boost 2018 Medicare payments by 2.6 percent among exempted “sole community” rural hospitals.

Although hospitals frequently sue Medicare over payment disputes, a legal challenge to the 340B program would be unique because of the design of the program, said Connelly, whose firm has represented hospitals in non-340B cases.

 “These are really discounts provided by the drug manufacturers to the hospitals … and now CMS has taken all or a considerable portion of those discounts for the benefit of the Medicare program—at least when those drugs are dispensed to Medicare beneficiaries,” Connelly said.

The change could spark credit concerns for not-for-profit hospitals.

The 340B change “would not materially affect the overall not-for-profit hospital sector's credit quality, but it would represent yet another headwind, and would be a significant challenge for certain hospitals,” a September report from Moody’s Investors Service stated. “The specific credit implications would vary depending on a hospital or health system's overall financial performance and liquidity profile outside of 340B.”

The policy also will likely tee up a showdown in Congress, with both advocates of the program and drug manufacturers saying they plan to push 340B legislative initiatives.

“There is still more work to be done to fix the 340B program so that patients do in fact benefit and it no longer drives up health care costs,” the Pharmaceutical Research and Manufacturers of America (PhRMA), said in a written statement. “We encourage Congress and the administration to build on this momentum and continue to push for changes to the program.”

Among the legislative changes PhRMA plans to seek are clear and enforceable qualification standards for 340B patients, updated eligibility metrics to ensure participation is limited to “true safety-net hospitals,” and an assessment of Obama administration guidance “that vastly expanded the program with no accountability that patients are helped,” a PhRMA official said.

Knee Capped

CMS amended the Medicare inpatient-only (IPO) list of procedures, which are typically provided only in the inpatient setting and not paid under OPPS, to remove total knee arthroplasty (TKA) and five other procedures. CMS is also adding one procedure—percutaneous transluminal revascularization of acute total/subtotal occlusion during acute myocardial infarction and in several other situations—to the IPO list in response to public comments. CMS will bar recovery audit contractors from conducting “site of service” reviews of TKA procedures for two years.

The change could expose hospitals and device manufacturers to about a 30 percent payment cut, according to estimates by investment advisory firm Hedgeye.

Although CMS has not added TKA to the list of surgical procedures that can be performed in an ambulatory surgical center (ASC), “the pressure from ASCs to do so will be enormous,” Hedgeye stated in an investors' note. Such a move is expected as soon as the 2019 payment rule, with commercial insurers following suit.

“As these payers represent most of the margin on TKA procedures overall, a shift to outpatient will spell trouble almost immediately for hospitals and device makers,” Hedgeye analysts wrote.

AHA warned in its comment letter that the TKA change could undermine the Comprehensive Care for Joint Replacement (CJR) and the Bundled Payments for Care Improvement (BPCI) programs.

“There is a lack of clear evidence for determining appropriate settings, and this policy could harm patients,” Blair Childs, senior vice president of public affairs for Premier, a hospital advisory group, said in a written statement.

The new policy would require changes to those programs, according to AHA, including incorporation of a comprehensive risk-adjustment methodology.

Overall Rates

CMS will increase overall 2018 hospital OPPS payment rates by 1.35 percent, according to a fact sheet.

Another general policy included in the final rule was a two-year extension (for 2018 and 2019) of the moratorium on the direct physician supervision requirement for hospital outpatient therapeutic services in critical access hospitals and rural hospitals with 100 or fewer beds.

CMS also finalized a proposal to conditionally package payment for low-cost drug administration services.

The latest policies will affect overall 2018 Medicare payment levels differently for various hospital types: Payments will increase by 1.3 percent for not-for-profit hospitals, increase by 4.5 percent for for-profit hospitals, remain flat for government-run hospitals, and increase by 0.4 percent for teaching and disproportionate share hospitals.

CMS, which updates ASC payments annually by the percentage increase in the Consumer Price Index for all urban consumers, will increase total ASC payments by about 3 percent in 2018. CMS also solicited comments on adding TKA, partial hip arthroplasty, and total hip arthroplasty to the ASC covered procedures list.

Also finalized in the rule was a delay of the mandatory 2018 implementation of the Consumer Assessment of Healthcare Providers and Systems Outpatient and Ambulatory Surgery Survey.

A separate rule finalized pay rates for the Home Health Prospective Payment System and dropped the Home Health Groupings model.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, November 02, 2017