Medicare Payment and Reimbursement

Changes to reimbursement for 340B drugs reverberate in the 2023 final rule for Medicare outpatient payments

A budget neutrality adjustment stemming from a higher payment rate for 340B drugs also will eat into the payment increase for some hospitals.

November 2, 2022 10:22 am

The Medicare payment rate for hospital outpatient services will increase significantly in 2023, but the net gain will be quite a bit less than is apparent at first glance.

Payment rates for hospital outpatient care and ambulatory surgical centers (ASCs) technically will increase by 3.8% over 2022 for facilities that meet quality-reporting requirements, CMS said in a newly published final rule with comment period. That’s up from an increase of 2.7% in an earlier proposed rule. The difference, which is based on changes in the prices of the inputs that comprise the hospital market basket, was expected after a similar hike to the FY23 inpatient payment rate.

CMS noted that the outpatient payment update was determined using CY21 claims data and CY19 cost-report data to mitigate the impact of the COVID-19 public health emergency (PHE) on rate setting.

While pleased with the improvement in the rate increase, the American Hospital Association views the update as “still insufficient given the extraordinary cost pressures hospitals face from labor, supplies, equipment, drugs and other expenses,” according to a statement by Stacey Hughes, AHA executive vice president.

The increase will be partially negated by several factors, including a 2% Medicare payment sequester that is scheduled to be in effect for all of 2023. In 2022, it was tabled for the first three months and then reintroduced at 1% in April before rising to 2% starting in July (for an average reduction of 1.25% per month over the course of the year).

In addition, a 4% cut for all providers will take effect Jan. 1, 2023, stemming from a pay-for clause in the 2021 COVID-19 relief legislation unless Congress acts to nullify or postpone the cut.

The impact of changes to 340B drug payments

A further reduction to the overall increase is in store as a result of a new payment rate for drugs purchased through the 340B Drug Pricing Program. As required by a Supreme Court decision, CMS boosted the rate from average sales price (ASP) minus 22.5% to ASP plus 6% starting in late September.

Due to statutory requirements relating to budget neutrality, however, CMS will reduce the payment rate for all non-drug services by 3.09% in 2023.

CMS previously was set to reduce payments by 4.04% to maintain budget neutrality relative to 2022. But the agency acceded to requests from commenters to instead base the offset on the increase that was implemented for non-drug payments in 2018, when the 340B payment rate was reduced. CMS deflected calls to do away with the budget neutrality adjustment altogether in a trying fiscal environment, saying it is bound by statute to impose the adjustment.

Different categories of hospitals will be impacted differently by the combination of the payment increase for 340B drugs and the budget neutrality adjustment. An obvious factor will be the hospital’s eligibility for participation in the 340B program.

For example, according to CMS’s projections, the payment increase for urban hospitals with 500 or more beds will be 3.4% higher as a result of the changes. But the increase for rural hospitals will decline regardless of bed size, including by 1.3% for hospitals with 100 or fewer beds (see Table 110 in the rule for a full breakdown, including the regional variation in impact).

Key questions remain regarding Medicare payments for 340B drugs, including the determination of remedies for payments that were calculated using the unlawful lower rate that began in 2018. In addition, CMS likely has legal authority to reduce the payment rate in future years if it bases the reduction on a hospital survey as described in the Medicare statute.

Other provisions of note

Behavioral health services in 2023 will remain eligible for payment as outpatient services when provided remotely by clinical staff of hospital outpatient departments, including staff at critical access hospitals.

The accommodation was introduced during the PHE but now will continue throughout 2023 if and when the PHE ends. These services also will be eligible for payment when provided to patients enrolled in a partial hospitalization program even though the services wouldn’t be designated as partial hospitalization services.

Among the many other provisions of the 1,764-page rule:

  • Eleven services are being removed from the inpatient-only list, allowing them to be furnished in outpatient settings. And four procedures are being added to the ASC covered procedures list.
  • Facet joint interventions are being added to the list of services that require Medicare prior authorization.
  • Among changes to Medicare’s organ acquisition policy, certain hospital services will be categorized as organ acquisition costs when provided to donors whose death is imminent. The goal is to promote organ procurement and enhance equity, CMS stated.
  • Five new therapies will join a list of nonopioid pain management drugs that are eligible for separate payment when furnished in the ASC setting. As established in legislation, the goal of the policy is to limit financial incentives to use opioids.
  • Supplemental payments will be available to reimburse hospitals for the marginal resource costs incurred in acquiring domestically produced, NIOSH-approved surgical N95 respirators.


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