CMS to send $9B to 340B hospitals for underpayments, following court loss

Following the unanimous Supreme Court decision siding with hospital groups in June, the Centers for Medicare & Medicaid Services is proposing lump-sum payments of about $9 billion to reimburse more than 1,600 safety-net hospitals for illegal discount drug program cuts from 2018 to 2022. The funds would come from clawing back an estimated $7.8 billion in overpayments to other hospitals, including rural and children’s hospitals.

In 2018, the U.S. Department of Health and Human Services cut prescription drug payments for 340B-covered entity hospitals by nearly 30%. The 340B Drug Pricing Program, created in 1992, requires drug manufacturers to provide outpatient drugs to eligible health-care organizations and covered entities at significantly reduced prices.

The American Hospital Association and other hospital groups sued to halt the cuts, and an appellate court sided with HHS that it has the power to make the cuts. In June 2022, the Supreme Court unanimously rejected the massive payment cuts to hospitals. The court ruled that the differential payment rates for 340B-acquired drugs were unlawful because HHS didn’t follow the proper procedure. Before implementing the rates, HHS failed to conduct a survey of hospitals’ acquisition costs under the relevant statute, the Supreme Court ruled.

CMS estimates that for calendar year 2018 through approximately the third quarter of 2022, certain providers received $10.5 billion less in 340B drug payments than they would have without the policy. However, many calendar year 2022 340B drug claims have been processed or reprocessed through standard claims processing at the higher default payment rate since the 340B payment policy was vacated. To pay for the restitution, Medicare would slash all hospitals’ payments for other items and services by 0.5% for the next 16 years.

Related: 340B Drug Pricing Program and rebates: A Q&A with Sarah Hearn

“As a result, affected 340B providers have already received from Medicare and beneficiaries $1.5 billion of the $10.5 billion that would otherwise have had to be remedied through these reprocessed claims,” the agency said.

Rick Pollack, president and CEO of the AHA, supported the decision.

“After more than five years of litigation and a unanimous Supreme Court victory, the AHA is extremely pleased that 340B hospitals will finally be paid back what they deserve so they can continue providing care to their patients and communities,” he said. “At the same time, the AHA is disappointed that HHS has chosen to recoup funds from other hospitals that cannot afford additional Medicare payment cuts, including rural sole community, cancer and children’s hospitals that were initially exempted from HHS’ illegal policy. We will continue to review the proposal closely and look forward to providing comments.”

The proposed rule will have a 60-day comment period in the Federal Register, which will end on September 5. CMS plans to disburse the lump-sum payment by the end of 2023 or early 2024.