On Friday, July 7, 2023, the Centers for Medicare & Medicaid Services (CMS) published their long-awaited proposed remedy to the unlawful 340B drug payment reductions.

Background: In 2018, CMS significantly reduced the Average Sales Price (ASP) plus six-percent (6%) formula for calculating 340B drug payments to ASP minus 22.5%. After conflicting decisions from the District of Columbia’s federal District and Appeals Courts, on June 15, 2022, a unanimous U.S. Supreme Court concluded that the ASP minus 22.5% formula was “unlawful” and violated a clear statutory mandate to reimburse 340B drugs at ASP plus 6%. American Hospital Assn. v. Becerra, 142 S. Ct. 1896, 1906 (2022). However, the U.S. Supreme Court did not address remedies and remanded the case to the U.S. District Court for the District of Columbia. On September 28, 2022, the District Court vacated the payment reduction and ruled that CMS had to stop paying the unlawful rate. However, it did not address the damages from January 1, 2018 – September 27, 2022.[1]  On January 10, 2023, the District Court further remanded the case to CMS to provide a remedy for the underpayments dating back to January 1, 2018.[2]  

The Proposed Rule: On July 7, at 4:15 pm, CMS’ highly anticipated proposed remedy was released to the public. The proposed rule states the following regarding the remedy:

“CMS believes that the best way to remedy our payment policy for 340B-acquired drugs for the period from CY 2018 through September 27 of CY 2022, which the Supreme Court found unlawful, would be to make one-time lump sum payments to affected 340B covered entities calculated as the difference between what they were paid for 340B drugs (ASP minus 22.5 percent or an adjusted WAC or AWP amount) during the relevant time period (from CY 2018 through September 27 of CY 2022) and what they would have been paid had the 340B payment policy not applied.” (Emphasis added).  

The cost of the lump sum payments is estimated to be $9 billion. However, the lump sum repayment does not include interest, which may disappoint the hospital industry.

To achieve budget neutrality, “CMS is proposing to reduce future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5% starting in CY 2025. CMS proposes to continue making this adjustment until the full $7.8 billion is offset, which CMS estimates to be 16 years.” (Emphasis added).  

Notably, it appears that CMS intended to position hospitals in the place where they would have been had the reimbursement cuts never taken place. Also important is that the proposed rule accounts for beneficiary cost-sharing states that hospitals may not bill beneficiaries for coinsurance on the remedy payments.   

Although the proposed rule applies to traditional fee-for-service Medicare, it may also significantly impact providers that have contracts with Medicare Advantage plans, where the 340B drug reimbursement rates are based on a percentage of the Medicare rates. Many such hospitals also incurred deep reductions in payments for 340B drugs since January 1, 2018.

The proposed rule will undergo a 60-day comment period, which will end on September 5, 2023.[3] 

Please contact Gregory Fliszar, Christopher Raphaely, John Shire, or Jacqueline Green at Cozen O’Connor if you have any questions about the proposed rule or other reimbursement questions. 

 [1] American Hospital Association v. Becerra, 2022 WL 4534617, at *16 (D.D.C. September 28, 2022)

[2] American Hospital Association v. Becerra, 2023 WL 143337, at *6 (D.D.C. January 10, 2023)

[3] https://www.cms.gov/newsroom/fact-sheets/hospital-outpatient-prospective-payment-system-remedy-340b-acquired-drug-payment-policy-calendar