Hospitals to Get $9B in 340B Money

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CMS will dole out $9 billion to the nearly 1,700 hospitals participating in the controversial 340B program to unwind a policy that slashed Medicare payments for drug to those hospitals that the Supreme Court ruled was unlawful.

The money will be paid in lump sums but won’t be a total windfall. As part of the same rule that it promulgated today, CMS will dial back payments for nondrug items and services by 0.5% for 16 years starting in 2026.

About half of the $9 billion in lump sum payments will go to 315 major teaching hospitals, according to the final rule that come out

Under the 340B program, hospitals where low-income and uninsured patients are treated buy outpatient drugs at discounts of between 25% to 50%. Those discounts are supposed to help lower costs so hospitals can deliver services to less advantaged, more complex patients. Critics of the program, which include the pharmaceutical industry, say the discounts on drugs pad margins and don’t benefit patients.

Last year, the Supreme Court sided with the American Hospital Association when it ruled that a 2017 CMS policy that cut Medicare payment to hospitals participating in the 340B was unlawful. CMS had paid the average sales price plus a 6% of that price to the hospitals for outpatient drugs covered under Medicare B. The 2017 policy drastically reduced what Medicare paid to the average sales price minus 22.5% of that price. According to a factsheet put out today by CMS, the Supreme Court ruled that CMS had illegally lowered price because the Department of Health and Human Services, which CMS is part of, had failed to conduct a survey of hospital acquisition costs.

The $9 billion is supposed to cover the difference between the amount CMS paid hospitals for outpatient drugs during the almost four years it was reimbursing at average sales price minus 22.5% and the amount it would have paid had it stuck with the average sales price plus 6% formulation.

CMS moved to lower its reimbursement “to reflect more accurately the actual costs incurred by 340B hospitals when acquiring 340B drugs,” says the CMS factsheet.

According to CMS calculations that were shown in the final rule that sets in motion the $9 billion in lump sums, the 0.5% cut in reimbursement for nondrug items and services translates into a cut of $351 million for 340B hospitals. By 2040, the cut will amount to $695 million and the cumulative total in 2041 will be $7.8 billion.