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HOPPS Proposed Rule Recommends Big Changes to 340B Program

The Centers for Medicare & Medicaid Services (CMS) has released its annual proposed update to the hospital outpatient prospective payment system (HOPPS) for calendar year 2018 (the Proposed Rule). The official version of the Proposed Rule will be published in the Federal Register on July 20, 2017, and comments are due on September 11, 2017.

Buried in the 664-page tome is a proposal that has the potential to directly impact hospitals that purchase certain covered outpatient drugs via the 340B Drug Discount Program (the 340B Program), the manufacturers who make drugs eligible for 340B discounts, Medicare beneficiaries receiving those drugs, and the Medicare program as a whole. While the changes in this Proposed Rule are aimed just at certain types of hospitals (certain DSH hospitals, critical access hospitals, children’s hospitals, sole community hospitals, rural referral centers, and freestanding cancer hospitals), the broader implication is that bigger changes – by way of increased regulation and rulemaking – are on the horizon for the 340B Program at large.

The Proposed Rule sets forth two specific recommendations, with requests for public comment on other issues related to the 340B Program. First, the Proposed Rule would require all hospitals that are reimbursed under the HOPPS to attach a new modifier to claims submitted to CMS to indicate which separately payable, covered outpatient drugs were not purchased pursuant to the 340B program – the assumption being that hospitals purchase all of their separately payable drugs under the 340B Program. Second, CMS proposes to lower hospital reimbursement for separately payable covered outpatient drugs and biologicals (other than vaccines) that were purchased under the 340B Program by 22.5% of the drug’s average sales price (ASP). This proposed shift in reimbursement stands in stark contrast to how hospitals are currently reimbursed for the very same drugs, which are reimbursed at the ASP of the applicable drug plus a six percent (6%) add-on.

Why the dramatic shift? CMS appears to rely on several factors for their proposal: (i) studies suggesting that the current system allows “[340B] providers to generate significant profits when they administer Part B drugs;” (ii) a disparity between per-beneficiary spending at 340B hospitals versus non-340B hospitals; (iii) concerns that, at least for 35 specific drugs, Medicare beneficiaries are responsible for cost-sharing amounts that are sometimes “greater than the amount a covered entity spent to acquire the drug;” and (iv) a noticeable increase in the number of hospitals participating in the 340B Program in recent years. Importantly, CMS also heavily relies on the calculations and methodologies contained in a May 2015 Report to Congress as delivered by the Medicare Payment Advisory Commission (MedPAC). CMS is specifically seeking public comment and input with respect to the MedPAC report and analysis of the new proposed payment rate.

Obviously, a proposed rule is just that – and certainly we anticipate that many stakeholders who participate in the 340B Program will object to this dramatic change in reimbursement and will draft comments to the Proposed Rule.

Arent Fox's Health Care group regularly follows developments in hospital reimbursement matters and assists clients in submitting comments to proposed regulations. If you would like to know more about the details of the Proposed Rule, or would like assistance with submitting comments to CMS, please contact Stephanie Trunk or Erin Atkins in our Washington, DC office, Thomas Jeffry in our Los Angeles office, or the Arent Fox professional who regularly handles your matters.