CMS proposes one-time payments to hospitals and cuts to OPPS conversion factor as part of 340B remedy

CMS could pay certain eligible hospitals approximately $9 billion as part of its plan to remedy unlawful cuts to the 340B drug discount program between 2018 and 2022, according to a proposed rule. However, the remedy would come at the cost of cuts to non-drug items and services reimbursed under the Outpatient Prospective Payment System (OPPS) starting in 2025.

In the 2018 OPPS final rule, CMS cut reimbursement under the 340B drug discount program by almost 30%. Prior to 2018, participating hospitals were paid average sales price (ASP) plus 6%. Starting in 2018, CMS paid ASP minus 22.5% and, to preserve budget neutrality, redirected that reimbursement into increased payments for non-drug items and services under the OPPS. The American Hospital Association (AHA) and other hospital groups launched a lengthy legal battle to overturn the cuts. In June 2022, the Supreme Court unanimously ruled that CMS’ 2018 cuts to 340B reimbursement were implemented unlawfully and handed the case down to lower courts for remedy decisions, which punted the solution back to CMS in January. In the 2023 OPPS final rule, CMS indicated it would address the remedy in separate rulemaking to be released before the 2024 OPPS proposed rule.

The remedy outlined in the proposed rule, released July 7, would see CMS make one-time payments to the approximately 1,600 affected provider organizations. The proposed sum contains the specific amounts owed to these organizations, about $9 billion in total. Affected organizations would not need to take any additional action.

“It is refreshing to see CMS use the most practical and easy-to-implement solution to the settlement,” says NAHRI Advisory Board member Ronald Hirsch, MD, FACP, CHCQM, CHRI, vice president, regulations and education group, with R1 RCM Inc. “CMS has all the data and can simply send out checks without a complex process requiring hospitals to submit data that then would have to be verified and audited, which would have resulted in another bureaucratic morass, benefitting only the auditors.”

However, to maintain budget neutrality, these payments would be offset by a 0.5% reduction to the OPPS conversation factor for non-drug items and services starting in 2025. The reduction would affect all hospitals, and CMS is projecting that it would need to be in place for approximately 16 years, or until recoupment is made, to recoup the additional $7.8 billion hospitals were paid for non-drug items and services from 2018 to 2022. Hospitals that didn’t enroll in Medicare until after January 1, 2018, would be exempt from the payment reduction, according to the proposed rule.

CMS made a similar adjustment in the 2023 OPPS final rule to account for restoring 340B reimbursement to ASP plus 6%. For 2023, CMS finalized a 3.09% reduction to payment rates for non-drug items and services, less than the 4.04% it considered in the 2023 OPPS proposed rule.

However, 16 years is a significant amount of time, and a variety of factors may complicate calculation of recoupment and the effect it could have on hospitals.

“I worry about the future in terms of what will come to pass over the 16 years that CMS plans to reduce the conversion factor for all hospitals, given how much the OPPS could change with increased packaging [and] the introduction of more comprehensive ambulatory payment classifications among other changes,” says Jugna Shah, MPH, CHRI, president and founder of Nimitt Consulting Inc. in Spicer, Minnesota. “But what is even more concerning is whether CMS will try to revisit 340B reimbursement cuts in the future, given the crux of the lawsuit rested on whether CMS implemented the cuts compliantly and within the bounds of its authority, not on whether it was allowed to make cuts at all. That means if CMS opted to collect 340B drug acquisition cost data, it could lawfully propose 340B payment reductions based on that data.”

In fact, in 2019, CMS proposed to collect acquisition cost data from 340B hospitals. CMS stated that if it did not win the 340B litigation, it might use the data collected from the proposed survey to set payment rates for 340B drugs.

CMS itself acknowledges that the financial impact of its proposed payment reduction will be difficult to calculate exactly. Some hospitals may receive more, or less, of a payment reduction than the payment increase they received in 2018-2022, depending on a hospital’s future mix of drug and non-drug services, the agency said in the proposed rule. However, alternative methods of recouping the additional amount hospitals received during that time would require the agency to make hospital-specific calculations and apply unique reductions to each hospital’s future non-drug OPPS payment rates, according to the proposed rule.

Many other factors could complicate the proposed recoupment method, says NAHRI Advisory Board member John Settlemyer, MBA, MHA, CPC, CHRI, assistant vice president, enterprise revenue management/CDM operations at Atrium Health in Charlotte, North Carolina. For example, if the conversion factor increases over the 16 years, the value of the offset also rises, and CMS could over-recoup. Based on the proposed rule, it’s not clear how the recoupment method will be monitored over the period of time CMS is proposing, he adds.

“It is just very concerning that the future value of those 0.5% adjustments may benefit CMS more than hospitals,” Settlemyer says.

The AHA, which led the legal challenge to the 340B payment cuts, praised the decision to repay affected 340B organizations in a lump sum but expressed disappointment in the proposed recoupment method.

“[T]he 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,” said Rick Pollock, president and CEO of the AHA, in a statement.

CMS’ language in the proposed rule does indicate that it would end the adjustment to the conversion factor early if it recouped the $7.8 billion sooner, says NAHRI Advisory Board member Valerie A. Rinkle, MPA, CHRI, president of Valorize Consulting LLC. With more beneficiaries enrolling in Medicare in the future, or changes in services, the amount could be recouped sooner. However, if more future beneficiaries sign up for Medicare Advantage rather than traditional Medicare, then recoupment would be slower, she says.

Revenue integrity professionals at 340B and non-340B hospitals will need to read the proposed rule carefully and analyze its potential impact on their organizations. Revenue integrity professionals at affected 340B hospitals should consider comparing the lump sum payment amount listed in the proposed rule for their hospital to their own records. Revenue integrity professionals at all organizations should consider the impact of the proposed 0.5% reduction to the OPPS conversion factor and how it might affect future payments.

“It is also crucial for hospitals with Medicare Advantage contracts that receive payments based on Medicare rates to seek recoupment once the final rule is published,” says Shah. “This isn’t likely to be easy, but if we follow the bouncing ball then it stands to reason that if what Medicare did was unlawful and repayments are being made, then it stands to reason that Medicare Advantage plans should also provide a similar remedy to hospitals.”

In addition, consider submitting comments on the proposed rule explaining your support or opposition to various parts of the proposed rule. For guidance on how to write comments, including how to present data and how to identify persuasive and meaningful information, use NAHRI’s white paper Advocacy in Action: Commenting on Proposed Rules. Comments on the proposed rule are due September 11.

Editor’s note: Find more NAHRI resources on the 340B drug discount program here.