The Major Hitter: The 340B Drug Reimbursement Scramble

By: Susan Gatehouse, Axea Solutions CEO

Axea march blog stock image.png

Another year, another raft of changes from CMS. A major hitter this year is the change in 340B drug reimbursement.

Remember 340B’s history? Signed into law by President George H.W. Bush in 1992, the 340B program was part of the Veteran Affairs Act. It required pharmaceutical companies that participate in Medicaid to provide discounts on certain drugs to facilities that meet specific requirements, primarily that they provide care to medically underserved populations.  

Fast forward to 2016. The Medicare Payment Advisory Committee (MedPAC) started looking into the average payments hospitals were receiving through 340B. The conclusion? Hospitals were making too much money from the program, and reimbursements needed to be decreased.

In late 2017, CMS finalized a proposal to pay hospitals the average sales price (ASP) minus 22.5% for those drugs acquired through the 340B program (except pass-through drugs and vaccines). This is a 28.5% payment difference from 2017 to 2018.

There are exceptions. The payment rate of ASP + 6% will continue for sole community hospitals in rural areas, children’s hospitals, and PPS-exempt cancer hospitals.

Clearly, this new ruling packs a powerful financial punch. However, the savings from this new iteration of 340B are earmarked to meet other facility costs. CMS is implementing this policy in a budget neutral manner by offsetting the estimated $1.65 billion in reductions in drug payments by redistributing that amount to other non-drug services within the OPPS.

A consortium of entities, including the American Hospital Association, Association of American Medical Colleges, America's Essential Hospitals, and three hospitals, sued the Department of Health and Human Services in November 2017, shortly after CMS issued the final ruling on the new reimbursement structure for 340B.

U.S. District Judge Rudolph Contreras dismissed the lawsuit because the proposed cuts had not gone into effect at the time of filing. He did not rule on the merits of the case. The lawsuit is expected to be refiled.

From intensive inventory analysis to programming and assigning the correct modifiers to 340B drug codes, the revisions to this program provide lots of “learning opportunities.” Even facilities that are exempted from these changes are required to use a voluntary modifier to delineate which drugs would fall under the 340B guidelines.

As you grapple with the procedural headaches, uncertain financial impact, and compliance risk that the new version of 340B has wrought, remember that education and training help alleviate at least some of these stressors.


Stay tuned! We hope you’ll return for our next blog.

Click here to sign up for email notifications.