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Second Opinion

Learn about policy issues important to medical schools and teaching hospitals, with Executive Vice President Atul Grover, M.D., Ph.D.

Washington Highlights

AAMC Opposes CMS’ July 13 Proposed Rule to Dramatically Reduce Medicare Outpatient Drug Reimbursement for “340B” Hospitals

July 14, 2017—The Centers for Medicare and Medicaid (CMS) July 13 released the Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment system proposed rule for Calendar Year (CY) 2018, which includes a major reduction in Medicare outpatient drug payments for “340B” hospitals.  AAMC strongly opposes this proposed payment reduction, as does the American Hospital Association and other hospital organizations. 

Under Section 340B of the Public Health Service Act, which the Health Resources and Services Administration (HRSA) implements, hospitals that serve a disproportionate share of low-income patients qualify to receive discounts from drug manufacturers on the hospitals’ purchase of outpatient drugs in order to help them to manage the cost of caring for such patients.

The CMS proposal does not change the 340B program.  Instead, it would reduce Medicare payments for separately payable, non pass-through drugs (other than vaccines) purchased at a discount through the 340B program from the current rate of “average sales price (ASP) plus 6%” to the new rate of “ASP minus 22.5%.”

In other words, currently Medicare reimburses a 340B hospital for its purchase of a drug through the 304B program at 6% above the discounted price the eligible hospital pays to the drug manufacturer.  Under the CMS proposal, Medicare would pay 6% less than the price a 340B hospital would pay to a manufacturer.   The proposal would reduce Medicare revenue to 340B hospitals, thereby undercutting the value of the manufacturers’ price discount to the hospitals. The proposed rule would have no effect on manufacturers’ drug pricing.

The deadline to submit comments to CMS on its proposed OPPS ASC rule, including the payment change to 340B hospitals, is 5:00 pm, Monday, September 11.

In a July 3rd statement, AAMC President and CEO Darrell G. Kirch, MD, stated: “The AAMC is dismayed over, and strongly opposes, the administration’s proposal to dramatically reduce Medicare payments for outpatient drugs purchased through the 340B drug pricing program…The changes proposed by CMS are contrary to the statutory intent of the (340B) program to help covered entities and vulnerable populations they serve.  These new regulations will penalize safety net hospitals participating in 340B and severely impede their ability to sustain vital services and care to patients in the nation’s most underserved communities.”

As justification for its proposed payment reduction, CMS said it would address rising drug costs.  In response, Dr. Kirch said:  “There is no question that drugs have become unaffordable for millions of Americans and the providers that care for them.  It is illogical to suggest that the solution to rising drug costs is to gut a program that represents less than 3% of the total U.S. drug market and enables major teaching hospitals and other providers to care for vulnerable populations.  If policymakers want to address rising drug costs, they should do so directly – not by undermining the 340B program.”

Contact:

Catie Spivey, JD
Sr. Legislative Analyst, Gov't Relations
Telephone: 202-862-6042
Email: cspivey@aamc.org

Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806
Email: jkleinman@aamc.org

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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806
Email: jkleinman@aamc.org