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Hospitals question feds' proposed $900 million IOU tied to 340B cuts

Updated July 21, 2017.

Hospital officials say they're worried the CMS won't fairly distribute savings the agency says would be generated by a $900 million cut to the 340B drug discount program.

Last week, the CMS proposed paying hospitals 22.5% less than the average sales price for drugs acquired under the federal program, which aims to reduce operating costs for hospitals that see a disproportionate share of low income patients.

The current payment calculation mimics Medicare's long-standing policy—6% on top of the average sales price. Under the proposed changes, if a drug costs $84,000, the CMS would pay just over $65,000, instead of the current $89,000. Vaccines would continue to be paid at the current rate.

The move would save approximately $900 million in 2018. The reduction is intended to be budget-neutral, so the CMS said it would redistribute the savings by increasing Medicare payments to participating hospitals by 1.4% next year.

"This definitely is a cut," said Karen Fisher, chief public policy officer at the Association of American Medical Colleges. "You're taking funds from hospitals that treat the most fragile populations and spreading it across all hospitals."

The agency said it is making the change in response to rising drug costs and to curb growth in the program's costs, which rose 543% from 2004 to 2013, according to the Medicare Payment Advisory Commission.

At a House oversight hearing Tuesday, Democratic lawmakers slammed the rulemaking, which HHS Secretary Dr. Tom Price said was a move to cut overall drug costs.


THE TAKEAWAY The CMS wants to reduce 340B payments by $900 million and redistribute the funds among all hospitals, a proposal that was slammed by advocates for 340B hospitals.
"It's not going to get to the root of the issue of high drug prices," Rep. Diana DeGette (D-Colo.) said. "It's trying to solve one problem by creating many others."

"This proposal is nothing more than a deep cut to hospitals that serve as the bedrock of our safety net," said Rep. Frank Pallone (D-N.J.).

Republicans at the hearing were silent about the rulemaking.

MedPAC said hospitals on average were receiving a discount of the average sales price minus 22.5%. The CMS took that metric and used it as a way to reach savings in the program. MedPAC declined to comment on the rulemaking.

A CMS spokesman said the agency wants feedback on ways to ensure the savings return to hospitals that serve uninsured and underinsured patients.

One of the ongoing criticisms of the 340B program is that hospitals with mostly high-income patients have taken advantage of the program. The proposed change seems to be codifying this trend, according to Shahid Zaman, senior policy analyst at America's Essential Hospitals.

If the proposal is finalized, "a large portion of the savings would be diverted to non-340B hospitals as higher payments for services unrelated to the 340B program and low-income patients," Zaman said. "Even for-profit hospitals, which are intentionally excluded from the 340B program, would see increased payment under CMS' plan."

Providers now use savings from the 340B program to provide ongoing care management for conditions ranging from HIV to diabetes, according to Ted Slafsky, CEO of 340B Health, an association of more than 1,300 340B hospitals.

For instance, Monroe County Hospital in Alabama uses the $1.1 million it draws from the 340B program to fund cancer care for patients with no coverage. The University of Rochester (N.Y.) Medical Center saves more than $4 million and uses the savings to offer patients free medications.

If this money were to go away those services would likely end, uncompensated care would rise and for some safety net hospitals with already razor thin margins, closures could occur, the AAMC's Fisher said.

Approximately 45% of all acute-care hospitals participate in the 340B program. MedPAC estimates that 2,140 were relying on the program in 2014, up from 583 in 2005. Spending during that period jumped from $2.4 billion to $14 billion, according to federal data.

The Affordable Care Act made new categories of hospitals eligible for 340B discounts, including some children's hospitals, free-standing cancer hospitals, sole community hospitals and rural referral centers.

"We are very concerned that the CMS is choosing to address the high cost of drugs by cutting Medicare payments for hospitals serving poor and vulnerable populations," said Molly Collins Offner, director of policy at the American Hospital Association. "We have many questions regarding CMS' rationale for this policy recommendation, not the least of which is how Medicare beneficiaries would be affected."

Price expects the savings would be passed along to Medicare patients through lower drug costs.

If finalized, the change would become effective Jan. 1, 2018. The CMS is taking comments through Sept. 11.

An edited version of this story can also be found in Project Japan's July 24 print edition.


Virgil Dickson

Virgil Dickson reports from Washington on the federal regulatory agencies. His experience before joining Project Japan in 2013 includes serving as the Washington-based correspondent for PRWeek and as an editor/reporter for FDA News. Dickson earned a bachelor's degree from DePaul University in 2007.


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