On July 25, 2018, the Centers for Medicare & Medicaid Services (CMS) proposed to expand cuts made earlier this year to 340B-eligible hospitals’ reimbursement for 340B-acquired drugs reimbursed through Medicare Part B. Like CMS’s previously imposed cuts, which became effective on January 1, 2018, CMS’s new proposal applies to all 340B covered entities that are paid through the Medicare Outpatient Prospective Payment System (OPPS) or the Medicare Ambulatory Surgical Center (ASC) payment system. Rural Sole Community Hospitals (SCHs), Children’s Hospitals, and PPS-exempt Cancer Hospitals remain excluded from the payment adjustment, and Critical Access Hospitals (CAHs), which are paid under Section 1834(g) of the Social Security Act, also remain unaffected by the proposed expansion.

CMS’s new proposal will extend its policy of paying the average sales prices (ASP) minus 22.5% for 340B-acquired drugs to 340B covered entity hospitals and their non-excepted (“non-grandfathered”), off-campus provider-based departments (PBDs). CMS is taking the position that extending the payment cuts to non-excepted, off-campus PBDs will curb possible financial incentives to shift or reallocate services to a site of care which pays at a higher rate.

Additionally, CMS proposes to pay for separately payable non-pass through drugs and biosimilars at the rate of the average sales price (ASP) minus 22.5% of the drug or biosimilar’s ASP, instead of the ASP of the reference product. Because reference products (i.e., the products that certain drugs and biosimilars can replace in treatment) are generally more expensive than biosimilar products, CMS’s proposal may reduce the 340B discount available for reference products. Further, CMS proposes to pay for new drugs and biological products at the wholesale acquisition cost (WAC) plus 3%, rather than WAC plus 6%, where ASP data is available. CMS suspects that reducing payment in this manner will contribute to saving Medicare beneficiaries more on out-of-pocket payments in addition to the estimated $320 million in savings resulting from the CY2018 cuts.

While CMS’s new proposal will not change its payment policy for drugs reimbursed on pass-through status, such as vaccines or ASP methodology reimbursement, the proposed extension of cuts presents another significant financial impact to 340B covered entity hospitals. The proposal could become effective as early as January 1, 2019.