Hospitals disagree with 340B pay remedy's 'clawback'

By Alex Kacik / September 6, 2023

Hospitals' chief complaint about the 340B remedy payment proposed rule is that it's budget neutral, which the federal government likely won't be able to change.

The Centers for Medicare and Medicaid Services and the Health and Human Services Department have had to backtrack since the Supreme Court invalidated reimbursement cuts to the 340B drug discount program, which gives hospitals and other covered entities that treat low-income and uninsured patients discounts of between 25% to 50% on pharmaceutical purchases. Under the proposed rule issued in July, the agencies would offset those payment cuts through a one-time lump sum payment, but reduce reimbursement for other outpatient services to ensure that Medicare spending remains the same.

Budget neutrality is the central sticking point across the 150-plus comments submitted to the federal government regarding the proposed rule. The American Hospital Association, among other provider associations and health systems, disagrees with government's assessment, arguing that the Health and Human Services Department has “the legal obligation and legal flexibility to not seek a clawback of funds that hospitals received as a result of HHS’ own mistakes.”

Chicago-based CommonSpirit Health, one of the biggest nonprofit health systems, also said HHS should not pursue a budget neutrality adjustment. But if it does, the federal government should drastically reduce the amount, delay recoupment until 2026, spread it over a longer period and ensure that the adjustment does not unduly enrich Medicare Advantage organizations, the health system said.

“There is a significant risk that these commercial [Medicare Advantage organizations] will pay hospitals a decreased rate because of HHS’s recoupment methodology. This would double the adverse impact of the proposed recoupment on hospitals,” Alyssa Keefe, CommonSpirit senior vice president, public policy and advocacy, said in a comment letter.

Jared Kosin, president and CEO of the Alaska Hospital and Healthcare Association, urged the government to eliminate the proposed 340B remedy payment’s budget-neutral framework, claiming its 340B-covered entities would experience a negative net impact of $10.8 million as a result of the proposed changes.

Under the proposed rule, the federal government would pay $9 billion to more than 1,600 hospitals to offset the federal government's roughly 30% reduction of Medicare 340B payments that the Supreme Court deemed unlawful. CMS plans to cut non-drug item and service payments to all hospitals by $7.8 billion over a 16-year period starting in 2025 to maintain budget neutrality, which is required by the Social Security Act, the agency said in the proposed rule.

Generally, health systems and hospital associations agreed with many elements of the proposed rule, including the one-time lump sum repayment and the methodology for calculating what 340B hospitals are owed. Despite hospitals’ requests to not issue corresponding revenue cuts along with the remedy payments, it is unlikely that CMS would move away from budget neutrality, regulatory experts said.

The 340B remedy payment proposed rule and ensuing debate represents the latest standoff involving the heavily contested law.

Hospitals, particularly those in rural areas, say they rely on the program to offer services their communities need. The recent stretch of elevated labor and supply costs reinforce the 340B program’s importance, hospitals and other providers say.

The number of 340B-eligible hospitals and clinics increased six-fold from 2000 to 2020, according to data from the University of Southern California Schaeffer Center. The program’s growth has sparked concern from drug manufacturers and policy experts, some of whom argue that 340B dollars aren’t going to health systems that offer the most uncompensated care.

A Modern Healthcare analysis of estimated uncompensated care costs relative to the size of the proposed 340B remedy payments shows the drug discount program may have strayed from its mission to support hospitals that carry the heaviest burden of care for low-income patients. Hospitals that would receive the biggest remedy payments tended to provide proportionally less charity care and carry less bad debt than other 340B-eligible hospitals, the analysis showed.

Dr. Miriam Atkins, president of the Community Oncology Alliance, and Ted Okon, executive director of the association that represents independent oncology practices, said in a comment letter that the “340B program no longer exists to benefit the nation’s most vulnerable patients.” Large hospitals with more than 500 beds will receive nearly half of the proposed remedy payments, while rural hospitals will only receive 5% of the total sum, they noted.

Stakeholders have until Sept. 11 to submit comments. A final rule is expected in November.