The Brave New World of 340B: Where Do We Go From Here?

It's been nearly a year since the new 340B payment rule implemented by the Centers for Medicare and Medicaid Services (CMS) went into effect. The rule affects Outpatient Protection Payment System (OPPS) hospitals by reducing the reimbursements CMS offers for drugs that qualify under the 340B program, from 6% above the average sale price to 22.5% below. As the dust settles, it’s time for hospital pharmacies and other key stakeholders to take stock of the rule’s impact.

Pharmacy management must take a leadership role in this conversation by proactively bringing the topic to the attention of the hospital or health system’s 340B steering committee, which should include pharmacy, finance, compliance, and legal representation. Because so many of the drugs purchased under the 340B program are specialty drugs that treat high-cost conditions, such as cancer, arthritis, and multiple sclerosis, hospitals that focus on these areas must begin asking the hard questions:

• Are there certain diagnosis lines within the hospital that age of high-cost drugs with reimbursement, which could at risk of not recouping the 340B payment rule changes?
• Are there certain services generating Part B medications that should flow to Part D (eg, certain vaccines, injectable, and infusion drugs)?
• Does the pharmacy leadership team understand the effect that drug reimbursement has on the hospital when evaluating formulary decisions by therapeutic class?
• Has the hospital evaluated reimbursement and collections from 2017 to 2018 to understand which drugs have the greatest impact?
• Are there more cost-effective treatments that provide the same outcomes?

The Ripple Effect

Although the most direct impact from reduced reimbursement rates will be felt at the pharmacy level, the possible loss of revenue has the potential to affect safety-net hospitals and their patients in myriad ways. S&P Global Ratings noted that it believes the effect of the cuts on not-for-profit hospitals that rely on 340B drug savings will likely weaken their operating performance at a time of already-tightening margins.

From the beginning, CMS has maintained that the reimbursement cuts are budget neutral, stating that it will redistribute savings to the covered entities by increasing the conversion factor for nondrug items paid through the OPPS and Ambulatory Surgical Center Payment System by 3.2%. Additionally, although the cuts will be taken only from 340B-covered entities, the redistribution in the form of reimbursement for other services will be applied to non-340B hospitals and 340B hospitals alike. This means that 340B hospitals still come out in the red in this scenario. We’ve also heard from our 340B hospital customers who are seeing reduced reimbursements that turn out to be below the amount they paid to acquire the drug under 340B, resulting in an underpayment/loss to the hospital.

Much like the anticipated neutral effect on hospitals, the touted benefit to patients in the form of lower co-pays is also turning out to be not quite so black-and-white.

“Medicare beneficiaries would benefit from the discounts hospitals receive under the 340B program by saving an estimated $320 million on copayments for these drugs in 2018 alone,” CMS Administrator Seema Verma said in an announcement in November 2017.

However, co-pays are frequently not covered by the patient, so the savings that result from the ruling, which CMS has pledged to patients, become moot. For example, some Medicare-eligible patients have supplemental insurance called Medigap and some qualify for Programs of All-Inclusive Care for the Elderly or the Qualified Medicare Beneficiary Program. In these cases, patients are not responsible for the typical Medicare-required 20% co-pay. In other instances, a patient may not cover the co-pay due to financial circumstances, in which case the hospital’s charity care program covers the expense, resulting in a loss to the hospital. In all of these cases, patients are not benefiting from the effects of the new ruling in the ways CMS has implied.

Faced with this reality, hospital leaders and departments must collectively begin to make decisions about patient care and programs, dividing those that are must-have from those that are nice to have. This means looking closely at programs that offer intrinsic value to patients but whose operation may not be viable long term if revenue declines. Such programs include both indirect patient care services, such as transportation, translation, discount programs, and nutritional classes, and direct patient care, including discharge medication programs and disease state management.

Safety-net hospitals know that the 340B program savings are often used to fund services that go well beyond the scope of reducing prescription costs. This may mean not only the use of specialty drugs, but the building and renovation of much-needed patient care facilities or the purchase of advanced medical and diagnostic equipment. In many cases, 340B program cost savings are used to offset programs that are typically a loss for hospitals, such as neonatal/maternal care, emergency care, dental services, or additional services that would be difficult for patients to seek at other hospitals.

Hospitals Make Their Voices Heard

There has been no shortage of hospitals, medical associations, and political leaders speaking up about the reality of the ruling’s consequences. Since late 2017, before the cuts were implemented, bipartisan support of the 340B program has been strong. On November 14, 2017, Reps. David McKinley (R-WV) and Mike Thompson (D-CA) introduced a House bill, HR 4392, in an attempt to block CMS from enforc- ing the payment cuts. The bill, which had more than 198 cosponsors, asked the Department of Health and Human Services (HHS) to maintain current 340B rates rather than implement the cuts.

McKinley said in a statement, “CMS’ misguided rule jeopardizes the ability of rural hospitals to provide vital services. This bill ensures that hospitals are able to continue providing affordable services and gives rural families peace of mind.”

The bill was not the first bipartisan support the 340B program has received. Another bill, HR 6071 from Rep. Doris Matsui (D-CA), aims to halt Medicare Part B cuts in addition to several pro-340B provisions. Overall, the US government has displayed unprecedented bipartisan support for the 340B program, with a letter signed by 228 of the 435 members of Congress and another letter signed by 57 of the 100 members of the Senate.

Hospitals participating in the 340B program and hospital associations also vocalized their opposition before the ruling took effect. An association of hospitals and health systems in the 340B program, called 340B Health, released a statement in November 2017 saying that the ruling would “harm patients, raise the cost of prescription drugs and other services, and undermine the vital safety net of providers across the country that serve low-income and other vulnerable populations.”

The statement continued, “By slashing Medicare Part B outpatient drug pay- ments for 340B hospitals by nearly 30%, CMS is taking an unprecedented action that will harm patient care.”

Also in November 2017, American Hospital Association Executive Vice President Tom Nickels said in a press release, “CMS’s decision to cut Medicare payments to hospitals for drugs covered under the 340B program will dramatically threaten access to health care for many patients, including uninsured and other vulnerable populations. We strongly urge CMS to abandon its misguided 340B rule, and instead take direct action to halt the unchecked, unsustainable increases in the cost of drugs.”

These objections, although unheeded by CMS in its final decision, eventually led to a lawsuit. On November 13, 2017, the American Hospital Association (AHA), America’s Essential Hospitals, and the Association of American Medical Colleges, along with 3 health systems— Eastern Maine Healthcare Systems; Henry Ford Health System in Detroit, Michigan; and Park Ridge Health in North Carolina— jointly filed a lawsuit in US District Court for the District of Columbia.

The lawsuit argued that the 340B rule violates the Social Security Act and should be set aside, and further alleged that the 340B provisions are outside of the HHS secretary’s statutory authority. The lawsuit was subsequently dismissed on December 29, 2017. AHA then filed an appeal that was denied, prompting the association to refile the lawsuit on September 5.