CMS final rule slashes 340B drug payments by $1.6B; hospitals vow to fight it in court

Hospitals plan to fight a new final rule issued by the Centers for Medicare & Medicaid Services that makes dramatic payment cuts to the 340B drug discount program. 

CMS issued its final Hospital Outpatient Prospective Payment System rule (PDF) on Wednesday, and in it the agency set 340B payment rates to 22.5% less than the average sales price for drugs. The rule will cut $1.6 billion in drug discount payments, according to a CMS fact sheet.

Prior to the rule, CMS paid up to 6% more than average sales price in the 340B program, which is a longstanding Medicare policy. CMS' new payments would take effect in fiscal year 2018. The agency will exempt rural sole community hospitals, children's hospitals and Prospective Payment System-exempt cancer hospitals from the new policy in 2018.

Tom Nickels, the American Hospital Association's executive vice president for governmental relations and public policy, said in a statement that CMS should "abandon its misguided 340B rule" and instead focus on lowering the cost of drugs. 

Although the AHA intends to work with Congress to address the issue, Nickels said the trade group along with the Association of American Medical Colleges and America's Essential Hospitals will "pursue litigation to prevent these significant cuts to payments for 340B drugs." 

RELATED: 340B program doesn't cause drug price increases, study finds 

CMS first revealed the changes in a proposed rule posted in July. Since then, multiple industry groups and the agency's own Advisory Panel on Hospital Outpatient Payment have urged CMS to reconsider the drug payment cuts. 

CMS Administrator Seema Verma said in an announcement that the OPPS rule will increase access to care, lower out-of-pocket drug costs for Medicare beneficiaries and allow for more choices for patients. 

"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,” Verma said. 

One group that is pleased with the policy is the Community Oncology Alliance, which said the final rule will "help curb outrageous abuses" of the program committed by larger hospitals. Jeff Vacirca, M.D. president of COA and CEO of NY Cancer Specialists in Long Island, New York, said the rule is a good first step, but more action is needed to "corral" the 340B program.

RELATED: Hospitals, drug companies and oncology patients are in an uneasy financial dance 

But Ted Slafsky, CEO of 340B Health, which represents more than 1,300 hospitals enrolled in the 340B program, said in a statement that CMS is not actually lowering costs, and is instead taking an "unprecedented action that will harm patient care." He said that 340B hospitals were unanimous when surveyed earlier this year that cuts to 340B payments would cause them to cut back on services. He called the rule "a backdoor effort to undermine an important drug discount program."

"It is a gift to for-profit cancer clinics who shun the poor, uninsured and underinsured," Slafsky said.