Medicare Panel Urges Cut in Some Hospitals' Drug Payments

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By Michael D. Williamson

Jan. 14 — Congressional Medicare advisers Jan. 14 voted to cut hospitals' drug payments and redistribute the funds to an uncompensated care fund.

Several hospital groups and a drug industry group panned the move.

In addition, the Medicare Payment Advisory Commission (MedPAC) voted unanimously to approve several recommendations regarding 2017 Medicare payments for physician services, ambulatory surgical centers, outpatient dialysis, skilled nursing facilities, home health services and inpatient rehabilitation facilities.

MedPAC's recommendations will appear in its March report to Congress.

Hospital Drug Payments

In a 14-3 vote, members of MedPAC approved proposals to reduce Medicare payment rates for hospitals receiving drug discounts under the 340B drug discount program. Program savings would be redirected into the Medicare-funded uncompensated care pool through the use of data on the cost report known as Schedule S-10, which calculates a hospital's uncompensated and indigent care costs.

MedPAC included the 340B proposal in its recommendation on updating inpatient and outpatient Medicare payments. In addition to the 340B language, the proposal calls on Congress to direct the health and human services secretary to update fiscal year 2017 inpatient payments and calendar year 2017 outpatient hospital payments by the amount specified in current law.

The recommendation would reduce Medicare Part B payments to hospitals participating in the 340B program from the current rate of average sales price (ASP) to ASP minus 10 percent, which would effectively reduce hospitals’ 340B savings by roughly 30 percent, according to a Jan. 13 letter to the panel from 340B Health, a trade group for safety-net hospitals.

Under the 340B program, manufacturers provide outpatient drugs to eligible health-care organizations, including hospitals that serve a disproportionate number of low-income patients, at significantly reduced prices. At the same time, Medicare pays the same rate for Part B drugs, regardless of whether the hospital can get these discounts.

The Health Resources and Services Administration (HRSA), part of the Department of Health and Human Services, administers the 340B program. A November 2015 report by the HHS Office of Inspector General said that Medicare payments were 58 percent more than the statutorily based 340B ceiling prices in 2013, which allowed hospitals and other covered entities to retain approximately $1.3 billion (13 PLIR 1767, 12/18/15).


The Medicare cut affecting 340B-purchased drugs would reduce beneficiary cost sharing by $70 million a year, according to a staff presentation. MedPAC staff added that the recommendation is budget neutral, and from the hospitals' perspective, they would see an aggregate payment decrease of $70 million.

In addition, under the proposal, $300 million is redirected to the uncompensated care pool annually, and through that mechanism, distributed back to hospitals, staff said. The recommendation also would redistribute dollars toward hospitals providing the most uncompensated care, MedPAC staff noted.

Ahead of the vote, the American Hospital Association (AHA) urged MedPAC to withdraw its 340B recommendation. In a Jan. 11 letter to MedPAC Chairman Francis J. Crosson, the AHA said the recommendation is outside of MedPAC's scope because the advisory panel is only “charged with providing Congress with analysis and policy advice on the Medicare program” and the 340B program is a public health program that is administered by HRSA (14 PLIR 73, 1/15/16).

Crosson defended MedPAC's decision to offer the 340B proposal. Noting that Congress asked MedPAC to investigate the 340B program, Crosson said the payments under the program are Medicare supplied dollars and within's the panel's jurisdiction to cover.

However, Commissioner Herb B. Kuhn, the president and chief executive officer of the Missouri Hospital Association, disagreed. MedPAC's decision to create the 340B proposal represents a bit of “mission creep” for the panel, because it's looking at a program run by HRSA, he said.

Kuhn, along with Warner Thomas, the president and CEO of the Ochsner Health System in New Orleans, and David Nerenz, the director of the Center for Health Policy and Health Services Research at the Henry Ford Health System in Detroit, voted against passage of the recommendation.


The AHA criticized the vote. “Today's MedPAC recommendation to cut Medicare payments for hospitals in the 340B Drug Pricing Program is misdirected,” the group said in a Jan. 14 statement, adding the advisory panel is penalizing hospitals and the patients they serve instead of addressing the real issue, the skyrocketing cost of pharmaceuticals.

“We are disappointed MedPAC has ventured so far afield from their mission, especially in the face of such strong opposition by several Commissioners,” the AHA said. “Making a recommendation that penalizes hospitals for their participation in a non-Medicare, public health program that is designed to increase patient access to care is outside of MedPAC's scope, and is inappropriate.”

Similarly, America's Essential Hospitals, a trade group for safety-net hospitals, said in a Jan. 14 statement that the recommendation “would produce negligible savings for beneficiaries, while putting vulnerable patients and the hospitals on which they depend at risk.” In fact, the group said, most of the $70 million in estimated beneficiary savings would not go directly to beneficiaries, as 86 percent have supplemental insurance, according to MedPAC figures.

340B Health in a Jan. 14 press release called the recommendation concerning. “MedPAC's proposal would fundamentally change the 340B program, and there has not been enough analysis about how hospitals would be affected. 340B hospitals provide significantly more uncompensated care than non-340B hospitals,” according to the group.

In addition, a major drug industry group viewed MedPAC's recommendation with caution.

“While it is evident the 340B drug discount program is growing at unsustainable levels and thoughtful reform is needed, this proposal is not the right approach,” a spokeswoman for the Pharmaceutical Research and Manufacturers of America told Bloomberg BNA in a Jan. 14 e-mail. “PhRMA supports needed reforms to the 340B drug discount program and is committed to working with grantees, Congress, the administration and other stakeholders to ensure it reaches the vulnerable or uninsured patients it was intended to help.”

To contact the reporter on this story: Michael D. Williamson in Washington at

To contact the editor responsible for this story: Janey Cohen at

For More Information


The 340B Health letter is at