Hospitals to See Large Medicare Pay Cuts to Drug Discount Program

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By Mike Stankiewicz

The Medicare agency is moving forward with drastic cuts to a drug discount program for hospitals operating in poor and low-income areas.

The pay cut, which goes into effect Jan. 1, slashes Medicare payments to hospitals for the drugs they buy under a government program known as the 340B drug discount program. The program, created under a 1992 law, allows certain hospitals and health-care providers to purchase drugs that are administered in outpatient hospitals from drug manufacturers at discounted prices. More than 2,000 hospitals participate in the program, and hospital groups say it is critical for many low-income and essential hospitals.

Hospitals in the program are currently reimbursed for physician-administered drugs at their average sales price, plus 6 percent. The Centers for Medicare & Medicaid Services in a final rule ( RIN:0938-AT03) released Nov. 1 lowered the reimbursement rate to the drug’s average sales price, minus 22.5 percent, a nearly 30 percent cut. Rural sole community hospitals, children’s hospitals, and certain cancer hospitals are excluded from the reimbursement changes in 2018.

The final rule also included a 1.34 percent increase to all outpatient hospitals for 2018. The final rule will be published in the Nov. 13 Federal Register.

Hospitals Outraged

Hospital groups were quick to condemn the changes to the drug discount program and said they plan to sue over the rule.

“Essential hospitals operate with an average margin less than half that of other hospitals and depend on 340B program savings to stretch resources for patient care and community services,” Bruce Siegel, president and CEO of America’s Essential Hospitals, an industry group for safety-net hospitals, said in a Nov. 1 statement. He also said that given their weak financial position, essential hospitals will not weather the nearly 30 percent cut to Part B drug payments without scaling back services or jobs.

“By slashing outpatient drug payments for 340B hospitals by nearly 30 percent, CMS is taking an unprecedented action that will harm patient care,” Ted Slafsky, president and CEO of 340B Health, told Bloomberg Law Nov. 1. The group represents nonprofit hospitals and health systems participating in the 340B program.

However, the Pharmaceutical Research and Manufacturers of America, a drugmaker lobbying firm, said that the rule was a step in the right direction. “There is growing evidence that in certain instances Medicare is vastly over-paying for medicines used at some 340B facilities, and moreover patients are not always seeing any benefit,” a spokeswoman for the group told Bloomberg Law Nov. 1. “This rule corrects the overpayment problem, and Medicare patients will also see a reduction in their costs. There is still more work to be done to fix the 340B program so that patients do in fact benefit and it no longer drives up health care costs.”

The number of hospital and health-care providers participating in program jumped from 583 in 2005 to 1,365 in 2010 and to 2,140 in 2014, according to the Medicare Payment Advisory Commission. In 2015, total sales in the 340B program were approximately $12 billion, and 340B drugs make up 2.8 percent of the total U.S. drug market, according to the Health Resources and Services Administration, which administers 340B.

Saving Medicare, and Patients, Big Bucks

The CMS said cuts to the payments for physician-administered drugs could save up to $900 million in 2018 and “will better, and more appropriately, reflect the resources and acquisition costs that these hospitals incur.”

In a Nov. 1 statement, CMS Administrator Seema Verma said the cuts will lower out-of-pocket drug costs for people with Medicare. “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.”

Slafsky disagreed. The cuts are “a gift to for-profit cancer clinics who shun the poor, uninsured, and underinsured,” he said. “It will not lower the cost of drugs to patients or providers who treat them. It will not expand access to needed care.”

America’s Essential Hospitals, along with the American Hospital Association and the Association of American Medical Colleges, said the agency had overstepped its statutory authority and that the three hospital groups planned to take legal action.

To contact the reporter on this story: Mike Stankiewicz in Washington at

To contact the editor responsible for this story: Brian Broderick at

For More Information

The final rule is at

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