Hospitals Outraged Over Massive Pay Cuts to Drug Discount Program

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.

Hospital groups were quick to condemn the changes to the 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.

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