Looming Medicare Drug Payment Cut Divides Health-Care Industry

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Mike Stankiewicz

A looming Medicare pay cut for hospitals will either devastate their ability to serve needy patients or will curb an out-of-control drug discount program, depending on whom you ask.

The pay cut, which would go into effect Jan. 1, would cut Medicare reimbursement for hospitals that use a separate program, known as 340B, to obtain discounted medications for outpatient care. The safety-net hospitals participating in 340B say the cuts to reimbursement, amounting to nearly 30 percent, would reduce access to care and wouldn’t help consumers, in contrast to what the Centers for Medicare & Medicaid Services has said would happen.

The CMS’s proposal from July would “tear a large hole in America’s healthcare safety net. We strongly urge HHS to drop it,” Ted Slafsky, the head of hospital group 340B Health, said in a Sept. 11 statement. The CMS and its parent agency, the Department of Health & Human Services, have said the proposal was “a significant step toward fulfilling President Trump’s promise to address rising drug prices,” adding the proposal could reduce drug costs for seniors by at least an estimated $180 million per year.

A House Republican, Rep. Chris Collins (R-N.Y.), told Bloomberg BNA Sept. 11 that the CMS’s decision “to rein in 340B spending is a good first step toward addressing the issues with this program, which are a result of its dramatic growth and lack of oversight since its inception.”

Collins said he’s “looking forward to further work by the Energy and Commerce Committee’s Oversight and Investigations Subcommittee as we continue our review of the 340B program and assure that it has the proper oversight, accountability and transparency.”

Meanwhile, congressional Republicans have asked 20 hospitals for details on their participation in 340B—a possible sign of legislative activity in this area.

The Medicare agency will issue a final payment rule by Nov. 1. Comments were due on the rule—covering outpatient hospital payments—on Sept. 11.

Big Pharma Eager for Changes

Pharmaceutical and provider groups support the cuts, and say the 340B program needs to be reined in.

Ted Okon, executive director of the Community Oncology Alliance, said the cuts are a good first step.

“Countless studies have shown the program has enormous and unsustainable growth, low charity care levels, and [high] cost to patients and taxpayers,” he told Bloomberg BNA Sept. 11. “This is an important program, and it is essential for many hospitals, but it needs major changes.” His group represents oncology practices.

The Pharmaceutical Research and Manufacturers of America, a drugmaker trade group, said the program has departed from its purpose and statutory boundaries. The organization, in a Sept. 11 comment to the CMS, said urgent changes are needed including clarification on which patients qualify for the program, ensuring that savings flow to patients, and tighter eligibility requirements for hospitals.

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 (HRSA). HRSA is the HHS agency that administers 340B.

Lindsay Bealor Greenleaf, director at ADVI, a reimbursements and policy consulting firm that advises clients in the pharmaceutical industry, said it is too easy for hospitals to qualify for the 340B program. “These cuts could deter some hospitals from entering the program unless they truly need it,” she told Bloomberg BNA Sept. 12.

Hospitals Push Back

The American Hospital Association criticized the CMS’s proposed cuts, which would “eviscerate the benefits of the program.”

“Medicare payment cuts of this magnitude would greatly undermine 340B hospitals’ ability to continue programs designed to improve access to services,” Tom Nickels, executive vice president of AHA, said in a Sept. 11 statement. “In addition, Medicare beneficiaries, dually eligible Medicare [and Medicaid] beneficiaries included, would not directly benefit from a lowered drug copayment amount as claimed by the agency. In contrast, the proposal would actually increase their out-of-pocket costs for other Part B benefits.”

Nickels said the the CMS should redirect its focus to the pharmaceutical industry for the “unchecked, unsustainable increases in the price of drugs.” He also said the CMS lacks the statutory authority to make the cuts.

Premier Inc., a group purchasing organization for hospitals, in a Sept. 11 statement called the cuts “misguided” and say they would inflict “irreparable harm on vulnerable populations that 340B-eligible hospitals serve.”


Slafsky said his hospital trade group might file a suit against the CMS if the rule is finalized. “We hope it does not come to that but we are considering all of our options,” he told Bloomberg BNA.

The pharmaceutical industry has successfully sued the HHS to derail 340B regulations during the Obama administration. And earlier this year, the Trump administration sent back to the HHS a guidance on 340B drug discounts that was under White House review at the end of the Obama administration.

Congressional Inquiry

Republican leaders of the House Energy and Commerce Committee Sept. 8 sent letters to 20 hospital systems participating in the 340B program, requesting information, including how many 340B drugs each hospital purchased from 2012 to 2016 and specifics on what patients are receiving the medication. The lawmakers specifically ask for details on the number of 340B drugs that were dispensed to patients with commercial insurance, Medicare coverage, and Medicaid coverage.

The committee said the letters will “broaden the committee’s understanding of how program savings are calculated and used by covered entities to help patients.” Hospitals that received letters include the University of Washington Medical Center, Johns Hopkins Hospital, and Emory Healthcare. These hospitals didn’t respond to Bloomberg BNA’s request for comment.

The lawmakers signing the letters are Committee Chairman Greg Walden (R-Ore.) and Rep. Tim Murphy (R-Pa.), who chairs the Oversight and Investigations Subcommittee.

John Hellow, an attorney with Hooper, Lundy & Bookman PC in Los Angeles who represents hospitals in Medicare and Medicaid payment policy, said the increased attention to the program by lawmakers is a sign that Congress may act soon, including on possible cuts.

“We have a Congress that is looking for ways to cut spending and free up the budget for other things,” he said. “If the CMS rescinds these proposed cuts, expect Congress to act on them.”

The Medicare proposed rule cuts from July, about $900 million in 2018, were put forward in a budget neutral fashion and would be redistributed across all other outpatient hospital services covered by Medicare in 2018, resulting in no net savings for the agency.

The Community Oncology Alliance told Bloomberg BNA it is working with Collins of New York on introducing legislation that would improve transparency in the program and provide a clearer scope on which hospitals and patients should be covered.

In May, the Trump administration’s budget proposal called for a legislative change to 340B but didn’t provide details.

The administration called for a legislative proposal to improve the 340B drug pricing program’s “integrity and ensure that the benefits derived from participating in the program are used to benefit patients, especially low-income and uninsured populations.”

To contact the reporter on this story: Mike Stankiewicz in Washington at mstankiewicz@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law