4 Key Strategies to Mitigate the Impact of the 340B Payment Cut

CMS’ recently released OPPS Final Rule implements a 26.89% payment cut to reimbursements for certain drugs under the 340B Drug Pricing Program for certain covered entities. Some facilities will not be affected by this rule: namely, rural Sole Community Hospitals, Children’s hospitals, PPO-exempt cancer hospitals, Critical Access Hospitals and drugs administered or dispensed in non-excepted hospital off-campus outpatient departments. If your entity will be affected by the payment cut, Advis offers several strategies to help mitigate revenue loss:

  1. Evaluate your rural Sole Community Hospital status

While Sole Community Hospitals with an urban area designation on their Medicare Cost Report may still be affected by the payment cut, Sole Community Hospitals in rural areas are explicitly exempted. Even if your hospital is currently registered as a Disproportionate Share Hospital in the 340B Program, your organization may still be exempt from the rule if it also meets the definition of a Sole Community Hospital in a rural area. An entity does not need to currently be registered as a rural SCH in order to be exempt from the payment cut. Simply meeting the regulatory definition of a rural SCH is sufficient to qualify for the exemption.

However, Sole Community Hospitals are subject to the Orphan Drug Exclusion rule. Entities that are currently registered as a DSH are able to purchase orphan drugs at 340B pricing, resulting in significant savings. By switching to Sole Community Hospital status, a formerly registered DSH hospital would then be required to purchase orphan drugs through a GPO, unless the manufacturer of the orphan drug voluntarily provides 340B-like pricing.

To determine whether this strategy is appropriate for your organization, Advis recommends conducting a feasibility study to evaluate the financial impact of the 340B payment cut as a DSH hospital compared to maintaining the current ASP+6% payment rate as a rural SCH while considering potential loss of 340B capture for certain orphan drugs.

  1. Utilize or establish non-excepted hospital outpatient departments for high-cost pharmaceutical services

Non-excepted off-campus hospital outpatient departments (HOPDs) are those that were acquired or established on or after November 2, 2015. These HOPDs are not affected by the 340B payment cut because hospitals are reimbursed under the Medicare Physician Fee Schedule (MPFS) as opposed to the OPPS for services rendered in these facilities. However, they are also subject to the separately released CMS MPFS Final Rule, which reduces reimbursement for the institutional component of the service to 40% of the related OPPS rate (known as the PFS Relativity Adjuster).

As such, hospitals receive full traditional 340B reimbursement yet reduced institutional facility fee reimbursement in such non-excepted off-campus HOPDs. Comparatively, affected hospitals receive a 26.89% reduction in reimbursement for 340B drugs and full traditional OPPS institutional facility fee reimbursement in excepted HOPDs.

If your organization utilizes high-cost pharmaceutical services (such as infusion services), it is worth exploring the option to move these types of services to non-excepted HOPDs. This would allow these services to continue receiving the ASP+6% reimbursement rate for 340B drugs; however, it would also subject certain drugs/services to the MPFS Relativity Adjuster described above for institutional reimbursement. Depending on your organization’s particular service line and drug utilization, this arrangement could optimize savings given the two separate payment cuts implemented by CMS.

The Advis Group recommends conducting a feasibility study to determine whether this strategy is appropriate.

  1. Ask your representative to cosponsor H.R. 4392

On November 14th, Representative David McKinley (R-WV) sponsored bill H.R. 4392 to prevent the 340B payment cuts from taking effect on January 1, 2018. The bill was joined with bipartisan support from five other representatives. Advis highly encourages you to contact your representative and request that they cosponsor H.R. 4392, outlining the reasons why the rule will harm your hospital and patients.

Alternatively, or in conjunction with these efforts, 340B Health has organized the 340B Health’s Emergency Fall Legislative Event.  This event invites the 340B hospital community to come together and urge lawmakers to sign the McKinley bill. The event takes place in Washington D.C. on November 29th.

  1. Stay tuned for ways to be involved with the recent lawsuit against HHS

The American Hospital Association, the Association of American Medical Colleges, and America’s Essential Hospitals filed a lawsuit earlier this week against the U.S. Department of Health and Human Services arguing that CMS has overstepped its statutory authority in implementing the 340B Final Rule. The lawsuit argues that the rule is inconsistent with Congressional intent. The lawsuit is requesting an order that HHS strike the 340B payment cut or render a preliminary injunction suspending the effective date of payment changes pending resolution of the lawsuit.

This lawsuit is in its preliminary stages, but there may be ways that your organization could join or support the efforts of the lawsuit in the future. Advis will provide updates as we learn more about these opportunities.

If you have any questions about these mitigation strategies, are interested in conducting a feasibility study, or simply wish to learn more about the two CMS Final Rules, contact Advis at 708-478-7030.

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