On November 13, CMS published the final rule revising the Medicare hospital Outpatient Prospective Payment System for 2018.  Among a number of changes, the final rule dramatically reduces Medicare Part B payments to hospitals for separately payable drugs purchased through the 340B Program.  Currently, Medicare pays hospitals the Average Sales Price (ASP) plus 6% for these drugs regardless of whether the hospital purchased the drug at a discount through the 340B Program.  Under the final rule, Medicare will pay hospitals ASP minus 22% for separately payable drugs purchased through the 340B Program.  The change will reduce payments to 340B hospitals by an estimated $1.6 billion that will be redirected to payment for other services within the OPPS.

CMS’s stated goal in implementing this payment reduction is to better align Medicare payment for separately payable drugs with the resources hospitals actually expend to acquire such drugs.  While CMS acknowledged the intent behind the 340B Program, it also stated its belief that it is inappropriate for Medicare to subsidize other activities through Medicare payments for separately payable drugs.   Notably, not all hospitals will be subject to the payment reductions. SCHs, children’s hospitals and PPS-exempt cancer hospitals are excluded from the 340B Program payment reduction for 2018.  Nevertheless, the 340B Program payment changes will reduce payments to all non-exempted hospitals, and such reductions may have a more dramatic effect on urban, major teaching hospitals with 500 or more beds.

For a more through discuss of the 340B Program payment revisions, together with background on the 340B Program, please read our recent client alert on the issue, available here.