United States: Six Questions And Answers About CMS' Recommended Changes To 340B Medicare Reimbursement

In March, I posted about the Uncertain Future of the 340B Drug Discount Program. When opining about What Could Happen Next I speculated about possible changes to government reimbursement for 340B drugs "so that government safety net programs share in 340B savings."

I reasoned that CMS already knew that "Medicare pays more for 340B drugs than the covered entities' acquisitions cost." And I noted that "the profits are especially steep for physician administered drugs" in Medicare Part B where reimbursement is set at Average Sales Price (ASP) plus 6%. My authorities for these statements were (i) my prior post on a November 2015 report by HHS-OIG analyzing the impact of potential changes to Part B reimbursement for 340B drugs, and (ii) my prior post on the 2016 Medicare Payment Advisory Commission (MedPac) recommendation to reduce hospital's Medicare reimbursement for 340B drugs. Given that CMS had already required the states to cap Medicaid reimbursement for 340B drugs at 340B ceiling prices, I thought that CMS might try to take action to reduce Medicare reimbursement levels.

I will resist the temptation to say that I told you so, but I will say that late in the afternoon of July 13, 2017, CMS issued a proposed rule on Outpatient Medicare Payment Systems with major implications for 340B covered entities. In extended commentary to the proposed rule, CMS states its intent to implement an alternative payment methodology for Medicare Part B reimbursement for 340B drugs, the effect of which would be to cut Medicare Part B reimbursement for many covered entities by close to 30% starting in January 2018. Interestingly enough, while the substance of the proposal was discussed at length by CMS, the exact text through which the proposal would be implemented was not provided.

The proposed rule and accompanying commentary won't be formally published until July 20th, and the Comment Period for the proposal will be open through September 11, 2017. But I have already heard from many of my contacts about the implications of the CMS proposal to alter Part B reimbursement for 340B drugs.

Here are the six top questions I have fielded to date about the CMS proposed change to Medicare Part B reimbursement for 340B drugs.

  1. What is the Proposed Change in Medicare Part B Reimbursement? Effective January 2018, CMS would reduce Part B reimbursement for 340B drugs from ASP plus 6% to ASP minus 22.5%. The reduction would only be applicable to covered entities which are hospitals, Community Mental Health Centers, and Ambulatory Surgical Centers, and would be implemented as part of changes to the Outpatient Prospective Payor System (OPPS). Drugs which are on pass-through status and vaccines would be excluded from the payment reduction. In order to implement the change, CMS would also establish a new modifier that would be used to identify whether a drug billed through the OPPS was purchased through 340B.
  2. Does the Proposed Change Apply to All 340B Covered Entities? It appears the change would not be applicable to all 340B Covered Entities. The mechanism for the change is a revision to the OPPS and CMS is explicit that the change is intended to impact reimbursement for hospitals, Community Mental Health Centers, and Ambulatory Surgical Centers. Further, as discussed below, the legal basis for the change is statutory authority specific to hospital outpatient reimbursement. However, it is difficult to know for sure because the change was not codified in a proposed rule and the exact text of the proposal was not provided.
  3. Is this CMS' Idea or Did it Adopt an Outside Recommendation? The CMS proposal is actually a hybrid of previous recommendations made by MedPac and HHS-OIG. MedPac proposed reducing Part B reimbursement to hospitals for 340B drugs by 10% of ASP. HHS-OIG had offered several proposals, ranging from minor to extreme. The middle-of-the-road HHS-OIG proposal reduced Part B reimbursement for all 340B drugs to ASP minus 14.4% so that "340B savings are approximately equally split between covered entities, Medicare and its beneficiaries."

    CMS adopted parts of both proposals, limiting the reduced reimbursement to just certain types of covered entities but increasing the discount in an attempt to align Medicare reimbursement with the estimated (and confidential) 340B ceiling price. At the end of the day, CMS justifies its proposed reimbursement reduction because "we do not believe that Medicare beneficiaries should be liable for a copayment rate that is tied to the current methodology of ASP +6 percent when the actual cost to the hospital to purchase the drug is much lower."
  4. How Much Would Medicare Reimbursement Be Reduced and What Does CMS Propose to Do with the Money Saved Under its Proposal? Because this proposal is part of the OPPS rule, technically it has to be budget-neutral. CMS estimates that the covered entities impacted would see a reduction in Medicare reimbursement of approximately $900 million, but the Medicare savings would be used to increase reimbursements for other items and services paid under the OPPS.
  5. Does CMS Have Legal Authority to Unilaterally Implement the Change? Really good question. As noted above CMS did not publish the text of this proposal. Additionally, although the proposed change was included as part of a propose rule, CMS is not proposing to implement it through rulemaking.

    Medicare Part B reimbursement is set by statute – the reimbursement rate of ASP plus 6% was implemented as part of the Medicare Modernization Act of 2003 (MMA). In its commentary to the proposed rule, CMS states it will implement the proposed reimbursement reduction for 340B drugs under 42 U.S.C. §1395I(t)(14)(A)(iii)(II), which gives the Secretary authority to "adjust" hospital payments for outpatient drugs, including those based on ASP methodology, based on the hospital acquisition cost data or if such is not available, by the average price for the drug "as calculated and adjusted by the Secretary as necessary for purposes of this paragraph." Because CMS does not have 340B drug acquisition data from hospitals, and given the various published reports on hospitals' 340B profits, CMS believes its adjusted Part B reimbursement rate is an appropriate calculation of the average price of the drug.

    However, when CMS proposed a controversial "model" to modify Part B drug reimbursement for physicians in 2016, it did so through a proposed new rule that would be part of 42 CFR Chapter 511 – a proposal that was never finalized or implemented. In the absence of Congressional action, I expect that any attempt by CMS to unilaterally alter the MMA-established Part B reimbursement methodology will be the subject of legal challenges.
  6. Is CMS Open to Alternatives? CMS indicated that it wants to receive comments from stakeholders on a variety of issues, including:

    • Whether specific drugs, such as blood clotting factor drugs, should be excluded from the reduced payment?
    • Whether certain types of hospitals should be exempt from the reduced payments, such as rural sole-community hospitals?
    • Whether its finding from various reporting that ASP minus 22.5% is "the lower bound of the average discount received by 340B hospitals for drugs paid under the OPPS" and thus an accurate estimate of average price, or whether another measure might more accurately reflect hospital acquisition cost without violating the confidentiality of 340B pricing?
    • As an alternative, whether Medicare should require hospitals to report actual acquisition cost for 340B drugs on a drug-specific basis, even though such acquisition cost may reveal the otherwise confidential 340B ceiling price?
    • Whether the reduction in reimbursement should be phased in over time or is the January 2018 implementation warranted given the potential savings to beneficiaries due to Medicare co-payment requirements?
    • Whether the proposed savings generated should be used to increase payments for specific services paid under the OPPS or under Part B generally? Should it be targeted to hospitals that treat larger shares of indigent or uninsured patients?

What is Next?

It is likely not an accident that this proposal was introduced days before a scheduled July 18, 2017 Congressional Hearing on 340B Program Oversight. While a representative from CMS is not scheduled to testify at the hearing, representatives from HRSA and HHS-OIG will be present and testifying. It will be interesting to see if the proposed reimbursement change comes up for discussion.

Additionally, last month Washington was abuzz with word of a pending Executive Order on Drug Pricing that would include provisions targeting 340B. And in late June, multiple media outlets reported on a leaked draft of the order, which required HHS to rescind or revise administrative actions that have purportedly "allowed" the benefits of the 340B program to accrue to individuals and entities other than the vulnerable citizens the program was intentionally intended to help. While the order has yet to issue, and may be substantially revised before it is issued, 340B is clearly front and center.

So the one thing that is certain is that what I wrote in March remains true: the future of the 340B program is uncertain. Stay tuned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Ellyn Sternfield
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.