CMS offers $9B to hospitals in dispute over 340B drug discount program

After a years-long dispute over cuts to the 340B program, hospitals could be on the cusp of receiving billions in payments.

The Centers for Medicare & Medicaid Services have proposed a payment of $9 billion to hospitals to resolve the cuts to the federal government drug discount program. CMS has proposed a lump-sum payment to hospitals.

Hospitals won a highly anticipated U.S. Supreme Court case in 2022 over cuts to the program, and they’ve been pressing the government to pay the funds.

CMS issued the proposed remedy Friday. Rick Pollack, president and CEO of the American Hospital Association, welcomed the proposal and urged the government to make the payments as quickly as possible.

“After more than five years of litigation and a unanimous Supreme Court victory, the AHA is extremely pleased that 340B hospitals will finally be paid back what they deserve so they can continue providing care to their patients and communities,” Pollack said in a statement. “We are especially gratified that HHS agreed with the AHA’s position that these hospitals must be promptly repaid in full with a single lump-sum.”

Bruce Siegel, president and CEO of America’s Essential Hospitals, said in a statement that he’s pleased CMS is going “to remedy years of unlawful cuts to Medicare outpatient drug payments.”

“Essential hospitals still face heavy financial pressures from high labor costs and other challenges from the pandemic, and these payments are urgently needed to help these hospitals meet the needs of their patients and communities,” Siegel said. “We urge the Centers for Medicare & Medicaid Services to expedite the release of the reimbursements.”

The 340B program provides discounts on certain outpatient drugs for hospitals that care for a high percentage of patients from underrepresented communities, including minority groups and those with lower incomes in urban and rural areas. Hospitals say the program is vital to supporting programs to serve communities in need, and they said the reductions hurt those efforts at a time when many health systems are struggling.

While hospitals say they’re glad that the government has announced a payment plan, they are also disappointed by one aspect of the proposal.

Hospitals say they are frustrated that under the plan, CMS is proposing to reduce some non-drug payments to health systems in the coming years. CMS says it must comply with federal spending rules on budget neutrality, which means essentially that higher payments in one area must be offset by reductions elsewhere.

“The AHA is disappointed that HHS has chosen to recoup funds from other hospitals that cannot afford additional Medicare payment cuts, including rural sole community, cancer and children’s hospitals that were initially exempted from HHS’ illegal policy,” Pollack said.

Siegel says the CMS' plan to reduce some other spending is going to have an impact down the road.

“We are disappointed the remedy payments would include no interest and be budget neutral. The administration’s plan to cut non–drug payments to hospitals to achieve budget neutrality unnecessarily blunts the impact of the remedy by ensuring years of future underpayments,” Siegel said.

Soumi Saha, senior vice president of government affairs of Premier Inc., said in a statement that the CMS solution represents “one step forward and two steps back.” Premier had argued that hospitals shouldn’t be penalized by facing the prospect of Medicare reductions in other areas to resolve the 340B dispute. Calling the CMS plan “a clawback in disguise,” she said “no dollars should be clawed back from hospitals via the proposed remedy for 340B-acquired drug payment.”

Hospitals and health systems have sought to preserve the 340B program, but critics say the program needs to be revamped.

Pharmaceutical companies and some lawmakers have argued that the program has grown beyond its intended purpose of helping those hospitals that deal with higher concentrations of patients with low incomes or other underserved groups. Some critics have also said the 340B discounts in drug prices aren’t helping consumers as much as they should.

Some drug companies have scaled back their discounts in the 340B program, and some hospitals say they are paying millions of dollars more due to the changes.

In its 9-0 ruling last year, the Supreme Court determined the government didn’t follow statutory requirements in making cuts to the program, which amount to about $1.6 billion annually. In the opinion, Justice Brett Kavanaugh wrote, “340B hospitals perform valuable services for low-income and rural communities but have to rely on limited federal funding for support.”