CMS has finalized the CY 2018 Hospital Outpatient Prospective Payment System (OPPS) rule, confirming changes to the 340B Drug Pricing Program that were proposed earlier this year. The new rule, effective January 1, 2018, reduces reimbursement for Part B drugs and biologicals for hospitals participating in the 340B program by nearly 30%. Current reimbursement is set at the Average Sales Price (ASP) of a drug plus 6%; under the 2018 rule, this payment will be reduced to ASP minus 22.5%. This change is enough to significantly disrupt the viability of many 340B-participating cancer programs.
CMS plans to reallocate the estimated $1.6 billion in savings from this policy change equally across all hospitals paid under OPPS and has stated that the change in payment rates will not apply to children’s hospitals, the 11 PPS-exempt cancer hospitals, or rural sole community hospitals. However, these exceptions will be valid only through CY 2018, after which CMS has stated it may revisit the policies, with a particular focus on those that address the needs of safety net hospitals.
Proponents of this new rule are lauding CMS for what they see as program reform measures that curb abuses of 340B program benefits and for the significant drug copayment savings that will be passed on to seniors.
Opponents are speaking out strongly as well; in fact, three of the nation’s leading hospital associations have already announced a lawsuit against CMS, claiming that the organization is overstepping its statutory authority with a policy change that significantly threatens patient access to healthcare. Without a doubt, this change will have a profound impact on programs that are critical to the sustainability of many participating hospitals.
Covered entities affected by this policy change should immediately evaluate its expected impact. Most notably, this change will greatly affect cancer programs, given the volume of high-cost drugs they administer, and could result in an annual loss of revenue (and attendant net income) of up to $400,000 per medical oncologist.1 However, the realized impact will differ based on a number of variables (provider productivity, payor mix, case mix, drug acquisition costs, etc.).
Commonly, savings from the 340B program are used to subsidize charity care or to offer nonreimbursable patient services (e.g., cancer navigators, nutrition, social support services). Cancer programs that have historically relied on the 340B program to financially underwrite such elements of their programs should immediately begin evaluating the financial sustainability of these programs in the new paradigm. Further, cancer programs should scrutinize every aspect of the program’s financial performance. In forthcoming blog posts, we will explore a variety of strategic, operational, and contractual issues for organizations to consider during this evaluation process.
Assumes a total annual drug spend of $3 million per medical oncologist, as reported by the Journal of Oncology Practice, an estimated 30% reduction in reimbursement for Medicare, and a 50% Medicare payor mix.