Skip to main content
Keeping you afloat amidst the rising sea of regulations

HOPPS 2018 Final Rule Released, Confirming Changes to Medicare Part B Drug Reimbursement for Drugs Purchased Under the 340B Program

The advance copy of the Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs (HOPPS) final rule for calendar year 2018 (the Final Rule) was released on November 1, 2017. The official version of the Final Rule will be published in the Federal Register on November 13, 2017. The Final Rule is effective on January 1, 2018, and any comments on the Final Rule should be submitted to the Centers for Medicare & Medicaid Services (CMS) by December 31, 2017. 

Arent Fox previously provided an analysis of how the HOPPS Proposed Rule could potentially negatively impact reimbursement to specific types of hospitals and other entities eligible to purchase drugs under the 340B Drug Discount Program (the 340B Program). The provisions of the Final Rule relevant to the reduction in Medicare Part B reimbursement for drugs purchased under the 340B Program do not drastically differ from those in the Proposed Rule, with a few exceptions, representing a “win” of sorts for three classes of hospitals. The Final Rule adopts the new reimbursement scheme as set forth in the Proposed Rule, but notably the new reimbursement methodology only applies to Rural Referral Centers, Critical Access Hospitals, and Disproportionate Share Hospitals that are qualifying 340B Covered Entities. The Final Rule specifically excludes Rural Sole Community Hospitals (SCHs), Children’s Hospitals, and PPS-exempt Cancer Hospitals from the new 340B payment rules. The HOPPS Final Rule also provides a more reasoned approach when requiring applicable hospitals to identify via a claims modifier which drugs used by their institution were purchased under 340B Program. 

The Final Rule confirms that for Rural Referral Centers, Critical Access Hospitals, and Disproportionate Share Hospitals that qualify as 340B Covered Entities, reimbursement for separately payable covered outpatient drugs and biologicals (other than vaccines) that were purchased under the 340B Program will be reduced by 22.5% of the drug’s average sales price (ASP). This shift in reimbursement stands in stark contrast to how hospitals are currently reimbursed for the very same drugs, which are reimbursed at the ASP of the applicable drug plus a six percent (6%) add-on. However, in response to comments, CMS will not subject Rural SCHs, Children’s Hospitals, and PPS-exempt Cancer Hospitals to the lowered reimbursement methodology; these three classes of hospitals will continue to be reimbursed for 340B drugs at ASP plus six percent (6%). It is notable that despite requesting comments on an alternative to the ASP minus 22.5% methodology, CMS reported that “[w]e did not receive public comments suggesting an alternative minimum discount off the ASP that would better reflect the hospital acquisition costs for 340B-acquired drugs” and used this fact to solidify its confidence in the new payment methodology:

The fact that hospitals did not submit comments suggesting an alternative minimum discount that would be a better, more accurate reflection of the discount at issue is instructive for two reasons. One, it gives us confidence that our suggested payment of ASP minus 22.5 percent is, in fact, the low bound of the estimate and keeps Medicare payment within the range where hospitals will not be underpaid for their acquisition costs of such drugs. Two, it gives us confidence that the affected hospital community does not believe there is some other number, such as ASP minus 24 percent or ASP minus 17 percent, that would be a better, more accurate measure of what Medicare Part B should pay for drugs acquired at a discount through the 340B Program.  

CMS did reverse course on one element in the Proposed Rule: the modifier requirement. Under the Proposed Rule, all hospitals reimbursed under the HOPPS would have been required to attach a new modifier to claims submitted to CMS to indicate which separately payable, covered outpatient drugs were not purchased pursuant to the 340B Program – the assumption being that hospitals purchase all of their separately payable drugs under the 340B Program.  In response to numerous comments related to undue administrative and operational burdens, the Final Rule “is implementing modifier ‘JG’, effective January 1, 2018” which must be reported by hospitals “on the same claim line as the drug HCPCS code to identify a 340B-acquired drug.” Even those hospital types exempted from the new payment methodology (Rural SCHs, Children’s Hospitals and PPS-exempt Cancer Hospitals) “will be required to report informational modifier ‘TB’ for 340B-acquired drugs,” though the modifier will not impact reimbursement.

Through various statements made throughout the Final Rule, CMS seems to suggest that the shift in payment methodology will be under continual review, and that the agency may take additional action if needed in the CY 2019 HOPPS rulemaking (specifically with respect to the appropriateness of exempting certain classes of hospitals from the new payment rules).  

Finally, it is worth noting that there were many comments that challenged the authority, ability, and appropriateness of the changes that were adopted in the Final Rule. The American Hospital Association has indicated in a public statement that they, along with other hospital groups, will pursue litigation against CMS and HHS in order to prevent the new reimbursement changes from taking effect.  

Arent Fox's Health Care group regularly follows developments in hospital and drug reimbursement matters. If you would like to know more about the details of the Final Rule, or have any questions about the 340B Program and how it may impact your organization, please contact Stephanie Trunk or Erin Atkins in our Washington, DC office, Thomas Jeffry in our Los Angeles office, or the Arent Fox professional who regularly handles your matters.