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340B CMS Payment Reductions and Aesop’s Fable 613


We polled the formal members of the Curmudgeon Coalition early today with this question: Should we be cynical about this week’s CMS rule to reduce payments for 340B entities, or just report the facts?  We’re proud to report the coalition was unanimous in their decision to be cynical.  However, since we are also curmudgeons, we do as we feel is best, and today’s blog will be as factual as possible with cynicism only creeping in at the end, as well as an explanation of how this relates to Aesop’s fable 613.

Note: Clicking on any blue underlined text will lead to an internet site with more information related to that topic.


This week CMS made a final rule that reduces payments to ASP minus 22.5%.  The rule does not apply to all 340B entities (see below). It is scheduled to become effective January 1, 2018. You can read the 1,133 page rule posting here.

For historical purposes: CMS first posted this proposed change on July 13, 2017.  The original posting can be read and/or downloaded here. Detailed information can be read/downloaded from here. Comments to this proposed change were allowed up until September 11, 2017.


This change affects most hospitals.  CMS exempted children’s hospitals, rural sole community hospitals, critical access hospitals, and some cancer hospitals from the 340B policy.  Please note: This affects Medicare outpatients, including clinic and physician administered drugs.


CMS works diligently to reimburse based on actual cost, or when actual cost is not available, an estimated acquisition cost.  True to this mission, CMS worked hard the last several years to figure out just exactly what the actual 340B cost is to entities.  Complexities such as confidentiality agreements between PhRMA and the feds make this more difficult than you might expect. For this reason, instead of using an actual acquisition cost (AAC) plus a fee, CMS determined that the ASP minus 22.5% would allow entities to retain a margin while getting the CMS payment closer to the AAC.  You can read the CMS fact sheet here.


This proposed rule change stirred up a significant amount of controversy.  The American Hospital Association (AHA) claims (details here) CMS is acting in a short sighted fashion that will prove detrimental to hospitals.  It’s difficult to not agree with them. With 340B drug sales representing a mere 1.3% (details here) it appears to make sense to work on more effective methods to reduce/hold down annual drug cost increases.  Maybe a look at the reverse branded market?  Oops: apologies -- We were not going to be cynical until the end of the blog.

340B Health also provided arguments against the CMS proposed rule. You can read their well scripted argument in detail here.  They note that DSH hospitals provide 60% of uncompensated care, even though they are only 36% of all hospitals. 

Perhaps most interesting, MedPac, our government’s own agency providing analysis and advice on Medicare, provided a recommendation to only adjust the reduction in 340B entity payments to ASP minus 10%. You can read the details here.

And finally, a majority of both the senate and the house recommended to CMS to NOT make this new rule.  On September 27, the House sent this letter to CMS. We strongly recommend downloading this link and reading this letter.

Well, OK then

So why did CMS go against so many well scripted and well-reasoned arguments?  CMS continues to believe that the ASP minus 22.5% leaves a significant margin for entities.  Their comments are here. If you don’t care to read the Federal Register (who does?), this is based on the argument that additional discounts are provided to 340B entities due to 340B Prime Vendor programs.  MedPac (cited above) reported on this as well, noting a suspicion of deeper discounts provided to 340B entities than the formal 340B pricing formula would provide.   

CMS also claims that this change will save Medicare recipients $320 million dollars (cited above) in 2018 alone.  This is contested by the letter top CMS from the US House (cited above), with a note that many Medicare co-pays are in fact not paid by the Medicare patient, but by a third party, including in some cases, Medicaid. 

What Happens Next?

Three hospital lobbying groups, The American Hospital Association, America’s Essential Hospitals, and the Association of American Medical Colleges are suing CMS over this new rule.  If they are successful in gaining an injunction, then at a minimum the rule will be postponed until the legal battles are concluded.  Other groups may jump into the legal fray.  We’ll have to wait and see. After all, it’s been a matter of just a few days since CMS published this information.

However, we suggest being cautious and prepared.  Work with your billing/finance team to figure out how to respond to the new coding requirement (we’ll post more when we know what it is).

Budgetary Impact

Now for the biggest question: How does this affect MY facility’s budget?  Not in a good way, of course.  If you are a DSH or RRC facility, you are going to be adversely affected.  Please note that your finance team is best suited to estimate changes in income: please involve them, and if possible, have them run the numbers.  Here is how to estimate the fiscal impact: 

  1. Determine your Outpatient Medicare Sales for the previous twelve months.  Your finance department should be able to provide a usage report of what was billed to OP Medicare.
  2. Note that this change affects income, not cost. 
  3. Medicare now pays ASP +6%.  They are changing to ASP – 22.5%. This is effectively a 28.5% decrease in net income.
  4. Take the sum of usage times ASP  *.285 -- (the total of utilization X ASP for each drug) times 28.5% -- this is the fiscal impact for your facility.

We know of a few facilities who have already made this calculation.  One medium sized hospital system estimated the impact to be several million dollars.  Once you calculate your own facility’s impact, please email the result to your CPS 340B Compliance team member.  We’ll summarize the results but keep individual hospital results confidential.

For the Curmudgeon in all of Us

OK: How does the new CMS payment cut resemble in any fashion Aesop’s Fable 613?

Aesop’s Fable 613 is about Belling the Cat. A classic French quote about the fable is:

Good council's easily given, but the effect oft renders it uneasy to transact. (from the French)

CMS, as with many governmental agencies, often seems to pick a course averse to those it oversees.  We don’t have access to all the information the agency does, so many times the decision seems inappropriate or at times such as this, capricious.  We can’t control that, but it would be great to have a little more advance notice.

We need some kind of early warning system alerting us to changes farther in advance to the actual change.  In today’s blog example, 340B entities have only 60 days to modify systems to change their billing practices for a specific set of patients and a specific provider.  Many Hospital Information Systems don’t allow for this, and making it happen will ultimately cost 340B entities more than just the reduction in reimbursement.

We need someone with clout to provide oversight to CMS (and other government agencies) and keep them from implementing changes that are as nonsensical and ill-advised as is this change, or at least provide ample time for entities to make the needed changes to their systems.  But who’s going to “Bell the Cat”?


Posted: Tuesday, June 19, 2018

Tags: 340B, CPS Blog Posts, 340B CMS Cuts, CMS Cuts, CMS