Cuts to 340B Drug Reimbursement May be Harmful During COVID-19

By Sravya Chary

On October 19, 2020, the U.S. Court of Appeals for the District of Columbia decided not to revisit two rulings that upheld Medicare reimbursement cuts for hospitals that participate in the 340B program.

The 340B program provides drugs at discounted prices to hospitals that primarily help under-served populations. Slashing Medicare reimbursement for safety-net hospitals that participate in the program may have devastating effects on the individuals who rely on these hospitals for discounted drugs and care, especially during the COVID-19 pandemic.

A December 2018 federal district court decision found that the Department of Health and Human Services (HHS) exceeded its authority when it decreased Medicare reimbursement by almost 30% for 340B drugs.

The objective of the HHS’ reform was two-fold. First, it aimed to prevent the occurrence of HHS reimbursing hospitals for 340B drugs at a higher rate than the hospitals paid for them. Additionally, HHS intended the reform to save money for Medicare beneficiaries. The Centers for Medicare & Medicaid Services (CMS) estimated that the decreased reimbursement percentage would cut costs by $437 million in 2021; concurrently, Medicare beneficiaries would pay $85 million less in out-of-pocket costs.

In July, a split panel reversed the December 2018 decision, ruling that HHS had acted lawfully when it cut billions from reimbursement for 340B drugs purchased by safety-net hospitals. The decision last month by the U.S. Court of Appeals for the District of Columbia not to revisit the ruling “makes the implementation of additional cuts in 2021 a near inevitability,” according to The National Law Review.

In fact, this August, CMS proposed to further cut 340B reimbursement in its proposed 2021 Medicare outpatient prospective payment system (OPPS) rule, which will most likely go into effect next year.

Despite the expected cost-saving benefits, many are calling the decision into question and stating that it will cause further harm during the current COVID-19 pandemic.

According to Caroline Znaniec, managing director at CohnReznick Advisory, there are downstream effects of this decision that are being overlooked. Further, “[cuts] to payment can result in the hospital’s inability to meet the financial requirements to increase access to maintenance and specialty drugs to those patient populations that otherwise could not qualify for receipt.”

The American Hospital Association expressed its disappointment in the court’s decision on the aforementioned cases, stating that it conflicts with Congress’s clear intent. The AHA conveyed its interest in escalating the matter by considering a Supreme Court petition — however, according to experts, the odds of the Supreme Court taking the case is low.

In a comment letter to CMS, 340B Health stated that it strongly opposed the continuation of cuts as well as an increase in cuts starting Jan 1, 2021.

The organization conveyed that the loss in revenue for safety-net hospitals would lead to devastating outcomes for low-income patients and that the assumption of a decrease in Medicare spending is flawed and based on inaccurate data. Further, the organization proposed for CMS to pay 340B hospitals for Medicare Part B drugs at the same rate proposed for non-340B hospitals.

Although it is uncertain whether the decrease in government spending and benefit for Medicare beneficiaries will be enough to justify cuts in reimbursement, a decrease in revenue for safety-net hospitals may inadvertently restrict low-income patients’ access to drugs and treatment, which may be particularly devastating during a public health crisis. It is therefore vital for CMS to consider alternate options that collectively prioritize decreasing costs for Medicare beneficiaries while keeping revenue deductions faced by 340B hospitals to a minimum.


The above opinions are wholly my own and in no way represent the opinions of my affiliated institutions.

Sravya Chary

Sravya Chary is a manager in the pharmaceutical industry, a Master of Bioethics (MBE) candidate at Harvard Medical School, and a Petrie-Flom student fellow for the 2020-2021 academic year.

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