July 10, 2023 - Alerts and Newsletters

        CMS Proposes to Make Lump-Sum Payments to Hospitals for Underpayments for Drugs Purchased Through the 340B Program During 2018-2022

        Last week CMS issued its anticipated proposed rule to implement the Supreme Court’s decision last year which ruled that CMS’ reduction in Medicare payments for Part B outpatient drugs purchased through the 340B program violated the Medicare statute. CMS proposes to make lump-sum payments to 340B hospitals while reducing future payments for non-drug items and services by 0.5% starting in 2025 and which it anticipates will continue for 16 years.

        Background

        Before CY 2018, Medicare paid average sales price (“ASP”) plus 6% for Part B covered outpatient drugs. For CY 2018, CMS reduced the payment rate for drugs purchased under the 340B program to ASP minus 22.5%. To maintain the statutory budget neutrality requirement, CMS made a corresponding increase to all hospitals (both 340B and non-340B hospitals) for non-drug items and services starting in CY 2018.

        In June of 2022 the U.S. Supreme Court agreed with the hospitals and ruled that CMS’ payment reduction violated the Medicare statute. CMS reinstituted the prior payment rate of ASP + 6% for 340B drugs paid on or after September 28, 2022, but left open the question of how CMS would reimburse 340B hospitals for the income they did not receive for CYs 2018 through most of 2022. CMS also left open how it would recapture the higher payments made to all hospitals for non-drug items and services (including those 340B hospitals).

        Proposed remedy

        To correct the underpayments to 340B hospitals during CY 2018 through approximately September 27, 2022, CMS proposes to make a lump-sum payment to those 340B hospitals. CMS estimates this payment amount to be worth approximately $10.5 billion. CMS estimates that it paid or reprocessed many CY 2022 claims at the higher, correct payment amount, which it estimates to be worth $1.5 billion, meaning that the lump sum amount owed to hospitals is approximately $9 billion. CMS anticipates that its MACs will make these one-time payments at the end of CY 2023 or early in CY 2024.

        CMS has provided a link to a spreadsheet that shows how much it estimates each hospital will receive as a lump-sum payment:

        https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps

        Beneficiary copayments

        Medicare proposes to include the beneficiaries’ copay amounts in the lump sum payment. Hospitals therefore are not to bill the patients for these amounts.

        Prospective offset for higher payments for non-drug items and services from CY 2018-2022

        As noted above, to maintain budget neutrality, CMS says that it must recapture the higher payments made to all hospitals (both 340B and non-340B) during CYs 2018-2022. CMS estimates that it must recapture $7.8 billion from all hospitals. To achieve this recapture without financially harming the hospitals at once, CMS proposes to reduce outpatient prospective payment system (OPPS) payments by 0.5% starting in CY 2025 until it recaptures the overpayment amount. CMS estimates that this recapture process will take 16 years.

        Public comments

        CMS seeks comments on its proposal by September 5, 2023. Please do not hesitate to contact us if you have any thoughts about how CMS can better achieve its mandate, or if you have any questions.

        Associated People

        Firm Highlights

        Blog

        Voluntary Benefits Move into the ERISA Litigation Crosshairs

        Employee-paid accident, critical-illness, cancer, and hospital-indemnity insurance have long occupied a quiet corner of employee benefit plan...
        Alerts and Newsletters

        Maine’s New Employer Surveillance Law, 26 M.R.S. § 620-A

        Effective July 14, 2026 Maine employers that electronically monitor employees must comply with a new disclosure law effective July 14, 2026. Under...
        Press Releases

        Verrill Recognized by U.S. News as One of the Best Law Firms to Work for in 2026

        BOSTON, Mass., BANGOR and PORTLAND, Maine, GREENWICH and WESTPORT, Conn., – Verrill has been featured on U.S. News’ 2026 Best Companies to Work...
        Blog

        SECURE 2.0 Roth Catch-Up Rules and the 403(b) 15-Year Catch-Up: What Tax-Exempt Employers Need to Know

        Tax-exempt employers whose 403(b) plans offer catch-up contributions for participants age 50 and above should be well on their way to compliance with...
        Media Mentions

        Robert Keach Quoted in Law360 on SIMAD Summer Camp Bankruptcy Sale

        Verrill attorney Robert Keach was recently quoted in a Law360 article examining the Chapter 11 bankruptcy proceedings involving SIMAD Holdings and...
        Media Mentions

        Chris Tsouros Featured in Law360’s Coverage of Sports Real Estate Deals

        Verrill Partner Chris Tsouros was recently recognized in a Law360 article highlighting law firms involved in significant sports real estate projects...
        Blog

        What Maine’s New Employer Surveillance Law Means for Maine Employers

        Maine employers who monitor their workforce, whether through productivity software, GPS, call recording, or cameras, have a new compliance obligation...
        Blog

        Run Don’t Walk: The Implication of “While Supplies Last” Prize Promotions

        This month a big-chain grocery store has been offering daily mystery boxes during specific timed drops on a first-come, first-served basis, to users...
        Blog

        Maine’s Noncompete Statute is Reshaped for Health Care Workers: What You Need to Know

        Employers of individuals who are licensed under state law to perform, or provide, health care services in the State of Maine should be prepared for...
        Media Mentions

        Steven Davis Featured in the Environmental Business Journal

        Steven Davis, President of Verrill Strategic Consulting, was recently interviewed and featured in the Environmental Business Journal, Volume 39...
        Blog

        What is a Bonus for Purposes of ERISA?

        An ongoing dispute about a Department of Labor advisory opinion published last September raises a basic but unanswered question under the ERISA: What...
        Media Mentions

        Verrill Recognized by WMTW for Partnership Supporting Hunger Relief in Maine

        Verrill was recently featured in coverage by WMTW News 8 for its role in a collaborative effort to combat food insecurity across southern...