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

July 10, 2023 Alerts and Newsletters

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.


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:

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.