Implications of the New CMS Fee Schedule for 340B Drugs

Implications of the New CMS Fee Schedule for 340B Drugs

The 340B Program was originally designed to help “uninsured indigent patients gain access to prescription medications.”1 It did so by requiring pharmaceutical manufacturers to extend deeper discounts on average sales price (ASP) to hospitals and clinics serving a high percentage of uninsured, indigent and Medicaid patients. The thinking was that clinics and hospitals would use the savings to stretch their resources and expand their services. Indeed, while savings on 340B drugs often fall short of covering the cost of uncompensated care within hospitals, it does support many clinical and patient services.

However, many have questioned whether in practice, the 340B Program has actually brought about some negative unintended consequences. With a new ruling that will take effect in July, 2018, the debate continues. With this change, the reimbursement that clinics and hospitals can receive from the Centers for Medicare and Medicaid Services (CMS) for drugs discounted through the 340B program will be slashed from 6 percent above sales price to 22.5 percent less than sales price. The federal government indicates that this allows for all of society to share in the reduced costs to hospitals and clinics through 340B pricing and to help ease the cost burden to CMS.

Skipta convened a virtual conversation on its secure Skipta Gather platform, to understand the extent to which this change will likely impact prescribing, contracting, and service provision. Here we present excerpts from participants’ online conversation in response to the specific questions we posed. Their responses, while not necessarily representative of all administrators in hospitals and payer organizations, are revealing…

Does 340B pricing affect prescribing in your organization?

One respondent explained, “We have never selected one drug over another based on 340B pricing. Most drugs have a 340B discount, and we realize the savings in the aggregate.” Another participant suggested that in his experience, prescribing decisions in some crowed classes of drugs are made based on 340B pricing. This would be consistent with payers using discounts and rebates to choose coverage decisions between otherwise similar drugs.

How will the deep reduction in CMS reimbursement affect your 340B program?

Respondents agreed that they are anticipating negative implications for care facilities, payers, and patients. Dan Kus, Vice President of Pharmacy Services for the Henry Ford Health System, said, “We are evaluating what services we must discontinue, and the patients will ultimately suffer.” Another respondent suggested, “These cuts are likely to lead to cost increases as facilities negotiate new commercial contracts to compensate.”

Do you expect commercial payers to try to follow CMS’ lead?

One participant indicated that some commercial payers have already demanded even deeper discounts from Average Wholesale Price (AWP) for prescriptions filled within his hospital system. This same person reported that many Pharmacy Benefit Managers (PBMs) seek such deep discounts that his organization loses money on every medication it purchases outside of the 340B Program. He added, “In my opinion, increasing shareholder value in for-profit, publically traded companies was not the intent of the 340B program. How does that help patients?”

What are the unintended consequences of such a dramatic reduction in the fee schedule?

One respondent said, “Ultimately, this will result in dramatic discontinuation of necessary patient services and in employee layoffs. We have no other options; in our service area, most payers have risk contracts or fixed payment models, and our cost cutting efforts have been maximized over the last five years.”

Will providers attempt to increase rates on other services to replace this revenue?

Neil Minkoff, MD, Chief Medical Officer and Vice President of EmpiraMed, said, “I fear that this will raise the overall cost of healthcare as providers seek other fee increases to offset the cut from CMS into this revenue stream. This will be costly to plans and employers but will end up being neutral to patients in the aggregate.” CMS has, in fact, announced that other fees will be raised in the short term to make these cuts budget-neutral for 2018.

Another was more optimistic, suggesting that it could actually lower costs by decreasing the financial incentive for physicians to join hospital-based systems. More patients will be treated in community-based settings, where costs are lower.

The actual impact of the change in CMS reimbursement remains to be seen, of course, but these thoughtful comments shared demonstrate that there is at least the prospect of some rather serious repercussions.