Industry Groups Fuming about OPPS Proposed Rule Cuts of 340B Payments

August 2, 2017 Phil C. Solomon

The Centers for Medicare & Medicaid Services (CMS) is pursuing changes that would cut 340B payment rates to hospitals and may impair safety-net hospitals’ ability to treat low-income patients.

The 340B program requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at considerably reduced prices.  The long-standing Medicare policy allows CMS to pay up to six percent more than the average sales price in the 340B program.

The proposed Outpatient Prospective Payment System (OPPS) rule, posted recently on Federal Register, would reduce 340B Drug Discount Program payment rates, drastically cutting Medicare payments for drugs that are acquired under the 340B drug pricing program.  CMS has proposed updating the OPPS rates by 1.75 percent, which would pay hospitals 22.5 percent less than the average sales price for some drugs purchased under the 340B program.

Industry Groups Unhappy with OPPS Proposal

Industry groups immediately made their feelings known about the proposal and they weren’t happy.  “For 25 years, the 340B Drug Pricing program—which enjoys broad, bipartisan support—has been critical in expanding access to life-saving prescription drugs to low-income patients in communities across the country,” said American Hospital Association (AHA) Executive Vice President Tom Nickels.  “The patients who benefit from the much-needed 340B program are the ones who will have their access to care threatened.  Cutting Medicare payments for hospital services in the 340B program is not based on sound policy.  Additionally, this proposed rule punishes hospitals for a policy outside of CMS’ jurisdiction.  It is unclear why the administration would choose to punitively target 340B safety-net hospitals serving vulnerable patients, including those in rural areas, rather than addressing the real issue: the skyrocketing cost of pharmaceuticals,” Nichols said.

The AHA is not the only industry group angry with the proposal. The association 340B Health, a group with more than 1,300 hospitals that supports involvement in the 340B program, said most of its members would likely withdraw from the program if CMS cuts payments that would take away most, if not all, of their savings on Part B drugs.  “With the uninsured rate rising again and so much uncertainty about the healthcare marketplace, this is no time to cut reimbursement to hospitals that serve patients in need,” 340B Health CEO Ted Slafsky said in a statement.

Other healthcare executives agree. Bruce Siegel, CEO of America’s Essential Hospitals, said the proposal threatens hospitals’ ability to maintain critical services to patients and communities.  From the reactions of industry insiders, if they have their way, this proposal will not see the light of day and CMS will never institute the proposed OPPS policy changes.

Eight Keys to the OPPS Proposed Rule

In the proposed rule, CMS suggests changing how Medicare pays hospitals for drugs that are acquired under the 340B Drug Discount Program.  There are several important keys tied to the proposal that are highlighted in Becker’s Hospital CFO Report titled, “CMS releases OPPS proposed rule for 2018: Nine things to know.”  The following are some salient points of the proposed rule.

Payment Update

  1. CMS proposed updating the OPPS rates by 1.75 percent in 2018.  The agency arrived at its proposed rate increase through the following updates: a positive 2.9 percent market basket update, a negative 0.4 percentage point update for a productivity adjustment and a negative 0.75 percentage point adjustment for cuts under the ACA.
  2. After considering all other policy changes included in the proposed rule, except for the provisions related to 340B drug payments, CMS estimates hospital OPPS payments would increase by two percent next year.

Proposed 340B Program Changes

  1. CMS proposed paying hospitals 22.5 percent less than the average sales price for drugs purchased through the 340B program.  That is compared to the current payment rate of average sales price plus six percent.  Under the proposed rule, the current payment would continue for vaccines.
  2. Regarding the proposed 340B program changes, CMS said it “seeks comment on implementing this proposal in a manner that will bring down out-of-pocket drug costs for Medicare patients and allows providers to best meet their patients’ needs.”

Proposed Update to Inpatient-only List

  1. The Medicare inpatient-only list includes procedures that are only paid for under the hospital Inpatient Prospective Payment System.  Each year, CMS reviews the list to determine whether any procedures should be taken off of the list.  For 2018, CMS proposed removing total knee arthroplasty from the IPO list.  The proposed rule also seeks comment on whether partial and total hip arthroplasty should be removed from the list.

Hospital Outpatient Quality Reporting Program Changes

  1. For 2018, CMS is proposing removing six measures from the Hospital Quality Reporting Program for the 2020 payment determination and subsequent years.  The measures CMS is proposing to remove are:
    OP-1: Median time to fibrinolysis
    • OP-4: Aspirin at arrival
    • OP-20: Door to diagnostic evaluation by a qualified medical professional
    • OP-21: Median time to pain management for long bone fracture
    • OP-25: Safe surgery checklist use
    • OP-26: Hospital outpatient volume data on selected outpatient surgical procedures

Possible Revisions to Laboratory Date of Service Policy

  1. CMS said it is considering potential modifications to the laboratory date of service policy.  The changes would allow labs to bill Medicare directly for molecular pathology tests and advanced diagnostic laboratory tests excluded from the OPPS packaging policy and ordered less than two weeks following the date of a patient’s discharge from the hospital.  Under the current policy, if a test is ordered less than two weeks after a patient’s discharge date, the hospital must bill Medicare for the test and then pay the lab that performed the test.

Comment Period

  1. CMS will accept comments on the proposed rule until September 11, 2017.


On July 13, 2017, CMS released its proposed OPPS rule changes in a request for information (CMS-1678-P) for public review.  In doing so, CMS believes that enacting the OPPS rule change is the first step in an effort to start a national conversation about improving the healthcare delivery system, how Medicare can contribute to making the delivery system less bureaucratic and complex, and how CMS can reduce burdens for clinicians, providers and patients in a way that increases quality of care and decreases costs.  All of this with the intention of making the healthcare system more effective, simple and accessible while maintaining program integrity and preventing fraud.

CMS will respond to comments in a final rule on or about November 1, 2017.


Phil C. Solomon is the publisher of Revenue Cycle News, a healthcare business information blog and serves as the Vice President of Marketing Strategy for MiraMed, a healthcare revenue cycle outsourcing company.  As an executive leader, he is responsible for creating and executing sales and marketing strategies which drive new business development and client engagement. Phil has over 25 years’ experience consulting on a broad range of healthcare initiatives for clinical and revenue cycle performance improvement.  He has worked with industry’s largest health systems developing executable strategies for revenue enhancement, expense reduction, and clinical transformation. He can be reached at

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