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CMS proposes 340B cuts, outpatient treatment for hip, knee replacements

July 14, 2017

The CMS wants to slash 340B drug payments to hospitals and allow Medicare to pay for hip and knee replacement procedures that take place in outpatient facilities, according to a proposal released Thursday.

To agency proposes paying hospitals 22.5% less than the average sales price for drugs acquired under the 340B program. The CMS is looking to cut drug costs for a program intended to lower operating costs for hospitals with disproportionate numbers of low-income patients.

The 340B program is controversial because it does not specify or restrict how hospitals can use money generated by the program.

The current 340B payment for drugs is 6% on top of the average sales price, that’s Medicare’s longstanding method, despite rising drug costs.

With the proposed changes, if a drug costs $84,000, the CMS would pay just over $65,000, instead of $89,000. Vaccines would continue to be paid at the current rate.

It was the Medicare Payment Advisory Commission that estimated an ASP minus 22.5% is the average minimum discount eligible hospitals should receive under the 340B program.

The agency proposed the change earlier this year to combat costs that have grown 543%.

From 2004 to 2013, Medicare spending for Part B drugs at hospitals that participate in 340B grew from $500 million to $3.5 billion. Hospitals in the 340B program accounted for 22% of Medicare spending for Part B drugs at acute care hospitals in 2004. That grew to 48% in 2013, according to MedPac.

The rule released on Thursday also suggests Medicare pay for knee replacement procedures that take place at outpatient facilities. It is also seeking comment on if partial and total hip procedures should be eligible for Medicare reimbursement if performed at outpatient facilities.

Total joint replacements are one of the largest and most profitable service lines at many hospitals. In 2014, more than 400,000 Medicare beneficiaries received a hip or knee replacement, costing the government more than $7 billion for the hospitalizations alone—over $50,000 per case.

The move to outpatient settings also raises questions about the future of Medicare’s mandatory bundled-payment initiative for inpatient procedures in 67 markets around the country, called the Comprehensive Care for Joint Replacement program, which began last April. The CMS rule appears to undermine the hospital bundling initiative.

The CMS is hoping to find out more via comments about how paying for the procedures at outpatient facilities could potentially harm the bundle pay initiative. Overall, the CMS a rate hike of by 1.75% for outpatient facilities for 2018. The various provisions in the rule will equal outpatient facilities receiving an additional $897 million next year if finalized.

Comments on the rule are due Sept. 11.


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