The influential Medicare Payment Advisory Commission (MedPAC) has voted to recommend to Congress in its March report that Medicare Part B drug payment rates for 340B drugs be reduced by 10 percent for hospitals participating in the 340B Drug Pricing Program (340B Program). Currently, hospitals are paid the same rate by Medicare for drugs whether or not the drugs are purchased through the 340B Program. MedPAC will also recommend that program savings from this payment cut be redistributed to hospitals based on the amount of uncompensated care they report on Worksheet S-10 of the Medicare cost report. MedPAC’s recommendations were approved during a January 14, 2016 meeting; the changes would require legislative action to take effect.

The 340B Program provides discounts to participating covered entities on the cost of acquiring outpatient drugs. Covered entities are currently able to retain the difference between the discounted purchase cost and the amount reimbursed by payors to enable them to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” According to a MedPAC presentation, Medicare currently pays approximately $1.2 billion above 340B Program drug acquisition costs. Medicare payment cuts targeted at 340B Program covered entity hospitals would reduce the amount of savings realized by the hospitals.

Only three members of MedPAC—all hospital stakeholders—voted against the change to hospital reimbursement, expressing concerns that the measure might make it more difficult for some hospitals to care for low-income patients and could make the 340B Program less effective. Following the meeting, several hospital associations raised concerns about the potential negative impact on participating hospital covered entities, including, for example, the likelihood that the Medicare payment cuts would effectively reduce 340B Program hospitals’ savings by approximately 30 percent and the significant operational challenges implementing MedPAC’s recommendations would impose on the hospitals.

Congress specifically requested that MedPAC provide its input on the 340B Program. MedPAC’s recommendation is especially significant because of its similarity to the Office of Inspector General’s (OIG’s) conclusion in its November 2015 report that shared savings arrangements between the Medicare program and 340B Program covered entities would result in substantial savings to the Medicare program, while still providing covered entities with incentives to purchase drugs through the 340B Program. With Congress hearing from multiple sources that the Medicare program could realize savings or further other program goals by cutting its reimbursement for drugs purchased under the 340B Program, there is an increased risk that it will impose cuts on 340B Program covered entities. Given the likelihood that such legislation would adversely affect hospitals that rely on the 340B Program to meet the needs of low-income and underserved populations, it will be critical to carefully monitor congressional action in this area in the coming year.