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CMS Finalizes Severe 340B Reimbursement Cut in CMS Outpatient Prospective Payment System Calendar Year (CY) 2018 Rule


November 3, 2017

On November 1, 2017, CMS released its annual final rule regarding outpatient payment rates for hospitals and ambulatory surgical centers as well as other policy changes (the “Final OPPS Rule”). Despite fierce opposition from ASHP, hospital groups, and other healthcare providers, CMS finalized extreme and legally questionable cuts to reimbursement for separately payable Part B drugs purchased through the 340B Drug Pricing Program. The Final OPPS Rule also establishes a modifier for 340B-purchased drug claims and implements a policy conditionally packaging Level 1 and Level 2 drug administration services. ASHP remains strongly opposed to the cuts to the federal 340B program and is exploring all options for addressing the Final OPPS Rule’s potentially devastating impact on hospitals and their patients.

I. 340B Reimbursement Cut

Prior to the Final OPPS Rule, all Medicare separately payable, non-pass-through Part B drugs (e.g., those not part of bundles, etc.) were reimbursed at the Average Sales Price (ASP) of the drug plus 6%. The Final OPPS Rule maintains that payment level for non-340B-purchased drugs but slashes reimbursement for drugs acquired through the federal 340B program to ASP minus 22.5%. Sole community hospitals in rural areas and PPS-exempt children’s hospitals and cancer hospitals are exempt from the 340B payment change. The new policy will reduce drug reimbursements by an estimated $1.5 billion for urban hospitals and $86 million for rural hospitals. CMS intends to retain the estimated $1.6 billion in savings resulting from the change and redistribute it in a budget-neutral manner, by increasing the conversion factor on non-drug items and services paid under OPPS by 3.2%.

CMS’s responses in the Final OPPS Rule to comments on the proposed rule substantially undercut its argument that the policy change will benefit patients by reducing beneficiary out-of-pocket costs. CMS acknowledges that for Medicare Part B beneficiaries with supplemental insurance, there may be little to no impact on copayments, but it also suggests that supplemental insurance premiums will decrease as a result.1 However, that outcome is unlikely considering that, as CMS itself notes, the conversion factor applied to non-drug items and services will generate corresponding increases in beneficiary copayments.2 Thus, the copayment for drugs may decrease, but those dollars will simply shift to non-drug items and services, resulting in no bottom-line savings for patients.

Additionally, CMS did not fully respond to comments that raised issues with the reports that the agency used to justify the new policy. Despite the fact that the 340B cut was crafted around a Medicare Payment Advisory Commission (MedPAC) report, CMS refused to revise the Final OPPS Rule based on MedPAC’s own clarification of its recommendations.3 Specifically, CMS took the ASP minus 22.5% reduction from a 2015 MedPAC report.

MedPAC responded to the proposed rule to clarify that its March 2016 report actually suggested a reimbursement rate for 340B-purchased drugs of “ASP minus 5.3%.”4 CMS rejected this clarification. The agency also failed to address comments raising concerns regarding the validity and completeness of the data it cited to underpin the policy change. Given these deficiencies, the Final OPPS Rule’s 340B cut is likely to be the subject of judicial challenge as well congressional scrutiny.

II. 340B Modifier

As of January 1, 2018, CMS is requiring a modifier for all drugs that are “acquired under the 340B program” (this includes the Prime Vendor Program) and reimbursed under OPPS, rather than for non-340B-purchased drugs, as initially proposed. According to CMS, “providers who are not excepted from the 340B payment adjustment will report modifier ‘JG’ (Drug or biological acquired with 340B Drug Pricing Program Discount) to identify if a drug was acquired under the 340B Program.”5 Excepted providers will need to report using an informational modifier “TB” (Drug or Biological Acquired with 340B Drug Pricing Program Discount, Reported for Informational Purposes). For drugs that are always packaged and reported with an “N” modifier, CMS will also accept the “JG” or “TB” modifier, but the use of the modifier for these drugs will not trigger a payment adjustment to ASP minus 22.5%.6 CMS rejected any suggestion that the modifier be delayed, stating that the 12-month period for submitting claims would allow sufficient time for providers to implement the change.

III. Conditional Packaging of Level 1 and 2 Drugs

As of January 1, 2018, CMS will require the packaging of Level 1 (APC 5961) and Level 2 (APC 5692) drug administration services when these services are performed with another separately payable service.7 However, they will continue to be reimbursed separately when they are performed alone. CMS notes that this will bring low-cost drug administration services into line with the other services included in the ancillary services packaging policy implemented in 2015.

IV. Next Steps

ASHP is speaking with other stakeholders such as the American Hospital Association regarding next steps, which will include congressional outreach and potential legal action.


1CMS, Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, CMS-1678-FC (November 1, 2017), available at, p. 560.
2Id. at 1082.
3Id. at 586-587; See also MedPAC, Comment letter re: CMS-1678-P (Sept. 8, 2017), available at
5CMS, Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, CMS-1678-FC (November 1, 2017), available at, p. 605.
7Id. at 156.