Not-for-profits win after court's ruling on 340B cuts

A recent federal court ruling that blocked the Trump administration’s effort to cut more than a billion dollars from the 340B drug discount program will result in a financial boon for not-for-profit hospitals, according to a new report.

Moody’s Investors Service on Monday published a report that estimates not-for-profit hospitals could attribute as much as 25% of their operating cash flow to the program’s savings. On Dec. 27, a U.S. District Court halted changes made by the CMS to the 2018 outpatient pay rule that cut Medicare Part B drug reimbursements for providers in the program by as much as 30%.

“The permanent injunction is credit positive for not-for-profit hospitals participating in the program because reimbursements will immediately revert to levels before the cuts, improving operating performance,” Moody’s credit analyst Safat Hannan wrote in his report.

Last year, the CMS changed the methodology of the pay rule that reimbursed 6% above the covered drug’s average selling price to 22.5% below its average selling price. The move cut $1.6 billion a year from the program, which requires drugmakers to offer discounts to certain providers that care for a disproportionately large population of low-income or uninsured patients.

Nearly 1,000 acute-care, not-for-profit hospitals participated in 340B in 2016, according to the Government Accountability Office, which made up 38% of all hospitals and 45% of program participants. In its 2015 report to Congress, the Medicare Payment Advisory Commission estimated the program saved covered entities $3.8 billion a year.

For-profit hospitals cannot participate in 340B, but those organizations did benefit from 340B because Medicare redistributed savings from the program to all participating hospitals. The pay rule increased the pay rate for for-profit hospitals by 4.5%.

The court’s ruling means the pay increase all hospitals received in 2018 will revert back to 340B participants. But the court has yet to decide whether to order that 340B hospitals receive retroactive payments based on the 2017 methodology.

Hannan did project for-profit hospitals could see a “modest” negative impact if Medicare decides to recoup the money it redistributed in 2018, while returning to the 2017 payment methodology would have little impact on drugmakers.