Reduce Payments for Drugs Delivered by 340B Hospitals

Under Section 340B of the Public Health Service Act, certain hospitals and clinics are permitted to buy outpatient drugs at significant discounts from drug manufacturers. Those hospitals are known as 340B hospitals. They generate savings from the program when the amount they are paid by insurers, including Medicare, exceeds the cost of drugs acquired through the 340B program. Under current law, Medicare's payments for drugs covered under Medicare Part B are generally equal to a drug's average sales price plus 6 percent. That payment is the same regardless of whether a facility is enrolled in the 340B program. Thus, 340B hospitals can receive more in Medicare reimbursements than the drugs cost to acquire. The Medicare program previously lowered payment rates for drugs provided by 340B hospitals to their average sales price minus 22.5 percent, but the policy was reversed by a Supreme Court decision.

This option consists of two alternatives. The first would reduce payment rates for 340B hospitals to a drug's average sales price minus 22.5 percent, the rate previously used by Medicare. The second would reduce payment rates for 340B hospitals to a drug's average sales price. In both cases, the payment change would not be subject to the budget-neutrality adjustment that is usually applied to payment under Medicare's prospective payment system for outpatient hospitals.