Supreme Court Decision Prompts CMS to Send $9B to 1,600 Hospitals for Medicare Underpayments

After a recent U.S. Supreme Court decision found that the U.S. Department of Health and Human Services (HHS) had wrongfully cut prescription drug prices for 349B-covered hospitals between 2018 and 2022, the Centers for Medicare and Medicaid Services (CMS) is proposing to return $9 billion in underpayments to those 1,600 hospitals.

The 340B Drug Pricing Program requires drug companies to offer outpatient prescription drugs to eligible healthcare organizations and entities at heavily reduced prices. In 2018, Medicare cut payments for drugs to these entities by nearly 30%. The American Hospital Association and other covered entities sued to stop the cuts, but an appellate court ruled that HHS had the authority to cut the 340B program. However, the U.S. Supreme Court overruled the appellate decision, unanimously rejecting HHS’s pay cuts to hospitals for failure to follow the proper procedures in establishing them by conducting a hospital acquisition survey under the applicable statute.

CMS estimates that the cuts led to a shortfall of as much as $10.5 billion. However, CMS already has reprocessed many 2022 claims for the higher amount, cutting the deficit to about $9 billion. CMS will fund the payments primarily by clawing back an estimated $7.8 billion in overpayments to other hospitals by reducing payments for other items and services by a rate of 0.5% over the next 16 years. These payment reductions will affect all hospitals, including those in rural areas and serving children.

The CMS proposed rule will have a 60-day comment period ending on September 5, 2023. CMS anticipates disbursing the lump sums to the 340B hospitals in late 2023 or early 2024.

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