Medicare Program; Hospital Outpatient Prospective Payment System: Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022

Federal RegisterNov 8, 2023

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 419

[CMS-1793-F]

RIN 0938-AV18

Medicare Program; Hospital Outpatient Prospective Payment System: Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022

AGENCY:

Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS).

ACTION:

Final rule.

SUMMARY:

This final rule describes the agency's actions on remand from the United States (U.S.) District Court for the District of Columbia to craft a remedy in light of the U.S. Supreme Court's decision in

American Hospital Association

Becerra,

142 S. Ct. 1896 (2022), relating to the adjustment of Medicare payment rates for drugs acquired under the 340B Program from calendar year (CY) 2018 through September 27th of CY 2022.

DATES:

This rule is effective January 8, 2024.

FOR FURTHER INFORMATION CONTACT:

Cory Duke,

Cory.Duke@cms.hhs.gov,

or (410) 786-0631.

SUPPLEMENTARY INFORMATION:

I. Background

A. OPPS Payment Policy for Drugs Acquired Through the 340B Program

1. Overview

Under the Hospital Outpatient Prospective Payment System (hereinafter referred to as OPPS), we generally set payment rates for separately payable drugs and biologicals (hereinafter referred to collectively as “drugs”) under section 1833(t)(14)(A) of the Social Security Act (hereinafter referred to as “the Act”) (42 U.S.C. 1395

(t)(14)(A)). Section 1833(t)(14)(A)(iii)(II) of the Act (42 U.S.C. 1395

(t)(14)(A)(iii)(II)) provides that, if hospital acquisition cost data are not available, the payment amount is the average price for the drug in a year established under sections 1842(o), 1847A, or 1847B of the Act (42 U.S.C. 1395u(o), 42 U.S.C. 1395w-3a, & 42 U.S.C. 1395w-3b), as the case may be. Payment rates for drugs are usually established under section 1847A of the Act (42 U.S.C. 1395w-3a), which generally sets a default rate of the average sales price (ASP) plus 6 percent. Section 1833(t)(14)(A)(iii)(II) of the Act (42 U.S.C. 1395

(t)(14)(A)(iii)(II)) also provides that the average price for the drug in the year as established under section 1847A of the Act (42 U.S.C. 1395w-3a), is calculated and adjusted by the Secretary of the Department of Health and Human Services (Secretary) as necessary for purposes of paragraph (14).

In the calendar year (CY) 2018 OPPS/ASC final rule with comment period (82 FR 59353 through 59371), the Centers for Medicare & Medicaid Services (CMS) reexamined the appropriateness of paying the ASP plus 6 percent for drugs acquired through the 340B Drug Pricing Program (hereinafter referred to as the “340B Program”), a Health Resources and Services Administration (HRSA)-administered program that allows covered entities to purchase certain covered outpatient drugs at discounted prices from drug manufacturers. Based on findings of the Government Accountability Office (GAO),

the HHS Office of the Inspector General (OIG),

and the Medicare Payment Advisory Commission (MedPAC)

that 340B hospitals were acquiring drugs at a significant discount under the 340B Program, CMS adopted a policy beginning in 2018 generally to pay an adjusted amount of ASP minus 22.5 percent for certain separately payable drugs or biologicals acquired through the 340B Program. This adjustment amount was based on our concurrence with an analysis by MedPAC that concluded that the estimated average minimum discount of 22.5 percent of ASP adequately represented the average minimum discount that a 340B participating hospital received for separately payable drugs under the OPPS (82 FR 59354 through 59371). Our intent in implementing this payment reduction was to reflect more accurately the actual costs incurred by participating hospitals in acquiring 340B drugs. We stated our belief that such changes would allow Medicare beneficiaries and the Medicare program to pay a more appropriate amount when hospitals participating in the 340B Program furnished drugs to Medicare beneficiaries that were purchased under the 340B Program (82 FR 59353 through 59371).

Government Accountability Office. “Medicare Part B Drugs: “Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals.” June 2015. Available at

https://www.gao.gov/assets/gao-15-442.pdf.

Office of Inspector General. “Part B Payment for 340B Purchased Drugs. OEI-12-14-00030”. November 2015. Available at:

https://oig.hhs.gov/oei/reports/oei-12-14-00030.pdf.

Medicare Payment Advisory Commission. March 2016 Report to the Congress: Medicare Payment Policy. March 2016. Available at Medicare Payment Advisory Commission. March 2016 Report to the Congress: Medicare Payment Policy. March 2016. Available at

https://www.medpac.gov/document/http-www-medpac-gov-docs-default-source-reports-may-2015-report-to-the-congress-overview-of-the-340b-drug-pricing-program-pdf/.

2. OPPS Payment for 340B Drugs in CY 2018 Through September 27th of 2022

From January 1, 2018, through September 27, 2022, under the OPPS we generally paid for certain separately payable drugs acquired through the 340B Program at ASP minus 22.5 percent. In the CY 2018 OPPS/ASC final rule with comment period (82 FR 59369 through 59370), we finalized our proposal and adjusted the payment rate for separately payable drugs (other than drugs with pass-through payment status and vaccines) acquired under the 340B Program from ASP plus 6 percent to ASP minus 22.5 percent. We also noted that critical access hospitals are not paid under the OPPS, and therefore were not subject to the OPPS 340B drug payment adjustment policy (hereinafter referred to as the “340B Payment Policy”). We also exempted rural sole community hospitals, children's hospitals, and PPS-exempt cancer hospitals from the 340B payment adjustment primarily due to these hospitals receiving special payment adjustments under the OPPS. In addition, as stated in the CY 2018 OPPS/ASC final rule with comment period, this policy change did not apply to drugs with pass-through payment status, which are required to be paid based on the ASP methodology, or vaccines, which are excluded from the 340B Program.

Additionally, as discussed in the CY 2018 OPPS/ASC final rule with comment period (82 FR 59369 through 59370), to effectuate the payment adjustment for 340B-acquired drugs, we implemented modifiers “JG” and “TB” effective January 1, 2018. Hospitals paid under the OPPS, other than types of hospitals excluded from the OPPS (such as critical access hospitals) or exempted from the 340B Payment Policy for CY 2018, were required to report modifier “JG” on the same claim line as the drug Healthcare Common Procedure Coding System (HCPCS) code to identify a 340B-acquired drug. For CY 2018, rural sole community hospitals, children's hospitals, and PPS-exempt cancer hospitals were exempted from the 340B payment adjustment. These hospitals were required to report informational modifier “TB” for 340B-acquired drugs, and continued to be paid the full applicable amount, generally ASP plus 6 percent.

In the CY 2019 OPPS/ASC final rule with comment period (83 FR 58981), we

continued the Medicare 340B payment policies that were implemented in CY 2018 and adopted a policy to pay for non-pass-through 340B-acquired biosimilars at ASP minus 22.5 percent of the biosimilar's ASP, rather than the reference biological product's ASP. Additionally, in the CY 2019 OPPS/ASC final rule with comment period (83 FR 59015 through 59022), we finalized a policy to pay ASP minus 22.5 percent for 340B-acquired drugs furnished in non-exempted off-campus provider-based departments (PBDs) paid under the Physician Fee Schedule (PFS). We adopted this payment policy for CY 2019 and subsequent years. Also, during the CY 2019 OPPS/ASC rulemaking cycle, we clarified that the 340B payment adjustment applied to drugs priced using either wholesale acquisition cost (WAC) or average wholesale price (AWP), and since the policy was first adopted, we applied the 340B payment adjustment to 340B-acquired drugs priced using these pricing methodologies. The 340B payment adjustment for WAC-priced drugs was WAC minus 22.5 percent. 340B-acquired drugs that were priced using AWP were paid an adjusted amount of 69.46 percent of AWP (83 FR 37125).

The 69.46 percent of AWP was calculated by first reducing the original 95 percent of AWP price by 6 percent to generate a value that is similar to ASP or WAC with no percentage markup. Then we applied the 22.5 percent reduction to ASP/WAC-similar AWP value to obtain the 69.46 percent of AWP, which was similar to either ASP minus 22.5 percent or WAC minus 22.5 percent.

For more detailed descriptions of our OPPS payment policy for drugs acquired under the 340B Program during this timeframe, we refer readers to the CY 2018 OPPS/ASC final rule with comment period (82 FR 59353 through 59371); the CY 2019 OPPS/ASC final rule with comment period (83 FR 59015 through 59022); the CY 2020 OPPS/ASC final rule with comment period (84 FR 61321 through 61327); the CY 2021 OPPS/ASC final rule with comment period (85 FR 86042 through 86055); the CY 2022 OPPS/ASC final rule with comment period (86 FR 63640 through 63649); and the CY 2023 OPPS/ASC final rule with comment period (87 FR 71972 through 71973).

3. Payment for Non-Drug Items and Services in CY 2018 Through CY 2022

In the CY 2018 OPPS/ASC final rule with comment period (82 FR 59216, 59258), to comply with the statutory budget neutrality requirements under sections 1833(t)(9)(B) and (t)(14)(H) of the Act (42 U.S.C. 1395

(t)(9)(B) and (t)(14)(H)), we finalized our proposal to redistribute our estimated reduction in payments for separately payable drugs as a result of the 340B Payment Policy by increasing the conversion factor used to determine the payment amounts for non-drug items and services. As further described in the CY 2018 OPPS/ASC final rule with comment period, we used updated CY 2016 claims data and a list of 340B-eligible providers to calculate an estimated impact of $1.6 billion based on the final CY 2018 policy to pay for OPPS 340B-acquired drugs at a payment rate of generally ASP minus 22.5 percent. In order to effectuate the budget neutrality provisions of the OPPS, the estimated $1.6 billion in reduced drug payments from adoption of the final 340B payment methodology was redistributed in an equal offsetting amount to all hospitals paid under the OPPS by increasing the payment rates by 3.19 percent for nondrug items and services furnished by all hospitals paid under the OPPS for CY 2018. This same conversion factor adjustment applied for CYs 2019 through 2022, increasing payments for non-drug items and services in these CYs as a result of the 340B Payment Policy.

For ease of reference, we refer to the adjustments we made to payment rates for 340B-acquired drugs and the corresponding rate adjustment for non-drug services and items as the 340B Payment Policy.

B. Litigation History of the 340B Payment Policy

The 340B Payment Policy has been the subject of extensive litigation. See the 340B Remedy proposed rule for a more comprehensive summary of the litigation history (88 FR 44079 through 44080).

On June 15, 2022, the Supreme Court held that because CMS had not conducted a survey of hospitals' acquisition costs, it could not vary the payment rates for outpatient prescription drugs by hospital group.

See Am. Hosp. Ass'n

Becerra,

142 S. Ct. 1896, 1906 (2022).

The Supreme Court declined to opine on the appropriate remedy,

id.

at 1903, and remanded the case to the U.S. Court of Appeals for the D.C. Circuit,

id.

at 1906, which in turn remanded it to the U.S. District Court for the District of Columbia,

see Am. Hosp. Ass'n

Becerra,

No. 19-5048, 2022 WL 3061709, at *1 (D.C. Cir. Aug. 3, 2022).

On remand to the district court, the plaintiffs filed motions seeking orders (1) vacating the portion of the CY 2022 final OPPS rule that set the reimbursement rate for 340B drugs at ASP minus 22.5 percent, which was still in effect for the remainder of 2022, and (2) requiring CMS to remedy the reduced payment amounts to 340B hospitals under the final OPPS rules for CY 2018 through CY 2022 by reimbursing them the difference between what they were paid and ASP plus 6 percent.

See Am. Hosp. Ass'n

Becerra,

1:18-cv-02084-RC, Dkts.67, 69 (D.D.C. Aug. 3, 2022).

On September 28, 2022, the district court ruled on the first motion, vacating the reimbursement rate for 340B-acquired drugs for the remainder of 2022.

See Am. Hosp. Ass'n

Becerra,

1:18-cv-2084-RC, 2022 WL 4534617, at *5.

https://ecf.cadc.uscourts.gov/n/beam/servlet/TransportRoom.

https://ecf.dcd.uscourts.gov/doc1/04519382229; https://ecf.dcd.uscourts.gov/doc1/04509382365.

https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv2084-79.

On January 10, 2023, the district court ruled on the second motion, issuing a remand without vacatur to give the agency the opportunity to determine the proper remedy for the reduced payment amounts to 340B hospitals under the payment rates in the final OPPS rules for CY 2018 through CY 2022.

See Am. Hospital Ass'n

Becerra,

1:18-cv-2084-RC, 2023 WL 143337, at *6.

Both courts and the Departmental Appeals Board have stayed pending challenges to payments made under the 340B Payment Policy.

See, for example, Vanderbilt Univ. Med. Ctr.

Azar,

1:20-cv-01582 (D.D.C. May 23, 2023).

https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv2084-86.

https://ecf.dcd.uscourts.gov/cgi-bin/DktRpt.pl?145369228216471-L_1_0-1

C. Payment for 340B-Acquired Drug Claims for September 28, 2022, Through December 31, 2022, and for CY 2023

The agency complied with the District Court's September 28, 2022, decision by uploading revised OPPS drug files to pay the default rate (generally ASP plus 6 percent) for all CY 2022 claims for 340B-acquired drugs paid from September 28, 2022, through the end of CY 2022.

In the CY 2023 OPPS/ASC final rule with comment period (87 FR 71970), we finalized a policy reversing the 340B Payment Policy. To do so, we first provided that drugs acquired through the 340B Program would be paid at the default rate (generally ASP plus 6 percent) for CY 2023. Second, to ensure budget neutrality for CY 2023 OPPS payment rates as required by statute, we finalized a reduction of 3.09 percent to the 2023 OPPS conversion factor. This 3.09 percent reduction for CY 2023 offsets the prior increase of 3.19 percent

that was applied to the conversion factor by the 340B Payment Policy in CY 2018. This is because a downward adjustment involves a smaller percentage reduction from a larger number to get the same dollar amount as the original upward adjustment from a smaller number. More specifically, in order to achieve the original budget neutrality adjustment for CY 2018, we had to multiply the conversion factor by 1.0319. In order to offset this prior increase for the CY 2023 rule, we had to make a downward adjustment to the conversion factor, which involved dividing 1 by 1.0319, which equals 0.9691. And 1 minus 0.9691 equals 0.0309, which is where we derived the 3.09 percent reduction to the conversion factor for CY 2023. As we explained in the CY 2023 OPPS/ASC final rule, we decreased the OPPS conversion factor to offset the increase in the OPPS conversion factor in CY 2018, which originally implemented the 340B policy in a budget neutral manner. We stated: “This adjustment to the conversion factor is appropriate in these circumstances, including because it removes the effect of the 340B policy as originally adopted in CY 2018, which was recently invalidated by the Supreme Court as explained above, from the CY 2023 conversion factor and ensures it is equivalent to the conversion factor that would be in place if the 340B Payment Policy had never been implemented” (87 FR 71975). Additionally, we explained that we agreed with commenters, including the American Hospital Association, that under these specific circumstances it was appropriate to decrease payments for non-drug items and services by a percentage that would offset the percentage by which they were increased by the 340B Payment Policy in CY 2018 (87 FR 71975).

For more detail on the payment rate for drugs acquired under the 340B Program for CY 2023 and the corresponding adjustment to the conversion factor to maintain budget neutrality as a result of reversing the 340B adjustment and paying for all separately payable drugs at ASP plus 6 percent (or WAC plus 3 or 6 percent or 95 percent of AWP), we refer readers to the CY 2023 OPPS/ASC final rule with comment period (87 FR 71973 through 71976).

II. Summary of and Responses to Public Comments on Remedy Payment Adjustment for 340B-Acquired Drugs From CY 2018 Through September 27th of CY 2022

A. Remedy Options Considered By CMS

In the proposed rule (88 FR 44080), we evaluated several options to determine which remedy would best achieve the objective of unwinding the unlawful 340B Payment Policy while making certain OPPS providers (hereinafter referred to as “affected 340B covered entity hospitals”

) as close to whole as is administratively feasible.

Throughout the duration of the policy, the 340B payment adjustment did not apply to critical access hospitals, rural sole community hospitals, children's hospitals, and PPS exempt cancer hospitals.

We describe the different proposed remedy options and aspects of those alternative options that we considered in the proposed rule below.

1. Make Additional Payments to Affected 340B Covered Entity Hospitals for 340B-Acquired Drugs From CY 2018 Through September 27th of CY 2022 Without an Adjustment To Maintain Budget Neutrality

In the proposed rule (88 FR 44080), we considered calculating the additional amount each affected 340B covered entity hospital would have been paid for 340B-acquired drugs from CY 2018 through September 27th of CY 2022 if not for the 340B Payment Policy, and then considered paying that amount to each hospital without applying a corresponding adjustment to the conversion factor for the increased payments for non-drug items and services that were made from CY 2018 through CY 2022 due to the 340B Payment Policy. As we described, we believe that we would have the authority to make remedy payments under sections 1833(t)(2)(E) and 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(2)(E) and (t)(14)), along with our retroactive rulemaking authority in section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)). We noted that sections 1833(t)(2)(E) and (t)(14) of the Act (42 U.S.C. 1395

(t)(2)(E) and (t)(14)) require budget neutrality with respect to payment adjustments to the OPPS made under those sections and there are no exceptions with respect to remedy payments. Consequently, we stated that we believe the best reading of both of those provisions is that these remedy payments are subject to budget neutrality requirements, at least when the budget neutrality adjustment would not be

de minimis.

That was consistent with the statute's general approach of budget neutralizing OPPS payment adjustments.

See, for example,

section 1833(t)(9)(B) of the Act (42 U.S.C. 1395

(t)(9)(B)).

We explained that section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) straightforwardly requires adjustments made under that provision to be made “in a budget neutral manner.” (

Accord

65 FR 18438 (noting (t)(2)(E)'s budget neutrality requirement).) And section 1833(t)(14)(H) of the Act (42 U.S.C. 1395

(t)(14)(H)), relating to drug APC payment rates, states that “Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion, weighting, and other adjustment factors for 2004 and 2005 under paragraph (9), but

shall be taken into account for subsequent years.”

(Emphasis added.) In addition, section 1833(t)(9)(B) of the Act (42 U.S.C. 1395

(t)(9)(B)), referenced in section 1833(t)(14)(H) of the Act (42 U.S.C. 1395

(t)(14)(H)), states in relevant part [i]f the Secretary makes adjustments under subparagraph (A),

then the adjustments for a year may not cause the estimated amount of expenditures under this part for the year to increase or decrease from the estimated amount of expenditures under this part that would have been made if the adjustments had not been made.

Subparagraph (A) reads: Periodic review.—The Secretary shall review not less often than annually and revise the groups, the relative payment weights, and the wage and other adjustments described in paragraph (2) to take into account changes in medical practice, changes in technology, the addition of new services, new cost data, and other relevant information and factors.

We explained that these statutes require us to account for budget neutrality in these remedy payments. To the extent these remedy payments are understood as a payment adjustment under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)), they are subject to that section's budget neutrality constraints. And to the extent these payments are understood as a payment under section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)), we explained that they are “[a]dditional expenditures resulting from” paragraph (t)(14) of the Act for years other than 2004 or 2005 and thus are subject to budget neutrality constraints under section 1833(t)(14)(H) of the Act (42 U.S.C. 1395

(t)(14)(H)).

We noted that this reading of these provisions is consistent with the statute's general approach of budget neutralizing OPPS payment adjustments,

see, for example,

section 1833(t)(9)(B) of the Act (42 U.S.C. 1395

(t)(9)(B)), except when expressly

exempted,

see

sections 1833(t)(7)(I), (t)(14)(H), (t)(16)(D)(iii), (t)(18)(C), (t)(19)(A), (t)(20) of the Act (42 U.S.C. 1395

(t)(7)(I) (t)(14)(H), (t)(16)(D)(iii), (t)(18)(C), (t)(19)(A), (t)(20)). Budget neutrality in OPPS serves the important interest of limiting expenditures under Part B and thus protecting the public fisc.

Cf.

H.R. Rep. No. 106-436, at 33-34 (1999) (noting the goal of prospective payment systems, including the OPPS, is to slow growth rate of Medicare expenditures).

The Supplementary Medicare Insurance Trust Fund (hereinafter referred to as the Part B Trust Fund) that makes OPPS payments is mostly financed by premiums from participants and contributions from the general fund of the Treasury. We pointed to the Trustees' of the Part B Trust Fund warning that unexpected increases in Medicare Part B or D expenditures may require increases to beneficiary premiums and coinsurance, which already represent a growing share of beneficiaries' total income and are projected to reflect about three-quarters of the average Social Security retired-worker benefit by the end of this century.

See

The 2023 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medicare Insurance Trust Funds at 40-41.

Additionally, unexpected increases in Medicare Part B or D expenditures could require tax increases or expenditure reductions elsewhere in the Federal budget; the Trustees already project expenditures to consume more than 30 percent of Federal income tax revenue in just 50 years.

Id.

at 43.

https://www.govinfo.gov/content/pkg/CRPT-106hrpt436/pdf/CRPT-106hrpt436-pt1.pdf

https://www.cms.gov/oact/tr/2023.

Accordingly, we summarized that when changes to payment policy are made, we generally make an adjustment to the OPPS conversion factor in order to maintain budget neutrality. (

See

70 FR 68542 (noting outpatient drugs are included in the budget neutrality calculation beginning in 2006).) We do not believe the Congress intended the statute to permit regulated entities to achieve policy outcomes through litigation that would be statutorily unavailable to them through the regular rulemaking process, especially policy outcomes that increase total Medicare expenditures.

We acknowledged that, in the past, not all OPPS payment policy changes based on sections 1833(t)(14) and (t)(2)(E) of the Act (42 U.S.C. 1395

(t)(14) and (t)(2)(E)) have resulted in adjustments to the budget neutrality factor or actual expenditures from the Part B Trust Fund equaling zero in all circumstances. We stated that the method CMS uses to account for changes to the “estimated number of expenditures” referenced in section 1833(t)(9)(B) of the Act (42 U.S.C. 1395

(t)(9)(B)) and incorporated by section 1833(t)(14)(H) of the Act (42 U.S.C. 1395

(t)(14)(H)) is the OPPS conversion factor (for example, 71 FR 68193 through 68194). We explained that in situations that have not had any estimated impact on the OPPS conversion factor or that would otherwise have a

de minimis

impact, such as a 0.0001 change to the conversion factor, which would have an inconsequential effect on Medicare payments, CMS has effectively rounded the estimated impact on expenditures to zero.

Thus, in circumstances when there would be a

de minimis

impact on estimated OPPS payment to meet the budget neutrality requirements as a result of a post-annual-rulemaking policy change, we have not changed OPPS payments to reflect the minimal impact of the policy change. When considering whether the estimated amount of expenditures is

de minimis,

we have taken into account relevant context, such as the size of the change comparable to the OPPS payments overall, the relative number of interested parties and any reliance interests, as well as the anticipated impact on the Part B Trust Fund of the change in payment due to the post-annual rulemaking policy versus the anticipated administrative burden and cost of ratesetting disruption.

In the CY 2007 OPPS/ASC final rule with comment period, using our authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E), we implemented a quality improvement program which required hospitals eligible to participate in the Inpatient Prospective Payment Systems (IPPS) Reporting Hospital Quality Data for the Annual Payment Update (RHQDAPU) to meet the requirements for receiving the full FY 2007 IPPS payment in order to qualify for the CY 2007 OPPS update. Hospitals failing to meet the requirements would receive a reduced OPPS conversion factor update in CY 2007, the amount of which would then, if not deemed “negligible,” be offset by a corresponding increase to the OPPS conversion factor to maintain budget neutrality. See 71 FR 68193 through 68194.

We then applied these principles to the remedy payments for the 340B Payment Policy, concluding that a budget neutrality adjustment is statutorily required and, even if not statutorily required, warranted as a matter of sound public policy. The estimated impact of our one-time lump sum remedy payments is significant and reflects a substantial fraction of total OPPS spending for any one calendar year, one that goes well beyond any impact of which we have previously rounded to zero. The specifics of the lump sum are discussed in greater detail in the following section, II.B.1 of this final rule. Additionally, we noted that reliance interests or administrative burdens would not outweigh the impact of the remedy payments on the Part B Trust Fund sufficiently to justify disregarding the principle of budget neutrality, even if that were statutorily possible. We further explained that the potential reliance interests implicated by the need to recover unwarranted payments made over many years, combined with the unique difficulties in calculating and collecting these payments through retroactive rulemaking, should properly affect the way the budget neutrality principle applies to these unique circumstances.

We noted that we budget neutralized the 340B Payment Policy from CY 2018 to CY 2022 by increasing the rate for non-drug items and services by 3.19 percent.

see also, for example, United States

Lahey Clinic Hosp., Inc.,

399 F.3d 1, 16 (1st Cir. 2005) (“Although provisions of the Medicare Act expressly authorize the Secretary to reopen initial payment determinations and to recoup overpayments administratively in certain circumstances, the statute does not displace the United States' long standing power to collect monies wrongfully paid through an action independent of the administrative scheme, nor is there any inconsistency.” (internal citations omitted));

Mount Sinai Hosp. of Greater Miami, Inc.

Weinberger,

517 F.2d 329, 345 (5th Cir.),

modified,

522 F.2d 179 (5th Cir. 1975) (similar). For that reason and those discussed above, unwinding those payments is necessary to ensure equitable payments under these circumstances.

Therefore, we concluded that it is required by the statute—but even if not required, that it would be consistent with the statute—and consistent with our past practices, and appropriate, to offset the additional payments for non-drug items and services that were made from CY 2018 through CY 2022 in order to maintain budget neutrality or equitable payments when remedying this policy. But the context of this rule, we clarified, remains unique: We are adjusting payments prospectively in order to provide a remedy for a previous unlawful payment decision. Precisely because that previous payment decision itself followed budget neutrality principles, it provided unwarranted payments to some at the same time it improperly took payments from others. In applying budget neutrality principles to this remedy, we seek to rectify this imbalance and restore matters as closely as possible to where they would have been absent the policy the Supreme Court determined to be unlawful. We solicited comments from the public on our proposed interpretation of our statutory budget neutrality obligations, equitable payment authorities, and recoupment authority.

Comment:

We received many comments on our proposed interpretation of our statutory budget neutrality obligations, equitable payment authorities, and recoupment authority.

Response:

These comments are addressed in section II.B.2.b of this final rule.

2. Full Claims Reprocessing From CY 2018 Through September 27th of CY 2022

In the proposed rule (88 FR 44082), we explained that perhaps the most perfect measure of achieving budget neutrality in circumstances like this would be to turn back the clock to the day the unlawful payment decision was first made, undo that decision, and start over. We identified that CMS would have to reprocess all OPPS claims for 340B-acquired drugs and non-drug items and services from CY 2018 through September 27th of CY 2022 using the default payment rate under section (t)(14) of the Act (42 U.S.C. 1395

(t)(14)) and our retroactive rulemaking authority in section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)). This approach would have the benefit of putting providers, beneficiaries, and Medicare back in the same situation they would have been in if CMS had never adopted the ASP minus 22.5 percent rate for 340B-acquired drugs in 2018. But remedial rulemaking need not provide this type of precise make-whole relief.

See Shands Jacksonville Med. Ctr., Inc.

Azar,

959 F.3d 1113, 1118 (D.C. Cir. 2020) (agreeing that the agency need not restore “each individual hospital . . . at least to the position it would have occupied had the rate reduction never taken effect”).

We acknowledged that reprocessing every single claim might be a potential approach to remedy this situation if it were administratively achievable. But we feared that reprocessing such an unprecedentedly large volume of claims and issuing payment to affected 340B covered entity hospitals in a timely fashion would impose an immense administrative burden on CMS, its contractors, and providers. We accordingly concluded that this approach is not feasible in this case. It would require the reprocessing of virtually all claims submitted to the OPPS system during the affected period of time, but that system processes more than 100 million claims each year. We remarked that reprocessing almost 5 years' worth of OPPS claims could take several years, resulting in some affected 340B covered entity hospitals having to wait multiple years to receive payment, and leading to widespread beneficiary cost sharing uncertainty, as beneficiaries could be caught by surprise by a significant change in cost sharing responsibility from a claim they thought had been closed many years ago. The large quantity of claims and the amount of time required to reprocess them while continuing normal claims processing likewise would not result in timely payments or adjustments to hospitals. Additionally, we indicated that reprocessing these claims would lead to the need for significant recoupments of payments for non-drug items and services that would have already been paid at the higher rate based on the budget neutrality adjustment applied as a result of the original 340B Payment Policy. The D.C. Circuit has held that it

is not necessary “to recalculate each individual claim paid under the reduced rate” that was the subject of litigation when doing so would cause significant administrative burden and delayed payments.

See Shands,

959 F.3d at 1120. But we did allow that the expected results of such a calculation can certainly inform an alternative approach to budget neutrality, as we discuss below.

We noted that the vast majority of 340B drug claims from CY 2022 have been reprocessed at the higher 340B payment rate, generally ASP plus 6 percent, which we believe was allowable under the District Court's order prospectively vacating the CY 2022 340B payment rate and the typical timely filing requirements described at 42 CFR 424.44. We confirmed this was appropriate for CY 2022 claims given that providers were able to follow the regular claims processing conventions for these claims, and clarified that we will ensure CMS does not make duplicate payments for these claims already remedied by the usual claims processing methods. As part of this final rule, we estimate that for CY 2022, $1.6 billion in remedy payments (including the Medicare and beneficiary portions) have already been made to providers through reprocessed claims, or claims that had dates of service of January 1, 2022, through September 27, 2022, but were held until, or reprocessed after, the 340B rule was vacated and the standard drug payment rates were in effect for 340B-acquired drugs. We consider these reprocessed claims to be partially remedied as 340B providers no longer received the lower 340B drug payment rate for these 340B-acquired drugs. This $1.6 billion is one component of the total remedy payments accounted for in this final rule. We also note that these claims only had the 340B drug portion of the claim adjusted, and that for these claims to be fully remedied the non-drug item and service components of these claims would also need to be adjusted as discussed in subsequent sections.

We thank commenters for their input on our policy proposals. We have summarized the comments received and our responses to those comments in the following section.

Comment:

Commenters generally agreed with CMS's conclusion that reprocessing all claims is not administratively feasible. Commenters appreciated that CMS considered this option but did not formally propose it in the proposed rule.

Response:

We appreciate commenters' concurrence with our conclusion.

Comment:

One commenter requested that CMS pay providers that elected to submit adjusted claims for dates of service between January 1, 2022, through September 27, 2022, the beneficiary copayment amount for those claims. The commenter points out that providers who elected not to submit adjusted claims for those dates of service will receive both the Medicare portion and the beneficiary copayment portion through the remedy payment. Failing to pay the beneficiary copayment amounts for providers that elected to submit adjusted claims, the commenter argues, results in different remedies for the beneficiary portion for providers that submitted adjustment claims and those that did not submit adjustment claims, which is an inequitable outcome.

Response:

We do not agree that CMS should pay providers that elected to submit adjusted CY 2022 claims additional payment for beneficiary cost sharing. We are paying amounts equal to

lost

beneficiary cost sharing amounts providers are not otherwise legally entitled to collect based on a finding that, under the unique circumstances of this rule, it is necessary to ensure equitable payments under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)). (See infra at II.B.1.e.) Because CY 2022 adjustments followed regular claims processing conventions, providers are legally entitled to collect cost sharing from beneficiaries on those claims. If providers are unable to do so, such payments would be subject to our usual standards governing payments to which providers are legally entitled but unable to collect.

See, for example,

42 CFR 413.89. We thus do not believe the same rationale applies to reprocessed claims.

Permitting providers to submit adjustment claims also allowed for prompt payment to providers and partially approximated how the claim would have been processed and paid absent the 340B Payment Policy. Indeed, many of these claims have already been finalized and the beneficiaries have paid their cost sharing obligation. Because providers can collect cost sharing for reprocessed CY 2022 claims from beneficiaries and potentially under our bad medical debt regulations, we do not believe it would be equitable under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) to make additional, potentially duplicative payments to reflect lost cost sharing.

As described in the proposed rule, we considered these reprocessed claims to be partially remedied as 340B providers no longer received the lower 340B drug payment rate. These claims will be fully remedied when we address the non-drug item and service payment portion of these claims.

Comment:

CMS received several comments requesting a mass reprocessing of all CY 2022 claims and instructions to the Medicare Administrative Contractors (MACs) to make one mass adjustment for claims going back to January 1, 2022.

Response:

We do not have an existing procedure to make the mass adjustment commenters proposed for CY 2022 claims without reprocessing each individual claim, and we believe that our proposed lump sum payment achieves a very similar result. While reprocessing just the remaining CY 2022 claims would be less burdensome than reprocessing all claims back to 2018, it would still impose a large administrative burden on CMS, our contractors, and providers. Approximately two hundred million dollars worth of payments would have to be reprocessed, and, importantly, such an undertaking could cause an additional delay in making payments relative to the proposed lump sum payment methodology. Otherwise, the main practical difference between reprocessing the remaining CY 2022 claims or including them in the lump sum payment is whether providers can seek cost sharing payments from beneficiaries, as discussed above. But because we have increased the lump sum payment under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) to cover lost beneficiary cost sharing, we do not view that as a material difference between the options. Because including remaining CY 2022 claims in the one-time lump sum payment will provide nearly equivalent remedy funds to affected 340B covered entity hospitals, and will do so more quickly and efficiently than a mass reprocessing of all CY 2022 claims, we decline to treat remaining CY 2022 claims differently from other claims years.

3. Aggregate Hospital Payments From CY 2018 Through September 27th of CY 2022

In the proposed rule (88 FR 44083), we considered calculating one-time aggregate payment adjustments for each provider for the CY 2018 through September 27th of CY 2022 time-period, including both additional payments for 340B-acquired drugs and reduced payments for non-drug items and services under sections 1833(t)(2)(E) and 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(2)(E) and (t)(14)), along with our retroactive rulemaking authority in section 1871(e)(1)(A) of the Act (42

U.S.C. 1395hh(e)(1)(A)), to the extent the policy would be retroactive. This option would have involved: (1) calculating the total additional payments for each hospital that would have been paid for separately payable non-pass-through 340B-acquired drugs from CY 2018 through September 27th of 2022 in the absence of the 340B Payment Policy; (2) calculating the additional amount each hospital was paid under the OPPS from CY 2018 through CY 2022 for non-drug items and services as a result of the 340B policy; (3) subtracting (2) from (1); and (4) issuing a payment to, or requiring a recoupment from, each hospital for the 5-year period in which the 340B Payment Policy was in effect. This is similar to the approach we ultimately adopt in this rule, except that it would have effectively implemented budget neutrality requirements through an immediate lump sum

recoupment

that would mirror the lump sum remedy

payment.

While this approach would also have satisfied the statutory budget neutrality concerns discussed above, we did not read the statute to mandate such an inflexible approach in these circumstances.

Cf. Shands Jacksonville Med. Ctr., Inc.,

959 F.3d at 1120. (For further discussion of this point, see section II.B.1.a of this final rule.) Such an approach would require immediate, and in many cases large, retroactive recoupments from the majority of OPPS hospitals and would impose a substantial, immediate burden on these hospitals as well as an uncertain impact on beneficiaries. After accounting for these burdens, the financial strain many hospitals experienced during the recent COVID-19 public health emergency (hereinafter referred to as the “PHE”), and the amount of time that has transpired since the original payments for these drugs, items, and services were made, we decided not to propose this option as our suggested approach.

Comment:

Several commenters expressed general support for our decision not to propose a one-time aggregate payment adjustment for each provider.

Response:

We thank commenters for their support.

B. Remedy

1. Methodology for Calculating and Process for Remitting Remedy Payments to Affected 340B Covered Entity Hospitals for 340B-Acquired Drugs Furnished and Paid Adjusted Amounts Under the OPPS in CY 2018 Through September 27th of CY 2022

a. Statutory Authority

In the proposed rule (88 FR 44083), we stated that CMS believes that the best way to remedy our 340B Payment Policy for the period from CY 2018 through September 27th of CY 2022, which the Supreme Court found unlawful, would be to make one-time lump sum payments to affected 340B covered entity hospitals calculated as the difference between what they were paid for 340B drugs (ASP minus 22.5 percent or an adjusted WAC or AWP amount) during the relevant time period (from CY 2018 through September 27th of CY 2022) and what they would have been paid had the 340B Payment Policy not applied. We explained that this approach comes as close to providing 340B-covered entities with make-whole relief as CMS can reasonably accomplish, without the burden that would be associated with manually reprocessing all claims. Assuming hospitals properly assigned the billing codes discussed below when submitting their CY 2018 through 2022 claims, as they were required to do, CMS noted that it expects the remedy payment to each 340B covered entity for 340B-acquired drugs to be approximately the same as if CMS manually reprocessed those claims. Calculating the approximate repayment amount based on claims data is relatively straightforward administratively as it involves only an aggregated analysis of the claims in question, whereas reprocessing all claims requires significantly more administrative effort as the claims actually have to be individually reprocessed through the claims processing system. This is practically infeasible for the reasons discussed earlier in this rule. Please see the previous section titled “Full Claims Reprocessing from CY 2018 through September 27th of CY 2022” for additional detail.

We proposed to make the remedy payments relying principally on (1) our rate-setting authority under section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)); and (2) our equitable adjustment authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)). To the extent this rule is retroactive (in whole or in part), we explained that we would rely on our retroactive rulemaking authority in section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)).

First, we evaluated our authority under section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)). We pointed to the Supreme Court's holding that if CMS has not conducted a survey of hospitals' acquisition costs, the agency may not vary the payment rates for outpatient prescription drugs by hospital group. We acknowledged that because we did not use any survey of hospitals' acquisition costs when setting rates for 340B-acquired drugs between CY 2018 and September 27, 2022, it is necessary for the remedy to apply the default rate (generally ASP plus 6 percent) to comply with paragraph (14)(A)(iii) of section 1833(t) of the Act (42 U.S.C. 1395

(t)(14)(A)(iii)) for those years, as interpreted by the Supreme Court.

We then considered our authority to adjust the prior payment rate. We explained that section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)) prohibits a substantive change in regulations to items and services furnished before the effective date of the substantive change unless “such retroactive application is necessary to comply with statutory requirements” or the “failure to apply the change retroactively would be contrary to the public interest.” We explained that, assuming this remedy is viewed as a retroactive remedy (in whole or in part), it would also be necessary to use this retroactive rulemaking authority to implement the remedy by revising 340B payment rates for this prior period to comply with the Supreme Court's interpretation of the requirements of section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)).

But even if a retroactive rule were not necessary specifically to comply with section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)), we found that failing to apply the default rate retroactively would be contrary to the public interest in this specific situation in part because it would leave the plaintiff 340B hospitals paid at a substantially lower rate, due to the magnitude of payment, than we now understand to be proper under the statute. We found that the equities weigh in favor of a partially retroactive remedy here, because a significant number of plaintiff hospitals have been advocating for this current policy in court since we first announced our 340B Payment Policy for CY 2018 despite our view that there was no administrative or judicial review for such claims. The equities further align with a partially retroactive remedy, to the extent required, because the impact on the Part B Trust Fund will be

lessened as we are applying budget neutrality principles. We noted that the position of those plaintiff hospitals was ultimately vindicated by the Supreme Court.

We proceeded to consider our authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)), which requires the Secretary to, “establish, in a budget neutral manner, outlier adjustments . . . transitional pass-through payments . . . and other adjustments as determined to be necessary to ensure equitable payments, such as adjustments for certain classes of hospitals.” In this case, we proposed that the lump sum payment, calculated as the difference between what an affected 340B covered entity hospital received for 340B-acquired drugs during the time period at issue and what they would have received for 340B-acquired drugs if the 340B adjustment had not been in place, would be an equitable adjustment. We found that such an adjustment is necessary to ensure equitable payments to affected 340B covered entity hospitals by making them whole for the decreased payments for 340B-acquired drugs they received from CY 2018 through September 27th of CY 2022 that are no longer proper in light of the Supreme Court's decision. To the extent necessary, we explained we would apply the adjustment retrospectively in accordance with the Court's ruling and for the reasons discussed in the above paragraph.

We therefore proposed to use our authority under section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)) in conjunction with our equitable adjustment authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)), to accomplish an equitable outcome as we remedy past payments made under the 340B Payment Policy. To the extent necessary, we also proposed to use our retroactive rulemaking authority under section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)).

We solicited comment from the public on our proposed use of these authorities in the remedy policies discussed in the proposed rule. We also solicited comment on other possible authorities (including inherent authority or common law authority) that might also be applicable to the remedy policies discussed in the proposed rule or on which we could rely to make remedy payments.

We thank commenters for their input on our policy proposals. We have summarized the comments received and our responses to those comments in the following section.

Comment:

Nearly all commenters supported our proposal to pay via a one-time lump sum payment.

Response:

We appreciate commenters' support.

Comment:

Several commenters encouraged CMS and MACs to agree on documentation and treatment of these funds on cost reports, cost report audits, and subsequent Medicare payment adjustments and reviews.

Response:

We agree that it is important to coordinate with MACs to ensure consistent documentation and treatment of the one-time lump sum payments. These payments will not be made on cost reports. To ensure timely payment for all impacted providers, CMS shall issue guidance to all MACs to allow consistent documentation and tracking of the 340B payments.

Comment:

Two commenters opposed our proposal to pay via a one-time lump sum payment due to concerns that a massive influx of funds to 340B hospitals would enable those hospitals to further dominate local markets by purchasing independent community clinics and other hospitals. One of these commenters requested that repayments be spread out over time, suggesting 5 years for this time-period or, alternatively, 16 years to align it with the budget neutrality adjustment schedule discussed later in this rule. The other commenter suggested that CMS provide remedy funds for 2018 to 2020 and use a 340B drug acquisition cost survey to determine the remedy payments for subsequent years.

Response:

We appreciate commenters' concerns. As previously discussed, the aim of this rule is to situate all OPPS providers as closely as possible to the financial situation they would have been in if the 340B OPPS Payment Policy had never existed. Had we never implemented the 340B Payment Policy, hospitals would already have these payments. We thus believe the fairest policy is to pay hospitals as promptly as administratively feasible. We acknowledge that this means that until the budget neutrality adjustment is fully implemented, hospitals will temporarily have additional funds from our payments for non-drug services and items they would not otherwise have had. But commenters have not identified authority requiring us to withhold payments based on competition concerns once we have determined the amount due from Medicare. As such, we believe the payment timeline described in this rule is appropriate.

We acknowledge that we previously suggested that we might use our survey of CY 2018 and 2019 cost data to inform the remedy as discussed in the CY 2020 OPPS/ASC final rule with comment period (84 FR 61322). But as we subsequently noted, we received many comments on the survey data, and using that data, which surveyed only 340B hospitals, might not comport with the Supreme Court's decision. Using it would introduce new complexities into the rate calculation, for instance, by requiring consideration of adjustments to the data and other factors as discussed in the CY 2021 OPPS/ASC final rule with comment period (85 FR 86052). We do not believe it is worth delaying the remedy payments to allow for such considerations or for us to conduct a new survey many years after the fact.

Comment:

We received many comments on the statutory authority we proposed to rely upon to make lump sum payments. While nearly all commenters supported our proposal to implement this remedy via a one-time lump sum payment, industry commenters disagreed with our proposal to rely on sections 1833(t)(14) and (t)(2)(E) of the Act (42 U.S.C. 1395

(t)(14) and (t)(2)(E)) to do so. Many of these commenters argued that these statutory provisions do not apply to the remedy payments. These commenters stated that CMS is attempting to rely on statutes designed for, and limited to, making prospective adjustments to spending estimates, or discretionary adjustments based on equity to make remedy payments required by the Supreme Court's decision.

With respect to section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)), these commenters maintained that the expenditures to which the statute applies do not contemplate court-ordered remedy payments. Referencing the text of section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)), “[a]dditional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion, weighting, and other adjustment factors for 2004 and 2005 under paragraph (9), but shall be taken into account for subsequent years,” these commenters argue that the proposed lump-sum payment is neither an “additional” expenditure nor an expenditure “resulting from this paragraph.” In their view, there is nothing additional about the lump sum payment, it is what 340B hospitals should have been paid in the first place and the payment is not being made as a result of this paragraph but rather the agency's loss of a court case. One commenter argued that the additional expenditures are those that could result from CMS electing to refine its payment methodology as permitted

under section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)). The commenter shared that this means performing a survey and changing the drug payment methodology or refining the overhead cost payment. In this case, they stated that the additional expenditures are neither of these and are instead “a loss at the Supreme Court, not a payment methodology refinement.”

With respect to section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)), which provides the Secretary with the authority to establish, “in a budget neutral manner, outlier adjustments . . . and transitional pass-through payments . . . and other adjustments as determined to be necessary to ensure equitable payments,” commenters argued that this provision is not applicable to the remedy payments because, in their view, CMS is not exercising any payment discretion (but is required to make the payments) and the payments are not being made for equitable reasons (but to comply with a court judgment) and, like section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)), the provision is purely prospective in nature. Commenters suggested that in the introductory text of subsection section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)), “under the payment system” refers to the prospective payment system addressed in section (t) as a whole: “Prospective Payment System for Hospital Outpatient Department Services” and section 1833(t)(2)(E) of the Act's inclusion within that system prohibits its use for recoupments. One commenter argued that CMS construes “adjustment” too broadly and that its meaning under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) refers to outliers and transitional pass-through payments, which the commenter characterizes as “cornerstone features” of the outpatient prospective payment system.

Many commenters argued that if section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) did apply to the proposed lump sum payments, that the amount of the payments is too large to qualify as an adjustment under the statute. In support of this position, these commenters referenced

Biden

Nebraska,

143 S. Ct. 2355, 2368 (2023), which interpreted the term “modify” in a different statute to mean “to change moderately and in minor fashion.” According to the commenters, the D.C. Circuit has interpreted HHS's adjustment authority to have the same limits that the Supreme Court found in the word “modify” in other contexts, and the remedy payment here is too large to qualify.

See Amgen, Inc

Smith.,

357 F.3d 103, 117 (D.C. Cir. 2004). These commenters agreed that CMS may use section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) to increase the remedy payments by $1.8 billion (the amount of beneficiary cost sharing).

Response:

We continue to believe that we should rely on sections 1833(t)(14) and (t)(2)(E) of the Act (42 U.S.C. 1395

(t)(14) and (t)(2)(E)) to make these remedy payments. No commenter identified any alternate statutory authority on which we could rely, and we disagree with commenters' arguments that these provisions are inapplicable. While we agree that section 1833(t) creates a prospective payment system,

see

section 1833(t)(1)(A) of the Act (42 U.S.C. 1395

(t)(1)(A)), the Supreme Court declined to find this fact foreclosed all retrospective review.

Cf. Am. Hosp. Ass'n

Becerra,

Br. for Respondents at 21-22 (government brief arguing the statute foreclosed “'administrative or judicial review of the prospective payment system,' ” and noting invalidation of an OPPS component “ `could result in the retroactive ordering of payment adjustments' ” (quoting H.R. Rep. No. 149, 105th Cong., 1st Sess. 724 (1997) (House Report)

and Amgen, Inc.,

357 F.3d at 112)). Indeed, at least one court has rejected an argument that CMS lacks the authority to make retroactive adjustments when required to comply with other provisions in section 1833(t) of the Act (42 U.S.C. 1395

(t)).

See H. Lee Moffitt Cancer Ctr. & Rsch. Inst. Hosp., Inc.

Azar,

324 F. Supp. 3d 1, 16 (D.D.C. 2018) (“HHS has not shown that such a retroactive adjustment would be incompatible with the generally prospective nature of OPPS.”).

We disagree with commenters that stated that a court has “ordered” payments, or that court-ordered payments necessarily fall outside of section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)). No court has yet weighed in on the appropriate remedy, much less ordered any particular payment.

See, for example, Am. Hosp. Ass'n,

2023 WL 143337, at *3 (rejecting argument that court should order agency to “repay[] those hospitals that were unlawfully underpaid, from 2018 to the present, the difference between what they were paid and ASP plus 6%”).

We also disagree that our remedy payment is not “equitable” within the meaning of section (t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) simply because it remedies legal error. Ensuring that providers are paid according to Congress' policy judgments is a legitimate way to ensure fairness, in the most common meaning of the term “equitable.” Indeed, to the extent the term “equitable” under section (t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) might be informed by courts' historic equitable authority, the fact that we are seeking to restore parties to as close a state as they would have been without the now-invalidated 340B Payment Policy makes the rule analogous to historic equitable remedy of recession and restitution.

See

Restatement (Third) of Restitution and Unjust Enrichment section 54 (2011) (“[T]he expression “rescission and restitution” aptly describes cases in which the claimant may be restored to the status quo ante by obtaining the fungible equivalent of personal property previously transferred to the other party.”).

Nor do we agree with commenters that this rule exceeds our statutory authority to make “adjustments” to the payment system “as determined to be necessary to ensure equitable payments” under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)). Both the Supreme Court and the D.C. Circuit have declined to define the outer bounds of that term.

See Am. Hosp. Assoc'n,

142 S. Ct. at 1904 (“[W]e need not determine the scope of HHS's authority to adjust the price up or down.”);

Amgen, Inc.,

357 F.3d at 117 (“[T]he court has no occasion to engage in line drawing to determine when `adjustments' cease being `adjustments.' ”). While we acknowledge that the Supreme Court has held that in certain contexts the statutory authority to “modify” a program limits the amount by which an agency can change the program, we believe the statutory term “adjustment” has a different focus here. For example, in

Nebraska,

when construing the term “modify,” the Supreme Court relied in part on Black's Law Dictionary's definition of modify which built in “a connotation of increment or limitation.” 143 S. Ct. at 2368 (citing MODIFY, Black's Law Dictionary (11th ed. 2019) (“To make somewhat different; to make small changes to (something) by way of improvement, suitability, or effectiveness”).) But that same dictionary defines “adjustment” to focus on adapting something to better apply in a particular circumstance. ADJUSTMENT, Black's Law Dictionary (11th ed. 2019) (“That which adapts one thing to another or to a particular use”). We therefore believe our adjustment authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(2)(E)) fairly encompasses adapting generally prospective payments to remedy legal errors made in those payments. And even if adjustment carries a connotation

of increment or limitation, the 28.5 percent adjustment this final rule makes to the payments made to hospitals for 340B-acquired drugs would not exceed it. The cases in which the Supreme Court has found that agencies exceeded their modification authority are those where the Court found that there was a change in kind to the affected program, not simply a change in degree.

See Nebraska,

143 S. Ct. at 2369 (changes exceeded modification authority when agency “created a novel and fundamentally different loan forgiveness program”);

MCI Telecommunications Corp.

Am. Tel. & Tel. Co.,

512 U.S. 218, 230 (1994) (changing statute “from a scheme of rate regulation in long-distance common-carrier communications to a scheme of rate regulation only where effective competition does not exist” exceeded modification authority);

cf. also Amgen, Inc.,

357 F.3d at 117 (adjustment does not include a “total elimination or severe restructuring of the statutory scheme”). Here, CMS is adjusting payment rates back to their default under the statute. Restoring a default payment provision is the opposite of the implementation of “a new regime entirely” that the Supreme Court has invalidated.

We acknowledge that we are in a somewhat unique situation. We have generally operated the OPPS system based on a belief that its prospective payments were insulated from administrative and judicial review. In light of the Supreme Court's decision, however, we must find a way to reconcile a primarily

prospective

budget neutral rate-setting system with adjudication processes that are generally

retrospective

in nature. Here, it is enough for us to find that sections 1833(t)(14) and (t)(2)(E)—and section 1871(e)(1)(A), to the extent required—authorize us to correct the legal error identified by courts in our prior payments under section 1833(t)(14).

Comment:

One commenter argued that CMS could not rely on its retroactive rulemaking authority under section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)), in conjunction with sections 1833(t)(2)(E) and (t)(14) of the Act (42 U.S.C. 1395

(t)(2)(E) & (t)(14)), to make the remedy payments because section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)) prohibits retroactive rulemaking except for two limited exceptions, neither of which apply to the remedy payments. The first exception cited by the commenter applies to situations in which “retroactive application is necessary to comply with statutory requirements” (see section 1871(e)(1)(A)(i) of the Act) (42 U.S.C. 1395hh(e)(1)(A)(i)) and the second to situations in which “failure to apply the change retroactively would be contrary to the public interest” (see section 1871(e)(1)(A)(ii) of the Act (42 U.S.C. 1395hh(e)(1)(A)(ii)). Concerning the first exception, the commenter contends that the proposed rule discusses retroactive rulemaking authority only with respect to the drug payment methodology for 340B-acquired drugs and makes no argument that payments for non-drug items and services may be changed retroactively or that CMS may retroactively re-estimate its budgetary projections from 2018. The commenter concludes that because the OPPS is expressly required to be prospective in nature, “retroactive adjustments” to past years' payment rates are not “necessary to comply” with statutory requirements of the OPPS. Concerning the second exception, the commenter argues that it is not in the public interest to engage in the retroactive adjustment of prospective payment rates (particularly when doing so would upset the reliance interest of all hospitals with respect to payment for non-drug items and services) when make-whole relief can be implemented without revisiting 2018 through 2022 OPPS rates.

Response:

We disagree with the commenter that the OPPS's generally prospective nature implicitly overrides CMS's retroactive rulemaking authority under section 1871(e) of the Act (42 U.S.C. 1395hh(e)). The Supreme Court held (in 2022) that we lacked authority (in 2018) under section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)) to set a payment rate of ASP-22.5 percent for 340B-acquired drugs absent a drug acquisition cost survey. Thus, to the extent we are acting retrospectively in this rule, conforming payment rules that are still on the books and still contain a payment rate contrary to the requirements of section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)) would be a classic case where retroactive rulemaking would be “necessary to comply” with statutory requirements. As noted above, courts have rejected the argument that because section 1833(t) of the Act (42 U.S.C. 1395

(t)) establishes a prospective payment system, that system is not subject to any retrospective review or amendment. And because the payment

increases

for non-drug items and services for those years were inextricably linked to the illegal payment

decreases

for 340B-acquired drugs, the same reasoning would apply. We are not, as commenter suggests, re-estimating our budget projections—a point we also discuss below in section II.B.2. Rather, we are unwinding a payment rate that courts held was illegal.

We also disagree with the commenter's public interest argument. As noted above, commenters have not identified any authority through which we could implement make-whole relief without relying on sections 1833(t)(14) or (t)(2)(E) of the Act (42 U.S.C. 1395

(t)(14) and (t)(2)(E)). And we disagree that hospitals' reliance interest undermines our interpretation here. Hospitals were aware that we believed their increased payments for non-drug items and services hinged on the payment decreases for 340B-acquired drugs. (No one, for example, has suggested we could retain the 3.19 percent payment increase in CY 2023 once we reverted to an ASP plus 6 percent payment rate for 340B acquired drugs.) Hospitals successfully convinced courts that those payment decreases are illegal, and it thus follows that the intertwined payment increases were unwarranted under the statute, as well. If the payment increases were not removed, the remedy payments would ultimately come from beneficiaries, taxpayers, or some combination of the two. The commenter's suggestion would effectively involve at least a $9 billion transfer from beneficiaries and taxpayers to hospitals, which would be inappropriate especially in a system where budget neutrality requirements generally prevent such transfers.

Comment:

Many commenters claimed that CMS does not require any statutory authority to make the remedy payments and that it can make the payments using an “acquiescence authority.” Commenters point to past instances in which CMS has allegedly exercised the posited acquiescence authority, including Administrator rulings,

manual updates,

settlements with hospitals

and the processing and reprocessing of CY 2022 340B drug claims at the default drug rate for dates

of service between January 1, 2022, and September 27, 2022, described in the proposed rule (“a large portion of the CY 2022 340B drug claims for dates of service between January 1, 2022, and September 27, 2022, have already been remedied as a result of being processed or reprocessed at the default drug payment rate.”).

Commenters argue that we are ignoring this acquiescence authority in order to justify the budget neutrality policy we discuss later in section II.B.2 of this final rule.

See CMS Ruling No. 1498-R.(Apr. 28, 2010).

https://www.cms.gov/regulations-and-guidance/guidance/rulings/downloads/cms1498r.pdf

See also CMS Ruling No. 1355-R.(Apr. 14, 2011).

https://www.cms.gov/Regulations-and-Guidance/Guidance/Rulings/downloads/cms1355r.pdf

See CMS Pub. 100-20, Transmittal No. 10520 (Dec. 14, 2020).

https://www.cms.gov/files/document/r10520otn.pdf

See HealthAlliance Hospitals, Inc. v. Azar, 346 F. Supp. 3d 43 (D.D.C. 2018); see also Clerk's Orders Granting Extensions To Accommodate Pending Mediation, dated March 26, 2019, April 18, 2019, and June 13, 2019, HealthAlliance Hosps., Inc. v. Azar, No. 18-5372 (D.C. Cir.); Joint Stipulation of Dismissal dated August 29, 2019, HealthAlliance Hosps., No. 18-5372 (D.C. Cir.).

See Cape Cod Hospital v. Sebelius, 630 F.3d 203 (D.C. Cir. 2011); see also 76 FR. 51476, 51799 (Aug. 18, 2011).

See proposed rule at 88 FR 44088 (Nov. 13, 2017).

Response:

We have previously explained that acquiescence is a choice by an agency, when faced with a lower court decision disagreeing with the agency's legal interpretation, to “recognize that court's interpretation and apply the court's interpretation uniformly, thereafter, within the jurisdictional bounds of the interpreting court.”

In the Case of: St. Vincent Mercy Medical Center Provider

Blue Cross Blue Shield Association/national Government Services—Ohio Intermediary,

2008 WL 6468508, at *9 (CMS Adm'r) (acquiescing to circuit court's interpretation of law for providers within the jurisdictional bounds of the deciding court). That makes the acquiescence doctrine an awkward fit here because it is most often applied to rulings from circuit courts, whose precedential authority is geographically limited and whose legal interpretations are subject to further review. The Supreme Court is not so limited, and its statutory interpretations are generally binding on parties with pending claims.

See Harper

Virginia Dep't of Tax'n,

509 U.S. 86, 97 (1993) (“When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review.”).

Regardless, we do not understand acquiescence to be an independent source of authority or one that frees us from otherwise applicable statutory constraints, as commenters believe. Commenters' examples do not suggest otherwise. The cited Administrator rulings were routine applications of judicial precedent to pending administrative appeals.

See

CMS Ruling No. 1498-R, at 6 (Apr. 28, 2010) (limiting relief to providers with “properly pending DSH appeal of the SSI fraction data matching process issue” under section 1869 of the Act (42 U.S.C. 1395ff)); CMS Ruling 1355-R, at 8 (limiting relief to providers with “properly pending appeals” under section 1878 of the Act (42 U.S.C. 1395oo)). Such actions are contemplated by the agency's authority to “affirm, modify, or reverse” in pending adjudications.

See

section 1869(b)(1) of the Act (42 U.S.C. 1395ff(b)(1)) (incorporating authority under section 205(b) of the Act (42 U.S.C. 405(b)); 1878(f)(1) of the Act (42 U.S.C. 1395oo(f)(1) (same)). The decisions cited by commenters never suggest that we could issue payments that violate statutory limitations, nor have commenters identified any statutory limitations those decisions allegedly violated.

Neither payment adjustment in the two cited rulings, for example, were subject to a budget neutrality requirement.

See, for example,

2014 IPPS Final Rule, 78 FR 50496, 50507 (2013) (noting statutory amendments resulting in reductions to DSH payments “are not budget neutral”); Medicare Program; Hospice Wage Index for Fiscal Year 2010, 74 FR 39384, 39390-91 (2009) (rejecting notion that “Medicare insists on budget neutrality in all of its payment systems”). To the contrary, several of the cited examples show that CMS enforces payment limits in prospective payment systems, even when acting retroactively or in response to disagreement by a court.

See

CMS Pub. 100-20, Transmittal No. 10520 (Dec. 14, 2020) (instructing contractors to recalculate graduate medical education payments to comply with annual payment caps under section 1886(

) of the Act (42 U.S.C. 1395ww(

));

76 FR 51476, 51788 (addressing payment issue relating to application of budget neutrality adjustment after court decision in

Cape Cod Hospital

Sebelius,

630 F.3d 203 (D.C. Cir. 2011) by “remodel[ing] the recalibration/wage index budget neutrality factor for the years at issue”);

accord

Medicare Program; Changes to the Inpatient Hospital Prospective Payment System and Fiscal Year 1991 Rates, 55 FR 35990, 36043 (1990) (“Absent a retroactive budget neutrality adjustment at the beginning of next fiscal year, we believe that we would be precluded from making mid-year corrections to the wage index since they could not be accomplished in a budget neutral fashion as required by law.”).

We understand our approach to remedies to be consistent with how courts view their own remedy authority.

See, for example, Off. of Pers. Mgmt.

Richmond,

496 U.S. 414, 426 (1990) (“[J]udicial use of the equitable doctrine of estoppel cannot grant respondent a money remedy that Congress has not authorized.”);

Am. Hosp. Ass'n

Price,

867 F.3d 160, 167 (D.C. Cir. 2017) (“[I]f the necessary means [to remedy a legal violation by an agency] were unlawful, the Court could not have mandated them.”).

We continued to enforce retroactively the payment limitations in section 1886(

) of the Act (42 U.S.C. 1395ww(

)) until Congress stepped in to relieve us of that requirement.

See

CAA 2023, sec. 4143.

To be sure, the court in

H. Lee Moffitt Cancer Center

Azar,

324 F. Supp. 3d 1 (D.D.C. 2018), noted one prior instance where we had missed a small number of hospitals in our first year implementing budget neutral payment adjustments for certain rural hospitals and did not clearly budget neutralize a retroactive adjustment.

Id.

at 15 (citing 71 FR 67960, 68010). That court acknowledged that CMS had previously “temporarily raised prospective rates in order to make up for reductions applied in prior years” and so saw “no reason why HHS could not do the converse here if it believed offsets were required: make a slight reduction in prospective rates for a future year to accommodate a retroactive adjustment” for the single plaintiff hospital.

Id.

at 17 n.5. In any event, both the rural hospital adjustment issue and the cancer hospital issue involved relatively small adjustments to a single year of payments to a very limited number of providers, and one situation involved resolution through settlements with individual providers that had properly appealed the issue. When the additional rural hospitals (rural essential access community hospitals) were included in the rural hospital adjustment, the entire adjustments changed the budget neutrality factor by approximately 0.00002, which is so small of a change that it would only change payment rates by a fraction of a cent, and likely not change payment rates by a penny. (71 FR 68003). And while all eleven cancer hospitals impacted the budget neutrality factor by 0.0022 the year they were added—reflecting a total of $71 million of payment impact (76 FR 76,190)—only a few ultimately sued over the payments and the government resolved the matters through settlements with individual providers.

See H. Lee Moffitt,

324 F. Supp. 3d at 9 (estimating $7.4 million payment impact for plaintiff hospital). These are the types of

de minimis

impacts that CMS has rounded to zero. We do not believe these two much smaller examples relieve us of our statutory obligations here, which involve several billion dollars and more than 3,600 hospitals, restructuring Medicare Part B payments for these drugs payments across 5 years-worth of claims. As we noted in the proposed rule, we are particularly concerned that adopting providers' position would allow them to use litigation as a workaround to otherwise applicable constraints on Medicare payments and

threaten Congress' control of the Federal budget.

Adhering to the usual statutory constraints on our rulemaking authority under section 1833(t) of the Act (42 U.S.C. 1395

(t)) is particularly appropriate here when we are implementing a remedy through rulemaking rather than adjudication or resolving a matter through settlement. Following judicial interpretations does not necessarily entitle parties without jurisdictionally proper active challenges to have that interpretation applied to prior years' payments.

See

42 CFR 405.986(b) (change in legal interpretation based on judicial decision not good cause to reopen adjudications);

see also Baptist Mem'l Hosp.

Sebelius,

603 F.3d 57, 64 (D.C. Cir. 2010) (denying mandamus to party who sought application of favorable judicial interpretation to prior payment years without pending appeals). Parties who chose to sit on the sidelines might benefit

prospectively

from a change in legal interpretation based on a court ruling, but nothing requires an agency affirmatively to reach back and disturb the finality of payment determinations that providers never properly challenged.

See Grant Med. Ctr.

Hargan,

875 F.3d 701, 707 (D.C. Cir. 2017) (“[W]e

never

require agencies to apply rules retroactively even where it would be permissible for them to do so.” (emphasis in original));

see also See Your Home Visiting Nurse Servs., Inc.

Shalala,

525 U.S. 449, 455 (1999) (holding that “agency's refusal to reopen a closed case is generally `committed to agency discretion by law' and therefore exempt from judicial review”); 42 CFR 405.986.

Despite these well-established principles, Congress has recognized that sometimes an agency might decide that finality should yield to other policy considerations, including by giving the agency the flexibility to issue retroactive rules in certain circumstances.

See

section 1871(e) of the Act (42 U.S.C. 1395hh(e)). As we explained in the proposed rule, that threshold has been met here, at least to the extent this rule is retroactive. We add that the same principles that sometimes justify acquiescing to a circuit court outside of that court's jurisdictional bounds also supports our choice to apply the Supreme Court's interpretation of section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)) to parties who lack pending claims for those payment years and thus are outside the bounds of the Supreme Court's judgment. Doing so in this case will help to promote uniform treatment of parties under the law and save the government and regulated parties from uncertainty and litigation costs. We find particularly compelling the fact that we repeatedly stated our view that the preclusion provisions in section 1833(t)(12) of the Act (42 U.S.C. 1395

(t)(12)) foreclosed any administrative or judicial review, a position with which the Supreme Court ultimately disagreed. Given the unique circumstances of this case, we believe extending the remedy to the entire industry through rulemaking properly balances the agencies and parties' interest in finality and Congress' control of the Federal budget with uniformity and litigation costs.

Comment.

One commenter suggested we view the payment through the lens of monetary damages to make 340B providers whole, suggesting that this is an inevitable consequence of losing a court case.

Response.

We appreciate this commenter's transparency in identifying that the make-whole payments that many commenters are requesting are in fact money damages. But we disagree that money damages are appropriate here. Providers sued under section 1869 (42 U.S.C. 1395ff) of the Social Security Act, which authorizes both courts and the agency to “affirm[], modify[], or revers[e]” administrative decisions on individual requests for payment under section 205(b) or (g) of the Act (42 U.S.C. 405(b) or (g)). Because the Social Security Act does not authorize money damages, we do not believe that is the correct framework to understand the remedy here.

Cf. Schweiker

Chilicky,

487 U.S. 412, 424 (1988) (“[T]he [Social Security] Act, however, makes no provision for remedies in money damages against officials responsible for unconstitutional conduct that leads to the wrongful denial of benefits.”). Indeed, even when money damages are appropriate, courts have suggested the goal is to place plaintiffs in the same position as they would have been absent any breach, suggesting the windfall payments for non-drug items and services would need to be deducted from any recovery, regardless.

See Cmty. Health Choice, Inc.

United States,

970 F.3d 1364, 1375-1376 & n.10 (Fed. Cir. 2020) (“[W]hen the non-breaching party indirectly benefits from the defendant's breach, `in order to avoid overcompensating the promisee, any savings realized by the plaintiff as a result of the . . . breach . . . must be deducted from the recovery.' ”).

After consideration of comments received, and for the reasons stated in our proposed rule and in this final rule, we are finalizing our proposed policy as proposed. In particular, we are finalizing our proposal to make lump sum payments, calculated as the difference between what an affected 340B covered entity hospital received for 340B-acquired drugs during the time period at issue and what they would have received for 340B-acquired drugs if the 340B adjustment had not been in place, as detailed further below. We are doing so for the reasons stated in our proposed rule and in this final rule.

We note that because we are finalizing our proposal to remedy the 340B drug payments through lump sum payments, we must also address the non-drug item and services payment made from CY 2018 through CY 2022 as detailed in subsequent sections of this final rule. We note that because OPPS 340B drug payment is directly and inextricably linked to the OPPS payment for non-drug items and services, if the 340B drug payments are invalidated and must be remedied, then the increased payments for non-drug items and services are invalidated and must be remedied as well. But for the reductions in the 340B drug payments, the increased payments for the non-drug items and services would not have been put into effect.

b. Estimated Reduction in Drug Payments to Affected 340B Covered Entity Hospitals in CY 2018 Through September 27, 2022

An estimated 1,686 340B covered entity hospitals were paid at the 340B payment rate, which was generally ASP minus 22.5 percent for 340B-acquired drugs for CY 2018 through September 27th of 2022, rather than the default rate, which is generally ASP plus 6 percent, due to the 340B Payment Policy. In the proposed rule, CMS estimated that these hospitals received approximately $10.5 billion less in 340B drug payments (including money that would have been paid by Medicare and money that would have come from beneficiaries as copayments) than they would have for drugs provided in CY 2018 through September 27th of 2022 had the 340B policy not been implemented. In the proposed rule (88 FR 44084), we stated that we would update these estimated figures in the final rule as we continued to receive updated CY 2022 claims data. In the proposed rule, we expected to have sufficient CY 2022 340B drug claims at issue submitted by September 27, 2023; therefore, by the publication date for the final rule, we estimated we would have sufficient claims data to state with more specificity the reduction in drug payments to affected 340B covered entity hospitals in CY 2018 through September 27, 2022. As discussed in the proposed rule, we estimated that 340B

providers had already received $1.5 billion in remedy payments through reprocessed claims for 340B drugs provided from January 1, 2022, through September 27, 2022. Accordingly, we estimated in the proposed rule that the remaining remedy amount that affected 340B covered entity hospitals had not yet received as a result of this policy was $9.0 billion.

We noted that the additional amount CMS pays affected 340B covered entity hospitals through this remedy could decrease if additional CY 2022 claims are processed at the higher payment rate, as discussed under section I.C of this final rule. As previously explained, the agency complied with the District Court's September 28, 2022, decision by paying the default rate (generally ASP plus 6 percent) for all CY 2022 claims for 340B-acquired drugs paid from September 28, 2022, onward. However, as some affected 340B covered entity hospitals are still filing, or re-filing, claims for CY 2022, we are paying those claims at the higher default payment rate for drugs, which is generally ASP plus 6 percent. Therefore, we advised that our estimate of the total amount of additional drug payments that would be made through this remedy could change as more claims from CY 2022 are processed, or reprocessed, at the default payment rate of ASP plus 6 percent.

In the proposed rule, we calculated the estimated aggregate payments by isolating 340B drugs assigned status indicator “K” (non-pass-through drugs and non-implantable biologicals, including therapeutic radiopharmaceuticals) and billed with modifier “JG” (drug or biological acquired with 340B Program discount, reported for informational purposes). We then calculated the difference between these drugs' CY 2018 through 2022 340B payment rate and the 340B rate proposed in the proposed rule, which was generally the difference between ASP minus 22.5 percent and ASP plus 6 percent. We used a similar process to estimate aggregate payments owed for drugs with payment amounts based on WAC or AWP. In particular, for drugs priced using WAC, we calculated the difference between WAC minus 22.5 percent and WAC plus 3 or 6 percent, as applicable; and for drugs priced using AWP, we calculated the difference between 69.46 percent of AWP and 95 percent of AWP. We note that the WAC and AWP based payment rates outlined in this paragraph are the common longstanding default OPPS drug payment rates if ASP data are not available.

We invited comment on this proposed methodology of estimating the reduction in drug payments to affected 340B covered entity hospitals in CY 2018 through September 27, 2022.

We thank commenters for their input on our policy proposals. We have summarized the comments received and our responses to those comments in the following section.

Comment:

Most commenters generally agreed with our methodology to calculate what 340B covered entity hospitals would have received. Commenters generally requested that we update our calculations for the final rule.

Response:

We thank commenters for their support.

As stated in the proposed rule and as requested by commenters, we updated these calculations using claims data available (CMS Common Working File (CWF) CWF2023w38, processed by 09/22/2023) as of the publication of this final rule. Our updated claims data reflects that these hospitals received an estimated $10.6 billion less in 340B drug payments (including money that would have been paid by Medicare and money that would have come from beneficiaries as copayments) than they would have for drugs provided in CY 2018 through September 27th of 2022 had the 340B policy not been implemented.

Additionally, we now estimate that $1.6 billion of the total $10.6 billion that we calculated affected 340B covered entity hospitals did not receive as a result of the 340B Payment Policy has already been remedied through reprocessed claims. Accordingly, we estimate the remaining remedy amount that affected 340B covered entity hospitals have not yet received as a result of this policy is $9.004 billion, which has changed from the estimated $9.003 billion amount that was included in the proposed rule. This change is due to additional CY 2022 claims that have been reprocessed as well as an adjustment made based on a comment received as described in section II.B.1.F of this final rule. For simplicity, we refer to this number as $9.0 billion throughout this document.

After consideration of comments received, and for the reasons stated in our proposed rule and in this final rule, we are finalizing our methodology of estimating the reduction in drug payments to affected 340B covered entity hospitals in CY 2018 through September 27, 2022, as proposed. Accordingly, as described in more detail later and in Addendum AAA, we will make total lump sum payments in the amount of $9.004 billion as a result of this final rule. We continue to round our lump sum payment to $9.0 billion for purposes of this final rule discussion for ease of reference, but the exact unrounded amount will be the total amount paid to hospitals.

c. Methodology for Calculating Remedy Payments Owed to Each Affected 340B Covered Entity Hospital

We proposed the following process for calculating the amount of payment owed to each affected 340B covered entity hospital and issuing that payment. For each affected 340B covered entity hospital, we proposed to calculate the amount the hospital would have been paid under the OPPS from CY 2018 through September 27th of CY 2022 for drugs the hospital acquired through the 340B Program had that 340B adjustment not been in effect. We would then subtract from this amount the amount each affected 340B covered entity hospital was paid under the OPPS for 340B-acquired drugs during the period of CY 2018 to September 27th of CY 2022.

When added to the adjusted amount paid under the OPPS from CY 2018 through September 27th of CY 2022 for separately payable drugs acquired under the 340B Program, this proposed additional lump sum payment amount would result in the affected 340B covered entity hospital receiving the default ASP plus 6 percent rate (or WAC plus 3 or 6 percent or 95 percent of AWP, as applicable) for drugs acquired under the 340B Program for CY 2018 through September 27th of CY 2022.

We illustrated the proposed process for calculating and paying an affected 340B covered entity hospital's additional lump sum OPPS payments for 340B drugs furnished from CY 2018 through September 27th of CY 2022 in the following example. We explained that using claims data from CY 2018 through September 27th of CY 2022 for which those claims have been processed and OPPS payments already made, we might calculate that a particular 340B-covered entity hospital would have been paid, for example, an estimated $10 million for 340B drugs had the 340B Payment Policy not been in effect during that time period. Then, based on claims data for the same hospital from the same time period, we might calculate that the hospital was actually paid $7.31 million for 340B drugs from CY 2018 through September 27th of CY 2022. In that circumstance, we explained that the 340B covered entity hospital would receive as a lump sum payment $2.69 million,

i.e.,

the difference between these two amounts. We noted that another way to illustrate our estimate of the total amount an affected 340B covered entity hospital would have been paid had the 340B Payment Policy not been in effect (X) is to use the following formula:

X = (Y/0.775)*1.06

Where Y is the total amount received under the 340B policy from CY 2018 to September 27th of CY 2022.

We noted that in the example above, the Y would be $7.31 million. Therefore, ($7.31 million/0.775)*1.06 = $10 million. The lump sum payment would be $10 million minus $7.31 million, which equals $2.69 million. We solicited comment on our proposed calculation methodology for calculating remedy payments owed to each affected 340B covered entity hospital.

We thank commenters for their input on our policy proposals. We have summarized the comments received and our responses to those comments in the following section.

Comment:

All commenters who addressed the issue supported CMS's proposed methodology for calculating remedy payments. The commenters agreed that the methodology minimizes the administrative burden and complexities of reprocessing claims for hospitals and CMS. In addition, the commenters supported the proposed methodology because the lump sum payment would be an efficient method that could be completed in a shorter timeline than alternatives like an adjustment to prospective payments.

Response:

We appreciate commenters' support.

After consideration of comments received, and for the reasons stated in the proposed rule and this final rule, we are finalizing our methodology to calculate the remedy payments owed to each affected 340B covered entity hospital as proposed.

d. Instruction to MACs To Remit Remedy Payments

Consistent with our past practice of remitting payments owed due to litigation, we proposed to make additional payments to each 340B covered entity hospital by issuing instructions (such as a Change Request (CR) or a Technical Direction Letter (TDL)) to the 340B covered entity hospital's Medicare Administrative Contractor (MAC), instructing the MAC to issue a one-time lump sum payment to the hospital in the amount calculated using the above described methodology within a specified timeframe, which we proposed would be within 60 calendar days of the MAC's receipt of the instruction. For instance, in the example above, CMS would issue instructions to the relevant MAC instructing it to issue a payment to the 340B covered entity hospital in the amount of $2.69 million within 60 calendar days of the MAC's receipt of the instructions. (We noted that MACs will continue to follow normal accounting processes for collecting repayment amounts that are the result of provider-specific overpayment obligations, as well as other unique situations such as provider bankruptcy or payment suspension, any of which may impact the provider's net payment amount.) We solicited comment from the public on our proposed approach to remitting remedy payments. We specifically sought comment on the timeframe of 60 calendar days in which we proposed to have the MACs make the proposed lump sum payments. Given the number of one-time lump-sum payments to hospitals, the size of the payments, and the overall complexity of this remedy, we believed 60 calendar days was necessary for the MACs to make these payments accurately and precisely to individual hospitals. We sought comment on this timeframe and if another timeframe, such as 30 calendar days, was supported by rationale from commenters.

We thank commenters for their input on our policy proposals. We have summarized the comments received and our responses to those comments in the following section.

Comment:

Most commenters supported CMS's proposal for MACs to issue a one-time lump sum payment to affected 340B covered entity hospitals within 60 calendar days of the MAC's receipt of the instruction from CMS to make the payment. Many of these commenters emphasized that MACs should begin processing payments upon receipt of CMS instructions rather than waiting until the end of 60 days to start doing so. These commenters also requested that CMS require MACs to submit weekly updates to CMS on the status of the payments.

Response:

We thank these commenters for their support of the 60-calendar day payment timeframe. We agree with commenters that MACs should begin processing payments when they receive our instructions, but no payments may be transmitted before this final rule is effective.

See

5 U.S.C. 801(a)(3). Additionally, CMS will submit instructions to MACs after the deadline to submit requests for technical corrections under the process detailed in subsequent sections. We also agree that MACs should update us about the status of the payments; however, we will defer to the MACs to make communications to CMS following their standard communication practices.

Comment:

A commenter encouraged CMS to clarify with MACs a process to ensure hospitals are paid the full amount provided by CMS without delay, bypassing the normal accounting processes discussed in the proposed rule. This commenter expressed concern that allowing MACs to withhold payment would result in disputes between providers and MACs and unreasonably delay payments due to providers. The commenter recommended that CMS clarify that MACs must pay the amount specified by the agency and not permit MACs to withhold payment.

Response:

We share the commenter's concern with providing the lump-sum payments quickly and efficiently. We make these payments under sections 1833(t)(14), 1833(t)(2)(E), and (as applicable) section 1871(e) of the Act (42 U.S.C. 1395

(t)(14) and (t)(2)(E) and 42 U.S.C. 1395hh(e)(1)(A)); we do not believe they are somehow different in kind from other Medicare payments made under those authorities in a way that justifies exempting them from MACs' usual procedures. As such, MACs will continue to follow normal accounting processes for collecting repayment amounts that follow from provider-specific overpayment obligations, as well as other unique situations such as provider bankruptcy or payment suspension, any of which may impact the provider's net payment amount.

Comment:

Multiple commenters requested that CMS state in the final rule that hospitals receiving a remedy payment will also receive information detailing how that payment was calculated and that the payment notice constitutes a final determination. These commenters additionally requested that CMS state in the final rule that a hospital will not waive any claims or give up any legal rights by accepting a remedy payment. These commenters emphasized that providing this information is especially important because OPPS payments for drugs were based on pricing data that can change over time, including AWP, WAC, and ASP; and these drugs may have an established or decreased ASP today, which could lead to confusion regarding whether CMS's remedy payment is based on the historic AWP/WAC/ASP figure or the current ASP figure.

Response:

We refer readers to the previous section titled:

Methodology for Calculating Remedy Payments Owed to Each Affected 340B Covered Entity Hospital

for additional information regarding the methodology we used to calculate the lump sum payments. We reiterate that we calculated the payment amounts to approximate what 340B covered entity hospitals would have received had it not been for the 340B Payment Policy. This means using the ASP (or WAC or AWP) based payment rate that would have been paid at that

time instead of the reduced ASP (or WAC or AWP) based payment as a result of the 340B Payment Policy. The remedial payments established by this final rule are being made instead of making case-by-case decisions through a claim-by-claim process. If the hospital does not submit any information during the time period for technical corrections, then the amounts listed in Addendum AAA are the final payment amounts due to the hospital pursuant to this rule. If, however, a hospital does submit information during the technical correction period, then the final payment will only be determined after CMS addresses the hospital's submission. That determination or decision will be the final payment amount determined pursuant to the methodology in this final rule.

Comment:

Three commenters recommended that CMS require the MACs to make payment within 30 calendar days of the MAC's receipt of the instruction to pay. These commenters emphasized that swiftly finalizing and effectuating the remedy is in the best interests of CMS and the 340B hospitals and argued that CMS already has estimated the repayment amounts it will issue and could begin laying the groundwork for making these repayments by coordinating with MACs and providing education to MACs beforehand.

Response:

We agree that swiftly finalizing and effectuating the remedy is in the best interests of CMS and the affected 340B covered entity hospitals, and we have engaged in the “groundwork” activities mentioned by the commenters (estimating the repayment amounts, considering how to operationalize repaying 340B hospitals, and coordinating with the MACs). However, even having done so, we continue to believe that we should give MACs up to 60 calendar days to process payments to minimize the likelihood of payment error. We agree that MACs should begin processing payments upon receipt of our instructions instead of waiting the full 60 days if possible. We believe this timeframe will allow the MACs to make these lump-sum payments accurately and precisely to individual hospitals. Given the number of payments, the size of the payments, and the overall complexity of this remedy, we believe 60 calendar days is a reasonable payment timeframe.

After consideration of comments received, and for the reasons stated in our proposed rule and in this final rule, we are finalizing our policy to instruct the MACs to remit remedy payments to affected 340B covered entity hospitals as proposed. We will make additional payments to each 340B covered entity hospital by issuing instructions to the 340B covered entity hospital's Medicare Administrative Contractor (MAC) and instructing the MAC to issue a one-time lump sum payment to the hospital in the amount calculated using the above-described methodology within 60 calendar days of the MAC's receipt of the instruction.

e. Accounting for Beneficiary Cost-Sharing

In the proposed rule, we discussed that in most circumstances, beneficiaries would pay in the form of coinsurance approximately 20 percent of any additional 340B drug payments that affected 340B covered entity hospitals would have received, absent the CY 2018 through 2022 340B policy. But, as described above, we proposed to make each remedy payment as a one-time lump sum payment through MAC instructions using a combination of statutory authorities, including, if necessary, our retroactive rulemaking authority under section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)) and our equitable adjustment authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)). Because these payments are remedy payments issued through MAC instructions relying in part on our equitable adjustment authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)), we explained that these payments would not be 340B drug payments subject to beneficiary copayments. Rather, we stated that these remedy payments are analogous to the type of cost report adjustments under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) that we have previously found do not authorize providers to seek additional beneficiary copayments.

For example, section 3138 of the Affordable Care Act added a new section 1833(t)(18) to the Social Security Act (42 U.S.C. 1395

(t)(18), providing for an adjustment under section 1833(t)(2)(E) of the Social Security Act (42 U.S.C. 1395

(t)(2)(E) to address higher costs incurred by cancer hospitals. Section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E), in turn, directs the Secretary to establish, “in a budget neutral manner,” payment “adjustments as determined to be necessary to ensure equitable payments, such as adjustments for certain classes of hospitals.” In response to CMS's proposal to implement this adjustment on a per claim basis through increased APC payments, commenters expressed concern that doing so would increase beneficiary copayments since beneficiary copayment is a percentage of the APC payment. These commenters encouraged CMS to implement the adjustment in a way that did not increase beneficiary copayments. Consequently, CMS determined it was appropriate to make the cancer hospital payment adjustment through the form of an aggregate payment to each cancer hospital determined at cost report settlement, as opposed to an adjustment at the APC level, thereby eliminating the higher copayments for beneficiaries associated with providing the adjustment on a claims basis through increased APC payments.

See

CY 2012 OPPS/ASC final rule, 76 FR 74121, 74204 (2011), for our prior use of our equitable adjustment authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E) to adjust cancer hospital payments.

We acknowledged that we have previously suggested that any remedy might affect beneficiary cost-sharing. (

See, for example,

84 FR 61323.) But we noted that we made that statement in 2019, before the litigation was concluded, and well before we proposed how to structure any remedy and determine how it should impact beneficiary cost sharing many years later. With the benefit of a concrete proposed remedy, we clarified that our proposed lump sum payments for the difference in 340B-acquired drug payments due to the 340B Payment Policy would not affect particular beneficiary cost-sharing responsibilities.

We also explained that in these unique circumstances, it is appropriate to exercise our authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) to make adjustments “as necessary to ensure equitable payments” and for Medicare to pay the full $9.0 billion difference between what 340B hospitals were paid for 340B-acquired drugs from CY 2018 through September 27, 2022, and what they would have been paid for 340B-acquired drugs absent the 340B Payment Policy during this time period, so that affected 340B covered entity hospitals are paid the amount they would have been paid in full without application of the 340B Payment Policy. While we caveated that statement—it would not necessarily be appropriate to make this kind of adjustment under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) to ensure hospitals receive what they would have been paid from Medicare and beneficiaries absent the 340B Payment Policy every time we make a policy change or lose a lawsuit—we find that such an adjustment is necessary for equitable payments in these unique circumstances in part because of the unprecedented scope of the remedy in terms of the amount of money at issue; the number of services, beneficiaries, and claims affected; and the number of years that have passed between the claims and the remedy.

Accordingly, we concluded that here, where we are remedying prior payments, it would be appropriate to set the remedy payment amount under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) so that affected 340B covered entity hospitals would be paid amounts that approximate what they would have been paid for these

drugs absent the 340B Payment Policy, which includes what affected 340B covered entity hospitals would otherwise have been paid by the beneficiary. Therefore, we proposed that the $9.0 billion payment amount would include $1.8 billion, an amount that is equivalent to what affected 340B covered entity hospitals would have collected from beneficiaries for these 340B-acquired drugs if the 340B Payment Policy had not been in effect.

We emphasized that, if our proposal was finalized, affected 340B covered entity hospitals could not bill beneficiaries for coinsurance on remedy payments—regardless of this adjustment—because we would issue this remedy payment through MAC instructions relying in part on our equitable adjustment authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)). We cautioned that CMS would consider appropriate administrative action for providers who nevertheless bill beneficiaries for coinsurance. We solicited comments from the public on our proposed approach to accounting for beneficiary cost sharing.

We thank commenters for their input on our policy proposals. We have summarized the comments received and our responses to those comments in the following section.

Comment:

Commenters overwhelmingly supported our proposed approach and rationale for accounting for beneficiary cost sharing.

Response:

We appreciate commenters' support.

After consideration of comments received, and for the reasons stated in our proposed rule and in this final rule, we are finalizing our policy to account for beneficiary cost sharing as proposed. We will exercise our authority under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) to make adjustments “as necessary to ensure equitable payments,” to pay the full $9.0 billion difference, including $1.8 billion, an amount that is approximately equivalent to what affected 340B covered entity hospitals would have collected from beneficiaries for these 340B-acquired drugs if the 340B Payment Policy had not been in effect from CY 2018 through September 27, 2022, so that affected 340B covered entity hospitals are paid the approximate amount they would have been paid in full without application of the 340B Payment Policy.

f. Remedy Payment Amounts

We published the following data file that contained our calculations of the amounts owed under the above-described methodology to each affected 340B covered entity hospital for the proposed rule:

https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps.

We solicited comment from the public on the accuracy of the data in Addendum AAA of the proposed rule, particularly with respect to the estimated amount of remedy payment due to each hospital. This addendum can be found online through the CMS OPPS website.

https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps.

We thank commenters for their input on our policy proposals. We have summarized the comments received and our responses to those comments in the following section.

Comment:

A small number of commenters had concerns regarding the payment amounts, including a request for increased transparency. Some commenters expressed a general concern that some hospitals would receive very large lump sum payments relative to their usual OPPS payments. Similarly, one commenter supported the lump sum calculation methodology but requested that CMS share with participating 340B providers more details about the methodology and a list of their 340B claims on which it was used. Additionally, a couple commenters requested CMS verify their individual payment amounts. Specifically, one commenter indicated that the calculation of the amount owed to them was incorrect. This commenter believes that they were owed more than calculated for CYs 2020 and 2021. Another commenter stated that they were owed nearly $640,000 more than calculated due to claims from CY 2019 that were resubmitted and reprocessed after September 27, 2022, and paid at the ASP minus 22.5 percent rate. This commenter requested that CMS take into account claims that were processed and paid at the lower rate through December 31, 2022.

Response:

We appreciate these commenters' concerns and have reviewed the general and specific issues they raised. We also reviewed the payment data for these commenters who stated our calculations were incorrect. As a result of our review, we identified several claims accruing prior to CY 2022 that providers submitted in late CY 2022. Because those claims accrued prior to CY 2022, the MACs correctly processed those claims at the ASP minus 22.5 percent rate; and these claims should be part of the lump-sum payments. We have accordingly adjusted the remedy payment for affected claims. This means that some hospitals will receive slightly higher payments than in the proposed rule, which slightly increases the aggregate lump sum payments we are making from $9.003 in the proposed rule to $9.004 in this final rule. We also note it would be impractical to list the millions of claims used to calculate all of the lump sum payments. For increased transparency, Addendum AAA has been revised to include additional CY 2022 data (please see comment below on this subject). To resolve any lingering concerns by individual providers and provide the opportunity for additional transparency, we are establishing the technical correction process noted later in the rule.

Comment:

An additional commenter requested clarification with respect to two of its affiliated hospitals, which were identified on Addendum AAA as eligible for payment but did not participate in the 340B Program during the years in question.

Response:

We appreciate the commenter's transparency. Our calculations are based on the information that hospitals originally used when submitting claims with the 340B billing modifier, “JG.” These two hospitals used the 340B billing modifier “JG” for some claims during the time period in which the 340B Payment Policy was in effect, and so they received reduced payments under the 340B Payment Policy. The overall remedy payments for these entities are small relative to other remedy payments for other hospitals, which suggests they may have erroneously included the “JG” modifier when initially submitting claims. We will make remedy payments even to providers who submitted the “JG” modifier incorrectly, because they would have received reduced payments under the 340B Payment Policy.

Comment:

One commenter stated that providers are unable to accurately verify estimates because the paid through date for claims used by CMS to create the estimates has not been documented and communicated to providers. The commenter requested that CMS disclose the paid through date to providers so that they can verify the accuracy of the calculations. Since the same issue will arise for any final settlement, the commenter additionally requested that CMS document and communicate to providers the paid through date used to arrive at a final settlement and give providers time to accept or refute that amount.

Response:

We processed (or, in some cases, reprocessed) any claims paid on or after September 28, 2022, using the default rate (generally ASP plus 6

percent). In order to ensure we captured all claims appropriately for this analysis, we included all claims with a Claims Process Date (the date the fiscal intermediary completes processing and releases the institutional claim to the CMS common working file) prior to October 12, 2022, or Date of Service on or before September 27, 2022, in our analysis to determine which claims needed to be remedied while ensuring we excluded those claims that were processed or reprocessed at the higher payment rate (generally ASP plus 6 percent).

Comment:

Several commenters requested that CMS add an additional column to Addendum AAA displaying the total amount withheld from each 340B hospital for the period from January 1, 2022, through September 27, 2022, before claims were reprocessed to allow hospitals to calculate and confirm the CY 2022 reprocessed claims amounts. These commenters additionally requested that CMS identify the data sets that it used, as well as the cut-off date for any claims data it used, to calculate the amount of the reprocessed CY 2022 claims, even if those data sets were not publicly available.

Response:

We concur with the commenters that additional information regarding the process we used to calculate the remedy payment amounts for CY 2022 would be helpful for providers to calculate their CY 2022 reprocessed claims amounts. Our calculations used data from the CMS Common Working File (CWF) OPPS data, CWF2023w38. We also included two additional columns on Addendum AAA: “CY 2022 (January 1 to September 27) 340B Drugs Payment Withheld” and “CY 2022 (January 1 to December 31) 340B Remedy Payment Already Paid.”

Comment:

One commenter, referencing the proposed rule's acknowledgment that the $1.5 billion estimated amount for CY 2022 claims through September 27 might change by the time the final rule is issued, requested that CMS include with the final rule an updated addendum of hospital-specific payments to ensure that all activity since the proposed rule was issued has been accounted for.

Response:

We agree. The final rule Addendum AAA has been updated with new hospital-specific payment amounts and accounts for all payment activity that has happened since the proposed rule was issued. Our updated claims data reflects that these hospitals received approximately $10.6 billion less in 340B drug payments (including money that would have been paid by Medicare and money that would have come from beneficiaries as copayments) than they would have for drugs provided in CY 2018 through September 27, 2022, had the 340B policy not been implemented.

Additionally, our updated analysis estimates that $1.6 billion of the total $10.6 billion that affected 340B covered entity hospitals did not receive as a result of the 340B Payment Policy has already been remedied through reprocessed claims. Accordingly, we estimate the remaining remedy amount that affected 340B covered entity hospitals have not yet received as a result of this policy is $9.004 billion (rounded to $9.0 billion for purposes of discussion in this final rule).

Comment:

One commenter requested clarification as to whether the amounts listed in Addendum AAA would be the actual amounts paid, or if those amounts would be subject to sequestration. If subject to sequestration, the commenter requested clarification as to the percentage of the reduction. Another commenter requested that CMS not impose sequestration on the repayments since the sequestration adjustment was suspended during the PHE when most of the payments occurred.

Response:

The calculated amounts in Addendum AAA are based on original claims that already included any applicable sequestration. We do not need to apply any additional adjustments for sequestration. The sequestration percentage, when applicable, that applied to the original claim will also apply to the remedy payment because the remedy amount is calculated from the sequestration reduced amount. For instance, if the original claim did not have any sequestration adjustment because the claim was paid during the COVID-19 PHE when the sequestration adjustment was suspended, then remedy payment calculation for that claim would not reflect any sequestration adjustment. The lump sum payments were calculated to provide a payment amount as close as possible to what hospitals would have received if not for the 340B Payment Policy, including any sequestration adjustment that would have applied. The amounts included in Addendum AAA are the amounts that hospitals will receive, except that payment amounts may be affected by MACs continuing to follow normal accounting processes for collecting repayment amounts stemming from provider-specific overpayment obligations, adjustments resulting from errors identified through the lump-sum technical correction process described below, as well as other unique situations such as provider bankruptcy or payment suspension, any of which may impact the provider's net payment amount.

Comment:

Many commenters requested a process for affected 340B covered entity hospitals to challenge CMS's calculation of their remedy payment. One commenter requested that CMS provide hospitals with additional time, beyond the 60-day proposed rule comment period, to review the repayment amounts listed in the data file and submit data to CMS justifying an alternative repayment amount. Another commenter suggested that hospitals be provided with 120 days from the date of payment of the lump sum payment to file a dispute, with supporting evidence, that CMS underpaid the hospital for 340B claims for separately payable drugs provided from 2018-2022. One commenter requested that CMS establish a quick, collaborative method for addressing any miscalculation of the remedy payments due. Specifically, the commenter recommended a method with clear, short timelines and a requirement for MACs to respond and resolve any issues quickly.

Response:

We agree with commenters that there should be a prompt process for affected 340B covered entity hospitals to request the correction of any errors that hospitals identify in CMS's calculation of the specific remedial payment. Consequently, we are establishing a technical correction process. An affected 340B covered entity hospital can alert CMS to potential errors in the calculation of their lump sum payment amount in Addendum AAA by emailing CMS at the following address,

outpatientpps340b@cms.hhs.gov,

no later than 11:59 p.m. Eastern Standard Time (EST) on November 30, 2023. Submissions must include (1) a description of the nature of the error; (2) a designated contact person for the purposes of addressing the error; and (3) relevant supporting documentation such as claim numbers, total units, payment amount received, date of payment. We will pay the lump sum to an affected 340B covered entity hospital using this process after the alleged calculation error has been reviewed and resolved by CMS. We will work as diligently as possible to resolve any potential technical corrections submitted promptly. Depending on the complexity of the potential technical correction submitted, and the volume of overall technical corrections submitted, processing technical corrections could take us substantial additional time, and hospitals submitting technical

correction requests may be paid after other hospitals.

Comment:

Multiple commenters requested that CMS clarify that the final rule does not affect the procedural stature of any open or stayed administrative appeals and that it intends the final rule to be subject to judicial review. These commenters specifically requested that CMS state that reliance on section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) as authority for these adjustments is not intended to create any implication that the adjustments are not subject to judicial review.

Response:

Because this rule fully compensates providers for the amounts they claimed they are owed on the 340B payment issue, we believe this action moots any pending appeals on that specific issue. Accordingly, if a provider were to proceed with a pending appeal that would, in effect, be seeking double recovery for the same service. A court's jurisdiction to review all or part of this rule is outside the scope of this rulemaking.

The following updated data file contains the final amounts owed under the previously described finalized methodology to each affected 340B covered entity hospital for the final rule:

https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps.

g. Anticipated Timing of Remedy Payments

In the proposed rule (88 FR 44086), we stated that, if we finalized the proposal to pay affected 340B covered entity hospitals in the manner described above, we would propose to make these additional payments at the end of CY 2023 or beginning of CY 2024, after the rule had been finalized and the MAC instructions for each affected 340B covered entity hospital had been issued.

We received the following comments on our proposals.

Comment:

Commenters were nearly universally supportive of our proposal to make the remedy payments at the end of CY 2023 or the beginning of 2024.

Response:

We appreciate commenters' support.

Comment:

One commenter, expressing concern about the financial situation of safety-net and rural hospitals, requested that, prior to CMS finalizing its rule related to the 340B remedy, CMS authorize the MACs to make an initial payment to hospitals that request it in the amount listed in the proposed rule Addendum AAA. Then, in the final rule, the commenter suggests that CMS would instruct the MACs to make an incremental payment to any hospitals that elected to receive funds immediately based on the final rule and any additional claims that were processed through September 27, 2022. In other words, this commenter requests that CMS instruct the MACs to pay hospitals that ask for immediate payment the amount listed in the proposed rule Addendum AAA prior to the effective date of the final rule and then, in the final rule, instruct the MACs to pay any additional amount due based on the final rule Addendum AAA.

Response:

While we appreciate the commenter's concerns, we are unable to authorize any payments until this rule and policy is finalized and effective. As stated above, payments will not be made until this rule is effective, which will occur 60 days after the rule is displayed at the Office of the Federal Register. As additionally noted above, to ensure payments are made accurately, there may be an additional delay for hospitals requesting a technical correction.

After consideration of comments received, for the reasons stated in the proposed rule and this final rule, subject to our clarification above and the technical corrections procedure discussed earlier, we are finalizing our proposal to make these additional payments at the end of CY 2023 or beginning of CY 2024. In summary, we intend to issue instructions for hospitals who do not request any correction to MACs as soon as possible after the technical corrections submission deadline has passed. MACs will be instructed to pay providers as soon as possible after the rule is effective, and payments will be made no later than 60 days after the MAC's receipt of the instructions. We will issue instructions to pay hospitals who submit technical correction requests after those requests are resolved.

h. Eligibility of Remedy Payments for Interest

In the proposed rule (88 FR 44086), CMS also considered its authority to pay interest on the remedy payments but concluded that we did not believe we had the authority to do so.

We received the following comments on our proposals.

Comment:

Many commenters disagreed that CMS lacks the authority to pay interest on the remedy payments, pointing to various statutes discussed in the following paragraphs. The majority of these commenters relied on section 1833(j) of the Act (42 U.S.C. 1395

(j)), which provides that whenever a final determination is made that the amount of payment made under this part either to a provider of services or to another person pursuant to an assignment under section 1842(b)(3)(B)(ii) of the Act was in excess of or less than the amount of payment that is due, and payment of such excess or deficit is not made (or effected by offset) within 30 days of the date of the determination, interest shall accrue on the balance of such excess or deficit not paid or offset (to the extent that the balance is owed by or owing to the provider) at a rate determined in accordance with the regulations of the Secretary of the Treasury applicable to charges for late payments. Instead, these commenters ask us to construe the Supreme Court's decision in

American Hospital Association

as a “final determination.”

Response:

As described here and in the following several responses, we do not agree that any provision identified by commenters provides CMS with authority to pay interest. Commenters do not identify any administrative “final determination” that would trigger the interest provision in section 1833(j) of the Act (42 U.S.C. 1395

(j)). And our regulations foreclose commenters' suggestion to treat the Supreme Court's decision as a “final determination.” Our regulations define “final determination” in section 1833(j) of the Act (42 U.S.C. 1395

(j)) to mean “[a] written determination of an underpayment.” 42 CFR405.378(c)(1)(i)(B). We have previously explained that this definition refers to “administrative, not judicial, determinations; therefore, there is no interest obligation under these regulations for judicial determinations.” Medicare Program; Changes Concerning Interest Rates Charged on Overpayments and Underpayments, 56 FR 31332, 31335 (1991).

That interpretation is reinforced by the specific litigation interest provisions in the Medicare statute. Congress provided that cost reports appealed to the Provider Reimbursement Review Board are generally subject to interest beginning 180 days after an intermediary's or the Secretary's final determination.

See

section 1878(f)(2) of the Act (42 U.S.C. 1395oo(f)(2)). And in the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Congress amended the judicial review process for individual appeals and authorized litigation interest only in cases granted expedited judicial review under section 1869(b)(2) of the Act (42 U.S.C. 1395ff(b)(2).

See

Medicare Prescription Drug, Improvement and Modernization Act of 2003, Public Law 108-173, section 931(a), 117 Stat. 2066, 2399 (2003). By providing interest provisions that apply specifically to judicial determinations, Congress confirmed our reading that section 1833(j) of the Act (42 U.S.C. 1395

(j))

applies only to administrative determinations.

Additionally, changing our interpretation of administrative determination may cause the various interest statutes to conflict. For example, if a cost report appeal is denied by an intermediary and a court ultimately finds that payment should have been made, would interest run from 180 days after the intermediary's decision under section 1878(f)(2) of the Act (42 U.S.C. 1395oo(f)(2)), or from 30 days after the court's decision, under commenter's interpretation of section 1833(j)? We decline to construe section 1833(j) of the Act (42 U.S.C. 1395

(j)) in a way that could conflict with other provisions of the Act.

We also disagree that the Supreme Court's decision would be a qualifying “final determination” under section 1833(j) of the Act (42 U.S.C. 1395

(j)), even assuming judicial decisions could sometimes qualify. Interest under this statute runs from a “final determination” that the payment made “was in excess of or less than the amount of payment that is due.” But the Supreme Court never calculated how much less the plaintiff hospitals were paid than due, declining to consider remedies in the first instance and instead focusing on the purely legal issue of whether the payment rates in the CY 2018 and 2019 OPPS rules exceeded CMS's authority under section 1833(t)(14) of the Act (42 U.S.C. 1395

(t)(14)).

Am. Hosp. Ass'n,

142 S. Ct. at 1903, 1906. On remand, the district court similarly rejected the plaintiff hospitals' invitation to calculate the amount owed, whether to the parties before the court or to the entire industry.

See Am. Hosp. Ass'n,

2023 WL 143337, at *3 (declining to issue “order commanding HHS to repay each underpaid claim to the penny, [because] that cannot possibly be the only rational choice available to the agency”). Because the Supreme Court never determined the amount of underpayment on which interest would run, its decision is not a “final determination” of the “amount” of underpayment under section 1833(j) of the Act (42 U.S.C. 1395

(j)).

Because commenters have not identified a final administrative determination of an underpayment, we do not believe that section 1833(j) of the Act (42 U.S.C. 1395

(j)), as construed by 42 CFR 405.378(c)(1), would authorize CMS to pay interest on the proposed remedy payments.

Comment:

Two commenters argued that even if CMS is correct that interest is not due on the amount owed to all hospitals that will receive lump sum payments, interest is due to plaintiffs in several cases pending before the United States District Court for the District of Columbia that were stayed pending the outcome of CMS's remedy discussed in the proposed rule. These plaintiffs, the commenters contend, are entitled to prevailing party interest under 42 CFR 405.990(j)(2). These commenters argue that, in appealing CMS's initial determination to pay 340B drug claims at the unlawful rate, these plaintiffs clearly communicated to CMS that the rate of ASP minus 22.5 percent exceeded the Secretary's authority and should instead have been paid at ASP plus 6 percent as required by law. When CMS refused to remit payment of ASP plus 6 percent through these administrative proceedings, the plaintiffs thus sufficiently exhausted the administrative appeals process, giving them standing for judicial review under 42 U.S.C. 405(g), and entitling them to the usual interest awarded to prevailing parties that seek an expedited path to judicial review.

Response:

42 CFR 405.990(j)(2) implements section 1869(b)(2)(C)(iv) of the Act (42 U.S.C. 1395ff(b)(2)(C)(iv)). That provision allows a reviewing court to award interest to a prevailing party in litigation where a provider of services or supplier was granted expedited judicial review pursuant to section 1869(b)(2) of the Act (42 U.S.C. 1395ff(b)(2)). We are not aware of any providers who received expedited judicial review pursuant to subparagraph (b)(2), and so, even assuming that provision authorizes CMS to pay interest under section 1869(b)(2) of the Act (42 U.S.C. 1395ff(b)(2)) without a court order, it would not authorize interest payments on the remedy payments here.

To the extent that commenters mean to suggest that section 1869(b)(2)(C)(iv) of the Act (42 U.S.C. 1395ff(b)(2)(C)(iv)) also applies when a court excuses the usual exhaustion requirements contained in section 1869(b)(1) of the Act (42 U.S.C. 1395ff(b)(1)), we disagree. Litigation interest is the exception to cases filed under section 1869, not the rule. No statute authorizes interest for litigants who follow the usual administrative appeal procedures contained in subsection (b)(1). And courts have held that it is subsection (b)(1)'s reference to section 205(g) that authorizes courts to excuse subsection (b)(1)'s exhaustion requirement.

See Tataranowicz

Sullivan,

959 F.2d 268, 272 (D.C. Cir. 1992). Subsection (b)(2) contains no such reference to section 205(g), and so we doubt the same reasoning would apply.

Cf.

1869(b)(2) of the Act (42 U.S.C. 1395ff(b)(2)) (limiting review to the “civil action described in this subparagraph”). If Congress wanted to extend litigation interest to cases where courts had waived exhaustion under subsection (b)(1), it could have done so when amending that statute to add subsection (b)(2). Because Congress did not, we decline any invitation to extend section 1869(b)(2)(C)(iv) (42 U.S.C. 1395ff(b)(2)(C)(iv) beyond its plain text, especially considering implications litigation interest has on the United States' sovereign immunity and Congress's control of the public fisc.

See, for example, Libr. of Cong.

Shaw,

478 U.S. 310, 316 (1986) (“For well over a century, this Court, executive agencies, and Congress itself consistently have recognized that federal statutes cannot be read to permit interest to run on a recovery against the United States unless Congress affirmatively mandates that result.”).

Comment:

One commenter stated that the Federal Tort Claims Act provides for post-judgment interest (28 U.S.C. 2674) and requested post-judgment interest from June 15, 2022, the date of the Supreme Court's decision, to the date of final payment. Another commenter argued that the remedy payments are subject to the Prompt Payment Act, as amended, and its rules, which state that “the temporary unavailability of funds does not relieve an agency from the obligation to pay these interest penalties or the additional penalties required under § 1315.11.”

See

5 CFR 1315.10(b)(4). This commenter additionally notes that the failure of CMS to make interest payments could result in additional litigation. Similarly, another commenter stated that section 1815(d) of the Act (42 U.S.C. 1395g(d)) and common law provide for the payment of interest on underpayments to Medicare providers.

Response:

We do not agree with commenters that the authorities cited would provide CMS the ability to include interest as part of these lump sum remedy payments. No lawsuit has been filed under the Federal Tort Claims Act, and so its interest provisions are irrelevant.

See

28 U.S.C. 2674 (limiting section to “the provisions of this title relating to tort claims”). Nor do we believe Medicare providers are subject to the Prompt Payment Act's terms.

Cf.

5 CFR 1315.1 (limiting applicability to procurement contracts and vendors). Even if they were, that statute does not apply to instances where, as here, “payment that is not made because of a dispute between the head of an agency and a business concern over the amount of payment.” 31 U.S.C. 3907(c). Section 1815 of the Act (42 U.S.C. 1395g(d)) governs Part A payments, not Part B, and so is similarly irrelevant.

See

SSA

section 1815(d) (42 U.S.C. 1395g(d)) (limiting applicability to payments “under this part”).

Comment:

A couple commenters directed CMS to the Medicare Claims Processing Manual (100-04, Chapter 1, Section 80.2.2) for instructions for assessing and calculating interest due on non-periodic interim (PIP) claims not paid in a timely manner by fiscal intermediaries and carriers. Another commenter referenced MLN Matters No. MM3557 and argued that the 340B claims were clean and unpaid, therefore, based on CMS regulations, interest should be paid from the date of receipt of the claim. These commenters assert that these claims were not processed in a timely manner, rendering them eligible for interest accrual.

Response:

We appreciate commenters highlighting these instructions. Our clean claims regulations are found at 42 CFR 405.922 and implement section 1842(c)(2)(C) of the Act (42 U.S.C. 1395u(c)(2)(C)). Section 1842(c)(2)(B)(i) of the Act (42 U.S.C. 1395u(c)(2)(B)(i)) defines a clean claim as a claim that has no defect or impropriety (including any lack of any required substantiating documentation) or particular circumstance requiring special treatment that prevents timely payment from being made on the claim under this part. Section 1842(c)(2)(C) of the Act (42 U.S.C. 1395u(c)(2)(C)) provides that if payment is not issued, mailed, or otherwise transmitted within an applicable number of calendar days after a clean claim is received, interest shall be paid at the rate used for purposes of section 3902(a) of title 31, United States Code for the period beginning on the day after the required payment date and ending on the date on which payment is made. Our longstanding position has been that section 1842(c)(2)(C) of the Act (42 U.S.C. 1395u(c)(2)(C)) does not apply in situations like this one where a payment regulation was properly applied by the contractor to deny a claim that is ultimately held unlawful by a court. No contractor has the authority to ignore CMS's binding regulations and make a payment at odds with the regulations within 30 days or otherwise, and so we believe this is a “particular circumstance requiring special treatment.”

Accord

Medicare Program: Changes to the Medicare Claims Appeal Procedures, 74 FR 65296, 65302 (2009) (“Claims initially denied and subsequently paid following a favorable appeal decision, or revised following a reopening action are, by their nature, claims that require special treatment.”). As noted above, the Act speaks expressly to the issue of litigation interest. And reading section 1842(c)(2)(C) of the Act (42 U.S.C. 1395u(c)(2)(C)) to apply to litigation interest raises a similar conflict as reading section 1833(j) of the Act (42 U.S.C. 1395

(j) to apply to litigation interest. For example, if a claim denied by a contractor under CMS's regulations was later certified for expedited judicial review under section 1869(b)(2) of the Act (42 U.S.C. 1395ff(b)(2)), would interest run from 30 days after receipt by the contractor under section 1842(c)(2)(C) of the Act (42 U.S.C. 1395u(c)(2)(C)), or from 60 days after certification under section 1869(b)(2)(C)(iv) of the Act (42 U.S.C. 1395ff(b)(2)(C)(iv))? We decline to construe section 1842(c)(2)(C) of the Act (42 U.S.C. 1395u(c)(2)(C)) in a way that could conflict with other provisions of the Act.

Comment:

One commenter requested that CMS share the citations for the authority prohibiting the payment of interest.

Response:

As noted above, the Supreme Court has clarified that “[f]or well over a century, this Court, executive agencies, and Congress itself consistently have recognized that Federal statutes cannot be read to permit interest to run on a recovery against the United States unless Congress affirmatively mandates that result.”

Libr. of Cong.

Shaw,

478 U.S. 310, 316 (1986). The proper analysis is thus whether there is legal authority affirmatively mandating the payment of interest here. CMS's inability to pay interest is a consequence of a lack of authority authorizing it to pay interest, not any authority prohibiting it from paying interest.

Comment:

One commenter recommended that CMS work with Congress to allow the remedy to include interest.

Response:

We appreciate the commenter's recommendation. As noted, a legislative change would require Congressional action.

Comment:

One commenter asked if CMS has considered adjusting future budget neutrality provisions to account for the amount of interest reasonably owed 340B providers.

Response:

Since we are not adopting a policy to pay interest in this rule, we have not examined whether doing so would require changes to the budget neutrality adjustments discussed below. We agree with the commenter that if we were to pay interest, we would need to evaluate what, if any, impact such interest would have on budget neutrality requirements.

After a consideration of comments received, and for the reasons discussed above, we continue to believe that we do not have the authority to include interest as part of the lump sum payments. We therefore are finalizing our proposal that the lump sum remedy payments would not include interest as proposed.

2. OPPS Non-Drug Item and Service Payments From CY 2018 Through CY 2022

a. Background

As described in the proposed rule, the 340B Payment Policy was implemented in a budget neutral manner under sections 1833(t)(9)(B) and 1833(t)(14)(H) of the Act (42 U.S.C. 1395

(t)(9)(B) & (t)(14)(H)) by increasing non-drug item and service payments to all OPPS providers for CY 2018 through CY 2022. As we explained in the proposed rule, to comply with the statutory budget neutrality requirements in sections 1833(t)(9)(B) and 1833(t)(14)(H) of the Act (42 U.S.C. 1395

(t)(9)(B) and (t)(14)(H)), as well as section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)), CMS must account for these additional payments, which were made solely due to the 340B Payment Policy that was in effect from CY 2018 through CY 2022, in determining a remedy for the 340B policy. As described in the proposed rule, after the Supreme Court's decision in

American Hospital Association,

those additional payments became a windfall—payments the hospitals should not have received but did anyway. We noted that to comply with budget neutrality and restore the situation as closely as reasonably possible to the state that would exist if we simply re-ran all the claims from 2018 to 2022 under the correct payment rules, we must recover this windfall.

As summarized in the proposed rule, the reduction in 340B drug payments made to affected 340B covered entity hospitals from CY 2018 through CY 2022 was offset by an increase in non-drug item and service payments made to all hospitals paid under the OPPS during the same time period to comply with statutory budget neutrality requirements. In other words, all hospitals were paid more under the OPPS for non-drug items and services for CY 2018 through CY 2022 than they would have been paid absent the 340B Payment Policy. As we explained, starting in CY 2018, CMS applied an approximate 3.19 percent increase to the OPPS conversion factor to offset the decreased OPPS 340B drug payments. And, as we also explained, because we proposed to make additional payments to affected 340B covered entity hospitals

to pay them what they would have been paid had the 340B policy never been implemented, we were required to correspondingly propose to make an offset to maintain budget neutrality as if the 340B Payment Policy had not been in effect during CY 2018 through CY 2022. As detailed in the proposed rule, this is consistent with the policy finalized in the CY 2023 OPPS/ASC final rule with comment period (87 FR 71976) where CMS finalized a minus 3.09 percent adjustment to the conversion factor as this adjustment removes the effect of the 340B policy as originally adopted in CY 2018, again, as described in more detail in section I.C. of the proposed rule. The CY 2023 adjustment to the conversion factor ensures it is equivalent to the conversion factor that would be in place if the 340B Payment Policy had never been implemented.

As we described in the proposed rule, to calculate the additional amount CMS paid for non-drug items and services, we proposed to include those assigned the following status indicators, SI = J1, J2, P, Q1, Q2, Q3, R, S, T, U, V. These status indicators generally capture the non-drug items and services impacted by a change in the OPPS conversion factor. For additional details on these status indicators, we refer readers to Addenda D1 of the CY 2023 OPPS/ASC final rule with comment period for the most recent OPPS status indicators and their definitions. This file is available on the CMS website.

As we noted in the proposed rule, we calculated the adjusted payment (the payment that would have been made for the non-drug item or service absent the budget neutrality adjustment to the conversion factor due to the 340B Payment Policy) by taking the amount paid for the non-drug item or service and dividing it by 1.0319 (the amount by which the conversion factor was increased during CYs 2018 through 2022 to budget neutralize the effect of the 340B Payment Policy). We proposed that the amount that would need to be offset to maintain budget neutrality in crafting this remedy would be based on the payments to providers that would have been made for non-drug items and services absent the 340B Payment Policy during CY 2018 through CY 2022, and the Medicare payment to 340B providers for the amount equivalent to the additional drug payments that would have otherwise been paid as beneficiary cost-sharing. Based on these factors, we proposed prospectively to offset $7.8 billion in order to maintain budget neutrality. This figure was calculated based on past claims data with 80 percent of this amount based on the Medicare share and 20 percent based on the beneficiary share. As we explained, our budget -neutrality adjustment in the 2018 through 2022 OPPS rules reflected a prediction regarding how much we would spend on 340B drugs—a prediction that turned out to be too low. As it turned out, 340B hospitals spent more on 340B drugs than we expected, so our policy ended up saving the Trust Fund (and beneficiaries) more money from cutting the rates paid for 340B drugs than the Trust Fund (and beneficiaries) paid for non-drug services in our budget-neutrality adjustment to offset the savings. We explained that our proposed remedy would achieve budget neutrality by reversing that imbalance. We proposed that in aggregate, the total additional payment that providers would receive as a result of this remedy, $10.5 billion, would be larger than the amount of payment that would be prospectively offset, $7.8 billion. As we explain below and stated in the proposed rule, we believe that our proposed remedy, which would effectively reverse the imbalance that arose under the policy the Supreme Court deemed unlawful and would reasonably approximate the results that would occur if we simply re-ran the claims after eliminating the 340B adjustment, reflects the best approach to budget neutrality in these unique circumstances. We solicited comments from the public on our proposed approach to implementing budget neutrality.

https://www.cms.gov/medicaremedicare-fee-service-paymenthospitaloutpatientppshospital-outpatient-regulations-and-notices/cms-1772-fc.

Comment:

We received many comments on our proposed approach to implementing budget neutrality.

Response:

These comments are addressed in Section II.B.2.b of this final rule.

b. Prospective Adjustment to Payments for Non-Drug Items and Services To Offset the Increased Payments for Non-Drug Items and Services Made in CY 2018 Through CY 2022

As described in the proposed rule (88 FR 44087), we believe that sections 1833(t)(2)(E) and (t)(14) of the Act (42 U.S.C. 1395

(t)(2)(E) and (t)(14)) are properly read to require budget neutrality. As we explained in the proposed rule, section 1833(t)(2)(E) of the Act (42 U.S.C. 1395

(t)(2)(E)) provides that adjustments under that provision must be made in a budget neutral manner. Section 1833(t)(14)(H) of the Act (42 U.S.C. 1395

(t)(14)(H)) states that additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion, weighting, and other adjustment factors for 2004 and 2005 under paragraph (9), but shall be taken into account for subsequent years, while section 1833(t)(9)(B) of the Act (42 U.S.C. 1395

(t)(9)(B)) states that the adjustments for a year may not cause the estimated amount of expenditures under this part for the year to increase or decrease from the estimated amount of expenditures under this part that would have been made if the adjustments had not been made. To implement these requirements, we proposed to unwind the additional payments that were made for non-drug items and services to all providers from CY 2018 through CY 2022. In other words, along with reversing the rate change we discussed in the proposed rule, we proposed to reverse the accompanying increase in the conversion factor for CYs 2018 through 2022 that was solely attributable to the adoption of the 340B Payment Policy.

As described in the proposed rule, to reduce the burden on providers of offsetting the $7.8 billion offset required to maintain budget neutrality, we proposed to implement the adjustment prospectively. We proposed to, beginning in CY 2025, reduce all payments for non-drug items and services to all OPPS providers—except any hospital that enrolled in Medicare after January 1, 2018—by 0.5 percent each year until the total offset was reached (which we estimated to be approximately 16 years). As stated in the proposed rule, starting this reduction in CY 2025 would allow CMS time to finalize its methodology, and then apply its methodology to calculate and publish the payment rates in the CY 2025 OPPS/ASC proposed rule. We stated it would also allow adequate time for impacted parties to assess and prepare for the new payment rates that would be calculated using a reduced conversion factor. Additionally, as we remarked in the proposed rule, we believed a 0.5 percent annual reduction in the conversion factor would be appropriate because it would balance the need to address the past payments for non-drug items and services to ensure budget neutrality while also ensuring that the offset was not immediately, in the short-term, overly financially burdensome on impacted entities, especially those in rural communities, which we believed would be the case if we were to apply an adjustment for the full offset amount in a single year.

In the proposed rule, we acknowledged that, in litigation, we at

one point questioned the American Hospital Association's suggestion that we could achieve budget neutrality by decreasing Medicare payments in future years, noting that section 1833(t)(9) of the Act (42 U.S.C. 1395

(t)(9)) requires budget neutrality for a particular “year.”

See Am. Hosp. Ass'n

Becerra,

Br. for the Respondents, at 30 (U.S. No. 20-1114).

At the same time, however, the government's briefing pointed to the District Court's conclusion that if the Secretary was to retroactively increase the 2018 and 2019 payments for 340B hospitals, “budget neutrality would require him to retroactively lower the 2018 and 2019 rates for other Medicare Part B products and services.”

Ibid.

In the proposed rule, we indicated that we had further considered section 1833(t)(9) of the Act (42 U.S.C. 1395

(t)(9)) in light of the Supreme Court's decision holding that judicial review was available and also recognizing the statutory requirement of budget neutrality, and that consequently different ways of approaching the remedy had come into focus.

https://www.supremecourt.gov/DocketPDF/20/20-1114/197027/20211020212647625_20-1114bsUnitedStates.pdf.

As we explained in the proposed rule, our proposal was consistent with section 1833(t)(9) of the Act: It would offset the amounts of money that constitute excess payments in past years—which are effectively overpayments for those years (that is, 2018 to 2022) in light of the Supreme Court's decision. In other words, while we proposed reducing the conversion factor in future years, we would be doing so not by seeking to budget neutralize payments across a period of years rather than in a particular “year,” but instead by adjusting payment rates for each year from 2018 to 2022 to account for the Supreme

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