Skip to main content
a female doctor sits and listens to a senior woman sitting down in a consultation room . They are sitting in a defocussed hospital clinic waiting room . The doctor is wearing no white coat and holding

Hospital OPPS: Remedy for 340B Payment Policy for CY 2018–2022

Read on to learn more about a remedy for 340B Drug Pricing Program payment policy for CY 2018–2022.
banner background

There has rarely been a dull moment in the world of the 340B Drug Pricing Program. The program, which allows eligible healthcare entities to stretch their scarce federal resources further and provide additional benefits and services through discounted drug prices, is continually seeing challenges, clarifications, and other changes.

One welcome relief to eligible providers regarding the 340B Program occurred in June 2022 with a Supreme Court decision. In the case of American Hospital Association v. Becerra, the court unanimously ruled that the differential payment rates for 340B-acquired drugs, which were lowered by CMS for CY 2018–2022, were unlawful because prior to implementing the rates, HHS failed to conduct a survey of hospitals' acquisition costs under the relevant statute.

Shortly after the court ruling, eligible providers began receiving the higher rates on a “go-forward” basis, but questions remained throughout 2022 and the first half of 2023 as to how eligible providers were going to receive the lost reimbursement retroactive back to CY 2018.

Some clarity was provided on July 7, 2023, when CMS issued a proposed rule outlining the proposed remedy for CY 2018–2022. There were two central components in the proposed rule. First, CMS proposed to repay 340B hospitals that were unlawfully underpaid from 2018 to 2022 in a single lump-sum payment and provided an estimate for each of the approximately 1,600 affected 340B-covered entity hospitals. Second, CMS proposed a policy to recoup funds from those hospitals that received increased rates for non-drug services from 2018 to 2022. Specifically, CMS proposed to recoup these funds by adjusting the Outpatient Prospective Payment System (OPPS) conversion factor for all hospitals affected by the OPPS by minus 0.5% starting in CY 2025.

On November 2, CMS issued a final rule, that was mostly consistent with the proposed rule with one key difference. The proposed offset of future non-drug items and services through adjusting the OPPS conversion factor was changed in the final rule to begin in FY 2026, providing an extra year before cuts will go into effect. CMS estimates it could take up to 16 years.

Lump-sum provider payment amounts are located on CMS-1793-F. The final rule has indicated that it will provide instructions to the MACs to make payments and that such payments should be made within 60 days of delivery of said instructions. However, it should be noted that the estimates from CMS only cover traditional Medicare, and organizations may need to consider the impact of the Supreme Court ruling on reimbursement from other payors, such as Medicare Advantage payors.

Accounting and financial reporting questions have arisen not only due to the timing of certain announcements and decisions but also due to the uncertainty that remained until a final rule was issued. Provider care organizations are required to consider the conditions that exist at the balance sheet date, and which might develop subsequently in thinking through such accounting and financial reporting considerations.

The industry was generally in agreement that neither the Supreme Court ruling in June 2022 nor the proposed CMS rule in July 2023 provided enough probability that recording amounts are appropriate. Consideration of past items requiring CMS approval has led the industry to consider this as a Type 2 subsequent event (disclosed but not recorded) for year-ends prior to the issuance of the final rule (November 2, 2023, i.e., October 31, 2023 FYEs and earlier). The main factor leading to the conclusion of a Type 2 subsequent event is that until CMS approves a final rule, it technically can significantly change the nature, timing, and extent of reimbursement. Further, proposed rules have typically not met the designation of additional transaction price such that a condition at the balance sheet does not yet exist until a final rule is issued.

Most agree that in considering the additional reimbursement, applying ASC 606, i.e., revenue recognition, is most appropriate. The Supreme Court decision on June 15, 2022 in favor of the American Hospital Association created a situation in which hospitals were entitled to additional reimbursement, i.e., variable consideration. At the same time, most agree that the court decision alone did not provide enough information for hospitals to conclude it should record additional revenue as the risk of significant revenue reversal was more than remote, i.e., not enough information to estimate and conclude probable. Accordingly, most did not record additional revenue, i.e., applied the variable constraint, upon notification of the Supreme Court Ruling or through July 7, 2023, when CMS issued its proposed rule.

Most also agreed that the proposed rule issued on July 7, 2023 was new information that should be considered but most also agreed it was not enough information to conclude the variable constraint was no longer present, i.e., not yet ready to recognize.

There also appears to be consensus that the budget neutrality aspect of the CMS proposed rule does not currently trigger accounting implications from a potential payback. The OPPS reimbursement reduction is commonly viewed separate and distinct from the 340B back pay to hospitals and considered as a future reduction in reimbursement accounted on a go-forward basis. This is similar to sequestration; when future rate cuts were announced, organizations accounted for them prospectively.

GASB considerations: There also appeared to be a consensus that although the terminology is different (gain contingency under revenue recognition), the accounting for revenue recognition would substantially be the same as FASB.

In this environment of continual change, organizations are encouraged to:

  • Stay up to date on the CMS proposed and ultimate final rule and document consideration and conclusions relative to revenue recognition.
  • Continue to update executives and boards about the uncertainties in the 340B program, including how the discounted drug price benefits are currently being used by the organization and what might need to happen if the benefits decrease.
  • Ensure timely 340B Mock HRSA audits and benefit assessments are performed by qualified third parties to help minimize risk and consider opportunities under current program structures.

If you have questions or need assistance, please reach out to a professional at FORVIS.

Related FORsights

Like what you see?
Subscribe to receive tailored insights directly to your inbox.