[Federal Register Volume 88, Number 131 (Tuesday, July 11, 2023)]
[Proposed Rules]
[Pages 44078-44096]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14623]



[[Page 44078]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 419

[CMS-1793-P]
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: Proposed rule.

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SUMMARY: This proposed rule describes the agency's proposed actions to 
comply with the remand from the district court to craft a remedy in 
light of the United States Supreme Court's decision in American 
Hospital Association v. 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: To be assured consideration, comments must be received at one of 
the addresses provided below, by September 11, 2023.

ADDRESSES: In commenting, please refer to file code CMS-1793-P.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1793-P, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1793-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Elise Barringer, (410) 786-9222.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following 
website as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that website to 
view public comments. CMS will not post on Regulations.gov public 
comments that make threats to individuals or institutions or suggest 
that the individual will take actions to harm the individual. CMS 
continues to encourage individuals not to submit duplicative comments. 
We will post acceptable comments from multiple unique commenters even 
if the content is identical or nearly identical to the content of 
comments submitted by other commenters.

I. Background

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

1. Overview
    Under the Hospital Outpatient Prospective Payment System 
(``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 (the Act). 
Section 1833(t)(14)(A)(iii)(II) of the Act 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 section 1842(o), 
section 1847A, or section 1847B of the Act, as the case may be. Payment 
rates for drugs are usually established under section 1847A of the Act, 
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 also 
provides that the average price for the drug in the year as established 
under section 1847A of the Act 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),\1\ the HHS Office of the 
Inspector General (OIG),\2\ and the Medicare Payment Advisory 
Commission (MedPAC) \3\ 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).
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    \1\ 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.
    \2\ 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.
    \3\ 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/.
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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

[[Page 44079]]

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 modifier ``JG,'' 
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).\4\
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    \4\ 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.
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    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, 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.

B. Litigation History of the 340B Payment Policy

    The 340B payment policy has been the subject of extensive 
litigation. On December 27, 2018, in the case of American Hospital 
Association v. Azar, 348 F. Supp. 3d 62 (D.D.C. 2018), the United 
States District Court for the District of Columbia (the District Court) 
concluded that the Secretary exceeded his statutory authority by 
adjusting the Medicare payment rates for drugs acquired under the 340B 
Program to ASP minus 22.5 percent for CY 2018. The District Court 
subsequently came to the same conclusion for CY 2019. See Am. Hosp. 
Ass'n v. Azar, 385 F. Supp. 3d 1 (D.D.C. 2019).
    On July 10, 2019, the District Court entered final judgment. See 
Am. Hosp. Ass'n v. Azar, No. 18-cv-2084 (RC), 2019 WL 3037306 (D.D.C. 
July 10, 2019). The agency then appealed to the United States Court of 
Appeals for the District of Columbia Circuit (the D.C. Circuit), and on 
July 31, 2020, that court issued an opinion reversing the District 
Court's judgment. See Am. Hosp. Ass'n v. Azar, 967 F.3d 818 (D.C. Cir. 
2020).
    On June 15, 2022, the Supreme Court reversed the decision of the 
D.C. Circuit, holding that if CMS has not conducted a survey of 
hospitals' acquisition costs, it may not vary the payment rates for 
outpatient prescription drugs by hospital group. See Am. Hosp. Ass'n v. 
Becerra, 142 S. Ct. 1896 (2022).
    The Supreme Court declined to opine on the appropriate remedy and 
remanded the case to the D.C. Circuit, which in turn remanded it to the 
District Court. Upon 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. On September 28, 2022, the District Court ruled on the 
first motion, vacating the 340B

[[Page 44080]]

reimbursement rate for the remainder of 2022. See Am. Hosp. Ass'n v. 
Becerra, 18-cv-2084 (RC), 2022 WL 4534617.\5\
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    \5\ https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv2084-79.
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    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 v. Becerra, 18-cv-2084 (RC), 
2023 WL 143337.\6\
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    \6\ https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv2084-86.
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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.\7\
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    \7\ See supra note 4.
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    In the CY 2023 OPPS/ASC final rule with comment period, we 
finalized a policy that drugs acquired through the 340B program would 
be paid at the default rate (generally ASP plus 6 percent) for CY 2023. 
Correspondingly, 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 when we implemented 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 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 (AHA), 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 when CMS implemented the 340B 
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. Proposal To Remedy Payment Adjustment for 340B-Acquired Drugs From 
CY 2018 Through September 27th of CY 2022

A. Remedy Options Considered By CMS

    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'') \8\ as close to whole as is 
administratively feasible.
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    \8\ 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.
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    We describe the different remedy options and aspects of those 
alternative options that we considered 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 Proposing an Adjustment To Maintain Budget Neutrality
    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 proposing to pay 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 
described in more detail below, 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, along with our retroactive rulemaking authority 
in section 1871(e)(1)(A) of the Act. We note that sections 
1833(t)(2)(E) and 1833(t)(14) of the Act require budget neutrality with 
respect to payment adjustments to the OPPS made under those sections 
and are not specific to remedy payments. Consequently, 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. We believe our reading 
of these provisions is consistent with the statute's general approach 
of budget neutralizing OPPS payment adjustments, see, e.g., Social 
Security Act (SSA) section 1833(t)(9)(B), as further explained in the 
following sections.
    Section 1833(t)(2)(E) of the Act straightforwardly requires 
adjustments made under that provision be made ``in a budget neutral 
manner.'' (Accord 65 FR 18438 (noting (t)(2)(E)'s budget neutrality 
requirement)) Section 1833(t)(14)(H) of the Act, 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.'' In addition, section 1833(t)(9)(B) of the Act, referenced in 
section 1833(t)(14)(H), states that ``[i]f the Secretary makes 
adjustments under subparagraph (A),\9\ 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

[[Page 44081]]

made if the adjustments had not been made.''
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    \9\ Section 1833(t)(9)(A) 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.
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    We believe these statutory requirements require that we maintain 
budget neutrality when making these remedy payments. To the extent 
these remedy payments are understood as a payment adjustment under 
section 1833(t)(2)(E) of the Act, 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, they are 
``[a]dditional expenditures resulting from'' paragraph (t)(14) for 
years other than 2004 or 2005 and thus are subject to budget neutrality 
constraints under section 1833(t)(14)(H) of the Act.
    This reading of these provisions is consistent with the statute's 
general approach of budget neutralizing OPPS payment adjustments, see, 
e.g., SSA section 1833(t)(9)(B), except when expressly exempted, see 
SSA section 1833(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 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. The Trustees 
of the Part B Trust Fund warn that unexpected increases in Medicare 
Part B or D expenditures may thus 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.\10\ 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.
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    \10\ https://www.cms.gov/oact/tr/2023.
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    Accordingly, when changes to payment policy are made, we make an 
adjustment to the OPPS conversion factor in order to maintain budget 
neutrality. (70 FR 68542 (noting outpatient drugs are included in the 
budget neutrality calculation beginning in 2006)) We do not believe 
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 acknowledge that, in the past, not all OPPS payment policy 
changes based on sections 1833(t)(14) and (t)(2)(E) of the Act have 
resulted in adjustments to the budget neutrality factor or actual 
expenditures from the Part B Trust Fund equaling zero in all 
circumstances. The method CMS uses to account for changes to the 
``estimated number of expenditures'' referenced in section 
1833(t)(9)(B) and incorporated by section 1833(t)(14)(H) is the OPPS 
conversion factor (e.g., 71 FR 68193 through 68194). 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.\11\ 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-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.
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    \11\ In the CY 2007 OPPS/ASC final rule with comment period, 
using our authority under section 1833(t)(2)(E) of the Act, 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.
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    In the case of the remedy payments for the 340B payment policy, by 
contrast, we believe 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 very 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. Additionally, we do not believe any reliance 
interests or administrative burdens outweigh the impact of the remedy 
payments on the Part B Trust Fund sufficiently to justify disregarding 
the principle of budget neutrality, if that were statutorily possible. 
As we explain below, though, 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.
    As noted previously in section I.A.3, 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. That resulted in $7.8 
billion in additional spending on non-drug items and services during 
that time period. We note that some OPPS providers are still filing, or 
re-filing, claims for CY 2022; therefore, our estimate of the total 
amount of additional spending on non-drug items and services during 
that time period could change as more claims from CY 2022 are 
processed, or reprocessed. CMS has repeatedly stated in both litigation 
and OPPS rules in the Federal Register that any remedy payments could 
be subject to budget neutrality constraints. See, e.g., Am. Hosp. Ass'n 
v. Becerra, 142 S. Ct. 1896, 1903 (2022) (acknowledging HHS's position 
that ``a judicial ruling invalidating the 2018 and 2019 reimbursement 
rates for certain hospitals would require offsets elsewhere in the 
program''); 84 FR 61323 (``Recognizing Medicare's complexity in 
formulating an appropriate remedy, any changes to the OPPS must be 
budget neutral, and reversal of the policy change, which raised rates 
for non-drug items and services by an estimated $1.6 billion for 2018 
alone, could have a significant

[[Page 44082]]

economic impact on the approximate 3,900 facilities that are paid for 
outpatient items and services covered under the OPPS.''). Additionally, 
because the 340B payment policy this rule proposes to remedy was itself 
budget neutralized, failing to budget neutralize the remedy payments 
would mean that the additional payments for non-drug items and services 
that were made from CY 2018 through CY 2022 to achieve budget 
neutrality for the 340B payment policy as described under section I.A.3 
of this proposed rule would be a windfall, especially to non-340B 
hospitals that were not subject to decreased drug payments from CY 2018 
through CY 2022. The Trust Fund has a strong interest in recovering 
that windfall, and those who received it have no legitimate reliance 
interest in permanently retaining that windfall.
    As for the administrative burden specific to maintaining budget 
neutrality, CMS was already required by the remand order to remedy the 
340B policy. The decision to include a budget neutrality component in 
this remedy does not appreciably change this burden, though of course 
the burden could be greater or lesser depending on how the remedy is 
crafted. As set forth more fully below, our proposed budget neutrality 
adjustment does not directly recoup money already paid to providers; 
rather, it is a proposed adjustment to future payment rates, allowing 
hospitals to take such rates into account rather than forcing them to 
open their bank accounts and disgorge their windfall immediately. On 
balance, the billions of dollars the proposed payments to affected 340B 
covered entity hospitals would cost the Part B Trust Fund outweigh the 
potential administrative expenses or disruption resulting from a broad 
change in OPPS payment to offset these additional costs.
    Finally, even if this remedy rule were exempt from budget 
neutrality requirements as a matter of statutory interpretation, we 
would still exercise our authority under section 1833(t)(2)(E) of the 
Act to offset the extra payments we made for non-drug items and 
services from 2018 through 2022. As discussed, those payments have 
proven to be an unwarranted windfall, and the Trust Fund has a strong 
interest in recovering them. This proposal to avoid a windfall to 
providers would also be consistent with the agency's longstanding 
inherent and common-law (and common-sense) recoupment authority, 
through which ``the Secretary generally has the duty and power to 
protect against overpayments to providers.'' Chaves Cnty. Home Health 
Serv., Inc. v. Sullivan, 931 F.2d 914, 918 (D.C. Cir. 1991); see also, 
e.g., United States v. 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, see 42 
U.S.C. 1395g(a) and 1395gg, 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.''); Mount Sinai Hosp. of Greater Miami, Inc. v. 
Weinberger, 517 F.2d 329, 345 (5th Cir.), modified, 522 F.2d 179 (5th 
Cir. 1975) (similar). For that reason and those discussed above, we 
would find that unwinding those payments would be necessary to ensure 
equitable payments, even assuming no statutory budget neutrality 
requirement applies.
    Therefore, we believe 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 propose 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 remains unique: We are adjusting payments 
prospectively in order to provide a remedy for a previous unlawful 
payment decision. And 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 solicit comments from the public on 
our proposed interpretation of our statutory budget neutrality 
obligations, equitable payment authorities, and recoupment authority.
2. Full Claims Reprocessing From CY 2018 Through September 27th of CY 
2022
    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. To do so here, 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 and our retroactive rulemaking authority in 
section 1871(e)(1)(A) of the Act. 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 we have 
previously rejected arguments that remedial rulemaking must necessarily 
provide this type of precise make-whole relief. See Shands Jacksonville 
Med. Ctr., Inc. v. 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'').
    Reprocessing every single claim might be a potential approach to 
remedy this situation, if it were administratively achievable. But 
reprocessing such an unprecedentedly large volume of claims and issuing 
payment to affected providers in a timely fashion would impose an 
immense administrative burden on CMS, its contractors, and providers. 
We accordingly believe that this approach is not feasible in this case. 
This approach 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. 
Reprocessing almost 5 years' worth of OPPS claims could take several 
years, resulting in some affected 340B covered entities 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, 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 have caused significant

[[Page 44083]]

administrative burden and delayed payments. See Shands, 959 F.3d at 
1120. But the expected results of such a calculation can certainly 
inform an alternative approach to budget neutrality, as we discuss 
below.
    We note 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 CY2022 340B payment rate and 
the typical timely filing requirements described at 42 CFR 424.44. We 
believe this was appropriate for CY 2022 claims given that providers 
were able to follow the regular claims processing conventions for these 
claims, and we will ensure CMS does not make duplicate payments for 
these claims already remedied by the usual claims processing methods. 
As of this proposed rule, we estimate that for CY 2022, $1.5 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 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. We note that the non-drug item and service 
payment components of these claims were not remedied, which we discuss 
in subsequent sections. This $1.5 billion is one component of the total 
remedy payments accounted for in this proposed 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.
3. Aggregate Hospital Payments From CY 2018 Through September 27th of 
CY 2022
    We also 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, along with our 
retroactive rulemaking authority in section 1871(e)(1)(A) of the Act. 
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.
    While this approach would also have satisfied the statutory budget 
neutrality concerns discussed above, we do not believe the statute 
mandates 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.) 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. Given these burdens, the financial strain many hospitals 
experienced during the recent public health emergency, 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 and overly burden these hospitals in this way.

B. Proposed Remedy

1. Proposed 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
    CMS believes that the best way to remedy our payment policy for 
340B-acquired drugs 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 entities 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 
believe this approach comes as close to providing 340B covered entities 
with make-whole relief as CMS can reasonably accomplish, without the 
massive 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, CMS 
expects the remedy payment to each 340B covered entity for 340B-
acquired drugs to be the same as if CMS manually reprocessed those 
claims.
    We propose to make the remedy payments relying principally on: (1) 
our rate-setting authority under section 1833(t)(14) of the Act; and 
(2) our equitable adjustment authority under section 1833(t)(2)(E) of 
the Act. To the extent this proposed rule is retroactive (in whole or 
in part), we would rely on our retroactive rulemaking authority in 
section 1871(e)(1)(A) of the Act.
    The Supreme Court has held that if CMS has not conducted a survey 
of hospitals' acquisition costs, it may not vary the payment rates for 
outpatient prescription drugs by hospital group. Because we did not use 
any survey of hospitals' acquisition costs, we believe 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 for 
those years, as interpreted by the Supreme Court. Even if a retroactive 
rule were not necessary to comply with section 1833(t)(14) of the Act, 
we believe 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 
believe to be proper under the statute and that they have continually 
pressed in court since we first announced the adjustment. We believe 
the equities weigh in favor of a partially retroactive remedy here, 
because a significant number of plaintiff hospitals have been 
advocating for our 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, and because the 
impact on the Part B Trust Fund will be lessened because we are 
applying budget neutrality principles. We note that the position of 
those plaintiff hospitals was ultimately vindicated by the Supreme 
Court.
    Section 1871(e)(1)(A) of the Act prohibits the application of 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

[[Page 44084]]

the change retroactively would be contrary to the public interest.'' 
Assuming this proposal is viewed as a retroactive remedy (in whole or 
in part), we believe it would 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.
    Section 1833(t)(2)(E) of the Act 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 
propose 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 retroactive adjustment. 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 are applying the adjustment 
retroactively in accordance with the Court's ruling and for the reasons 
discussed in the above paragraph.
    We are proposing to use our authority under 1833(t)(14) of the Act 
in conjunction with our equitable adjustment authority under 
1833(t)(2)(E) of the Act, to accomplish an equitable outcome as we 
remedy past payments made under the 340B payment policy. To the extent 
necessary, we also propose to use our retroactive rulemaking authority 
under section 1871(e)(1)(A) of the Act.
    We solicit comment from the public on our proposed use of these 
authorities in the remedy policies discussed in the rule. We also 
solicit comment on other possible authorities (including implied 
authority or common law authority) that might also be applicable to the 
remedy policies discussed in this rule or on which we could rely to 
make remedy payments.
b. Estimated Reduction in Drug Payments to Affected 340B Covered Entity 
Hospitals in CY 2018 Through September 27, 2022
    An estimated 1,649 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. CMS estimates 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. We will update these estimated figures in the 
final rule as we continue to receive updated CY 2022 claims data. We 
expect to have sufficient CY 2022 340B drug claims at issue submitted 
by September 27, 2023; therefore, by the publication date for the final 
rule that corresponds to this proposed rule, we should 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 previously discussed, we estimate that 340B 
providers have already received $1.5 billion in remedy payments through 
reprocessed claims for 340B drugs provided from January 1, 2022, 
through September 27, 2022. Since $1.5 billion of the total $10.5 
billion that we calculated affected 340B covered entity hospitals did 
not receive as a result of this payment policy has already been 
remedied through reprocessed claims, we estimate the remaining remedy 
amount that affected 340B covered entity hospitals have not yet 
received as a result of this policy is $9.0 billion.\12\
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    \12\ We note 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. 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 providers 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, 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.
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    We have 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 this 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 welcome 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.
c. Proposed Methodology for Calculating Remedy Payments Owed to Each 
Affected 340B Covered Entity Hospital
    We propose 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 
propose 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 policy 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

[[Page 44085]]

under the 340B Program for CY 2018 through September 27th of CY 2022.
    We illustrate 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. Based on claims data from CY 2018 
through September 27th of CY 2022 for which those claims have been 
processed and OPPS payments already made, we would calculate that a 
particular 340B-covered entity hospital would have been paid an 
estimated $10 million for 340B drugs had that 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 would calculate that 
the hospital was actually paid $7.31 million for 340B drugs from CY 
2018 through September 27th of CY 2022. The difference between these 
two amounts--$2.69 million--would be the amount of the additional lump 
sum payment the 340B covered entity hospital would receive. Another 
method to estimate 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.

    In this example, the Y is $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 solicit comment 
from the public on our proposed calculation methodology for calculating 
remedy payments owed to each affected 340B covered entity hospital.
d. Instruction to MACs To Remit Remedy Payments
    Consistent with our past practice of remitting payments owed due to 
litigation, we propose 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 propose 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 
$2.7 million within 60 calendar days of the MAC's receipt of the 
instructions. (Note: MACs will continue to follow normal accounting 
processes for collecting repayment amounts stemming 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.) We solicit comment from the 
public on our proposed approach to remitting remedy payments. We 
specifically seek comment on the timeframe of 60 calendar days in which 
we are proposing 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 believe 
60 calendar days is necessary for the MACs to accurately and precisely 
make these payments to individual hospitals. With that being said, we 
seek comment on this timeframe and if another such timeframe, such as 
30 calendar days, is supported by rationale from commenters.
e. Accounting for Beneficiary Cost-Sharing
    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 are proposing 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 and our equitable 
adjustment authority under section 1833(t)(2)(E) of the Act. 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, we do not believe these payments would be 
340B drug payments subject to beneficiary copayments. Rather, we 
believe that these remedy payments are analogous to the type of cost 
report adjustments under section 1833(t)(2)(E) of the Act that we have 
previously found do not authorize providers to seek additional 
beneficiary copayments.\13\
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    \13\ For example, section 3138 of the Affordable Care Act added 
a new section 1833(t)(18) to the Social Security Act, providing for 
an adjustment under section 1833(t)(2)(E) of the Social Security Act 
to address higher costs incurred by cancer hospitals. Section 
1833(t)(2)(E) of the Act, 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 to adjust cancer hospital 
payments.
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    We acknowledge that we have previously suggested that any remedy 
might affect beneficiary cost-sharing. See, e.g., 84 FR 61323. But we 
made that statement in 2019, before the litigation was concluded, and 
well before we proposed here 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 can clarify that our 
proposed lump sum payments for the difference in 340B-acquired drug 
payments due to the 340B payment policy would not affect beneficiary 
cost-sharing.
    We believe that in these unique circumstances, it is appropriate to 
exercise our authority under section 1833(t)(2)(E) of the Act 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 do not believe it would necessarily be appropriate to 
make this kind of adjustment under section 1833(t)(2)(E) of the Act 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 propose finding that such an 
adjustment is necessary for equitable payments in these unique 
circumstances in part because of the unprecedented

[[Page 44086]]

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 believe 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 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, the $9.0 billion payment 
amount includes $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 emphasize that, if our proposal is finalized, affected 340B 
covered entity hospitals may 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). CMS would 
consider appropriate administrative action for providers who 
nevertheless bill beneficiaries for coinsurance. We solicit comments 
from the public on our proposed approach to accounting for beneficiary 
cost sharing.
f. Proposed Remedy Payment Amounts
    The following data file contains our calculations of the amounts 
owed under the above-described methodology to each affected 340B 
covered entity hospital: https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps. We solicit comment from the 
public on the accuracy of the data in Addendum AAA of this 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.\14\
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    \14\ https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps.
---------------------------------------------------------------------------

g. Anticipated Timing of Proposed Remedy Payments
    If we finalize 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 this rule has been finalized and the MAC instructions for each 
affected 340B covered entity hospital have been issued.
h. Eligibility of Proposed Remedy Payments for Interest
    CMS also considered its authority to pay interest on the remedy 
payments but does not believe it has the authority to do so.
2. OPPS Non-Drug Item and Service Payments From CY 2018 Through CY 2022
a. Background
    As mentioned earlier in section I.A.3, 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 by increasing non-drug item and service 
payments to all OPPS providers for CY 2018 through CY 2022. To comply 
with the statutory budget neutrality requirements in sections 
1833(t)(9)(B) of the Act and 1833(t)(14)(H) of the Act, as well as 
section 1833(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. 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. 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 find 
a means of recovering this windfall.
    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 in the absence of the 340B payment 
policy. 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 in order to maintain budget neutrality in those 
years. Because we are now making 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 must correspondingly make an 
offset to maintain budget neutrality as if the 340B payment policy had 
not been in effect during CY 2018 through CY 2022. 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 above in section I.C. 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.
    To calculate the additional amount CMS paid for non-drug items and 
services, we propose 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.\15\ 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 propose 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 are proposing 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.

[[Page 44087]]

As we explain below, 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 turns out, 340B hospitals spent more on 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. Our proposed remedy achieves budget 
neutrality by reversing that imbalance. In aggregate, the total 
additional payment that providers will receive as a result of this 
remedy, $10.5 billion, will be larger than the amount of payment that 
will be prospectively offset, $7.8 billion. As we explain below, we 
believe that our proposed remedy, which effectively reverses the 
imbalance that arose under the policy the Supreme Court deemed 
unlawful, and reasonably approximates 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 solicit comments from the public on our proposed 
approach to implementing budget neutrality.
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    \15\ https://www.cms.gov/medicaremedicare-fee-service-paymenthospitaloutpatientppshospital-outpatient-regulations-and-notices/cms-1772-fc.
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b. Proposed 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 discussed previously in section II.A.1, we believe that sections 
1833(t)(2)(E) and 1833(t)(14) of the Act, under which we propose to 
make this proposed remedy payment, are properly read to require budget 
neutrality. Section 1833(t)(2)(E) of the Act provides that adjustments 
under that provision must be made in a budget neutral manner. Section 
1833(t)(14)(H) of the Act 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 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 propose 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 
discussed earlier in this rule, we propose 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.
    In order to reduce the burden on providers of offsetting this 
amount required to maintain budget neutrality, estimated to be $7.8 
billion, we are proposing to implement this adjustment prospectively. 
We propose to, beginning in CY 2025, reduce all payments for non-drug 
items and services to all OPPS providers, except new providers as 
defined later in this section, by 0.5 percent each year until the total 
offset is reached (approximately 16 years). We believe starting this 
reduction in CY 2025 would allow CMS time to finalize the appropriate 
methodology, and then calculate and publish the payment rates derived 
from this policy in the CY 2025 OPPS/ASC proposed rule, allowing 
adequate time for impacted parties to assess and prepare for the new 
payment rates that would be calculated using a reduced conversion 
factor. Additionally, we believe 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 the offset is not overly 
financially burdensome on impacted entities, especially those in rural 
communities, which we believe would be the case if we were to apply an 
adjustment for the full offset amount in a single year.
    We acknowledge 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 requires budget neutrality for a 
particular ``year.'' See Am. Hosp. Ass'n v. Becerra, Br. for the 
Respondents, at 30 (U.S. No. 20-1114).\16\ At the same time, however, 
the government 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. We have now further considered section 1833(t)(9) in 
light of the Supreme Court's decision holding that judicial review is 
available and also recognizing the statutory requirement of budget 
neutrality, and distinct possible ways of approaching the remedy issue 
have come into focus.
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    \16\ https://www.supremecourt.gov/DocketPDF/20/20-1114/197027/20211020212647625_20-1114bsUnitedStates.pdf.
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    As explained below, we believe that the proposal here is consistent 
with paragraph (t)(9) of the Act: It would offset the amounts of money 
that constitute excess payments in past years--which are effectively 
overpayments for each past year in question (that is, 2018 to 2022) in 
light of the Supreme Court's decision. In other words, while we propose 
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 
Court's decision. We would then make the requisite additional payments 
to 340B hospitals for those years, and collect the excess payments from 
other hospitals in future years. Because the estimated amount of 
expenditures for each of 2018 to 2022 would still be budget 
neutralized--indeed, it is our best effort to implement the policy that 
would have been in effect had the 340B policy never been implemented in 
the first place--we believe it is consistent with the provision that 
adjustments may not ``cause the estimated amount of expenditures under 
this part for the year to increase or decrease.'' See SSA section 
1833(t)(9)(B). We believe that this interpretation would balance any 
reliance interests hospitals may have in payments already made while 
staying consistent with the budget neutrality requirements repeated 
throughout the OPPS statute in sections 1833(t)(2)(E), 1833(t)(9), and 
1833(t)(14)(H). And, as discussed above in section II.A.1, avoiding a 
windfall to providers is consistent with the agency's recoupment 
authority. We welcome comments on these aspects of our proposal.
    We also acknowledge that under our proposal the Part B Trust Fund 
would pay out more for remedial payments than it would recover over 
time based on the reduction in payments for non-drug items and 
services. That is a consequence of many factors, including our estimate 
in the CY 2018 OPPS/ASC final rule of the amount that expenditures for 
340B-acquired drugs would decrease under the 340B payment policy, which 
we budget neutralized by applying a corresponding adjustment to the 
conversion factor to increase expenditures for non-drug

[[Page 44088]]

items and services by 3.19 percent. We acknowledged this limitation in 
Medicare's ability to calculate a precise estimate for purposes of the 
CY 2018 final rule with comment period in which this original budget 
neutrality adjustment was made. In the CY 2018 final rule with comment 
period we discussed that because data on drugs that are purchased with 
a 340B discount are not publicly available, we did not believe it was 
possible to more accurately estimate the amount of the aggregate 
payment reduction and the offsetting amount of the adjustment that was 
necessary to ensure budget neutrality through higher payment rates for 
other services. Further we discussed that there were potential 
offsetting factors, including possible changes in provider behavior and 
overall market changes that would likely have lowered the impact of the 
payment reduction (82 FR 52623).
    As previously discussed, we now know our estimate of the reduction 
in expenditures for 340B drugs was lower than the actual amount by 
which expenditures for 340B drugs were reduced in CYs 2018 through 
2022. Therefore, our budget neutrality calculations for those years 
ended up increasing payments for non-drug services by less than we 
decreased payments for 340B drugs. In an effort to come as close as is 
reasonably possible to turning back the clock to restore the position 
in which we would have been absent the policy the Supreme Court 
invalidated, we believe the budget neutrality calculation should 
reverse that result. The total amount of our proposed remedy payments 
to 340B hospitals for 340B drugs would thus be greater than the 
prospective reduction to the conversion factor. Given the unique 
posture of this remedy rule, we do not propose at this time to revise 
retroactively our estimated expenditures for CY 2018 through 2022, as 
readjusting our past estimated expenditures in order to prospectively 
adjust the conversion factor is not our standard practice for budget 
neutrality, nor is it required by the statute.
    While our CY 2018 through 2022 predictions are the primary reasons 
that our proposed method of budget neutralization would not fully align 
with the money we predict the Part B Trust Fund would pay out in lump 
sum payments for 340B-acquired drugs as a result of this remedy, there 
are additional reasons. Some of these reasons increase the gap between 
our lump sum payment and our reduction in prospective non-drug 
spending; others do the opposite. First, as previously discussed, 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. However, none of the non-drug item and service 
claims from CY 2022 have been offset yet to account for our proposed 
method of budget neutralization. Second, as previously noted, during CY 
2022 CMS began making payment for 340B drugs at the default drug 
payment rate, generally ASP plus 6 percent, for claims processed after 
September 28, 2022; however, no adjustment was made for the increased 
payment of the non-drug item and service claims that were processed 
during this time. Therefore, there is over an entire quarter of claims 
for non-drug items and services that were paid a higher rate due to the 
340B payment policy that still need to be offset, while the 340B drug 
claims for this quarter have already been paid correctly. We note that 
in aggregate, the total additional payment that providers will receive 
as a result of this remedy, $10.5 billion ($9 billion in lump sum 
payments and $1.5 billion for claims in 2022 that were processed or 
reprocessed at the default drug payment rate), will be larger than the 
amount of payment that will be prospectively offset, $7.8 billion. All 
of these figures include the beneficiary co-insurance portion in order 
to ensure providers receive what they would have absent the unlawful 
340B payment policy.
    As discussed above at section II.B.1.e, our proposal includes in 
the remedy payments the amount that affected 340B covered entity 
hospitals would otherwise have been paid by the beneficiary, so that 
the payments approximate what the hospitals would have been paid for 
these drugs absent the previous policy. Because the statute requires 
that this adjustment be budget neutral, we are proposing to include in 
the prospective offset calculation an amount to offset this increase in 
Medicare payments. As also discussed, we are proposing a total 
prospective offset of $7.8 billion to maintain budget neutrality as if 
the 340B payment policy had never been in effect and therefore had 
never adjusted the OPPS conversion factor. That offset encompasses both 
the money hospitals unwarrantedly received from the Medicare Trust Fund 
for non-drug services between 2018 and 2022, as well as the additional 
copayments they received from beneficiaries on those services. And we 
are using it to offset both the payments we are making to compensate 
340B hospitals for the lower amounts Medicare paid them and the 
equitable adjustment we are making to compensate for the additional 
beneficiary copayments they would have received.
    To avoid potentially overburdening providers with an immediate 
downward adjustment to the OPPS conversion factor, we believe applying 
a delayed offset to every non-drug item and service for every hospital 
is appropriate over a period of time. This is similar to the original 
340B payment policy budget neutrality adjustment that increased the 
payment for every non-drug item and service for CY 2018 through CY 2022 
to offset the downward adjustment in the payment rate for drugs 
acquired under the 340B program. We are aware that, depending on how a 
hospital's future mix of drug and non-drug services compares to its 
past mix of drug and non-drug services, as well as any absolute growth 
in a hospital's non-drug services, some hospitals may ultimately 
receive slightly more (or less) of a payment reduction than the payment 
increase they received in CY 2018 through CY 2022. But there is often 
some imprecision inherent in budget neutrality calculations, and the 
alternative would require that we recalculate the additional amount 
that each hospital received under the prior policy and then apply a 
specific reduction to that hospital's future non-drug service payment 
rates to offset that amount. That is very similar to the claims 
reprocessing alternative that we discussed previously in section 
II.A.2, which would impose significant burdens and payment delays for 
340B providers and it is faster and more certain than prospectively 
offsetting for all OPPS providers. In addition, it would be 
administratively unworkable to tailor individual payment reductions for 
each of the thousands of impacted hospitals for over a decade and a 
half, meaning we would likely need to collect a lump sum budget 
neutrality recoupment. That would impose all the burdens of an up-front 
budget neutrality recoupment we decided against proposing, as explained 
previously in section II.A.3. Except in the case of truly new 
hospitals, which we propose to exclude from the prospective offset as 
described under section II.B.2.c below, we generally do not believe our 
proposed approach would so significantly undercompensate hospitals to 
require that outcome, despite these potential distributional 
consequences. See Shands Jacksonville Med. Ctr., Inc. v. Azar, 959 F.3d 
1113, 1120 (D.C. Cir. 2020) (rejecting challenge to remedy rule even 
when it left some hospitals

[[Page 44089]]

``slightly better off and others slightly worse off than they would 
have been had the rate reduction never taken effect''). Rather, we 
believe that our remedy would come as close as reasonably possible to 
turning back the clock to restore us to the place in which we would 
have been absent the policy the Supreme Court held unlawful. This 
remedy applies in truly unique circumstances: we must apply budget 
neutrality not purely prospectively but in a partially retroactive 
rulemaking to rectify an adjudicated past violation of law. As 
previously discussed, re-running all the relevant claims as if the 340B 
payment policy didn't occur would be close to impossible 
administratively. In these unique circumstances, we believe our 
proposed approach properly applies the budget neutrality principle, 
even if it results in some effectively unavoidable imprecision.
    Accordingly, beginning in CY 2025, we propose annually to reduce 
OPPS payments for non-drug items and services, by decreasing the OPPS 
conversion factor by 0.5 percent each year until the total offset, 
estimated to be $7.8 billion, is reached. We recognize this rule is 
unique and therefore requires a unique prospective offset period. We 
believe an annual reduction of 0.5 percent would offset this amount in 
a reasonable amount of time while not imposing too significant of a 
reduction on hospitals in any particular year. At this time, we 
estimate that this process would take approximately 16 years (Table 1). 
This estimate is based on current OPPS payments that are made through 
the OPPS conversion factor and typical year-over-year increases in OPPS 
payments over the past ten years. We note that, similar to the original 
340B budget neutrality adjustment to the conversion factor, both 
Medicare payments under the OPPS and beneficiary cost-sharing will be 
impacted by the change in the conversion factor. In this instance, 
beneficiaries will generally have lower co-insurance payments for non-
drug items and services as a result of this proposed 0.5 percent annual 
reduction to the OPPS conversion factor for the duration of the 
required budget neutrality offset. We invite comment on our estimated 
budget neutrality offset calculations, including the discussion of our 
method of budget neutralization not fully aligning with the money we 
predict the Part B Trust Fund would pay out in lump sum payments for 
340B-acquired drugs as a result of this remedy, in advance of our 
application of the 0.5 percent reduction to the conversion factor 
starting in CY 2025. We would adjust this estimate in future CY annual 
OPPS rules after CY 2025, based on updated data, such as claims and 
aggregate OPPS spending estimates, to account for how much of the total 
additional non-drug item and service payment amount has been offset by 
the time of each annual rule. In the final CY rulemaking for this 
process, we propose that when we estimate the remaining amount of 
Medicare payment that would be needed to be fully offset within the 
prospective year, we propose that the 0.5 percent reduction amount 
would be reduced in the final year in which the adjustment applies, if 
needed, to the percentage estimated to be sufficient to offset the 
remaining amount by the end of that calendar year. After this final 
prospective adjustment is made, we propose that we would not make any 
additional adjustments to the OPPS conversion factor for purposes of 
offsetting the additional Medicare payments made to remedy the OPPS 
340B payment policy, nor would we make any additional future 
adjustments if the amount of the offset in the final year of this 
adjustment is more or less than we had estimated in rulemaking for that 
CY. We propose to codify the 0.5 percent reduction in the OPPS 
conversion factor effective for CY 2025 in the regulations by adding 
new paragraph (b)(1)(iv)(B)(12) to Sec.  419.32.

  Table 1--Illustration of the Proposed 0.5 Percent Conversion Factor Adjustment to the OPPS Non-Drug Items and
                            Services Beginning CY 2025 To Maintain Budget Neutrality
----------------------------------------------------------------------------------------------------------------
                                                 CY 2024    CY 2025    CY 2026    CY 2027    CY 2028    CY 2029
----------------------------------------------------------------------------------------------------------------
Total Applicable OPPS Non-Drug Item and           $63,724    $66,910    $70,256    $73,769    $77,457    $81,330
 Service Spending (millions)..................
0.5-Percent Payment Reduction Amount            .........        335        351        369        387        407
 (millions)...................................
Estimated Total Cumulative Offset (millions)..  .........        335        686      1,055      1,442      1,849
----------------------------------------------------------------------------------------------------------------
                                                  CY 2030    CY 2031    CY 2032    CY 2033    CY 2034    CY 2035
----------------------------------------------------------------------------------------------------------------
Total Applicable OPPS Non-Drug Item and           $85,369    $89,667    $94,150    $98,858   $103,801   $108,991
 Service Spending (millions)..................
0.5-Percent Payment Reduction Amount                  427        448        471        494        519        545
 (millions)...................................
Estimated Total Cumulative Offset (millions)..      2,276      2,724      3,195      3,689      4,208      4,753
----------------------------------------------------------------------------------------------------------------
                                                             CY 2036    CY 2037    CY 2038    CY 2039    CY 2040
----------------------------------------------------------------------------------------------------------------
Total Applicable OPPS Non-Drug Item and Service Spending    $114,440   $120,162   $126,170   $132,479   $139,102
 (millions)..............................................
0.5-Percent Payment Reduction Amount (millions)..........        572        601        631        662      * 581
Estimated Total Cumulative Offset (millions).............      5,325      5,926      6,557      7,219      7,800
----------------------------------------------------------------------------------------------------------------
* Note, the final year's offset is estimated to be less than 0.5 percent in order to meet the total estimated
  offset of $7.8 billion.
We also note the Total Applicable OPPS Non-Drug Item and Service Spending are estimates based on an assumption
  of 5 percent annual growth. The 5 percent annual growth is determined from a 10-year baseline percentage
  increase.

    We seek comments on the annual percent reduction method described 
above and whether an alternative option--including those discussed 
previously in section II.A--would be appropriate. Additional possible 
alternative timelines for maintaining budget neutrality could be to 
offset a fixed dollar amount each year over a fixed period of time, 
such as 5, 10, or 15 years. For example, we could divide the $7.8 
billion number by ten in order to offset $780 million per year from CY 
2025 through CY 2034 by making an adjustment to the conversion factor 
to reflect an estimated $780 million reduction in non-drug item and 
service spending for each year.
    We are also considering whether hospitals need additional time to 
prepare following any finalized policy, and, as such, seek comment on 
whether delaying the proposed reduction in the conversation factor from 
CY 2025 to CY 2026 would provide hospitals with additional time to make 
necessary arrangements.

[[Page 44090]]

c. Exclusion of New Providers
    CMS recognizes that any hospital that enrolled in Medicare after 
January 1, 2018, received less than the full amount of the increased 
non-drug item and service payments made during that time than they 
otherwise would have received if enrolled prior to that date. This is 
because the increased non-drug item and service payments were being 
paid during all of CY 2018 through CY 2022, so any hospital that was 
not enrolled in Medicare for the full duration of this time period did 
not receive the full amount of increased non-drug items and service 
payments. We note that while the 340B drug payments increased to the 
default rate effective September 28, 2022 following the Supreme Court's 
decision, the increased conversion factor and associated increased non-
drug item and service payments were in effect until December 31, 2022. 
We are therefore proposing that these providers would not be subject to 
the prospective rate reduction, which is predominantly designed to 
offset those non-drug item and service payments made during CY 2018 
through CY 2022.
    Consequently, we propose to designate any hospital that enrolled in 
Medicare after January 1, 2018, as a ``new provider'' for purposes of 
the conversion factor adjustment to offset those additional 
expenditures by Medicare to remedy the 340B payment policy and to pay 
these hospitals the rate for non-drug items and services that would 
apply in the absence of the conversion factor adjustment implemented 
due to the 340B payment policy remedy. This means that we would 
calculate payment rates for new providers using the conversion factor 
before applying the proposed 0.5 percent annual adjustment that would 
apply for hospitals that are not ``new providers'' for purposes of this 
policy. For the purpose of designating a new provider, we are proposing 
the date of enrollment in Medicare as the provider's CMS certification 
number (CCN) effective date. Providers that would meet this definition, 
and that we propose would be excluded from the prospective payment 
adjustment, are listed in the Addendum BBB to this proposed rule. This 
addendum can be found online through the CMS OPPS website.\17\ As 
reflected in this file, we have determined that approximately 300 
providers of the approximately 3,900 OPPS providers meet this 
definition. We propose to codify the exclusion of new providers from 
the prospective payment adjustment to the conversion factor for the 
duration of its application in the regulations by adding new paragraph 
(b)(1)(iv)(B)(12) to Sec.  419.32.
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    This proposed ``new provider'' designation is intended to apply 
only to truly new providers, meaning those that were not enrolled in 
Medicare as of January 1, 2018. Our proposal to exclude ``new 
providers'' from the prospective rate reduction would not apply to 
providers that were enrolled in Medicare before January 1, 2018, and 
subsequently had a change in ownership that resulted in a new CCN, in 
part due to the fact that these providers would have received increased 
non-drug item and service payments for the duration of the 340B payment 
policy from CY 2018 through CY 2022. We recognize that this approach 
will exempt some hospitals receiving the 340B lump sum payment from the 
prospective offset. We considered creating various levels of exclusion 
from the proposed prospective offset depending on how long the specific 
hospital received increased non-drug item and service payments as a 
result of the 340B payment policy. However, we do not think it is 
feasible for CMS, or likely preferred by providers, to create many 
different sets of payment rates for different groups of hospitals for 
the duration of the proposed 16-year offset period depending on how 
much of the period of CY 2018 through CY 2022 the provider was enrolled 
in Medicare for. This is why we are proposing that any hospital that 
enrolled in Medicare after January 1, 2018, which would have received 
less than the full amount of the increased non-drug item and service 
payments made during CY 2018 through CY 2022 due to the 340B payment 
policy than they otherwise would have received if enrolled prior to 
that date, would be exempt from the annual adjustment to the conversion 
factor to offset lump sum payments to affected 340B covered entity 
hospitals.
    We solicit comments on our proposed definition of a ``new 
provider'' and our proposal to exempt new providers from the annual 
adjustment to the conversion factor to offset lump sum payments to 
affected 340B covered entity hospitals. We also solicit comments on 
whether there are any other easily-identifiable categories of providers 
who should be similarly exempted from the annual adjustment to the 
conversion factor.

III. Collection of Information Requirements

    This document does not impose information collection requirements; 
that is, reporting, recordkeeping or third-party disclosure 
requirements. Consequently, there is no need for review by the Office 
of Management and Budget under the authority of the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.).

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Statement of Need

    From CY 2018 through September 27th of CY 2022, CMS paid a lower 
rate (generally ASP minus 22.5 percent) to certain hospitals for drugs 
acquired through the 340B discount program. The purpose of this policy 
was to pay these hospitals for 340B drugs at a rate that more 
accurately reflected the actual costs they incurred to acquire them. 
This 340B policy was the subject of several years of litigation, which 
culminated in a decision of the Supreme Court of the United States in 
American Hospital Association v. Becerra, 142 S. Ct. 1896 (2022), which 
held that if CMS has not conducted a survey of hospitals' acquisition 
costs, it may not vary the payment rates for outpatient prescription 
drugs by hospital group. The Supreme Court subsequently remanded the 
case, and the district court ultimately ordered CMS to implement a 
remedy to address the reduced payment amounts to the plaintiff 
hospitals from CY 2018 through September 27th of CY 2022.
    This proposed rule describes the remedy CMS is proposing to comply 
with the district court's remand. It would remedy the reduced payment 
amounts to the affected 340B covered entity hospitals by (1) 
calculating the amount each hospital would have received for 340B drugs 
from CY 2018 through September 27th of 2022 had the 340B policy not 
been in place; (2) subtracting from that total the amount each hospital 
received for 340B drugs from CY 2018 through September 27th of CY 2022; 
and (3) paying each affected 340B covered entity hospital the 
difference between these amounts by issuing instructions to the 
relevant MAC instructing it to issue a one-time lump sum payment to the 
hospital. The

[[Page 44091]]

amount of the lump sum payment would include the portion of the payment 
amount that would have been paid from the Part B Trust Fund and the 
portion of the payment amount that would have been paid in the form of 
beneficiary coinsurance if not for the 340B payment policy.
    To comply with statutory budget neutrality requirements, we are 
proposing to annually reduce OPPS payments for non-drug items and 
services beginning in CY 2025 by decreasing the OPPS conversion factor 
by 0.5 percent each year, until a total offset of an estimated $7.8 
billion is reached.

B. Overall Impact

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), Executive Order 14094 on Modernizing 
Regulatory Review (April 6, 2023), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), and Executive Order 13132 on Federalism (August 
4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 14094 amends section 3(f) of the Executive Order 12866 to define 
a ``significant regulatory action'' as an action that is likely to 
result in a rule: (1) having an annual effect on the economy of $200 
million or more in any 1 year, or adversely affect in a material way 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or State, local, territorial, 
or tribal governments or communities; (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlements, grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising legal or policy 
issues for which centralized review would meaningfully further the 
President's priorities or the principles set forth in this Executive 
order.
    A regulatory impact analysis (RIA) must be prepared for rules with 
significant regulatory action(s) and/or with significant effects as per 
section 3(f)(1) as measured by the $200 million or more in any 1 year. 
Based on our estimates, the Office of Management and Budget's (OMB's) 
Office of Information and Regulatory Affairs has determined this 
rulemaking is significant per section 3(f)(1) as measured by the $200 
million or more in any 1 year. Accordingly, we have prepared a 
Regulatory Impact Analysis that to the best of our ability presents the 
costs and benefits of the rulemaking. Therefore, OMB has reviewed these 
proposed regulations, and the Department has provided the following 
assessment of their impact. We solicit comments on the regulatory 
impact analysis provided.
    As required by statute, we are implementing this court-ordered 
remedy in a budget neutral manner, and we estimate that the total 
increase in Federal Government expenditures, due only to the proposed 
changes in this proposed rule, would be $2.8 billion. We took into 
consideration the additional Medicare drug payments of $9.0 billion to 
the estimated 1,649 340B covered entity hospitals to which the drug 
payment remedy would apply, and the $6.2 billion in reduced Medicare 
prospective payments for non-drug items and services beginning in CY 
2025 to offset the additional payments that were made for non-drug 
items and services from CY 2018 through CY 2022 as part of the 340B 
payment policy and the amount of the 340B drug remedy payments that 
would otherwise have been paid by the beneficiary. We note that this 
$6.2 billion figure is the portion of reduced Medicare prospective 
payments specifically, and this represents approximately 80 percent of 
the total $7.8 billion offset that we are proposing. Beneficiaries will 
experience reduced prospective co-insurance payments representing 
approximately the remaining 20 percent of the total $7.8 billion 
offset. The $9.0 billion amount is an estimate of the total aggregate 
additional payments that still need to be made to 340B hospitals for 
drugs that were paid less due to the 340B policy from CY 2018 through 
September 27, 2022.
    While we consider the amount of additional payment made to affected 
340B covered entity hospitals for 340B-acquired drug claims with dates 
of service from January 1, 2022, through September 27, 2022, that were 
processed or reprocessed at the default drug payment rate after the 
340B payment policy was vacated, estimated at $1.5 billion, for 
purposes of the total aggregate remedy payment to affected 340B covered 
entity hospitals, we are not including that $1.5 billion in our 
calculation here, which estimates the total increase in Federal 
Government expenditures due only to the proposed changes in this 
proposed rule. This $1.5 billion in remedy payments has already been 
made after the District Court's order.
    The two amounts described above, $9.0 billion and $6.2 billion, are 
not equal because the separate amounts associated with restoring 340B-
acquired drug payments to ASP plus 6 and offsetting the impact of 
additional Medicare spending to remedy this 340B payment policy are not 
equal to each other. This is due to many factors, including but not 
limited to, (1) Medicare's payment policy adjustment for 340B acquired 
drugs ended on September 27, 2022, while the original conversion factor 
adjustment of minus 3.19 percent remained in effect until December 31, 
2022, (2) most of the 340B drug claims with dates of service between 
January 1, 2022, and September 27, 2022, have already been reprocessed 
at the higher default drug payment rate, while none of the increased 
non-drug item and service payment during this time period have been 
remedied, (3) Medicare's payment of an amount equivalent to the 
increased beneficiary cost-sharing 340B providers would have received 
for 340B-acquired drugs if the 340B payment policy had not been in 
effect as part of the lump sum payments to providers, and (4) the 
original budget neutrality adjustment to increase the conversion factor 
in CY 2018 did not keep pace with the reduction in 340B drug payments 
for the remainder of the years for which the 340B payment policy 
previously applied. We note that, in aggregate, the total additional 
payment that providers will receive as a result of this remedy, $10.5 
billion, will be larger than the amount of payment that will be 
prospectively offset, $7.8 billion.
    Most notable of the aforementioned factors is factor (4). From CY 
2018 through CY 2022, the actual spending associated with 340B-acquired 
drugs changed from what was prospectively projected. The actual total 
reduction in 340B-acquired drug payments during this time period 
outpaced the corresponding increase in non-drug item and service 
payments. The proposed changes in this proposed rule are to maintain 
budget neutrality by undoing the original 340B payment policy. 
Additionally, this is consistent with our past practice described in 
the CY 2023 OPPS/ASC final rule with comment period (87 FR 71975), 
which

[[Page 44092]]

had the support of commenters, where we maintained budget neutrality by 
removing the effect of the 340B policy as originally implemented in CY 
2018 from the CY 2023 conversion factor and ensured it was equivalent 
to the conversion factor that would be in place if the 340B payment 
policy had never existed, rather than budget neutralizing the increase 
in 340B drug spending by making a corresponding conversion factor 
decrease to account for the actual increase in the payment rates for 
these drugs. This proposed remedy complies with the budget neutrality 
requirement that Medicare should pay a total amount for the additional 
340B-acquired drug payments that is generally offset by the estimated 
amount that would have paid absent the 340B payment policy. In Table 2 
of this proposed rule, we display the impact of these proposed policy 
changes on drug payments, including aggregate payment by hospital type. 
Specific proposed additional 340B-acquired drug lump sum payment 
amounts by individual hospital can be found in Addendum AAA. If we 
adopt our proposal as proposed, the impact for specific hospital types 
of the reduced prospective payment for non-drug items and services 
beginning in CY 2025 would be included in each proposed and final rule 
for calendar years in which the prospective reduction would apply, 
beginning in CY 2025.

C. Detailed Economic Analysis

Column 1: Total Number of Hospitals
    The first line in Column 1 in Table 2 shows the total number of 
facilities (1,661), including designated cancer and children's 
hospitals and Community Mental Health Centers (CMHCs), for which we 
expect that the remedy payments included in this proposed rule, if 
finalized, would be made. We excluded all hospitals and CMHCs for which 
we would not expect any direct effect from the remedy payments in this 
proposed rule. We show the total number of OPPS hospitals (1,649) for 
which we expect remedy payments would be made, excluding the PPS-exempt 
cancer and children's hospitals and CMHCs, on the second line of the 
table. We excluded cancer and children's hospitals because section 
1833(t)(7)(D)(ii) of the Act provides transitional outpatient payments 
(TOPs) which permanently holds harmless cancer hospitals and children's 
hospitals to their ``pre-Balanced Budget Act of 1997 (BBA) amount'' as 
specified under the terms of the statute.
Column 2: Remedy for the 340B Payment Policy (in Millions)
    Column 2 shows the estimated remedy payments that would be made 
under this proposed rule to various categories of affected providers. 
We note that certain categories of providers may experience limited 
effects due to either having no providers in the category or limited 
billing associated with 340B-acquired drugs. We also note that a 
provider's placement within the categories may vary due to their 
characteristic information potentially changing across the years in 
question (CY 2018 through CY 2022).
    Column 3 displays the estimated payment impact of any CY 2022 
claims that have been reprocessed by the MACs. We note that if these 
claims, which include dates of service for services furnished prior to 
September 28, 2022, were not reprocessed their payments would otherwise 
have been included as remedy payments in Column 2. Column 4 includes 
the total remedy payments, which is the sum of column 2 and column 3.

              Table 2--Estimated Financial Impact of the Proposed Remedy Payments on OPPS Providers
----------------------------------------------------------------------------------------------------------------
                                                                               (3) CY 2022
                                                (1) Number    (2) Lump sum     reprocessed      (4) Total 340B
        Row                                         of        drug remedy      drug payment       drug remedy
                                                hospitals     payment (in       remedy (in     payments (sum of
                                                               millions)        millions)      Columns 2 and 3)
----------------------------------------------------------------------------------------------------------------
1..................  ALL PROVIDERS *.........        1,661          9,003.4          1,540.5            10,543.9
2..................  ALL HOSPITALS (excludes         1,649          9,003.4          1,540.5            10,543.9
                      hospitals held harmless
                      and CMHCs).
3..................  URBAN HOSPITALS.........        1,297          8,538.2          1,491.5            10,029.7
4..................     LARGE URBAN..........          611          4,326.8              815             5,141.8
5..................     (GT 1 MILL.).........
6..................     OTHER URBAN (LE 1              686          4,211.4            676.5             4,887.9
                         MILL.).
7..................  RURAL HOSPITALS.........          324            457.3             47.2               504.5
8..................     SOLE COMMUNITY.......          147             95.1              5.9               101.0
9..................     OTHER RURAL..........          177            362.2             41.4               403.6
                     BEDS (URBAN)............
10.................     0-99 BEDS............          213            258.3             44.4               302.7
11.................     100-199 BEDS.........          374            827.1            124.7               951.8
12.................     200-299 BEDS.........          252          1,208.8            192.6             1,401.4
13.................     300-499 BEDS.........          267          1,982.7            338.9             2,321.6
14.................     500 + BEDS...........          191          4,261.3            790.9             5,052.2
                     BEDS (RURAL)............
15.................     0-49 BEDS............          124             80.6              7.7                88.3
16.................     50-100 BEDS..........          116            104.3             13.3               117.6
17.................     101-149 BEDS.........           40             89.4              8.7                98.1
18.................     150-199 BEDS.........           21             89.9              8.1                98.0
19.................     200 + BEDS...........           23             93.2              9.3               102.5
                     REGION (URBAN)..........
20.................     NEW ENGLAND..........           73            613.4            114.8               728.2
21.................     MIDDLE ATLANTIC......          163          1,173.0           2,36.3             1,409.3
22.................     SOUTH ATLANTIC.......          218          1,593.3            280.2             1,873.5
23.................     EAST NORTH CENT......          232          1,318.6              240             1,558.6
24.................     EAST SOUTH CENT......           75            644.2              106               750.2
25.................     WEST NORTH CENT......           79            749.3            129.4               878.7
26.................     WEST SOUTH CENT......          145            610.5             99.6               710.1
27.................     MOUNTAIN.............           86            566.2             90.2               656.4
28.................     PACIFIC..............          223          1,269.7            195.1             1,464.8
29.................     PUERTO RICO..........            3              0.0                0                 0.0
                     REGION (RURAL)..........
30.................     NEW ENGLAND..........           11             25.0              1.4                26.4
31.................     MIDDLE ATLANTIC......           22             32.1              3.5                35.6
32.................     SOUTH ATLANTIC.......           52             97.1              5.5               102.6
33.................     EAST NORTH CENT......           48             66.9                8                74.9

[[Page 44093]]

 
34.................     EAST SOUTH CENT......           75            145.5             19.5               165.0
35.................     WEST NORTH CENT......           29              6.8              0.6                 7.4
36.................     WEST SOUTH CENT......           54             19.6              1.4                21.0
37.................     MOUNTAIN.............           20             28.9              2.7                31.6
38.................     PACIFIC..............           13             35.4              4.6                40.0
                     TEACHING STATUS.........
39.................     NON-TEACHING.........          795          1,682.2            273.2             1,955.4
40.................     MINOR................          514          2,792.9            435.5             3,228.4
41.................     MAJOR................          312          4,520.3              830             5,350.3
                     DSH PATIENT PERCENT.....
42.................     0....................            0              0.0                0                 0.0
43.................     GT 0-0.10............           31             16.5              0.4                16.9
44.................     0.10-0.16............           62              6.9              0.1                 7.0
45.................     0.16-0.23............          167             53.7             15.5                69.2
46.................     0.23-0.35............          715          3,819.4           6,71.4             4,490.8
47.................     GE 0.35..............          635          5,098.9           8,51.4             5,950.3
48.................     DSH NOT AVAILABLE **.           11              0.1                0                 0.1
                     URBAN TEACHING/DSH......
49.................     TEACHING & DSH.......          766          7,157.8            1,252             8,409.8
50.................     NO TEACHING/DSH......          521          1,380.3            239.5             1,619.8
51.................     NO TEACHING/NO DSH...            0              0.0                0                 0.0
52.................     DSH NOT AVAILABLE2...           10              0.1                0                 0.1
                     TYPE OF OWNERSHIP.......
53.................     VOLUNTARY............        1,215          7,202.2          1,241.7             8,443.9
54.................     PROPRIETARY..........          150             32.2              6.6                38.8
55.................     GOVERNMENT...........          256          1,761.1            290.5             2,051.6
----------------------------------------------------------------------------------------------------------------
Column (1) shows total hospitals that are expected to receive payments related to the 340B policy under this
  proposed rule.
Column (2) includes the estimated drug remedy payment made to account for the policies described in this
  proposed rule during the time period of CY 2018 through CY 2022.
Column (3) displays the estimated payment impact of any CY 2022 claims that have been reprocessed by the MACs.
  We note that if these claims, which include dates of service for services furnished prior to September 28,
  2022, were not reprocessed their payments would otherwise have been included as remedy payments in Column 2.
Column (4) includes the total remedy payments, which is the sum of column 2 and column 3.
These 1,661 providers include children and cancer hospitals, which are held harmless to pre-BBA amounts, and
  CMHCs.
** Complete disproportionate share hospital (DSH) numbers are not available for providers that are not paid
  under IPPS, including rehabilitation, psychiatric, and long-term care hospitals.

    We estimate that the total proposed monetary transfer in this 
proposed rule would be approximately $9.0 billion. The $9.0 billion 
includes the proposed additional lump sum drug payments to the 1,649 
affected 340B covered entity hospitals. The $9.0 billion amount is an 
estimate of the total aggregate additional payments that would need to 
be made to the affected 340B covered entity hospitals for drugs that 
were paid less due to the 340B policy from CY 2018 through September 
27th of CY 2022. As noted previously, the estimated total amount 
required to remedy providers is $10.5 billion, which includes the $1.5 
billion that has already been paid through 340B drug claims processing 
and reprocessing that occurred for CY 2022 claims.
    We note that in this proposed rule we also describe our proposal to 
annually reduce OPPS payments for non-drug items and services beginning 
in the CY 2025 OPPS, by decreasing the OPPS conversion factor by 0.5 
percent each year until we have offset the full amount of the 
additional payments made for non-drug items and services from CY 2018 
through CY 2022 due to the increase in the conversion factor in those 
years in response to the 340B payment policy. This proposed prospective 
offset will apply to all OPPS providers, including 340B providers, 
aside from those OPPS providers explicitly excluded as previously 
discussed. The overall impact of these prospective reductions is 
estimated to be minus $6.2 billion in Medicare payments alone over the 
full span of this proposed offset. The estimated impact of this offset 
for each calendar year for which the offset is estimated to apply is 
detailed in Table 1 of this proposed rule.\18\ The impact of this 
offset on payments to each provider type for each calendar year in 
which the offset is in effect would be included in the regulatory 
impact analysis for the applicable annual OPPS rulemaking, beginning 
for CY 2025. However, we note that generally the impact of that annual 
0.5 percent reduction to the OPPS conversion factor on individual 
providers as well as categories of providers will depend on the 
percentage of their OPPS payments that are conversion factor based, and 
in most cases will be a decrease of slightly less than 0.5 percent 
relative to overall OPPS payment. Please see Table 3 below for our 
estimated total impact to the OPPS payments based on the information 
provided in Table 1.
---------------------------------------------------------------------------

    \18\ We note that Table 1 illustrates the prospective reductions 
of $7.8 billion that represent the reduced Medicare payments as well 
as reduced cost-sharing paid by the beneficiary. The $6.2 billion of 
the financial impacts discussed here represents only the Medicare 
payments over the full span of this proposed offset.

[[Page 44094]]



   Table 3--Estimated Annual Impact to OPPS Spending Based on 0.5 Percent Adjustment to the Conversion Factor
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                                   CY 2025     CY 2026     CY 2027     CY 2028     CY 2029     CY 2030
----------------------------------------------------------------------------------------------------------------
0.5-Percent Payment Reduction Amount           $335        $351        $369        $387        $407        $427
 (millions).............................
----------------------------------------------------------------------------------------------------------------
                                                   CY 2031     CY 2032     CY 2033     CY 2034     CY 2035     CY 2036
----------------------------------------------------------------------------------------------------------------
0.5-Percent Payment Reduction Amount           $448        $471        $494        $519        $545        $572
 (millions).............................
----------------------------------------------------------------------------------------------------------------
                                                   CY 2037     CY 2038     CY 2039     CY 2040
----------------------------------------------------------------------------------------------------------------
0.5-Percent Payment Reduction Amount           $601        $631        $662        $581
 (millions).............................
----------------------------------------------------------------------------------------------------------------
    Total Offset...............................$7.8 billion.....
 
----------------------------------------------------------------------------------------------------------------

4. Regulatory Review Cost Estimation
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the rule, we assume that the total number of unique 
commenters on last year's CY 2023 OPPS/ASC proposed rule will be the 
number of reviewers of this proposed rule. We acknowledge that this 
assumption may understate or overstate the costs of reviewing this 
rule. It is possible that not all commenters reviewed last year's rule 
in detail, and it is also possible that some reviewers chose not to 
comment on the proposed rule. For these reasons we thought that the 
number of past commenters would be a fair estimate of the number of 
reviewers of this rule. We welcome any comments on the approach in 
estimating the number of entities which will review this proposed rule.
    For the purposes of our estimate we assume that each reviewer reads 
100 percent of the proposed rule. We seek comments on this assumption.
    Using the mean hourly wage information from the Bureau of Labor 
Statistics (BLS) for medical and health service managers (Code 11-
9111), we estimate that the cost of reviewing this rule is $123.06 per 
hour, which is double the BLS hourly rate in order to account for 
fringe benefits and other indirect costs in addition to the hourly wage 
itself.\19\ Assuming an average reading speed, we estimate that it 
would take approximately 3 hours for the staff to review this proposed 
rule. For each entity that reviews the rule, the estimated cost is 
$369.18 (3 hours x $123.06). Therefore, we estimate that the total cost 
of reviewing this regulation is $608,778 ($369.18 x 1,649).
---------------------------------------------------------------------------

    \19\ https://ww.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

D. Alternatives Considered

    We evaluated several options to determine which remedy would best 
achieve the objectives of unwinding the unlawful 340B payment policy 
while making certain OPPS providers as close to whole as is 
administratively feasible.
    For example, we considered making additional payments to affected 
340B covered entity hospitals for 340B-acquired drugs from CY 2018 
through September 27th of CY 2022 without implementing a budget neutral 
adjustment. Additionally, we considered retrospectively reprocessing 
all claims from CY 2018 through September 27th of CY 2022, which as for 
the reasons stated in section II.A.2 we determined not to be 
operationally feasible. We further considered making additional 
payments to affected 340B covered entity hospitals for 340B-acquired 
drugs from CY 2018 through September 27th of CY 2022 without proposing 
an adjustment to maintain budget neutrality, which as for the reasons 
stated in section II.A.1 we determined not to be operationally 
feasible.
    We also 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, along with our 
retroactive rulemaking authority in section 1871(e)(1)(A) of the Act. 
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, which 
as for the reasons stated in section II.A.3 we determined not to be 
feasible or appropriate. Such an approach would require immediate, and 
in many cases large, 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. Given this burden, the 
financial strain many hospitals experienced during the recent public 
health emergency, 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 and overly burden these hospitals in 
this way, making our proposed option much more generous to OPPS 
providers.
    We refer readers to section II.A of this proposed rule for 
additional discussion of all the alternatives we considered, including 
our reasons for not proposing them.
    As previously discussed, we are proposing the prospective offset to 
begin in CY 2025, which we believe is appropriate rather than other 
years, as we believe starting this reduction in CY 2025 would allow CMS 
time to finalize the appropriate methodology, and then calculate and 
publish the payment rates derived from this policy in the CY 2025 OPPS/
ASC proposed rule, allowing adequate time for impacted parties to 
assess and prepare for the new payment rates that would be calculated 
using a reduced conversion factor.

E. Accounting Statement and Table

    As required by OMB Circular A-4 (available at https://

[[Page 44095]]

www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/
circulars/A4/a-4.pdf), we have prepared an accounting statement in 
Table 4 showing the classification of the impact associated with the 
provisions of this proposed rule.
    We note readers can find provider-level estimates of proposed 
Medicare payments in Addendum AAA to this proposed rule. We welcome 
comment on these payment estimates because, if finalized without 
further comment by affected providers, these payment amounts will be 
made by MACs 60 calendar days after receiving relevant instructions 
from CMS.

                                          Table 4--Accounting Statement
----------------------------------------------------------------------------------------------------------------
             Category                        Estimate                 Source citation            Year dollar
----------------------------------------------------------------------------------------------------------------
                                                    Transfers
----------------------------------------------------------------------------------------------------------------
One-time monetized transfers......  $9.0 billion..............  Impact table and impact     CY 2018 through CY
                                                                 file, based on the          2022.
                                                                 respective 2018 through
                                                                 2022 claims.
From whom to whom?................  Federal Government to
                                     affected 340B covered
                                     entity hospitals.
Previously monetized transfers      $1.5 billion..............  340 drug claims with dates  CY 2022.
 (occurring before the                                           of service from January
 finalization of this rule).                                     1, 2022, through
                                                                 September 27, 2022, that
                                                                 have already been
                                                                 processed or reprocessed
                                                                 at the default drug
                                                                 payment rate, generally
                                                                 ASP plus 6 percent.
From whom to whom?................  Federal Government and
                                     beneficiaries to affected
                                     340B covered entity
                                     hospitals.
Total.............................  $10.5 billion.............
Monetized transfers...............  $7.8 billion..............  Future reductions to the    Estimated to be CY
                                                                 OPPS conversion factor      2025 through CY
                                                                 based on the parameters     2040.
                                                                 in this proposed rule
                                                                 (estimated 2025 through
                                                                 2040).
From whom to whom?................  Hospitals and other
                                     providers who receive
                                     payment under the
                                     hospital OPPS (other than
                                     new providers) to the
                                     Federal Government and
                                     beneficiaries.
Total.............................  $7.8 billion..............
----------------------------------------------------------------------------------------------------------------

    We note that the approximately $9.0 billion of expected transfers 
in this proposed rule is the $9.0 billion in expected additional lump 
sum drug remedy payments associated with this proposed rule. $1.5 
billion of the total $10.5 billion in transfers to providers has 
already been remedied through processed or reprocessed 340B drug claims 
for claims with dates of service from January 1, 2022, through 
September 27, 2022. We also outline the anticipated $7.8 billion offset 
to Medicare spending and beneficiary cost-sharing to be implemented 
through a 0.5 percent reduction to the OPPS conversion factor for 
certain providers.

F. Regulatory Flexibility Act (RFA)

    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, many hospitals are 
considered small businesses either by the Small Business 
Administration's size standards with total revenues of $41.5 million or 
less in any single year or by the hospital's not-for-profit status. For 
details, we refer readers to the Small Business Administration's 
``Table of Size Standards'' at https://www.sba.gov/content/table-small-business-size standards. As its measure of significant economic impact 
on a substantial number of small entities, HHS uses a change in revenue 
of more than 3 to 5 percent. We believe that this threshold will be 
reached by the requirements in this proposed rule with comment period. 
As a result, the Secretary has determined that this rule will have a 
significant impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has 100 or fewer beds. We estimate that this 
proposed rule with comment period would result in approximately $190 
million in remedy payments to 240 small rural hospitals. We note that 
the estimated payment impact for any category of small entity would 
depend on the degree to which these entities furnished 340B-acquired 
drugs.
    The analysis, together with the remainder of this proposed rule, 
provides a regulatory flexibility analysis and a regulatory impact 
analysis. We note that the policies contained in this proposed rule 
would apply more broadly to OPPS providers and would not specifically 
focus on small rural hospitals. As a result, the impact on those 
providers may depend more significantly on their case mix of services 
provided as well as the extent to which they furnished 340B-acquired 
drugs.

G. Unfunded Mandates Reform Act (UMRA)

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2023, that 
threshold is approximately $177 million. This proposed rule does not 
mandate any requirements for State, local, or tribal governments, or 
for the private sector.

H. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has federalism 
implications.
    We have examined the OPPS and ASC provisions included in this 
proposed rule in accordance with Executive Order 13132, Federalism, and 
have determined that they will not have a substantial direct effect on 
State, local, or tribal governments, preempt State law, or otherwise 
have a federalism implication. As reflected in Table 2 of this proposed 
rule, we estimate that payments to impacted governmental hospitals 
(including State and local governmental hospitals) would increase by 
approximately $1,800,000,000 if the policies included in this proposed 
rule

[[Page 44096]]

are finalized. Future adjustments to the OPPS conversion factor to 
offset the additional non-drug item and service payments made from CY 
2018 through CY 2022 due to the 340B payment policy would be discussed 
in the annual rulemaking to which the adjustment would apply. The 
analyses we have provided in this section of this proposed rule, in 
conjunction with the remainder of this document, demonstrate that this 
proposed rule is consistent with the regulatory philosophy and 
principles identified in Executive Order 12866 as amended by Executive 
Order 14094, the RFA, and section 1102(b) of the Act. This proposed 
rule would affect payments to a small number of small rural hospitals, 
as well as other classes of hospitals, and some effects may be 
significant.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.
    Chiquita Brooks-LaSure, Administrator of the Centers for Medicare & 
Medicaid Services, approved this document on June 15, 2023.

List of Subjects in 42 CFR Part 419

    Hospitals, Medicare, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 419--PROSPECTIVE PAYMENT SYSTEMS FOR HOSPITAL OUTPATIENT 
DEPARTMENT SERVICES

0
1. The authority citation for part 419 continues to read as follows:

    Authority:  42 U.S.C. 1302, 1395l(t), and 1395hh.

0
2. Section 419.32 is amended by revising paragraph (b)(1)(iv)(B)(11) 
and adding paragraph (b)(1)(iv)(B)(12) to read as follows:


Sec.  419.32  Calculation of prospective payment rates for hospital 
outpatient services.

* * * * *
    (b) * * *
    (1) * * *
    (iv) * * *
    (B) * * *
    (11) For calendar year 2020 through calendar year 2024, a 
multifactor productivity adjustment (as determined by CMS).
    (12) Beginning in calendar year 2025, a multifactor productivity 
adjustment (as determined by CMS) and 0.5 percentage point, except that 
the 0.5 percentage point reduction shall not apply to hospital 
outpatient items and services, not including separately payable drugs, 
furnished by a hospital with a CMS certification number (CCN) effective 
date of January 2, 2018, or later. This reduction and associated 
exception to the reduction will be in effect until such time that 
estimated payment reductions equal $7.8 billion.
* * * * *

    Dated: July 6, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2023-14623 Filed 7-7-23; 4:15 pm]
BILLING CODE 4120-01-P