[Federal Register Volume 88, Number 215 (Wednesday, November 8, 2023)]
[Rules and Regulations]
[Pages 77150-77194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-24407]



[[Page 77149]]

Vol. 88

Wednesday,

No. 215

November 8, 2023

Part II





 Department of Health and Human Services





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 Centers for Medicare & Medicaid Services





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 42 Part 419





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

  Federal Register / Vol. 88, No. 215 / Wednesday, November 8, 2023 / 
Rules and Regulations  

[[Page 77150]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 419

[CMS-1793-F]
RIN 0938-AV18


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

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

ACTION: Final rule.

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SUMMARY: This final rule describes the agency's actions on remand from 
the United States (U.S.) District Court for the District of Columbia to 
craft a remedy in light of the U.S. Supreme Court's decision in 
American Hospital Association 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: This rule is effective January 8, 2024.

FOR FURTHER INFORMATION CONTACT: Cory Duke, [email protected], or 
(410) 786-0631.

SUPPLEMENTARY INFORMATION:

I. Background

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

1. Overview
    Under the Hospital Outpatient Prospective Payment System 
(hereinafter referred to as OPPS), we generally set payment rates for 
separately payable drugs and biologicals (hereinafter referred to 
collectively as ``drugs'') under section 1833(t)(14)(A) of the Social 
Security Act (hereinafter referred to as ``the Act'') (42 U.S.C. 
1395l(t)(14)(A)). Section 1833(t)(14)(A)(iii)(II) of the Act (42 U.S.C. 
1395l(t)(14)(A)(iii)(II)) provides that, if hospital acquisition cost 
data are not available, the payment amount is the average price for the 
drug in a year established under sections 1842(o), 1847A, or 1847B of 
the Act (42 U.S.C. 1395u(o), 42 U.S.C. 1395w-3a, & 42 U.S.C. 1395w-3b), 
as the case may be. Payment rates for drugs are usually established 
under section 1847A of the Act (42 U.S.C. 1395w-3a), which generally 
sets a default rate of the average sales price (ASP) plus 6 percent. 
Section 1833(t)(14)(A)(iii)(II) of the Act (42 U.S.C. 
1395l(t)(14)(A)(iii)(II)) also provides that the average price for the 
drug in the year as established under section 1847A of the Act (42 
U.S.C. 1395w-3a), is calculated and adjusted by the Secretary of the 
Department of Health and Human Services (Secretary) as necessary for 
purposes of paragraph (14).
    In the calendar year (CY) 2018 OPPS/ASC final rule with comment 
period (82 FR 59353 through 59371), the Centers for Medicare & Medicaid 
Services (CMS) reexamined the appropriateness of paying the ASP plus 6 
percent for drugs acquired through the 340B Drug Pricing Program 
(hereinafter referred to as the ``340B Program''), a Health Resources 
and Services Administration (HRSA)-administered program that allows 
covered entities to purchase certain covered outpatient drugs at 
discounted prices from drug manufacturers. Based on findings of the 
Government Accountability Office (GAO),\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 drugs with pass-through payment status and 
vaccines) acquired under the 340B Program from ASP plus 6 percent to 
ASP minus 22.5 percent. We also noted that critical access hospitals 
are not paid under the OPPS, and therefore were not subject to the OPPS 
340B drug payment adjustment policy (hereinafter referred to as the 
``340B Payment Policy''). We also exempted rural sole community 
hospitals, children's hospitals, and PPS-exempt cancer hospitals from 
the 340B payment adjustment primarily due to these hospitals receiving 
special payment adjustments under the OPPS. In addition, as stated in 
the CY 2018 OPPS/ASC final rule with comment period, this policy change 
did not apply to drugs with pass-through payment status, which are 
required to be paid based on the ASP methodology, or vaccines, which 
are excluded from the 340B Program.
    Additionally, as discussed in the CY 2018 OPPS/ASC final rule with 
comment period (82 FR 59369 through 59370), to effectuate the payment 
adjustment for 340B-acquired drugs, we implemented modifiers ``JG'' and 
``TB'' effective January 1, 2018. Hospitals paid under the OPPS, other 
than types of hospitals excluded from the OPPS (such as critical access 
hospitals) or exempted from the 340B Payment Policy for CY 2018, were 
required to report modifier ``JG'' on the same claim line as the drug 
Healthcare Common Procedure Coding System (HCPCS) code to identify a 
340B-acquired drug. For CY 2018, rural sole community hospitals, 
children's hospitals, and PPS-exempt cancer hospitals were exempted 
from the 340B payment adjustment. These hospitals were required to 
report informational modifier ``TB'' for 340B-acquired drugs, and 
continued to be paid the full applicable amount, generally ASP plus 6 
percent.
    In the CY 2019 OPPS/ASC final rule with comment period (83 FR 
58981), we

[[Page 77151]]

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 (42 
U.S.C. 1395l(t)(9)(B) and (t)(14)(H)), we finalized our proposal to 
redistribute our estimated reduction in payments for separately payable 
drugs as a result of the 340B Payment Policy by increasing the 
conversion factor used to determine the payment amounts for non-drug 
items and services. As further described in the CY 2018 OPPS/ASC final 
rule with comment period, we used updated CY 2016 claims data and a 
list of 340B-eligible providers to calculate an estimated impact of 
$1.6 billion based on the final CY 2018 policy to pay for OPPS 340B-
acquired drugs at a payment rate of generally ASP minus 22.5 percent. 
In order to effectuate the budget neutrality provisions of the OPPS, 
the estimated $1.6 billion in reduced drug payments from adoption of 
the final 340B payment methodology was redistributed in an equal 
offsetting amount to all hospitals paid under the OPPS by increasing 
the payment rates by 3.19 percent for nondrug items and services 
furnished by all hospitals paid under the OPPS for CY 2018. This same 
conversion factor adjustment applied for CYs 2019 through 2022, 
increasing payments for non-drug items and services in these CYs as a 
result of the 340B Payment Policy.
    For ease of reference, we refer to the adjustments we made to 
payment rates for 340B-acquired drugs and the corresponding rate 
adjustment for non-drug services and items as the 340B Payment Policy.

B. Litigation History of the 340B Payment Policy

    The 340B Payment Policy has been the subject of extensive 
litigation. See the 340B Remedy proposed rule for a more comprehensive 
summary of the litigation history (88 FR 44079 through 44080).
    On June 15, 2022, the Supreme Court held that because CMS had not 
conducted a survey of hospitals' acquisition costs, it could not vary 
the payment rates for outpatient prescription drugs by hospital group. 
See Am. Hosp. Ass'n v. Becerra, 142 S. Ct. 1896, 1906 (2022).
    The Supreme Court declined to opine on the appropriate remedy, id. 
at 1903, and remanded the case to the U.S. Court of Appeals for the 
D.C. Circuit, id. at 1906, which in turn remanded it to the U.S. 
District Court for the District of Columbia, see Am. Hosp. Ass'n v. 
Becerra, No. 19-5048, 2022 WL 3061709, at *1 (D.C. Cir. Aug. 3, 
2022).\5\ On remand to the district court, the plaintiffs filed motions 
seeking orders (1) vacating the portion of the CY 2022 final OPPS rule 
that set the reimbursement rate for 340B drugs at ASP minus 22.5 
percent, which was still in effect for the remainder of 2022, and (2) 
requiring CMS to remedy the reduced payment amounts to 340B hospitals 
under the final OPPS rules for CY 2018 through CY 2022 by reimbursing 
them the difference between what they were paid and ASP plus 6 percent. 
See Am. Hosp. Ass'n v. Becerra, 1:18-cv-02084-RC, Dkts.67, 69 (D.D.C. 
Aug. 3, 2022).\6\ On September 28, 2022, the district court ruled on 
the first motion, vacating the reimbursement rate for 340B-acquired 
drugs for the remainder of 2022. See Am. Hosp. Ass'n v. Becerra, 1:18-
cv-2084-RC, 2022 WL 4534617, at *5.\7\
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    \5\ https://ecf.cadc.uscourts.gov/n/beam/servlet/TransportRoom.
    \6\ https://ecf.dcd.uscourts.gov/doc1/04519382229; https://ecf.dcd.uscourts.gov/doc1/04509382365.
    \7\ 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, 1:18-cv-2084-RC, 
2023 WL 143337, at *6.\8\ Both courts and the Departmental Appeals 
Board have stayed pending challenges to payments made under the 340B 
Payment Policy. See, for example, Vanderbilt Univ. Med. Ctr. v. Azar, 
1:20-cv-01582 (D.D.C. May 23, 2023).\9\
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    \8\ https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv2084-86.
    \9\ https://ecf.dcd.uscourts.gov/cgi-bin/DktRpt.pl?145369228216471-L_1_0-1.
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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.
    In the CY 2023 OPPS/ASC final rule with comment period (87 FR 
71970), we finalized a policy reversing the 340B Payment Policy. To do 
so, we first provided that drugs acquired through the 340B Program 
would be paid at the default rate (generally ASP plus 6 percent) for CY 
2023. Second, to ensure budget neutrality for CY 2023 OPPS payment 
rates as required by statute, we finalized a reduction of 3.09 percent 
to the 2023 OPPS conversion factor. This 3.09 percent reduction for CY 
2023 offsets the prior increase of 3.19 percent

[[Page 77152]]

that was applied to the conversion factor by the 340B Payment Policy in 
CY 2018. This is because a downward adjustment involves a smaller 
percentage reduction from a larger number to get the same dollar amount 
as the original upward adjustment from a smaller number. More 
specifically, in order to achieve the original budget neutrality 
adjustment for CY 2018, we had to multiply the conversion factor by 
1.0319. In order to offset this prior increase for the CY 2023 rule, we 
had to make a downward adjustment to the conversion factor, which 
involved dividing 1 by 1.0319, which equals 0.9691. And 1 minus 0.9691 
equals 0.0309, which is where we derived the 3.09 percent reduction to 
the conversion factor for CY 2023. As we explained in the CY 2023 OPPS/
ASC final rule, we decreased the OPPS conversion factor to offset the 
increase in the OPPS conversion factor in CY 2018, which originally 
implemented the 340B policy in a budget neutral manner. We stated: 
``This adjustment to the conversion factor is appropriate in these 
circumstances, including because it removes the effect of the 340B 
policy as originally adopted in CY 2018, which was recently invalidated 
by the Supreme Court as explained above, from the CY 2023 conversion 
factor and ensures it is equivalent to the conversion factor that would 
be in place if the 340B Payment Policy had never been implemented'' (87 
FR 71975). Additionally, we explained that we agreed with commenters, 
including the American Hospital Association, that under these specific 
circumstances it was appropriate to decrease payments for non-drug 
items and services by a percentage that would offset the percentage by 
which they were increased by the 340B Payment Policy in CY 2018 (87 FR 
71975).
    For more detail on the payment rate for drugs acquired under the 
340B Program for CY 2023 and the corresponding adjustment to the 
conversion factor to maintain budget neutrality as a result of 
reversing the 340B adjustment and paying for all separately payable 
drugs at ASP plus 6 percent (or WAC plus 3 or 6 percent or 95 percent 
of AWP), we refer readers to the CY 2023 OPPS/ASC final rule with 
comment period (87 FR 71973 through 71976).

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

A. Remedy Options Considered By CMS

    In the proposed rule (88 FR 44080), we evaluated several options to 
determine which remedy would best achieve the objective of unwinding 
the unlawful 340B Payment Policy while making certain OPPS providers 
(hereinafter referred to as ``affected 340B covered entity hospitals'' 
\10\) as close to whole as is administratively feasible.
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    \10\ 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 proposed remedy options and aspects of 
those alternative options that we considered in the proposed rule 
below.
1. Make Additional Payments to Affected 340B Covered Entity Hospitals 
for 340B-Acquired Drugs From CY 2018 Through September 27th of CY 2022 
Without an Adjustment To Maintain Budget Neutrality
    In the proposed rule (88 FR 44080), we considered calculating the 
additional amount each affected 340B covered entity hospital would have 
been paid for 340B-acquired drugs from CY 2018 through September 27th 
of CY 2022 if not for the 340B Payment Policy, and then considered 
paying that amount to each hospital without applying a corresponding 
adjustment to the conversion factor for the increased payments for non-
drug items and services that were made from CY 2018 through CY 2022 due 
to the 340B Payment Policy. As we described, we believe that we would 
have the authority to make remedy payments under sections 1833(t)(2)(E) 
and 1833(t)(14) of the Act (42 U.S.C. 1395l(t)(2)(E) and (t)(14)), 
along with our retroactive rulemaking authority in section 
1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)). We noted that 
sections 1833(t)(2)(E) and (t)(14) of the Act (42 U.S.C. 1395l(t)(2)(E) 
and (t)(14)) require budget neutrality with respect to payment 
adjustments to the OPPS made under those sections and there are no 
exceptions with respect to remedy payments. Consequently, we stated 
that we believe the best reading of both of those provisions is that 
these remedy payments are subject to budget neutrality requirements, at 
least when the budget neutrality adjustment would not be de minimis. 
That was consistent with the statute's general approach of budget 
neutralizing OPPS payment adjustments. See, for example, section 
1833(t)(9)(B) of the Act (42 U.S.C. 1395l(t)(9)(B)).
    We explained that section 1833(t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(E)) straightforwardly requires adjustments made under that 
provision to be made ``in a budget neutral manner.'' (Accord 65 FR 
18438 (noting (t)(2)(E)'s budget neutrality requirement).) And section 
1833(t)(14)(H) of the Act (42 U.S.C. 1395l(t)(14)(H)), relating to drug 
APC payment rates, states that ``Additional expenditures resulting from 
this paragraph shall not be taken into account in establishing the 
conversion, weighting, and other adjustment factors for 2004 and 2005 
under paragraph (9), but shall be taken into account for subsequent 
years.'' (Emphasis added.) In addition, section 1833(t)(9)(B) of the 
Act (42 U.S.C. 1395l(t)(9)(B)), referenced in section 1833(t)(14)(H) of 
the Act (42 U.S.C. 1395l(t)(14)(H)), states in relevant part [i]f the 
Secretary makes adjustments under subparagraph (A),\11\ then the 
adjustments for a year may not cause the estimated amount of 
expenditures under this part for the year to increase or decrease from 
the estimated amount of expenditures under this part that would have 
been made if the adjustments had not been made.
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    \11\ Subparagraph (A) reads: Periodic review.--The Secretary 
shall review not less often than annually and revise the groups, the 
relative payment weights, and the wage and other adjustments 
described in paragraph (2) to take into account changes in medical 
practice, changes in technology, the addition of new services, new 
cost data, and other relevant information and factors.
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    We explained that these statutes require us to account for budget 
neutrality in these remedy payments. To the extent these remedy 
payments are understood as a payment adjustment under section 
1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)), they are subject 
to that section's budget neutrality constraints. And to the extent 
these payments are understood as a payment under section 1833(t)(14) of 
the Act (42 U.S.C. 1395l(t)(14)), we explained that they are 
``[a]dditional expenditures resulting from'' paragraph (t)(14) of the 
Act for years other than 2004 or 2005 and thus are subject to budget 
neutrality constraints under section 1833(t)(14)(H) of the Act (42 
U.S.C. 1395l(t)(14)(H)).
    We noted that this reading of these provisions is consistent with 
the statute's general approach of budget neutralizing OPPS payment 
adjustments, see, for example, section 1833(t)(9)(B) of the Act (42 
U.S.C. 1395l(t)(9)(B)), except when expressly

[[Page 77153]]

exempted, see sections 1833(t)(7)(I), (t)(14)(H), (t)(16)(D)(iii), 
(t)(18)(C), (t)(19)(A), (t)(20) of the Act (42 U.S.C. 1395l(t)(7)(I) 
(t)(14)(H), (t)(16)(D)(iii), (t)(18)(C), (t)(19)(A), (t)(20)). Budget 
neutrality in OPPS serves the important interest of limiting 
expenditures under Part B and thus protecting the public fisc. Cf. H.R. 
Rep. No. 106-436, at 33-34 (1999) (noting the goal of prospective 
payment systems, including the OPPS, is to slow growth rate of Medicare 
expenditures).\12\ The Supplementary Medicare Insurance Trust Fund 
(hereinafter referred to as the Part B Trust Fund) that makes OPPS 
payments is mostly financed by premiums from participants and 
contributions from the general fund of the Treasury. We pointed to the 
Trustees' of the Part B Trust Fund warning that unexpected increases in 
Medicare Part B or D expenditures may require increases to beneficiary 
premiums and coinsurance, which already represent a growing share of 
beneficiaries' total income and are projected to reflect about three-
quarters of the average Social Security retired-worker benefit by the 
end of this century. See The 2023 Annual Report of the Boards of 
Trustees of the Federal Hospital Insurance and Federal Supplementary 
Medicare Insurance Trust Funds at 40-41.\13\ 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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    \12\ https://www.govinfo.gov/content/pkg/CRPT-106hrpt436/pdf/CRPT-106hrpt436-pt1.pdf.
    \13\ https://www.cms.gov/oact/tr/2023.
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    Accordingly, we summarized that when changes to payment policy are 
made, we generally make an adjustment to the OPPS conversion factor in 
order to maintain budget neutrality. (See 70 FR 68542 (noting 
outpatient drugs are included in the budget neutrality calculation 
beginning in 2006).) We do not believe the Congress intended the 
statute to permit regulated entities to achieve policy outcomes through 
litigation that would be statutorily unavailable to them through the 
regular rulemaking process, especially policy outcomes that increase 
total Medicare expenditures.
    We acknowledged that, in the past, not all OPPS payment policy 
changes based on sections 1833(t)(14) and (t)(2)(E) of the Act (42 
U.S.C. 1395l(t)(14) and (t)(2)(E)) have resulted in adjustments to the 
budget neutrality factor or actual expenditures from the Part B Trust 
Fund equaling zero in all circumstances. We stated that the method CMS 
uses to account for changes to the ``estimated number of expenditures'' 
referenced in section 1833(t)(9)(B) of the Act (42 U.S.C. 
1395l(t)(9)(B)) and incorporated by section 1833(t)(14)(H) of the Act 
(42 U.S.C. 1395l(t)(14)(H)) is the OPPS conversion factor (for example, 
71 FR 68193 through 68194). We explained that in situations that have 
not had any estimated impact on the OPPS conversion factor or that 
would otherwise have a de minimis impact, such as a 0.0001 change to 
the conversion factor, which would have an inconsequential effect on 
Medicare payments, CMS has effectively rounded the estimated impact on 
expenditures to zero.\14\ Thus, in circumstances when there would be a 
de minimis impact on estimated OPPS payment to meet the budget 
neutrality requirements as a result of a post-annual-rulemaking policy 
change, we have not changed OPPS payments to reflect the minimal impact 
of the policy change. When considering whether the estimated amount of 
expenditures is de minimis, we have taken into account relevant 
context, such as the size of the change comparable to the OPPS payments 
overall, the relative number of interested parties and any reliance 
interests, as well as the anticipated impact on the Part B Trust Fund 
of the change in payment due to the post-annual rulemaking policy 
versus the anticipated administrative burden and cost of ratesetting 
disruption.
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    \14\ In the CY 2007 OPPS/ASC final rule with comment period, 
using our authority under section 1833(t)(2)(E) of the Act (42 
U.S.C. 1395l(t)(2)(E), we implemented a quality improvement program 
which required hospitals eligible to participate in the Inpatient 
Prospective Payment Systems (IPPS) Reporting Hospital Quality Data 
for the Annual Payment Update (RHQDAPU) to meet the requirements for 
receiving the full FY 2007 IPPS payment in order to qualify for the 
CY 2007 OPPS update. Hospitals failing to meet the requirements 
would receive a reduced OPPS conversion factor update in CY 2007, 
the amount of which would then, if not deemed ``negligible,'' be 
offset by a corresponding increase to the OPPS conversion factor to 
maintain budget neutrality. See 71 FR 68193 through 68194.
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    We then applied these principles to the remedy payments for the 
340B Payment Policy, concluding that a budget neutrality adjustment is 
statutorily required and, even if not statutorily required, warranted 
as a matter of sound public policy. The estimated impact of our one-
time lump sum remedy payments is significant and reflects a substantial 
fraction of total OPPS spending for any one calendar year, one that 
goes well beyond any impact of which we have previously rounded to 
zero. The specifics of the lump sum are discussed in greater detail in 
the following section, II.B.1 of this final rule. Additionally, we 
noted that reliance interests or administrative burdens would not 
outweigh the impact of the remedy payments on the Part B Trust Fund 
sufficiently to justify disregarding the principle of budget 
neutrality, even if that were statutorily possible. We further 
explained that the potential reliance interests implicated by the need 
to recover unwarranted payments made over many years, combined with the 
unique difficulties in calculating and collecting these payments 
through retroactive rulemaking, should properly affect the way the 
budget neutrality principle applies to these unique circumstances.
    We noted that we budget neutralized the 340B Payment Policy from CY 
2018 to CY 2022 by increasing the rate for non-drug items and services 
by 3.19 percent. See also section I.A.3 of this final rule. That 
resulted in $7.8 billion in additional spending on non-drug items and 
services during that time period. We acknowledged that some OPPS 
providers were 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. As of this 
final rule, that number still rounds to $7.8 billion, but is more 
precisely $7,768,568,239. To assist readers, we will refer to this 
number as $7.8 billion throughout this document. We cited our 
consistent statements in both litigation and OPPS rules in the Federal 
Register that any remedy payments could be subject to budget neutrality 
constraints. See, for example, Am. Hosp. Ass'n, 142 S. Ct. at 1903 
(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 economic impact on the 
approximate[ly] 3,900 facilities that are paid for outpatient items and 
services covered under the OPPS.''). Additionally, because the 340B 
Payment Policy this rule proposed to remedy was itself budget 
neutralized, failing to budget neutralize the remedy payments would

[[Page 77154]]

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 final 
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.
    We also considered the administrative burden specific to 
maintaining budget neutrality noting CMS was already obliged on remand 
to remedy the 340B policy. We concluded that 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 
noted that we would still exercise our authority under section 
1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)) to offset the extra 
payments we made for non-drug items and services from 2018 through 
2022. Those payments have proven to be an unwarranted windfall, and the 
Trust Fund has a strong interest in recovering them. We identified that 
avoiding 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, for example, 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, the statute does not displace the United States' 
long standing power to collect monies wrongfully paid through an action 
independent of the administrative scheme, nor is there any 
inconsistency.'' (internal citations omitted)); Mount Sinai Hosp. of 
Greater Miami, Inc. 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, unwinding those payments is necessary to ensure 
equitable payments under these circumstances.
    Therefore, we concluded that it is required by the statute--but 
even if not required, that it would be consistent with the statute--and 
consistent with our past practices, and appropriate, to offset the 
additional payments for non-drug items and services that were made from 
CY 2018 through CY 2022 in order to maintain budget neutrality or 
equitable payments when remedying this policy. But the context of this 
rule, we clarified, remains unique: We are adjusting payments 
prospectively in order to provide a remedy for a previous unlawful 
payment decision. Precisely because that previous payment decision 
itself followed budget neutrality principles, it provided unwarranted 
payments to some at the same time it improperly took payments from 
others. In applying budget neutrality principles to this remedy, we 
seek to rectify this imbalance and restore matters as closely as 
possible to where they would have been absent the policy the Supreme 
Court determined to be unlawful. We solicited comments from the public 
on our proposed interpretation of our statutory budget neutrality 
obligations, equitable payment authorities, and recoupment authority.
    Comment: We received many comments on our proposed interpretation 
of our statutory budget neutrality obligations, equitable payment 
authorities, and recoupment authority.
    Response: These comments are addressed in section II.B.2.b of this 
final rule.
2. Full Claims Reprocessing From CY 2018 Through September 27th of CY 
2022
    In the proposed rule (88 FR 44082), we explained that perhaps the 
most perfect measure of achieving budget neutrality in circumstances 
like this would be to turn back the clock to the day the unlawful 
payment decision was first made, undo that decision, and start over. We 
identified that CMS would have to reprocess all OPPS claims for 340B-
acquired drugs and non-drug items and services from CY 2018 through 
September 27th of CY 2022 using the default payment rate under section 
(t)(14) of the Act (42 U.S.C. 1395l(t)(14)) and our retroactive 
rulemaking authority in section 1871(e)(1)(A) of the Act (42 U.S.C. 
1395hh(e)(1)(A)). This approach would have the benefit of putting 
providers, beneficiaries, and Medicare back in the same situation they 
would have been in if CMS had never adopted the ASP minus 22.5 percent 
rate for 340B-acquired drugs in 2018. But remedial rulemaking need not 
provide this type of precise make-whole relief. See Shands Jacksonville 
Med. Ctr., Inc. 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'').
    We acknowledged that reprocessing every single claim might be a 
potential approach to remedy this situation if it were administratively 
achievable. But we feared that reprocessing such an unprecedentedly 
large volume of claims and issuing payment to affected 340B covered 
entity hospitals in a timely fashion would impose an immense 
administrative burden on CMS, its contractors, and providers. We 
accordingly concluded that this approach is not feasible in this case. 
It would require the reprocessing of virtually all claims submitted to 
the OPPS system during the affected period of time, but that system 
processes more than 100 million claims each year. We remarked that 
reprocessing almost 5 years' worth of OPPS claims could take several 
years, resulting in some affected 340B covered entity hospitals having 
to wait multiple years to receive payment, and leading to widespread 
beneficiary cost sharing uncertainty, as beneficiaries could be caught 
by surprise by a significant change in cost sharing responsibility from 
a claim they thought had been closed many years ago. The large quantity 
of claims and the amount of time required to reprocess them while 
continuing normal claims processing likewise would not result in timely 
payments or adjustments to hospitals. Additionally, we indicated that 
reprocessing these claims would lead to the need for significant 
recoupments of payments for non-drug items and services that would have 
already been paid at the higher rate based on the budget neutrality 
adjustment applied as a result of the original 340B Payment Policy. The 
D.C. Circuit has held that it

[[Page 77155]]

is not necessary ``to recalculate each individual claim paid under the 
reduced rate'' that was the subject of litigation when doing so would 
cause significant administrative burden and delayed payments. See 
Shands, 959 F.3d at 1120. But we did allow that the expected results of 
such a calculation can certainly inform an alternative approach to 
budget neutrality, as we discuss below.
    We noted that the vast majority of 340B drug claims from CY 2022 
have been reprocessed at the higher 340B payment rate, generally ASP 
plus 6 percent, which we believe was allowable under the District 
Court's order prospectively vacating the CY 2022 340B payment rate and 
the typical timely filing requirements described at 42 CFR 424.44. We 
confirmed this was appropriate for CY 2022 claims given that providers 
were able to follow the regular claims processing conventions for these 
claims, and clarified that we will ensure CMS does not make duplicate 
payments for these claims already remedied by the usual claims 
processing methods. As part of this final rule, we estimate that for CY 
2022, $1.6 billion in remedy payments (including the Medicare and 
beneficiary portions) have already been made to providers through 
reprocessed claims, or claims that had dates of service of January 1, 
2022, through September 27, 2022, but were held until, or reprocessed 
after, the 340B rule was vacated and the standard drug payment rates 
were in effect for 340B-acquired drugs. We consider these reprocessed 
claims to be partially remedied as 340B providers no longer received 
the lower 340B drug payment rate for these 340B-acquired drugs. This 
$1.6 billion is one component of the total remedy payments accounted 
for in this final rule. We also note that these claims only had the 
340B drug portion of the claim adjusted, and that for these claims to 
be fully remedied the non-drug item and service components of these 
claims would also need to be adjusted as discussed in subsequent 
sections.
    We thank commenters for their input on our policy proposals. We 
have summarized the comments received and our responses to those 
comments in the following section.
    Comment: Commenters generally agreed with CMS's conclusion that 
reprocessing all claims is not administratively feasible. Commenters 
appreciated that CMS considered this option but did not formally 
propose it in the proposed rule.
    Response: We appreciate commenters' concurrence with our 
conclusion.
    Comment: One commenter requested that CMS pay providers that 
elected to submit adjusted claims for dates of service between January 
1, 2022, through September 27, 2022, the beneficiary copayment amount 
for those claims. The commenter points out that providers who elected 
not to submit adjusted claims for those dates of service will receive 
both the Medicare portion and the beneficiary copayment portion through 
the remedy payment. Failing to pay the beneficiary copayment amounts 
for providers that elected to submit adjusted claims, the commenter 
argues, results in different remedies for the beneficiary portion for 
providers that submitted adjustment claims and those that did not 
submit adjustment claims, which is an inequitable outcome.
    Response: We do not agree that CMS should pay providers that 
elected to submit adjusted CY 2022 claims additional payment for 
beneficiary cost sharing. We are paying amounts equal to lost 
beneficiary cost sharing amounts providers are not otherwise legally 
entitled to collect based on a finding that, under the unique 
circumstances of this rule, it is necessary to ensure equitable 
payments under section 1833(t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(E)). (See infra at II.B.1.e.) Because CY 2022 adjustments 
followed regular claims processing conventions, providers are legally 
entitled to collect cost sharing from beneficiaries on those claims. If 
providers are unable to do so, such payments would be subject to our 
usual standards governing payments to which providers are legally 
entitled but unable to collect. See, for example, 42 CFR 413.89. We 
thus do not believe the same rationale applies to reprocessed claims.
    Permitting providers to submit adjustment claims also allowed for 
prompt payment to providers and partially approximated how the claim 
would have been processed and paid absent the 340B Payment Policy. 
Indeed, many of these claims have already been finalized and the 
beneficiaries have paid their cost sharing obligation. Because 
providers can collect cost sharing for reprocessed CY 2022 claims from 
beneficiaries and potentially under our bad medical debt regulations, 
we do not believe it would be equitable under section 1833(t)(2)(E) of 
the Act (42 U.S.C. 1395l(t)(2)(E)) to make additional, potentially 
duplicative payments to reflect lost cost sharing.
    As described in the proposed rule, we considered these reprocessed 
claims to be partially remedied as 340B providers no longer received 
the lower 340B drug payment rate. These claims will be fully remedied 
when we address the non-drug item and service payment portion of these 
claims.
    Comment: CMS received several comments requesting a mass 
reprocessing of all CY 2022 claims and instructions to the Medicare 
Administrative Contractors (MACs) to make one mass adjustment for 
claims going back to January 1, 2022.
    Response: We do not have an existing procedure to make the mass 
adjustment commenters proposed for CY 2022 claims without reprocessing 
each individual claim, and we believe that our proposed lump sum 
payment achieves a very similar result. While reprocessing just the 
remaining CY 2022 claims would be less burdensome than reprocessing all 
claims back to 2018, it would still impose a large administrative 
burden on CMS, our contractors, and providers. Approximately two 
hundred million dollars worth of payments would have to be reprocessed, 
and, importantly, such an undertaking could cause an additional delay 
in making payments relative to the proposed lump sum payment 
methodology. Otherwise, the main practical difference between 
reprocessing the remaining CY 2022 claims or including them in the lump 
sum payment is whether providers can seek cost sharing payments from 
beneficiaries, as discussed above. But because we have increased the 
lump sum payment under section 1833(t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(E)) to cover lost beneficiary cost sharing, we do not view 
that as a material difference between the options. Because including 
remaining CY 2022 claims in the one-time lump sum payment will provide 
nearly equivalent remedy funds to affected 340B covered entity 
hospitals, and will do so more quickly and efficiently than a mass 
reprocessing of all CY 2022 claims, we decline to treat remaining CY 
2022 claims differently from other claims years.
3. Aggregate Hospital Payments From CY 2018 Through September 27th of 
CY 2022
    In the proposed rule (88 FR 44083), we considered calculating one-
time aggregate payment adjustments for each provider for the CY 2018 
through September 27th of CY 2022 time-period, including both 
additional payments for 340B-acquired drugs and reduced payments for 
non-drug items and services under sections 1833(t)(2)(E) and 
1833(t)(14) of the Act (42 U.S.C. 1395l(t)(2)(E) and (t)(14)), along 
with our retroactive rulemaking authority in section 1871(e)(1)(A) of 
the Act (42

[[Page 77156]]

U.S.C. 1395hh(e)(1)(A)), to the extent the policy would be retroactive. 
This option would have involved: (1) calculating the total additional 
payments for each hospital that would have been paid for separately 
payable non-pass-through 340B-acquired drugs from CY 2018 through 
September 27th of 2022 in the absence of the 340B Payment Policy; (2) 
calculating the additional amount each hospital was paid under the OPPS 
from CY 2018 through CY 2022 for non-drug items and services as a 
result of the 340B policy; (3) subtracting (2) from (1); and (4) 
issuing a payment to, or requiring a recoupment from, each hospital for 
the 5-year period in which the 340B Payment Policy was in effect. This 
is similar to the approach we ultimately adopt in this rule, except 
that it would have effectively implemented budget neutrality 
requirements through an immediate lump sum recoupment that would mirror 
the lump sum remedy payment.
    While this approach would also have satisfied the statutory budget 
neutrality concerns discussed above, we did not read the statute to 
mandate such an inflexible approach in these circumstances. Cf. Shands 
Jacksonville Med. Ctr., Inc., 959 F.3d at 1120. (For further discussion 
of this point, see section II.B.1.a of this final rule.) Such an 
approach would require immediate, and in many cases large, retroactive 
recoupments from the majority of OPPS hospitals and would impose a 
substantial, immediate burden on these hospitals as well as an 
uncertain impact on beneficiaries. After accounting for these burdens, 
the financial strain many hospitals experienced during the recent 
COVID-19 public health emergency (hereinafter referred to as the 
``PHE''), and the amount of time that has transpired since the original 
payments for these drugs, items, and services were made, we decided not 
to propose this option as our suggested approach.
    Comment: Several commenters expressed general support for our 
decision not to propose a one-time aggregate payment adjustment for 
each provider.
    Response: We thank commenters for their support.

B. Remedy

1. Methodology for Calculating and Process for Remitting Remedy 
Payments to Affected 340B Covered Entity Hospitals for 340B-Acquired 
Drugs Furnished and Paid Adjusted Amounts Under the OPPS in CY 2018 
Through September 27th of CY 2022
a. Statutory Authority
    In the proposed rule (88 FR 44083), we stated that CMS believes 
that the best way to remedy our 340B Payment Policy for the period from 
CY 2018 through September 27th of CY 2022, which the Supreme Court 
found unlawful, would be to make one-time lump sum payments to affected 
340B covered entity hospitals calculated as the difference between what 
they were paid for 340B drugs (ASP minus 22.5 percent or an adjusted 
WAC or AWP amount) during the relevant time period (from CY 2018 
through September 27th of CY 2022) and what they would have been paid 
had the 340B Payment Policy not applied. We explained that this 
approach comes as close to providing 340B-covered entities with make-
whole relief as CMS can reasonably accomplish, without the burden that 
would be associated with manually reprocessing all claims. Assuming 
hospitals properly assigned the billing codes discussed below when 
submitting their CY 2018 through 2022 claims, as they were required to 
do, CMS noted that it expects the remedy payment to each 340B covered 
entity for 340B-acquired drugs to be approximately the same as if CMS 
manually reprocessed those claims. Calculating the approximate 
repayment amount based on claims data is relatively straightforward 
administratively as it involves only an aggregated analysis of the 
claims in question, whereas reprocessing all claims requires 
significantly more administrative effort as the claims actually have to 
be individually reprocessed through the claims processing system. This 
is practically infeasible for the reasons discussed earlier in this 
rule. Please see the previous section titled ``Full Claims Reprocessing 
from CY 2018 through September 27th of CY 2022'' for additional detail.
    We proposed to make the remedy payments relying principally on (1) 
our rate-setting authority under section 1833(t)(14) of the Act (42 
U.S.C. 1395l(t)(14)); and (2) our equitable adjustment authority under 
section 1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)). To the 
extent this rule is retroactive (in whole or in part), we explained 
that we would rely on our retroactive rulemaking authority in section 
1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)).
    First, we evaluated our authority under section 1833(t)(14) of the 
Act (42 U.S.C. 1395l(t)(14)). We pointed to the Supreme Court's holding 
that if CMS has not conducted a survey of hospitals' acquisition costs, 
the agency may not vary the payment rates for outpatient prescription 
drugs by hospital group. We acknowledged that because we did not use 
any survey of hospitals' acquisition costs when setting rates for 340B-
acquired drugs between CY 2018 and September 27, 2022, it is necessary 
for the remedy to apply the default rate (generally ASP plus 6 percent) 
to comply with paragraph (14)(A)(iii) of section 1833(t) of the Act (42 
U.S.C. 1395l(t)(14)(A)(iii)) for those years, as interpreted by the 
Supreme Court.
    We then considered our authority to adjust the prior payment rate. 
We explained that section 1871(e)(1)(A) of the Act (42 U.S.C. 
1395hh(e)(1)(A)) prohibits a substantive change in regulations to items 
and services furnished before the effective date of the substantive 
change unless ``such retroactive application is necessary to comply 
with statutory requirements'' or the ``failure to apply the change 
retroactively would be contrary to the public interest.'' We explained 
that, assuming this remedy is viewed as a retroactive remedy (in whole 
or in part), it would also be necessary to use this retroactive 
rulemaking authority to implement the remedy by revising 340B payment 
rates for this prior period to comply with the Supreme Court's 
interpretation of the requirements of section 1833(t)(14) of the Act 
(42 U.S.C. 1395l(t)(14)).
    But even if a retroactive rule were not necessary specifically to 
comply with section 1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)), we 
found that failing to apply the default rate retroactively would be 
contrary to the public interest in this specific situation in part 
because it would leave the plaintiff 340B hospitals paid at a 
substantially lower rate, due to the magnitude of payment, than we now 
understand to be proper under the statute. We found that the equities 
weigh in favor of a partially retroactive remedy here, because a 
significant number of plaintiff hospitals have been advocating for this 
current policy in court since we first announced our 340B Payment 
Policy for CY 2018 despite our view that there was no administrative or 
judicial review for such claims. The equities further align with a 
partially retroactive remedy, to the extent required, because the 
impact on the Part B Trust Fund will be

[[Page 77157]]

lessened as we are applying budget neutrality principles. We noted that 
the position of those plaintiff hospitals was ultimately vindicated by 
the Supreme Court.
    We proceeded to consider our authority under section 1833(t)(2)(E) 
of the Act (42 U.S.C. 1395l(t)(2)(E)), which requires the Secretary to, 
``establish, in a budget neutral manner, outlier adjustments . . . 
transitional pass-through payments . . . and other adjustments as 
determined to be necessary to ensure equitable payments, such as 
adjustments for certain classes of hospitals.'' In this case, we 
proposed that the lump sum payment, calculated as the difference 
between what an affected 340B covered entity hospital received for 
340B-acquired drugs during the time period at issue and what they would 
have received for 340B-acquired drugs if the 340B adjustment had not 
been in place, would be an equitable adjustment. We found that such an 
adjustment is necessary to ensure equitable payments to affected 340B 
covered entity hospitals by making them whole for the decreased 
payments for 340B-acquired drugs they received from CY 2018 through 
September 27th of CY 2022 that are no longer proper in light of the 
Supreme Court's decision. To the extent necessary, we explained we 
would apply the adjustment retrospectively in accordance with the 
Court's ruling and for the reasons discussed in the above paragraph.
    We therefore proposed to use our authority under section 
1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)) in conjunction with our 
equitable adjustment authority under section 1833(t)(2)(E) of the Act 
(42 U.S.C. 1395l(t)(2)(E)), to accomplish an equitable outcome as we 
remedy past payments made under the 340B Payment Policy. To the extent 
necessary, we also proposed to use our retroactive rulemaking authority 
under section 1871(e)(1)(A) of the Act (42 U.S.C. 1395hh(e)(1)(A)).
    We solicited comment from the public on our proposed use of these 
authorities in the remedy policies discussed in the proposed rule. We 
also solicited comment on other possible authorities (including 
inherent authority or common law authority) that might also be 
applicable to the remedy policies discussed in the proposed rule or on 
which we could rely to make remedy payments.
    We thank commenters for their input on our policy proposals. We 
have summarized the comments received and our responses to those 
comments in the following section.
    Comment: Nearly all commenters supported our proposal to pay via a 
one-time lump sum payment.
    Response: We appreciate commenters' support.
    Comment: Several commenters encouraged CMS and MACs to agree on 
documentation and treatment of these funds on cost reports, cost report 
audits, and subsequent Medicare payment adjustments and reviews.
    Response: We agree that it is important to coordinate with MACs to 
ensure consistent documentation and treatment of the one-time lump sum 
payments. These payments will not be made on cost reports. To ensure 
timely payment for all impacted providers, CMS shall issue guidance to 
all MACs to allow consistent documentation and tracking of the 340B 
payments.
    Comment: Two commenters opposed our proposal to pay via a one-time 
lump sum payment due to concerns that a massive influx of funds to 340B 
hospitals would enable those hospitals to further dominate local 
markets by purchasing independent community clinics and other 
hospitals. One of these commenters requested that repayments be spread 
out over time, suggesting 5 years for this time-period or, 
alternatively, 16 years to align it with the budget neutrality 
adjustment schedule discussed later in this rule. The other commenter 
suggested that CMS provide remedy funds for 2018 to 2020 and use a 340B 
drug acquisition cost survey to determine the remedy payments for 
subsequent years.
    Response: We appreciate commenters' concerns. As previously 
discussed, the aim of this rule is to situate all OPPS providers as 
closely as possible to the financial situation they would have been in 
if the 340B OPPS Payment Policy had never existed. Had we never 
implemented the 340B Payment Policy, hospitals would already have these 
payments. We thus believe the fairest policy is to pay hospitals as 
promptly as administratively feasible. We acknowledge that this means 
that until the budget neutrality adjustment is fully implemented, 
hospitals will temporarily have additional funds from our payments for 
non-drug services and items they would not otherwise have had. But 
commenters have not identified authority requiring us to withhold 
payments based on competition concerns once we have determined the 
amount due from Medicare. As such, we believe the payment timeline 
described in this rule is appropriate.
    We acknowledge that we previously suggested that we might use our 
survey of CY 2018 and 2019 cost data to inform the remedy as discussed 
in the CY 2020 OPPS/ASC final rule with comment period (84 FR 61322). 
But as we subsequently noted, we received many comments on the survey 
data, and using that data, which surveyed only 340B hospitals, might 
not comport with the Supreme Court's decision. Using it would introduce 
new complexities into the rate calculation, for instance, by requiring 
consideration of adjustments to the data and other factors as discussed 
in the CY 2021 OPPS/ASC final rule with comment period (85 FR 86052). 
We do not believe it is worth delaying the remedy payments to allow for 
such considerations or for us to conduct a new survey many years after 
the fact.
    Comment: We received many comments on the statutory authority we 
proposed to rely upon to make lump sum payments. While nearly all 
commenters supported our proposal to implement this remedy via a one-
time lump sum payment, industry commenters disagreed with our proposal 
to rely on sections 1833(t)(14) and (t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(14) and (t)(2)(E)) to do so. Many of these commenters argued 
that these statutory provisions do not apply to the remedy payments. 
These commenters stated that CMS is attempting to rely on statutes 
designed for, and limited to, making prospective adjustments to 
spending estimates, or discretionary adjustments based on equity to 
make remedy payments required by the Supreme Court's decision.
    With respect to section 1833(t)(14) of the Act (42 U.S.C. 
1395l(t)(14)), these commenters maintained that the expenditures to 
which the statute applies do not contemplate court-ordered remedy 
payments. Referencing the text of section 1833(t)(14) of the Act (42 
U.S.C. 1395l(t)(14)), ``[a]dditional expenditures resulting from this 
paragraph shall not be taken into account in establishing the 
conversion, weighting, and other adjustment factors for 2004 and 2005 
under paragraph (9), but shall be taken into account for subsequent 
years,'' these commenters argue that the proposed lump-sum payment is 
neither an ``additional'' expenditure nor an expenditure ``resulting 
from this paragraph.'' In their view, there is nothing additional about 
the lump sum payment, it is what 340B hospitals should have been paid 
in the first place and the payment is not being made as a result of 
this paragraph but rather the agency's loss of a court case. One 
commenter argued that the additional expenditures are those that could 
result from CMS electing to refine its payment methodology as permitted

[[Page 77158]]

under section 1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)). The 
commenter shared that this means performing a survey and changing the 
drug payment methodology or refining the overhead cost payment. In this 
case, they stated that the additional expenditures are neither of these 
and are instead ``a loss at the Supreme Court, not a payment 
methodology refinement.''
    With respect to section 1833(t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(E)), which provides the Secretary with the authority to 
establish, ``in a budget neutral manner, outlier adjustments . . . and 
transitional pass-through payments . . . and other adjustments as 
determined to be necessary to ensure equitable payments,'' commenters 
argued that this provision is not applicable to the remedy payments 
because, in their view, CMS is not exercising any payment discretion 
(but is required to make the payments) and the payments are not being 
made for equitable reasons (but to comply with a court judgment) and, 
like section 1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)), the 
provision is purely prospective in nature. Commenters suggested that in 
the introductory text of subsection section 1833(t)(2)(E) of the Act 
(42 U.S.C. 1395l(t)(2)(E)), ``under the payment system'' refers to the 
prospective payment system addressed in section (t) as a whole: 
``Prospective Payment System for Hospital Outpatient Department 
Services'' and section 1833(t)(2)(E) of the Act's inclusion within that 
system prohibits its use for recoupments. One commenter argued that CMS 
construes ``adjustment'' too broadly and that its meaning under section 
1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)) refers to outliers 
and transitional pass-through payments, which the commenter 
characterizes as ``cornerstone features'' of the outpatient prospective 
payment system.
    Many commenters argued that if section 1833(t)(2)(E) of the Act (42 
U.S.C. 1395l(t)(2)(E)) did apply to the proposed lump sum payments, 
that the amount of the payments is too large to qualify as an 
adjustment under the statute. In support of this position, these 
commenters referenced Biden v. Nebraska, 143 S. Ct. 2355, 2368 (2023), 
which interpreted the term ``modify'' in a different statute to mean 
``to change moderately and in minor fashion.'' According to the 
commenters, the D.C. Circuit has interpreted HHS's adjustment authority 
to have the same limits that the Supreme Court found in the word 
``modify'' in other contexts, and the remedy payment here is too large 
to qualify. See Amgen, Inc v. Smith., 357 F.3d 103, 117 (D.C. Cir. 
2004). These commenters agreed that CMS may use section 1833(t)(2)(E) 
of the Act (42 U.S.C. 1395l(t)(2)(E)) to increase the remedy payments 
by $1.8 billion (the amount of beneficiary cost sharing).
    Response: We continue to believe that we should rely on sections 
1833(t)(14) and (t)(2)(E) of the Act (42 U.S.C. 1395l(t)(14) and 
(t)(2)(E)) to make these remedy payments. No commenter identified any 
alternate statutory authority on which we could rely, and we disagree 
with commenters' arguments that these provisions are inapplicable. 
While we agree that section 1833(t) creates a prospective payment 
system, see section 1833(t)(1)(A) of the Act (42 U.S.C. 
1395l(t)(1)(A)), the Supreme Court declined to find this fact 
foreclosed all retrospective review. Cf. Am. Hosp. Ass'n v. Becerra, 
Br. for Respondents at 21-22 (government brief arguing the statute 
foreclosed ``'administrative or judicial review of the prospective 
payment system,' '' and noting invalidation of an OPPS component `` 
`could result in the retroactive ordering of payment adjustments' '' 
(quoting H.R. Rep. No. 149, 105th Cong., 1st Sess. 724 (1997) (House 
Report) and Amgen, Inc., 357 F.3d at 112)). Indeed, at least one court 
has rejected an argument that CMS lacks the authority to make 
retroactive adjustments when required to comply with other provisions 
in section 1833(t) of the Act (42 U.S.C. 1395l(t)). See H. Lee Moffitt 
Cancer Ctr. & Rsch. Inst. Hosp., Inc. v. Azar, 324 F. Supp. 3d 1, 16 
(D.D.C. 2018) (``HHS has not shown that such a retroactive adjustment 
would be incompatible with the generally prospective nature of 
OPPS.'').
    We disagree with commenters that stated that a court has 
``ordered'' payments, or that court-ordered payments necessarily fall 
outside of section 1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)). No 
court has yet weighed in on the appropriate remedy, much less ordered 
any particular payment. See, for example, Am. Hosp. Ass'n, 2023 WL 
143337, at *3 (rejecting argument that court should order agency to 
``repay[] those hospitals that were unlawfully underpaid, from 2018 to 
the present, the difference between what they were paid and ASP plus 
6%'').
    We also disagree that our remedy payment is not ``equitable'' 
within the meaning of section (t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(E)) simply because it remedies legal error. Ensuring that 
providers are paid according to Congress' policy judgments is a 
legitimate way to ensure fairness, in the most common meaning of the 
term ``equitable.'' Indeed, to the extent the term ``equitable'' under 
section (t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)) might be 
informed by courts' historic equitable authority, the fact that we are 
seeking to restore parties to as close a state as they would have been 
without the now-invalidated 340B Payment Policy makes the rule 
analogous to historic equitable remedy of recession and restitution. 
See Restatement (Third) of Restitution and Unjust Enrichment section 54 
(2011) (``[T]he expression ``rescission and restitution'' aptly 
describes cases in which the claimant may be restored to the status quo 
ante by obtaining the fungible equivalent of personal property 
previously transferred to the other party.'').
    Nor do we agree with commenters that this rule exceeds our 
statutory authority to make ``adjustments'' to the payment system ``as 
determined to be necessary to ensure equitable payments'' under section 
1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)). Both the Supreme 
Court and the D.C. Circuit have declined to define the outer bounds of 
that term. See Am. Hosp. Assoc'n, 142 S. Ct. at 1904 (``[W]e need not 
determine the scope of HHS's authority to adjust the price up or 
down.''); Amgen, Inc., 357 F.3d at 117 (``[T]he court has no occasion 
to engage in line drawing to determine when `adjustments' cease being 
`adjustments.' ''). While we acknowledge that the Supreme Court has 
held that in certain contexts the statutory authority to ``modify'' a 
program limits the amount by which an agency can change the program, we 
believe the statutory term ``adjustment'' has a different focus here. 
For example, in Nebraska, when construing the term ``modify,'' the 
Supreme Court relied in part on Black's Law Dictionary's definition of 
modify which built in ``a connotation of increment or limitation.'' 143 
S. Ct. at 2368 (citing MODIFY, Black's Law Dictionary (11th ed. 2019) 
(``To make somewhat different; to make small changes to (something) by 
way of improvement, suitability, or effectiveness'').) But that same 
dictionary defines ``adjustment'' to focus on adapting something to 
better apply in a particular circumstance. ADJUSTMENT, Black's Law 
Dictionary (11th ed. 2019) (``That which adapts one thing to another or 
to a particular use''). We therefore believe our adjustment authority 
under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395l(2)(E)) fairly 
encompasses adapting generally prospective payments to remedy legal 
errors made in those payments. And even if adjustment carries a 
connotation

[[Page 77159]]

of increment or limitation, the 28.5 percent adjustment this final rule 
makes to the payments made to hospitals for 340B-acquired drugs would 
not exceed it. The cases in which the Supreme Court has found that 
agencies exceeded their modification authority are those where the 
Court found that there was a change in kind to the affected program, 
not simply a change in degree. See Nebraska, 143 S. Ct. at 2369 
(changes exceeded modification authority when agency ``created a novel 
and fundamentally different loan forgiveness program''); MCI 
Telecommunications Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 230 
(1994) (changing statute ``from a scheme of rate regulation in long-
distance common-carrier communications to a scheme of rate regulation 
only where effective competition does not exist'' exceeded modification 
authority); cf. also Amgen, Inc., 357 F.3d at 117 (adjustment does not 
include a ``total elimination or severe restructuring of the statutory 
scheme''). Here, CMS is adjusting payment rates back to their default 
under the statute. Restoring a default payment provision is the 
opposite of the implementation of ``a new regime entirely'' that the 
Supreme Court has invalidated.
    We acknowledge that we are in a somewhat unique situation. We have 
generally operated the OPPS system based on a belief that its 
prospective payments were insulated from administrative and judicial 
review. In light of the Supreme Court's decision, however, we must find 
a way to reconcile a primarily prospective budget neutral rate-setting 
system with adjudication processes that are generally retrospective in 
nature. Here, it is enough for us to find that sections 1833(t)(14) and 
(t)(2)(E)--and section 1871(e)(1)(A), to the extent required--authorize 
us to correct the legal error identified by courts in our prior 
payments under section 1833(t)(14).
    Comment: One commenter argued that CMS could not rely on its 
retroactive rulemaking authority under section 1871(e)(1)(A) of the Act 
(42 U.S.C. 1395hh(e)(1)(A)), in conjunction with sections 1833(t)(2)(E) 
and (t)(14) of the Act (42 U.S.C. 1395l(t)(2)(E) & (t)(14)), to make 
the remedy payments because section 1871(e)(1)(A) of the Act (42 U.S.C. 
1395hh(e)(1)(A)) prohibits retroactive rulemaking except for two 
limited exceptions, neither of which apply to the remedy payments. The 
first exception cited by the commenter applies to situations in which 
``retroactive application is necessary to comply with statutory 
requirements'' (see section 1871(e)(1)(A)(i) of the Act) (42 U.S.C. 
1395hh(e)(1)(A)(i)) and the second to situations in which ``failure to 
apply the change retroactively would be contrary to the public 
interest'' (see section 1871(e)(1)(A)(ii) of the Act (42 U.S.C. 
1395hh(e)(1)(A)(ii)). Concerning the first exception, the commenter 
contends that the proposed rule discusses retroactive rulemaking 
authority only with respect to the drug payment methodology for 340B-
acquired drugs and makes no argument that payments for non-drug items 
and services may be changed retroactively or that CMS may retroactively 
re-estimate its budgetary projections from 2018. The commenter 
concludes that because the OPPS is expressly required to be prospective 
in nature, ``retroactive adjustments'' to past years' payment rates are 
not ``necessary to comply'' with statutory requirements of the OPPS. 
Concerning the second exception, the commenter argues that it is not in 
the public interest to engage in the retroactive adjustment of 
prospective payment rates (particularly when doing so would upset the 
reliance interest of all hospitals with respect to payment for non-drug 
items and services) when make-whole relief can be implemented without 
revisiting 2018 through 2022 OPPS rates.
    Response: We disagree with the commenter that the OPPS's generally 
prospective nature implicitly overrides CMS's retroactive rulemaking 
authority under section 1871(e) of the Act (42 U.S.C. 1395hh(e)). The 
Supreme Court held (in 2022) that we lacked authority (in 2018) under 
section 1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)) to set a 
payment rate of ASP-22.5 percent for 340B-acquired drugs absent a drug 
acquisition cost survey. Thus, to the extent we are acting 
retrospectively in this rule, conforming payment rules that are still 
on the books and still contain a payment rate contrary to the 
requirements of section 1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)) 
would be a classic case where retroactive rulemaking would be 
``necessary to comply'' with statutory requirements. As noted above, 
courts have rejected the argument that because section 1833(t) of the 
Act (42 U.S.C. 1395l(t)) establishes a prospective payment system, that 
system is not subject to any retrospective review or amendment. And 
because the payment increases for non-drug items and services for those 
years were inextricably linked to the illegal payment decreases for 
340B-acquired drugs, the same reasoning would apply. We are not, as 
commenter suggests, re-estimating our budget projections--a point we 
also discuss below in section II.B.2. Rather, we are unwinding a 
payment rate that courts held was illegal.
    We also disagree with the commenter's public interest argument. As 
noted above, commenters have not identified any authority through which 
we could implement make-whole relief without relying on sections 
1833(t)(14) or (t)(2)(E) of the Act (42 U.S.C. 1395l(t)(14) and 
(t)(2)(E)). And we disagree that hospitals' reliance interest 
undermines our interpretation here. Hospitals were aware that we 
believed their increased payments for non-drug items and services 
hinged on the payment decreases for 340B-acquired drugs. (No one, for 
example, has suggested we could retain the 3.19 percent payment 
increase in CY 2023 once we reverted to an ASP plus 6 percent payment 
rate for 340B acquired drugs.) Hospitals successfully convinced courts 
that those payment decreases are illegal, and it thus follows that the 
intertwined payment increases were unwarranted under the statute, as 
well. If the payment increases were not removed, the remedy payments 
would ultimately come from beneficiaries, taxpayers, or some 
combination of the two. The commenter's suggestion would effectively 
involve at least a $9 billion transfer from beneficiaries and taxpayers 
to hospitals, which would be inappropriate especially in a system where 
budget neutrality requirements generally prevent such transfers.
    Comment: Many commenters claimed that CMS does not require any 
statutory authority to make the remedy payments and that it can make 
the payments using an ``acquiescence authority.'' Commenters point to 
past instances in which CMS has allegedly exercised the posited 
acquiescence authority, including Administrator rulings,\15\ manual 
updates,\16\ settlements with hospitals \17\ and the processing and 
reprocessing of CY 2022 340B drug claims at the default drug rate for 
dates

[[Page 77160]]

of service between January 1, 2022, and September 27, 2022, described 
in the proposed rule (``a large portion of the CY 2022 340B drug claims 
for dates of service between January 1, 2022, and September 27, 2022, 
have already been remedied as a result of being processed or 
reprocessed at the default drug payment rate.'').\18\ Commenters argue 
that we are ignoring this acquiescence authority in order to justify 
the budget neutrality policy we discuss later in section II.B.2 of this 
final rule.
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    \15\ See CMS Ruling No. 1498-R.(Apr. 28, 2010). https://www.cms.gov/regulations-and-guidance/guidance/rulings/downloads/cms1498r.pdf.
    See also CMS Ruling No. 1355-R.(Apr. 14, 2011). https://www.cms.gov/Regulations-and-Guidance/Guidance/Rulings/downloads/cms1355r.pdf.
    \16\ See CMS Pub. 100-20, Transmittal No. 10520 (Dec. 14, 2020). 
https://www.cms.gov/files/document/r10520otn.pdf.
    \17\ See HealthAlliance Hospitals, Inc. v. Azar, 346 F. Supp. 3d 
43 (D.D.C. 2018); see also Clerk's Orders Granting Extensions To 
Accommodate Pending Mediation, dated March 26, 2019, April 18, 2019, 
and June 13, 2019, HealthAlliance Hosps., Inc. v. Azar, No. 18-5372 
(D.C. Cir.); Joint Stipulation of Dismissal dated August 29, 2019, 
HealthAlliance Hosps., No. 18-5372 (D.C. Cir.).
    See Cape Cod Hospital v. Sebelius, 630 F.3d 203 (D.C. Cir. 
2011); see also 76 FR. 51476, 51799 (Aug. 18, 2011).
    \18\ See proposed rule at 88 FR 44088 (Nov. 13, 2017).
---------------------------------------------------------------------------

    Response: We have previously explained that acquiescence is a 
choice by an agency, when faced with a lower court decision disagreeing 
with the agency's legal interpretation, to ``recognize that court's 
interpretation and apply the court's interpretation uniformly, 
thereafter, within the jurisdictional bounds of the interpreting 
court.'' In the Case of: St. Vincent Mercy Medical Center Provider v. 
Blue Cross Blue Shield Association/national Government Services--Ohio 
Intermediary, 2008 WL 6468508, at *9 (CMS Adm'r) (acquiescing to 
circuit court's interpretation of law for providers within the 
jurisdictional bounds of the deciding court). That makes the 
acquiescence doctrine an awkward fit here because it is most often 
applied to rulings from circuit courts, whose precedential authority is 
geographically limited and whose legal interpretations are subject to 
further review. The Supreme Court is not so limited, and its statutory 
interpretations are generally binding on parties with pending claims. 
See Harper v. Virginia Dep't of Tax'n, 509 U.S. 86, 97 (1993) (``When 
this Court applies a rule of federal law to the parties before it, that 
rule is the controlling interpretation of federal law and must be given 
full retroactive effect in all cases still open on direct review.'').
    Regardless, we do not understand acquiescence to be an independent 
source of authority or one that frees us from otherwise applicable 
statutory constraints, as commenters believe. Commenters' examples do 
not suggest otherwise. The cited Administrator rulings were routine 
applications of judicial precedent to pending administrative appeals. 
See CMS Ruling No. 1498-R, at 6 (Apr. 28, 2010) (limiting relief to 
providers with ``properly pending DSH appeal of the SSI fraction data 
matching process issue'' under section 1869 of the Act (42 U.S.C. 
1395ff)); CMS Ruling 1355-R, at 8 (limiting relief to providers with 
``properly pending appeals'' under section 1878 of the Act (42 U.S.C. 
1395oo)). Such actions are contemplated by the agency's authority to 
``affirm, modify, or reverse'' in pending adjudications. See section 
1869(b)(1) of the Act (42 U.S.C. 1395ff(b)(1)) (incorporating authority 
under section 205(b) of the Act (42 U.S.C. 405(b)); 1878(f)(1) of the 
Act (42 U.S.C. 1395oo(f)(1) (same)). The decisions cited by commenters 
never suggest that we could issue payments that violate statutory 
limitations, nor have commenters identified any statutory limitations 
those decisions allegedly violated.\19\ Neither payment adjustment in 
the two cited rulings, for example, were subject to a budget neutrality 
requirement. See, for example, 2014 IPPS Final Rule, 78 FR 50496, 50507 
(2013) (noting statutory amendments resulting in reductions to DSH 
payments ``are not budget neutral''); Medicare Program; Hospice Wage 
Index for Fiscal Year 2010, 74 FR 39384, 39390-91 (2009) (rejecting 
notion that ``Medicare insists on budget neutrality in all of its 
payment systems''). To the contrary, several of the cited examples show 
that CMS enforces payment limits in prospective payment systems, even 
when acting retroactively or in response to disagreement by a court. 
See CMS Pub. 100-20, Transmittal No. 10520 (Dec. 14, 2020) (instructing 
contractors to recalculate graduate medical education payments to 
comply with annual payment caps under section 1886(l) of the Act (42 
U.S.C. 1395ww(l)); \20\ 76 FR 51476, 51788 (addressing payment issue 
relating to application of budget neutrality adjustment after court 
decision in Cape Cod Hospital v. Sebelius, 630 F.3d 203 (D.C. Cir. 
2011) by ``remodel[ing] the recalibration/wage index budget neutrality 
factor for the years at issue''); accord Medicare Program; Changes to 
the Inpatient Hospital Prospective Payment System and Fiscal Year 1991 
Rates, 55 FR 35990, 36043 (1990) (``Absent a retroactive budget 
neutrality adjustment at the beginning of next fiscal year, we believe 
that we would be precluded from making mid-year corrections to the wage 
index since they could not be accomplished in a budget neutral fashion 
as required by law.'').
---------------------------------------------------------------------------

    \19\ We understand our approach to remedies to be consistent 
with how courts view their own remedy authority. See, for example, 
Off. of Pers. Mgmt. v. Richmond, 496 U.S. 414, 426 (1990) 
(``[J]udicial use of the equitable doctrine of estoppel cannot grant 
respondent a money remedy that Congress has not authorized.''); Am. 
Hosp. Ass'n v. Price, 867 F.3d 160, 167 (D.C. Cir. 2017) (``[I]f the 
necessary means [to remedy a legal violation by an agency] were 
unlawful, the Court could not have mandated them.'').
    \20\ We continued to enforce retroactively the payment 
limitations in section 1886(l) of the Act (42 U.S.C. 1395ww(l)) 
until Congress stepped in to relieve us of that requirement. See CAA 
2023, sec. 4143.
---------------------------------------------------------------------------

    To be sure, the court in H. Lee Moffitt Cancer Center v. Azar, 324 
F. Supp. 3d 1 (D.D.C. 2018), noted one prior instance where we had 
missed a small number of hospitals in our first year implementing 
budget neutral payment adjustments for certain rural hospitals and did 
not clearly budget neutralize a retroactive adjustment. Id. at 15 
(citing 71 FR 67960, 68010). That court acknowledged that CMS had 
previously ``temporarily raised prospective rates in order to make up 
for reductions applied in prior years'' and so saw ``no reason why HHS 
could not do the converse here if it believed offsets were required: 
make a slight reduction in prospective rates for a future year to 
accommodate a retroactive adjustment'' for the single plaintiff 
hospital. Id. at 17 n.5. In any event, both the rural hospital 
adjustment issue and the cancer hospital issue involved relatively 
small adjustments to a single year of payments to a very limited number 
of providers, and one situation involved resolution through settlements 
with individual providers that had properly appealed the issue. When 
the additional rural hospitals (rural essential access community 
hospitals) were included in the rural hospital adjustment, the entire 
adjustments changed the budget neutrality factor by approximately 
0.00002, which is so small of a change that it would only change 
payment rates by a fraction of a cent, and likely not change payment 
rates by a penny. (71 FR 68003). And while all eleven cancer hospitals 
impacted the budget neutrality factor by 0.0022 the year they were 
added--reflecting a total of $71 million of payment impact (76 FR 
76,190)--only a few ultimately sued over the payments and the 
government resolved the matters through settlements with individual 
providers. See H. Lee Moffitt, 324 F. Supp. 3d at 9 (estimating $7.4 
million payment impact for plaintiff hospital). These are the types of 
de minimis impacts that CMS has rounded to zero. We do not believe 
these two much smaller examples relieve us of our statutory obligations 
here, which involve several billion dollars and more than 3,600 
hospitals, restructuring Medicare Part B payments for these drugs 
payments across 5 years-worth of claims. As we noted in the proposed 
rule, we are particularly concerned that adopting providers' position 
would allow them to use litigation as a workaround to otherwise 
applicable constraints on Medicare payments and

[[Page 77161]]

threaten Congress' control of the Federal budget.
    Adhering to the usual statutory constraints on our rulemaking 
authority under section 1833(t) of the Act (42 U.S.C. 1395l(t)) is 
particularly appropriate here when we are implementing a remedy through 
rulemaking rather than adjudication or resolving a matter through 
settlement. Following judicial interpretations does not necessarily 
entitle parties without jurisdictionally proper active challenges to 
have that interpretation applied to prior years' payments. See 42 CFR 
405.986(b) (change in legal interpretation based on judicial decision 
not good cause to reopen adjudications); see also Baptist Mem'l Hosp. 
v. Sebelius, 603 F.3d 57, 64 (D.C. Cir. 2010) (denying mandamus to 
party who sought application of favorable judicial interpretation to 
prior payment years without pending appeals). Parties who chose to sit 
on the sidelines might benefit prospectively from a change in legal 
interpretation based on a court ruling, but nothing requires an agency 
affirmatively to reach back and disturb the finality of payment 
determinations that providers never properly challenged. See Grant Med. 
Ctr. v. Hargan, 875 F.3d 701, 707 (D.C. Cir. 2017) (``[W]e never 
require agencies to apply rules retroactively even where it would be 
permissible for them to do so.'' (emphasis in original)); see also See 
Your Home Visiting Nurse Servs., Inc. v. Shalala, 525 U.S. 449, 455 
(1999) (holding that ``agency's refusal to reopen a closed case is 
generally `committed to agency discretion by law' and therefore exempt 
from judicial review''); 42 CFR 405.986.
    Despite these well-established principles, Congress has recognized 
that sometimes an agency might decide that finality should yield to 
other policy considerations, including by giving the agency the 
flexibility to issue retroactive rules in certain circumstances. See 
section 1871(e) of the Act (42 U.S.C. 1395hh(e)). As we explained in 
the proposed rule, that threshold has been met here, at least to the 
extent this rule is retroactive. We add that the same principles that 
sometimes justify acquiescing to a circuit court outside of that 
court's jurisdictional bounds also supports our choice to apply the 
Supreme Court's interpretation of section 1833(t)(14) of the Act (42 
U.S.C. 1395l(t)(14)) to parties who lack pending claims for those 
payment years and thus are outside the bounds of the Supreme Court's 
judgment. Doing so in this case will help to promote uniform treatment 
of parties under the law and save the government and regulated parties 
from uncertainty and litigation costs. We find particularly compelling 
the fact that we repeatedly stated our view that the preclusion 
provisions in section 1833(t)(12) of the Act (42 U.S.C. 1395l(t)(12)) 
foreclosed any administrative or judicial review, a position with which 
the Supreme Court ultimately disagreed. Given the unique circumstances 
of this case, we believe extending the remedy to the entire industry 
through rulemaking properly balances the agencies and parties' interest 
in finality and Congress' control of the Federal budget with uniformity 
and litigation costs.
    Comment. One commenter suggested we view the payment through the 
lens of monetary damages to make 340B providers whole, suggesting that 
this is an inevitable consequence of losing a court case.
    Response. We appreciate this commenter's transparency in 
identifying that the make-whole payments that many commenters are 
requesting are in fact money damages. But we disagree that money 
damages are appropriate here. Providers sued under section 1869 (42 
U.S.C. 1395ff) of the Social Security Act, which authorizes both courts 
and the agency to ``affirm[], modify[], or revers[e]'' administrative 
decisions on individual requests for payment under section 205(b) or 
(g) of the Act (42 U.S.C. 405(b) or (g)). Because the Social Security 
Act does not authorize money damages, we do not believe that is the 
correct framework to understand the remedy here. Cf. Schweiker v. 
Chilicky, 487 U.S. 412, 424 (1988) (``[T]he [Social Security] Act, 
however, makes no provision for remedies in money damages against 
officials responsible for unconstitutional conduct that leads to the 
wrongful denial of benefits.''). Indeed, even when money damages are 
appropriate, courts have suggested the goal is to place plaintiffs in 
the same position as they would have been absent any breach, suggesting 
the windfall payments for non-drug items and services would need to be 
deducted from any recovery, regardless. See Cmty. Health Choice, Inc. 
v. United States, 970 F.3d 1364, 1375-1376 & n.10 (Fed. Cir. 2020) 
(``[W]hen the non-breaching party indirectly benefits from the 
defendant's breach, `in order to avoid overcompensating the promisee, 
any savings realized by the plaintiff as a result of the . . . breach . 
. . must be deducted from the recovery.' '').
    After consideration of comments received, and for the reasons 
stated in our proposed rule and in this final rule, we are finalizing 
our proposed policy as proposed. In particular, we are finalizing our 
proposal to make lump sum payments, calculated as the difference 
between what an affected 340B covered entity hospital received for 
340B-acquired drugs during the time period at issue and what they would 
have received for 340B-acquired drugs if the 340B adjustment had not 
been in place, as detailed further below. We are doing so for the 
reasons stated in our proposed rule and in this final rule.
    We note that because we are finalizing our proposal to remedy the 
340B drug payments through lump sum payments, we must also address the 
non-drug item and services payment made from CY 2018 through CY 2022 as 
detailed in subsequent sections of this final rule. We note that 
because OPPS 340B drug payment is directly and inextricably linked to 
the OPPS payment for non-drug items and services, if the 340B drug 
payments are invalidated and must be remedied, then the increased 
payments for non-drug items and services are invalidated and must be 
remedied as well. But for the reductions in the 340B drug payments, the 
increased payments for the non-drug items and services would not have 
been put into effect.
b. Estimated Reduction in Drug Payments to Affected 340B Covered Entity 
Hospitals in CY 2018 Through September 27, 2022
    An estimated 1,686 340B covered entity hospitals were paid at the 
340B payment rate, which was generally ASP minus 22.5 percent for 340B-
acquired drugs for CY 2018 through September 27th of 2022, rather than 
the default rate, which is generally ASP plus 6 percent, due to the 
340B Payment Policy. In the proposed rule, CMS estimated that these 
hospitals received approximately $10.5 billion less in 340B drug 
payments (including money that would have been paid by Medicare and 
money that would have come from beneficiaries as copayments) than they 
would have for drugs provided in CY 2018 through September 27th of 2022 
had the 340B policy not been implemented. In the proposed rule (88 FR 
44084), we stated that we would update these estimated figures in the 
final rule as we continued to receive updated CY 2022 claims data. In 
the proposed rule, we expected to have sufficient CY 2022 340B drug 
claims at issue submitted by September 27, 2023; therefore, by the 
publication date for the final rule, we estimated we would have 
sufficient claims data to state with more specificity the reduction in 
drug payments to affected 340B covered entity hospitals in CY 2018 
through September 27, 2022. As discussed in the proposed rule, we 
estimated that 340B

[[Page 77162]]

providers had already received $1.5 billion in remedy payments through 
reprocessed claims for 340B drugs provided from January 1, 2022, 
through September 27, 2022. Accordingly, we estimated in the proposed 
rule that the remaining remedy amount that affected 340B covered entity 
hospitals had not yet received as a result of this policy was $9.0 
billion.\21\
---------------------------------------------------------------------------

    \21\ We noted that the additional amount CMS pays affected 340B 
covered entity hospitals through this remedy could decrease if 
additional CY 2022 claims are processed at the higher payment rate, 
as discussed under section I.C of this final rule. As previously 
explained, the agency complied with the District Court's September 
28, 2022, decision by paying the default rate (generally ASP plus 6 
percent) for all CY 2022 claims for 340B-acquired drugs paid from 
September 28, 2022, onward. However, as some affected 340B covered 
entity hospitals are still filing, or re-filing, claims for CY 2022, 
we are paying those claims at the higher default payment rate for 
drugs, which is generally ASP plus 6 percent. Therefore, we advised 
that our estimate of the total amount of additional drug payments 
that would be made through this remedy could change as more claims 
from CY 2022 are processed, or reprocessed, at the default payment 
rate of ASP plus 6 percent.
---------------------------------------------------------------------------

    In the proposed rule, we calculated the estimated aggregate 
payments by isolating 340B drugs assigned status indicator ``K'' (non-
pass-through drugs and non-implantable biologicals, including 
therapeutic radiopharmaceuticals) and billed with modifier ``JG'' (drug 
or biological acquired with 340B Program discount, reported for 
informational purposes). We then calculated the difference between 
these drugs' CY 2018 through 2022 340B payment rate and the 340B rate 
proposed in the proposed rule, which was generally the difference 
between ASP minus 22.5 percent and ASP plus 6 percent. We used a 
similar process to estimate aggregate payments owed for drugs with 
payment amounts based on WAC or AWP. In particular, for drugs priced 
using WAC, we calculated the difference between WAC minus 22.5 percent 
and WAC plus 3 or 6 percent, as applicable; and for drugs priced using 
AWP, we calculated the difference between 69.46 percent of AWP and 95 
percent of AWP. We note that the WAC and AWP based payment rates 
outlined in this paragraph are the common longstanding default OPPS 
drug payment rates if ASP data are not available.
    We invited comment on this proposed methodology of estimating the 
reduction in drug payments to affected 340B covered entity hospitals in 
CY 2018 through September 27, 2022.
    We thank commenters for their input on our policy proposals. We 
have summarized the comments received and our responses to those 
comments in the following section.
    Comment: Most commenters generally agreed with our methodology to 
calculate what 340B covered entity hospitals would have received. 
Commenters generally requested that we update our calculations for the 
final rule.
    Response: We thank commenters for their support.
    As stated in the proposed rule and as requested by commenters, we 
updated these calculations using claims data available (CMS Common 
Working File (CWF) CWF2023w38, processed by 09/22/2023) as of the 
publication of this final rule. Our updated claims data reflects that 
these hospitals received an estimated $10.6 billion less in 340B drug 
payments (including money that would have been paid by Medicare and 
money that would have come from beneficiaries as copayments) than they 
would have for drugs provided in CY 2018 through September 27th of 2022 
had the 340B policy not been implemented.
    Additionally, we now estimate that $1.6 billion of the total $10.6 
billion that we calculated affected 340B covered entity hospitals did 
not receive as a result of the 340B Payment Policy has already been 
remedied through reprocessed claims. Accordingly, we estimate the 
remaining remedy amount that affected 340B covered entity hospitals 
have not yet received as a result of this policy is $9.004 billion, 
which has changed from the estimated $9.003 billion amount that was 
included in the proposed rule. This change is due to additional CY 2022 
claims that have been reprocessed as well as an adjustment made based 
on a comment received as described in section II.B.1.F of this final 
rule. For simplicity, we refer to this number as $9.0 billion 
throughout this document.
    After consideration of comments received, and for the reasons 
stated in our proposed rule and in this final rule, we are finalizing 
our methodology of estimating the reduction in drug payments to 
affected 340B covered entity hospitals in CY 2018 through September 27, 
2022, as proposed. Accordingly, as described in more detail later and 
in Addendum AAA, we will make total lump sum payments in the amount of 
$9.004 billion as a result of this final rule. We continue to round our 
lump sum payment to $9.0 billion for purposes of this final rule 
discussion for ease of reference, but the exact unrounded amount will 
be the total amount paid to hospitals.
c. Methodology for Calculating Remedy Payments Owed to Each Affected 
340B Covered Entity Hospital
    We proposed the following process for calculating the amount of 
payment owed to each affected 340B covered entity hospital and issuing 
that payment. For each affected 340B covered entity hospital, we 
proposed to calculate the amount the hospital would have been paid 
under the OPPS from CY 2018 through September 27th of CY 2022 for drugs 
the hospital acquired through the 340B Program had that 340B adjustment 
not been in effect. We would then subtract from this amount the amount 
each affected 340B covered entity hospital was paid under the OPPS for 
340B-acquired drugs during the period of CY 2018 to September 27th of 
CY 2022.
    When added to the adjusted amount paid under the OPPS from CY 2018 
through September 27th of CY 2022 for separately payable drugs acquired 
under the 340B Program, this proposed additional lump sum payment 
amount would result in the affected 340B covered entity hospital 
receiving the default ASP plus 6 percent rate (or WAC plus 3 or 6 
percent or 95 percent of AWP, as applicable) for drugs acquired under 
the 340B Program for CY 2018 through September 27th of CY 2022.
    We illustrated the proposed process for calculating and paying an 
affected 340B covered entity hospital's additional lump sum OPPS 
payments for 340B drugs furnished from CY 2018 through September 27th 
of CY 2022 in the following example. We explained that using claims 
data from CY 2018 through September 27th of CY 2022 for which those 
claims have been processed and OPPS payments already made, we might 
calculate that a particular 340B-covered entity hospital would have 
been paid, for example, an estimated $10 million for 340B drugs had the 
340B Payment Policy not been in effect during that time period. Then, 
based on claims data for the same hospital from the same time period, 
we might calculate that the hospital was actually paid $7.31 million 
for 340B drugs from CY 2018 through September 27th of CY 2022. In that 
circumstance, we explained that the 340B covered entity hospital would 
receive as a lump sum payment $2.69 million, i.e., the difference 
between these two amounts. We noted that another way to illustrate our 
estimate of the total amount an affected 340B covered entity hospital 
would have been paid had the 340B Payment Policy not been in effect (X) 
is to use the following formula:
X = (Y/0.775)*1.06


[[Page 77163]]


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

    We noted that in the example above, the Y would be $7.31 million. 
Therefore, ($7.31 million/0.775)*1.06 = $10 million. The lump sum 
payment would be $10 million minus $7.31 million, which equals $2.69 
million. We solicited comment on our proposed calculation methodology 
for calculating remedy payments owed to each affected 340B covered 
entity hospital.
    We thank commenters for their input on our policy proposals. We 
have summarized the comments received and our responses to those 
comments in the following section.
    Comment: All commenters who addressed the issue supported CMS's 
proposed methodology for calculating remedy payments. The commenters 
agreed that the methodology minimizes the administrative burden and 
complexities of reprocessing claims for hospitals and CMS. In addition, 
the commenters supported the proposed methodology because the lump sum 
payment would be an efficient method that could be completed in a 
shorter timeline than alternatives like an adjustment to prospective 
payments.
    Response: We appreciate commenters' support.
    After consideration of comments received, and for the reasons 
stated in the proposed rule and this final rule, we are finalizing our 
methodology to calculate the remedy payments owed to each affected 340B 
covered entity hospital as proposed.
d. Instruction to MACs To Remit Remedy Payments
    Consistent with our past practice of remitting payments owed due to 
litigation, we proposed to make additional payments to each 340B 
covered entity hospital by issuing instructions (such as a Change 
Request (CR) or a Technical Direction Letter (TDL)) to the 340B covered 
entity hospital's Medicare Administrative Contractor (MAC), instructing 
the MAC to issue a one-time lump sum payment to the hospital in the 
amount calculated using the above described methodology within a 
specified timeframe, which we proposed would be within 60 calendar days 
of the MAC's receipt of the instruction. For instance, in the example 
above, CMS would issue instructions to the relevant MAC instructing it 
to issue a payment to the 340B covered entity hospital in the amount of 
$2.69 million within 60 calendar days of the MAC's receipt of the 
instructions. (We noted that MACs will continue to follow normal 
accounting processes for collecting repayment amounts that are the 
result of provider-specific overpayment obligations, as well as other 
unique situations such as provider bankruptcy or payment suspension, 
any of which may impact the provider's net payment amount.) We 
solicited comment from the public on our proposed approach to remitting 
remedy payments. We specifically sought comment on the timeframe of 60 
calendar days in which we proposed to have the MACs make the proposed 
lump sum payments. Given the number of one-time lump-sum payments to 
hospitals, the size of the payments, and the overall complexity of this 
remedy, we believed 60 calendar days was necessary for the MACs to make 
these payments accurately and precisely to individual hospitals. We 
sought comment on this timeframe and if another timeframe, such as 30 
calendar days, was supported by rationale from commenters.
    We thank commenters for their input on our policy proposals. We 
have summarized the comments received and our responses to those 
comments in the following section.
    Comment: Most commenters supported CMS's proposal for MACs to issue 
a one-time lump sum payment to affected 340B covered entity hospitals 
within 60 calendar days of the MAC's receipt of the instruction from 
CMS to make the payment. Many of these commenters emphasized that MACs 
should begin processing payments upon receipt of CMS instructions 
rather than waiting until the end of 60 days to start doing so. These 
commenters also requested that CMS require MACs to submit weekly 
updates to CMS on the status of the payments.
    Response: We thank these commenters for their support of the 60-
calendar day payment timeframe. We agree with commenters that MACs 
should begin processing payments when they receive our instructions, 
but no payments may be transmitted before this final rule is effective. 
See 5 U.S.C. 801(a)(3). Additionally, CMS will submit instructions to 
MACs after the deadline to submit requests for technical corrections 
under the process detailed in subsequent sections. We also agree that 
MACs should update us about the status of the payments; however, we 
will defer to the MACs to make communications to CMS following their 
standard communication practices.
    Comment: A commenter encouraged CMS to clarify with MACs a process 
to ensure hospitals are paid the full amount provided by CMS without 
delay, bypassing the normal accounting processes discussed in the 
proposed rule. This commenter expressed concern that allowing MACs to 
withhold payment would result in disputes between providers and MACs 
and unreasonably delay payments due to providers. The commenter 
recommended that CMS clarify that MACs must pay the amount specified by 
the agency and not permit MACs to withhold payment.
    Response: We share the commenter's concern with providing the lump-
sum payments quickly and efficiently. We make these payments under 
sections 1833(t)(14), 1833(t)(2)(E), and (as applicable) section 
1871(e) of the Act (42 U.S.C. 1395l(t)(14) and (t)(2)(E) and 42 U.S.C. 
1395hh(e)(1)(A)); we do not believe they are somehow different in kind 
from other Medicare payments made under those authorities in a way that 
justifies exempting them from MACs' usual procedures. As such, MACs 
will continue to follow normal accounting processes for collecting 
repayment amounts that follow from provider-specific overpayment 
obligations, as well as other unique situations such as provider 
bankruptcy or payment suspension, any of which may impact the 
provider's net payment amount.
    Comment: Multiple commenters requested that CMS state in the final 
rule that hospitals receiving a remedy payment will also receive 
information detailing how that payment was calculated and that the 
payment notice constitutes a final determination. These commenters 
additionally requested that CMS state in the final rule that a hospital 
will not waive any claims or give up any legal rights by accepting a 
remedy payment. These commenters emphasized that providing this 
information is especially important because OPPS payments for drugs 
were based on pricing data that can change over time, including AWP, 
WAC, and ASP; and these drugs may have an established or decreased ASP 
today, which could lead to confusion regarding whether CMS's remedy 
payment is based on the historic AWP/WAC/ASP figure or the current ASP 
figure.
    Response: We refer readers to the previous section titled: 
Methodology for Calculating Remedy Payments Owed to Each Affected 340B 
Covered Entity Hospital for additional information regarding the 
methodology we used to calculate the lump sum payments. We reiterate 
that we calculated the payment amounts to approximate what 340B covered 
entity hospitals would have received had it not been for the 340B 
Payment Policy. This means using the ASP (or WAC or AWP) based payment 
rate that would have been paid at that

[[Page 77164]]

time instead of the reduced ASP (or WAC or AWP) based payment as a 
result of the 340B Payment Policy. The remedial payments established by 
this final rule are being made instead of making case-by-case decisions 
through a claim-by-claim process. If the hospital does not submit any 
information during the time period for technical corrections, then the 
amounts listed in Addendum AAA are the final payment amounts due to the 
hospital pursuant to this rule. If, however, a hospital does submit 
information during the technical correction period, then the final 
payment will only be determined after CMS addresses the hospital's 
submission. That determination or decision will be the final payment 
amount determined pursuant to the methodology in this final rule.
    Comment: Three commenters recommended that CMS require the MACs to 
make payment within 30 calendar days of the MAC's receipt of the 
instruction to pay. These commenters emphasized that swiftly finalizing 
and effectuating the remedy is in the best interests of CMS and the 
340B hospitals and argued that CMS already has estimated the repayment 
amounts it will issue and could begin laying the groundwork for making 
these repayments by coordinating with MACs and providing education to 
MACs beforehand.
    Response: We agree that swiftly finalizing and effectuating the 
remedy is in the best interests of CMS and the affected 340B covered 
entity hospitals, and we have engaged in the ``groundwork'' activities 
mentioned by the commenters (estimating the repayment amounts, 
considering how to operationalize repaying 340B hospitals, and 
coordinating with the MACs). However, even having done so, we continue 
to believe that we should give MACs up to 60 calendar days to process 
payments to minimize the likelihood of payment error. We agree that 
MACs should begin processing payments upon receipt of our instructions 
instead of waiting the full 60 days if possible. We believe this 
timeframe will allow the MACs to make these lump-sum payments 
accurately and precisely to individual hospitals. Given the number of 
payments, the size of the payments, and the overall complexity of this 
remedy, we believe 60 calendar days is a reasonable payment timeframe.
    After consideration of comments received, and for the reasons 
stated in our proposed rule and in this final rule, we are finalizing 
our policy to instruct the MACs to remit remedy payments to affected 
340B covered entity hospitals as proposed. We will make additional 
payments to each 340B covered entity hospital by issuing instructions 
to the 340B covered entity hospital's Medicare Administrative 
Contractor (MAC) and instructing the MAC to issue a one-time lump sum 
payment to the hospital in the amount calculated using the above-
described methodology within 60 calendar days of the MAC's receipt of 
the instruction.
e. Accounting for Beneficiary Cost-Sharing
    In the proposed rule, we discussed that in most circumstances, 
beneficiaries would pay in the form of coinsurance approximately 20 
percent of any additional 340B drug payments that affected 340B covered 
entity hospitals would have received, absent the CY 2018 through 2022 
340B policy. But, as described above, we proposed to make each remedy 
payment as a one-time lump sum payment through MAC instructions using a 
combination of statutory authorities, including, if necessary, our 
retroactive rulemaking authority under section 1871(e)(1)(A) of the Act 
(42 U.S.C. 1395hh(e)(1)(A)) and our equitable adjustment authority 
under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)). 
Because these payments are remedy payments issued through MAC 
instructions relying in part on our equitable adjustment authority 
under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)), we 
explained that these payments would not be 340B drug payments subject 
to beneficiary copayments. Rather, we stated that these remedy payments 
are analogous to the type of cost report adjustments under section 
1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)) that we have 
previously found do not authorize providers to seek additional 
beneficiary copayments.\22\
---------------------------------------------------------------------------

    \22\ For example, section 3138 of the Affordable Care Act added 
a new section 1833(t)(18) to the Social Security Act (42 U.S.C. 
1395l(t)(18), providing for an adjustment under section 
1833(t)(2)(E) of the Social Security Act (42 U.S.C. 1395l(t)(2)(E) 
to address higher costs incurred by cancer hospitals. Section 
1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E), in turn, directs 
the Secretary to establish, ``in a budget neutral manner,'' payment 
``adjustments as determined to be necessary to ensure equitable 
payments, such as adjustments for certain classes of hospitals.'' In 
response to CMS's proposal to implement this adjustment on a per 
claim basis through increased APC payments, commenters expressed 
concern that doing so would increase beneficiary copayments since 
beneficiary copayment is a percentage of the APC payment. These 
commenters encouraged CMS to implement the adjustment in a way that 
did not increase beneficiary copayments. Consequently, CMS 
determined it was appropriate to make the cancer hospital payment 
adjustment through the form of an aggregate payment to each cancer 
hospital determined at cost report settlement, as opposed to an 
adjustment at the APC level, thereby eliminating the higher 
copayments for beneficiaries associated with providing the 
adjustment on a claims basis through increased APC payments. See CY 
2012 OPPS/ASC final rule, 76 FR 74121, 74204 (2011), for our prior 
use of our equitable adjustment authority under section 
1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E) to adjust cancer 
hospital payments.
---------------------------------------------------------------------------

    We acknowledged that we have previously suggested that any remedy 
might affect beneficiary cost-sharing. (See, for example, 84 FR 61323.) 
But we noted that we made that statement in 2019, before the litigation 
was concluded, and well before we proposed how to structure any remedy 
and determine how it should impact beneficiary cost sharing many years 
later. With the benefit of a concrete proposed remedy, we clarified 
that our proposed lump sum payments for the difference in 340B-acquired 
drug payments due to the 340B Payment Policy would not affect 
particular beneficiary cost-sharing responsibilities.
    We also explained that in these unique circumstances, it is 
appropriate to exercise our authority under section 1833(t)(2)(E) of 
the Act (42 U.S.C. 1395l(t)(2)(E)) to make adjustments ``as necessary 
to ensure equitable payments'' and for Medicare to pay the full $9.0 
billion difference between what 340B hospitals were paid for 340B-
acquired drugs from CY 2018 through September 27, 2022, and what they 
would have been paid for 340B-acquired drugs absent the 340B Payment 
Policy during this time period, so that affected 340B covered entity 
hospitals are paid the amount they would have been paid in full without 
application of the 340B Payment Policy. While we caveated that 
statement--it would not necessarily be appropriate to make this kind of 
adjustment under section 1833(t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(E)) to ensure hospitals receive what they would have been 
paid from Medicare and beneficiaries absent the 340B Payment Policy 
every time we make a policy change or lose a lawsuit--we find that such 
an adjustment is necessary for equitable payments in these unique 
circumstances in part because of the unprecedented scope of the remedy 
in terms of the amount of money at issue; the number of services, 
beneficiaries, and claims affected; and the number of years that have 
passed between the claims and the remedy.
    Accordingly, we concluded that here, where we are remedying prior 
payments, it would be appropriate to set the remedy payment amount 
under section 1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)) so 
that affected 340B covered entity hospitals would be paid amounts that 
approximate what they would have been paid for these

[[Page 77165]]

drugs absent the 340B Payment Policy, which includes what affected 340B 
covered entity hospitals would otherwise have been paid by the 
beneficiary. Therefore, we proposed that the $9.0 billion payment 
amount would include $1.8 billion, an amount that is equivalent to what 
affected 340B covered entity hospitals would have collected from 
beneficiaries for these 340B-acquired drugs if the 340B Payment Policy 
had not been in effect.
    We emphasized that, if our proposal was finalized, affected 340B 
covered entity hospitals could not bill beneficiaries for coinsurance 
on remedy payments--regardless of this adjustment--because we would 
issue this remedy payment through MAC instructions relying in part on 
our equitable adjustment authority under section 1833(t)(2)(E) of the 
Act (42 U.S.C. 1395l(t)(2)(E)). We cautioned that CMS would consider 
appropriate administrative action for providers who nevertheless bill 
beneficiaries for coinsurance. We solicited comments from the public on 
our proposed approach to accounting for beneficiary cost sharing.
    We thank commenters for their input on our policy proposals. We 
have summarized the comments received and our responses to those 
comments in the following section.
    Comment: Commenters overwhelmingly supported our proposed approach 
and rationale for accounting for beneficiary cost sharing.
    Response: We appreciate commenters' support.
    After consideration of comments received, and for the reasons 
stated in our proposed rule and in this final rule, we are finalizing 
our policy to account for beneficiary cost sharing as proposed. We will 
exercise our authority under section 1833(t)(2)(E) of the Act (42 
U.S.C. 1395l(t)(2)(E)) to make adjustments ``as necessary to ensure 
equitable payments,'' to pay the full $9.0 billion difference, 
including $1.8 billion, an amount that is approximately equivalent to 
what affected 340B covered entity hospitals would have collected from 
beneficiaries for these 340B-acquired drugs if the 340B Payment Policy 
had not been in effect from CY 2018 through September 27, 2022, so that 
affected 340B covered entity hospitals are paid the approximate amount 
they would have been paid in full without application of the 340B 
Payment Policy.
f. Remedy Payment Amounts
    We published the following data file that contained our 
calculations of the amounts owed under the above-described methodology 
to each affected 340B covered entity hospital for the proposed rule: 
https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps. We solicited comment from the public on the 
accuracy of the data in Addendum AAA of the proposed rule, particularly 
with respect to the estimated amount of remedy payment due to each 
hospital. This addendum can be found online through the CMS OPPS 
website.\23\
---------------------------------------------------------------------------

    \23\ https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps.
---------------------------------------------------------------------------

    We thank commenters for their input on our policy proposals. We 
have summarized the comments received and our responses to those 
comments in the following section.
    Comment: A small number of commenters had concerns regarding the 
payment amounts, including a request for increased transparency. Some 
commenters expressed a general concern that some hospitals would 
receive very large lump sum payments relative to their usual OPPS 
payments. Similarly, one commenter supported the lump sum calculation 
methodology but requested that CMS share with participating 340B 
providers more details about the methodology and a list of their 340B 
claims on which it was used. Additionally, a couple commenters 
requested CMS verify their individual payment amounts. Specifically, 
one commenter indicated that the calculation of the amount owed to them 
was incorrect. This commenter believes that they were owed more than 
calculated for CYs 2020 and 2021. Another commenter stated that they 
were owed nearly $640,000 more than calculated due to claims from CY 
2019 that were resubmitted and reprocessed after September 27, 2022, 
and paid at the ASP minus 22.5 percent rate. This commenter requested 
that CMS take into account claims that were processed and paid at the 
lower rate through December 31, 2022.
    Response: We appreciate these commenters' concerns and have 
reviewed the general and specific issues they raised. We also reviewed 
the payment data for these commenters who stated our calculations were 
incorrect. As a result of our review, we identified several claims 
accruing prior to CY 2022 that providers submitted in late CY 2022. 
Because those claims accrued prior to CY 2022, the MACs correctly 
processed those claims at the ASP minus 22.5 percent rate; and these 
claims should be part of the lump-sum payments. We have accordingly 
adjusted the remedy payment for affected claims. This means that some 
hospitals will receive slightly higher payments than in the proposed 
rule, which slightly increases the aggregate lump sum payments we are 
making from $9.003 in the proposed rule to $9.004 in this final rule. 
We also note it would be impractical to list the millions of claims 
used to calculate all of the lump sum payments. For increased 
transparency, Addendum AAA has been revised to include additional CY 
2022 data (please see comment below on this subject). To resolve any 
lingering concerns by individual providers and provide the opportunity 
for additional transparency, we are establishing the technical 
correction process noted later in the rule.
    Comment: An additional commenter requested clarification with 
respect to two of its affiliated hospitals, which were identified on 
Addendum AAA as eligible for payment but did not participate in the 
340B Program during the years in question.
    Response: We appreciate the commenter's transparency. Our 
calculations are based on the information that hospitals originally 
used when submitting claims with the 340B billing modifier, ``JG.'' 
These two hospitals used the 340B billing modifier ``JG'' for some 
claims during the time period in which the 340B Payment Policy was in 
effect, and so they received reduced payments under the 340B Payment 
Policy. The overall remedy payments for these entities are small 
relative to other remedy payments for other hospitals, which suggests 
they may have erroneously included the ``JG'' modifier when initially 
submitting claims. We will make remedy payments even to providers who 
submitted the ``JG'' modifier incorrectly, because they would have 
received reduced payments under the 340B Payment Policy.
    Comment: One commenter stated that providers are unable to 
accurately verify estimates because the paid through date for claims 
used by CMS to create the estimates has not been documented and 
communicated to providers. The commenter requested that CMS disclose 
the paid through date to providers so that they can verify the accuracy 
of the calculations. Since the same issue will arise for any final 
settlement, the commenter additionally requested that CMS document and 
communicate to providers the paid through date used to arrive at a 
final settlement and give providers time to accept or refute that 
amount.
    Response: We processed (or, in some cases, reprocessed) any claims 
paid on or after September 28, 2022, using the default rate (generally 
ASP plus 6

[[Page 77166]]

percent). In order to ensure we captured all claims appropriately for 
this analysis, we included all claims with a Claims Process Date (the 
date the fiscal intermediary completes processing and releases the 
institutional claim to the CMS common working file) prior to October 
12, 2022, or Date of Service on or before September 27, 2022, in our 
analysis to determine which claims needed to be remedied while ensuring 
we excluded those claims that were processed or reprocessed at the 
higher payment rate (generally ASP plus 6 percent).
    Comment: Several commenters requested that CMS add an additional 
column to Addendum AAA displaying the total amount withheld from each 
340B hospital for the period from January 1, 2022, through September 
27, 2022, before claims were reprocessed to allow hospitals to 
calculate and confirm the CY 2022 reprocessed claims amounts. These 
commenters additionally requested that CMS identify the data sets that 
it used, as well as the cut-off date for any claims data it used, to 
calculate the amount of the reprocessed CY 2022 claims, even if those 
data sets were not publicly available.
    Response: We concur with the commenters that additional information 
regarding the process we used to calculate the remedy payment amounts 
for CY 2022 would be helpful for providers to calculate their CY 2022 
reprocessed claims amounts. Our calculations used data from the CMS 
Common Working File (CWF) OPPS data, CWF2023w38. We also included two 
additional columns on Addendum AAA: ``CY 2022 (January 1 to September 
27) 340B Drugs Payment Withheld'' and ``CY 2022 (January 1 to December 
31) 340B Remedy Payment Already Paid.''
    Comment: One commenter, referencing the proposed rule's 
acknowledgment that the $1.5 billion estimated amount for CY 2022 
claims through September 27 might change by the time the final rule is 
issued, requested that CMS include with the final rule an updated 
addendum of hospital-specific payments to ensure that all activity 
since the proposed rule was issued has been accounted for.
    Response: We agree. The final rule Addendum AAA has been updated 
with new hospital-specific payment amounts and accounts for all payment 
activity that has happened since the proposed rule was issued. Our 
updated claims data reflects that these hospitals received 
approximately $10.6 billion less in 340B drug payments (including money 
that would have been paid by Medicare and money that would have come 
from beneficiaries as copayments) than they would have for drugs 
provided in CY 2018 through September 27, 2022, had the 340B policy not 
been implemented.
    Additionally, our updated analysis estimates that $1.6 billion of 
the total $10.6 billion that affected 340B covered entity hospitals did 
not receive as a result of the 340B Payment Policy has already been 
remedied through reprocessed claims. Accordingly, we estimate the 
remaining remedy amount that affected 340B covered entity hospitals 
have not yet received as a result of this policy is $9.004 billion 
(rounded to $9.0 billion for purposes of discussion in this final 
rule).
    Comment: One commenter requested clarification as to whether the 
amounts listed in Addendum AAA would be the actual amounts paid, or if 
those amounts would be subject to sequestration. If subject to 
sequestration, the commenter requested clarification as to the 
percentage of the reduction. Another commenter requested that CMS not 
impose sequestration on the repayments since the sequestration 
adjustment was suspended during the PHE when most of the payments 
occurred.
    Response: The calculated amounts in Addendum AAA are based on 
original claims that already included any applicable sequestration. We 
do not need to apply any additional adjustments for sequestration. The 
sequestration percentage, when applicable, that applied to the original 
claim will also apply to the remedy payment because the remedy amount 
is calculated from the sequestration reduced amount. For instance, if 
the original claim did not have any sequestration adjustment because 
the claim was paid during the COVID-19 PHE when the sequestration 
adjustment was suspended, then remedy payment calculation for that 
claim would not reflect any sequestration adjustment. The lump sum 
payments were calculated to provide a payment amount as close as 
possible to what hospitals would have received if not for the 340B 
Payment Policy, including any sequestration adjustment that would have 
applied. The amounts included in Addendum AAA are the amounts that 
hospitals will receive, except that payment amounts may be affected by 
MACs continuing to follow normal accounting processes for collecting 
repayment amounts stemming from provider-specific overpayment 
obligations, adjustments resulting from errors identified through the 
lump-sum technical correction process described below, as well as other 
unique situations such as provider bankruptcy or payment suspension, 
any of which may impact the provider's net payment amount.
    Comment: Many commenters requested a process for affected 340B 
covered entity hospitals to challenge CMS's calculation of their remedy 
payment. One commenter requested that CMS provide hospitals with 
additional time, beyond the 60-day proposed rule comment period, to 
review the repayment amounts listed in the data file and submit data to 
CMS justifying an alternative repayment amount. Another commenter 
suggested that hospitals be provided with 120 days from the date of 
payment of the lump sum payment to file a dispute, with supporting 
evidence, that CMS underpaid the hospital for 340B claims for 
separately payable drugs provided from 2018-2022. One commenter 
requested that CMS establish a quick, collaborative method for 
addressing any miscalculation of the remedy payments due. Specifically, 
the commenter recommended a method with clear, short timelines and a 
requirement for MACs to respond and resolve any issues quickly.
    Response: We agree with commenters that there should be a prompt 
process for affected 340B covered entity hospitals to request the 
correction of any errors that hospitals identify in CMS's calculation 
of the specific remedial payment. Consequently, we are establishing a 
technical correction process. An affected 340B covered entity hospital 
can alert CMS to potential errors in the calculation of their lump sum 
payment amount in Addendum AAA by emailing CMS at the following 
address, [email protected], no later than 11:59 p.m. 
Eastern Standard Time (EST) on November 30, 2023. Submissions must 
include (1) a description of the nature of the error; (2) a designated 
contact person for the purposes of addressing the error; and (3) 
relevant supporting documentation such as claim numbers, total units, 
payment amount received, date of payment. We will pay the lump sum to 
an affected 340B covered entity hospital using this process after the 
alleged calculation error has been reviewed and resolved by CMS. We 
will work as diligently as possible to resolve any potential technical 
corrections submitted promptly. Depending on the complexity of the 
potential technical correction submitted, and the volume of overall 
technical corrections submitted, processing technical corrections could 
take us substantial additional time, and hospitals submitting technical

[[Page 77167]]

correction requests may be paid after other hospitals.
    Comment: Multiple commenters requested that CMS clarify that the 
final rule does not affect the procedural stature of any open or stayed 
administrative appeals and that it intends the final rule to be subject 
to judicial review. These commenters specifically requested that CMS 
state that reliance on section 1833(t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(E)) as authority for these adjustments is not intended to 
create any implication that the adjustments are not subject to judicial 
review.
    Response: Because this rule fully compensates providers for the 
amounts they claimed they are owed on the 340B payment issue, we 
believe this action moots any pending appeals on that specific issue. 
Accordingly, if a provider were to proceed with a pending appeal that 
would, in effect, be seeking double recovery for the same service. A 
court's jurisdiction to review all or part of this rule is outside the 
scope of this rulemaking.
    The following updated data file contains the final amounts owed 
under the previously described finalized methodology to each affected 
340B covered entity hospital for the final rule: https://www.cms.gov/medicare/medicare-fee-for-service-payment/hospitaloutpatientpps.
g. Anticipated Timing of Remedy Payments
    In the proposed rule (88 FR 44086), we stated that, if we finalized 
the proposal to pay affected 340B covered entity hospitals in the 
manner described above, we would propose to make these additional 
payments at the end of CY 2023 or beginning of CY 2024, after the rule 
had been finalized and the MAC instructions for each affected 340B 
covered entity hospital had been issued.
    We received the following comments on our proposals.
    Comment: Commenters were nearly universally supportive of our 
proposal to make the remedy payments at the end of CY 2023 or the 
beginning of 2024.
    Response: We appreciate commenters' support.
    Comment: One commenter, expressing concern about the financial 
situation of safety-net and rural hospitals, requested that, prior to 
CMS finalizing its rule related to the 340B remedy, CMS authorize the 
MACs to make an initial payment to hospitals that request it in the 
amount listed in the proposed rule Addendum AAA. Then, in the final 
rule, the commenter suggests that CMS would instruct the MACs to make 
an incremental payment to any hospitals that elected to receive funds 
immediately based on the final rule and any additional claims that were 
processed through September 27, 2022. In other words, this commenter 
requests that CMS instruct the MACs to pay hospitals that ask for 
immediate payment the amount listed in the proposed rule Addendum AAA 
prior to the effective date of the final rule and then, in the final 
rule, instruct the MACs to pay any additional amount due based on the 
final rule Addendum AAA.
    Response: While we appreciate the commenter's concerns, we are 
unable to authorize any payments until this rule and policy is 
finalized and effective. As stated above, payments will not be made 
until this rule is effective, which will occur 60 days after the rule 
is displayed at the Office of the Federal Register. As additionally 
noted above, to ensure payments are made accurately, there may be an 
additional delay for hospitals requesting a technical correction.
    After consideration of comments received, for the reasons stated in 
the proposed rule and this final rule, subject to our clarification 
above and the technical corrections procedure discussed earlier, we are 
finalizing our proposal to make these additional payments at the end of 
CY 2023 or beginning of CY 2024. In summary, we intend to issue 
instructions for hospitals who do not request any correction to MACs as 
soon as possible after the technical corrections submission deadline 
has passed. MACs will be instructed to pay providers as soon as 
possible after the rule is effective, and payments will be made no 
later than 60 days after the MAC's receipt of the instructions. We will 
issue instructions to pay hospitals who submit technical correction 
requests after those requests are resolved.
h. Eligibility of Remedy Payments for Interest
    In the proposed rule (88 FR 44086), CMS also considered its 
authority to pay interest on the remedy payments but concluded that we 
did not believe we had the authority to do so.
    We received the following comments on our proposals.
    Comment: Many commenters disagreed that CMS lacks the authority to 
pay interest on the remedy payments, pointing to various statutes 
discussed in the following paragraphs. The majority of these commenters 
relied on section 1833(j) of the Act (42 U.S.C. 1395l(j)), which 
provides that whenever a final determination is made that the amount of 
payment made under this part either to a provider of services or to 
another person pursuant to an assignment under section 
1842(b)(3)(B)(ii) of the Act was in excess of or less than the amount 
of payment that is due, and payment of such excess or deficit is not 
made (or effected by offset) within 30 days of the date of the 
determination, interest shall accrue on the balance of such excess or 
deficit not paid or offset (to the extent that the balance is owed by 
or owing to the provider) at a rate determined in accordance with the 
regulations of the Secretary of the Treasury applicable to charges for 
late payments. Instead, these commenters ask us to construe the Supreme 
Court's decision in American Hospital Association as a ``final 
determination.''
    Response: As described here and in the following several responses, 
we do not agree that any provision identified by commenters provides 
CMS with authority to pay interest. Commenters do not identify any 
administrative ``final determination'' that would trigger the interest 
provision in section 1833(j) of the Act (42 U.S.C. 1395l(j)). And our 
regulations foreclose commenters' suggestion to treat the Supreme 
Court's decision as a ``final determination.'' Our regulations define 
``final determination'' in section 1833(j) of the Act (42 U.S.C. 
1395l(j)) to mean ``[a] written determination of an underpayment.'' 42 
CFR405.378(c)(1)(i)(B). We have previously explained that this 
definition refers to ``administrative, not judicial, determinations; 
therefore, there is no interest obligation under these regulations for 
judicial determinations.'' Medicare Program; Changes Concerning 
Interest Rates Charged on Overpayments and Underpayments, 56 FR 31332, 
31335 (1991).
    That interpretation is reinforced by the specific litigation 
interest provisions in the Medicare statute. Congress provided that 
cost reports appealed to the Provider Reimbursement Review Board are 
generally subject to interest beginning 180 days after an 
intermediary's or the Secretary's final determination. See section 
1878(f)(2) of the Act (42 U.S.C. 1395oo(f)(2)). And in the Medicare 
Prescription Drug, Improvement and Modernization Act of 2003, Congress 
amended the judicial review process for individual appeals and 
authorized litigation interest only in cases granted expedited judicial 
review under section 1869(b)(2) of the Act (42 U.S.C. 1395ff(b)(2). See 
Medicare Prescription Drug, Improvement and Modernization Act of 2003, 
Public Law 108-173, section 931(a), 117 Stat. 2066, 2399 (2003). By 
providing interest provisions that apply specifically to judicial 
determinations, Congress confirmed our reading that section 1833(j) of 
the Act (42 U.S.C. 1395l(j))

[[Page 77168]]

applies only to administrative determinations.
    Additionally, changing our interpretation of administrative 
determination may cause the various interest statutes to conflict. For 
example, if a cost report appeal is denied by an intermediary and a 
court ultimately finds that payment should have been made, would 
interest run from 180 days after the intermediary's decision under 
section 1878(f)(2) of the Act (42 U.S.C. 1395oo(f)(2)), or from 30 days 
after the court's decision, under commenter's interpretation of section 
1833(j)? We decline to construe section 1833(j) of the Act (42 U.S.C. 
1395l(j)) in a way that could conflict with other provisions of the 
Act.
    We also disagree that the Supreme Court's decision would be a 
qualifying ``final determination'' under section 1833(j) of the Act (42 
U.S.C. 1395l(j)), even assuming judicial decisions could sometimes 
qualify. Interest under this statute runs from a ``final 
determination'' that the payment made ``was in excess of or less than 
the amount of payment that is due.'' But the Supreme Court never 
calculated how much less the plaintiff hospitals were paid than due, 
declining to consider remedies in the first instance and instead 
focusing on the purely legal issue of whether the payment rates in the 
CY 2018 and 2019 OPPS rules exceeded CMS's authority under section 
1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)). Am. Hosp. Ass'n, 142 
S. Ct. at 1903, 1906. On remand, the district court similarly rejected 
the plaintiff hospitals' invitation to calculate the amount owed, 
whether to the parties before the court or to the entire industry. See 
Am. Hosp. Ass'n, 2023 WL 143337, at *3 (declining to issue ``order 
commanding HHS to repay each underpaid claim to the penny, [because] 
that cannot possibly be the only rational choice available to the 
agency''). Because the Supreme Court never determined the amount of 
underpayment on which interest would run, its decision is not a ``final 
determination'' of the ``amount'' of underpayment under section 1833(j) 
of the Act (42 U.S.C. 1395l(j)).
    Because commenters have not identified a final administrative 
determination of an underpayment, we do not believe that section 
1833(j) of the Act (42 U.S.C. 1395l(j)), as construed by 42 CFR 
405.378(c)(1), would authorize CMS to pay interest on the proposed 
remedy payments.
    Comment: Two commenters argued that even if CMS is correct that 
interest is not due on the amount owed to all hospitals that will 
receive lump sum payments, interest is due to plaintiffs in several 
cases pending before the United States District Court for the District 
of Columbia that were stayed pending the outcome of CMS's remedy 
discussed in the proposed rule. These plaintiffs, the commenters 
contend, are entitled to prevailing party interest under 42 CFR 
405.990(j)(2). These commenters argue that, in appealing CMS's initial 
determination to pay 340B drug claims at the unlawful rate, these 
plaintiffs clearly communicated to CMS that the rate of ASP minus 22.5 
percent exceeded the Secretary's authority and should instead have been 
paid at ASP plus 6 percent as required by law. When CMS refused to 
remit payment of ASP plus 6 percent through these administrative 
proceedings, the plaintiffs thus sufficiently exhausted the 
administrative appeals process, giving them standing for judicial 
review under 42 U.S.C. 405(g), and entitling them to the usual interest 
awarded to prevailing parties that seek an expedited path to judicial 
review.
    Response: 42 CFR 405.990(j)(2) implements section 1869(b)(2)(C)(iv) 
of the Act (42 U.S.C. 1395ff(b)(2)(C)(iv)). That provision allows a 
reviewing court to award interest to a prevailing party in litigation 
where a provider of services or supplier was granted expedited judicial 
review pursuant to section 1869(b)(2) of the Act (42 U.S.C. 
1395ff(b)(2)). We are not aware of any providers who received expedited 
judicial review pursuant to subparagraph (b)(2), and so, even assuming 
that provision authorizes CMS to pay interest under section 1869(b)(2) 
of the Act (42 U.S.C. 1395ff(b)(2)) without a court order, it would not 
authorize interest payments on the remedy payments here.
    To the extent that commenters mean to suggest that section 
1869(b)(2)(C)(iv) of the Act (42 U.S.C. 1395ff(b)(2)(C)(iv)) also 
applies when a court excuses the usual exhaustion requirements 
contained in section 1869(b)(1) of the Act (42 U.S.C. 1395ff(b)(1)), we 
disagree. Litigation interest is the exception to cases filed under 
section 1869, not the rule. No statute authorizes interest for 
litigants who follow the usual administrative appeal procedures 
contained in subsection (b)(1). And courts have held that it is 
subsection (b)(1)'s reference to section 205(g) that authorizes courts 
to excuse subsection (b)(1)'s exhaustion requirement. See Tataranowicz 
v. Sullivan, 959 F.2d 268, 272 (D.C. Cir. 1992). Subsection (b)(2) 
contains no such reference to section 205(g), and so we doubt the same 
reasoning would apply. Cf. 1869(b)(2) of the Act (42 U.S.C. 
1395ff(b)(2)) (limiting review to the ``civil action described in this 
subparagraph''). If Congress wanted to extend litigation interest to 
cases where courts had waived exhaustion under subsection (b)(1), it 
could have done so when amending that statute to add subsection (b)(2). 
Because Congress did not, we decline any invitation to extend section 
1869(b)(2)(C)(iv) (42 U.S.C. 1395ff(b)(2)(C)(iv) beyond its plain text, 
especially considering implications litigation interest has on the 
United States' sovereign immunity and Congress's control of the public 
fisc. See, for example, Libr. of Cong. v. Shaw, 478 U.S. 310, 316 
(1986) (``For well over a century, this Court, executive agencies, and 
Congress itself consistently have recognized that federal statutes 
cannot be read to permit interest to run on a recovery against the 
United States unless Congress affirmatively mandates that result.'').
    Comment: One commenter stated that the Federal Tort Claims Act 
provides for post-judgment interest (28 U.S.C. 2674) and requested 
post-judgment interest from June 15, 2022, the date of the Supreme 
Court's decision, to the date of final payment. Another commenter 
argued that the remedy payments are subject to the Prompt Payment Act, 
as amended, and its rules, which state that ``the temporary 
unavailability of funds does not relieve an agency from the obligation 
to pay these interest penalties or the additional penalties required 
under Sec.  1315.11.'' See 5 CFR 1315.10(b)(4). This commenter 
additionally notes that the failure of CMS to make interest payments 
could result in additional litigation. Similarly, another commenter 
stated that section 1815(d) of the Act (42 U.S.C. 1395g(d)) and common 
law provide for the payment of interest on underpayments to Medicare 
providers.
    Response: We do not agree with commenters that the authorities 
cited would provide CMS the ability to include interest as part of 
these lump sum remedy payments. No lawsuit has been filed under the 
Federal Tort Claims Act, and so its interest provisions are irrelevant. 
See 28 U.S.C. 2674 (limiting section to ``the provisions of this title 
relating to tort claims''). Nor do we believe Medicare providers are 
subject to the Prompt Payment Act's terms. Cf. 5 CFR 1315.1 (limiting 
applicability to procurement contracts and vendors). Even if they were, 
that statute does not apply to instances where, as here, ``payment that 
is not made because of a dispute between the head of an agency and a 
business concern over the amount of payment.'' 31 U.S.C. 3907(c). 
Section 1815 of the Act (42 U.S.C. 1395g(d)) governs Part A payments, 
not Part B, and so is similarly irrelevant. See SSA

[[Page 77169]]

section 1815(d) (42 U.S.C. 1395g(d)) (limiting applicability to 
payments ``under this part'').
    Comment: A couple commenters directed CMS to the Medicare Claims 
Processing Manual (100-04, Chapter 1, Section 80.2.2) for instructions 
for assessing and calculating interest due on non-periodic interim 
(PIP) claims not paid in a timely manner by fiscal intermediaries and 
carriers. Another commenter referenced MLN Matters No. MM3557 and 
argued that the 340B claims were clean and unpaid, therefore, based on 
CMS regulations, interest should be paid from the date of receipt of 
the claim. These commenters assert that these claims were not processed 
in a timely manner, rendering them eligible for interest accrual.
    Response: We appreciate commenters highlighting these instructions. 
Our clean claims regulations are found at 42 CFR 405.922 and implement 
section 1842(c)(2)(C) of the Act (42 U.S.C. 1395u(c)(2)(C)). Section 
1842(c)(2)(B)(i) of the Act (42 U.S.C. 1395u(c)(2)(B)(i)) defines a 
clean claim as a claim that has no defect or impropriety (including any 
lack of any required substantiating documentation) or particular 
circumstance requiring special treatment that prevents timely payment 
from being made on the claim under this part. Section 1842(c)(2)(C) of 
the Act (42 U.S.C. 1395u(c)(2)(C)) provides that if payment is not 
issued, mailed, or otherwise transmitted within an applicable number of 
calendar days after a clean claim is received, interest shall be paid 
at the rate used for purposes of section 3902(a) of title 31, United 
States Code for the period beginning on the day after the required 
payment date and ending on the date on which payment is made. Our 
longstanding position has been that section 1842(c)(2)(C) of the Act 
(42 U.S.C. 1395u(c)(2)(C)) does not apply in situations like this one 
where a payment regulation was properly applied by the contractor to 
deny a claim that is ultimately held unlawful by a court. No contractor 
has the authority to ignore CMS's binding regulations and make a 
payment at odds with the regulations within 30 days or otherwise, and 
so we believe this is a ``particular circumstance requiring special 
treatment.'' Accord Medicare Program: Changes to the Medicare Claims 
Appeal Procedures, 74 FR 65296, 65302 (2009) (``Claims initially denied 
and subsequently paid following a favorable appeal decision, or revised 
following a reopening action are, by their nature, claims that require 
special treatment.''). As noted above, the Act speaks expressly to the 
issue of litigation interest. And reading section 1842(c)(2)(C) of the 
Act (42 U.S.C. 1395u(c)(2)(C)) to apply to litigation interest raises a 
similar conflict as reading section 1833(j) of the Act (42 U.S.C. 
1395l(j) to apply to litigation interest. For example, if a claim 
denied by a contractor under CMS's regulations was later certified for 
expedited judicial review under section 1869(b)(2) of the Act (42 
U.S.C. 1395ff(b)(2)), would interest run from 30 days after receipt by 
the contractor under section 1842(c)(2)(C) of the Act (42 U.S.C. 
1395u(c)(2)(C)), or from 60 days after certification under section 
1869(b)(2)(C)(iv) of the Act (42 U.S.C. 1395ff(b)(2)(C)(iv))? We 
decline to construe section 1842(c)(2)(C) of the Act (42 U.S.C. 
1395u(c)(2)(C)) in a way that could conflict with other provisions of 
the Act.
    Comment: One commenter requested that CMS share the citations for 
the authority prohibiting the payment of interest.
    Response: As noted above, the Supreme Court has clarified that 
``[f]or well over a century, this Court, executive agencies, and 
Congress itself consistently have recognized that Federal statutes 
cannot be read to permit interest to run on a recovery against the 
United States unless Congress affirmatively mandates that result.'' 
Libr. of Cong. v. Shaw, 478 U.S. 310, 316 (1986). The proper analysis 
is thus whether there is legal authority affirmatively mandating the 
payment of interest here. CMS's inability to pay interest is a 
consequence of a lack of authority authorizing it to pay interest, not 
any authority prohibiting it from paying interest.
    Comment: One commenter recommended that CMS work with Congress to 
allow the remedy to include interest.
    Response: We appreciate the commenter's recommendation. As noted, a 
legislative change would require Congressional action.
    Comment: One commenter asked if CMS has considered adjusting future 
budget neutrality provisions to account for the amount of interest 
reasonably owed 340B providers.
    Response: Since we are not adopting a policy to pay interest in 
this rule, we have not examined whether doing so would require changes 
to the budget neutrality adjustments discussed below. We agree with the 
commenter that if we were to pay interest, we would need to evaluate 
what, if any, impact such interest would have on budget neutrality 
requirements.
    After a consideration of comments received, and for the reasons 
discussed above, we continue to believe that we do not have the 
authority to include interest as part of the lump sum payments. We 
therefore are finalizing our proposal that the lump sum remedy payments 
would not include interest as proposed.
2. OPPS Non-Drug Item and Service Payments From CY 2018 Through CY 2022
a. Background
    As described in the proposed rule, the 340B Payment Policy was 
implemented in a budget neutral manner under sections 1833(t)(9)(B) and 
1833(t)(14)(H) of the Act (42 U.S.C. 1395l(t)(9)(B) & (t)(14)(H)) by 
increasing non-drug item and service payments to all OPPS providers for 
CY 2018 through CY 2022. As we explained in the proposed rule, to 
comply with the statutory budget neutrality requirements in sections 
1833(t)(9)(B) and 1833(t)(14)(H) of the Act (42 U.S.C. 1395l(t)(9)(B) 
and (t)(14)(H)), as well as section 1833(t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(E)), CMS must account for these additional payments, which 
were made solely due to the 340B Payment Policy that was in effect from 
CY 2018 through CY 2022, in determining a remedy for the 340B policy. 
As described in the proposed rule, after the Supreme Court's decision 
in American Hospital Association, those additional payments became a 
windfall--payments the hospitals should not have received but did 
anyway. We noted that to comply with budget neutrality and restore the 
situation as closely as reasonably possible to the state that would 
exist if we simply re-ran all the claims from 2018 to 2022 under the 
correct payment rules, we must recover this windfall.
    As summarized in the proposed rule, the reduction in 340B drug 
payments made to affected 340B covered entity hospitals from CY 2018 
through CY 2022 was offset by an increase in non-drug item and service 
payments made to all hospitals paid under the OPPS during the same time 
period to comply with statutory budget neutrality requirements. In 
other words, all hospitals were paid more under the OPPS for non-drug 
items and services for CY 2018 through CY 2022 than they would have 
been paid absent the 340B Payment Policy. As we explained, starting in 
CY 2018, CMS applied an approximate 3.19 percent increase to the OPPS 
conversion factor to offset the decreased OPPS 340B drug payments. And, 
as we also explained, because we proposed to make additional payments 
to affected 340B covered entity hospitals

[[Page 77170]]

to pay them what they would have been paid had the 340B policy never 
been implemented, we were required to correspondingly propose to make 
an offset to maintain budget neutrality as if the 340B Payment Policy 
had not been in effect during CY 2018 through CY 2022. As detailed in 
the proposed rule, this is consistent with the policy finalized in the 
CY 2023 OPPS/ASC final rule with comment period (87 FR 71976) where CMS 
finalized a minus 3.09 percent adjustment to the conversion factor as 
this adjustment removes the effect of the 340B policy as originally 
adopted in CY 2018, again, as described in more detail in section I.C. 
of the proposed rule. The CY 2023 adjustment to the conversion factor 
ensures it is equivalent to the conversion factor that would be in 
place if the 340B Payment Policy had never been implemented.
    As we described in the proposed rule, to calculate the additional 
amount CMS paid for non-drug items and services, we proposed to include 
those assigned the following status indicators, SI = J1, J2, P, Q1, Q2, 
Q3, R, S, T, U, V. These status indicators generally capture the non-
drug items and services impacted by a change in the OPPS conversion 
factor. For additional details on these status indicators, we refer 
readers to Addenda D1 of the CY 2023 OPPS/ASC final rule with comment 
period for the most recent OPPS status indicators and their 
definitions. This file is available on the CMS website.\24\ As we noted 
in the proposed rule, we calculated the adjusted payment (the payment 
that would have been made for the non-drug item or service absent the 
budget neutrality adjustment to the conversion factor due to the 340B 
Payment Policy) by taking the amount paid for the non-drug item or 
service and dividing it by 1.0319 (the amount by which the conversion 
factor was increased during CYs 2018 through 2022 to budget neutralize 
the effect of the 340B Payment Policy). We proposed that the amount 
that would need to be offset to maintain budget neutrality in crafting 
this remedy would be based on the payments to providers that would have 
been made for non-drug items and services absent the 340B Payment 
Policy during CY 2018 through CY 2022, and the Medicare payment to 340B 
providers for the amount equivalent to the additional drug payments 
that would have otherwise been paid as beneficiary cost-sharing. Based 
on these factors, we proposed prospectively to offset $7.8 billion in 
order to maintain budget neutrality. This figure was calculated based 
on past claims data with 80 percent of this amount based on the 
Medicare share and 20 percent based on the beneficiary share. As we 
explained, our budget -neutrality adjustment in the 2018 through 2022 
OPPS rules reflected a prediction regarding how much we would spend on 
340B drugs--a prediction that turned out to be too low. As it turned 
out, 340B hospitals spent more on 340B drugs than we expected, so our 
policy ended up saving the Trust Fund (and beneficiaries) more money 
from cutting the rates paid for 340B drugs than the Trust Fund (and 
beneficiaries) paid for non-drug services in our budget-neutrality 
adjustment to offset the savings. We explained that our proposed remedy 
would achieve budget neutrality by reversing that imbalance. We 
proposed that in aggregate, the total additional payment that providers 
would receive as a result of this remedy, $10.5 billion, would be 
larger than the amount of payment that would be prospectively offset, 
$7.8 billion. As we explain below and stated in the proposed rule, we 
believe that our proposed remedy, which would effectively reverse the 
imbalance that arose under the policy the Supreme Court deemed unlawful 
and would reasonably approximate the results that would occur if we 
simply re-ran the claims after eliminating the 340B adjustment, 
reflects the best approach to budget neutrality in these unique 
circumstances. We solicited comments from the public on our proposed 
approach to implementing budget neutrality.
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    Comment: We received many comments on our proposed approach to 
implementing budget neutrality.
    Response: These comments are addressed in Section II.B.2.b of this 
final rule.
b. Prospective Adjustment to Payments for Non-Drug Items and Services 
To Offset the Increased Payments for Non-Drug Items and Services Made 
in CY 2018 Through CY 2022
    As described in the proposed rule (88 FR 44087), we believe that 
sections 1833(t)(2)(E) and (t)(14) of the Act (42 U.S.C. 1395l(t)(2)(E) 
and (t)(14)) are properly read to require budget neutrality. As we 
explained in the proposed rule, section 1833(t)(2)(E) of the Act (42 
U.S.C. 1395l(t)(2)(E)) provides that adjustments under that provision 
must be made in a budget neutral manner. Section 1833(t)(14)(H) of the 
Act (42 U.S.C. 1395l(t)(14)(H)) states that additional expenditures 
resulting from this paragraph shall not be taken into account in 
establishing the conversion, weighting, and other adjustment factors 
for 2004 and 2005 under paragraph (9), but shall be taken into account 
for subsequent years, while section 1833(t)(9)(B) of the Act (42 U.S.C. 
1395l(t)(9)(B)) states that the adjustments for a year may not cause 
the estimated amount of expenditures under this part for the year to 
increase or decrease from the estimated amount of expenditures under 
this part that would have been made if the adjustments had not been 
made. To implement these requirements, we proposed to unwind the 
additional payments that were made for non-drug items and services to 
all providers from CY 2018 through CY 2022. In other words, along with 
reversing the rate change we discussed in the proposed rule, we 
proposed to reverse the accompanying increase in the conversion factor 
for CYs 2018 through 2022 that was solely attributable to the adoption 
of the 340B Payment Policy.
    As described in the proposed rule, to reduce the burden on 
providers of offsetting the $7.8 billion offset required to maintain 
budget neutrality, we proposed to implement the adjustment 
prospectively. We proposed to, beginning in CY 2025, reduce all 
payments for non-drug items and services to all OPPS providers--except 
any hospital that enrolled in Medicare after January 1, 2018--by 0.5 
percent each year until the total offset was reached (which we 
estimated to be approximately 16 years). As stated in the proposed 
rule, starting this reduction in CY 2025 would allow CMS time to 
finalize its methodology, and then apply its methodology to calculate 
and publish the payment rates in the CY 2025 OPPS/ASC proposed rule. We 
stated it would also allow adequate time for impacted parties to assess 
and prepare for the new payment rates that would be calculated using a 
reduced conversion factor. Additionally, as we remarked in the proposed 
rule, we believed a 0.5 percent annual reduction in the conversion 
factor would be appropriate because it would balance the need to 
address the past payments for non-drug items and services to ensure 
budget neutrality while also ensuring that the offset was not 
immediately, in the short-term, overly financially burdensome on 
impacted entities, especially those in rural communities, which we 
believed would be the case if we were to apply an adjustment for the 
full offset amount in a single year.
    In the proposed rule, we acknowledged that, in litigation, we at

[[Page 77171]]

one point questioned the American Hospital Association's suggestion 
that we could achieve budget neutrality by decreasing Medicare payments 
in future years, noting that section 1833(t)(9) of the Act (42 U.S.C. 
1395l(t)(9)) 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).\25\ At the same time, however, the government's briefing 
pointed to the District Court's conclusion that if the Secretary was to 
retroactively increase the 2018 and 2019 payments for 340B hospitals, 
``budget neutrality would require him to retroactively lower the 2018 
and 2019 rates for other Medicare Part B products and services.'' Ibid. 
In the proposed rule, we indicated that we had further considered 
section 1833(t)(9) of the Act (42 U.S.C. 1395l(t)(9)) in light of the 
Supreme Court's decision holding that judicial review was available and 
also recognizing the statutory requirement of budget neutrality, and 
that consequently different ways of approaching the remedy had come 
into focus.
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    As we explained in the proposed rule, our proposal was consistent 
with section 1833(t)(9) of the Act: It would offset the amounts of 
money that constitute excess payments in past years--which are 
effectively overpayments for those years (that is, 2018 to 2022) in 
light of the Supreme Court's decision. In other words, while we 
proposed reducing the conversion factor in future years, we would be 
doing so not by seeking to budget neutralize payments across a period 
of years rather than in a particular ``year,'' but instead by adjusting 
payment rates for each year from 2018 to 2022 to account for the 
Supreme Court's decision. We proposed that 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. We 
also explained that because the estimated amount of expenditures for 
each of 2018 to 2022 would still be budget neutralized--indeed, we 
stated that it was 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 believed it would be 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 section 
1833(t)(9)(B) of the Act (42 U.S.C. 1395l(t)(9)(B)). As noted in the 
proposed rule, we believed that this interpretation would account for 
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), (t)(9), and 
(t)(14)(H) (42 U.S.C. 1395l(t)(2)(E), (t)(9) and (t)(14)(H)). And, as 
discussed in the proposed rule, we concluded that avoiding a windfall 
to providers was consistent with the agency's recoupment authority. We 
invited comments on these aspects of our proposal.
    We also acknowledged 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. As we explained, that is a consequence of many factors. The 
most significant factor is 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. As part of the 340B Payment 
Policy, we budget neutralized the decreased payments for 340B-acquired 
drugs by applying a 3.19 percent adjustment to the conversion factor to 
increase expenditures for non-drug items and services. In the proposed 
rule, we acknowledged that Medicare could not perfectly have calculated 
a precise estimate when it first made the budget neutrality adjustment 
in the CY 2018 final rule with comment period. 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, it was 
not possible to estimate more accurately the amount of the aggregate 
payment reduction. That imprecision impacted the budget neutrality 
adjustment we calculated. We discussed that other potential offsetting 
factors included possible changes in provider behavior and overall 
market changes that may have lowered the impact of the payment 
reduction in the CY 2018 OPPS/ASC final rule with comment period (82 FR 
52623).
    We now know that CMS underestimated the growth in expenditures for 
340B drugs in CYs 2018 through 2022. Therefore, as we stated in the 
proposed rule, our budget neutrality calculations for those years ended 
up increasing payments for non-drug services by less than we decreased 
payments for 340B drugs. As we explained, we followed our standard 
approach not to propose to re-calculate what the budget neutrality 
offset would have been beginning in 2018 if we had used more accurate 
assumptions. Rather, we proposed simply to unwind the 3.19 percent 
budget neutrality adjustment we set beginning in 2018. Because of our 
flawed assumptions in 2018, however, the total amount of our proposed 
remedy payments to 340B hospitals for 340B drugs would thus be greater 
than the future reduction to payments.
    As we explained in the proposed rule, there were other reasons for 
the difference between the lump-sum payment and our future reductions 
to non-drug spending. Some of these reasons increase that gap; others 
do the opposite. First, 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, 
during CY 2022 CMS began making payment for 340B drugs at the default 
drug payment rate, generally ASP plus 6 percent, for claims processed 
on or 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, as we explained, there was 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 needed to 
be offset, while the 340B drug claims for that quarter had already been 
paid correctly.
    Additionally, as we remarked in the proposed rule, our proposal 
included in the remedy payments the amount that affected 340B covered 
entity hospitals would otherwise have been paid by beneficiaries. This, 
we explained, would approximate what the hospitals would have been paid 
for these drugs absent the 340B Payment Policy. Because the statute 
requires that this adjustment be budget neutral, we proposed to include 
in the prospective offset calculation an amount to offset this increase 
in Medicare payments.
    In sum, we proposed in the proposed rule 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 windfall 
providers 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 proposed to use 
it to offset both the payments we are making

[[Page 77172]]

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 proposed to 
decrease future payments for every non-drug item and service for every 
hospital. As we explained, this approach was similar to the original 
budget neutrality adjustment in the 340B Payment Policy 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 acknowledged in the proposed rule 
that, depending on how a hospital's future mix of drug and non-drug 
services compared 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 might ultimately receive slightly more (or less) of a payment 
reduction than the payment increase they received in CY 2018 through CY 
2022. We additionally acknowledged that there is often some imprecision 
inherent in budget neutrality calculations, and being more precise 
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. As we explained, that alternative was very similar 
to the claims reprocessing alternative that we discussed in section 
II.A.2 of the proposed rule, which would impose significant burdens and 
payment delays for 340B providers. We also explained that because 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. We noted that it would impose all the 
burdens of an up-front budget neutrality recoupment that we decided 
against proposing, as explained in section II.A.3 of the proposed rule. 
We indicated that, except in the case of truly new hospitals, which we 
proposed to exclude from the prospective offset described under section 
II.B.2.c of the proposed rule, we did not believe our proposed approach 
would so significantly undercompensate hospitals to require that kind 
of precision, 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 ``slightly better off and others slightly worse off than they 
would have been had the rate reduction never taken effect''). Rather, 
we explained that we believed 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. As we emphasized in the proposed rule, this remedy 
applies in truly unique circumstances: we must apply budget neutrality 
in a way that may not be purely prospective, but may be partially 
retroactive to rectify an adjudicated past violation of law. As 
discussed in the proposed rule, re-running all the relevant claims as 
if the 340B Payment Policy did not occur would be close to impossible 
administratively. Consequently, given these unique circumstances, we 
explained that we believed our proposed approach properly applied the 
budget neutrality principle, even if it resulted in some effectively 
unavoidable imprecision.
    Accordingly, as described in the proposed rule, beginning in CY 
2025, we proposed to reduce OPPS payments for non-drug items and 
services annually by decreasing the OPPS conversion factor by 0.5 
percent each year until the total offset, estimated to be $7.8 billion 
in the proposed rule, was reached. We explained that we recognized that 
the proposed rule was unique and therefore required a unique 
prospective offset period. We also explained that we believed 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 the time of the proposed rule, we 
estimated that this process would take approximately 16 years (Table 
1). As detailed in the proposed rule, this estimate was based on 
current OPPS payments that were made through the OPPS conversion factor 
and typical year-over-year increases in OPPS payments over the past ten 
years. We noted that, similar to the original 340B budget neutrality 
adjustment to the conversion factor, both Medicare payments under the 
OPPS and beneficiary cost-sharing would be impacted by the change in 
the conversion factor. As described in the proposed rule, in this 
instance, beneficiaries would generally have lower co-insurance 
payments for non-drug items and services as a result of the proposed 
0.5 percent annual reduction to the OPPS conversion factor for the 
duration of the required budget neutrality offset.
    We invited comment on our estimated budget neutrality offset 
calculations described in the proposed rule, including the discussion 
of our method of budget neutralization not fully aligning with the 
money we predicted the Part B Trust Fund would pay out in lump sum 
payments for 340B-acquired drugs. In the proposed rule, we stated that 
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 had been offset by the time of each 
annual rule. In the proposed rule, we stated that in the final CY 
rulemaking for this process, when we estimated the remaining amount of 
Medicare payment that would needed to be offset fully within the 
prospective year, the 0.5 percent reduction amount would be reduced in 
the final year in which the adjustment applied, 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 
was made, we proposed 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 was more or less than we 
had estimated in rulemaking for that CY. We proposed 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.
BILLING CODE 4120-01-P

[[Page 77173]]

[GRAPHIC] [TIFF OMITTED] TR08NO23.000

BILLING CODE 4120-01-C
    We sought comments on the annual percent reduction method described 
in the proposed rule and whether an alternative option--including those 
discussed in section II.A of the proposed rule--would be appropriate. 
We suggested that an additional possible alternative timeline 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. By 
way of an example, we suggested that we could divide the $7.8 billion 
number by 10 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.
    As described in the proposed rule, we also considered whether 
hospitals needed additional time to prepare following any finalized 
policy, and, as

[[Page 77174]]

such, sought 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.
    We received the following comments on our proposals.
    Comment: Many commenters argued that since, in their view, sections 
1833(t)(14) and (t)(2)(E) of the Act (42 U.S.C. 1395l(t)(14) and 
(t)(2)(E)) do not apply to the remedy payments (for the reasons 
described under section II.B.1), the budget neutrality requirements of 
those statutes also do not apply to the remedy payments.
    Response: We explain at length above why sections 1833(t)(14) and 
(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(14) and (t)(2)(E)) are the 
proper authorities to make these remedy payments. We therefore disagree 
with commenters that budget neutrality requirements in those provisions 
would not also apply. And even if a budget neutrality adjustment is not 
statutorily required, it is an appropriate exercise of the agency's 
statutory and common-law or inherent recoupment authorities as a policy 
matter, as we explain further later in this section.
    Comment: Some commenters argued that section 1833(t)(14)(H) of the 
Act (42 U.S.C. 1395l(t)(14)(H)) cannot authorize our unwinding of the 
non-drug item and service payments from the 340B Payment Policy. That 
provision reads, as relevant: ``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 their view, there is nothing ``additional'' about the lump 
sum payment, because it is what 340B hospitals should have been paid in 
the first place. And the payment is not being made ``as a result of 
this paragraph'' but rather the agency's loss of a court case. These 
commenters further disagreed with our reading of section 1833(t)(14)'s 
reference to paragraph (9), which directs CMS to adjust the groups, 
relative payment weights, and wage indices in the OPPS ``for a year.'' 
These commenters argued that this provision is prospective in nature 
and therefore cannot be relied upon to require or authorize what they 
characterize as a corresponding retrospective recoupment from 
hospitals. One commenter interpreted ``additional expenditures'' in 
section 1833(t)(14)(H) of the Act (42 U.S.C. 1395l(t)(14)(H)) to refer 
only to expenditures from CMS electing to refine its drug payment 
methodology as permitted under section 1833(t)(14) of the Act (42 
U.S.C. 1395l(t)(14)). The commenter asserted that this means performing 
a survey and changing the drug payment methodology or refining the 
overhead cost payment, and that, in this case, the additional 
expenditures are neither of these and are instead ``a loss at the 
Supreme Court, not a payment methodology refinement.''
    Response: We disagree with commenters' interpretation of sections 
1833(t)(14)(H) and (t)(9)(B) of the Act (42 U.S.C. 1395l(t)(14)(H) & 
(t)(9)(B)). As an initial matter, commenters overlook that we are not 
adjusting future payments by the $9 billion lump sum payment or by the 
$10.5 billion total cost of this remedy rule. Rather, we are unwinding 
the payment increases for non-drug services and items in the 340B 
Payment Policy (82 FR 59482) in order to place providers in as close to 
a situation as they would have been if the 340B Payment Policy never 
existed.
    Additionally, the Supreme Court stated it would ``not address 
potential remedies.'' Am. Hosp. Ass'n, 142 S. Ct. at 1903. We are using 
section 1833(t)(14) of the Act (and sections 1871(e) and 1833(t)(2)(E) 
of the Act, as relevant) to unwind the 340B Payment Policy. Any 
increased expenditures are therefore a result of paragraph (14). 
Section 1833(t)(14) of the Act (42 U.S.C. 1395l(t)(14)) does not 
contain an exception to the budget neutrality requirement when 
unwinding the agency's past interpretations. Ultimately, we are 
responding to the Supreme Court's decision for CY 2018 through CY 2022 
the same way as we responded to the Supreme Court's decision in the CY 
2023 OPPS final rule: unwinding both the payment decrease for 340B-
acquired drugs and the payment increase for non-drug items and 
services. No one objected to the 3.09 percent decrease to payments for 
non-drug items and services, despite it responding to the same Supreme 
Court decision and restoring payments for 340B-acquired drugs to what 
they should have been all along. We believe our approach here is 
analogous.
    We also disagree that the reference in section 1833(t)(9)(B) of the 
Act (42 U.S.C. 1395l(t)(9)(B)) to adjustments ``for a year'' diminishes 
our ability to return providers to the situation they would have been 
absent the 340B Remedy Policy. We previously explained that the OPPS's 
generally prospective nature does not prevent us from remedying legal 
errors identified by courts. We believe we should apply section 
1833(t)(9)(B) consistent with that instruction; if a court decision 
invalidates a policy that impacts payments ``for a'' particular past 
``year,'' we can account under section 1833(t)(9) for the impact the 
legally correct policy would have had for that same year. That is 
especially true when, as here, the cut to 340B-acquired drugs was so 
inextricably intertwined with the 3.19 percent increase to payments for 
non-drug items and services budget neutralized. Because we are making 
adjustments to payments for CY 2018 through CY 2022, section 
1833(t)(9)(B) of the Act (42 U.S.C. 1395l(t)(9)(B)) requires us to make 
corresponding budget neutralizing adjustments to the ``estimated amount 
of expenditures'' for each of those years. To the extent necessary, 
this final rule can be viewed as a retroactive adjustment to the 
payment rates for each of 2018 through 2022, as authorized by section 
1871(e)(1)(A) of the Act ((42 U.S.C. 1395hh(e)(1)(A)). We could have, 
for example, increased the payment rate for 340B-acquired drugs for CY 
2018, and decreased the payment rate for non-drug items and services by 
3.09 percent for CY 2018 and reprocessed all affected claims. While 
that solution was not generally supported by the commenters for 
different reasons, all payment adjustments would have been made in the 
same year. The fact that we are accomplishing nearly the same result 
(that is, unwinding the payment decreases and increases for 2018-2022) 
through the reconciliation process described above and implementing the 
proper payment or offset amounts does not, in our view, relieve us of 
the budget neutrality requirements in the statute nor does it render 
our proposed remedy unreasonable or unsupported by the statutory scheme 
as a whole.
    Comment: One commenter posited that the proposed offsets are not 
budget neutral because there is no ``budget'' for the period spanning 
from 2018 to 2041.
    Response: The term ``budget neutrality'' is a term of art and does 
not reference a particular ``budget.'' And even if the term ``budget'' 
should be construed separately from the rest of the term, a budget does 
not necessarily have to apply to a defined time frame. See BUDGET, 
Black's Law Dictionary (11th Ed. 2019) (``A sum of money allocated to a 
particular purpose or project.''). Here, we understand budget 
neutrality in section 1833(t)(2)(E) (and, to the extent relevant, the 
title of section 1833(t)(9)(B)) generally to refer to the impact of our 
policies on OPPS and the Part B Trust Fund--not to any particular 
written document.
    Comment: Some commenters argue that section 1833(t)(2)(E) of the 
Act (42 U.S.C. 1395l(t)(2)(E) similarly cannot be used to unwind the 
payment increases

[[Page 77175]]

for non-drug payments and services, both because the provision is 
prospective in nature and because its reference to ``equitable 
payments'' refers to ``payments,'' not recoupments or reductions. They 
argue the surrounding statutory language supports this payment-only 
reading, as ``outlier adjustments under paragraph (5) and transitional 
pass-through payments under paragraph (6)'' should be read to refer to 
``additional payment[s],'' not funding that CMS seeks to recoup from 
hospitals.
    Response: We addressed above why we believe OPPS's prospective 
nature does not make it inapplicable to this remedy rule. Just as 
section 1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)) is broad 
enough to encompass individual payments for cancer hospitals (76 FR 
74204), it is broad enough to encompass the adjustments to future 
payments for non-drug items and services we finalize here. Indeed, 
adjusting future payment years to ensure providers are paid fairly 
falls comfortably inside the plain text of section 1833(t)(2)(E) of the 
Act (42 U.S.C. 1395l(t)(2)(E)). We disagree with commenters that the 
term ``equitable payments'' can never include reductions. The statute 
authorizes ``adjustments to ensure equitable payments''--not just 
upward adjustments to ensure equitable payments. Similarly, we disagree 
with the assertion that ``equitable payments'' excludes adjustments to 
recoup money that should not have been paid; as explained above, 
restoring parties to the situation they should have been is equitable 
in every sense of the term.
    Comment: A few commenters argued that the retroactive rulemaking 
authority in section 1871(e)(1)(A) of the Act (42 U.S.C. 
1395hh(e)(1)(A)) (or anywhere else) does not authorize budget 
neutrality. One commenter argued that CMS only discussed its 
retroactive rulemaking authority in the proposed rule with respect to 
the authority to make the remedy payments, not to budget neutralize the 
remedy payments. The commenter argues that this is for good reason 
because CMS cannot rely upon any general retroactive rulemaking 
statutes to implement an offset because it would rely upon paragraph 
(9) which is prospective only.\26\ Another commenter referenced ``. . . 
the risk that HHS may lack authority to recoup these funds at all 
because of the presumption against retroactive rulemaking,'' quoting 
the district court's remand decision. See Am. Hosp. Ass'n, 2023 WL 
143337, at *5.
---------------------------------------------------------------------------

    \26\ See Reply In Support Of Plaintiffs' Motion to Hold Unlawful 
And Remedy Defendants' Past Underpayment of 340b Drugs, Am. Hospital 
Ass'n v. Becerra, Case No. 1:18-cv-2084, Dkt. 78 at 14-17 (Sep. 21, 
2022).
---------------------------------------------------------------------------

    Response: We disagree that our retroactive rulemaking authority 
would not encompass budget neutrality adjustments. To the extent our 
proposed rule could be construed to disclaim reliance on section 
1871(e)'s retroactive rulemaking authority to our budget neutrality 
adjustment, we clarify here that we intend to rely on that authority to 
the extent our budget neutrality adjustment is retroactive.
    We read the quoted statement from the district court in American 
Hospital Association simply to acknowledge that the plaintiffs argued 
that CMS lacked retroactive rulemaking authority. That court did not 
resolve the question one way or another. By contrast, when Congress 
passed section 1871(e) of the Act (42 U.S.C. 1395hh(e)), it expressly 
acknowledged the general presumption against retroactive rulemaking, 
suggesting it intended to depart from that general rule. See H.R. Rep. 
108-391 at 756.\27\ And when it did so, Congress had already instructed 
CMS to set up many prospective payment systems, including OPPS. We 
believe we should harmonize section 1833(t)(9) of the Act (42 U.S.C. 
1395l(t)(9)) and the other prospective payment statutes with section 
1871(e) of the Act (42 U.S.C. 1395hh(e)), not read them to conflict. 
Such a reading would also be inconsistent with courts' holding that the 
fact that section 1833(t) of Act (42 U.S.C. 1395l(t)) sets up a general 
prospective system does not mean it implicitly precludes retrospective 
review.
---------------------------------------------------------------------------

    \27\ https://www.congress.gov/108/crpt/hrpt391/CRPT-108hrpt391.pdf.
---------------------------------------------------------------------------

    Comment: Two commenters argued that budget neutrality does not 
apply to the payments made to plaintiffs in several cases pending 
before the U.S. District Court for the District of Columbia that were 
stayed pending the outcome of CMS's remedy discussed in the proposed 
rule. According to these commenters, these plaintiffs' entitlement to 
remedial payments is based on judicial review of their individual 340B 
drug claims under section 205(g) of the Act (42 U.S.C. 405(g)), and 
therefore the plaintiffs do not rely on associational standing or seek 
relief that would apply to a broad class of members, which CMS argues 
implicates budget neutrality. These commenters argue that the 
plaintiffs' challenge to CMS's 340B Payment Policy under section 205(g) 
of the Act (42 U.S.C. 405(g)) in no way implicates the budget 
neutrality provisions referenced by CMS in the proposed rule and that 
CMS must recognize that the plaintiffs have preserved their rights to 
seek relief under section 205(g). In their view, section 205(g) 
provides a process for all hospitals to pursue relief of their own 
underpaid claims and does not impose or require a single ``one size 
fits all'' remedy or require budget neutrality recoupment on favorable 
payment decisions under that process. For this narrow class of 
hospitals, the commenters maintain, the appropriate remedy is to make 
the hospitals whole in the same manner that would otherwise occur when 
the claims are decided favorably through the administrative claims 
appeals process--that is, without a budget neutrality recoupment.
    Response: We agree with commenters to the extent they question 
whether the associational standing doctrine on which some plaintiffs 
relied can override the presentment requirements in section 205(g) of 
the Act (42 U.S.C. 405(g)), authorize the type of individualized 
payment recalculations addressed in this rulemaking, or otherwise allow 
industry groups to serve as a class representative for their members 
without complying with the applicable Federal Rules of Civil Procedure. 
See Warth v. Seldin, 422 U.S. 490, 515-16 (1975) (noting associational 
standing most appropriate for prospective relief and not available for 
individualized monetary calculations). But we do not believe that 
difference requires us to treat hospitals with pending cases 
differently from those without pending cases for the budget neutrality 
adjustment finalized in this rulemaking.
    ``One of the earliest principles developed in American 
administrative law was the idea that `the choice made between 
proceeding by general rule or by individual, ad hoc litigation is one 
that lies primarily in the informed discretion of the administrative 
agency.' '' Almy v. Sebelius, 679 F.3d 297, 303 (4th Cir. 2012) 
(quoting Sec. & Exch. Comm'n v. Chenery Corp., 332 U.S. 194, 203 
(1947)). We do not believe that by prescribing an adjudication process 
in sections 205(b) and (g) of the Act (as incorporated by section 
1869), the statute impliedly prohibits us from also addressing through 
rulemaking interpretative concerns identified by courts or insulates 
those with pending adjudications from the effects of such rulemaking. 
Nor do those provisions necessarily exempt pending adjudications from 
other statutory requirements, such as budget neutrality.
    Comment: Many commenters disagreed that, even if budget neutrality 
was not statutorily required, CMS could

[[Page 77176]]

still exercise its authority under section 1833(t)(2)(E) of the Act (42 
U.S.C. 1395l(t)(2)(E)) and its longstanding inherent and common-law 
recoupment authority to offset the extra payments. These commenters 
reiterated that section 1833(t)(2)(E) of the Act (42 U.S.C. 
1395l(t)(2)(e)) does not authorize CMS to make the lump sum payments 
and, therefore, the budget neutrality requirements of (t)(2)(E) do not 
apply to the lump sum payments. These commenters also assert that CMS 
does not have a common-law duty to seek recoupment, so any reliance on 
common-law would be voluntary, and no common law power of recoupment 
authorizes the type of recoupment proposed by CMS. They assert that any 
common-law authority that the government may have to recoup funds can 
only be exercised by suing in court.
    Response: We respectfully disagree with these commenters. As we 
have explained, we believe a budget neutrality adjustment is 
statutorily required and, even if not statutorily required, an 
appropriate exercise of the agency's statutory and common-law or 
inherent recoupment authorities as a policy matter. As we explain 
elsewhere in the rule, we believe it falls within our authority to make 
adjustments ``necessary to ensure equitable payments'' under section 
1833(t)(2)(E) of the Act (42 U.S.C. 1395l(t)(2)(E)) to account for and 
place hospitals in nearly the same position as they would have been 
absent the 340B Payment Policy. With respect to commenters' assertion 
that CMS lacks a common-law duty to seek recoupment, we clarify that we 
would pursue recoupment even if we were not strictly required to do so 
by common law; the common law reflects the judgment that the government 
should avoid funding windfalls to private parties. We agree with that 
judgment. Finally, courts have not limited the government's authority 
to recoup funds only to lawsuits; courts have acknowledged that 
agencies may recoup funds through use of a setoff. See, for example, 
Mount Sinai Hosp. of Gr. Miami, v. Weinberger, 517 F.2d 329, 337 (5th 
Cir. 1975) (``In some circumstances when government funds are 
improperly paid out the government has a claim enforceable either by 
direct suit or by setoff against money owed by the government to the 
recipient of the illegally dispensed funds.'' (footnotes omitted)).
    Comment: Many of these same commenters disagreed with CMS's 
reasoning that applying budget neutrality was justified as sound public 
policy because the payments constitute an unwarranted windfall to 
hospitals that the Trust Fund has a strong interest in recovering and 
that hospitals have no legitimate reliance interest in retaining. These 
commenters argued that it was inappropriate for CMS to characterize the 
receipt of these funds as a ``windfall'' since hospitals had no choice 
but to accept the funds. Commenters additionally objected to CMS's use 
of the term because it implies that CMS is taking no responsibility for 
its own role in creating the situation resulting in the payment of the 
funds that it is now proposing to recoup. These commenters also argued 
that the proposed rule's reference to any interest that the Trust Fund 
may have in recoupment is overstated because, based on the most recent 
Annual Report of the Boards of Trustees of the Federal Hospital 
Insurance and Federal Supplementary Medicare Insurance Trust Funds, 
there is no risk that the SMI Trust Fund will become insolvent in the 
foreseeable future. These commenters disagreed with CMS's contention 
that achieving budget neutrality serves an important interest in 
protecting the public fisc. These commenters argued that applying 
budget neutrality principles increases risks for the public fisc 
because CMS knows that it can take ``aggressive or unsupported 
positions at the outset'' and then simply recoup funds later to make up 
for any mistakes. Finally, these commenters also disagreed with CMS's 
contention that hospitals have no legitimate reliance interest in 
permanently retaining the funds proposed to be recouped. Many of these 
commenters stated that hospitals properly relied on and have already 
spent the payments CMS made between 2018 and 2022 and that this 
reliance was particularly pronounced given the COVID-19 PHE.
    One commenter opined that, to the extent CMS concludes that it is 
unreasonable to burden the Trust Fund, and given a lack of authority 
for a budget neutrality adjustment or retroactive rulemaking, CMS can 
reasonably conclude that it has no available funds (nor specific 
appropriation) for the remedy payment, and therefore, the U.S. Treasury 
Department's Judgment Fund, 31 U.S.C. 1304, could be the appropriate 
vehicle for satisfaction of providers' claims in this case.
    Response: While we appreciate the commenter's suggested alternative 
for funding the remedy payments, we disagree that we lack the authority 
to make the lump-sum payments, budget neutralize the remedy, or engage 
in retroactive rulemaking for the reasons stated earlier in this rule. 
We continue to believe a budget neutrality adjustment is statutorily 
required and, even if not statutorily required, an appropriate exercise 
of the agency's statutory and common-law or inherent recoupment 
authorities as a policy matter. We also disagree that our approach 
would encourage aggressive statutory interpretations by the agency or 
otherwise threaten the public fisc. We of course intend to discharge 
faithfully our obligation to interpret statutes as best we understand 
them, and the resources the agency has expended litigating and then 
unwinding the 340B Payment Policy is itself a significant incentive 
against departing from that intention. And exempting adjustments that 
stem from a court's decision in litigation from the budget neutrality 
principles that would otherwise apply in rulemaking distorts incentives 
for litigants in a way that would itself encourage strategic behavior. 
Allowing litigants to escape otherwise applicable budget neutrality 
constraints might encourage potential litigants to press aggressive 
statutory interpretations in court. We believe the best policy is the 
one that returns all parties as close as we can to the situation they 
would have been in if the 340B Payment Policy had never been adopted. 
That policy best ensures that the only money actually spent is money 
authorized to be spent by the statute, independent of any strategic 
behavior.
    While there is no immediate solvency crisis in the Part B Trust 
Fund, as its stewards we have an obligation to preserve the Fund for 
future generations. And while we acknowledge that our budget neutrality 
will affect hospitals' medium-term revenue, we have moderated that 
effect by spreading out our recovery of unwarranted payments over a 
period of many years.
    We disagree that any reliance on our previous payment increases was 
reasonable under the circumstances here or that we are wrong to 
characterize those payment increases as windfalls, regardless of 
whether hospitals could decline the payments or not. Finally, we are 
not wrong to characterize those prior payments as windfalls, regardless 
of whether hospitals could decline the payments or not. No one suggests 
we could have increased payments for non-drug items and services if we 
had not decreased payments for 340B drugs, PHE or not. Now that the 
legal justification for the payments cuts has fallen short, so has any 
legal justification for the payment increases. We take full 
responsibility for the legal error ultimately found by the Supreme 
Court. But agency error does not expand hospitals' statutory

[[Page 77177]]

entitlement to Medicare payments. Cf. Heckler v. Community Health 
Services, 467 U.S. 51, 62 (1984) (``There is no doubt that respondent 
will be adversely affected by the Government's recoupment of the funds 
that it has already spent . . . [but] respondent [may not] claim any 
right to expand its services to levels greater than those it would have 
provided had the error never occurred.'') We repeatedly emphasized to 
the hospital community that we may need to revisit budget neutrality if 
the 340B Payment Policy were found to be unlawful; it was clear that 
the payment increases for non-drug items and services were potentially 
conditioned on the legality of that policy. To that end, the industry 
filed multiple briefs disputing our budget neutrality position in 
court.
    Comment: Several commenters stated that CMS's approach to budget 
neutrality is inconsistent with its past practices. These commenters 
argue that CMS did not budget neutralize past changes made to budget 
neutral systems, such as the OPPS clinical diagnostic laboratory 
services (citing 80 FR 70354),\28\ as well as changes to the Inpatient 
Prospective Payment System wage index (citing Sec.  412.64(e)(1)(ii)) 
and outlier adjustments (citing 88 FR 27222-23).\29\ They contend that 
CMS has previously applied budget neutrality retroactively only when 
expressly authorized to do so by Congress.
---------------------------------------------------------------------------

    \28\ These commenters also return to the example of H. Lee 
Moffitt Center & Research Hospital v. Azar, 324 F. Supp. 3d 1, 15 
(D.D.C. 2018), where the court commented that in 2007, HHS 
retroactively adjusted payment rates to several rural hospitals 
without offsetting recoupments to achieve budget neutrality We 
addressed that example above.
    \29\ One commenter suggested that CMS never updated budget 
neutrality calculations in the Physician Fee Schedule (PFS) after 
incorrectly predicting how often certain new PFS codes would be 
utilized. The commenter failed to cite any source for this comment, 
but even assuming the commenter is correct that we have mis-
projected utilization for certain PFS codes, that is just another 
example of a factual projection that we routinely do not update, as 
explained below.
---------------------------------------------------------------------------

    Response: Commenters' past examples are not analogous to the remedy 
payment in this rule. Most of these adjustments are examples where 
CMS's projections of utilization or some other threshold did not meet a 
projected target. 80 FR 70353 (explaining agency ``overestimated the 
adjustment necessary to account for the new policy to package 
laboratory tests''); 88 FR 27223 (noting ``the percentage of actual 
outlier payments relative to actual total payments is higher than we 
projected for FY 2022''). In those cases, CMS declined to make a 
retroactive budget neutralization adjustment based on updated data. 80 
FR 70354 (noting adjustment ``would not recoup `overpayments' made 
for'' past years); 88 FR 27223 (``[W]e do not make retroactive 
adjustments to outlier payments'' to update projections). Commenters 
correctly point out that CMS also has sometimes corrected past 
projections when expressly authorized by Congress. (72 FR 47186; 78 FR 
50515-16.)
    As we previously explained, CMS is not in this rule revising its 
budget neutrality factor to update its factual assumptions, i.e., the 
difference between the estimated and actual budget impact of the 340B 
Payment Policy. Instead, it is unwinding the legal consequences of an 
unlawful payment policy. Those two changes are different. When we first 
implemented the 340B Payment Policy, we also underestimated how much 
hospitals would ultimately dispense those drugs. We thus failed to 
increase non-drug payments and services by the amount needed fully to 
offset the payment cuts to 340B-acquired drugs. But under our 
consistent approach not to update our factual assumptions underlying 
our projections, we are not updating our estimation in this final rule. 
Updating that estimation would require recalculating the 3.19 percent 
payment adjustment for non-drug goods and services so that the new rate 
would reflect the full $10.6 billion that CMS in fact saved under the 
cuts for 340B-acquired drugs. Instead, CMS is simply reversing that 
3.19 percent payment increase it implemented beginning in CY 2018 for 
non-drug goods and services, unwinding its legal error so that parties 
are as close as possible to the same position as they would have been 
in had CMS set the legally correct payment rates back in CY 2018. This 
approach--unwinding an unlawful payment policy while not updating 
factual projections--is consistent with CMS's general approach to 
budget neutrality.
    Commenters are also wrong that the general IPPS wage index budget 
neutrality regulation they cite exempts adverse wage index judicial 
decisions from budget neutrality. Instead, it addresses specific 
statutory exemptions to the general budget neutrality rule. See 86 FR 
45176 (discussing Sec.  412.64(h)(4)(vii)) and 75 FR 50160 (discussing 
Sec.  412.64(e)(4)); see also SSA Sec.  1886(d)(3)(E)(i). The 
regulation addressing adverse wage index judicial decisions is silent 
on the issue of budget neutrality. See 42 CFR 412.64(l) (``[I]f a 
judicial decision reverses a CMS denial of a hospital's wage data 
revision request, CMS pays the hospital by applying a revised wage 
index that reflects the revised wage data as if CMS's decision had been 
favorable rather than unfavorable.''). Commenters point to no wage 
index decision that is inconsistent with the budget neutrality policy 
in this rule, even assuming the policy would apply equally to IPPS.
    Comment: Several commenters claimed that non-budget neutral 
remedies are not the result of a de minimis exception to a requirement 
to budget neutralize as claimed by CMS, and that any de minimis 
exception lacks any statutory basis.
    Response: We explained in section I.A of this final rule how we 
have approached budget neutrality when a post-rulemaking payment change 
would have a de minimis impact on estimated OPPS payments, and in 
section II.B.1 of this final rule why the remedies to which commenters 
have pointed are consistent with that policy. As an initial matter, we 
disagree that this interpretation of budget neutrality is not based in 
the statute. As we explained in the proposed rule, section 1833(t)(9) 
of the Act (42 U.S.C. 1395l(t)(9)) instructs us to budget neutralize 
OPPS based on the amount of ``estimated expenditures.'' Because there 
is a certain amount of approximation inherent in the term ``estimate,'' 
its use authorizes us to round to $0 payment amounts that would have 
only a de minimis impact on estimated expenditures. See ``Estimate,'' 
Merriam-Webster Dictionary (``to judge tentatively or approximately the 
value, worth, or significance of'').\30\ It makes sense that a Congress 
concerned about cost containment, see H.R. Rep. No. 106-436, at 33-34 
(1999), would direct the agency to account for significant budgetary 
impacts, while giving the agency some discretion with how to handle 
minor payments that would not meaningfully impact the Part B Trust 
Fund.
---------------------------------------------------------------------------

    \30\ https://www.merriam-webster.com/dictionary/estimate.
---------------------------------------------------------------------------

    Even if commenters were correct, however, that we have not applied 
our budget neutrality policy precisely as we articulated in the 
proposed rule and here, we still believe we should adopt this 
understanding of budget neutrality as the appropriate policy to apply 
in this case and going forward. It protects the public fisc, the 
Medicare Trust fund, and beneficiaries against expenditures that prove 
to not be authorized by law while accounting for the burden and cost to 
the agency and providers of making after-the-fact changes to a 
principally prospective payment system.

[[Page 77178]]

    Comment: Some commenters argued that CMS should not budget 
neutralize since no court ruling has required budget neutrality and no 
court has found that hospital payments for non-drug items and services 
in CYs 2018-2022 were unlawfully paid or received (despite the unlawful 
reduction in 340B payments resulting in increases to those rates). 
These commenters point out that the Supreme Court only ruled that the 
Secretary may not vary payment rates for drugs and biologicals among 
groups of hospitals in the absence of having conducted a survey of 
hospitals' acquisition costs. The Court explicitly decided not to 
address arguments regarding budget neutrality. Likewise, the District 
Court's subsequent order vacating CMS's 340B reimbursement rate for the 
remainder of 2022 did so without requiring any offset for budget 
neutrality.
    Similarly, one commenter suggested that, as an alternative to 
offsetting payment, CMS rely on Section 1870 of the Act (42 U.S.C 
1395gg) to recover payment. This statute describes when and how CMS may 
recover incorrect payments it makes on behalf of an individual. The 
commenter states that, while it does not authorize CMS to offset 
payments to account for an overpayment, its approach is ``far more 
rational, and limited, than CMS's overbroad proposal.'' The commenter 
further encourages CMS to rely on 42 U.S.C 1395gg because, in addition 
to addressing overpayments on a beneficiary-specific basis, it also 
permits CMS to forgo recovery where the individual for whom the 
incorrect payment was made was without fault and making the adjustment 
would ``defeat the purposes of subchapter II or subchapter XVIII or 
would be against equity and good conscience.''
    Response: When we implemented the payment reduction for 340B-
acquired drugs in CY 2018, we also implemented a corresponding increase 
to the OPPS conversion factor that increased the OPPS payment for non-
drug items and services. When the payment reduction for 340B-acquired 
drugs was eliminated for CY 2023 after the Supreme Court found the 
policy unlawful, we increased 340B drug payments and correspondingly 
decreased the OPPS conversion factor. As we have made clear throughout 
the litigation and in prior rulemaking, the increases in OPPS payments 
for non-drug items and services were directly and inextricably linked 
to the decreases in payments for 340B-acquired drugs. But for the 
reductions in the 340B drug payments, we would never have increased 
payments for the non-drug items and services; therefore, we believe 
that if the 340B payments are invalid, then the increased payments for 
non-drug items and services are invalid, too. While we acknowledge that 
litigants challenged only the payment increase, when we have made clear 
that two payment adjustments are so closely linked so that they are 
really part of the same policy, we believe the policies should rise and 
fall together regardless of artful pleading strategies. While 
commenters are correct that the increase to non-drug items and services 
were authorized under our read of the statute at the time they were 
promulgated, they omit that this statutory authorization hinged on 
payment reductions that the Supreme Court held exceeded our statutory 
authority.
    We also do not agree with the commenter's invitation to rely on 
section 1870 of the Act (42 U.S.C. 1395gg) to forego recovery. Section 
1870 speaks to the issue of when providers can shift liability to 
beneficiaries for overpayments, which can in turn be waived in certain 
circumstances. See section 1870 of the Act. It is silent about the 
situation here where CMS adjusts future payments through its budget 
neutrality authority. We believe that given the close connection 
between the illegal decreased payments for 340B-acquired drugs and the 
increased payments for non-drug items and services, and the impact of 
failing to budget neutralize these payments on the public fisc and 
beneficiaries, section 1833(t) of the Act (42 U.S.C. 1395l(t)) applies 
rather than section 1870 of the Act (42 U.S.C. 1395gg).
    Comment: One commenter recommended that CMS work with Congress to 
forgo an offset.
    Response: We appreciate the commenter's recommendation. As noted, 
legislative changes would require Congressional action.
    Comment: One commenter noted that implementing a prospective 
adjustment poses challenges due to the varying volumes and services 
that change from year to year at each facility, and that consequently 
any prospective payment reduction would lead to inaccuracies in the 
calculation. Due to the inability to properly match prospective 
adjustments to prior increased payments, this commenter suggests that 
CMS not finalize any prospective adjustments.
    Response: We recognize that there are challenges to implementing 
our budget neutrality offsets prospectively and that the amount we 
collect from hospitals imperfectly offsets the amount by which the 340B 
Payment Policy increased each hospital's payments for non-drug services 
and items. We disagree, however, that the alternative to a prospective 
budget neutrality adjustment is no budget neutrality adjustment. 
Rather, to stay consistent with the statute, the alternative is a one-
time debit for the increased payments, as discussed in section II.A. We 
discussed why we did not select that approach above, and given that 
decision, our proposed approach properly applies the budget neutrality 
principle as evenly as possible, even if the calculations may not prove 
to be to-the-penny exact. See Shands Jacksonville Med. Ctr., 959 F.3d 
at 1119 (agency may weigh ``the competing values of finality and 
accuracy'').
    Comment: One commenter supported our proposed budget neutrality 
adjustment and suggested that, if interest cannot be paid on the lump 
sum payments, CMS withhold the budget neutral payment reductions from 
340B providers for the number of years required to equal the value of 
interest payments.
    Response: We appreciate the commenter's suggestion, however, as 
described earlier in this rule, we lack the authority to pay interest 
on the lump-sum payments regardless of whatever method or mechanism 
might facilitate the payment of such interest.
    Comment: MedPAC supported our proposed budget neutrality 
adjustment, arguing that since the reduced 340B payments were 
implemented in a budget neutral manner in CY 2018, any remedy should 
likewise be budget neutral. It additionally indicated that, of all of 
the alternatives CMS considered, CMS selected the best option. However, 
MedPAC was concerned about the effect of the immediate lump sum payment 
and 16-year recoupment on the Medicare premium. It requested that the 
reduction in payment rates be aligned with the remedy payments so that 
the effects on the Part B premium and Part B finances are mitigated. 
MedPAC also expressed concern that reducing the payment rates for non-
drug items and services could cause inequities because some hospitals 
will come out net winners or net losers and requested that CMS consider 
ways to reduce these inequities if they are significant enough. For 
example, the commenter suggests, CMS could require hospitals to list on 
their cost reports the revenue gained from 2018 to 2022 and the revenue 
decrease from the 0.5 percent reduction and then use the cost reports 
to make reconciliations.
    Response: We thank MedPAC for its support for our proposed budget 
neutrality adjustment. While we appreciate its concern about the 
remedy's effect on the Medicare Part B

[[Page 77179]]

premium, we believe the proposed prospective offset is appropriate in 
order to minimize the financial burden on hospitals, especially given 
the difficulties caused by the COVID-19 PHE. On similar issues of 
concern, such as the prospective offset start date, many commenters 
argued that hospitals are suffering from financial challenges of 
unprecedented workforce shortages, inflation, supply chain disruptions, 
eroding margins, cost increases due to increases in supplies and 
staffing costs and the lingering effects of the COVID-19 PHE. We 
believe it is appropriate to take those factors into consideration here 
as well. And we expect beneficiaries to obtain the benefit of a lower 
Part B premium in future years as the budget neutrality adjustment is 
implemented. As acknowledged previously, there is often some inherent 
imprecision in budget neutrality calculations. However, given these 
unique circumstances, coupled with the operational challenges posed by 
the commenter's suggestion, we believe our proposed approach properly 
applies the budget neutrality principle in a fair, reasonable manner, 
even if it results in some unavoidable imprecision. See Shands 
Jacksonville Md. Ctr., 959 F.3d at 1120 (agency need not ``precisely 
compensate each hospital for payments that were reduced'').
    Comment: Another commenter supported our proposed budget neutrality 
adjustment but requested that recoupment occur over a shorter timeframe 
than 16 years. The commenter proposed 5 years as a possible timeframe, 
which, in their view, would be the same amount of time that the 
conversion factor was ``artificially inflated'' as a result of payment 
to 340B hospitals at ASP minus 22.5 percent. Alternatively, the 
commenter suggested offsetting a fixed dollar amount each year over a 
fixed period of time. For example, dividing 7.8 billion by 5 in order 
to offset $1.56 billion per year from CY 2024 to CY 2028 by making an 
adjustment to the conversion factor to reflect an estimated $1.56 
billion reduction in non-drug items and services spending for each 
year.
    Response: We appreciate the commenter's suggestion for the offset 
to be implemented over a shorter timeframe than 16 years; however, we 
believe that the proposed 0.5 percent annual reduction properly 
reverses the increased payments for non-drug items and services to 
comply with statutory budget neutrality requirements while at the same 
time accounting for any reliance interests and ensuring that the offset 
is not overly burdensome to impacted entities.
    Comment: One commenter recommended that CMS increase the budget 
neutrality adjustment for OPPS non-drug items and services and apply it 
over a shorter time frame. This commenter agreed with us that some 
imprecision in calculating budget neutrality adjustments is 
unavoidable. However, the commenter contends that CMS unnecessarily 
exacerbates the imprecision by choosing to recoup budget neutrality 
payments over a 16-year period rather than a shorter time frame. In the 
commenter's view, this time frame increases the chance that the 
relative and absolute amounts of non-drug services furnished by 
hospitals will deviate from what they were under the original budget 
neutrality adjustment and that the magnitude of these deviations will 
increase. The commenter argues that it is appropriate to go with a 
greater reduction rate because (1) the original budget neutrality 
adjustment increased payment for OPPS non-drug items and services by 
3.19 percent per year, over six times higher than the adjustment 
proposed by CMS; and (2) Part B reimbursement of hospitals has grown at 
a rate of 5 percent per year on average between 2017 and 2021 (roughly 
4 percent when excluding spending on separately payable drugs under the 
OPPS). The commenter also argues that CMS should recoup $10.5 billion 
rather than the proposed $6.2 billion. The commenter proposes three 
alternative recoupment scenarios with annual budget neutrality 
adjustments that are greater than the 0.5 percent proposed reduction in 
OPPS non-drug items and services. Scenario 1 would impose a 1.25 
percent annual reduction, which would recover the $7.8 billion within 8 
years (or 10 years for the commenter's recommended 10.5 billion). 
Scenario 2 would impose a 2.25 percent annual reduction, which recover 
the $7.8 billion within 5 years (or 7 years for the commenter's 
proposed 10.5 billion). Scenario 3 would impose a 3 percent annual 
reduction, which would recover the $7.8 billion within 4 years (or 5 
years for the commenter's proposed 10.5 billion).
    Response: We appreciate the commenter's suggestion to increase the 
budget neutrality adjustment and apply it over a shorter time frame and 
the detailed examples of how we might do so. However, as we stated 
previously, we believe that the proposed 0.5 percent annual reduction 
(and resulting 16-year implementation timeframe) properly reverses the 
increased payments for non-drug items and services to comply with 
statutory budget neutrality requirements while at the same time 
accounting for any reliance interests and ensuring that the offset is 
not overly burdensome on impacted entities. Additionally, while we 
understand the rationale behind prospectively offsetting $10.6 billion, 
standard remedial principles and basic fairness support situating 
hospitals as closely as possible to the financial situation they would 
have been in absent the 340B Payment Policy. That means ensuring 
hospitals receive $10.6 billion (between the one-time lump sum remedy 
payment of approximately 9.0 billion and the processing, and 
reprocessing, of CY 340B 2022 claims of approximately 1.6 billion) for 
340B drugs and ensuring a corresponding $7.8 billion is offset in order 
to maintain budget neutrality.
    Comment: One commenter recommended that CMS incorporate recoupment 
estimates into the calculation of retrospective lump sum payments. 
Under this suggested arrangement, providers would be paid a ``net'' 
lump sum payment. The commenter suggested that, if this results in a 
significant debt for a provider, then CMS should provide an interest-
free, flexible, long term repayment plan.
    Response: We thank the commenter for this suggestion. This proposed 
approach is similar to the option discussed previously in section II.A 
of this final rule.3, titled ``Aggregate Hospital Payments from CY 2018 
Through September 27th of CY 2022.'' Please see that section for our 
consideration of this approach.
    Comment: One commenter requested clarification regarding the impact 
of the proposed 16-year OPPS conversion factor reduction on the ASC 
payment system. The commenter referenced the CY 2023 OPPS final rule in 
which CMS stated that changes to the OPPS conversion factor do not 
impact the ASC conversion factor but that there may be an indirect 
impact on ASC payments for device-intensive procedures. The commenter 
requests that CMS provide a more detailed assessment of the impact of 
its proposed 340B remedy on ASC payment rates. Specifically, the 
commenter requests additional details on the magnitude of the change in 
payments for device-intensive procedures with and without the OPPS 
conversion factor reduction. The commenter recognizes CMS's 
acknowledgement that specific provider types would experience 
differentiated reimbursement outcomes depending on how much of their 
payments are based on the OPPS conversion factor, but the commenter 
believes that CMS should specifically address the impact of its

[[Page 77180]]

proposed remedy on the ASC payment system via a regulatory impact 
analysis.
    Response: We thank the commenter for expressing this concern, and 
we note that all impacts of this prospective offset to the OPPS 
conversion factor on other payment systems in a particular year will be 
discussed during that year's applicable rulemaking cycle, including the 
specific issues that are raised by this commenter.
    Comment: Nearly all commenters supported a CY 2026 start date for 
the initiation of the adjustment to the conversion factor to provide 
hospitals with additional time to make necessary arrangements. These 
commenters cited various rationales, including the extraordinary 
financial challenges caused by unprecedented workforce shortages, 
inflation, supply chain disruptions, eroding margins, cost increases 
due to increases in supplies and staffing costs and the lingering 
effects of the COVID-19 PHE. One commenter supported finalizing the 
proposed CY 2025 start date, arguing that hospitals do not need 
additional time to make necessary arrangements since they have known 
since the date of the Supreme Court decision that they would not be 
permitted to keep the windfall they received from CY 2018 through CY 
2022.
    Response: Based on the broad support to start the adjustment to the 
conversion in CY 2026 among commenters, we believe finalizing a CY 2026 
start date for the initiation of the adjustment to the conversion 
factor is appropriate to provide entities additional time to prepare 
for the new payment rates. We agree with commenters that an additional 
year would allow more time for hospitals to recover from the financial 
challenges described above and to assess and prepare for the new 
payment rates that will be calculated using a reduced conversion 
factor. We appreciate the input of the commenter who supported 
finalizing the start date as proposed. As noted elsewhere in the rule, 
we agree that hospitals have been on notice about a potential budget 
neutrality adjustment for quite a while. But hospitals did not know the 
details of our proposed policy until we issued the proposed rule, and 
so we believe an additional year to prepare is merited in this unique 
situation.
    Comment: One commenter stated that the proposed rule does not 
provide sufficient information on the impact of the decreased 
conversion factor on individual hospitals and requested that CMS 
provide greater transparency of its calculations by including the 
budget neutrality calculations related to the recoupment in each future 
year's OPPS proposed rules.
    Response: We appreciate the commenter's suggestion and intend to 
take it into consideration in future OPPS/ASC rulemaking cycles. We 
note that the impact of the 0.5 percent reduction to the OPPS 
conversion factor will be discussed in each year's calendar year OPPS/
ASC calendar year rule, including the financial impact on particular 
groups of hospitals.
    Comment: One commenter requested that CMS provide greater clarity 
on each individual hospital's repayment obligations during the 
recoupment period. The commenter observed that changes in utilization 
could make the estimated recoupment period longer or shorter than CMS 
estimates and expressed concern that this could result in hospitals 
refunding more in additional payments than they ever received during 
the CY 2018 through CY 2022 period. The commenter requested that CMS 
ensure that hospitals not be required to pay more in the recoupment 
than what they were initially paid in increased non-drug payments 
during the CY 2018 through CY 2022 time frame.
    Response: We acknowledge that it is possible that some individual 
hospitals refund more in additional payments than they received in non-
drug payments. But that is the consequence of structuring payments 
through a future payment cut rather than, for example, clawing back or 
recouping increased payment amounts between 2018 through 2022. Our 
methodology properly reverses the increased payments for non-drug items 
and services to comply with statutory budget neutrality requirements 
while at the same time accounting for any reliance interests and 
ensuring that the offset is not overly burdensome on impacted entities. 
In the aggregate, we expect hospitals will be prospectively offset 
approximately the same amount that they received in increased non-drug 
item and service spending from CY 2018 through CY 2022 as a result of 
the 340B Payment Policy. And while changes to utilization and other 
behaviors will leave ``some hospitals slightly better off and others 
slightly worse off than they would have been had the rate reduction 
never taken effect,'' such differences are permissible variations 
inherent in a prospective remedy. Shands Jacksonville Med. Ctr., Inc. 
v. Azar, 959 F.3d 1113, 1120 (D.C. Cir. 2020). We have tried to 
mitigate that effect by limiting the future recoupment to providers 
that did in fact benefit from the increased payments in the past.
    Comment: One commenter expressed concern about the application of 
the 0.5 percent reduction to new non-drug items and services that were 
not available from January 1, 2018, through September 27, 2022, and 
which, therefore, were not reimbursed at the higher rate. This 
commenter requested that CMS create a system that excepts items and 
services that are new since October 1, 2022, from the 0.5 percent 
reduction. The commenter suggested that this could be accomplished with 
the creation of a new status indicator that would alert MACs to the 
service being new post-October, which could then be adjudicated at the 
MAC level using the same methods applied to take the adjustment for 
sequestration. Similarly, one commenter urged CMS to consider other 
factors that could impact the recoupment and address them in the final 
rule. The commenter specifically asked for clarification as to how 
hospital closures during the recoupment period would impact other 
hospitals' repayment obligations during the recoupment period and if 
hospitals that remain open would be required to shoulder the debt 
associated with the closed hospitals.
    Response: To begin, if for any reasons the number of hospitals paid 
under the OPPS that are subject to the prospective offset decrease, 
that will not impact the total amount of the offset. Otherwise, changes 
in what items and services providers bill to Medicare is one example of 
the changes to utilization and other behaviors discussed above in the 
preceding comment. As we acknowledge here, those changes will 
inevitably lead to some distributive effects, but we have done what we 
can to mitigate that effect by limiting the future recoupment to 
providers that did in fact benefit from the increased payments in the 
past. Specifically, exempting new items and services from this payment 
adjustment may distort providers' incentives to prescribe items and 
services based on whether they existed between CY 2018 and 2022 rather 
than whether they are medically appropriate, potentially impacting the 
care providers give to beneficiaries. And the more exceptions we 
create, the more complicated we make the payment reduction. 
Complications increase the risk of delays or errors in implementing 
this final rule.
    Comment: Many commenters argued that budget neutrality adjustments 
will have severe negative impacts on hospitals and might impair 
hospitals' ability to continue providing services to vulnerable 
patients/communities. Various commenters requested that rural 
hospitals, free-standing children's hospitals, free-standing cancer 
hospitals

[[Page 77181]]

and safety-net hospitals be excluded from the prospective offset.
    Response: We acknowledge that our proposal to decrease future 
payments will have a financial impact across all hospitals paid under 
the OPPS, except for new providers as described below, and we are 
particularly mindful of the impact on vulnerable patients and 
communities. But future decreases are, on aggregate, the mirror image 
of prior payment increases that, as we have repeatedly stated, would 
otherwise be a windfall to providers. And such windfalls are not cost-
free; as we noted previously, the costs are ultimately borne by 
beneficiaries and taxpayers--including the vulnerable patients and 
communities to which commenters themselves refer. Additionally, we note 
that under section 1833(t)(7)(D)(ii) of the Act (42 U.S.C. 
1395l(t)(7)(D)(ii)), cancer and children's hospitals receive 
transitional outpatient payments (TOPs) which permanently hold them 
harmless to their ``pre-Balanced Budget Act of 1997 (BBA) amount'' as 
specified under the terms of the statute. These hospitals are 
permanently held harmless to their ``pre-BBA amount,'' and they receive 
hold harmless payments to ensure that they do not receive a payment 
that is lower in amount under the OPPS than the payment amount they 
would have received before implementation of the OPPS.
    After consideration of the comments received, and for the reasons 
stated in the proposed and in this final rule, we are finalizing our 
policy largely as proposed. We believe that sections 1833(t)(2)(E) and 
(t)(14) of the Act (42 U.S.C. 1395l(t)(2)(E) and (t)(14)), under which 
we proposed to make this proposed remedy payment, are properly read to 
require budget neutrality. We are finalizing that budget neutrality 
will be maintained through a 0.5 percent reduction to the OPPS 
conversion factor over an estimated 16-year time period until a total 
of $7.8 billion is offset. As previously mentioned, we were convinced 
by commenters that we should start the prospective offset in CY 2026. 
As such, we are codifying the 0.5 percent reduction in the OPPS 
conversion factor effective for CY 2026 in the regulations by adding 
new paragraph (b)(1)(iv)(B)(12) to Sec.  419.32. The exact impact on 
OPPS payment rates as a result of this reduction will be reflected in 
the annual OPPS/ASC proposed and final rules. See Table 2 for an 
illustration of this finalized payment mechanism.
BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TR08NO23.001

BILLING CODE 4120-01-C
c. Exclusion of New Providers
    In the proposed rule (88 FR 44080), CMS recognized 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. As we explained in that rule, this was 
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 that time period did 
not receive the full amount of increased non-drug items and service 
payments. We noted that, while the 340B drug payments increased to the 
default rate effective September 28,

[[Page 77183]]

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 therefore proposed that these 
providers would not be subject to the prospective rate reduction, which 
was predominantly designed to offset those non-drug item and service 
payments made during CY 2018 through CY 2022.
    Consequently, in the proposed rule, we proposed 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. As we 
explained, that meant 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 proposed the date of enrollment in 
Medicare as the provider's CMS certification number (CCN) effective 
date. Providers that met this definition, and that we proposed would be 
excluded from the prospective payment adjustment, were listed in 
Addendum BBB to the proposed rule. This addendum can be found online 
through the CMS OPPS website.\31\ As reflected in this file, we 
determined that approximately 300 providers out of the approximately 
3,900 OPPS providers met this definition. We proposed 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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    We also clarified in the proposed rule that the proposed ``new 
provider'' designation was 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 recognized in the proposed rule that this 
approach would exempt some hospitals receiving the 340B lump sum 
payment from the prospective offset and explained that we considered 
creating various levels of exclusion from the 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 concluded that it was not administratively feasible for 
CMS, or likely desired 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. 
Consequently, we proposed that any hospital that enrolled in Medicare 
after January 1, 2018, would be exempt from the annual adjustment to 
the conversion factor to offset lump sum payments to affected 340B 
covered entity hospitals. We explained that we were proposing to exempt 
those hospitals because they 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.
    We solicited 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 solicited comments on 
whether there were any other easily identifiable categories of 
providers who should be similarly exempted from the annual adjustment 
to the conversion factor.
    We received the following comments on our proposals.
    Comment: One commenter expressed concern with the breadth of the 
new provider exemption. This commenter suggested that hospitals should 
be subject to reduced payment rates for a period of time commensurate 
with the period of time they benefited from the increased payment 
rates. For example, the commenter argued, that if a hospital began its 
Medicare participation on January 1, 2020, the hospital would have 
benefited from the increased payment rates for 3 years (2020-2022) 
which is 60 percent of the time that the increased payments were in 
place. For this hospital, the commenter argued, CMS would require that 
the reduced payment rates would apply for 60 percent of the time CMS 
expects the reduced payments to be in place (9.6 years for 16-year 
timeframe).
    Response: We acknowledge that a more individualized application of 
the exception would lead to more precise adjustments and potentially 
decrease the distributive effects discussed above. However, consistent 
with our general approach in this rule of complying with the budget 
neutrality requirement while avoiding undue administrative burdens, we 
believe that such an approach is not feasible because it would result 
in many different lengths of payment or OPPS conversion factor 
adjustments. The more complicated we make the payment reduction, the 
closer it approaches re-processing all payments--an approach we 
rejected previously in section II.A of this final rule. And as noted 
above, complications increase the risk we will face delays or errors in 
implementing this final rule.
    Comment: Another commenter appreciated the exclusion of new 
providers but expressed concern that over the long term the exclusion 
could either be overlooked or reversed due to future rulemaking and 
reimbursement adjustments.
    Response: While there is always the risk of inadvertent error, we 
believe we have clearly defined the universe of qualifying providers, 
and so we believe the risk of overlooking them is relatively low. 
Should we choose to change our policy in the future, we would do so 
through notice and comment rulemaking, and interested parties would 
have the opportunity to express their concerns. Hospitals that will be 
excluded under the prospective payment adjustment are listed in 
Addendum BBB to this final rule. This addendum can be found online 
through the CMS OPPS website.\32\ During subsequent annual rulemaking, 
an updated addendum of hospitals will be included in that year's 
calendar year OPPS/ASC rule. Any errors or omissions in the addenda 
should be addressed through the public notice and comment period for 
that year's rule.
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    After considering the comments received, we are finalizing our 
policy as proposed, and will designate any hospital that enrolled in 
Medicare on or after January 2, 2018, as a ``new provider'' and will 
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 will 
calculate payment rates for new

[[Page 77184]]

providers using the conversion factor before applying the 0.5 percent 
annual adjustment that would apply for hospitals that are not ``new 
providers'' for purposes of this policy.
    We are codifying 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 as proposed, except we are adding 
``biologicals'' to the reference to separately payable drugs. We are 
adding ``biologicals'' to the regulation text at 419.32 in order to 
ensure that the regulation text matches our finalized policy regarding 
the calculation of prospective payment rates for hospital services and 
the exclusion of separately payable drugs and biologicals from that 
prospective payment rate.
d. Additional Comments Received
    Comment: We received a couple of comments asking for CMS to use its 
current drug acquisition survey to inform OPPS 340B payment rates. 
Similarly, we heard from commenters that we should conduct another 
survey. Further, commenters requested we make changes to how Medicare 
pays for 340B-acquired drugs. Similarly, commenters asked for reform to 
the 340B Program as a whole.
    Response: We appreciate these comments but many of them are out of 
the scope of this rule. HRSA manages the 340B Program more generally, 
and more broad comments with respect to that program are not the 
subject of this rulemaking. OPPS payment policy will be included in the 
appropriate year's annual rule. As noted above, we previously suggested 
that we might use our survey of CY 2018 and 2019 cost data to inform 
the remedy. (84 FR 61322.) But as we subsequently noted, we received 
many comments on the survey data, and using that data, which surveyed 
only 340B hospitals, might not comport with the Supreme Court's 
decision. Using it would introduce new complexities into the rate 
calculation, for instance, by requiring consideration of adjustments to 
the data and other factors (85 FR 86052). We do not believe it is worth 
delaying the remedy payments to allow for such considerations or for us 
to conduct a new survey many years after the fact.
    Comment: Many commenters expressed concern about Medicare Advantage 
Organizations (hereinafter referred to as ``MAOs'') realizing a 
``windfall'' as a result of reducing outpatient payments without making 
corresponding repayments to hospitals. Specifically, these commenters 
argued that MAOs will see the benefit of reducing outpatient payments 
to all hospitals for non-drug items and services by 0.5 percent 
starting in CY 2026 but will not be required to repay affected 340B 
covered entity hospitals the amounts that were withheld for 340B drugs 
from 2018 through 2022. These commenters requested that CMS consider 
several courses of action to ensure MAOs fully comply with the remedy.
    Response: We appreciate commenters' concerns; however, these 
comments are out of the scope of this final rule. We refer commenters 
to the Hospital Outpatient Prospective Payment System Update on Payment 
Rates for Drugs Acquired through the 340B Program--Informational for 
MAOs memorandum that was issued by CMS on December 20, 2022.\33\ In 
that memorandum, we summarized the issue with the Outpatient 
Prospective Payment system rule related to payments for 340B acquired 
drugs and provided references to the relevant CMS-issued materials that 
were issued after the Supreme Court decision that vacated the 
differential payment rates. We clarified that for Medicare Advantage, 
MAOs must pay non-contract providers or facilities for services and 
items at least the amount they would have received under Original 
Medicare payment rules, in accordance with section 1852(a)(2) of the 
Act (42 U.S.C. 1395w-22). In accordance with section 1854(a)(6)(B)(iii) 
of the Act (42 U.S.C. 1395w-22(a)(6)(B)(iii)), CMS may not require MAOs 
to contract with a particular healthcare provider or use particular 
pricing structures with their contracted providers. Therefore, MAOs 
that contract with a provider or facility eligible for 340B drugs can 
negotiate the terms and conditions of payment directly with the 
provider or facility and CMS cannot interfere in the payment rates that 
MAOs set in contracts with providers and facilities.
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    Comment: A few commenters alleged Accountable Care Organizations 
will continue to be unfairly impacted by CMS not addressing the 
disparity between paying for 340B drugs at the lower price of ASP minus 
22.5 percent in ACO benchmarks (that is, between 2018-2022) and the 
higher price of ASP plus 6 percent in performance years. The commenters 
urge CMS to correct this disparity by adjusting its calculation of 
ACOs' performance year expenditures to correct for this difference 
without ACOs having to early renew. The commenters argued an adjustment 
would help ACOs that include ACO providers/suppliers that are 340B 
providers, who help under-served patients and address the health 
disparities CMS wants to eliminate through policymaking.
    Response: The Shared Savings Program includes Parts A and B fee-
for-service claims and individually beneficiary identifiable final 
payments made under a demonstration, pilot or time limited program in 
benchmark and performance year expenditure calculations. Historical 
benchmark year expenditures are risk-adjusted, and a blend of national 
and regional growth rates are used to trend forward expenditures for 
each benchmark year (benchmark year 1 and 2) to benchmark year 3. 
Benchmark expenditures are further updated by trending forward to the 
performance year during financial reconciliation. Risk adjustment is 
applied to account for changes in severity and case mix of the ACO's 
assigned beneficiaries between the benchmark period and the performance 
year, and the use of a blended national and regional trend adjusts an 
ACO's historical benchmark expenditures to remain comparable to changes 
in performance year expenditures including changes in Medicare payment 
policy and other factors affecting expenditures. The payment rate for 
340B-acquired drugs included in Shared Savings Program PY 2023 
financial calculations will be ASP plus 6 percent. For ACOs 
participating in PY 2023 that have historical benchmark years for which 
payments for 340B-acquired drugs were based on the ASP minus 22.5 
percent rate (2018-2022), the differences between the 340B-acquired 
drug payments included in historical benchmark year and performance 
year expenditure calculations have the potential to be mitigated when 
CMS updates the benchmark using a blend of national and regional growth 
rates. Additionally, for ACOs with agreement periods starting January 
1, 2024, we finalized policies through rulemaking that may also support 
ACOs impacted by the changes in 340B-acquired drug payment rates, such 
as policies to reduce the impact of the negative regional adjustment, 
incorporate a prior savings adjustment in historical benchmarks for 
renewing and re-entering ACOs, and modifying the methodology for 
updating the historical benchmark to incorporate a prospective, 
external factor. These policies are expected to encourage new and 
continued participation from ACOs serving medically complex and high 
cost of care populations.

[[Page 77185]]

    Any adjustments to 340B-acquired drug claims with CY 2022 dates of 
service that were processed on or before March 31, 2023, are reflected 
in Medicare Shared Savings Program (Shared Savings Program) expenditure 
calculations used in Performance Year (PY) 2022 financial 
reconciliation and will be used to calculate historical benchmarks for 
ACOs for which CY 2022 is a benchmark year. Any adjustment to claims 
with CY 2022 dates of service that were processed after March 31, 2023, 
or that have not yet been submitted or processed are not reflected in 
PY 2022 Shared Savings Program expenditure calculations and would not 
be used to calculate historical benchmarks for ACOs for which CY 2022 
is a benchmark year.
    Additionally, CMS will provide lump-sum payments to providers that 
received reduced reimbursement for 340B-aquired drugs from CY 2018 
through September 27th of CY 2022, such lump sum payments will be 
adjusted to ensure that CMS does not make duplicate payments for claims 
that had already been reprocessed at the higher payment rate. These 
lump sum payments will not be included in Shared Savings Program 
calculations, as these payments would not be individually beneficiary 
identifiable.
    Comment: One commenter urged CMS to consider recommendations 
outlined in the ASCO 340B drug pricing reform statement in any future 
approach to reforming the 340B Program. The commenter requested that 
when proposing further policy changes and updates, CMS analyze the 
impact of the policies, including whether the proposals satisfy the 
original intent of the legislation, the presence or absence of 
appropriate safeguards for compliance and oversight, and the unique 
considerations related to cancer patients and other vulnerable 
patients.
    Response: We appreciate the commenter's concerns; however, this 
comment is out of the scope of this final rule.
Summary of Finalized Policy
    As discussed in the preceding sections, after consideration of the 
public comments we received, and for the reasons stated in our proposed 
rule and in this final rule, we are finalizing the proposed remedy for 
the 340B Payment Policy for CYs 2018-2022, with the one exception that 
we are changing the implementation date of the 0.5 percent adjustment 
from CY 2025 to CY 2026. Using our authority under sections 1833(t)(14) 
and (t)(2)(E) of the Act (42 U.S.C. 1395l(t)(14) and (t)(2)(E)) and, to 
the extent necessary, section 1871(e)(1)(A) of the Act (42 U.S.C. 
1395hh(e)(1)(A)), we will make a one-time lump sum payment to each 
affected 340B covered entity hospital calculated as the difference 
between what the affected 340B covered entity hospital received for 
340B-acquired drugs during the time period at issue and approximately 
what they would have received for 340B-acquired drugs if the 340B 
adjustment had not been in place, which includes what the affected 340B 
covered entity hospital would otherwise have been paid by the 
beneficiary. The amount of the lump sum payment that has been 
calculated for each affected 340B covered entity hospital is listed in 
Addendum AAA. Following the deadline to submit a request for technical 
correction to the amount listed in Addendum AAA, we will issue 
instructions to the Medicare Administrative Contractor (MAC) for each 
affected 340B covered entity hospital that has not submitted a request 
for technical correction by the deadline discussed in this rule. We 
will instruct the MAC to issue a one-time lump sum payment to those 
hospitals in the amount listed in Addendum AAA within 60 calendar days 
of the MAC's receipt of the instruction. We will instruct MACs to pay 
hospitals that submit a request for technical correction through a 
similar process after the technical correction process is completed, 
and the payment amount for those providers will be based on the result 
of the technical correction process. The lump sum payments do not 
include interest. In aggregate, the lump sum payments we calculate here 
will total $9.0 billion and will include a portion equivalent to the 
amount that beneficiaries, through cost-sharing, would have paid 
hospitals.
    To comply with the budget neutrality requirements of the 
authorities we are relying on to make the one-time lump sum remedy 
payments, and alternatively relying on our equitable adjustment or 
common-law and inherent recoupment authorities, beginning in CY 2026, 
we will reduce all payments for non-drug items and services to all OPPS 
providers, except new providers (hospitals with a CMS CCN effective 
date of January 2, 2018, or later), by 0.5 percent each year until the 
total estimated offset of $7.8 billion is reached. We currently 
estimate that the payment decrease will be completed after 
approximately 16 years. To implement this reduction and exception for 
new providers, we are finalizing the proposed regulation text changes 
at Sec.  419.32(b)(1)(iv)(B) as proposed, except for changing the 
implementation date of the 0.5 percent reduction from CY 2025 to CY 
2026.

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. Regulatory Impact Analysis

    Comment: One commenter alleged that there is a significant 
discrepancy in CMS's total OPPS payments data, which could impact how 
long it would take for CMS to effectuate any recoupment. Specifically, 
the commenter argued that there is a $23 billion dollar discrepancy 
between the amount of total OPPS payments stated in the proposed 2024 
OPPS rule ($88.6 billion) and the amount of OPPS payments for all 
providers stated in the OPPS impact file for the proposed 2024 OPPS 
rule ($65.65 billion). The commenter expressed concern about this 
discrepancy and its effect on individual hospitals and the 16-year 
recoupment period.
    Response: We agree that there are differences between the spending 
numbers in the OPPS impact files versus overall OPPS spending 
estimates. The OPPS impact file associated with each proposed and final 
rule primarily displays the effects of current and prospective policies 
based on historical claims. It also excludes lines from estimated 
payment that are removed from the ratesetting process for OPPS 
purposes. In contrast, the overall OPPS spending estimate is based on 
projections of future spending and include estimated changes in 
enrollment, utilization, and case mix. We also agree that things may 
change over the course of the 16-year recoupment period, and we will 
monitor the impact of these prospective reductions as well as 
recoupment amounts over the course of that time period.

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

[[Page 77186]]

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 remanded the case to 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 final rule describes the remedy CMS is finalizing to comply 
with the District Court's remand. It remedies 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 amount of the lump sum payment includes 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 
proposed and are finalizing to annually reduce OPPS payments for non-
drug items and services beginning in CY 2026 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 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. 96354) (5 U.S.C. 601-612), section 1102(b) of the Act 
(42 U.S.C. 1302(b), section 202 of the Unfunded Mandates Reform Act of 
1995 (March 22, 1995; Pub. L. 104-4) (2 U.S.C. 602), 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). The 
Executive Order 14094 entitled ``Modernizing Regulatory Review'' 
(hereinafter referred to as the ``Modernizing E.O.'') amends section 
3(f)(1) of Executive Order 12866 (Regulatory Planning and Review). The 
amended section 3(f) of Executive Order 12866 defines 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) of Executive Order 12866 ($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) economic effect. 
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.
    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 changes in 
this final rule, will be $2.8 billion. We took into consideration the 
additional Medicare drug payments of $9.0 billion to the estimated 
1,700 340B covered entity hospitals to which the drug payment remedy 
will apply, and the $6.2 billion in reduced Medicare prospective 
payments for non-drug items and services beginning in CY 2026 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 proposed. 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 
reprocessed at the default drug payment rate after the 340B Payment 
Policy was vacated, estimated at $1.6 billion, for purposes of the 
total aggregate remedy payment to affected 340B covered entity 
hospitals, we are not including that $1.6 billion in our calculation 
here, which estimates the total increase in Federal Government 
expenditures due only to the proposed changes in this final rule. This 
$1.6 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 percent and unwinding the 
associated 3.19 percent rate increase for non-drug items and services 
are not equal to each other. This is due to many factors. Some factors 
that decreased the gap include the facts that 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, and 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

[[Page 77187]]

payment during this time period have been remedied. By contrast, some 
factors that increased the gap include the facts that this remedy rule 
pays 340B providers an amount equivalent to the lost 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 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. In aggregate, the 
total additional payment that providers will receive as a result of 
this remedy, $10.6 billion, will be larger than the amount of payment 
that will be prospectively offset, $7.8 billion.
    To explain the last factor in more detail, from CY 2018 through CY 
2022, the actual spending associated with 340B-acquired drugs changed 
from what we projected in the CY 2018 OPPS/ASC final rule with comment 
period. As we noted above in section II.B.2 of this final rule, the 
actual total reduction in 340B-acquired drug payments during this time 
period outpaced the corresponding increase in non-drug item and service 
payments. This final rule maintains budget neutrality by undoing the 
original 340B Payment Policy. This approach is consistent with how we 
unwound the 340B Payment Policy prospectively, as described in the CY 
2023 OPPS/ASC final rule with comment period (87 FR 71975). There, 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. We did 
not increase the rate we paid for 340B-acquired drugs without making a 
corresponding change to the conversion factor. Nor did we adjust the 
conversion factor to account for the actual increase in the utilization 
for 340B drugs. In Table 3 of this final rule, we display the impact of 
these proposed policy changes on drug payments, including aggregate 
payment by hospital type. Specific 340B-acquired drug lump sum payment 
amounts, by individual hospital, can be found in Addendum AAA. The 
impact for specific hospital types of the reduced prospective payment 
for non-drug items and services beginning in CY 2026 would be included 
in each proposed and final rule for calendar years in which the 
prospective reduction would apply, beginning in CY 2026.

C. Detailed Economic Analysis

Column 1: Total Number of Hospitals
    The first line in Column 1 in Table 3 shows the total number of 
facilities (1,686), including designated cancer and children's 
hospitals and Community Mental Health Centers (CMHCs), that will 
receive remedy payments under this final rule. We excluded all 
hospitals and CMHCs that we do not expect will experience any direct 
effect from the remedy payments in this final rule. We show the total 
number of OPPS hospitals (1,686) that will receive remedy payments, 
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 (42 U.S.C. 
1395l(t)(7)(D)(ii)) provides transitional outpatient payments (TOPs), 
which permanently hold 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 will be made 
under this final 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: CY 2022 Reprocessed Payment Differential (in Millions)
    Column 3 displays the estimated payment impact of any CY 2022 
claims that have been reprocessed by the MACs. We note that these 
claims, which include dates of service for services furnished prior to 
September 28, 2022, were not reprocessed their payments otherwise would 
have been included as remedy payments in Column 2.
Column 4: Total 340B Drug Remedy Payments
    Column 4 includes the total remedy payments, which is the sum of 
column 2 and column 3.
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    We estimate that the total monetary transfer will be approximately 
$9.0 billion. The $9.0 billion includes the proposed additional lump 
sum drug

[[Page 77190]]

payments to the 1,686 affected 340B covered entity hospitals. The $9.0 
billion amount is an estimate of the total aggregate additional 
payments that will 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 $10.6 billion, 
which includes the $1.6 billion that has already been paid through 340B 
drug claims processing and reprocessing that occurred for CY 2022 
claims.
    We note that, in this final rule, we described our policy to 
annually reduce OPPS payments for non-drug items and services beginning 
in CY 2026, 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 adjustment. This 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 2 
of this final rule.\34\ The impact of this offset on payments to each 
provider type for each calendar year in which the offset is in effect 
will be included in the regulatory impact analysis for the applicable 
annual OPPS rulemaking, beginning for CY 2026. 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 of overall OPPS payments. Please see 
Table 4 below for our estimated total impact to the OPPS payments based 
on the information provided in Table 2.
---------------------------------------------------------------------------

    \34\ 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 offset.
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[[Page 77191]]



D. Regulatory Review Cost Estimation

    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this final 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 the 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.
    For the purposes of our estimate, we assume that each reviewer 
reads 100 percent of the rule. We welcomed any public comments on the 
approach in estimating the number of entities that would review the 
proposed rule. We did not receive any public comments specific to our 
solicitation.
    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.\35\ Assuming an average reading speed, we estimate that it 
would take approximately 3 hours for the staff to review this final 
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). We received 
1,649 comments on the proposed rule, which we estimate to be equivalent 
to the estimated number of reviewers.
---------------------------------------------------------------------------

    \35\ https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

E. Alternatives Considered

    As also discussed in section II.A above, 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 proposing an adjustment to 
maintain budget neutrality, which for the reasons stated in section 
II.A.1 and II.B.2 we determined not to be supported by the statute or 
the proper exercise of our equitable adjustment or common-law and 
inherent recoupment authorities. We further considered retrospectively 
reprocessing all claims from CY 2018 through September 27th of CY 2022, 
which, for the reasons stated in section II.A.2, we determined not to 
be operationally feasible and to delay remedy payments to hospitals.
    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 (t)(14) of the Act (42 U.S.C. 
1395l(t)(2)(E) and (t)(14)), along with our retroactive rulemaking 
authority in section 1871(e)(1)(A) of the Act (42 U.S.C. 
1395hh(e)(1)(A)). 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 appropriate in these circumstances. 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 COVID-19 PHE, and the amount of time that 
has transpired since the original payments for these drugs, items, and 
services were made, we decided not to propose this option and overly 
burden these hospitals in this way, making our final option much more 
generous to OPPS providers.
    We refer readers to section II.A of this final rule for additional 
discussion of all the alternatives we considered, including our reasons 
for not suggesting them as our final policy.
    We are finalizing the prospective offset for reasons previously 
discussed to begin in CY 2026, which we believe is appropriate rather 
than other years, as we believe starting this reduction in CY 2026 is 
responsive to commenter concerns, and will allow CMS time to finalize 
the appropriate methodology, and then calculate and publish the payment 
rates derived from this policy in the CY 2026 OPPS/ASC proposed rule, 
allowing adequate time for impacted parties to assess and prepare for 
the new payment rates that will be calculated using a reduced 
conversion factor.

F. Accounting Statement and Table

    As required by OMB Circular A-4 (available at https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf), we have prepared an accounting statement in 
Table 5 showing the classification of the impact associated with the 
provisions of this final rule.
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BILLING CODE 4120-01-C
    We note readers can find provider-level calculations of lump-sum 
Medicare payments in Addendum AAA to this final rule. If an affected 
340B covered hospital entity believes that the payment amount listed 
for them in Addendum AAA is inaccurate, they can request that CMS 
review the amount using the technical correction processes described 
earlier in this rule.
    We note that the approximately $9.0 billion of expected transfers 
in this final rule is the $9.0 billion in expected additional lump sum 
drug remedy payments associated with this final rule. Some of this 
amount, $1.6 billion of the total $10.6 billion, 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. 
Table 5 provides the present value of the prospective offset adjustment 
using discount rates of three and seven percent. We note a commenter 
referenced the present value of the prospective offset adjustment due 
to the projected long timeframe. We believe the prospective 0.5 
percentage annual reduction in the conversion factor is appropriate 
because it addresses budget neutrality while also ensuring that the 
offset was not overly financially burdensome on impacted entities.

G. Regulatory Flexibility Act (RFA)

    The RFA requires agencies to analyze options for regulatory relief 
of small

[[Page 77193]]

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 final rule. 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 (42 U.S.C. 1302(b)) 
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 604 of the RFA. For purposes of section 1102(b) of the Act (42 
U.S.C. 1302(b)), 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 final rule will result in approximately 
$185 million in remedy payments to 245 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 final rule, 
provides a regulatory flexibility analysis and a regulatory impact 
analysis. We note that the policies contained in this final rule will 
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 as well as 
the extent to which they furnished 340B-acquired drugs. However, small 
rural hospitals will experience significant effects from this final 
rule through the 340B remedy payments if they furnished a significant 
amount of 340B-acquired drugs and used the ``JG'' modifier.

 H. Unfunded Mandates Reform Act (UMRA)

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 
U.S.C. 602) 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 final rule 
does not mandate any requirements for State, local, or Tribal 
governments, or for the private sector.

I. 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 final 
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 3 of this final 
rule, we estimate that payments to impacted governmental hospitals 
(including State and local governmental hospitals) will increase by 
approximately $1.8 billion if the policies included in this final rule 
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 will be discussed 
in the annual rulemaking to which the adjustment will apply.
    This final regulation is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and has been transmitted to the Congress 
and the Comptroller General for review.

J. Congressional Review Act

    Pursuant to Subtitle E of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (the Congressional Review Act), the Office of 
Information and Regulatory Affairs has determined that this action 
meets the criteria set forth in 5 U.S.C. 804(2).
    The analyses we have provided in this section of this final rule, 
in conjunction with the remainder of this document, demonstrate that 
this final 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 (42 U.S.C. 
1302(b)).
    This final rule will 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 October 26, 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 amends 42 CFR part 419 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 2025, a 
multifactor productivity adjustment (as determined by CMS).
    (12) Beginning in calendar year 2026, a multifactor productivity 
adjustment (as determined by CMS), and 0.5 percentage point reduction, 
except that the 0.5 percentage point reduction shall not apply to 
hospital outpatient items and services, not including separately 
payable drugs or biologicals, furnished

[[Page 77194]]


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 the estimated payment reduction 
reaches $7.769 billion, as further described in each calendar year's 
rule.
* * * * *

    Dated: October 31, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2023-24407 Filed 11-2-23; 4:15 pm]
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