The Centers for Medicare & Medicaid Services (CMS) last October issued an advance notice of proposed rulemaking (ANPRM) to solicit public comments regarding how Medicare Part B pays for drugs and biologicals. CMS is considering a new payment methodology called the International Pricing Index Model (the Model). As discussed below, the Model could reduce the financial benefit hospitals receive from using 340B drugs for Part B beneficiaries, impact 340B program participation for hospitals subject to the group purchasing organization (GPO) exclusion, and lower 340B ceiling prices.

The Model would require participation from hospital outpatient departments, physician practices and potentially other providers in selected geographic areas. CMS anticipates that the selected geographic areas would account for at least 50 percent of Medicare Part B spending on separately-payable Part B drugs, thereby ensuring the Model would affect a significant number of providers.

Under the Model, Medicare Part B would continue to reimburse hospitals for drug administration and provide an add-on payment. However, hospitals would no longer receive Medicare payment for the drug itself, because the hospitals would cease purchasing the drugs they provide to Part B beneficiaries. Instead, hospitals would obtain the drugs from vendors that (i) would negotiate drug prices with, and purchase the drugs directly from, pharmaceutical manufacturers, and (ii) then be reimbursed by CMS directly. This system would remove any financial benefit that hospitals currently enjoy based on the difference between a given drug’s 340B purchase price and the Part B payment amount for the drug.

Although CMS did not raise the issue in the ANPRM, the Model could prevent some current 340B hospitals from continuing to participate in the program. The 340B statute prohibits disproportionate share hospitals (DSHs), freestanding children’s hospitals and freestanding cancer hospitals from obtaining drugs through a group purchasing organization (GPO) or other group purchasing arrangement. If the Health Resources and Services Administration, the federal agency that oversees the program, were to conclude that the Model creates a group purchasing arrangement, those DSHs, children’s hospitals and cancer hospitals required to participate in the Model would have to terminate their 340B participation.

Finally, CMS acknowledged in the ANPRM that the Model could lower 340B ceiling prices. The agency explained how the Model could result in lower best prices (BPs) and average manufacturer prices (AMPs). If this were to occur, one result could be lower 340B ceiling prices, since BP and AMP are the key components of 340B ceiling price calculations.

CMS said it is considering issuing a proposed rule as soon as this Spring to start the Model as early as Spring 2020. The proposed rule could differ from the ANPRM and might address the rule’s 340B implications in more detail.

We will monitor this and other drug pricing proposals that could affect the 340B program. In the meantime, please reach out to any one of us with questions.

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