In November 2023, the Centers for Medicare & Medicaid Services (CMS) published a final rule, “Medicare Program; Hospital Outpatient Prospective Payment System: Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022” (the “340B Payment Policy Final Rule”).

The rule, which goes into effect on January 8, 2024, describes CMS’s plan to remedy its prior adjustments of Medicare Part B payment rates for drugs purchased by certain hospitals under the 340B Program for calendar years (CYs) 2018-2022. This remedy arises from the U.S. Supreme Court’s June 2022 decision in American Hospital Association v. Becerra, which invalidated those earlier adjustments.

While the 340B Payment Policy Final Rule addresses repayment of Medicare Part B reimbursement, this Insight discusses the potential secondary effects of the Supreme Court decision and the 340B Payment Policy Final Rule on hospital reimbursement by Medicare Advantage (MA) plans under Medicare Part C.

CMS guidance on how the 340B Payment Policy Final Rule will impact MA plans is limited. For contracted (i.e., in-network) hospitals, CMS here, as with other Medicare reimbursement issues,[1] takes a hands-off approach and lets the MA plans’ contracts dictate the plans’ repayment obligations, if any. For non-contracted (i.e., out-of-network) hospitals, CMS’s guidance regarding what the MA plans must pay the non-contracted hospitals has the potential for varying interpretations, and repayment for 340B reimbursement may also end up pursuant to negotiations between the parties.


In December 2017, CMS issued a final rule (effective January 1, 2018) (the “2018 Final Rule”) to reduce Medicare Part B reimbursement for 340B drugs.[2] The reimbursement rate was significantly reduced for specific 340B hospitals from the average sales prices (ASP) plus 6 percent to ASP minus 22.5 percent for each drug. Rural sole community hospitals, children’s hospitals, and prospective payment system (PPS)-exempt cancer hospitals were exempt from the payment adjustment due to their receiving special payment adjustments under the outpatient PPS (or “OPPS”). This significant change led to affected hospitals, “which generally serve low-income or rural communities,” receiving less for 340B drugs provided to Medicare patients.

The Supreme Court in AHA v. Becerra invalidated CMS’s 2018 Final Rule—holding that because CMS had not conducted a survey of the hospitals’ acquisition costs, the agency could only set reimbursement rates based on the average price charged by manufacturers for the drug and could not vary reimbursement rates solely for 340B hospitals. The decision reversed an earlier decision of the U.S. Court of Appeals for the District of Columbia Circuit, which had previously upheld the reduced reimbursement rates.

In order to maintain budget neutrality and offset the additional spending required pursuant to the Supreme Court’s decision, the 340B Payment Policy Final Rule establishes a .5 percent conversion rate with respect to all other Medicare Part B services (i.e., reducing these payments by .5 percent each year until the offset is reached, after approximately 16 years).

Key Takeaways from CMS’s “Lump Sum Payments”

After the Supreme Court’s decision in AHA v. Becerra, CMS reversed its policy setting reimbursement back to ASP minus 22.5 percent, provided that hospitals acquiring drugs under the 340B Program would be paid at the default rate of ASP plus 6 percent for CY 2023—with a reduction of 3.09 percent to the 2023 OPPS conversion factor to ensure “budget neutrality” and to offset the now-invalid former policy.

To remedy hospitals’ $10.5 billion dollar loss in 340B drug payments from CY 2018-2022, CMS determined that the best option “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 and what they would have paid had the 340B Payment Policy not applied.”

The 340B Payment Policy Final Rule further instructs 340B hospital Medicare Administrative Contractors to issue the one-time lump-sum payments within 60 calendar days of receiving CMS instructions to pay. Hospitals will be paid at the end of CY 2023 or the beginning of CY 2024 and interest is not included in the remedy payments because CMS determined that it lacks the authority to do so.[3]

Considerations for Medicare Advantage Plans

Regarding MA, the 340B Payment Policy Final Rule reiterated the agency’s position from its memorandum to MA plans in December 2022 (the “2022 memorandum”). The 340B Payment Policy Final Rule restated that MA plans must pay non-contract hospitals at least the amount such hospitals receive under Original Medicare payment rules, according to the Social Security Act.[4] However, with respect to contracted hospitals, the 2022 memorandum and the 340B Payment Policy Final Rule provide that CMS may not require an MA plan to use a particular pricing structure. Therefore, MA plans are free to negotiate payment rates, and the modification of such rates, with their contracted 340B entities.[5]

As a threshold matter, the increased Part B reimbursement to 340B hospitals may not be relevant to contracted hospitals unless the MA plan contract sets reimbursement at a percentage of the Medicare Part B fee schedule. Otherwise, the MA plan may have an argument that its reimbursement methodology is not impacted by any changes to CMS’s reimbursement methodology under Medicare Part B.

For MA plan contracts that do base hospital reimbursement on the Medicare fee schedule, the plans’ obligation to reimburse such hospitals the difference in 340B drug costs may depend on other provisions in the contract. One such provision could be that which governs a hospital’s right to recover additional funds from a plan that has underpaid a claim. An underpayment recovery provision is helpful to a hospital in that it gives the hospital a right to demand correction of inaccurate claims. However, oftentimes, participating provider agreements have language that places a time-based limit on the right to assert an underpayment recovery requested (e.g., within one year of the claim’s payment date). In such a case, the MA plan may argue that it does not need to repay if the period for recovery of underpayment under the contract has lapsed. In such negotiations, the parties may also want to consider that CMS has imposed cuts to other Part B services. Depending upon the individual facts and circumstances of the relationship between an MA plan and a hospital, the parties may wish to similarly seek “budget neutrality” in how they institute the repayments to 340B hospitals and corresponding decreases for all other Part B services.

The 2022 memorandum reminds MA plans that they “must pay non-contract providers or facilities for services and items at least the amount they would have received under Original Medicare payment rules.”[6] Non-contracted hospitals may try to raise an argument to request repayment that does not exist for contracted hospitals. However, two factors may lead to difficulties for the MA plans and hospitals alike in seamlessly reconciling repayment issues related to the 340B payment adjustment. First, neither the 340B Payment Policy Final Rule nor the 2022 memorandum lays out a reconciliation schedule for the MA plans and their non-contracted hospitals. Second, non-contracted hospitals typically do not execute any sort of contract with the payor that could otherwise govern this type of reimbursement change. In this case, while the repayment amount may be required under CMS guidance, the timing and other logistics of the repayment will likely be subject to a negotiation between the parties or, if the parties are unable to agree, determined by a court of law.

Looking Ahead

MA plans and 340B hospitals subject to repayment under the 340B Payment Policy Final Rule will have to review the terms of any relevant contracts and their respective rights and responsibilities in light of the 340B Payment Policy Final Rule to repay affected 340B hospitals. These rights and obligations will likely differ for contracted and non-contracted hospitals, given the guidance in CMS’s 2022 memorandum and the 340B Payment Policy Final Rule. For contracted hospitals, the right to repayment will depend on the extent to which the contract both bases reimbursement on the Medicare fee schedule and sets forth an affirmative obligation to repay the 340B cuts. For non-contracted hospitals, the main challenge will be strongly negotiating a reconciliation process for the timely repayment of the 340B cuts.

* * * *

This Insight was authored by Alan J. ArvilleMarjorie T. Scher, and Jackie SelbyLaw Clerk – Admission Pending Nija Chappel (not admitted to the practice of law) and Staff Attorney Ann Parks contributed to the preparation of this Insight. For additional information about the issues discussed in this Insight, please contact one of the authors or the Epstein Becker Green Health Care and Life Sciences attorney who regularly handles your legal matters.


[1] CMS has taken the same “hands-off” approach with regard to MA plans passing down or withholding sequestration cuts. See April 17, 2014, letter from CMS to the American Hospital Association where CMS stated, “We are prohibited from interfering in the payment arrangements between MAOs and contracted providers.”

[2] The 340B Drug Pricing program is a federal program that allows certain hospitals and other providers to purchase covered outpatient drugs from manufacturers at a discounted price. See 42 C.F.R. Part 10.

[3] 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.”).

[4] 42 U.S.C. § 1395w-22(a)(2)(A)(2024) (“A Medicare+Choice plan (other than an MSA plan) offered by a Medicare+Choice organization satisfies paragraph (1)(A), with respect to benefits for items and services furnished other than through a provider or other person that has a contract with the organization offering the plan, if the plan provides payment in an amount so that—(i) the sum of such payment amount and any cost sharing provided for under the plan, is equal to at least (ii) the total dollar amount of payment for such items and services as would otherwise be authorized under parts A and B (including any balance billing permitted under such parts).”).

[5] and 88 FR 77150, 77184.

[6] (“As a reminder, 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) of the Act.”).

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