Hospital groups to sue CMS over $1.6 billion cut to 340B payments

Credit: <a href="">Matthew Bisanz</a>.

The final rule will also allow for higher payment when Medicare beneficiaries receive certain procedures in outpatient departments.

Several groups representing U.S. hospitals on Wednesday said they plan to sue the Centers for Medicare and Medicaid Services over a hospital outpatient prospective payment system final rule released Wednesday that reduces what hospitals are paid under the 340B drug program.

The rule lowers the cost of prescription drugs for seniors and other Medicare beneficiaries by reducing the payment rate to hospitals for certain Medicare Part B drugs purchased through the 340B program. The existing rule would have paid hospitals 6 percent above the sale price of drugs, but the final rule instead pays hospitals 22.5 percent less than sale prices, amounting to a $1.6 billion cut.

The American Hospital AssociationAssociation of American Medical Collegesand America’s Essential Hospitals said they will seek litigation to prevent the cuts.

“CMS’s decision in today’s rule to cut Medicare payments to hospitals for drugs covered under the 340B program will dramatically threaten access to health care for many patients, including uninsured and other vulnerable populations,” AHA Executive Vice President Tom Nickels said in a statement. “We strongly urge CMS to abandon its misguided 340B rule, and instead take direct action to halt the unchecked, unsustainable increases in the cost of drugs.”

America’s Essential Hospitals CEO Bruce Siegel said the organization saw no reasonable rationale for diverting Medicare Part B reimbursement from hospitals in the 340B drug pricing program that are in the greatest need of support to providers not eligible for 340B discounts. CMS has no evidence that the policy will combat rising drug prices, he said.

“Congress clearly intended that the 340B program help hospitals that care for many vulnerable patients; this new policy subverts that goal,” Siegel said. “Essential hospitals operate with an average margin less than half that of other hospitals and depend on 340B program savings to stretch resources for patient care and community services. Given their fragile financial position, essential hospitals will not weather this policy’s 27 percent cut to Part B drug payments without scaling back services or jobs.”

340B Health said the rule is a backdoor effort to undermine an important drug discount program.

“Responding to a survey earlier this year, 340B hospitals were unanimous in saying implementation of the CMS rule would cause them to cut back services. For example, Genesis Healthcare System in Zanesville, Ohio, estimates a loss of $3 million in Medicare payments could force it to cancel critical services such as substance abuse treatment, cancer treatment, and behavioral health programs.The MetroHealth System Cancer Center in Cleveland, Ohio, estimates an $8 million loss would raise patients’ costs and reduce access to needed services including transportation and care navigation that are supported by 340B savings,” said 340B Health CEO Ted Slafsky.

However, the AIR340B Coalition said it would continue to advocate for regulatory action to better align the program with its original intent of helping vulnerable patients.

“We applaud the Administration for taking action to help address one aspect of the 340B program that has been leading to higher costs for Medicare and its beneficiaries,” the AIR340B Coalition said.

Areas of change it supports include clearly defining a 340B eligible patient, examination of hospital and satellite clinic eligibility criteria, and a more rational and legally supportable policy on contract pharmacy arrangements.

CMS said the savings will be reallocated equally to all hospitals paid under the hospital outpatient prospective payment system. Children’s hospitals, certain cancer hospitals, and rural sole community hospitals will be excluded from these drug payment reductions.

CMS will work with Congress for additional considerations on 340B for safety net hospitals, said CMS Administrator Seema Verma.

Consumers would save an estimated $320 million in copayments in 2018 under the new payment rule that gives Medicare beneficiaries the benefit of discounts hospitals receive under the 340B program, according to Verma.

“As part of the president’s priority to lower the cost of prescription drugs, Medicare is taking steps to lower the costs Medicare patients pay for certain drugs in the hospital outpatient setting,” Verma said.

The final rule will also allow outpatient payment to be made when Medicare beneficiaries receive certain procedures in a lower cost setting, the outpatient department. The new availability of the higher OPPS payment applies to six procedures, including total knee replacements, a common and costly Medicare surgical procedure, CMS said.

Starting in January 2018, Medicare beneficiaries undergoing any of the six procedures can opt to have them performed in a lower cost setting when a clinician believes such a setting is appropriate.

Additionally, the final rule provides relief to rural hospitals by placing a two-year moratorium on the direct physician supervision requirements for rural hospitals and critical access hospitals.

“CMS understands the importance of strengthening access to care, especially in rural areas,” Verma said. “This policy helps to ensure access to outpatient therapeutic services for seniors living in rural communities and provides regulatory relief to America’s rural hospitals.”

In a home health prospective payment system final rule, CMS is not finalizing the home health groupings model and will take additional time to further engage with stakeholders.

What’s Causing America’s Rural Health Insurance Crisis?

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Over recent years, numerous rural health insurance markets have teetered on the brink of collapse. Rural areas have long posed a special challenge to health care policymakers, but a poorly-designed system of subsidies for rural hospital care has turned this into a crisis. It has fostered a rural hospital market structure that has crippled the ability of private insurers to negotiate reasonable payment rates, without fully securing the provision of essential care. By refocusing federal assistance on emergency care, it should be possible to restore rural insurance markets to health, while improving the affordability and access to care available to residents.

Warren Buffett once famously observed that “you only find out who is swimming naked when the tide goes out.” As the Affordable Care Act’s reforms have placed the nongroup market for health insurance under acute strain, it is rural areas that have been most exposed. Of 650 counties that have only a single insurer offering plans on their exchange, 70 percent are rural. For Medicare Advantage, despite total revenues roughly twice as large as the individual market, the situation is even worse—with 140 (mostly rural) counties lacking private insurance coverage options altogether.

It is more challenging to deliver healthcare services in sparsely populated areas. Small communities are unable to support full-time physicians for many medical specialties, and the fixed costs of multi-million-dollar hospital equipment cannot be spread across so many patients. As only 24 percent of rural residents can reach a top trauma center within an hour, rural areas suffer 60 percent of America’s trauma deaths, despite having only 20 percent of the nation’s population.

During the 1990s, economic pressures forced 208 rural hospitals to close. As a result, Congress established the Flex program to boost Medicare payments to isolated rural hospitals. Facilities designated as Critical Access Hospitals under the Flex program were intended to be more than 35 miles by major road from other facilities, but states were allowed to waive that requirement. As a result, the number of such hospitals grew from 41 in 1999 to more than 1,300 in 2011 – covering a quarter of U.S. hospitals, before Congress eliminated the states’ waiver power. By that time, 800 facilities exceeding the 35-mile requirement had been designated as CAHs, and these were grandfathered in.

What makes CAH status so attractive to hospitals? Instead of being paid standard Medicare rates for services, CAHs are allowed to claim reimbursement for whatever costs they incur in the delivery of covered inpatient, outpatient, post-acute and laboratory services to Medicare beneficiaries. Medicare pays more to facilities with the most expensive cost structures and eliminates incentives to control expenses – encouraging all to increase spending on new infrastructure and equipment.

Eighty-one percent of CAHs now have MRI scanners, for which they bill Medicare an average of $633 per scan—double the normal fee schedule rates. From 1998 to 2003, payments per discharge for acute care at CAHs rose by 21 percent, while post-acute care costs per day almost quadrupled. This upward pressure on costs has compounded over time: The longer a hospital has been a CAH, the more its costs have grown.

To check the capacity of CAHs to inflate their overheads, Medicare rules limit them to 25 beds. This has transformed the rural hospital landscape. In 1997, 85 percent of rural hospitals had more than 25 beds; by 2004 only 55 percent did. This makes it very difficult for the best-managed and most cost-effective facilities to win market share and has eliminated whatever competitive forces may have constrained costs. Nonetheless, excess capacity remains enormous: occupancy rates were only 37 percent in small rural hospital in 2014, compared with 64 percent in urban hospitals. Insurers covering care at such facilities must pay for equipment that is often unused and skilled physicians who spend much of their time idle.

Medicare Advantage (MA) plans have been hit hardest by this arrangement. MA plans usually attract enrollees by providing supplemental benefits and reduced out-of-pocket costs, funded by preventing unnecessarily costly hospitalizations. But, as CAHs are able to claim unconstrained reimbursement for Medicare beneficiaries directly from the government, they have little reason to agree to reasonable fees with MA plans, who may constrain their claims or steer enrollees to cheaper sites of care. Even under relatively loose network adequacy requirements, MA plans can, therefore, be effectively locked out of states dominated by CAHs. While 56 percent of Medicare beneficiaries in Minnesota are enrolled in MA plans, only 3 percent of those in Wyoming and 1 percent in Alaska are covered.

Low volumes and the absence of competition have also resulted in a lower quality of care. CAHs are more poorly-equipped than other hospitals, fall short on standard processes of care and have higher 30-day mortality rates for critical conditions. As a result, patients are increasingly willing to travel longer distance for treatments, with rural residents receiving 48 percent of elective care beyond their local providers. This bypass of rural provider networks is particularly common for surgeries on eye, musculoskeletal and digestive systems and for complex procedures more generally.

Although CAH status gives each hospital an average additional $500,000 of revenues, falling volumes of inpatient procedures and the increased costs entailed by this arrangement nonetheless leaves many facilities struggling. According to the National Rural Health Association, 55 rural hospitals closed between 2010 and 2015, while 283 were on brink of closure.

Can the $2 billion total annual cost of additional hospital subsidies provided by the Medicare Flex program not be better spent to support essential care in rural areas?

MedPAC, the agency established by Congress to advise it on Medicare payment policy, has argued that CAHs are “not the best solution”, as “many small towns do not have the population to support efficient, high-quality inpatient services.” MedPAC has proposed that Congress provide lump-sum payments to cover the overheads needed to provide 24/7 emergency care at geographically isolated outpatient-only facilities and suggested that Medicare reimbursement be extended to care provided by standalone emergency departments.

This would focus subsidies to secure emergency services, which must be delivered locally, while leaving elective care to be located efficiently according to market demand. Such a reform would give emergency rural hospital care a firmer financial foundation while restoring payment rules for elective care that would make it possible for insurers to re-enter the rural marketplace.

The Secret of Success for Independent and Thriving Hospitals?

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Consolidation remains a major trend in the healthcare industry, especially among hospitals. In 2016, there were 102 announced partnership and transaction deals, compared to 66 in 2010, according to a Kaufman, Hall & Associates analysis. In the current climate of declining reimbursements and greater emphasis on value-based care, many hospital executives see mergers as a necessary way of reigning in costs and benefiting from economies of scale. Yet, a significant number of acute care hospitals remain independent and even thrive. A recent article highlighted Marin General Hospital, which separated from Sutter in 2008 but has performed well enough on its own to fund construction of a new $400 million replacement hospital. What do high-performing independent hospitals have in common? An analysis of Definitive Healthcare data suggests independent hospitals with consistently strong operating margins have limited competition from other facilities, high discharge volumes, and a greater proportion of private payers.

Under the analysis, a high-performing hospital was classified as a facility with a median operating margin of at least four percent during a five-year period from 2011 to 2015, as four percent is often cited as the traditional minimum necessary for a hospital to be able to raise capital effectively. 143 out of around 1,450 independent hospitals met this condition, according to Definitive Healthcare data. Of them, 67 were non-profit, 56 were proprietary (for-profit) companies, and 30 were government owned.

A favorable payor mix and higher-than-average discharge volume appear to be the most common characteristics among the selected hospitals. The median payor mix for independent hospitals was 38 percent private/other, 6 percent Medicaid, and 51 percent Medicare, compared to 50 percent private, 6 percent Medicaid, and 41 percent Medicare at hospitals with median margins over four percent. The greater percentage of private payors means higher reimbursement rates per procedure and can reflect the presence of a more affluent patient base. The larger volume of discharges compared to the overall median, 1,662 to 792, also helps explain their higher margins. Despite the trend towards outpatient treatment, inpatient care is still necessary and tends to be more profitable for hospitals. Some facilities actually witnessed discharge increases from 2011 to 2015, possibly indicating a growing area population, but they were the minority and the trend did not always coincide with a stable operating margin.

Geography also appears to be an important factor. Isolated hospitals with limited competition have a natural advantage, being the only source of inpatient care within the immediate area. Some independent critical access hospitals, which by definition are geographically isolated, do have strong margins, but so do many regular acute care hospitals. Of the top 10 non-critical access facilities by median operating margin, eight are located at least 15 miles from the next-closest hospital, making them the primary destinations in terms of convenience and emergency care for local residents.

The company status of independent hospitals is also associated with high profitability. While proprietary hospitals constituted only around 10 percent of all independent hospitals, they were 37 percent of all those with median margins over four percent. In addition, they tended to have the highest margins overall. Of the top 30 hospitals by median margin, only three identified as non-profits or government-owned hospitals. Nearly all were specialty hospitals, which are generally more profitable than acute-care hospitals as they usually have more favorable payor mixes and focus on a single high-margin specialty, such as surgery or orthopedics. Non-profits came next, while government-owned facilities were the least likely to have strong margins. Of course, the margin of a government-owned hospital is less significant due to its ability to leverage tax revenues to support operations.

While financially strong independent hospitals appear to benefit largely from circumstances beyond their control, such as patient income, insignificant competition, and fundamental organizational structure, they are not a guarantee of success. Previous research, such as that here, has identified other characteristics that are equally if not more critical to an independent hospitals’ fortunes. Among them are strong business and clinical planning, high levels of cooperation with both local providers and national institutions (such as those covering specialty consults and clinical trials access), and capable leadership. Obviously, such qualities are easier described than achieved, but if attained, could be enough to create a strong, thriving hospital even in spite of unfavorable geography, payor mixes, or organization type.

Pennsylvania Rural Health Model to use global capitation to pay for inpatient, outpatient care

Building on all-payer models in Maryland and Vermont, the Centers for Medicare and Medicaid Services this week announced a new global capitation model for rural hospitals in Pennsylvania.

Participating critical access hospitals and acute care hospitals will receive all-payer global budgets for a fixed amount of money that is set in advance and funded by all participating insurers, to cover inpatient and outpatient services, CMS said.

In addition, other commercial health plan payers in the state are eligible to participate by paying participating rural hospitals through global budgets.

“Rural hospitals will use this predictable funding to deliberately redesign the care they deliver to improve quality and meet the health needs of their local communities,” CMS said.

CMS is giving Pennsylvania $25 million, which is a portion of the funding, to begin implementing the Pennsylvania Rural Health Model.

The Pennsylvania Department of Health and CMS will jointly administer the model. The state will be responsible for data analytics, quality assurance, and technical assistance.

The model seeks to increase rural Pennsylvanians’ access to care while also reducing the growth of hospital expenditures across payers, including Medicare, to increase the financial viability of the state’s rural hospitals, CMS said.

“The Pennsylvania Rural Health Model presents a historic opportunity for rural hospitals,” said Patrick Conway, MD, CMS principal deputy administrator and chief medical officer. “The model will help rural hospitals remain financially viable and continue to provide essential services to the people in their communities.”

The Pennsylvania Rural Health Model was done in agreement with the state and signed by Governor Tom Wolf and Pennsylvania Secretary of Health Karen Murphy.

Halting 340B funding would force 73% of hospitals to cut staff, study finds


Click to access may-2015-report-to-the-congress-overview-of-the-340b-drug-pricing-program.pdf

The 340B Drug Pricing Program allows certain hospitals and other health care providers (“covered entities”) to obtain discounted prices on “covered outpatient drugs” (prescription drugs and biologics other than vaccines) from drug manufacturers. Manufacturers must offer 340B discounts to covered entities to have their drugs covered under Medicaid. The discounts are substantial. The Health Resources and Services Administration (HRSA), which manages the program, estimates that covered entities saved $3.8 billion on outpatient drugs through the program in fiscal year 2013. The 340B program has grown substantially during the past decade. Covered entities and their affiliated sites spent over $7 billion to purchase 340B drugs in 2013, three times the amount spent in 2005. The number of hospital organizations (a single organization includes a hospital and all of its eligible affiliated sites) participating in 340B grew from 583 in 2005 to 1,365 in 2010 and to 2,140 in 2014. The increase from 2010 to 2014 was driven by growth in the number of CAHs and other types of hospitals that became eligible for 340B in 2010 through the Patient Protection and Affordable Care Act of 2010 (PPACA). In 2014, about 45 percent of all Medicare acute care hospitals—including CAHs—participated in the 340B program.

Rural healthcare providers grill Congress over Medicare regulations

Chairman Kevin Brady, R-Texas, speaks at the Ways and Means Subcommittee hearing on rural health.

Providers asked for support of the Medical Relief Act, legislation that would end the 96-hour rule.