This week’s In Focus centers on the U.S. Department of Health and Human Services (HHS) August 29, 2023, announcement of the first 10 prescription medications that will be subject to price negotiation for Medicare coverage. This week, Health Management Association (HMA) experts offer their perspective on what this change means and what to expect next.

Background

Medicare was granted the authority to negotiate prescription drug prices through the Inflation Reduction Act (IRA), which the president signed into law on August 16, 2022. HHS, acting through the Centers for Medicare & Medicaid Services (CMS), will lead negotiations and enter into agreements with manufacturers for these products, negotiating a maximum fair price (MFP) for each selected drug in the Medicare program. HHS is required to negotiate on a certain number of drugs each year: 10 drugs in 2026, 15 drugs in 2027 and 2028, and 20 drugs in 2029 and subsequent years. Up to 60 drugs could be negotiated by 2029. Manufacturers that are noncompliant will face an excise tax that could far exceed the cost of drugs sold over time and civil monetary penalties.

Medicare Drug Negotiations: The Latest Development

Since passage of the IRA, CMS has been working to establish the regulatory infrastructure and policies to support implementation of Medicare’s new drug price negotiation authority on an expedited timeline. Guidance on the approach the agency will take in negotiating MFPs, along with other provisions of the act, has been issued.

With this week’s action, CMS will begin the first round of negotiations. Table 1 lists the drugs CMS has identified for the first round of negotiations. Products selected for negotiation (with prices effective in 2026) are medications that represent the highest spending in the Part D drug benefit, excluding products with generic or biosimilar competition as well as certain orphan drugs and other products that qualify for a small biotechnology exemption.

Alongside CMS’s announcement, HHS’s Office of the Assistant Secretary for Planning and Evaluation (ASPE) released its analysis of prescription drug use and out-of-pocket spending for each of the 10 drugs for all Part D enrollees and separately by whether an enrollee receives the low-income subsidy (LIS). The report also examines demographic information about enrollees who use the selected products.

Takeaways

The products selected were largely in line with initial modeling that Moran Company analysts and others performed, but with some surprises. Variation from earlier projections could be expected for a number of reasons, including:

• The June 2022−May 2023 data CMS used were not generally available to outside analysts, and it is clear that several products had spending increases (whether because of volume or price increases) relative to prior years that moved them up the list.
• Some higher spending products have seen generic or biosimilar competitors launch, making them ineligible for selection for negotiation.
  • For the top 30 products identified in previous dashboard data, at least 10 have evidence of generic or biosimilar competition.
• CMS’s decision to treat multiple products together for purposes of negotiations also affected the products included on the list.
• For a few other products, it is still unclear how CMS decisions were made.

What to Expect Next

The drug negotiation policy is highly controversial and is the subject of litigation that could delay the process. If litigation does not affect the timeline for implementation, manufacturers of selected drugs have until October 1 to agree to negotiate and provide initial information to CMS. If a manufacturer opts out of the negotiations, the company must pay either an excise tax or withdraw all its products from the Medicare and Medicaid programs. CMS and participating companies will then meet to discuss manufacturer submissions, and CMS will receive information from other stakeholders. Several listening sessions will take place.

CMS will make initial price offers by February 1, 2024. After a counteroffer process, negotiations may continue into the summer of 2024, but final determinations will be made by August 1, 2024. CMS plans to publish any agreed-upon negotiated prices for the selected drugs by September 1, 2024. Those prices take effect starting January 1, 2026.

In addition to the short-term impact on prices for specific drugs, several questions about the potential effects of the policy are worth monitoring over the long-term:

• How will research and development of new products and trends in the type of products prioritized change as a result of these policies?
• How will the policies affect pricing for competitor products and the launch prices of products in the future?
• Beyond the Medicare population, for whom the prices are directly applicable, how will MFPs affect negotiations on costs and supplemental rebates for other payers. including state Medicaid programs, state employee programs, drug purchasing pools, and commercial insurers?
• Will negotiations affect the design of standalone Prescription Drug Plans (PDPs) and Medicare Advantage PDPs.

The IRA included several other changes to the Medicare program, which we discussed in a previous In Focus.

In this week’s In Focus, we continue our review of Medicare developments from this summer and look ahead at Centers for Medicare & Medicaid Services (CMS) activities to watch for this fall.

CMS ACO Strategy Update

In a July 31, 2023, Health Affairs Forefront blog, CMS leaders outlined the agency’s plan to further accelerate the growth and accessibility of accountable care organizations (ACOs), especially for beneficiaries in rural and underserved areas. The article signals the agency’s continued commitment to increasing participation in ACOs and future policy and model initiatives that CMS could undertake to achieve those goals.

In particular, the CMS Innovation Center is considering testing models and features to support Medicare Shared Savings Program (MSSP) ACOs in increasing investments in primary care. This initiative might include piloting ACO-based primary care models that provide prospective payments in an effort to reduce reliance on fee-for-service (FFS), support innovations in care delivery, and increase access to advanced primary care in underserved communities.

CMS leaders point to a second component of its ACO strategy in the calendar year (CY) 2024 proposed Medicare Physician Fee Schedule (PFS) rule. The proposed PFS includes technical updates to the Advance Investment Payment (AIP), which provides financial support for providers who participate in the MSSP. The proposed PFS rule also includes several opportunities for the public to inform CMS’s ongoing ACO work, including considerations for adding higher-risk participation options in the MSSP, ways to better support collaboration between ACOs and community-based organizations to meet health-related social needs, and other initiatives. HMA discussed the PFS changes in an earlier In Focus.

CMS also announced refinements to the ACO Realizing Equity, Access, and Community Health (REACH) Model on August 18. The agency’s three goals in making these changes are to:

• Increase predictability for model participants (e.g., policies to change certain beneficiary alignment requirements and refinements to eligibility criteria for high-need ACOs
• Protect against inappropriate risk score growth (e.g., revisions to the risk-adjustment methodology)
• Advance health equity (e.g., revisions and expansions to the health equity benchmark adjustment)

These topics are of importance to CMS across its model portfolio and are, in part, based on experience the agency has gained in running the ACO REACH model. Below is a summary of several key policy changes that will take effect in 2024. The entire list can be found on the CMS website.

Finally, CMS released the request for applications (RFA) for the Innovation Center’s Making Care Primary (MCP) model previously announced in June. This voluntary model is scheduled to begin in June 2024 and run for 10.5 years. It will have three participation tracks that build upon previous Innovation Center primary care initiatives.

The MCP model is designed to improve care for beneficiaries by supporting the delivery of advanced primary care services. This framework provides a pathway for primary care clinicians who have varying levels of experience with value-based care to gradually adopt prospective, population-based payments while building the infrastructure to improve behavioral health and specialty integration and drive more equitable access to care. CMS is working with Medicaid agencies in eight states—Colorado, North Carolina, New Jersey, New Mexico, New York, Minnesota, Massachusetts, and Washington—to engage in full care transformation across payers, with plans to engage private payers in the coming months.

The RFA provides additional details about the model’s payment, care delivery, quality, and other policies. The application period opens September 4, 2023, and closes November 30, 2023. CMS plans to select participants in winter 2024. Onboarding for participants will take place April−July 2024.

The HMA team continues to review the RFA and is available to assist clients in determining whether this model may be a good fit as well as with assistance in submitting the application.

What to Watch

Comments on the Medicare CY payment rules (home health, end stage renal disease, physician, and outpatient hospital) are due in early fall. CMS will review the comments on each of the proposals and finalize each rule by November 1. Some stakeholders, such as physicians and home health suppliers, may seek congressional action to mitigate payment cuts that CMS has proposed.

In addition, CMS is expected to continue implementing the drug pricing related provisions of the Inflation Reduction Act (IRA). The agency already has released several guidance documents about the process. The list of the first 10 drugs to be negotiated is due to be published September 1, 2023, and manufacturers of selected drugs will have one month to sign agreements to participate in negotiations and provide information for CMS’s consideration in the negotiation process.

The HMA team will continue to evaluate Innovation Center opportunities, CMS payment regulations, and IRA implementation. If you have questions about these topics, contact Amy Bassano ([email protected]), Kevin Kirby ([email protected]), or Andrea Maresca ([email protected]).

This week, our In Focus section continues analysis and insights from Health Management Associates (HMA) and its affiliate The Moran Company on recent Medicare payment and policy developments. Today, we review the policy changes that the Centers for Medicare & Medicaid Services (CMS) released August 1, 2023, for the fiscal year (FY) 2024 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) final rule (CMS-1788-F).

This year’s IPPS final rule includes several important policy changes that will alter hospital margins and change administrative procedures beginning October 1, 2023. More specifically, the IPPS rule increases payments to hospitals, enhances the wage index policy for rural hospitals, reduces Medicare disproportionate share payments, and modifies the New Technology Add-on Payment (NTAP) program.

Key provisions of the FY 2024 Hospital IPPS and LTCH Final Rule

We highlight four policies that will significantly affect Medicare beneficiaries, hospitals, health systems, payers, and manufacturers:

1. The annual inpatient payment update
2. Medicare disproportionate share hospital (DSH) payments
3. Hospital wage index adjustments
4. NTAP policy changes

Hospital market basket update and the inpatient standardized amount

CMS’s Medicare 2024 IPPS final rule will increase payments to acute care hospitals by an estimated $2.2 billion from 2023. The primary driver of this increase is CMS’s 3.1 percent increase in the annual update to inpatient operating payment rates. The update is the sum of the hospital market basket update of 3.3 percent and a statutorily required 0.2 percentage point reduction for productivity growth.

HMA/Moran analysis: Between the time CMS released the 2024 proposed IPPS rule and the final rule, the inpatient payment update for 2024 increased to 3.1 percent from 2.8 percent. This spike occurred because of the effects of an increase in estimated inflation on the cost of a standard basket of hospital goods (hospital market basket) throughout 2022 and 2023. Although economy-wide inflation slowed in mid-2023, inflation was higher in late 2022 and early 2023—the period in which the market basket is measured for the final rule.

For beneficiaries, increasing payment rates eventually will lead to a higher Medicare inpatient deductible and greater out-of-pocket costs for many other services. For hospitals and healthcare systems, payers, and manufacturers, a payment increase of 3.1 percent falls below economy-wide inflation (5−6 percent in recent months).

Despite the publicized 3.1 percent payment update for 2024, after factoring in various policy adjustments the actual change between 2023 and 2024 to inpatient payments per case will be roughly 2 percent. The primary reason per-case payments will increase only 2 percent is a budget-neutrality adjustment that CMS finalized for 2024 to account for hospital wage index reclassifications. This adjustment will reduce payments to all hospitals by more than 1 percent to neutralize the added program spending associated with payments to hospitals that choose to reclassify into higher paying wage index areas. The final rule states, “[T]he geographic reclassification budget neutrality adjustment is significantly larger than in prior years.”

Medicare Disproportionate Share Hospital Payments

CMS finalized two Medicare disproportionate share hospital (DSH)-related policies for 2024. First, DSH payments and Medicare uncompensated care payments combined will decrease in FY 2024 by approximately $957 million. Second, CMS finalized its proposal to limit the number of patient days included in the Medicare DSH calculation to only those days when the patient’s Medicaid Section 1115 Demonstration health insurance covers inpatient hospital services or the patient’s premium assistance program covers 100 percent of the premium cost for patients who buy health insurance that covers inpatient hospital services, if the patient is ineligible for Medicare Part A.

HMA/Moran analysis: CMS’s $957 million reduction in DSH and uncompensated care payments stems from the agency’s estimate of the percentage of individuals without insurance in the United States. Between the 2024 proposed and final rules, CMS estimates the percentage of individuals without insurance will decline from 9.3 percent to 7.7 percent in 2023 and from 9.2 percent to 8.5 percent in 2024. As a result, the pool of uncompensated care dollars available to hospitals for 2024 was reduced from roughly $6.7 billion to $5.9 billion.

CMS’s estimated decline in the rate of uninsured beneficiaries is somewhat surprising given the common projection that Medicaid enrollment will drop following the end of Medicaid’s COVID-19 related continuous coverage policy. However, HMA/Moran colleagues believe state-level Medicaid enrollment changes will vary in the year ahead. Consequently, hospitals located in states where levels of Medicaid enrollment are sustained will benefit from CMS’s uninsured rate estimates and hospitals in states where Medicaid enrollment drops will not.

With regard to the Section 1115 demonstration related DSH policy, hospitals located in states that have not expanded Medicaid under the Accountable Care Act and instead rely on Section 1115 Demonstrations to expand health coverage, are likely to receive lower DSH payments. In addition to the Medicare DSH payment adjustments, reductions in the Medicaid DSH program are scheduled to begin October 1, 2023. The $8 billion reduction in FY 2024 is the first time CMS has planned to make cuts in the program.

Hospital Wage Index Adjustments

CMS finalized two wage index policies for FY 2024. First, CMS will extend the low-wage index hospital policy, which boosts the wage index of hospitals in geographic areas with low wages relative to other areas. Second, CMS finalized a policy to begin including labor data from urban hospitals that choose to reclassify as providers in rural areas to maximize their payment into the calculation of rural wage index areas.

HMA/Moran analysis: These two wage index policies for FY 2024 will increase payment to rural hospitals. Under the first policy, hospitals with wage indexes below 0.8667 (the 25^th percentile across all hospitals) will automatically receive an increase in their wage index and therefore their payment rates for inpatient cases. Under the second policy, the inclusion of labor data for geographically urban hospitals that choose to reclassify into rural wage index areas within the calculation of state-level rural wage indexes and the state-level rural floor will increase payments to rural hospitals in many states. The overall impact of both proposed wage index policy changes for FY 2024 will be an increase in inpatient payment rates for rural hospitals.

New Technology Add-On Payments (NTAP)

Citing the increased number of applications for NTAP over the past several years and noting the need for CMS staff to have time to review and analyze the applications, CMS finalized two changes to the NTAP application requirements. First, CMS will require that all applicants have a complete and active U.S. Food and Drug Administration (FDA) market authorization request in place at the time of NTAP application submission, if not already FDA approved. The FDA’s acceptance letter will serve as proof of a full and complete application. In addition, CMS proposes to move the FDA approval deadline from July 1 to May 1, beginning with applications for FY 2025.

HMA/Moran analysis: The stated aim of these CMS policy changes is to “increase transparency, facilitate public input, and improve the review process.” As a result of these modifications, products will need to be on the market longer before the NTAP payment begins, and fewer products will be eligible for the three full years of NTAP payments. Taken together, hospitals will have a shorter NTAP payment window for most products. The further tightening of FDA application and approval requirements runs counter to the efforts of various stakeholders to establish more flexible or additional NTAP application windows.

HMA and The Moran Company collaborate to monitor legislative and regulatory developments in the inpatient hospital space and assess the impact of inpatient policy changes on the hospital sector. HMA’s Medicare experts interpret and model inpatient policy proposals and use these analyses to help clients develop their strategic plans and their comments on proposed regulations. Moran replicates the methodologies CMS uses in setting hospital payments and models alternative payment policies to help support stakeholder comment letters and strategies. Moran also assists clients with modeling diagnosis-related group reassignment requests and to support innovative NTAP applications.

For more information or questions about the policies described above, contact Zach Gaumer ([email protected]), Amy Bassano ([email protected]), Clare Mamerow ([email protected]), or Kevin Kirby ([email protected]).

This week, our In Focus section is the second in a summer series of analysis and insights from Health Management Associates (HMA) on recent Medicare payment and policy developments. This week we dig deeper into the potential changes to the Medicare Shared Savings Program (MSSP) that were included in the 2024 Medicare Physician Fee Schedule proposed rule released earlier this month. Specifically, we highlight the impact these modifications could have on financial and operational decisions across the healthcare industry.

The proposed rule builds on the changes CMS finalized last year with the goal of increasing participation in the MSSP. The recommended changes are designed to appeal to more clinicians who treat a high proportion of underserved individuals. CMS estimates that the proposal will increase participation in MSSP by 10−20 percent. These changes are technical in nature and include:

• Expanding the physician lookback window for beneficiary assignment (also known as the pre-step) for primary care service to 24 months from 12 months
• Adding a third step to the claims-based beneficiary assignment methodology to recognize the role of nurse practitioners (NPs), physician assistants (PAs), and clinical nurse specialists (CNSs) in delivering primary care services
• Modifying the definition of “assignable beneficiary” to reflect the changes above

The overall impact of these modifications, which augment the existing methodology, is to increase the number of beneficiaries assigned to accountable care organizations (ACOs) under MSSP. More assignable beneficiaries could mean:

• More ACOs will meet minimum beneficiary requirements.
• Changes in assignable population may affect the hierarchical condition category (HCC) risk scores for the national assignable population, as well as the factors used to normalize risk scores and other risk adjustments.
• Changes in population distribution within regions that result in adjustments to ACO market share, benchmark trends, and update factors.

For ACOs participating in multiple programs, expanded assignment rules for MSSP, combined with the MSSP superseding other programs in assignment, may have downstream effects on programs in terms of assignment and performance.

Following is a more detailed explanation of the proposed changes.

24-Month Lookback for Primary Care Services

Extending the lookback for primary care services with a physician to 24 months from 12 will allow providers to capture additional primary care services codes related to the COVID-19 public health emergency (PHE) for benchmark and performance years. If the assignment window for a benchmark or performance year includes any month(s) during the PHE, then the additional primary care services codes must apply to all months in that window.

Three-Step Assignment Process

CMS plans to update its current two-step claims-based beneficiary assignment process to a three-step process, which would be effective for performance years beginning January 1, 2025. The proposed third step only would apply to beneficiaries who do not meet the pre-step requirement contingent upon whether they received at least one primary care service during the expanded window for assignment from an ACO-participating primary care or specialist physician or received at least one primary care service from a non-physician ACO healthcare professional during the 12-month assignment window.

Assignable Beneficiary Definition

The proposed rule includes updates to the definition of an assignable beneficiary to reflect the expanded 24-month lookback window for assignment and the new third step of a primary care service within the 12-month assignment window from a non-physician ACO professional (i.e., NP, PA, CNS).

The table below compares the current and proposed assignment processes.

Comparison of the Two- and Three-Step Processes

Financial Considerations

The proposed rule outlines that the expenditure lookback will remain 12 months. With a 24-month primary care service window and a 12-month expenditure lookback, ACO revenues could change. As a result, minimum savings rates could drop and the per-member per-month amount might change. In addition, the extended lookback could affect the regional average risk-adjusted spending, expenditure thresholds, and more.

Enhanced MSSP Track

CMS is seeking comment on a new track in MSSP with a higher level of risk and potential reward (e.g., somewhere between 80−100 percent). The purpose of the new MSSP track is to encourage ACOs that would not have otherwise participated in MSSP because of limitations on upside rewards. Higher potential rewards may also incentivize ACOs to develop new strategies, focus on specialty care integration, and reduce healthcare fragmentation to achieve savings.

CMS is seeking comment on the following:

• Policy/model design elements that could be implemented so that CMS could offer a higher risk track without increasing program expenditures
• Approaches to protect ACOs that serve high-risk beneficiaries from expenditure outliers and reduce incentives for ACOs to avoid high-risk beneficiaries
• The impact that higher risk sharing could have on care delivery redesign, specialty integration, and ACO investment in healthcare providers and practices

The HMA Medicare and value-based care experts will continue to analyze these proposals alongside other policy and reimbursement changes that affect Medicare providers. We have the depth and breadth of expertise to assist with tailored analysis, to model policy impacts, and to support clients that intend to draft comment letters on this proposed rule. For more information or questions about these policies and other changes in the 2024 Medicare physician fee schedule proposed rule, contact Amy Bassano ([email protected]), Andrea Maresca ([email protected]), and Melissa Mannon ([email protected]).

This week’s In Focus section is the first in a summer series of analysis and insights from Health Management Associates (HMA) on recent Medicare payment and policy developments. Our series kicks off with a big-picture take on the slew of regulations the Centers for Medicare & Medicaid Services (CMS) has released over the past two weeks. In future posts, we will dig deeper into several of the planned changes to highlight their potential impact on financial and operational decisions across the healthcare industry.

In July, CMS published three significant proposed Medicare rules for calendar year (CY) 2024: the Physician Fee Schedule (PFS) Proposed Rule, which includes proposed changes to the Medicare Shared Savings Program (MSSP); a proposed remedy to 340B-acquired drug payment policy for CY 2018−2022; and the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System (OPPS-ASC) Proposed Rule. Comments on these proposals are due to CMS in early September.

HMA’s experts note several trends across these three Medicare payment regulations:

• Health equity remains a significant focus of CMS and the Biden Administration.
• The agency is expanding its coverage of behavioral health services under Medicare and enhancing payment and access for these services.
• The long-term focus of CMS continues to be the transition toward value-based care.
• Medicare is incrementally moving toward supporting care that is delivered where and how Medicare beneficiaries prefer, for example moving away from reimbursing largely for face-to-face services and supporting reimbursement for telehealth services in more situations.
• CMS is creating pathways for reimbursement for a broader range of clinicians and caregivers who are addressing Medicare beneficiaries’ care needs.
• CMS continues its efforts to improve hospital price transparency with policies aimed at encouraging providers to publicly report data.

Medicare policy experts at HMA and is affiliate, The Moran Company, summarize details on these regulations below. These colleagues work collaboratively to monitor legislative and regulatory developments in the physician, 340B, and outpatient and ASC policy arenas and to assess the impact of changes in these reimbursement systems. HMA’s Medicare experts interpret and model policy proposals and use these analyses to assist clients in developing their strategic plans and comment on proposed regulations. Moran annually replicates the methodologies CMS uses to set payments and recommends alternative payment policies to help support its clients’ comments on various rules and to help clients understand the impact of specific policies. In addition, HMA’s other partner companies, including Wakely and Leavitt Partners, are monitoring these issues from their unique perspectives.

For more information or questions about the policies described below, please contact Amy Bassano ([email protected]), Zach Gaumer ([email protected]), Andrea Maresca ([email protected]), Kevin Kirby ([email protected]), or Rachel Kramer ([email protected]).

Medicare Physician Fee Schedule Proposed Rule (CY 2024)

The Medicare PFS establishes payments and policies for physicians and other healthcare professionals. By statute, PFS payment rates will decline by 1.25 percent from CY 2023 to 2024. However, when coupled with budget neutrality adjustments for other policy changes, the proposed PFS conversion factor will decline by 3.34 percent. The impact of this reduction will vary by physician specialty.

Behavioral Health Services: CMS implements provisions in the Consolidated Appropriations Act (CAA), 2023, which would allow Medicare coverage and payment for the services of marriage and family therapists (MFTs) and mental health counselors (MHCs). CMS proposes to classify addiction counselors who meet certain requirements as MHCs. The rule outlines how these practitioners can enroll in Medicare and bill for services starting January 1, 2024. CMS is establishing new codes and payment for psychotherapy for crisis services and proposed refinements to Health and Behavior Assessment/Intervention codes to allow additional practitioners to bill for these services and to increase the valuations of timed behavioral health services. CMS seeks comment on ways to expand access to behavioral health services. CMS specifically is looking for information on digital therapies, remote physiologic monitoring, and remote therapeutic monitoring services.

Evaluation and Management (E/M) Office Visit Services: CMS proposed to implement separate payment for an add-on billing code to account for the additional resources associated with primary care or ongoing care related to a patient’s single serious or complex chronic condition. This complexity-based add-on code may be reported with all office and outpatient (O/O) and evaluation and management (E/M) visit level codes, and CMS estimates it will be reported for 38 percent of all O/O E/M visits initially. This estimate contributes to a significant portion of the relative value unit (RVU) budget-neutrality adjustment applied to the conversion factor. CMS also requests comments on evaluating E/M services more regularly and comprehensively including ways to improve data collection and methodologies to establish more timely improvements and accurate payments for E/M and other services.

Telehealth: CMS proposes several additions to the list of covered telehealth services and implements the various telehealth provisions included in CAA 2023, such as allowing the patient’s home to serve as an originating site. This provision would expand the scope of permitted telehealth providers and allow rural health clinics and federally qualified health centers (FQHCs) to provide telehealth services until December 31, 2024. In addition, CMS proposes opportunities for teaching physicians and medical residents to continue to use telehealth services to meet the supervision requirements via telehealth.

Caregiver Training Services: CMS proposed a new payment for practitioners who train caregivers to implement a treatment plan and support patients with diseases like dementia.

Payment for Community Health Integration, Social Determinants of Health (SDOH) Risk Assessment, and Principal Illness Navigation Provided by Social Workers, Community Health Workers, Care Navigators, and Peer Support Specialists: CMS is establishing opportunities for these services to be paid separately and account for the specific resources necessary to provide these services.

Dental Services: Although Medicare generally is prohibited from paying for dental services, CMS proposed to pay for certain dental services related to the treatment of head and neck cancers and when linked to other covered services used to treat cancer.

Discarded Drugs: The proposed rule continues the implementation process for a statutory requirement that drug and biological manufacturers refund amounts paid for discarded single-use prescription drug vials. CMS provides the list of products for which refunds would have been due in 2021, and the number of products included is expected to increase over time.

340B and Outpatient Offset Proposed Rule

In the 340B proposed rule, CMS proposed retrospective payments to 340B hospitals for incorrect payments made in CYs 2018−2022. After extensive litigation and a Supreme Court ruling, CMS will return to paying 340B hospitals for drugs using the formula of the average sales price (ASP) +6 percent, rather than the formula of the ASP −22.5 percent. In this proposed rule, CMS proposes to correct past underpayments to 340B hospitals by making lump sum payments to affected 340B hospitals. These retrospective payments are estimated to amount to $9 billion, and we anticipate payments will be made to hospitals at the beginning of CY 2024.

In addition, CMS proposed a corresponding prospectively budget neutrality offset to the 340B spending increase that will reduce hospital outpatient payments for non-drug outpatient services by 0.5 percent each year beginning in 2025. Specifically, CMS proposes to maintain this reduction until $7.8 billion in spending has been offset, which it estimates will take 16 years. The impact of this policy on the hospital industry will be significant and will create groups of winners and losers. Winners will include 340B hospitals, despite the fact that the outpatient offset will also affect their payment rates. Losers will include non-340B hospitals, particularly if their service mix is heavily focused on outpatient surgical services. Overall, the industry will observe a reduction in outpatient spending of roughly $300 million to $600 million per year for each of the 16 years the policy is in place.

Hospital Outpatient Proposed Rule (CY 2024)

Under the OPPS proposed rule, CMS would update payments for outpatient and ASC services by 2.8 percent in CY 2024 from CY 2023. This change will increase payments for hospital outpatient services by $1.9 billion and for ASC services by $170 million. In addition, if the 340B proposal is finalized, the 0.5 percent payment offset would not reduce CY 2024 OPPS payment rates but would begin reducing outpatient payments in CY 2025.

Behavioral Health: CMS proposes to establish the Intensive Outpatient Program (IOP) for behavioral health services provided to Medicare beneficiaries. The IOP proposal addresses one of the main gaps in behavioral health coverage in Medicare and promotes access to related services. CMS will define IOP as a distinct outpatient program of psychiatric services provided to individuals with acute mental illness or substance use disorder. Services could be provided at hospital outpatient departments, community mental health centers, FQHCs, and RHCs. Further, the agency proposed to establish two IOP service codes for each provider type—one for days with three services per day and another with four or more services per day.

Price Transparency: CMS proposes to increase the rigidity of its price transparency reporting program in an effort to improve hospital industry compliance with the reporting of hospital charge data to the public.

The HMA Medicare team and Moran Company reimbursement experts will continue to analyze these proposal alongside other policy and reimbursement changes that affect Medicare providers. We have the depth and breadth of expertise to assist with tailored analysis, to model policy impacts, and to support clients that intend to draft comment letters on this proposed rule.