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340B cuts sting struggling hospitals, hurt credit ratings, S&P says

Program is a crucial part of operations for hospitals that serve vulnerable populations because it offsets the high costs medications.

Beth Jones Sanborn, Managing Editor

Massive cuts to the 340B Drug Pricing Program could severely weaken, even cripple the already-struggling nonprofit hospitals who relied on savings gleaned from it, said a recent report from S&P Global Ratings.

The $1.6 billion cut could weaken their operating performance, potentially leading to negative rating actions if hospital-specific funding cuts aren't buffered by other management actions. 

The program is a crucial part of operations for hospitals that serve vulnerable populations because it offsets the high costs of medications, including cancer drugs, that come with low reimbursement rates for Medicaid and uninsured patients. The government or commercial insurance reimburses the discounted medication's full price and the provider retains the difference. CMS slashed the reimbursement rate for 340B medications paid under
Medicare Part B to average sales price minus 22 percent from plus 6 percent, leading to the $1.6 billion cut.

There are few exceptions to the cut including rural sole community hospitals, children's hospitals and Outpatient Prospective-exempt cancer hospitals.

Larger hospitals might not be affected as much or at all by the cuts, which amount to less in the grand financial scheme of things. However, small hospitals, rural hospitals, and DSH hospitals are much more dependent on the program and the savings it brings. The cuts will likely further strain already tenuous operating performance and potentially give way to negative credit rating actions. The impact to federally qualified health centers could also drive a bit of a snowball effect.

"They will serve fewer patients, which in turn would add to the burdens on some hospitals because patients without options tend to seek treatment from hospital emergency rooms or clinics. Federally qualified health centers include public housing primary care clinics, homeless clinics, HIV clinics, and some cancer centers," the report said.

A number of groups including the Association of American Medical Colleges, America's Essential Hospitals and some health systems sued the federal government to stop the cut's implementation, which proved unsuccessful. However, an appeal could be possible. A federal appellate court is weighing revisiting that decision, as judges may be questioning whether HHS was within its own authority and whether the cuts were implemented properly, the report said.

Twitter: @BethJSanborn
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