Dear Administrator Oz,
Paragon Health Institute appreciates the opportunity to comment on the Centers for Medicare & Medicaid Services (CMS) proposed rule CMS-1850-P, RIN 0938-AV83, titled “Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems; and Quality Reporting Programs; Including the Hospital Outpatient Quality Reporting Program and Ambulatory Surgical Center Quality Program; Request for Information on Strengthening the Standardization and Comparability of Hospital Price Transparency (HPT) Data; Prior Authorization; Accrediting Organization (AO) Deeming for Emergency Medical Treatment and Labor Act (EMTALA); and Notice of Closure of a Teaching Hospital and Opportunity To Apply for Available Slots.”
Paragon is a non-profit health policy research institute committed to reforming government programs and restoring Americans’ control over their health and health care. We believe empowering consumers, not increasing government control, is the key to lowering costs and improving health outcomes.
We write in strong support of the proposed rule’s provisions that would align Medicare payment for 340B-acquired drugs with hospitals’ actual acquisition costs, expand site-neutral payment policies, and strengthen program integrity through targeted prior authorization. Together, these provisions would reduce wasteful spending, diminish government-created incentives for consolidation, and produce meaningful savings for taxpayers and Medicare enrollees.
We also encourage CMS to continue building on its progress in reducing distortions in Medicare payment policy that unnecessarily favor higher-cost settings and encourage consolidation. CMS should use its existing authority as aggressively as possible to advance site-neutral payments and ensure that Medicare does not pay more for the same service simply because of where it is delivered.
340B Drug Payment Reform
We support CMS’s proposal to pay for 340B-acquired drugs at average sales price (ASP) minus 33.4 percent based on the results of the hospital acquisition cost survey the agency conducted earlier this year. We strongly urge CMS not to adopt the alternative rate of ASP minus 28 percent; the proposed 33.4 percent reduction is derived from valid, newly collected hospital acquisition data and represents the most accurate market reality.
Medicare Part B typically reimburses providers for physician administered drugs at ASP plus 6 percent, a formula intended to approximate acquisition cost plus the overhead related to stocking and administering the drug. Because 340B discounts typically range from 22.5 to 50 percent off ASP, that payment substantially exceeds what hospitals participating in the 340B program actually pay, and nothing in the statute requires covered entities to pass the discounts on to patients or payers. As we have pointed out, this government-created arbitrage has significantly contributed to the program’s rapid growth from 39 participating hospitals in 1992 to nearly 3,000 today, with discounted purchases rising from $5 billion in 2010 to more than $81 billion in 2024. We recommended in 2023 that CMS conduct the acquisition cost survey and reinstate an acquisition-based payment rate, and the agency was right to do so.
We support this policy for the following reasons:
Reduces Distortionary Costs—While the proposal is budget neural, CMS estimates that in the first year it will reduce drug spending in Medicare by $4.55 billion and reduce enrollee out-of-pocket spending on 340B drugs by $1.15 billion. The CMS survey found that in some instances an enrollee’s 20 percent coinsurance under current policy exceeds the hospital’s full acquisition cost for the drug, an unreasonable outcome that demonstrates the current distortions. The proposal remedies this and results in a more reasonable outcome that eliminates a concentrated arbitrage from marking up 340B drugs.
Reduces Government-Driven Consolidation—More importantly, this proposal improves the incentives that have fueled government-driven hospital consolidation and higher health care costs. By paying near acquisition cost for 340B-acquired drugs, the policy will address excessive Medicare payments to 340B covered entities that have encouraged hospitals to acquire physician practices and expand their outpatient footprint.
Moderates Private-Sector Premium Growth—Reduced consolidation pressure should help preserve competition and, in turn, moderate some of the cost growth affecting premiums in employer-sponsored insurance and other private coverage, where 340B-related costs have been significant.
Addresses Prescribing Mis-Incentives—Because the 340B margin grows with a drug’s price, the current formula rewards the use of more expensive drugs. CMS’s proposed policy change would weaken the distorted financial incentive to select higher-priced drugs when clinically comparable, lower-cost alternatives are available.
Mitigates Unfair Advantages—Because the OPPS operates under a budget neutrality requirement, the savings would be redistributed as higher payments for non-drug services across all OPPS hospitals, regardless of whether they participate in 340B. This reduces the artificial government-created advantage 340B hospitals hold over other providers.
Accelerated Recoupment of the 2018–2022 Remedy
We also support CMS’s proposal to raise the annual offset used to recoup the $7.8 billion in inflated non-drug payments from 0.5 percent to 3 percent beginning in 2027, completing the recoupment by approximately 2029. Paragon urged CMS to shorten this timeline when the remedy was first proposed. A recoupment period stretching roughly 16 years becomes less accurate as hospitals’ service volumes and case mixes shift over time, is more vulnerable to intervening policy and market disruptions, and because of the time value of money would return considerably less to taxpayers in real terms than was paid out. The accelerated schedule improves both the accuracy and the fiscal value of the remedy.
Site Neutral Reforms
We strongly support CMS’s proposals to advance site-neutral payment policy in Medicare. Medicare frequently pays more for identical services furnished in a hospital outpatient department than in a physician’s office. These differentials raise costs for the program and for enrollees without corresponding differences in quality, and they encourage hospitals to acquire independent physician practices and convert them to outpatient departments in order to bill the government at the higher rate. Medicare should generally pay the same amount for the same service regardless of the ownership or location of the facility in which it is delivered. We estimate that comprehensive site-neutral reform in Medicare could save hundreds of billions of dollars for taxpayers and enrollees over a decade.
Imaging Without Contrast Services
We support the proposal to pay physician-office rates for services in the “imaging without contrast” ambulatory payment classifications furnished at excepted off-campus provider-based departments, which builds on the 2019 clinic visit policy and last year’s extension to drug administration services. CMS estimates first-year gross savings of $190 million in Part B spending and $70 million in reduced enrollee premiums.
This provision ensures that the government and patients are not paying more for the same imaging services simply because of where they were performed, particularly when the two settings are indistinguishable except for their ownership structure. We urge CMS to extend this policy further, including to imaging with contrast and to any other service commonly performed in physician offices, in future rulemaking.
Continued Phase-Out of the Inpatient Only List and Expansion of the ASC Covered Procedures List
We support the proposed removal of 637 procedures from the inpatient only (IPO) list in the second year of its three-year phase-out, along with the proposed additions to the ASC covered procedures list (CPL). As we noted in our comment on last year’s rule, these lists substitute regulatory judgment for physicians’ clinical judgment and patients’ preferences, insulate higher-cost settings from competition with lower-cost alternatives, and burden rural patients who may live far from certain facilities. Removing procedures from the IPO list and expanding the CPL allows physicians to select the appropriate setting for each patient, reduces costs for enrollees and taxpayers, and supports the development of capacity in communities that cannot sustain a full-service hospital.
We urge CMS to complete the elimination of the IPO list on schedule in CY 2028 and to continue expanding the CPL in future rulemaking.
Because Medicare’s payment policies heavily influence how commercial payers structure their own, progress here will encourage broader adoption of site-neutral approaches across the health sector, with corresponding reductions in consolidation incentives and costs for privately insured patients.
Prior Authorization for Botulinum Toxin Injections
We strongly support CMS’s proposal to add eight botulinum toxin injection codes, representing approximately $102 million in annual Medicare spending, to the list of services requiring prior authorization. CMS identified a 42.8 percent increase in the volume of these procedures between 2017 and 2024 that does not appear to be explained by clinical need, and the agency has clear existing authority under section 1833(t)(2)(F) of the Social Security Act to require prior authorization for outpatient services exhibiting unnecessary volume growth.
This requirement should reduce improper spending while preserving access to medically necessary care. Consistent use of program integrity tools like prior authorization also deters improper billing elsewhere in Medicare. We urge CMS to continue expanding data-driven prior authorization requirements to other services that exhibit unusual utilization growth or evidence of improper billing, and to apply its existing program integrity authorities wherever the data warrant.
Request for Information on Hospital Price Transparency Data
We appreciate CMS’s request for information on strengthening the standardization, comparability, and consumer usability of hospital price transparency data. Price transparency holds the promise of lowering prices by giving consumers, employers, and payers the information needed to shop and compare across providers, thereby forcing providers and insurers to compete on price. We recommend CMS pursue the improvements we have previously identified, including codifying existing requirements, strengthening enforcement, expanding the scope of the hospital rule to other facilities, and establishing a clear process for updating machine-readable file standards.
Conclusion
This proposed rule would correct payment distortions that have contributed to unnecessary spending and provider consolidation. Its major provisions rest on clear statutory authority and, in the case of the 340B policy, on newly collected acquisition cost data. We strongly recommend that the agency finalize these measures, which would improve Medicare’s payment accuracy, reduce government incentives for unnecessary consolidation, strengthen program integrity, and lower costs for taxpayers and enrollees. We further urge CMS to build on these reforms by continuing to pursue the broader payment and regulatory changes outlined in our previous recommendations.
Thank you for the opportunity to comment on this proposed rule.
Sincerely,
Brian Blase, PhD
Jackson Hammond
