Judge Wants HHS to Remedy 340B Underpayments to Hospitals

A federal court has decided to let HHS determine how to repay hospitals for years of 340B underpayments.

The decision issued Tuesday by the US District Court for the District of Columbia comes as a disappointment to hospital groups, which have been engaged in a yearslong battle over Medicare payment rates for safety-net hospitals stemming back to 2018. The initial dispute occurred when Medicare changed the rate it paid to hospitals participating in the 340B Drug Pricing Program, resulting in cuts of approximately $1.6 billion annually.

The Supreme Court ruled unanimously in June 2022 that the payment cuts were illegal and HHS would have to pay back billions of dollars to the safety-net hospitals.

340B hospitals have since been waiting for payments, prompting hospital groups to ask the courts to take action. However, US District Judge Rudolph Contreras said in the recent decision that the nearly $10 billion in underpayments should be remedied by HHS, not the courts, given the complexity of Medicare’s Outpatient Prospective Payment System (OPPS).

The court also ruled that it would not vacate the final rules for the OPPS from 2018 through 2022 would not be vacated despite the consensus that the 340B reimbursement rates are unlawful in order to give HHS the opportunity to remediate the underpayments.

HHS said in the most recent final rule for the OPPS that it would defer any proposal of a remedy for underpayments from 2018 through 2021 until sometime before its final rule for the 2024 calendar year.

In a statement, Melinda Hatton, general counsel for the American Hospital Association (AHA), said:

“For more than five years, the Department of Health and Human Services has unlawfully withheld vital funding from 340B hospitals that helps them provide a range of important benefits to their patients and communities. We are disappointed that the district court elected to extend this delay by remanding this case back to the department to determine the appropriate remedy. HHS recently indicated that it expects to propose a remedy by April, and like the district court said in its opinion, the AHA ‘expects that HHS will act promptly to remediate its underpayments.’ We look forward to continuing to work with the Administration to develop a plan to swiftly repay 340B hospitals, with interest, while ensuring the remainder of the hospital field is not penalized as they too continue to serve and care for their patients and communities.”

America’s Essential Hospitals, which filed the motions with the court alongside the AHA, also expressed disappointment with Tuesday’s decision, saying the move comes at the “worst possible time, as providers struggle with the heavy financial pressures of COVID-19.”

“We urge HHS to honor the plain language of the ruling, which calls on the department to ‘act promptly’ to repay the more than five years of funding lost to these cuts. Essential hospitals cannot afford additional delays in repayment, and we stand ready to work with HHS to resolve this matter quickly,” America’s Essential Hospital’s president and CEO Bruce Siegel, MD, MPH, said in a statement.

The 340B Drug Pricing Program is a decades-old federal program designed to help safety-net hospitals stretch their dollars by providing discounts for certain outpatient drugs. The program has faced heavy scrutiny as of late, with pharmaceutical companies and other stakeholders calling for more oversight on how hospitals use the money they save from participating in the program.

Recent research commissioned by 340B Health found that 340B disproportionate share (DSH) hospitals provided 67 percent of all uncompensated care in 2020.