Hospitals Lose Case Challenging 340B Hospital Payment Reduction

An appeals court recently ruled against hospital groups seeking to block a nearly 30 percent reduction in 340B hospital payments to hospitals participating in the federal drug discount program.

The 2-1 ruling published on July 31st by the US Court of Appeals for the District of Columbia Circuit overturned a district court decision that HHS overstepped its authority when it cut the reimbursement rate for certain covered outpatient drugs for hospitals in the 340B Drug Pricing Program.

Writing for the court, Chief Judge Sri Srinivasan said, “HHS’s decision to lower drug reimbursement rates for 340B hospitals rests on a reasonable interpretation of the Medicare statute.”

The cut was “a fair, or even conservative, measure of the reduction needed to bring payments to those hospitals into parity with their costs to obtain the drugs,” added Judge Srinivasan.

In a partial dissent, however, Circuit Judge Cornelia Pillard said HHS does not have the authority to “implement for 340B hospitals alone the challenged rate reductions” in its Outpatient Prospective Payment System final rules for 2018 and 2019.

HHS Secretary Alex Azar said on Twitter that the decision is “another major victory for President Trump’s agenda of lower drug prices and better healthcare for all Americans.”

Since HHS implemented the cut affirmed in the recent court decision, drug costs have decreased by more than $4.8 billion, which has been reinvested into the Medicare program, reported Secretary Azar.

But the decision is a major blow to hospitals, which said the cut will harm America’s 340B hospitals and the millions of patients they serve.

“For more than 25 years, the 340B program has helped hospitals stretch scarce federal resources to reach more patients and provide more comprehensive services. Hospitals that rely on the savings from the 340B drug pricing program are also on the front-lines of the COVID-19 pandemic, and today’s decision will result in the continued loss of resources at the worst possible time,” said the American Hospital Association (AHA), Association of American Medical Colleges (AAMC), and America’s Essential Hospitals in a joint statement.

Maureen Testoni, president and CEO of 340B Health, a trade group representing 340B hospitals, also stressed the damage continued 340B hospital payment cuts could have on hospitals and patients during the pandemic.

“These cuts of nearly 30% have caused real and lasting pain to safety-net hospitals and the patients they serve,” Testoni said in a statement. “Keeping these cuts in place will only deepen the damage of forced cutbacks in patient services and cancellations of planned care expansions. These effects will be especially detrimental during a global pandemic.”

HHS implemented the rate cut in the 2018 Outpatient Prospective Payment System final rule by altering the formula used for determining hospital outpatient reimbursement rates for the covered drugs from average sales price plus 6 percent to average sales price less 22.5 percent.

The change resulted in a rate adjustment from 106 percent of average sales price to 77.5 percent of average sales price.

The federal department argued that the change was necessary to “better and more appropriately reflect the resources and acquisition costs that [340B] hospitals incur” since the hospitals acquired the covered outpatient drugs through steep program discounts.

HHS estimated in the final rule that the 28.5 percent reduction in payment for covered outpatient drugs acquired by 340B hospitals would save Medicare $1.6 billion in 2018.

AHA, AAMC, and America’s Essential Hospitals challenged the 340B payment cut shortly after implementation. The hospital groups contended that the rate reduction exceeded HHS’ authority to “adjust” rates for the covered outpatient drugs.

The appeals court decision is yet another blow for hospitals, which also lost a case last month challenging hospital outpatient reimbursement cuts for services delivered in off-campus provider-based departments.

The AHA and AAMC announced last week that it is seeking a rehearing for that case.

The two hospital groups and America’s Essential Hospitals said they will continue to fight against the 340B hospital payment reduction. The groups, as well as 340B Health, also called on CMS to reverse the pay cut to ensure hospitals can continue to deliver care to patients.