Judge Vacates Hospital Medicare Part B 340B Drug Payment Cuts; HHS Exceeded Authority in Drastically Reducing Reimbursement

By , Published On: December 28, 2018

On December 27, hospitals participating in the federal 340B drug discount program that are paid under the Medicare Outpatient Prospective Payment System (OPPS) scored a major victory in their fight against severe 340B drug reimbursement cuts finalized in November 2017.[i]  The American Hospital Association, America’s Essential Hospitals, the Association of American Medical Colleges, and individual 340B program covered entities (Plaintiffs) challenged the cuts on the basis that the Secretary lacked the statutory authority to slash reimbursement from 106% of the “average sales price” (ASP) of covered drugs to 77.5% of ASP.

Judge Rudolph Contreras of the United States District Court for the District of Columbia sided with the Plaintiffs, finding that they had cleared procedural barriers to bring the case (unlike the first effort, which was dismissed) and that the Secretary’s reimbursement cuts were contradicted by the clear language of the applicable statutory provisions – Section 1833l(t)(14)(A)(iii)(I) and (II).  Those provisions allowed the Secretary to either use a survey of actual hospital drug acquisition costs (clause I) or use the ASP established under other provisions of the Social Security Act “as calculated and adjusted by the Secretary as necessary…” (clause II).  The Secretary estimated the actual acquisition costs (rather than using a survey) and then “adjusted” the ASP-derived rate to meet those estimates.  Judge Contreras ruled that such a change was not authorized by the statute and went farther than Congress could have intended as an “adjustment.”

Though the judge granted the preliminary injunction, he ordered further briefing on what the remedy should be (in addition to vacating the rule).  Because the Part B payments are budget-neutral, the lowered payments to 340B hospitals were offset by higher payments to non-340B hospitals.  Simply trueing up the 340B hospitals would not be budget neutral unless the agency claws back reimbursement from non-340B hospitals.  It is also unclear whether the Secretary would have the authority to authorize the cuts if he conducts an actual survey of drug acquisition costs for 340B hospitals.  The Secretary could choose to appeal the ruling.

If you have any questions about this or other 340B program or pharmacy reimbursement issues, please contact our Pharmacy and 340B team – Jason Reddish (jreddish@ftlf.com) and Michael Glomb (mglomb@ftlf.com).

[i] 82 Fed. Reg. 52,356 (Nov. 13, 2017).