AHA, Hospital Groups Renew Call to End 340B Drug Payment Cuts

March 01, 2018 - After a federal judge recently ruled that CMS can enforce cuts to 340B drug payments, the American Hospital Association (AHA) and 35 state and regional hospital associations resumed their efforts to end $1.6 billion in reimbursement reductions.

In February 2018, the AHA, alongside the Association of American Medical Colleges (AAMC), America’s Essential Hospitals, Eastern Maine Healthcare Systems, Henry Ford Health System, and Adventist Health System's Park Ridge Health, told a federal appeals court that their lawsuit that was dismissed by a lower court was not premature.

The lower court’s district judge argued that the lawsuit brought forth by the AHA, AAMC, and America’s Essential Hospitals was premature because the industry groups could not prove that the CMS rule reducing 340B drug payments would harm hospitals.

“The Plaintiffs’ problem, however, is that they have not yet presented any specific claim for reimbursement to the Secretary upon which the Secretary might make a final decision,” Judge Rudolph Contreras wrote. “Indeed, the Rule that sets the reimbursement rates at issue and which might form the basis of reimbursement claims that they might submit someday in the future has not yet gone into effect.”

The decision by Judge Contreras allowed CMS to enforce the 2017 final rule that altered the 340B payment formula from average sales prices of a drug plus 6 percent to average sales price less 22.5 percent.

READ MORE: Prescription Drug Rates Remain Top Healthcare Supply Chain Issue

In the most recent brief to the appeals court, the AHA and others argued that the lawsuit was not premature because the groups submitted comments to HHS when the rule was proposed.

The comments explained to the HHS Secretary that the proposed reimbursement cuts were unlawful and would harm 340B hospitals. Specifically, the comments stated that the proposed reduction violated the default rate listed in the Outpatient Prospective Payment System statute section 1395l(t)(14)(A)(iii).

The proposed rate also improperly depended on data that CMS did not have. The OPPS statute mandates that HHS set rates based on actual acquisition costs of drugs only if the federal agency has acquisition cost data.

The HHS Secretary acknowledged that CMS lacked the data, but he argued that HHS had the “broad discretion” to adjust rates. He added that the new 340B payment rate would “better align [payments to hospitals for 340B drugs] with hospital acquisition costs.”

AHA and others contended that the comments and HHS response demonstrated a valid reason for filing the lawsuit and the appeals court should reject the lower court’s decision to enforce the rule as the case proceeds.

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Thirty-five state and regional hospital associations backed the AHA and other plaintiffs in a recent friend-of-the-court brief and also called for a suspension of the rule.

The associations, referred to as Amici in the brief, explained to the court that their member hospitals will be “severely harmed” by 340B payment cuts.

“The reduction in the reimbursement rate will cause these safety-net hospitals to lose hundreds of millions of dollars in fundings,” the brief stated. “As a result, scores of low-income, uninsured, underinsured, and homeless patients will be unable to receive the same level of care. Amici therefore have a strong interest in ensuring that their member 340B hospitals do not face an unprecedented, precipitous, and— most significantly—unlawful diminution of this vital funding.”

The 340B Drug Pricing Program intends to help members “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services,” according to the Health Resources & Service Administration’s website.

But the recent final rule from CMS would “stretch amici’s members beyond the breaking point,” the associations contended.

READ MORE: Prescription Drug Rate Growth Slows, But Prices Still Rising 7.35%

The 340B payment cuts would total about $1.6 billion, CMS reported in the final rule. The 340B payment cuts would range between $6.4 million to almost $174 million in the states represented in the friend-of-the-court brief, a cited DataGen study showed.

CMS plans to redistribute the savings stemming from reduced 340B payments back into the OPPS to offset the decline in discounted drug payments. By redistributing the funds, 85 percent of hospitals should receive a net increase in their total Medicare Part B reimbursements despite the 340B payment cuts, a recent Avalere Health analysis uncovered.

However, the associations argued that the financial benefits of redistributing the 340B savings offset the overall impact to hospitals and health systems. Individual 340B hospitals will still suffer from the reimbursement reductions.

“Stated differently, increasing the Medicare Part B reimbursement rates for other types of services does not help all hospitals equally,” the brief stated. “For example, data from the 2016 American Hospital Association Annual Survey suggests that 25.8 percent of 340B hospitals affected by the new rule already had negative operating margins before these cuts took effect.”

With lower 340B drug payments, 340B hospitals may be forced to close clinic doors and decrease their services to vulnerable patient populations.

“[T]hose numbers tell only a small part of the story,” explained the associations. “The real impact of CMS’s rule lies beneath those numbers, in the lived experience of vulnerable patients for whom subsidized care and services may no longer be available and the hospitals and clinics that will no longer be able to effectively serve them.”

While the 35 hospital associations supported a repeal of the 340B drug payment cuts, critics of the discounted drug program continued to back the rule’s enforcement.

Commenting on a recent Avalere study that showed Massachusetts hospitals would benefit from the final rule, the Community Oncology Alliance (COA) recently stated that 340B payment cuts would actually help clinics and practices stay open in the face of hospital consolidation.

“Community oncology clinics care about the 340B program because some hospitals abuse is as a business strategy to take over local cancer care and make money, not help patients,” explained Steven L. D'Amato, COA board member and Executive Director of New England Cancer Specialists. “It's time hospitals started using 340B to help patients the way the program was intended, instead of irreparably harming the backbone of our cancer care system. When local clinics shut down, patients suffer.”

As both sides of the 340B payment cut debate make their voices heard, the appeals court is considering both briefs. A judge has not issued a decision on the lower court’s ruling.