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Reimbursement News

HHS Overstepped Authority with 340B Reimbursement Cuts, Judge Rules

A district judge vacated a 2018 policy that enacted a 30 percent 340B reimbursement cut, arguing the policy exceeded HHS' authority to adjust hospital payments.

340B reimbursement cuts

Source: Thinkstock

By Jacqueline LaPointe

- A federal judge in Washington DC recently struck down a nearly 30 percent reduction in 340B reimbursement cuts.

US District Judge Rudolph Contreras ruled that HHS Secretary Alex Azar exceeded his statutory authority by issuing a policy that would alter the hospital reimbursement formula for certain covered outpatient drugs paid under the 340B Drug Pricing Program. The policy from the final 2018 Hospital Outpatient Prospective Payment System (OPPS) rule changed the formula for certain covered outpatient drugs from the average sales price (ASP) of the drug plus six percent to the ASP minus 22.5 percent starting on Jan. 1, 2018.

However, Judge Contreras said that the significant cuts to the 340B program are beyond the federal department’s authority.

“While the Secretary is permitted to make ‘adjust[ments]’ to those rates for whatever reasons he deems ‘necessary,’ adjustments are all he can make. He cannot fundamentally rework the statutory scheme—by applying a different methodology than the provision requires,” he wrote in a Dec. 28, 2018 ruling.

The 340B reimbursement cuts have been at the center of the lawsuit filed by the American Hospital Association (AHA), America’s Essential Hospitals, and the Association of American Medical Colleges (AAMC) back in 2017.

The hospital groups estimated that the new hospital reimbursement formula would reduce payments to covered entities by $1.6 billion. And they argued the cuts would severely impact the ability of hospitals in the program to provide critical healthcare services to their communities, especially underserved patients.

Additionally, the groups contended that the 340B reimbursement reductions were unlawful because HHS Secretary Azar calculated the new payment methodology using 340B hospital drug acquisition costs, rather than the drugs’ ASP per Medicare rules.

Azar countered that HHS did not have the necessary data to accurately determine the price paid by 340B hospitals for particular covered outpatient drugs. Therefore, HHS used its authority to calculate rates using drug acquisition costs based on the hospitals’ average 340B discount.

Judge Contreras disagreed with the head of HHS and granted the plaintiffs’ motion for a permanent injunction of the new reimbursement policy.

However, he did not grant the plaintiffs’ request for retroactive OPPS payments based on the original reimbursement formula for certain covered outpatient drugs. He ruled that the plaintiffs “are entitled to some relief” but “the potentially drastic impact of this Court’s decision on Medicare’s complex administration gives the Court pause.” He ordered a supplemental briefing to come to a “proper remedy.”

In a joint statement, the hospital groups stated that they were “immeasurably pleased” with the recent ruling. The groups said:

“The court’s carefully reasoned decision will allow hospitals and health systems in the 340B Drug Pricing Program to serve their vulnerable patients and communities without being hampered by deep cuts to the program.

For more than 25 years, the 340B program has helped hospitals stretch scarce federal resources to reach more patients and provide more comprehensive services—this was Congress’ clear intent for the program. The court’s ruling will help ensure 340B can continue supporting access to affordable health care for our most vulnerable communities.”

But not all hospital groups were pleased with the federal judge’s decision. The Federation of American Hospitals (FAH) President and CEO Chip Kahn told that the ruling was “unfortunate because it undermines HHS efforts to cut drug costs and promote fairer payments.”

“The current HHS policy will ultimately lower drug costs for patients. It also benefits the vast majority of hospitals, including some 80 percent of rural facilities. This ruling puts all those benefits at risk,” he continued. 

The FAH looks forward to the appeals process, which will hopefully “recognize HHS authority to advance these program improvements,” Kahn concluded.

HHS also expressed disappointment with the recent court ruling, according to an emailed statement.

“We are disappointed with the court’s ruling and are evaluating next steps,” an HHS spokesperson said. “As the court correctly recognized, its judgment has the potential to wreak havoc on the system. Importantly, it could have the effect of reducing payments for other important services and increasing beneficiary cost-sharing.  We look forward to briefing the court on this important matter.”


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