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Health Law Alert: Federal Court Rules Against Medicare's Cuts to 340B Program

January 29, 2019

On December 27, 2018, the United States District Court for the District of Columbia ruled in favor of several plaintiff hospitals and the American Hospital Association finding that the United States Department of Health and Human Services (HHS) exceeded its statutory authority by reducing payment for drugs purchased under the 340B Program from the average sales price (ASP) plus 6% to ASP minus 22.5%. The Court ruled in favor of the plaintiffs and denied the HHS Motion to Dismiss opining that HHS “exceeded authority under 42 U.S.C. §§ 1395l(t)(14)(A)(iii)(II) in setting the 340B drug reimbursement rate in the 2018 OPPS Rule.”

The Court’s ruling finds against HHS rulemaking which became final on November 1, 2017, when The Centers for Medicare & Medicaid Services (CMS) published the 2018 OPPS Final Rule and cut Medicare Part B and State Medicare payments under the 340B Drug Discount Program by an estimated $1.6 billion in 2018. Providers strongly objected to the 2018 OPPS Final Rule, arguing that it would force certain hospitals, including safety net and rural hospitals that treated a high volume of low income patients, to close or block patient access to much needed medically necessary care.

CMS concerns regarding reimbursement under the 340B Program seemed to emanate from the fact that the 340B Program does not regulate how hospitals may use the revenue and cost savings generated under the 340B Program. For example, hospitals are not required to use 340B Program revenue to treat uninsured or underinsured patients.

In ruling against HHS, and in favor of the plaintiff hospitals, the U.S. District Court for the District of Columbia did not look at the intent of the 340B Program. Rather, the Court focused on whether HHS exceeded its procedural and substantive authority when it unilaterally cut 28.5% from hospitals’ reimbursement under the 340B Program.

The Federal District Court specifically ruled as follows:

  • The plaintiffs did not have to exhaust their administrative remedies because any efforts to do so would have been futile given that HHS had considered plaintiffs’ arguments in the notice and comment rulemaking process.
  • The Court ruled that it had authority to evaluate the plaintiffs’ claims under the doctrine of ultra vires, in that HHS acted outside the scope of its authority.
  • HHS’s 28.5% rate cut to the 340B Program patently exceeded its authority to adjust rates. Specifically, HHS’s rate adjustment was ultra vires.

Although the Court ruled in favor of the plaintiffs in this case, the Court did not vacate the 340B provisions included in the 2018 OPPS Final Rule given budget neutrality and other concerns. Rather, the Court ordered that the parties submit supplemental briefing within 30 days of the Court’s ruling on the appropriate scope of the relief to be granted by the Court.

The Court’s ruling only impacts 340B hospital reimbursement for Fiscal Year 2018. HHS’s reimbursement reductions will remain in effect for Fiscal Year 2019, as it was premature for hospitals to challenge the 2019 OPPS Final Rule. As such, hospitals impacted by the reduction in 340B reimbursement rates for Fiscal Year 2018 should calculate and document the reimbursement impact suffered by the hospitals in 2018 while the Court works with the plaintiffs and HHS to craft an appropriate remedy for adversely affected providers. In addition, hospitals should monitor the ongoing litigation between the plaintiffs and HHS to protect their rights and determine how they may be impacted by any potential rulings or appeals in the case.

To review the Court’s opinion in the case, please click here.