HHS Must Restore Full Payment to 340B Hospitals Now, Judge Says

The court ruling comes after the Supreme Court struck down a nearly 30 percent cut to 340B hospital payments from 2018.

October 04, 2022 – A federal judge has ordered HHS to immediately end the almost 30 percent cut in Medicare drug reimbursement to 340B hospitals.

The decision published last week by judge Rudolph Contreras with the US District Court for the District of Columbia rejected HHS’ plan to restore full payment to hospitals participating in the 340B Drug Pricing Program in 2023.

“HHS should not be allowed to continue its unlawful 340B reimbursements for the remainder of the year just because it promises to fix the problem later,” wrote Contreras.

Hospitals participating in the 340B Drug Pricing Program receive outpatient prescription drugs at a discounted price of up to 50 percent since they treat a disproportionate amount of low-income and vulnerable patients. The 340B Program is designed to enable the safety-net providers to stretch their financial resources. Medicare must also reimburse hospitals for administering covered outpatient drugs.

HHS reduced the Medicare drug reimbursement rates for 340B hospitals though in 2018, cutting payments by 28.5 percent in an effort to generate about $1.6 billion in savings. Federal officials reasoned that reimbursing 340B hospitals at the same rate as other hospitals creates an incentive for the hospitals to overprescribe the drugs or prescribe more expensive drugs since they receive covered outpatient drugs at a discounted price.

HHS also argued that 340B hospital reimbursement cuts would lower co-payments for Medicare beneficiaries since the amounts are tied to hospital reimbursement rates.

Hospitals and hospital groups, including the American Hospital Association (AHA) Association of American Medical Colleges (AAMC), and American’s Essential Hospitals, sued the federal government over the reduced reimbursement rates.

The case made it all the way to the Supreme Court where, in a major win for hospitals, judges unanimously ruled that HHS should not have reduced payments to certain hospitals in 2018 and 2019 without surveying hospitals to determine average acquisition costs for drugs. HHS had relied on the average price of the drugs to set lower rates.

However, the Supreme Court did not make judgments on 340B hospital reimbursement cuts for 2020 and later years.  Following the Supreme Court’s ruling, HHS announced it would reimburse hospitals for administering 340B-covered drugs the same as non-340B drugs starting Jan. 1, 2023.

Hospital groups again challenged HHS policy, asking the courts to immediately halt the unlawful cuts in 2022.

“The AHA appreciates Judge Contreras’ ruling that the Department of Health and Human Services must immediately stop unlawful reimbursement cuts for 2022 for hospitals participating in the 340B drug pricing program. Halting these cuts will help 340B hospitals provide comprehensive health services to their patients and communities,” said Melinda Hatton, AHA’s general counsel and secretary, regarding the most recent court ruling.

“We continue to urge the Administration to promptly reimburse all the hospitals that were affected by these unlawful cuts in previous years and to ensure the remainder of the hospital field is not penalized for their prior unlawful policy, especially as hospitals and health systems continue to deal with rising costs for supplies, equipment, drugs and labor,” Hatton continued in the public statement.

340B Health’s president and CEO Maureen Testoni also called the court ruling “an important victory for 340B hospitals that have been fighting these unlawful cuts for nearly six years.” 340B health advocates safety-net hospitals participating in the drug pricing program.

“The Centers for Medicare & Medicaid Services (CMS) has the clear responsibility to restore the appropriate payments for 340B drugs immediately, and now a federal court has ordered it to do so without delay,” Testoni said.

HHS has not announced a repayment plan for 340B hospitals. Notably, the court ruling also did not cover the AHA’s motion to include reimbursement cuts from 2020 through 2022 in the case, nor AHA’s motion to repay hospitals for the cuts since 2018 without penalizing other hospitals.

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