Supreme Court reverses 340B Medicare rate cut

https://mailchi.mp/8e26a23da845/the-weekly-gist-june-17th-2022?e=d1e747d2d8

In a unanimous decision, the Justices found that the Department of Health and Human Services (HHS) exceeded its legal authority when it cut Medicare reimbursement rates for outpatient drugs by 28.5 percent at 340B-eligible hospitals in 2018. The justices wrote that the Centers for Medicare and Medicaid Services (CMS) shouldn’t have cut payments to these hospitals without first surveying their average drug acquisition costs, as required by statute.

CMS must now figure out how to repay 340B hospitals the difference in reimbursement for 2018 and 2019, the two years the unlawful cuts were in effect, during which time it redistributed those savings to all hospitals in the form of higher reimbursement for outpatient services. (For an explainer on the mechanics of the 340B program, see our overview here, and for more details on this Supreme Court case, see our summary here.)

The Gist: This decision was a narrow ruling on administrative grounds, and did not touch on the larger policy debates concerning the 340B program. While 340B-eligible health systems can breathe a momentary sigh of relief, they are still facing significant, ongoing revenue disruptions as at least 17 pharmaceutical manufacturers are restricting discounted drug sales to contract pharmacies. 

Scrutiny of the 340B program, which has grown to include over 40 percent of US hospitals, will continue to raise questions about whether there are better ways to subsidize the operations of hospitals serving low-income patients, and to ensure that underserved patients have access to lifesaving treatments.

US Supreme Court overturns $1.6B 340B payment cut

The U.S. Supreme Court sided with hospital groups June 15 in a case challenging HHS’ 340B payment cuts. 

The case centered around whether CMS has the authority to make cuts to the program under its  Medicare Outpatient Prospective Payment System. Under the payment rule, HHS cut the reimbursement rate for covered drugs by 28.5 percent in 2018, but it later lowered the reimbursement rate cut to 22.5 percent. 

Under the 340B program, eligible hospitals can buy outpatient drugs at a discount. A hospital typically pays 20 percent to 50 percent below the average sales price for the drugs through the program. 

The Supreme Court reversed a federal appeals court’s 2020 ruling that HHS had the authority to make the $1.6 billion annual reimbursement cut.  

Justice Brett Kavanaugh, writing the opinion for the court’s unanimous decision, said that absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rate for 340B hospitals. 

“HHS’s 2018 and 2019 reimbursement rates for 340B hospitals were therefore contrary to the statute and unlawful,” he wrote. 
The American Hospital Association, Association of American Medical Colleges and America’s Essential Hospitals said in a joint statement emailed to Becker’s following the decision that they look forward to working with HHS and the courts to develop a plan to reimburse 340B hospitals affected by the cuts while ensuring other hospitals are not disadvantaged as they also continue to serve their communities.

Digging Into the Growth in 340B Contract Pharmacies

This week’s contributor is Paula Chatterjee, a physician and assistant professor at the Perelman School of Medicine at the University of Pennsylvania. Her research focuses on improving the health of low-income patients and evaluating policies related to safety-net health care delivery and financing.

Low-income patients face many barriers to care, one of which is the high cost of prescription medications. The 340B program lets certain hospitals and clinics (like federally qualified health centers) receive discounts on outpatient medications. They can then use those savings to provide medication and additional care for little to no charge to low-income patients. However, policymakers and other stakeholders have raised concerns that the 340B program might not be reaching the patients it was designed to support.

A recent paper in the American Journal of Managed Care by Sayeh Nikpay*, Gabriela Garcia, Hannah Geressu and Rena Conti sheds light on one of the latest examples of 340B mistargeting: so-called contract pharmacies. These are retail pharmacies that fill 340B prescriptions and split the savings with the hospital or clinic. These relationships have been on the rise, with hospitals and clinics arguing they make it more convenient for patients to get their prescriptions. Given their growth, the authors looked at whether contract pharmacies were more likely to open up in areas where low-income and uninsured people live.

They found the pattern was different for pharmacies contracting with 340B clinics vs. 340B hospitals:

  • The number of counties with a pharmacy contracted with a 340B clinic grew from 20.8% to 64.8% over the past decade. Counties with higher poverty rates were more likely to gain a clinic-contracted pharmacy.
  • The number of counties with hospital-contracted pharmacies grew much more (from 3.2% to 76.3%), but those counties had fewer uninsured residents and were less likely to be medically underserved.

The researchers acknowledge that counties may be an imperfect geographical area to represent a pharmacy’s market and that they were unable to collect information on how many (if any) 340B prescriptions a pharmacy actually filled.

Nonetheless, their results reveal a mismatch between where the 340B program is growing and where low-income patients live, especially for pharmacies contracting with 340B hospitals. The authors argue that any 340B policy changes should take these differences between hospitals and clinics into account.

Despite decades of policies designed to bolster the safety-net, it remains perennially reliant on a patchwork of subsidies that are often mistargeted.

This study adds to a growing body of work highlighting the opportunity to improve the 340B program so that it achieves its intended goal of improving access for low-income patients.

Financial toll of 340B discount restrictions magnifies for hospitals: 4 findings

Hospitals’ estimated annual financial losses due to 340B discount restrictions have doubled since December 2021, according to a report from the advocacy group 340B Health.

A growing number of drugmakers have imposed limits on 340B discounts to safety net hospitals for drugs dispensed at community-based pharmacies. Between December and March, six more drugmakers imposed restrictions. 

340B Health surveyed more than 500 hospitals from November to December 2021 and again in March to assess how these increasing restrictions are affecting patients and hospitals. 

Four findings:

1. The median annual financial effect on disproportionate share hospitals, rural referral centers and standalone community hospitals went from $1 million in December to $2.2 million in March. 

2. Among these hospitals, 10 percent of leaders said they expect annual losses of $21 million or more.

3. Leaders from rural critical access hospitals said they also expect the median annual financial effect of 340B discount restrictions to double from $220,000 to $448,000. 

4. Eighty percent of hospitals surveyed anticipated having to cut some patient care services if the restrictions become permanent.  

View the full report here.

More pharmaceutical companies look to restrict discounts to 340B hospitals using contract pharmacies

Johnson & Johnson became the 16th drugmaker to limit 340B discounts for hospitals dispensing drugs at contract pharmacies. These manufacturers have taken issue with the proliferation of contract pharmacies in the 340B program, alleging high rates of fraud and duplicative billing. Several court battles between these drug companies and the federal government are ongoing. 

The 340B program, which requires pharmaceutical companies to provide 20 to 50 percent discounts for drugs participating hospitals purchase (see our explainer on the mechanics of the program here), has grown rapidly in recent years.

The Gist: Over 40 percent of hospitals now qualify for 340B discounts, and 340B drug sales totaled $38B in 2020. According to a recent surveyparticipating hospitals have lost 25 to 40 percent of their contract pharmacy savings since drugmakers began restricting discounts in 2020. 

Many hospitals have used savings from the program to subsidize other areas of patient care; some tell us that losing 340B revenue would erase their entire margin. Health systems should plan for a future in which their bottom lines are not dependent on this increasingly at-risk revenue source. 

Supreme Court hears 340B rate cut case

https://mailchi.mp/016621f2184b/the-weekly-gist-december-3-2021?e=d1e747d2d8

Earlier this week, the American Hospital Association (AHA) made its case before the US Supreme Court, in opposition to Medicare reimbursement cuts to hospitals that participate in the 340B Drug Pricing Program. The program allows hospitals that serve low-income patients to purchase outpatient drugs at a discount.

In the graphic above, we look at what’s at stake for hospitals in the case. Beginning in 2018, Medicare cut reimbursement for 340B-eligible drugs purchased by most hospitals by 28.5 percentage points, amounting to roughly $1.6B annually—which was a significant hit to hospitals’ 340B revenue. As we recently discussed, that revenue has become essential for many hospitals’ financial sustainability. However, the true impact on hospital bottom lines is more nuanced, as the savings from 340B rate cuts are being redistributed to all hospitals that participate in the Outpatient Prospective Payment System (OPPS), regardless of their 340B status, via a 3.2 percent payment bump for non-drug Part B services. While the cut negatively impacts those with large 340B programs—generally larger hospitals located in urban areas—the resulting redistribution actually provides a net benefit to about four in five hospitals.

Although 340B program revenues are at stake, the broader legal question before the Court centers on the level of authority federal agencies like the Centers for Medicare & Medicaid Services (CMS) have to create regulations to interpret ambiguous laws. (If the justices rule against CMS, it will overturn a key legal doctrine known as the Chevron Defense, which compels courts to defer to an agency’s interpretation of unclear statutes.)

A ruling isn’t expected until next spring, but regardless of the outcome, the 340B program faces other threats, chiefly from several lawsuits involving large pharmaceutical manufacturers’ moves to restrict discounted product sales to contract pharmacies. Undoubtedly, the ongoing scrutiny of the 340B program will continue to raise questions about whether there are better ways to subsidize the operations of hospitals serving low-income patients and ensure that underserved patients have access to lifesaving treatments.

Justices mull Chevron and voice skepticism of Medicare’s rate cut for hospital drugs

Justices mull Chevron and voice skepticism of Medicare's rate cut for hospital  drugs - SCOTUSblog

Over at Scotusblog, I’ve posted a recap of yesterday’s oral argument on American Hospital Association v. Becerra.

The Supreme Court appeared receptive to the claim that Medicare overstepped its authority when it cut the amount that it paid certain hospitals for drugs they dispensed in their outpatient departments. None of the justices voiced sympathy with the government’s argument that Congress had precluded judicial review of the question. And while oral argument mainly involved a technical discussion about statutory meaning, several of the conservative justices toyed with the possibility of abandoning Chevron deference — the principle that the courts will defer to an agency’s reasonable interpretation of the statute that it administers.

It is always treacherous to try to anticipate what the justices will decide from the questions they ask at oral argument. Still, it’s safe to say that the hospitals challenging Medicare’s rate change had a good day in court. If they prevail, 340B hospitals will recoup billions in withheld payments and will continue to have an enormous incentive to dispense expensive drugs in their outpatient centers, even when cheaper and equally effective alternatives exist.

That’s a bad policy outcome, whatever the Supreme Court thinks the law requires. If Medicare lacks the legal power to fix it, however, it will be up to Congress to narrow the gap between 340B drug costs and Medicare payments. We could be waiting a very long time for a solution.

Chevron deference at stake in fight over payments for hospital drugs

Chevron deference at stake in fight over payments for hospital drugs -  SCOTUSblog

How much should we pay for drugs? That’s the question at the center of American Hospital Association v. Becerra, a sleeper of a case involving billions of dollars in federal spending and a chance to reshape two doctrines at the heart of administrative law.

Drugs, money, and the law: Sounds sexy, right? Still, you could be forgiven for never having heard of the case, which will be argued on Tuesday. It arises out of a technical dispute over how Medicare, the federal program that insures 63 million elderly and disabled people, pays for some of the drugs that hospitals dispense to patients in outpatient departments — in particular, chemotherapy drugs and other expensive anti-cancer medications.

The case centers on part of a 2003 law that gives Medicare two options for how to pay for those drugs. Under the first option, Medicare would survey hospitals about what it cost them to acquire the drugs. Medicare would then draw on the survey data and reimburse hospitals for their “average acquisition costs,” subject to variations for different types of hospitals. It’s a rough-cut way to make hospitals whole without requiring them to submit receipts for every drug purchase.

But Medicare immediately encountered a problem: It just wasn’t practical to survey hospitals about their acquisition costs. Fortunately, the law anticipated that possibility and gave Medicare a second option. In the absence of survey data, Medicare could pay the “average price” for the drug, “as calculated and adjusted by the Secretary [of Health and Human Services] as necessary for purposes of this [option].”

This approach turned out to be costly. A drug’s “average price” is fixed elsewhere in the Medicare statute, typically at 106% of the drug’s sale price. As a policy matter, this “average sales price plus 6%” approach is hard to defend. Because 6% of a large number is bigger than 6% of a small number, hospitals have an incentive to dispense more expensive drugs, even when there are cheaper and equally effective therapies.

Other developments soon made the payment policy look even more dubious. Back in 1992, Congress created something called the 340B program to support health-care providers that serve poor and disadvantaged communities. Eligible providers get steep discounts on the drugs that they purchase — anywhere between 20% and 50% of the normal price.

Initially, few hospitals qualified for the 340B program. Today, more than two-thirds of nonprofit hospitals participate. (For-profits are excluded from the program.) For years, Medicare kept paying those 340B hospitals 106% of the average sales price of their outpatient drugs. The upshot was that hospitals were buying highly discounted drugs and then charging the federal government full price. That heightened the incentive to prescribe very expensive medications — which is partly why Medicare spending on outpatient drugs has ballooned, growing an average of 8.1% per year from 2006 through 2017.

Federal regulators were troubled by the gap between hospital costs and Medicare payments. In their view, the point of the 2003 statute was to cover hospitals’ costs, not to subsidize 340B hospitals. That jibes with the Medicare statute more generally: Its “overriding purpose” is to provide “reasonable (not excessive or unwarranted) cost-based reimbursement.”

So Medicare adopted a rule that, starting in 2018, slashed the reimbursement rate for 340B hospitals’ outpatient drugs (or, more precisely, a subset of them) to 22.5% less than the average sales price. That was still generous, since on average the 340B discount is about one-third of a drug’s price. But it was much less generous than before, and Medicare estimated that the change would save taxpayers $1.6 billion every year.

The American Hospital Association, together with two hospital trade groups and three hospitals, filed suit. Had Medicare chosen option one, the plaintiffs argued, it could have focused on acquisition costs and even distinguished among hospital groups in setting payment rates. Instead, it chose option two, which says that Medicare must pay a drug’s “average price” — not its acquisition price — and doesn’t provide for discriminating between hospitals. While the plaintiffs acknowledged that Medicare could “adjust” the average price, they argued that a cut from 106% to 77.5% of the average sales price was not really an adjustment. It was a wholesale revision of the statutory scheme.

The plaintiffs encountered an obstacle right out of the gate. To prevent courts from second-guessing Medicare’s choices about how much to pay for outpatient care, the Medicare statute says that “[t]here shall be no administrative or judicial review” of those choices. In the government’s telling, Congress precluded review because Medicare has a fixed annual budget for outpatient care. Increasing payments for one type of care thus requires cutting payments for other types of care.

That linkage means that, if the plaintiffs win, it’s not just that they should have been paid more for certain drugs. It’s that all hospitals should have been paid less for other services. (That helps explains why coalitions representing rural and for-profit hospitals have filed amicus briefs in support of Medicare.) Unwinding that decision would be an administrative nightmare — which is why Congress precluded review in the first place.

As the plaintiffs see it, however, the government simply misreads the scope of the preclusion language. Though it generally precludes review of reimbursement decisions relating to outpatient care, it doesn’t cross-reference the subsection relating to outpatient drugs. Both the district court and the U.S. Court of Appeals for the District of Columbia Circuit agreed, invoking the strong presumption favoring judicial review of agency action.

On the merits, the plaintiffs fared less well. Though they won in the district court, the D.C. Circuit held that Medicare reasonably read the 2003 law to allow it to align hospital reimbursement with hospital acquisition costs. Medicare’s interpretation — and the scope of its authority to “adjust” payment rates — was thus owed deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, a 1984 decision holding that courts generally should defer to agencies’ reasonable interpretations of ambiguous statutes. Judge Cornelia Pillard dissented, arguing that the statute unambiguously foreclosed Medicare’s interpretation.

The plaintiffs asked the Supreme Court to review a single question: whether Medicare should receive Chevron deference for interpreting the 2003 law in the manner that it did. Tantalizingly, the plaintiffs noted that “[i]t is no secret that members of this Court have raised concerns about whether Chevron deference, particularly when applied as indiscriminately as it was in this case, violates the separation of powers.”

The Supreme Court bit. In its order granting certiorari, however, the court instructed the parties to brief an additional question: whether the Medicare statute precludes the lawsuit. What that means is that — in addition to resolving whether hospitals are entitled to billions of taxpayer dollars — the court will have the chance to address two foundational doctrines of administrative law: the presumption of reviewability and Chevron deference.

Arguably, AHA v. Becerra offers an unusually vivid example of the costs of a strong presumption of reviewability. If the plaintiffs win, what’s the remedy? Is Medicare supposed to reopen every outpatient payment decision that it’s made since 2018, given that paying more for 340B drugs means it should have paid less for other services? The plaintiffs say no, arguing that Medicare wouldn’t be required to make any retroactive adjustments. But the government fears otherwise and the answer is not at all clear. Isn’t that the kind of mess that preclusion is meant to avoid?

I’ve called in my academic work for abandoning the presumption of reviewability precisely because it disrespects Congress’ reasonable desire to shield some administrative decisions from judicial review. In recent years, however, the Supreme Court has evinced no interest in doing so — the presumption of reviewability remains “strong.” We may soon find out just how strong it is.

But the big question about the case is whether the court will use it as a vehicle to reconsider Chevron deference. In the plaintiffs’ view, it is galling — “an affront to the separation of powers” — that the courts would defer when Medicare has exploited a purported ambiguity to sidestep Congress’ clear instructions about how much to pay hospitals. Several of the conservative justices, including in particular Justices Clarence Thomas and Neil Gorsuch, may be receptive to the argument. If so, the right wing of the court could use the case to narrow or even overturn Chevron, with potentially dramatic implications for the scope of executive-branch power.

Whether the court will do so is anyone’s guess. The justices could easily resolve the case on narrower grounds. Maybe the statute unambiguously forecloses Medicare’s interpretation of the law, as the plaintiffs argue. Or maybe, as the government claims, Medicare properly exercised its explicit authority to “adjust” prices for outpatient drugs.

Neither of those holdings would be the sexiest decision that the Supreme Court has ever issued. It would be technical, arcane — even boring. Given the financial stakes, however, it would be significant nonetheless.

https://ballotpedia.org/Chevron_deference_(doctrine)

Understanding the mechanics of the 340B drug pricing program

https://mailchi.mp/96b1755ea466/the-weekly-gist-november-19-2021?e=d1e747d2d8

The 340B Drug Pricing Program, designed to increase access to specialty pharmaceuticals for low-income patients, is a perennial area of concern for health policy. The program has grown exponentially since its inception almost 30 years ago: 340B providers increased purchases of discounted drugs from $4B in 2009 to $38B in 2020, five times faster than the overall growth rate of US drug sales. Insurers and drug manufacturers are advocating for significant changes to the program, or even favor eliminating it entirely, claiming that 340B has grown beyond its original intent to help safety net facilities, and simply enriches providers without directly benefiting patients. Indeed, the profits from 340B have become essential for many hospitals’ sustainability; some systems tell us that 340B accounts for their entire margin.
 
In the graphic above, we outline the basics of revenue and product flow within this complex program. The 340B program is meant to allow hospitals that treat low-income, underserved patients to purchase drugs from manufacturers at a 25 to 50-plus percent discount, but still be reimbursed by payers at standard network rates. The discounts are intended to help hospitals overcome losses they incur in providing uncompensated care, but apply to drugs for all patients, regardless of income and insurance status. 340B providers often partner with independent pharmacies to dispense the drugs, and payers are billed the full list price for the medication. Thus, insured patients pay co-payments on the full price of drugs, leading to criticism that 340B savings are not passed on to patients. 340B providers share an estimated $40B in total annual profit with partner contract pharmacies.

The program has been targeted for overhaul by both the Trump and Biden administrations, and faces another threat later this month, when the US Supreme Court is set to hear a case between the hospital industry and the Department of Health and Human Services (HHS) to decide whether the Centers for Medicare & Medicaid Services (CMS) has the authority to enact payment cuts through rulemaking. 

If the court rules in favor of the agency, 340B providers could see significant cuts in payment rates. In our next edition, we’ll dive deeper into the potential impact of that ruling on the industry.

Federal judge rules HHS’ efforts to punish pharma over 340B restrictions ‘arbitrary and capricious’

The pharmaceutical industry scored a muted win in its long-running feud with the Department of Health and Human Services (HHS) over 340B program discounts Friday when a federal court judge granted Eli Lilly’s bid to vacate two administrative actions aimed at drugmakers.

U.S. District Court Judge Sarah Evans Barker ruled that a December advisory opinion from HHS’ Office of the General Counsel and a May enforcement letter from the Health Resources and Services Administration (HRSA) were “arbitrary and capricious” and in violation of the Administrative Procedures Act.

But while Barker ordered the two actions to be set aside and vacated, she also specified that HHS did not exceed its statutory authority or act unconstitutionally in regard to the May enforcement letter.

“Lilly is encouraged by Friday’s opinion, which confirms that the government’s enforcement decision against it was improper,” the drugmaker said in an email statement.

Further, the judge determined that Lilly and other drug manufacturers are not permitted under the current 340B statute “to impose unilateral extra-statutory restrictions on its offer to sell 340B drugs to covered entities utilizing multiple contract pharmacy arrangements.”

HHS may have “suddenly” changed its views on whether the agency could enforce penalties against drugmakers restricting sales of the discounted products to contract pharmacies, but the law as written makes it impossible to discern whether Congress intended for drug manufacturers to have “unlimited delivery obligations … untethered to the particular covered entity’s actual distribution needs,” the judge wrote.

As such, Barker underscored the need for lawmakers to settle the ambiguity with new, explicit legislation.

“We have no insight into why there is apparently so much reluctance to promulgate a holistic legislative proposal to bring clarity to the scope of the regulated parties’ obligations and entitlements … rather than engage in piecemeal interpretations and after the fact patchwork characterizing the history of the agency’s attempts to manage this program,” Barker wrote in the Friday order.

“What we have come to see, however, is that the 340B program can no longer be held together and implemented fairly for all concerned with non-binding interpretive guidelines and mixed, sometimes inconsistent messaging by the agency regarding the source and extent of its authority to enforce statutory compliance in the area of contract pharmacies.”

Eli Lilly’s case against HHS is the latest in a lengthy dispute between the agency and a slew of pharmaceutical companies including AstraZeneca, Novartis, Novo Nordisk, Sanofi and United Therapeutics.

The 340B program requires drugmakers to offer discounted products to safety net hospitals, community health centers and other providers as a condition of participation in Medicare and Medicaid.

Beginning in July 2020, however, the drugmakers announced they would no longer provide 340B-discounted products to contract pharmacies or would be limiting sales unless a 340B-covered entity provided claims data ensuring there were no duplicative discounts being applied.

In response, HHS’ Office of the General Counsel issued the December advisory opinion, which stated that the restrictions violated federal law, and later through HRSA delivered enforcement letters threatening penalties to the six companies.

HHS’ pushback has generally taken a beating in the courtsIn June, the agency decided to pull the December advisory opinion to “avoid confusion and unnecessary litigation” after courts took the side of AstraZeneca and struck down a motion from HHS to dismiss the case.

The drugmakers have dug in their heels throughout the process, refusing to reverse their policies even as HRSA issued new (now remanded) warnings in late September.

Industry supporters of HHS’ position focused on the silver lining of Friday’s decision.

In a statement, Maureen Testoni, president and CEO of 340B Health, a membership organization of more than 1,400 340B participants, said the group was encouraged by Barker’s position on the “unilateral” restrictions on drug discounts for contract pharmacies.

“We are encouraged that the court upheld HRSA’s view that Lilly is violating the law as one that ‘best aligns with congressional intent’ of the 340B program,” she said in a statement. “We urge the government to continue its work to enforce the law and restore the statutory drug discounts that enable 340B hospitals to care for patients with low incomes and those living in rural parts of the country.”