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.

Lawmakers urge HHS to fine drugmakers restricting 340B drug discounts

Dive Brief:

  • More than 180 members of the House of Representatives are urging the Biden administration to crack down on drugmakers restricting drug discounts in the 340B program.
  • Enforcement actions should include fines, the letter from a bipartisan group of House members to HHS Secretary Xavier Becerra and other administration officials said.
  • Currently, 18 drug manufacturers are limiting 340B discounts dispensed through pharmacies that contract with 340B providers, according to the letter.

Dive Insight:

The 340B program requires drugmakers to charge hospitals only the statutory ceiling prices for eligible outpatient drugs. The goal of the three-decade-old program is to have savings flow into care for low-income patients and underserved communities. But critics — notably, drugmakers and some lawmakers — argue the program doesn’t have enough oversight, as hospitals don’t need to account for what they do with any savings.

Drug manufacturers began imposing restrictions on 340B discounts as early as summer 2020, sparking legal challenges from regulators. The HHS sent nine warning letters to pharmaceutical companies, referring seven of them to the Office of the Inspector General for investigation and potential enforcement.

However, eight months later, the OIG has yet to take enforcement action, the new letter from 181 House members reads.

The letter asks the OIG to finish its ongoing review of seven drug manufacturers for potential noncompliance with federal law on 340B discounts “as soon as possible.”

The law allows the OIG to impose fines up to $6,000 per drug claim on companies that intentionally overcharge 340B providers, according to the Health Resources and Services Administration, which oversees the program.

Regulators should begin imposing civil monetary penalties against pharmaceutical companies found in violation, the congresspeople said.

The letter also argues that the Biden administration should pursue enforcement action against 11 drug companies restricting 340B pricing, which either haven’t received notice from the HHS that they’re in violation of law yet, or have received a notice but haven’t been referred to OIG for enforcement.

“Every day that drug manufacturers violate their obligation to provide these discounted drugs, vulnerable communities, federal grantees, and safety net health care providers are deprived of resources Congress intended to provide,” the letter reads.

A number of hospital associations came out in support of the letter, including the National Rural Health Association, the American Hospital Association, America’s Essential Hospitals and the National Association of Community Health Centers.

340B Health, which lobbies on behalf of hospitals in the 340B program, thanked the House members for the letter in a statement Monday, and reiterated calls for fines.

“HHS should impose steep financial penalties on all the companies that are ignoring their legal commitments to the health care safety net,” said Maureen Testoni, CEO of 340B Health, in a statement.

A survey of more than 500 hospitals by 340B Health released in May estimated that the annual financial impact from drug company restrictions has doubled since the end of 2021, costing hospitals millions of dollars per year.

Drugmakers that have imposed or announced restrictions on 340B discounts for drugs dispensed at community and specialty pharmacies include AbbVie, AstraZeneca, Johnson & Johnson, Merck and Pfizer.

The 340B discounts can range from 25% to 50% of the cost of the drugs.

Hospital group wants prompt payment of 340B funds after Supreme Court win

The American Hospital Association wants HHS to act quickly to ensure that affected hospitals receive withheld 340B program funds. 

The organization’s June 28 letter to HHS comes after the Supreme Court recently overturned a $1.6 billion 340B payment cut.

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 cut to 22.5 percent. 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.  

“Given the vital role that 340B hospitals play in serving vulnerable communities, they should be repaid the funds that have been withheld from them without delay,” the American Hospital Association said in the letter. “They also should be paid for all of the years (2018-2022) in which the Centers for Medicare & Medicaid Services (CMS) illegally cut reimbursement rates.”

The hospital group said it is concerned that despite the Supreme Court’s decision, the resolution of these issues “could be bogged down in needless litigation, and that hospitals will not be appropriately compensated at a time when they are weathering significant financial challenges on many fronts.”

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.