The Supreme Court Ruling On the 340B Program Reimbursement Rate Cut

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Ken Perez

By Ken Perez, vice president of healthcare policy and government affairs, Omnicell, Inc.

The 340B Drug Pricing Program was created in 1992 to give safety net providers—those that deliver a significant level of both healthcare and other health-related services to the uninsured, Medicaid, and other vulnerable populations—discounts on outpatient drugs to “stretch scare federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

In brief, the program requires drug makers participating in Medicaid and Medicare Part B to provide discounts on outpatient drugs to 340B providers, which include various types of hospitals and certain federal grantees, such as federally qualified health centers and comprehensive hemophilia treatment centers.

The change to the reimbursement rate and ensuing debate

On Nov. 1, 2017, the Centers for Medicare and Medicaid Services (CMS) issued its final rule for the calendar year (CY) 2018 Outpatient Prospective Payment System (OPPS), the system through which Medicare decides how much money a hospital or community mental health center will get for outpatient care provided to patients with Medicare. That rule included a 28.5% reimbursement rate cut—from average selling price (ASP) plus 6% to ASP minus 22.5% for the 340B Program. The American Hospital Association estimated that the cut aggregated to $1.6 billion annually for 340B hospitals.

On July 31, 2020, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), by a 2-1 vote, upheld the U.S. Department of Health and Human Services’ (HHS) decision to allow CMS to implement the 28.5% reimbursement rate cut, ruling against the American Hospital Association (AHA), the Association of American Medical Colleges (AAMC), America’s Essential Hospitals (AEH), and hospital plaintiffs Northern Light Health in Brewer, Maine, Henry Ford Health System in Detroit, Mich., and AdventHealth Hendersonville in Hendersonville, N.C.

In February 2021, the AHA, et al. filed a petition asking the Supreme Court to reverse the D.C. Circuit’s decision. On July 2, 2021, the Supreme Court agreed to hear the case, entitled American Hospital Association v. Becerra. (Becerra refers to Xavier Becerra, the U.S. Secretary of HHS.)

On Nov. 30, 2021, the Supreme Court heard oral arguments on the case. It is important to note that CMS maintained the 28.5% reimbursement rate cut in its final rules for the CY 2019, 2020, 2021, and 2022 OPPS, spanning both the Trump and Biden administrations.

The Supreme Court ruling

On June 15, 2022, in a 14-page opinion written by Justice Brett Kavanaugh, the Supreme Court unanimously ruled that HHS’s decision to reduce yearly Medicare reimbursements to hospitals in the 340B Program was unlawful, overturning the D.C. Circuit’s decision.

The High Court sided with the AHA, et al. because the ASP minus 22.5% reimbursement rate for 340B hospitals—which was different than the reimbursement rate of ASP plus 6% for non-340B hospitals—was based on an estimate from the Medicare Payment Advisory Commission (MedPAC) that 340B hospitals obtained prescription drugs at an average discount of at least 22.5% below the average selling price charged by manufacturers, rather than a survey of the 340B hospitals’ acquisition costs.

According to the ruling, because HHS had not conducted the survey, it was not allowed to vary the reimbursement rates between 340B and non-340B hospitals. The High Court agreed with the AHA’s argument that because HHS did not have sufficient cost-survey data to support the change, HHS had not met the standard for Chevron Deference (judicial deference to administrative actions if the agency’s interpretation is “rational” or “reasonable”).

Provider organizations’ reactions to the ruling

In a statement following the decision, the AHA, AAMC and AEH said, “We are pleased that the U.S. Supreme Court unanimously agreed with us that the Department of Health and Human Services’ outpatient payment cuts to hospitals in the 340B Drug Pricing Program were unlawful. This decision is a decisive victory for vulnerable communities and the hospitals on which so many patients depend. 340B discounts help hospitals devote more resources to services and programs for vulnerable communities and increase access to prescription drugs for low-income patients. Now that the Supreme Court has ruled, we look forward to working with the Administration and the courts to develop a plan to reimburse 340B hospitals affected by these unlawful cuts while ensuring the remainder of the hospital field is not disadvantaged as they also continue to serve their communities.”

340B Health, a nonprofit membership organization of more than 1,400 public and private nonprofit hospitals and health systems throughout the U.S. that participate in the 340B drug discount program, called the decision “an important victory.”

What’s next?

The Supreme Court remanded the case back to the D.C. Circuit to decide on a potential remedy since the cuts have been in effect since Jan. 1, 2018. The D.C. Circuit could either send it back to the U.S. District Court for the District of Columbia or CMS to create a remedy. CMS could either reimburse hospitals for the difference between the cuts or adjust hospital payments in the coming years. In the wake of the High Court’s decision, one law firm has advised 340B covered entities to begin performing data and contractual analyses to ensure appropriate refunding of underpayments.

Implications

Although the 340B program continues to be challenged by pharmaceutical company restrictions and court challenges, at a minimum the Supreme Court’s decision on the reimbursement rate cuts clearly improves the past economics of the program for 340B hospitals and likely enhances its future economics.


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