U.S. District Court for the District of Columbia building
The federal district court in Washington, D.C. has ordered the government to immediately begin to pay 340B hospitals at full rates for Medicare Part B covered drugs.

Groups Representing 340B Hospitals Praise Federal Court Decision Halting Deep Medicare Part B Cuts

In a big victory for 340B hospitals, a federal judge in Washington, D.C. ruled yesterday that the government must immediately begin to pay 340B hospitals the full Medicare Part B drug payment rate for the remainder of calendar year (CY) 2022.

Judge Rudolph Contreras of the U.S. District Court for the District of Columbia granted a motion by three national hospital groups and hospital plaintiffs to vacate the portion of the CY 2022 Outpatient Prospective Payment System (OPPS) final rule that maintained the close to 30% payment reduction. 340B hospitals have experienced significant payment reductions since 2018.

In a unanimous decision in June, the U.S. Supreme Court ruled that the federal government unlawfully slashed Medicare Part B drug reimbursement for many 340B hospitals. The court ruled that the U.S Department of Health and Human Services (HHS) had no authority to impose a different Medicare reimbursement rate for 340B hospitals without first conducting a statutorily mandated survey of acquisition costs.

While the Supreme Court opinion explicitly focused on the first two years of the cuts (2018 and 2019), there is a good chance that 340B disproportionate share hospitals (DSH) will be made whole for at least the year 2020 and possibly additional years. The U.S. Centers for Medicare & Medicaid Services (CMS) did not conduct its survey of 340B acquisition costs until after the 2020 payment cuts went into effect. 340B advocates point out that although CMS referenced the survey in its 2021 and 2022 rules, it did not ultimately base those cuts on the survey either. 

The case was sent back to the lower court for a decision on a remedy. CMS has indicated that they plan to restore full payments for the 2023 calendar year but said that it needs to move slowly since the agency believes that any payment increases would have to be implemented in a budget neutral manner. The agency says it will need to reduce payments for non-pharmaceutical products and services to make up the difference.  The hospital groups, which include the American Hospital Association (AHA) America’s Essential Hospitals (AEH) and the Association of American Medical Colleges (AAMC) have urged CMS not to punish non-340B hospitals for its illegal cuts.

The hospital groups asked Judge Contreras for immediate relief and the judge yesterday concurred. “The prospective portion of the 2022 reimbursement rate shall be vacated because it is defective and because vacating this portion of the 2022 OPPS Rule will not cause substantial disruption,” Contreras said.

“The Court is troubled that HHS appears to rely on budget neutrality as a license to continue violating the law for the remainder of the year and make up for it later,” the decision said. “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.”

He added, “The Court recognizes that HHS’s budget will be unbalanced if it must immediately start to pay 340B hospitals their proper due for the remainder of 2022. But that disruption would be minimal, because HHS admits that vacating the 340B reimbursement rate for the remainder of 2022 would account for ‘only a small sliver of the overall time periods challenged in this action.”

In fact, the court noted, the agency had already begun taking steps to prepare for potential budget issues this year as a result of the Supreme Court’s earlier decision and had announced in its proposed rulemaking for the 2023 OPPS rule its intent to pay 340B hospitals the proper reimbursement rate for 2023.

Hospital groups praised the court decision. AHA General Counsel Melinda Hatton told 340B Report: “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.”

Hatton added, “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.”

America’s Essential Hospitals also welcomed the decision. “We’re very pleased by the district court’s decision, and we urge CMS to promptly reinstate full payment rates to 340B hospitals for the rest of this year, as the court directed. We look forward to a favorable resolution on the remedy for the five years and billions of dollars of cuts to 340B hospitals,” said Shahid Zaman, the association’s policy manager.

The court said it is continuing to evaluate potential remedies for previous years of cuts including the issue of budget neutrality.  The court said it will rule on those matters at a later date.  It is unclear if the government will appeal the decision or how quickly the higher payments will begin.