Hospitals Ask U.S. Supreme Court to End “Crushing” Medicare Payments Cuts for 340B Drugs

Three national hospital groups and three hospitals yesterday asked the U.S. Supreme Court to overturn a federal appeals court’s 2-1 July 2020 decision that the nearly 30 percent cut since 2018 in 340B hospitals’ drug reimbursement under the hospital outpatient prospective payment system (OPPS) “rests on a reasonable interpretation of the Medicare statute.”

If the decision stands, the hospital plaintiffs said in their petition for review, the “rate cut will devastate 340B hospitals and the communities they serve.”

The U.S. Health and Human Services Department (HHS) and the Center for Medicare & Medicaid Services’ (CMS) reduced reimbursement rates “eviscerate the federal subsidy that has kept 340B Hospitals afloat for decades,” the plaintiffs said. “Prescription-drug reimbursement rates to 340B hospitals are now nearly 30 percent lower, eliminating $1.6 billion annually to participating providers.”

“Those cuts have inflicted a crushing blow on 340B hospitals, which are already eliminating essential services at a time when a deadly pandemic continues to ravage the nation,” the plaintiffs continued. “Those cuts have likewise subverted the design of the 340B program, which Congress created for the purpose of subsidizing medical care to the poor through above-cost insurer reimbursements. Those damaging consequences underscore the pressing need for review by this court.”

The hospital plaintiffs are seeking review on the narrow question of whether a Supreme Court precedent permits the U.S. Health and Human Services Department (HHS) and its Center for Medicare & Medicaid Services (CMS) “to set reimbursement rates based on acquisition cost and vary such rates by hospital group if it has not collected adequate hospital acquisition cost survey data.”

The Trump administration considered the drug reimbursement cuts for 340B hospitals one of its signature achievements to lower drug prices for patients. It partially justified the cuts on the grounds that it reduced some Medicare beneficiaries Part B prescription drug co-payments.  Hospital groups have argued that it did not save patients a penny since the provision was budget neutral and therefore rates were raised on other Medicare services provided by hospitals.

The Trump administration in December published a final rule, effective Jan. 1, 2021, that continued the reduced average sales price (ASP) minus 22.5 percent reimbursement rate for hospitals’ 340B-purchased drugs. The Biden administration has not said what its plans are for the cuts. Because the reimbursement reduction was already in effect before the new administration came into power, and because it is deeply woven into a CMS rule that sets payment rates for a multitude of other hospital outpatient matters, the new administration has virtually no leeway to reverse the cuts for 340B hospitals this year.

The Biden administration is perceived to be more receptive to hospitals’ 340B program concerns than the last administration. Many provider stakeholders predict it will not continue the cuts in calendar year 2022.

In the meantime, there is a CMS drug reimbursement policy under challenge before the nation’s highest court. And the Trump administration is no longer there to defend it.

The hospital plaintiffs—the American Hospital Association, the Association of American Medical Colleges, America’s Essential Hospitals, Northern Light Health of Maine, Henry Ford Health System of Michigan, and AdventHealth Hendersonville of North Carolina—focus their attack on CMS’s decision in 2018 “for the first time [to] set a prescription-drug reimbursement rate for one hospital group different from the rate it set for all the others,” namely, for 340B hospitals.

If CMS wished to do so, the hospital plaintiffs said, by law it needed to base the new reimbursement rate for 340B hospitals on “robust” acquisition cost survey data. Instead, the plaintiffs said, CMS relied on a Medicare Payment Advisory Commission report estimating the average minimum discount received by 340B hospitals. As a fallback if it lacked acquisition cost survey data, CMS instead had to calculate 340B hospitals’ new reimbursement rate by reference to the drugs average sales price, the hospitals plaintiffs said. Instead, the plaintiffs said, quoting the federal district court that rules in their favor, CMS “sought to mimic the result” required by law “by setting rates designed to approximate acquisition costs.”

The district judge ruled that effort was “a patent violation of agency authority,” in a win for the plaintiffs. But last summer, a federal appeals court ruled that CMS had the authority to impose the nearly 30 percent cut, and interpreted that authority reasonably “so as to avoid reimbursing those hospitals at much higher levels than their actual costs to acquire the drugs.”

The hospitals plaintiffs told the Supreme Court that the appeals court decision “raises an issue of exceptional importance that manifestly warrants this Court’s review.”

The plaintiffs said the appeals court “grievously erred in affirming HHS’s misuse of its modest ‘adjustment’ authority” under the law “to make wholesale changes in the method for calculating reimbursement rates for 340B Hospitals—changes that flout the requirements Congress prescribed for setting such rates.”

“And the policy the court upheld on the basis of this legal error affects billions of dollars in federal prescription-drug spending, and resulted in a $1.6 billion annual hit to 340B hospitals that depend on full Medicare reimbursements to subsidize essential healthcare services they provide to low-income communities,” the plaintiffs said. “A legal error this serious upholding a federal agency action with consequences this grave is by itself a sufficient reason to grant review.”

The Supreme Court rarely takes up a petition for review so the hospital effort is a long shot.

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