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January 11, 2019

Federal Court Reverses Cuts to 340B Program

In a recently issued opinion, Federal Judge Rudolph Contreras of the U.S. District Court of Washington D.C. reversed cuts to the 340B program as promulgated under the CY 2018 Hospital Outpatient Prospective Payment System (OPPS) final rule.

You may recall U.S. Department of Health and Human Services (HHS) slashed Medicare reimbursement for drugs furnished under 340B from the average sales price (ASP) plus 6 percent to ASP minus 22.5 percent in 2018. Following this payment reduction, several hospital groups, including the American Hospital Association (AHA), Association of American Medical Colleges (AAMC), and America’s Essential Hospitals (AEH) sued HHS.
Prior to discussing the federal court’s decision, I want to briefly highlight why HHS reduced reimbursement for the drug discount program.

Under 340B, covered entities purchase drugs at a reduced rate but are reimbursed at the regular OPPS rate of ASP plus six percent. This discrepancy “allowed covered entities to retain approximately $1.3 billion in 2013” per an Office of Inspector General report referenced in Judge Contreras’s opinion. As part of their filing, the plaintiffs alleged that these additional funds were used to help provide vital services to their often-underserved communities. However, HHS and members of Congress have previously expressed concern about the lack of transparency regarding how this money is used.

So, what exactly did the federal court rule?

Judge Contreras sided with the plaintiffs and ruled that HHS did not have the authority to cut payments for 340B. As such, the judge granted a permanent injunction for the plaintiffs. This permanent injunction prohibits HHS from continuing to implement reduced reimbursement for 340B related drugs and requires HHS to provide proper compensation to the plaintiffs.

One thing to note is that the judge expressed caution about how to provide restitution to the plaintiffs due to “Medicare’s complex administration”. Normally the entire rule would be voided, but the judge acknowledged that this would introduce unnecessary chaos because of budget neutrality concerns for Medicare payment rules. To address this issue, Judge Contreras invited both the plaintiffs and HHS to provide a supplemental briefing within 30 days regarding the “relief’s proper scope and implementation”. Each party will have the opportunity to respond to their counterpart’s supplemental briefing. It is unclear if the federal government will appeal.

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