We have noted before the link between the Medicaid prescription drug rebate program and the 340B program. As we wrote in an earlier Client Alert, in June 2022, the U.S. Supreme Court struck down HHS’s Medicare payment cuts to 340B hospitals for separately payable outpatient drugs. The Court then remanded to the district court to determine the appropriate remedy. The 340B-specific Medicare payments started in 2018, and undoing the payment cuts poses significant challenges for the agency and the courts.
District Court Decision
In the remanded case, the hospitals filed motions to both: (1) stop HHS from applying the discounted Medicare rate to 340B hospitals for the rest of 2022; and (2) retroactively remedy all Medicare payment cuts to 340B hospitals for calendar years 2018-2022.
On September 28, 2022, the U.S. District Court for the District of Columbia ordered HHS to stop its 340B-specific payment rate and immediately start to pay 340B hospitals at the generally applicable rate of average sales price (ASP) plus 6% for the remainder of 2022. Although the court recognized that HHS is generally subject to a budget-neutrality requirement with respect to hospital outpatient payments, and prospectively correcting the payment may disrupt budget neutrality for this year, the court believed the disruptions would be minimal.
340B hospitals should generally expect an increase in their Medicare payments for covered outpatient drugs in the immediate term, although the impact will vary across hospitals.
While the court delayed its decision with respect to the plaintiffs’ request for retroactive payments, we expect such a decision to be forthcoming. The American Hospital Association, one of the plaintiffs in the case, requested that retroactive reimbursements be applied to all affected hospitals without penalizing other hospitals. However, it will ultimately be up to the court to fashion an appropriate remedy.
Finally, 340B hospitals should also note that the restoration of generally applicable Medicare rates might be a temporary change. While HHS noted that it would be required to restore Medicare payment rates for 340B hospitals as part of the CY2023 Outpatient Prospective Payment System (OPPS) proposed rule, by statute, HHS can vary Medicare payment by hospital group after conducting the requisite survey of hospitals’ acquisition costs.
UPDATE 10/6/22: HHS announced that CMS will correct the payment to hospitals for 340B drugs in two weeks, much sooner than anticipated. The agency, however, has not mentioned how they plan to approach the budget-neutrality requirement for the remainder of CY2022.