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Federal Judge Halts 340B Drug Payment Cuts

Analysis  |  By John Commins  
   December 28, 2018

Hospital stakeholders 'immeasurably pleased' with the court's 'carefully reasoned decision.'  HHS says the ruling could harm funding for other vital healthcare programs.

A federal judge has ruled that Health and Human Services Secretary Alex Azar did not have the statutory authority to cut billions of dollars in 340B drug payments to hospitals.

In a ruling issued Thursday, U.S. District Judge Rudolph Contreras sided with the American Hospital Association and other hospital stakeholders who asked that he vacate the 22% cut in 340B payments that Azar had announced late last year.

"While in certain circumstances the Secretary could implement the rate reduction at issue here, he did not have statutory authority to do so under the circumstances presented," Contreras said in his 36-page ruling."

Contreras said that while the hospital plaintiffs were entitled to some relief, "the potentially drastic impact of this Court's decision on Medicare's complex administration gives the Court pause."

Instead, he ordered the two sides to file supplemental briefs to address "the question of a proper remedy."

The 340B program allows qualified hospitals to buy certain outpatient drugs at or below cost in an effort to extend scarce federal resources.

However, HHS complained that the 340B program has created a large profit margin between the price that hospitals pay for 340B drugs and the reimbursement paid by Medicare. As a result, HHS said hospitals would be incentivized to overprescribe the discounted drugs.

That concern was validated by a Government Accountability Office report in 2015 which showed that Medicare Part B drug spending was substantially higher at 340B hospitals.  

HHS issued a statement saying it was disappointed with the ruling and is "evaluating next steps."

"As the court correctly recognized, its judgment has the potential to wreak havoc on the system," HHS said. "Importantly, it could have the effect of reducing payments for other important services and increasing beneficiary cost-sharing.  We look forward to briefing the court on this important matter."

The hospital plaintiffs in the suit, which included the American Hospital Association, America's Essential Hospitals, and the Association of American Medical Colleges, issued a joint statement saying they were "immeasurably pleased" with "the court's carefully reasoned decision."

"For more than 25 years, the 340B program has helped hospitals stretch scarce federal resources to reach more patients and provide more comprehensive services—this was Congress' clear intent for the program," the plaintiffs said. "The court's ruling will help ensure 340B can continue supporting access to affordable health care for our most vulnerable communities."

Bruce Siegel, MD, president and CEO of America's Essential Hospitals, called the ruling "a victory for law and common sense."

"Congress was crystal clear when it created the 340B program to support the work of essential hospitals. Now our hospitals can continue their great work caring for the most vulnerable as good stewards of the program," Siegel said.

Not everyone in the hospital sector was happy with Contreras' decision. Federation of American Hospitals President and CEO Chip Kahn called the ruling "unfortunate because it undermines HHS efforts to cut drug costs and promote fairer payments."

"The current HHS policy will ultimately lower drug costs for patients. It also benefits the vast majority of hospitals, including some 80 percent of rural facilities. This ruling puts all those benefits at risk," Kahn said.  "We look forward to an appeals process that will recognize HHS authority to advance these program improvements."

“Congress was crystal clear when it created the 340B program to support the work of essential hospitals. Now our hospitals can continue their great work caring for the most vulnerable as good stewards of the program.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


A judge rules that HHS Secretary Alex Azar overstepped his authority when he slashed 340B payments by 22%.

Judge Rudolph Contreras granted the hospital plaintiffs a permanent injunction against the program cuts.

Contreras calls for supplemental briefs to address 'the question of a proper remedy.'

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