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Judge Rules 340B Cuts Unlawful, Decision Applauded by Industry Stakeholders

Analysis  |  By Jack O'Brien  
   May 07, 2019

A federal judge reaffirmed his view that the cuts by HHS to the discount drug program are unlawful.

U.S. District Court Judge Rudolph Contreras again ruled Monday evening that the 340B drug reimbursement rate that Health and Human Services set in the 2019 Outpatient Prospective Payment System (OPPS) rule is unlawful, a decision that earned praise from various industry stakeholders. 

Five months after first vacating the 22% cut in 340B payments that HHS Secretary Alex Azar proposed late last year, Contreras reiterated that the cuts were implemented "in contravention of the Medicare Act's plain text."

Medicare Part B will sell prescription drugs to hospitals participating in the program at the average selling price plus 6%, well above the average selling price minus 22.5% as HHS had proposed.

"The Court also concludes that, despite the fatal flaw in the agency's rate adjustments, vacating HHS' 2018 and 2019 rules is not the best course of action, given the havoc vacatur may wreck on Medicare's administration," Contreras wrote in the 22-page ruling.

HHS will have "first crack" at crafting appropriate remedies for the two rules, according to the ruling.

On Tuesday, three hospital plaintiffs applauded the ruling as a positive development for the embattled federal program, which has been deemed wasteful and rife with abuse by critics who demand additional oversight and accountability.

"America’s 340B hospitals are pleased with the District Court’s decision and urge HHS to follow the judge’s directive to promptly resolve the harm caused by its unlawful cuts to Medicare reimbursement for certain 340B hospitals," the American Hospital Association, Association of American Medical Colleges, and America's Essential Hospitals said in a joint statement. "The ruling reaffirmed that the 2018 cuts were unlawful and extended that ruling to the 2019 cuts. Owing to the complexity of the Medicare program, the judge gave HHS first crack at fashioning a remedy for its unlawful actions. He also asked for a report from HHS on its progress on or before August 5, 2019. We urge HHS to promptly comply with the judge’s ruling and restore to 340B hospitals all funds that have been unlawfully withheld."

HHS has not issued a statement regarding Monday's ruling and did not respond to a request for comment by time of publication. 

Related: Federal Judge Halts 340B Drug Payment Cuts

The December ruling by Contreras did have a material impact on nonprofit hospitals, according to Moody's Investor Service, which determined in early January that the reversion of the cuts would lead to improved operating performance.

Related: 340B Ruling Helps Hospitals' Bottom Lines

340B Health, an advocacy group for the federal program, also issued a statement Tuesday afternoon applauding Contreras' ruling.

“On behalf of the nearly 1,400 hospitals we represent that participate in 340B, we are pleased that the court has, once again, found that HHS exceeded its statutory authority by cutting what Medicare pays for outpatient drugs delivered to their patients," Maureen Testoni, CEO of 340B Health, said in a statement. "The cuts made in 2018 and again in 2019 have reduced hospitals’ ability to care for those in need. The sooner this policy is reversed, the better hospitals will be able to serve the needs of patients with low incomes and those in rural communities. HHS must act quickly, as any further delay will only harm patients and the hospitals they rely on for care.”

Nearly 2,500 hospitals currently participate in the 340B Drug Pricing Program, which was created in 1992 to assist safety-net and low-income providers purchase prescription drugs.

Related: HRSA Launches 340B Drug Pricing Website

Opinion: 340B Drug Program Was Created to Help Patients, Not Boost Hospital Profits

A status report regarding HHS' progress remedying the situation must be submitted to Judge Contreras by August 5. 

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.


In a joint statement, three hospital plaintiffs urged HHS to follow the judge's directive.

340B Health added their approval in a statement, asking the agency to "act quickly."

A status report regarding HHS' progress remedying the situation must be submitted to U.S. District Court Judge Rudolph Contreras by August 5.

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