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Analysis

Azar Cheers Appeals Court Reversal on 340B Ruling

By John Commins  
   July 31, 2020

The ruling by the U.S. Court of Appeals for the District of Columbia reverses a lower court that said HHS had overstepped its authority to cut 340B reimbursements.

The Trump Administration is hailing a federal appeals court ruling on Friday that affirms the Department of Health and Human Services' authority to reduce payments by nearly one-third for drugs purchased by hospitals under the 340B discount program.

The ruling by the U.S. Court of Appeals for the District of Columbia reverses a district court ruling from 2018, which had sided with the plaintiff hospitals who had argued that HHS had overstepped its authority with the 28.5% cuts to the 340B program.

"In our view, HHS reasonably interpreted (Medicare law) adjustment authority to enable reducing (Specifically Covered Outpatient Drug) payments to 340B hospitals, so as to avoid reimbursing those hospitals at much higher levels than their actual costs to acquire the drugs," Chief Judge Sri Srinivasan wrote for the majority in a 30-page ruling.

HHS Secretary Alex Azar called Friday's ruling "another major victory for President Trump's agenda of lower drug prices and better healthcare for all Americans" and said Medicare beneficiaries would pay lower out-of-pocket costs for their drugs as a result.

The ruling marks the second time in two weeks that Srinivasan and the D.C. appeals court have reversed a lower court ruling in favor of HHS and the Trump Administration.

On July 17, the appeals court said the Centers for Medicare & Medicaid Services had the legal authority to finalize site-neutral provisions in the Outpatient Prospective Payment System final rule for 2019.

The 340B program allows qualified hospitals to buy certain outpatient drugs at or below cost to extend scarce federal resources. However, HHS said it would cut the reimbursement by 28.5% after complaining 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.  

"Since HHS took the action that the court affirmed today, we have saved more than $4.8 billion in lower drug costs and reinvested these savings in the Medicare program," Azar said.

In a joint statement, the plaintiffs in the suit, which include the American Hospital Association, the Association of American Medical Colleges, and America's Essential Hospitals, panned the ruling and warned that "America's 340B hospitals and the millions of patients they serve will suffer lasting consequences."

"The decision conflicts with Congress' clear intent and defers to the government's inaccurate interpretation of the law, a point that was articulated by the judge who dissented from the opinion," the plaintiffs said. 

"For more than 25 years, the 340B program has helped hospitals stretch scarce federal resources to reach more patients and provide more comprehensive services. Hospitals that rely on the savings from the 340B drug pricing program are also on the front-lines of the COVID-19 pandemic, and today's decision will result in the continued loss of resources at the worst possible time," they said.

Maureen Testoni, president and CEO of 340B Health, said she was "deeply disappointed" by the ruling, which she said will allow for "discriminatory Medicare Part B payment cuts to continue for many hospitals participating in the 340B drug pricing program."

"These cuts of nearly 30% have caused real and lasting pain to safety-net hospitals and the patients they serve. Keeping these cuts in place will only deepen the damage of forced cutbacks in patient services and cancellations of planned care expansions," she said. "These effects will be especially detrimental during a global pandemic."

In Dissent

Writing in a partial dissent, Judge Cornelia Pillard said Medicare law does not give HHS the authority "to implement for 340B hospitals alone the challenged rate reductions in its 2018 and 2019 OPPS rules."

Pillard said Medicare statute sets forth two alternative bases for HHS's calculation of the reimbursement rates.

"It may set those rates under subclause (I) based on average acquisition cost (reflecting the average cost that hospitals actually incurred in purchasing the drug), or under subclause (II) based on average sales price (reflecting the average price, updated quarterly, at which manufacturers sold the drug to most purchasers, not limited to hospitals)," she wrote.   

"When the two subclauses at issue here are read together, the conclusion is unavoidable that HHS may institute its large reductions, tailored for a distinct hospital group, only under subclause (I), which requires the agency to take into account specific data undisputedly absent here," she wrote.

“ Since HHS took the action that the court affirmed today, we have saved more than $4.8 billion in lower drug costs and reinvested these savings in the Medicare program.”

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


KEY TAKEAWAYS

In a 2-1 decision, a federal appeals court ruled that "HHS reasonably interpreted (Medicare law) adjustment authority to enable reducing SCOD payments to 340B hospitals."

The plaintiff hospital groups in the suit panned the ruling and warned that "America's 340B hospitals and the millions of patients they serve will suffer lasting consequences."

Writing in a partial dissent, Judge Cornelia Pillard said Medicare law does not give HHS the authority "to implement for 340B hospitals alone the challenged rate reductions in its 2018 and 2019 OPPS rules."

The ruling marks the second time in two weeks that the D.C. appeals court has reversed a lower court ruling in favor of HHS and the Trump Administration.


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