The administration in July won three cases that are critical components of its sweeping healthcare reforms.

July was a good month for President Donald J. Trump's healthcare agenda, with the administration stringing together three favorable rulings in a federal appellate court.

On July 17, The U.S. Court of Appeals for the District of Columbia Circuit upheld the Trump administration's expansion of short-term, limited-duration health plans.

Judge Thomas B. Griffith, an appointee of President George W. Bush, wrote that the Trump administration "exercised the policymaking authority" granted to it and therefore the STLDI rule remains in place.

Also on July 17, the D.C. Appeals Court overturned a district court's ruling that the Centers for Medicare & Medicaid Services overstepped its legal authority finalizing site-neutral payments in the Outpatient Prospective Payment System final rule for 2019.

In AHA v. Azar, the court ruled unanimously in favor of the Department of Health and Human Services, reversing a district court's ruling last September that CMS acted in a way that was "manifestly inconsistent with the statutory scheme" when it finalized the site-neutral payment as part of the OPPS final rule for 2019.

Chief Judge Sri Srinivasan, an appointee of President Barack Obama, wrote that the district court decision would be reversed since "we conclude that the regulation rests on a reasonable interpretation of HHS's statutory authority to adopt volume-control methods."

On July 31, yet another ruling from the D.C. Appeals Court reversed 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," Srinivasan wrote for the majority in a 30-page ruling.

Tom Barker, former general counsel at CMS, says the favorable rulings for the Trump administration cannot be credited to deferential judges.  

"These are not Trump judges," says Barker, now a partner and co-chair of Foley Hoag's healthcare practice. "These are judges believe in the administrative state and the administration just happens to be benefiting from that fact."  

Barker spoke with HealthLeaders about this recent string of successes for the Trump administration. This transcript has been edited for clarity and brevity.

HL: The Trump administration's healthcare agenda is on a winning streak in federal courts. What's going on?

Barker: In my own personal view, to put somewhat of a political spin on this, these judges believe in the administrative state and they believe in the ability and the power of executive branch agencies to interpret a law and that is what is happening here. It just so happens that it is benefiting the Trump administration.

HL: Two of the most recent reversals were led by the same judge at the D.C. Appeals Court. What should we make of this?

Barker: The judge (Srinivasan)  was appointed by President Obama. Two of the three judges were the same in the site neutrality and the 340B case. Four judges were appointed by President Obama. So, you can't say that it's Trump judges supporting a Trump administration policy because those were not Trump nominees. They were Obama nominees.

The judge who wrote the 340B and the site neutrality decision (Srinivasan) believed in the power of the federal executive branch to expansively and robustly interpret the law, and that's exactly what's happening. And again, it just so happens to be benefiting the Trump administration.

HL: What does this say about future lawsuits that stakeholders may consider against the Trump administration?

Barker: Will the full D.C. Circuit take up the site neutrality case, en banc, which I think the American Hospital Association has already asked for? Maybe they will in the 340B case too. If my theory is correct, then the full D.C. Circuit will uphold what the three-judge panel did because there are now a majority of Democratic-appointed judges on the D.C. circuit, and they presumably have a similar view of Chevron deference and the administrative state.

Another question, though, is if President Trump loses in November, would a Biden administration continue both of these policies? Maybe they continue the site neutrality policy, but I'd be surprised if they continued the 340B policy. The Obama administration had a similar view of site neutrality.

HL: What should these plaintiff hospitals do?

Barker: With 340B, I'd wait to see if there's a Biden administration and then that would be a high priority for me to get a new CMS administrator or new HHS secretary to reverse the policy.

And with site neutrality, I would think that the Biden administration would support that policy, so I'd go to Congress.

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.

For the first time, Part D will cover insulin at a cost of no more than $35 a month per prescription.

The average basic Medicare Part D premium will be $30.50 in 2021, the lowest premiums since 2013, the Centers for Medicare & Medicaid Services said late Wednesday.

And for the first time, Part D will include coverage of "a broad set of insulins" that will cost Medicare beneficiaries no more than $35 a month per prescription, CMS said.

Part D premiums have decreased by 12% since 2017, saving beneficiaries nearly $1.9 billion, and Part D enrollment has grown by 16.7% over that span.

"At every turn, the Trump Administration has prioritized policies that introduce choice and competition in Part D,"  CMS Administrator Seema Verma said in a media release.

"The result is lower prices for life-saving drugs like insulin, which will be available to Medicare beneficiaries at this fall’s Open Enrollment for no more than $35 a month," she said. "In short, Part D premiums continue to stay at their lowest levels in years even as beneficiaries enjoy a more robust set of options from which to choose a plan that meets their needs."

Verma said the Trump administration efforts to increase competition among Medicare Advantage and Part D drug plans has also generated about $8.5 billion in program savings over the past four years, a trend she said is expected to continue into 2021.

Starting Jan. 1, 2021, Medicare beneficiaries who select Part D Senior Savings Model plans will save, on average, $446 per year, or 66%, on their out-of-pocket costs for insulin, CMS said.

Nationwide, beneficiaries will be able to choose from more than 1,600 standalone Medicare Part D prescription drug plans and Medicare Advantage plans with prescription drug coverage during the open enrollment period that runs from October 15 through December 7.

Because most Medicare Advantage plans with prescription drug coverage do not charge a Part D premium, beneficiaries will save on insulin and not pay any extra premiums, CMS said.

Given all the hard work, risk, and public advocacy that goes into a merger, those who've undertaken the enormous task are apt to accentuate the positive.

It shouldn't be surprising that 78% of healthcare executives in the HealthLeaders Intelligence Report, Healthcare M&A: Moving Forward in a Post-COVID-19 Landscape say their organization would choose to participate in its most recent M&A again.

Given all the hard work, risk, and public advocacy given to a merger, those who've undertaken the enormous task are apt to accentuate the positive.

Ballad Health CEO Alan Levine shares that sentiment.

In 2018, as CEO of Mountain States Health Alliance, Levine oversaw the merger with Wellmont Health System that essentially doubled the size of the newly formed Ballad Health, a 21-hospital health system serving four states, based in Johnson City, Tennessee. 

"There's been such an enormous benefit to the region by doing this," he says. "It's been challenging because we basically agreed to very aggressive regulations, which has made it a lot harder. But even with that, this was the right thing to do."

"Now, our goal is to operationalize what we've created and, so far, we're doing a good job of it," Levine says. "Our quality metrics have improved dramatically. Five of our 17 quality measures are now in the top-performing decile in the country, and that happened after the merger."

"We've improved our margins. We went from basically a zero percent margin to a 1.6% margin, so our margins have improved but they're still well below what the industry expectation should be."

The margin improvements have come, Levine says, even as Ballad Health has reduced physician charges by 17% across the system.

"The most important access point for patients is urgent care and their doctors, and we did a 17% average charge reduction," he said. "In fact, in some cases, it was a 50% decrease in out-of-pocket costs."

"We also expanded our charity policy. Prior to the merger, if you were up to 200% of poverty, we wrote off all the cost of your care. After the merger, we increased our charity policy up to 225%, and we provide deep discounts for up to 400% of poverty," he says. "So, we actually expanded pretty dramatically either the number of people that are eligible to have their care completely written off, or we apply deep discounts to it that weren't available before the merger."

You Can Only Sell Your Hospital Once

Tim Putnam, CEO at Margaret Mary Health, a community-owned, critical access hospital in Batesville, Indiana, has a hard-nosed theory on why executives have no post-merger regrets.

"Everyone who answered that [survey question in the HealthLeaders report] was probably employed by whomever was acquired," Putnam says. "It's not surprising that people would say that because they've got to get up in front of their communities and say, "This was a good thing for our community.' "

"One of the things that I hear from my colleagues is that you can only sell your hospital once, and you've got to do it right," Putnam says. "I'm not saying it's not the right move, but you can only do it once."

Some Buyers' Remorse

Of those respondents who were involved in M&A activity, only 10% expressed buyers' remorse for their most-recent acquisition. Of that 10%, 86% cited "incompatible cultures" as the reason their M&A fell short of expectations.

"There’s something we refer to in M&A circles called 'deal fever,' " Peggy Sanborn, system senior vice president of strategic growth, partnerships, and joint ventures for CommonSpirit Health, said in a recent HealthLeaders webinar.

"Many times, the excitement about the opportunities that a deal represents for the organizations coming together and all the possibilities they see, as well as the enthusiasm for successfully completing a transaction, can blind us to the critical review of whether or not we actually have a fit."

"It requires quite a bit of leadership time talking about what it means to come together and exploring the vision and values and mission of the organizations very carefully and discussing the difficult issues quite openly, and either agreeing that those are things that clearly can be navigated or they may be real barriers to success," she said.

"We tend to avoid those difficult conversations during the M&A process because we're focused much more on the tactical issues or the economic impact issues or the legal and risk issues associated with the transaction," Sanborn said.

Levine agrees, and says, "Sometimes people want the merger so bad they overlook all these different things."

"I've seen mergers where you've got co-CEOs, and [they're] going to keep both corporate offices open. I don't know how those things even work," he says.

"Our boards at Wellmont and Mountain States—early on—knew culture eats intent for breakfast every morning. We hired a consultant that came in and did a deep dive culture audit of management, the boards, and our frontline staff."

"They did these spider diagrams where they overlaid the culture of Wellmont versus Mountain States, and below management and the board there was no difference in the cultures. The nurses [and] doctors just wanted to take care of patients, and they didn't care whose name was on the wall. You get up into senior management and the board and the cultures were very different," he says.

The merging systems used data gleaned from the consultants to deal with potential culture clashes on the front end.

"We went through serious negotiations about who was going to be on the new board," Levine says. "We embedded into the bylaws provisions that really push out System A versus System B. We made it very important at the very beginning that there was no discussion about Wellmont or Mountain States. We were Ballad."

Tim Putnam takes a bottom-up view. He says the culture clashes don’t manifest themselves in the C-suite or the boardroom, but in the hospital halls.

"The C-suite folks are going through the due diligence, not the people in radiology or scheduling," he says. "When you get down to the frontline staff, one organization may allow a lot of flexibility at the frontline to handle patients' schedules, another organization may be very rigid in that process. Minor things that you don't think are an issue ... take a while to overcome."

Putnam says he was involved in the acquisition of a small system in a deal that was rife with cultural issues.

"Everything changed," he says. "Whether you're the acquiring organization or the acquired, it changes you. ... It takes a decade to work through that culture change."

To download the full July/August 2020 HealthLeaders Intelligence Report, click here.