Federal Court Rules Cuts to 340B Drug Discount Program Violate Law

Posted on January 11, 2019

On Dec. 27, a federal judge ruled in favor of the American Hospital Association (AHA) and hospital plaintiffs in the lawsuit that was refiled in federal district court in September 2018, which sought expedited relief from the Medicare fee-for-service (FFS) payment cuts implemented in 2018 for many hospitals that participate in the 340B drug discount program. 

The lawsuit argued that the 340B cuts implemented by the Centers for Medicare & Medicaid Services (CMS) 2018 outpatient prospective payment system (OPPS) final rule violate the Administrative Procedure Act and exceed the CMS’s statutory authority. Nationally, these cuts were estimated to reduce 2018 Medicare FFS payments to hospitals for drugs purchased under the 340B program by $1.6 billion, including a $73 million payment cut for Michigan 340B hospitals. The CMS implemented these cuts in a budget-neutral manner by increasing the OPPS standard operating rate by 3.2 percent, which increased OPPS base payments to all hospitals paid under the Medicare OPPS.

In the latest ruling, the United District Court for the District of Columbia held that the CMS exceeded its authority when the agency implemented these cuts, with the court acknowledging that the approximately 30 percentage point reduction in Medicare payment rates for 340B drugs was impermissible. However, due to the budget-neutral manner in which the payment cuts were implemented, the court left unresolved the question of how to implement the ruling and ordered the parties to submit briefs within 30 days suggesting how to remedy the issue. It is expected that the CMS will appeal the federal district court opinion.

While the legal action moves forward, the MHA is working with the AHA to reinitiate legislation in the Congress to overturn the CMS rule. The CMS exempted cancer hospitals that are exempt from the prospective payment system, rural sole-community hospitals and children’s hospitals from the 340B cut. Critical access hospitals were also exempt from the payment cut, since they are excluded from the Medicare OPPS.

The MHA will provide additional information about the lawsuit, any appeal filed by the Trump administration and any newly filed legislation as it becomes available. Members with questions should contact Vickie Kunz at the MHA.

Tags: 340B Drug Pricing Program, prescription drugs, 340B

Posted in: Issues in Healthcare, Member News

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