COURT FINDS THAT HHS DID NOT HAVE AUTHORITY TO REDUCE PAYMENTS FOR PHARMACEUTICALS UNDER MEDICARE'S 340B PROGRAM BY ALMOST 30%

            On December 27, 2018, Judge Rudolph Contreras of the federal District Court for the District of Columbia ruled that the Department of Health and Human Services (HHS) exceeded its authority in reducing the amount Medicare pays to hospitals for pharmaceuticals under the 340B program by almost 30%.  In ruling in favor of the hospitals challenging the rate reduction, he stated that the hospitals were entitled to “some relief” (emphasis in the Court’s opinion).  He also recognized, however, the “drastic impact of this Court’s decision on Medicare’s complex administration,” and therefore ordered more briefing rather than requirement payments to the hospitals at the previous higher 340B rates as they had requested.

            Medicare’s 340B program was established by the Veterans Health Care Act of 1992, with the stated purpose to enable eligible hospitals “to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  Under the program, certain hospitals, such as disproportionate share hospitals, sole community hospitals, and rural referral hospitals, can purchase covered pharmaceuticals at a steep discount.  Medicare then reimburses the hospitals at the regular Part B rates established by the Outpatient Prospective Payment System, allowing the hospitals to use the difference to support other programs and services.

            Prior to 2018, Medicare reimbursed hospitals for 340B drugs at Average Sales Price (ASP) plus 6%.  In 2017 HHS adopted rules reducing that rate to ASP minus 22.5%, a decrease of almost 30%.  The principle dispute before the Court was whether HHS acted within its statutory authority to “adjust” the statutory benchmark of ASP plus 6% when it reduced the rates.  The Court found that the reduction was simply too large to qualify as an “adjustment” and was therefore ultra vires (beyond its statutory authority).  

            The parties have thirty days, or until January 28, 2019 to submit briefs on the appropriate remedy, with reply briefs due 15 days thereafter.
 

            The case is The American Hospital Association, et al., v. Azar, Civil Action No. 18-2084.  The Court’s decision is linked here.