Judge: HHS must devise reimbursement plan for unlawful 340B payment reduction

U.S. District Judge Rudolph Contreras last week reaffirmed that the U.S. Department of Health and Human Services (HHS) exceeded its authority when it made 2018 payment cuts to outpatient hospitals for certain drugs purchased through the 340B drug pricing program, and extended the ruling to 2019 payment cuts.

The district court’s decision comes five months after it first sided with hospitals and co-plaintiffs, ruling that the 340B reimbursement reduction implemented by CMS in the 2018 OPPS final rule was unlawful. Specifically, in December 2018, the court granted a motion for a permanent injunction on the 2018 payment cut and ruled that the plaintiffs were entitled to relief but held off on deciding what relief to grant.

In its December ruling, the court also noted that it was precluded from imposing injunctive relief for claims submitted in 2019, given that hospitals had not filed claims under the 2019 rates at the time the initial lawsuit was filed. In response, the plaintiffs filed a motion for a permanent injunction to stop the 2019 payment reduction.

In a ruling last Monday, Contreras granted the plaintiffs’ motion for the permanent injunction and ordered a supplemental briefing on the question of a proper remedy. In the 22-page ruling, he reiterates that the drastic payment cut to 340B hospitals for separately payable Part B drugs without pass-through status is "in contravention of the Medicare Act's plain text."

As stated in the ruling, drug manufacturers will supply prescription drugs to hospitals participating in the program at the average selling price plus 6%, well above the average selling price minus 22.5% that HHS had set forth in the 2018 and 2019 OPPS final rules.

Contreras concluded that the plaintiffs are entitled to some relief; however, he has yet to determine how the overpayments will be remedied. As stated by Contreras in the ruling, “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." A vacated judgement makes a previous legal judgement void.

Contreras gave HHS the “first crack” at devising a solution for its unlawful actions and asked HHS for a report on its progress on or before August 5.

The American Hospital Association, America’s Essential Hospitals, and the Association of the American Medical Colleges released a joint statement saying they are pleased with the court’s decision. They urge HHS to follow the judge’s directives “to promptly resolve the harm caused by its unlawful cuts to Medicare reimbursement for certain 340B hospitals.”

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