Update on HHS Recent Changes to the 340B Program’s Reimbursement Rates
October 14, 2020
By: Neil C. Brown and James P. McGibbon
A recent decision from the District of Columbia’s Court of Appeals has paved the way for the United States Department of Health and Human Services (“HHS”) to continue its policy of Medicare Part B reimbursement reductions for 340B covered entities.
Congress created the 340B drug pricing program in 1992, requiring certain pharmaceutical manufacturers to sell outpatient drugs at discounted prices to health care organizations that care for many uninsured and low-income patients. These organizations include community health centers, children’s hospitals, hemophilia treatment centers, critical access hospitals, sole community hospitals, rural referral centers, and public and nonprofit disproportionate share hospitals that serve low-income and indigent populations (collectively referred to as “covered entities”).1 The program covers at least 3,500 drugs which - given estimates - accounts for around 2.8% of the total U.S. drug market.2 After the 340B covered entities acquire the drugs at reduced prices, they can seek reimbursement from HHS through Part B of the Medicare Program for specified covered outpatient drugs (“SCODs”), such as immunosuppressants and chemotherapy drugs.
From 2013 to 2017, the reimbursement rate hovered around 106% of the average sales price of a given drug.3 In 2018, HHS cut the reimbursement rate by 28.5% for all 340B hospitals.4 The reimbursement rate for non-340B covered entities, however, remained unadjusted. According to HHS, the policy closed a loophole in the system, as HHS believed that Medicare should not reimburse hospitals more than they paid to acquire the drugs.5
Several hospitals along with the American Hospital Association (“AHA”) filed suit in federal court in the District of Columbia seeking to enjoin HHS from imposing the cuts. Originally, in American Hospital Association v. Azar, the district court ruled in favor of the hospitals.6 But this decision, however, was subsequently appealed to the District of Columbia’s Court of Appeals.
On July 31, 2020, the Court of Appeals ruled in favor of HHS, holding that the governing Medicare statute granted HHS the power to implement the 28.5% adjustment to the specified covered outpatient drugs purchased by 340B hospitals.7
The Upshot – Down But Not Out
While certain 340B covered entities may be discouraged from the recent decision, they are not entirely without options. As far as next steps, AHA could ask for a rehearing by a full panel of judges (en banc) at the District of Columbia Court of Appeals, could file challenges to the rules in another federal circuit, or could even appeal the case to the U.S. Supreme Court. Although the way forward is unclear, the AHA recently stated that it “will continue to fight for . . . hospitals and their patients, and . . . [urge the reversal of] this harmful policy to ensure hospitals can continue to provide the services people need most.”8 The decision comes at a difficult juncture for 340B hospitals that are already facing regulatory changes and financial uncertainty due to COVID-19.
After this victory, and in light of the coming November election, it is not currently certain how HHS will proceed with its 340B reimbursement methodology. For the first time, HHS conducted and completed an acquisition cost survey on May 15, 2020, perhaps portending a change to come.
There are three likely outcomes. First, HHS has proposed in its CY 2021 OPPS Payment Methodology for 340B Purchased Drugs another decrease in the reimbursement rate (approximately 6%) and has proposed exempting “rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals.”9 Second, HHS may change the reimbursement rates for 340B and non-340B covered entities based on the results of the newly-conducted average acquisition cost survey. Or third, HHS may pursue some other course of action.
Jackson Kelly attorneys are ready to serve as trusted advisors to help apprise you of this rapidly developing area of the law, and to help you meet all your health care compliance goals.
1 American Hospital Association, Fact Sheet: The 340B Drug Pricing Program, https://www.aha.org/fact-sheets/2020-01-28-fact-sheet-340b-drug-pricing-program.
2 American Hospital Association v. Azar, 967 F.3d 818, 822 (D.C. Cir. 2020).
3 Azar, 967 F.3d at 821.
4 Id. at 820.
6 American Hospital Association v. Azar, 348 F. Supp. 3d 62, 79 (D.D.C. 2018).
7 American Hospital Association v. Azar, 967 F.3d 818, 822 (D.C. Cir. 2020); see also 42 U.S.C. § 1395l(t)(14)(A)(iii)(II).