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340B Hospitals Win In Medicare OPPS Supreme Court Decision – Healthcare

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The Supreme Court issued a long-awaited victory to 340B
hospitals this week, when it held in American Hospital Association et al. v. Becerra
et al
. that the Department of Health and Human
Services (HHS) had set unlawful Medicare reimbursement rates for
hospitals participating in the 340B Drug Pricing Program in 2018
and 2019. The Court’s decision promises much-needed financial
relief for 340B hospitals, which have weathered over two years of
reduced savings from the 340B program as a result of new policies
implemented by drug manufacturers, which are also still pending in the court system.

At issue in the case was a new Medicare payment policy announced
in the calendar year (CY) 2018 and CY 2019 outpatient prospective
payment system (OPPS), when HHS reduced payment rates for 340B
drugs dispensed by hospitals by nearly 30%. These reductions were
intended by HHS to approximate the discounts available to 340B
hospitals on the price of purchasing drugs from drug manufacturers,
reducing the savings generated by the 340B Program away from the
340B hospitals. The payment cuts were challenged by trade
associations representing hospitals and certain individual
non-profit hospital plaintiffs. Resolution of the issue has been
pending since suit was first filed in 2017.

Supreme Court Opinion

Justice Kavanaugh delivered the opinion for the unanimous Court,
stating that the Medicare statute provides HHS with two options
when HHS sets reimbursement rates, depending on whether HHS has
conducted a survey of hospitals’ acquisition costs for certain
outpatient prescription drugs. First, if HHS has conducted such a
survey, HHS may set the reimbursement rates to the hospitals’
average acquisition costs of the given drug for that year and may
vary the reimbursement rates by hospital group. Second, if HHS has
not conducted such a survey, HHS must set the reimbursement rates
based on the average sales price of the drugs charged by their
respective pharmaceutical manufacturers. 42 U.S.C. §

The Court found that the proposed changes to reimbursement for
only 340B hospitals was a variation of reimbursement rates by
hospital groups, which, the Court opined, could not be done under
the Medicare statute without conducting a survey of hospitals’
average acquisition costs in accordance with the first option
described above. HHS implemented the separate reimbursement rates
for non-340B hospitals and 340B hospitals in its 2018 and 2019 hospital OPPS final rules without such a
survey. The Court concluded that if HHS has not conducted a survey
of hospitals’ average acquisition costs, HHS may not vary the
reimbursement rates for outpatient prescription drugs by hospital
group, and as such, the reimbursement rates set in the CY 2018 and
CY 2019 hospital OPPS final rules were unlawful.

Uncertainties Remain over Timing and Scope of Remedies

While the Supreme Court clearly held that HHS’s 2018 and
2019 reimbursement rate cuts for 340B hospitals exceeded its
authority under the Medicare statute, it did not clearly address
how the violation should be remedied. The Court remanded the case
to the lower courts for further proceedings consistent with its

Significant uncertainty remains, including around the timing and
scope of financial relief to 340B hospitals. In 2019, a U.S. District Court hearing the same case held
– as the Supreme Court would agree years later – that
the rate reductions in the CY 2018 and CY 2019 OPPS final rules for
340B hospitals were unlawful. Rather than vacating the rules, the
District Court remanded the CY 2018 and CY 2019 rules to HHS, so
that it could “unscramble the egg.” HHS appealed the case
before offering a proposal on remedies, but may now be again
directed to outline its proposal for remedying the violation.

Of particular interest is the potential for the remediation of
the violation to impact both 340B and non-340B hospitals. This is
because Medicare OPPS rate adjustments are applied in a budget
neutral manner, meaning the reduction in payments to certain
hospitals for 340B drugs led to an increase in payments for other
services and for non-340B drugs under the OPPS, and a general shift
of funding away from 340B hospitals toward non-340B hospitals. The
complexity of unwinding such adjustments in 2019 prompted the Court
to request that HHS “take the first crack at crafting
appropriate remedial measures.” At this time, it is unclear
whether HHS will propose to adjust all OPPS payments for CY 2018
and CY 2019 or to focus solely on remedying underpayments to 340B

Also of interest is the potential for the remedies to impact
additional fiscal years. The Supreme Court’s decision addressed
only the OPPS rates included in the filing, which were CY 2018 and
CY 2019. In 2020 (after the CY 2020 OPPS rates were already in
effect), HHS conducted a survey of hospitals’ average acquisition
costs. It is unclear whether HHS or the plaintiffs of the case just
decided will also seek to adjust OPPS payments for CY 2020, CY
2021, and/or CY 2022 under the same reasoning outlined by the
Supreme Court, or whether they will be considered outside the scope
of the case and potentially distinguishable by the survey
conducted. In addition, the proposed OPPS rule for CY 2023 is
expected later this summer, and will also announce HHS’
intended policy with regard to reimbursement of 340B drugs for the
next year.

Next Steps

While the timing and scope of remedies is still uncertain, the
Supreme Court opinion remains welcome news for 340B hospitals.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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