On January 10, 2023, Judge Contreras of the United States District Court for the District of Columbia ruled that CMS’s 340B drug reimbursement rates dating back to January 1, 2018, were unlawful and underpaid affected hospitals. This decision follows Judge Contreras’ September 28, 2022, decision that vacated CMS’s 340B drug payment policy on a prospective basis. Here, however, Judge Contreras’ ruling fell short of vacating CMS’s prior rules or specifically ordering CMS to make prompt and full repayment to the affected hospitals.
As background, prior to 2018, CMS paid all acute care providers for separately payable outpatient drugs at the rate of average sales price (ASP) plus 6% as required by statute. Effective in 2018, however, CMS implemented its 340B rate cut policy to cut the rates for separately payable drugs purchased under the 340B program to ASP minus 22.5 percent.
A group of plaintiffs, consisting of 340B hospitals and hospital associations, challenged the Secretary’s 340B rate cut in federal court. Plaintiffs were initially successful in district court, which concluded that the Secretary violated the plain language of the statute. The district court’s decision was reversed by the D.C. Circuit. The Supreme Court reviewed the case to determine whether the 340B rate cuts were lawful under the statute. On June 15, 2022, the Supreme Court issued a unanimous ruling in American Hospital Assn. v. Becerra, declaring that CMS’s 2018 and 2019 reimbursement outpatient drug rate cut to 340B hospitals was “contrary to the statute and unlawful.” The Supreme Court, therefore, reversed the judgment of the D.C. Circuit and remanded the case for further proceedings. The D.C. Circuit subsequently remanded the case to the District Court for the District of Columbia to determine the remedies.
On remand, the district court considered two separate motions to address the proper remedy for 340B hospitals. The first motion sought to vacate the portion of the 340B reimbursement rate in the 2022 OPPS Rule, which continued to pay hospitals ASP minus 22.5% for 340B drugs. The second motion addressed a retrospective remedy concerning the underpayments to 340B hospitals under the unlawful reimbursement rates in prior OPPS Rules going back to 2018. On September 28, 2022, the district court ruled on the first motion by vacating CMS’s drug reimbursement rate for 340B hospitals in the 2022 OPPS Final Rule. The vacatur, however, was limited to the “remainder of 2022” i.e., for 340B drug claims with dates of service on or after September 28, 2022.
Last week’s decision is the district court’s ruling on the second motion concerning retrospective relief for 340B claims that were underpaid between January 1, 2018 and September 27, 2022. Here, the district court’s opinion acknowledged that vacatur is the typical remedy when an agency’s rules are found to be unlawful. The court instead decided to remand the matter to the agency without vacatur because of the “potentially disruptive consequences” that would result from vacatur, including alleged concerns of budget neutrality and the “enormous number of settled transactions” that occurred from 2018-2022—amounting to $10 billion by some estimates—that the agency would need to remediate.
Regarding the remedy on remand, the court wrote, “[t]o the extent Plaintiffs seek an order commanding HHS to repay each underpaid claim to the penny, that cannot possibly be the only rational choice available to the agency.” In other words, the court endorsed the notion that, on remand, CMS may have a number of potential remedies including issuing a prospective one-time rate increase that would avoid precisely calculating individual claims for each hospital.
The Court acknowledged that CMS has announced plans to address the 2018-2022 rates in the forthcoming CY 2024 rulemaking cycle and did not retain jurisdiction over the matter on remand.
The district court’s opinion in American Hospital Association v. Becerra is available here.
