On July 10, 2019, Judge Rudolph Contreras of the U.S. District Court for the District of Columbia granted HHS’ request for a final judgment, clearing the way for the government to immediately appeal his earlier decision that found unlawful Medicare’s nearly 30 percent rate cut for separately payable outpatient drugs purchased under the 340B program.

This lawsuit was originally initiated in November 2017, shortly before CMS implemented its policy, adopted in the Calendar Year 2018 Outpatient Prospective Payment System (OPPS) final rule, to cut the rates for separately payable drugs purchased under the 340B program to ASP minus 22.5 percent. That lawsuit, brought by the American Hospital Association (AHA), other hospital associations and a handful of representative hospitals, was dismissed by Judge Contreras because the plaintiffs had failed to present their claims to the Secretary in the context of a claim for payment as required by the Medicare statute. The United States Court of Appeals for the District of Columbia affirmed that decision, requiring the AHA and other plaintiffs to initiate a second lawsuit after they complied with the “presentment” requirement. A copy of the Court of Appeals’ final decision can be found here.

In December 2018 and after the plaintiffs filed their second lawsuit, Judge Contreras found that CMS’s rate cut violated the formula prescribed in the Medicare statute for setting rates for certain outpatient drugs. That provision requires CMS to set rates either using drug acquisition cost data it collects from hospitals as part of a survey or default to the drug’s average sales price as reported by manufacturers. See 42 U.S.C § 1395l(t)(14). The agency is not free, according to Judge Contreras, to use its adjustment authority to develop a third payment methodology altogether, which the ASP minus 22.5 formula effectively was. Despite finding that the agency had acted ultra vires—beyond its power granted by Congress—Judge Contreras decided not to vacate CMS’s OPPS payment rule out of concern that vacatur would be too disruptive, given that the OPPS system is budget neutral and the “savings” achieved by the rate cut had been used to raise OPPS rates for all other outpatient department services. See Judge Contreras’ May 6, 2019 Memorandum Opinion here. Instead, Judge Contreras remanded the matter back to HHS to determine its own remedy for resolving its error. Judge Contreras also ruled at that time that he would retain jurisdiction over the case in order to address the adequacy of the government’s actions on remand. Id.

In a motion filed in June 3, 2019, HHS requested that Judge Contreras reconsider his earlier decision on the merits and, in the alternative, revise his decision to retain jurisdiction of the case on remand and instead enter an order of final judgment. According to the government, Judge Contreras’ order raised doubts as to whether the district court matter was final and immediately appealable to the D.C. Circuit. On July 10th, Judge Contreras reaffirmed in his order that CMS’s 340B rate cut was unlawful, denying the government’s request to reconsider the merits of the matter. But Judge Contreras did grant the government’s request to revise his order and not retain jurisdiction of the case on remand. Although the plaintiffs had requested that he set a firm date by which HHS had to present its remedy on remand—presumably so that it could be challenged if insufficient—Judge Contreras denied that request as moot.

What this means as a practical matter is that the government is now free to appeal immediately the merits of Judge Contreras’ decision that the 340B rate cut was ultra vires. It will not be required to present a plan on remand as to how it will reverse the rate cut and make hospitals whole before asking the D.C. Circuit to reverse Judge Contreras’ decision on the merits. At this time, affected hospitals have lost billions of dollars in reimbursements since CMS implemented the 340B rate cut in both CY 2018 and CY 2019. It now appears they will have to wait until after the D.C. Circuit reviews and rules on Judge Contreras decision—which could take an additional year to 18 months—before seeing how CMS would propose to make them whole. A copy of the July 10, 2019 Order can be found here and the Court’s accompanying memorandum can be found here.