On September 5, 2018, the American Hospital Association, the Association of American Medical Colleges, America’s Essential Hospitals, Eastern Maine Healthcare Systems, Henry Ford Health System, and Fletcher Hospital, Inc. d/b/a Park Ridge Hospital (the Plaintiffs) filed their second lawsuit against the Department of Health and Human Services (HHS) contesting CMS’s authority to cut the Medicare outpatient reimbursement rate for separately payable drugs purchased under the 340B discount program by nearly 30 percent. The same Plaintiffs had filed a similar lawsuit at the end of 2017 challenging the rate cut for 340B purchased drugs, but the D.C. Circuit Court affirmed dismissal of that lawsuit in late July 2018 due to the Plaintiffs’ failure to first present their claims in the form of a request for payment for the Secretary’s review and determination, as required by the Social Security Act, 42 U.S.C. § 405(g). The newly reinvigorated lawsuit now alleges that the Plaintiffs have channeled their claims through the administrative appeals process available to beneficiaries and providers. A copy of the Plaintiffs’ September 5, 2018 complaint is available here.
The merits of the Plaintiffs’ lawsuit stem from CMS’s November 2017 issuance of the Fiscal Year 2018 Outpatient Prospective Payments System (OPPS) final rule (the Final Rule) which adopted CMS’s earlier proposal to reduce the reimbursement rate for separately-payable outpatient drugs purchased through the 340B Program to averages sales price (ASP) minus 22.5 percent. Prior to the Final Rule, the reimbursement rate was ASP plus 6 percent, thereby creating a total swing in reimbursement of 28.5 percent from the prior year. CMS based its decision, in part, on a recent MedPAC study which concluded that 340B hospitals received an average discount of 22.5 percent of ASP. CMS also reasoned that the low acquisition cost combined with high Medicare reimbursement rate might encourage unnecessary utilization of certain 340B drugs. CMS predicted the new policy would reduce Medicare OPPS aggregate payments for 340B purchased drugs by $1.6 billion. CMS used these anticipated savings to raise reimbursement rates for all other OPPS services by 1.35 percent. For a more detailed overview of the Final Rule, click here.
Immediately after issuance of the final rule in November 2017 and before it went into effect, the Plaintiffs filed suit contesting the 340B discount and CMS’s authority to impose it. The Plaintiffs sought, among other things, a preliminary injunction to prevent CMS from implementing the 340B rate cut. The lawsuit was dismissed by the District Court in December 2017 on the basis that the Plaintiffs had not exhausted their administrative remedies and, therefore, the court lacked jurisdiction to hear the case. Specifically, the District Court held that the Plaintiffs had failed to meet the minimum requirement of presenting their claims to the Secretary of HHS in the form of a concrete request for payment. The District Court rejected plaintiffs’ argument that their comments submitted in response to CMS’s proposed OPPS rule fulfilled the Medicare statute’s “presentment” requirement. The D.C. Circuit Court affirmed the dismissal in July 2018. A more detailed overview of the history of this prior lawsuit, the Court determinations, and the implications of the Court determinations can be found here.
After they filed their lawsuit and after the rate cut went into effect, the Plaintiffs, like other providers affected by the rate cut, began to submit and appeal reimbursement claims for OPPS drugs purchased under the 340B program through the Medicare administrative appeals process. The Plaintiffs filed requests for redetermination in connection with specific 340B drug reimbursement claims contending that “the payment(s) received for 340B drugs reflect a new reimbursement of [ASP] minus 22.5%,” and that the new reimbursement rate.
“violates 42 U.S.C. §1395l(t)(14)(A)(iii)(II), the authority to pay for this drug, because it: (1) is not an ‘adjustment’ to the statutory default rate (ASP+6%); (2) is based on acquisition cost, when reliable data on acquisition cost is concededly unavailable; and (3) is for the explicit purpose of significantly reducing benefits provided by the statutorily-created 340B program.”
After receiving unfavorable redeterminations, the Plaintiffs appealed to Maximus Federal Services (Maximus), a Qualified Independent Contractor or QIC. In some instances, Maximus actually reversed the payment decision in favor of plaintiffs, but the decision was reopened by CMS and Maximus subsequently stated that each of the reopened appeals “ha[d] been deleted from [its] system” and that “MAXIMUS will not be issuing a new reconsideration decision at this time.” After Maximus’ review, the Plaintiffs submitted requests to the Office of Medicare Hearings and Appeals for review by an Administrative Law Judge (ALJ) for reconsideration and also submitted a request to the Departmental Appeals Board for expedited access to judicial review pursuant to 42 C.F.R. § 405.990. As set forth in the Plaintiffs’ complaint, “[t]he request explained that there are no material facts in dispute” and that the challenge to the remittances “turns on purely legal disputes about whether the 2018 changes to the 340B Program exceeded the Secretary’s statutory authority to adjust reimbursement rates and whether administrative and judicial review of such challenges is available.”
Based on the Plaintiffs’ unsuccessful results during the administrative appeals process, the Plaintiffs contend in their complaint that they have “presented specific claims for payment to the Secretary and any further administrative review would be futile because (a) no adjudicator within CMS has authority to invalidate a CMS regulation, and (b) CMS has taken the position that there is no administrative review of 340B Program reimbursement disputes.”
The Plaintiffs’ newly filed lawsuit seeks, among other things, (a) a declaration “that the 340B Provisions of the OPPS Rule are an unlawful exercise of Defendants’ authority, in violation of the Social Security Act and section 340B of the Public Health Service Act,” (b) payment for all underpaid 340B reimbursement claims, and (c) a mandate that CMS pay 340B drug claims in accordance with “the requirements of the Social Security Act, and specifically not to use acquisition costs to calculate prices unless Defendants have complied with 42 U.S.C. § 1395l(t)(14)(A)(iii)(I).”
