Court Again Rejects Medicare Part B Cuts for 340B Drugs

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

On May 5, a federal district court judge ruled in favor of the hospital industry plaintiffs that sued the Department of Health and Human Services (HHS) for including in the 2019 Hospital Outpatient Prospective Payment System (HOPPS) rule a nearly 30% reduction in Medicare Part B reimbursement for drugs purchased through the 340B Drug Discount Program (340B program). In December 2018, the judge issued a nearly identical ruling with respect to the 2018 HOPPS rule.

What the Rulings Say

In both rulings, the judge found that HHS implemented the rules “in contravention of the Medicare Act’s plain text,” but that vacating the rules would do more harm than good, given the complex prospective payment system at issue, and therefore decided to remand the rules back to HHS. The judge notes that “no amount of reasoning on remand will allow the Secretary to re-implement the 340B rates in the same manner,” adding that in order to re-issue the cuts, the Secretary would need to justify the rate reductions under a different statutory provision—“a nearly impossible task, given the Secretary’s lack of relevant data.”

Nonetheless, the judge found that vacating the rules could raise significant administrative problems. Generally, outpatient prospective payment system rules must remain budget neutral, a guideline HHS followed when issuing the 2018 and 2019 rules by increasing other Medicare Part B product and service rates when decreasing Medicare payments for 340B drugs. Therefore, if HHS were to retroactively remedy the 2018 and 2019 340B drug-related payments, it may need to recoup other payments made to providers.

In light of these concerns, the court is requiring that HHS propose how to “unscramble the egg” and rectify the reimbursement cuts in the 2018 and 2019 rules. The ruling requires both parties to submit a status report regarding HHS’s progress in remedying the issue by August 5. The hospital plaintiffs are now asking, however, that the judge expedite the process by setting a firm June deadline for HHS to propose its remedy. The plaintiffs assert that, otherwise, HHS may issue the same cuts in the 2020 HOPPS rule. HHS typically releases the HOPPS proposed rule in July and finalizes it in November.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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