Court Again Strikes Down 340B Payment Cuts; Remands Unlawful Payment Rules to HHS to Provide Relief

Baker Ober Health Law

Baker Ober Health Law

A federal district court has ruled, for a second time, in favor of hospitals challenging the legality of Medicare payment cuts targeting certain hospitals in the 340B drug pricing program. In a May 6, 2019 decision, the U.S. District Court for the District of Columbia found the 2019 payment rate to certain 340B hospitals under the Outpatient Prospective Payment System (OPPS) to be unlawful. At issue were payment cuts of nearly 30 percent implemented by the Department of Health and Human Services (HHS) in the 2019 OPPS final rule that went into effect January 1, 2019.

The ruling followed a December 2018 decision finding that the same payment cut under the 2018 OPPS final rule, which reduced Part B drug reimbursement to certain 340B hospitals by nearly 30 percent, exceeded HHS's authority. The government has appealed the December decision to the U.S. Circuit Court of Appeals for the District of Columbia.

In the latest decision, the court remanded both the 2018 and 2019 OPPS rules to HHS to determine a remedy for the unlawful payment cuts. The court directed the government to submit a status report on the remedy for hospitals by August 5, 2019. The plaintiffs have asked the court to require that the government identify a proposed remedy by June 28, 2019, before HHS proposes 2020 OPPS rates.

The court declined to vacate the payment rules while the government considers the appropriate remedy, and so the reduced payment rates to 340B hospitals will remain in effect for now.

Background on Hospital Challenge

Hospital associations and hospital co-plaintiffs challenged the legality of the 2018 payment cuts in a September 2018 lawsuit filed in the U.S. District Court for the District of Columbia. Under the 2018 OPPS final rule, CMS reduced reimbursement for certain 340B hospitals by nearly 30 percent for separately payable Part B drugs without pass-through status – adjusting payment rates from average sales price (ASP) plus six percent, down to ASP minus 22.5 percent. The plaintiffs argued that the cuts exceeded the government's authority under the Medicare statute.

In December, the district court sided with the plaintiffs, granting their motion for a permanent injunction on the 2018 cuts. The court found that, although HHS has the authority to implement payment reductions in certain cases, the Medicare statute does not provide HHS with the authority to implement the payment cuts to 340B hospitals included in the 2018 OPPS final rule. (See Baker Donelson's analysis of the district court decision.) The government appealed the December decision. 

On February 8, 2019, the plaintiffs filed a motion to supplement their complaint, asking the court to declare that the payment reduction to 340B hospitals included in the 2019 OPPS rule is arbitrary and capricious and contrary to the law, as well as in excess of HHS's authority under the Medicare statute. Under the 2019 rates, Medicare continued the 2018 payment cuts and extended those cuts to 340B drugs administered in non-excepted, off-campus hospital outpatient departments subject to reduced site neutral payments: sites not previously subject to reduced rates in the 2018 rule. The plaintiffs subsequently filed a motion for a permanent injunction to stop the 2019 payment reduction. The May 6 decision addressed the legality of the 2019 payment rate, with the court finding the reduced payments unlawful.

Remand to Agency for Relief

The court's December 2018 decision left the question of relief unanswered. The court ruled that the plaintiffs are entitled to relief, but held off on deciding what form of relief to grant, ordering supplemental briefing on the appropriate remedy. The plaintiffs urged the court to order HHS to repay affected hospitals the difference between what Medicare paid for 340B drug claims in 2018 at the reduced rate of ASP minus 22.5 percent and the rate that Medicare would have paid under the statutory default rate of ASP plus six percent. The government asked that the court not vacate the 2018 OPPS rule and that the court remand the matter to HHS for determination of the appropriate remedy.

In the latest decision, the court opined that remanding the case to HHS was more appropriate than granting the plaintiffs' request for injunctive relief, given the multiple options available to the agency for providing relief. For example, in its briefs, the government noted a number of ways that it could structure relief, such as through a retrospective fix undoing 2018 claims, a prospective fix that would increase payment to 340B hospitals, or some other method determined by the HHS. The court also chose not to vacate the 2018 and 2019 payment policies to avoid disruption to Medicare payments across all hospitals, given the budget neutral nature of OPPS payments.

Plaintiffs asked the court to dictate the remedy HHS must provide to avoid further delay in granting hospitals relief. The court responded to this concern, stating it "may reconsider the remedy if the agency fails to fulfill its responsibilities in a prompt manner." In the meantime, the court directed the government to provide a status report on HHS's progress to remedy the unlawful payment cuts by August 5, 2019. The court "expects that the agency will act expeditiously to resolve these issues."

Hospitals expressed further concern about timing in a motion filed May 10, 2019, asking the court to require HHS to submit a status report identifying a proposed remedy no later than June 28, 2019. Noting that HHS will likely issue a 2020 proposed OPPS rule in July, the plaintiffs asserted that if a remedy is not determined before then, HHS could continue to implement the 340B payment cuts in 2020. Plaintiffs stated that 340B hospitals have been suffering reductions of $25 million per week since January 1, 2018 as a result of the unlawful payment cuts.

Appeal and Next Steps for Hospitals

The government submitted a notice of appeal to the D.C. Circuit on February 22, 2019, but days later filed an unopposed motion to hold the appeal in abeyance while the district court continued to consider a remedy and issue a final judgment. The appeals court granted the motion, and the appeal has been on hold. Per a directive from the D.C. Circuit, the parties must file motions on further proceedings in the appeal within 30 days of the district court's final judgment.

Meanwhile, the payment cut under the 2019 payment rates continue to be in effect. As such, 340B hospitals should continue to bill Medicare as required under the 2019 OPPS final rule, including the policies dictating the use of modifiers to identify 340B-acquired drugs. As we have advised previously, hospitals should also continue to consider appealing claims for 340B drugs paid under Medicare's reduced rates to preserve a right to recovery and put themselves in the best position to benefit from any relief ultimately granted by the courts.

Baker Donelson will continue to monitor the court's actions and will provide updates on the relief the court ultimately grants and the status of the government's appeal. 

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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