Hospital groups ask Supreme Court to reverse payment cuts to 340B hospitals, off-campus provider-based departments

• Hospital groups want the U.S. Supreme Court to reverse decisions upholding Medicare payment cuts to 340B hospitals and off-campus provider-based departments (PBDs).
• The 340B-related petition involves a rule previously implemented by HHS to cut drug payments to participating hospitals by nearly 30%.
• The PBD-related petition involves a rule that was projected to reduce hospital payments by $600 million per year.

Hospital groups led by the American Hospital Association (AHA) have petitioned the U.S. Supreme Court to reverse appeals court decisions involving the 340B Drug Pricing Program and site-neutral payments.

“We are hopeful that these unlawful cuts will be overturned so that hospitals and health systems can continue to provide the services people need the most,” AHA President and CEO Rick Pollack said in a news release.

The issue in the 340B petition is a nearly 30% reduction that was implemented in 2018 for Medicare Outpatient Prospective Payment System (OPPS) drug payments to hospitals participating in the 340B program.

The U.S. Department of Health and Human Services (HHS) reduced payments for separately payable Medicare Part B drugs from average sales price (ASP) plus 6% to ASP minus 22.5%. That reduced funding for 340B hospitals by $1.6 billion per year, according to the petition.

The cut was based on HHS’s belief that Medicare payments should be “more aligned with the resources expended by hospitals to acquire” covered prescription drugs, according to the text of the 2018 OPPS rule.

In pursuing that approach, according to the petition, HHS chose to “eliminate the gap between Medicare reimbursement rates and 340B Hospitals’ drug costs, thereby prioritizing this objective over the congressional judgment reflected in the 340B Program.”

Seeking to have the cut overturned, the AHA-led group prevailed in federal district court. However, in July 2020, two of three members on an appeals court panel ruled that the decision should be reversed.

“In an era of skyrocketing drug prices, the 340B program has been critical in helping hospitals expand access to comprehensive health services to vulnerable communities, including lifesaving prescription drugs,” Pollack said. “Many of the important programs and services that the 340B program allows eligible hospitals to provide would otherwise be unavailable. These cuts have resulted in the continued loss of resources during this pandemic, which comes at the worst possible time for patients and communities.”

Joining the AHA in the ongoing legal challenge are the Association for American Medical Colleges (AAMC), America’s Essential Hospitals and three hospital plaintiffs.

Appealing payment cuts to off-campus PBDs

The issue regarding site-neutral payments involves payment cuts in the 2019 OPPS rule for certain hospital outpatient provider-based departments (PBDs).

In the Bipartisan Budget Act of 2015, Congress directed that services provided at existing off-campus PBDs continue to be paid at OPPS rates, while those at newly created or acquired off-campus PBDs could be paid at lower Physician Fee Schedule rates.

However, HHS used the 2019 OPPS rule to reduce payment rates for existing PBDs to the amount paid to the non-excepted PBDs. As noted in the petition, HHS estimated that the change would reduce hospital payments by more than $600 million per year.

According to the petition, HHS cited a specific provision of the Medicare statute in claiming authority to make the change. But the provision in question “does not discuss reimbursement rates at all.” Furthermore, it “has been on the books for over two decades, and HHS had never interpreted it to permit cuts to reimbursement rates.”

Previously, a lower court twice found that HHS exceeded its statutory authority when it implemented the cuts. However, a three-judge panel reversed the decision in July 2020.

“The unlawful cuts to hospital outpatient departments directly undercut the clear intent of Congress to protect them because of the many real and crucial differences between them and other sites of care,” Pollack said. “These hospital outpatient departments are held to higher regulatory standards and are often the only point of access for patients with the most severe chronic conditions, all of whom receive treatment regardless of ability to pay.”

Joining the AHA in the litigation are the AAMC and hospital plaintiffs.