Medicare payments for 340B drugs are set to increase immediately after recent court ruling

• The Medicare payment rate for drugs acquired through the 340B program must be increased by nearly 30 percentage points effective immediately, according to a court ruling.
• A federal judge did not buy HHS’s argument that budget neutrality requirements necessitate waiting until 2023 to increase the rate.
• Hospitals are still awaiting word on remedies for past 340B payments that were deemed unlawful underpayments in a unanimous Supreme Court ruling this year.

A recent court ruling means hospitals can expect an immediate and substantial increase in Medicare payments for drugs purchased through the 340B Drug Pricing Program.

A federal judge issued a Sept. 28 opinion stating that the U.S. Department of Health and Human Services (HHS) must increase the payment rate from average sales prices (ASP) minus 22.5% to ASP plus 6%, effective immediately. HHS, as described in a rule issued this summer by CMS, had been planning to implement the increase at the start of 2023 after the Supreme Court in June unanimously ruled that the department inappropriately reduced the payment rate beginning in 2018.

“The prospective portion of the 2022 reimbursement rate shall be vacated because it is defective” and because implementing a higher rate right away “will not cause substantial disruption,” wrote Judge Rudolph Contreras of the U.S. District Court for the District of Columbia.

Contreras, an Obama appointee, noted that in filings over whether the lower rate should be vacated immediately, HHS did not challenge the notion that the rate is illegal.

HHS instead contended, in part, that increasing the rate for the rest of the year would violate statutory budget neutrality requirements that apply to Medicare payments for hospital outpatient care. Contreras was not persuaded by that argument, writing that such concerns did not amount to sufficient justification for continuing to implement an unlawful policy.

“The Court recognizes that HHS’s budget will be unbalanced if it must immediately start to pay 340B hospitals their proper due for the remainder of 2022,” he wrote. “But that disruption would be minimal, because HHS admits that vacating the 340B reimbursement rate for the remainder of 2022 would account for ‘only … a small sliver of the overall time periods challenged in this action.’”

Provider advocacy groups hailed the decision.

“This is an important victory for 340B hospitals that have been fighting these unlawful Medicare cuts for nearly six years,” Maureen Testoni, president and CEO of 340B Health, said in a written statement. “CMS has the clear responsibility to restore the appropriate payments for 340B drugs immediately, and now a federal court has ordered it to do so without delay.”

Key issue remains TBD

Still pending is a decision on what sort of remedies hospitals will receive, given that payments dating back to 2018 are now considered unlawful underpayments. Although the case that was adjudicated in the Supreme Court regarded only 2018 and 2019 payments, hospitals say remedies also should apply to all subsequent payment years.

A concern is that HHS could invoke budget neutrality requirements as a rationale for reducing general outpatient payments to negate the amounts paid as remedies. CMS already said the collective outpatient payment rate for 2023 will be lowered to compensate for the higher 340B payment rate.

“We continue to urge the administration to promptly reimburse all the hospitals that were affected by these unlawful cuts in previous years and to ensure the remainder of the hospital field is not penalized for their prior unlawful policy, especially as hospitals and health systems continue to deal with rising costs for supplies, equipment, drugs and labor,” Melinda Hatton, general counsel and secretary with the American Hospital Association, said in a written statement.

Hospitals maintain that any remedies should fall outside the scope of budget neutrality requirements. In a recent comment letter to CMS, the Federation of American Hospitals (FAH) wrote that remedies should not affect 2023 outpatient payments.

“The Medicare Act does not permit CMS to make any offsets to achieve actual or retrospective budget neutrality, and, to the extent that CMS ultimately provides relief to 340B hospitals through payments designed to compensate such hospitals for past underpayments, those payments may not be adopted in a budget-neutral fashion because any offsetting payment reduction would unlawfully recoup past payments that were properly made for non-drug OPPS items and services,” FAH wrote, referring to Medicare’s prospective payment system for hospital outpatient care.