Hospitals decry appeals court decision upholding 340B cuts

• A federal appeals court allowed Medicare to maintain $1.6 billion in annual payment cuts to 340B hospitals.
• Hospital advocates worry the losses will undermine the ability of safety net hospitals to respond to COVID-19.
• Further 340B changes could come from a looming OPPS proposed rule.

After an appeals court recently upheld Trump administration payment cuts to the 340B discount drug program, hospitals worried about the effects of the lost revenue.

On July 31, the U.S. Court of Appeals for the District of Columbia reversed a lower-court decision in American Hospital Association, et al v. Azar by a 2-1 ruling, allowing nearly 30% cuts to the 340B drug discount program to continue.

The decision revolves around a 2017 policy change to the program, which requires drugmakers to provide discounted drugs to safety net hospitals in exchange for participating in Medicaid. Qualifying 340B hospitals generally pay between 20% and 50% less than the average sales price for the covered drugs but are then paid the full price by health plans.

The U.S. Department of Health and Human Services (HHS) amended the program by cutting Medicare outpatient drug payments to 340B hospitals by 28.5%, seeking to close a gap between those prices and Medicare Part B payments.

The American Hospital Association, the Association of American Medical Colleges, America’s Essential Hospitals and three hospitals filed a court challenge to the $1.6 billion annual cut. The hospitals argued that CMS’s 2018 and 2019 Outpatient Prospective Payment System (OPPS) final rules implementing the cuts violated the Administrative Procedure Act and exceeded the agency’s statutory authority.

“America’s 340B hospitals and the millions of patients they serve will suffer lasting consequences from today’s D.C. Circuit Court of Appeals ruling allowing Medicare Part B cuts to stand,” hospital groups said in a written statement. “The decision conflicts with Congress’s clear intent and defers to the government’s inaccurate interpretation of the law, a point that was articulated by the judge who dissented from the opinion.”

The sentiment was echoed by Andrew Ruskin, JD, a partner at K&L Gates.

The majority’s ruling that the changes were legal because they were not “unambiguously barred” by the statute sets a new standard that will allow further HHS payment changes to fit unrelated policy goals, as CMS has done thus far, Ruskin said in an interview

Ruskin said site-neutrality policy changes, which were upheld recently in court, were driven by CMS’s general concerns about physician practice acquisitions. Likewise, the 340B policy changes were driven, in part, by a desire to reduce the cost of drugs. Although such a goal is politically popular, there is little reason to believe the payment change has that effect. Regardless, policy decisions shouldn’t drive payment decisions, he said. 

The appeals court decision “is essentially delivering a body blow against the payment system that Congress thought through very carefully and which CMS participated in,” Ruskin said.

Financial impact of the payment cuts

Hospital advocates said the court decision, which will allow the 340B cuts to continue indefinitely, will result in greater financial harm to participating hospitals.

“These cuts of nearly 30% have caused real and lasting pain to safety-net hospitals and the patients they serve,” said Maureen Testoni, president and CEO of 340B Health, which represents more than 1,400 hospitals in the program. “Keeping these cuts in place will only deepen the damage of forced cutbacks in patient services and cancellations of planned care expansions. These effects will be especially detrimental during a global pandemic.”

The plaintiff hospital groups were similarly worried. They noted that hospitals in the program use the savings from 340B to respond to the COVID-19 pandemic, “and today’s decision will result in the continued loss of resources at the worst possible time.”

Next steps for the plaintiffs

It’s unclear what hospitals will try next to stop the cuts, but the national groups are not resigned to them.

“We will continue to fight for our hospitals and their patients, and we call on CMS to reverse this harmful policy to ensure hospitals can continue to provide the services people need the most,” the groups stated.

Options include asking for a rehearing, appealing the case to the U.S. Supreme Court or filing a challenge to the rules change in another federal circuit, Ruskin said. Congress has not introduced legislation to reverse the cuts.

Stakeholders also are bracing for possible further changes to 340B after HHS surveyed hospitals this year on their use of the discounts. The latest OPPS proposed rule is expected to be released imminently.