Hospitals Win Supreme Court Case on 340B Reimbursement Cuts

The US Supreme Court has sided with the American Hospital Association (AHA) and other hospital groups and determined that the 340B Medicare reimbursement cuts for hospitals were unlawful.

In the 2018 Outpatient Prospective Payment System (OPPS) rule, HHS finalized a policy to reduce Medicare reimbursement for these hospitals by nearly 30 percent after research showed that some hospitals were profiting excessively from the 340B Drug Pricing Program.

In February 2021, AHA, the Association of American Medical Colleges (AAMC), American’s Essential Hospitals, and three hospital members filed petitions asking the Supreme Court to overturn the HHS decision.

The Supreme Court agreed to hear the case in July 2021.

The recent decision by Justice Brett Kavanaugh stated that HHS did not follow federal law when implementing the reimbursement cuts.

Congress gave HHS two options for setting hospital reimbursement rates for prescription drugs. First, HHS can survey how much hospitals pay to acquire prescription drugs and base the reimbursement rates on the average acquisition cost for each drug. Under this method, HHS can vary payment rates for different groups of hospitals.

The second option applies if HHS has not surveyed acquisition costs and requires the department to set reimbursement rates based on the average price charged by manufacturers for the drug. The Medicare statute states that the average price is 106 percent of the drug’s average sales price. Under this option, HHS cannot vary reimbursement rates among different groups of hospitals.

The Supreme Court ruled that HHS violated this law when it reduced reimbursement rates for 340B hospitals only and did not conduct a survey of hospital acquisition costs.

HHS maintained that it had the authority to adjust average prices under the second option even without conducting a survey of acquisition costs. However, the Supreme Court determined this authority was irrelevant to the matter at hand.

“Regardless of the scope of HHS’s authority to ‘adjust’ the average price up or down under the statute, the statute does not grant HHS authority to vary the reimbursement rates by hospital group unless HHS has conducted the required survey of hospitals’ acquisition costs,” the ruling stated.

The 340B program allows eligible hospitals to purchase outpatient drugs at reduced prices. The hospitals use the savings obtained through this program to help provide care to uninsured, low-income, and rural populations.

The 340B reimbursement cut from HHS would deprive 340B hospitals of $1.6 billion annually.

The decision overturns a ruling from the US Court of Appeals for the District of Columbia Circuit in which the court sided with HHS.

AHA, AAMC, and America’s Essential Hospitals said they were pleased with the Supreme Court’s ruling.

“This decision is a decisive victory for vulnerable communities and the hospitals on which so many patients depend. 340B discounts help hospitals devote more resources to services and programs for vulnerable communities and increase access to prescription drugs for low-income patients,” the groups said in a joint statement.

“Now that the Supreme Court has ruled, we look forward to working with the Administration and the courts to develop a plan to reimburse 340B hospitals affected by these unlawful cuts while ensuring the remainder of the hospital field is not disadvantaged as they also continue to serve their communities.”