Earlier this week, the United States Supreme Court ruled in favor of the American Hospital Association and other hospital groups. The court unanimously agreed that the Department of Health & Human Services (HHS) did not survey hospital costs as required by law before adjusting payments based on a hospital’s participation in the 340B outpatient drug discount program. These HHS payment policies reduced impacted hospital reimbursement for outpatient drugs by approximately 30% and are valued at $1.6 billion total over the period in question.
Summary of Ruling
This is considered a very narrow ruling by the Supreme Court and should be viewed in specific context.
The court found that Congress wrote into law that most hospital outpatient drug reimbursement rates must be set universally at 106% of the average sales price (ASP), which is a reflection of the average price paid by all Medicare hospitals (with modest markup). Only if HHS issues a drug acquisition cost survey to a hospital group for use in setting that hospital group’s outpatient drug reimbursement rates can it deviate from the ASP-based methodology.
HHS did not issue or use a hospital group-based survey for the 2018 and 2019 reimbursement years; therefore, the Supreme Court ruled that HHS’s drug payments at levels below 106% of ASP was unlawful for those years.
In effect, the Supreme Court ruled that payments that meet the following parameters were reduced unlawfully by HHS:
- Hospital Outpatient Drugs: All HHS payments for outpatient hospital pharmaceutical products ordinarily priced using the Medicare Outpatient Prospective Payment System (OPPS) ASP methodology
- Reimbursement Years 2018 and 2019: OPPS drug reimbursements made for reimbursement years 2018 and 2019 when the appropriate surveys were not issued
- Affected 340B Hospitals: 340B hospitals that qualified as a disproportionate share hospital (DSH), rural referral center, or urban sole community hospital (notably, 340B entities that qualified as children’s hospitals, critical access hospitals, and a few others were excluded from HHS’s original targeted payment reductions)
No direct ruling by the Supreme Court was made addressing HHS payments from the 2020 reimbursement year and beyond. HHS issued the court-referenced hospital group surveys in 2020, but it is unclear how the agency will use this survey data in future and retrospective reimbursement rate calculations.
What’s Next
The Supreme Court’s decision reversed a federal appeals court’s 2020 ruling that HHS had authority to make the reimbursement cuts in question. The four-year-old case has now been remanded to the District of Columbia Circuit Court of Appeals to determine the appropriate remedies for the affected hospitals. At this point, the timeline and methodology for impacted hospital repayments remains unclear.
It is presently unknown how HHS’s OPPS drug payments for the 2020, 2021, and 2022 reimbursement years will be retroactively impacted by the lower court’s remedy and/or the agency’s ongoing interpretation and application of the Supreme Court decision and 340B program outlook. The agency’s annual payment rule is typically released in July, which should provide some insight in the coming weeks.
Outlook for the 340B Program
While this is a narrow ruling on a technical reimbursement calculation, and there are several other 340B program-related cases working through the legal system, hospitals have generally viewed this ruling as favorable news for the future of the often-contentious program.
The unanimous court opinion acknowledged that “340B hospitals perform valuable services for low-income and rural communities but have to rely on limited federal funding for support,” which indicates a positive outlook on the current court’s attitude toward the program.
Further, as one of its arguments before the court, HHS said that Congress would not have intended for the agency to “overpay” hospitals for 340B-discounted drugs. However, the justices unanimously agreed that Congress would have been “well aware” of the workings and impacts of the 340B program when setting reimbursement policy.
At the recommendation of MedPAC, HHS has exhausted significant efforts in recent years to reduce drug reimbursement to 340B entities in order to reflect the discounted acquisition pricing those hospitals can access through the 340B program. While it is unclear how the agency will apply the Supreme Court’s decision to future reimbursement decisions, the court has signaled its thoughts on HHS corrections for congressional intent regarding 340B provider payment neutrality, which could potentially result in less aggressive or targeted payment cuts by the agency.
Published June 17, 2022