Cuts to 340B payments are legal, appeals court rules

An HHS policy that will cut Medicare outpatient drug payments by nearly 30 percent at 340B hospitals in the U.S. is legal, an appellate court panel ruled July 31. The ruling overturns a lower court decision. 

Under the 340B program, eligible hospitals can buy outpatient drugs at a discount. A hospital typically pays  20 percent to 50 percent below the average sales price for the drugs. 

In 2018, under its proposed Medicare Outpatient Prospective Payment System, HHS cut the reimbursement rate for covered drugs by 28.5 percent, but it later lowered the reimbursement rate cut to 22.5 percent.

HHS said it cut the rate for 340B hospitals to close a payment gap between 340B and Medicare Part B, which reimburses providers for drugs administered by providers in outpatient settings. HHS argued that Medicare should not reimburse hospitals more than they paid to acquire the drugs.

The American Hospital Association, Association of American Medical Colleges and America’s Essential Hospitals in December 2018 sued to stop the cuts, arguing that HHS exceeded its federal authority to adjust the payment rates.   

A lower court agreed with the hospital associations in December 2018, agreeing that HHS overstepped its authority. HHS appealed the lower court decision in July 2019. 

Despite the lower court's decision HHS included cuts to the 340B program in both its 2019 and 2020 hospital payment rule. 

The appellate court has reversed the decision, arguing that HHS' lower drug reimbursement rate "rests on a reasonable interpretation of the Medicare statute."

340B groups, including advocacy group 340BHealth, expressed disappointment with the appellate's court's decision. 

"These cuts of nearly 30% have caused real and lasting pain to safety-net hospitals and the patients they serve," said Maureen Testoni, the president and CEO of 340B Health. "Keeping these cuts in place will only deepen the damage of forced cutbacks in patient services and cancellations of planned care expansions."

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