Federal District Court Judge Rudolph Contreras ruled to deny the American Hospital Association and other healthcare groups a preliminary injunction halting the implementation of the Medicare Part B payment reduction to 340B hospitals.
Contreras said Friday that his reason was due to the plaintiffs failing to present a claim to the Health and Human Services secretary for a final decision.
The AHA and other providers were working to get the court to overturn a decision by the Centers for Medicare and Medicaid Services to slash 340B reimbursement by close to 30 percent.
340B allows hospitals with vulnerable populations to purchase pharmaceuticals from manufacturers at discounted prices and to be reimbursed at higher rates. The surplus allows 340B hospitals to provide needed services, proponents have said.
340B Health, an association of 1,300 hospitals, found hope in the ruling.
"In dismissing the case on procedural grounds, the court has not yet determined whether the Centers for Medicare and Medicaid Services has the legal authority to reduce payments to 340B hospitals, a question which the court could rule on in the future," 340B Health said by statement. "340B Health will continue to work with Congress and other key stakeholders to reverse these cuts."
The payment cuts do not lower drug prices, do not save Medicare money and won't reduce costs for seniors and other patients, 340B Health said.
CMS expressed concern of over-utilization of drugs by hospitals which qualify for 340B payments. And the number of participating hospitals has climbed to 33,633.
"If these cuts remain in place, many safety net hospitals will be forced to cut back on services, close service sites, and let go of clinicians and other caregivers," 340B Health said.
Opponents have said hospitals are making windfall profits from the surplus. CMS in court documents said the difference between what hospitals pay for the drugs and what they're reimbursed is significant.
On average, hospitals in the program get a 22.5 percent discount and were reimbursed at a rate of the average sales price plus 6 percent.
In a final rule released in November, CMS closed this gap, in a rate reduction of nearly 30 percent.
The Health and Human Services Secretary exceeded his authority in adjusting the rate downward by such a large amount, the hospital groups said. The court disagreed.
Also, drug spending correlates with hospital participation in 340B, CMS said, citing a Medicare Payment Advisory Commission report.
CMS implemented MedPAC's recommended discount of 22.5 percent of the average sales price and said the actual average discount is higher.
Under the 340B program, which was established in 1992, manufacturers agree to offer certain covered outpatient drugs at a discount. Hospitals are paid prospectively for the upcoming year as part of the outpatient prospective payment system rates.
The injunction was brought by three hospitals associations and three of their member hospitals, with oral arguments heard on Dec. 21.