More on Reimbursement

Hospitals ask appeals court for a rehearing on 340B decision

At stake is $1.6 billion in payments per year to thousands of 340B hospitals that serve vulnerable populations, the AHA said.

Susan Morse, Managing Editor

The American Hospital Association and other organizations which lost an appeal over 340B drug payments, have asked the court for a rehearing.

The AHA and others filed the request on September 14 in the U.S. Court of Appeals in the District of Columbia. The plaintiffs want a rehearing before the full court, rather than a panel of judges. 

In August, a panel of judges ruled 2-1 against the AHA and in favor of the Department of Health and Human Services' decision to reduce payment for Medicare Part B drugs to 340B hospitals.

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At stake is $1.6 billion in payments per year to thousands of 340B hospitals that serve vulnerable populations, the AHA said.

For decades, 340B Hospitals relied on savings from high-priced prescription drugs to serve their low-income communities.

The providers, including the American Hospital Association, the Association of American Medical Colleges and America's Essential Hospitals, said the consequences of subverting the 340B Program will be dire. 

"HHS's rate cut takes away $1.6 billion per year from participating entities, many of which are already on the financial brink," according to rehearing request.

The legal issue, they said, is that the appeals court erred in its ruling. 

Each year, HHS issues a rule determining the amount that Medicare will reimburse for prescription drugs, based on a uniform reimbursement formula set by Congress.

In 2017, HHS cited a clause in the statute that allowed it to depart from this long-standing practice and adjust the payment rate. 

The appeals court decision conflicts with an earlier ruling in Amgen vs. Smith regarding adjustments to Medicare payments, in which the judges established strict limits on HHS's adjustment authority, the AHA said.

"It is critical that this court enforce the limits that Congress placed on HHS's authority – limits that prevent HHS from singling out 340B Hospitals for abrupt, disfavored treatment," the AHA and other plaintiffs said.


The August appeals court decision reversed a decision by a lower court on action taken by HHS to lower the drug payments by 28.5%. 

Hospitals that serve large numbers of Medicaid, Medicare and uninsured patients, were getting the drugs for a discounted price but getting reimbursed at the higher price HHS pays all hospitals for Medicare Part B drugs.

The hospitals were using the pay gap in the price difference to cover operational expenses.

"As laudable as those activities may be," the appeals court said in its August ruling, it agreed with HHS that it was inappropriate for Medicare to subsidize other activities by 340B hospitals.

Chief Judge Srikanth Srinivasan, writing for the majority said, "As HHS saw it, Medicare should not reimburse hospitals more than they paid to acquire the drugs."

The district court had sided with the plaintiffs and agreed that HHS had exceeded its statutory authority by reducing drug reimbursement rates for 340B hospitals. 

"We disagree," Srinivasan said. "We hold that HHS's decision to lower drug reimbursement rates for 340B hospitals rests on a reasonable interpretation of the Medicare statute."

340B hospitals typically pay between 20% and 50% below the average sales price for covered drugs but get reimbursed at a higher rate, which HHS said allowed them to generate significant profits. They also prescribed more drugs, HHS said, citing a Government Accountability Office study.

Seeking to shrink those revenues, HHS imposed a 28.5% cut, which HHS estimated would save Medicare $1.6 billion in 2018. 

Twitter: @SusanJMorse
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