Judge strikes down 340B reimbursement cuts

A federal judge in Washington on Thursday threw out HHS' massive cuts to hospitals' 340B program, which could affect the future of the Trump administration's drug pricing plan.

U.S. District Judge Rudolph Contreras ruled that the CMS and HHS secretary exceeded their authority by cutting 340B reimbursements in the 2018 outpatient pay rule by changing the methodology. While specified covered outpatient drug reimbursements used to be based on average sales prices plus 6%, the 2018 rule shifted the payments to the average sales price minus 22%, saying it better reflected average acquisition costs.

That cut reimbursements by nearly 30% and could drop 340B payments by $1.6 billion, according to the hospitals. Contreras said it went beyond the agency's authority to change the program that drastically.

"While the secretary is permitted to make 'adjustments' to those rates for whatever reasons he deems 'necessary,' adjustments are all he can make," the judge wrote. "He cannot fundamentally rework the statutory scheme—by applying a different methodology than the provision requires."

Although the hospitals asked Contreras to order retroactive payments according to the 2017 OPPS rule methodology, the judge asked for additional briefing before he orders HHS to change its policy. The proposed 2019 OPPS rule also reflects the challenged 340B formula, and the rule is supposed to be budget neutral. Changing 340B methodology may require reworking other drug reimbursements under Medicare.

"Vacatur and the other relief sought by plaintiffs are likely to be highly disruptive," Contreras wrote.

In a combined statement, the American Hospital Association, Association of American Medical Colleges and America's Essential Hospitals said they were "immeasurably pleased" by the judge's decision.

"The court's carefully reasoned decision will allow hospitals and health systems in the 340B Drug Pricing Program to serve their vulnerable patients and communities without being hampered by deep cuts to the program," the groups said.

But not all hospitals are wild about the decision. Chip Kahn, president and CEO of the Federation of American Hospitals, called the ruling "unfortunate" because it prevents 340B reforms.

"The current HHS policy will ultimately lower drug costs for patients. It also benefits the vast majority of hospitals, including some 80% of rural facilities," he said in a statement. "This ruling puts all those benefits at risk."

AHA is also challenging a CMS final rule imposing a site-neutral payment policy, which cuts some Medicare rates for outpatient hospital sites to match the rates for physicians' offices. The rate reduction is scheduled to start Jan. 1. In 2019, hospitals' reimbursements will drop approximately $380 million in 2018, according to the CMS.