An appeals court panel on Friday ruled that an HHS policy that cut some Medicare outpatient drug payments by 28.5% at 340B hospitals is legal, overturning a lower court decision.
The U.S. Court of Appeals for the District of Columbia Circuit voted 2-1 to uphold the HHS payment policy, which the agency first proposed in 2017. Chief Judge Sri Srinivasan wrote in the court's opinion that HHS acted within its statutory authority to cut pay for 340B hospitals "so as to avoid reimbursing those hospitals at much higher levels than their actual costs to acquire the drugs."
Hospital groups including the American Hospital Association, Association of American Medical Colleges and America's Essential Hospitals had argued that CMS inappropriately used information on the large discrepancy between hospitals' acquisition costs for drugs and their 340B reimbursements to justify the payment formula changes.
Judge Cornelia Pillard in a partial dissent agreed with hospitals' argument that HHS did not have proper data to justify rate cuts to a certain subset of hospitals. Pillard also focused on the practical impact of the policy, saying that the cuts took a "major bite" out of 340B hospitals' funding.
"The net effect of HHS's 2018 and 2019 OPPS rules is to redistribute funds from financially strapped, public and nonprofit safety-net hospitals serving vulnerable populations— including patients without any insurance at all—to facilities and individuals who are relatively better off," Pillard wrote.
A lower court ruled in May 2019 that the 340B pay changes were unlawful.
HHS Secretary Alex Azar said the 340B payment change has saved the federal government more than $4.8 billion since its initial implementation that has been reinvested in the Medicare program.
Hospital groups involved in the case said in a joint statement that they will "continue to fight for their hospitals and patients," and called on CMS to reverse the policy.
340B Health President and CEO Maureen Testoni said the group is deeply disappointed by the court's ruling, and called the HHS payment policy "discriminatory."
"Keeping these cuts in place will only deepen the damage of forced cutbacks in patient services and cancellations of planned care expansions. These effects will be especially detrimental during a global pandemic," Testoni said in a written statement.
This is the second recent legal defeat for hospitals, as the D.C. Circuit also upheld HHS' site-neutral pay policy for 2019. Hospitals have since asked for a rehearing in that case. Both Srinivasan and Judge Patricia Millett served on panels for both the site-neutral and 340B decisions.