In the 2018 Hospital Outpatient Prospective Payment System (HOPPS) final rule, CMS finalized a policy to reduce payment for separately payable outpatient drugs purchased by certain hospitals under the 340B program from Average Sales Price (ASP) plus 6% to ASP minus 22.5%. Several hospital associations challenged this reduction, and in December 2018, the D.C. District Court ruled that the reduction exceeded CMS’s statutory authority, in part because CMS had not collected the necessary data regarding hospitals’ 340B acquisition costs. In May 2019, the court again ruled in favor of the hospital plaintiffs—this time with respect to reductions continued in CMS’s 2019 HOPPS rule.

CMS is appealing the rulings, and the D.C. Court of Appeals heard oral arguments in the case last Friday. Nonetheless, last week, the agency finalized rulemaking to continue the 340B-related payment reductions in 2020. CMS’s decision to continue the cuts is not surprising in light of recent activity. In September, CMS published a proposed information collection request through which it plans to collect information from hospitals regarding their acquisition costs for 340B drugs. CMS believes that such data could be used in setting the Medicare payment amount for drugs acquired by 340B hospitals for cost years going forward, and it could be used to develop the remedy in the ongoing court cases. CMS notes that in previous rule-making, no 340B hospital has disputed the case that ASP minus 22.5% is a conservative adjustment, and CMS expects that the survey data to be collected for CY 2018 and CY 2019 will show that ASP minus 22.5% payment rate is a conservative payment reduction in light of hospitals’ acquisition costs.

If CMS ends up not using the 340B survey data to devise a remedy, it plans to consider the public comments made during this 2020 rulemaking cycle to inform development of the remedy. Under that scenario, CMS plans to provide hospitals with sufficient notice of the impact of the remedy on their rates so that they can comment on them. Because HOPPS rules generally must remain budget neutral, any remedy to the 340B payment reductions could have significant economic impacts on the 3,900 facilities that are paid under HOPPS (i.e., if HHS were to retroactively remedy the 2018 and 2019 340B drug-related payments, it may need to recoup other payments made to providers).

If the court issues an unfavorable decision on appeal, and if the 340B hospital survey data are not used to devise a remedy, then CMS anticipates proposing a specific remedy in the 2021 rulemaking cycle, and the remedy would be informed by comments received in the 2020 rulemaking cycle.