As previously reported, last December the U.S. District Court for the District of Columbia ruled that the Department of Health and Human Services (HHS) had overstepped its bounds when it slashed the 2018 Medicare Part B outpatient reimbursement rates for covered drugs purchased under the 340B Program. AHA v. Azar, 1:18-cv-2084-RC (D.D.C. December 27, 2018). The court, however, held off on imposing a remedy until after the parties first had the opportunity to provide further input. On May 6, 2019, having received that input, the court has now ordered a remedy, which it has also applied to the HHS’s identical reimbursement rate reduction for 2019. The court sent both the 2018 and 2019 rate-setting rules back to the agency to give “it the first crack at crafting appropriate remedial measures” and directed HHS to “resolve this issue promptly.”

The controversy began when HHS, in its annual rulemaking setting Medicare’s outpatient payment rates for 2018, adopted a new rule that changing the amount hospitals would receive for providing covered drugs purchased through the 340B Program. The 340B Program caps the prices drug manufacturers may charge for certain medications. HHS’s new rule dropped the reimbursement rate from the average sales price (ASP) of a drug plus 6% to the ASP minus 22.5%, an almost 30% reduction. Previously, the spread between the discounted 340B Program drug pricing—which the agency estimated averaged 22.5% below ASP—and Medicare Part B reimbursement rates gave 340B hospitals additional funds for providing care to underserved patient populations. HHS’s new rates eliminated that spread and reduced hospital drug reimbursement in 2018 alone by approximately $1.6 billion.

After the 2018 rates became effective, several hospital associations and non-profit hospitals sued HHS over the reduction. As noted, in December 2018, the court ruled that HHS had clearly exceeded its statutory authority with the 2018 rate cut. However, HHS’s 2018 rule had concurrently reallocated the money saved from the 340B Program to increasing payment for other Part B drugs and services. Due to this fact and to other potential administrative challenges implicated by vacating the rule, the court asked the parties to submit briefs on what would be an appropriate remedy.

While the parties were informing the court of their views, the plaintiffs also added an identical challenge to HHS’s 2019 340B payment cuts, which went into effect January 1, 2019. The court again ruled that HHS’s 2019 rate reduction had “fundamentally altered the statutory scheme” and that HHS had clearly acted outside its authority.

However, the court likened crafting a remedy to trying to “unscramble the egg ….” The court rejected the plaintiffs’ request to order HHS to pay hospitals the difference between the former rates (ASP plus 6%) and the reduced rates (ASP minus 22.5%) for all applicable drugs already provided in 2018 and 2019 and to apply the higher rates going forward. Instead, the court found there were multiple possible solutions the agency could implement and sent the rules back to HHS to determine the appropriate remedy. These possible fixes included increasing rates in future years in an effort to “make up for [HHS’s] underpayments in 2018 and 2019” or amending the 2018 and 2019 rules and issuing retroactive payments. The court noted a concern that “there is some question as to whether the agency’s actions must be budget neutral,” meaning that increasing 340B payments might, to the extent lawful, necessitate decreasing and partially recouping payment for the other services that had been increased. The court stated that the agency was in the best position to determine that question on remand and declined to vacate the rules to “allow the agency more flexibility to determine the least disruptive means of correcting its underpayments ….” Finally, the court retained jurisdiction and warned that it “may reconsider the remedy if the agency fails to fulfill its responsibilities in a prompt manner.” Towards that end, the court ordered the parties to submit a status report on the agency’s progress within 60 days.

HHS has already filed an appeal but asked for a stay until there is a final judgment from the district court. We will continue to track this case during the remand and during any appeal. We remind providers that they may want to preserve their ability to challenge 340B reimbursement reductions when filing their 2018 and 2019 cost reports.