Supreme Court to hear 340B case that could impact all hospitals

The Supreme Court will hear arguments in a case seeking to reverse cuts to the 340B Drug Program next week, and the outcome could have consequences for all providers, even those who don’t access the discounted medicines.

Plaintiffs including the American Hospital Association and providers that participate in the program are asking the high court to reverse a nearly 30% cut in 340B reimbursements the Centers for Medicare and Medicaid Services initiated during President Donald Trump’s administration and continued under President Joe Biden. Oral arguments are scheduled for Nov. 30.

“If CMS’s final rule is allowed to stand, 340B providers will be forced to eliminate or dramatically curtail some crucial programs that treat a wide range of medical conditions, from cancer to mental health disorders and opioid addiction,” 37 state and regional hospital associations wrote in a brief to the court in September.

The decision’s repercussions could reach further than just 340B providers. Not-for-profit hospitals and rural providers benefit from higher payments financed by the savings derived by cutting 340B payments. Children’s hospitals and rural providers that participate in 340B are exempt from the cuts. For-profit providers are ineligible for 340B.

“Non-340B hospitals bore the financial burden of the prior payment policy despite serving similar levels of uninsured or otherwise vulnerable patients as 340B hospitals, often in the same or demographically similar communities,” lawyers for the Federation of American Hospitals, which represents investor-owned health systems, wrote in a brief to the court this month. “Reversing the current payment policy would eliminate the $1.6 billion in reallocated savings, penalizing non-340B hospitals and restoring the excess payments for 340B hospitals caused by the prior payment policy’s inefficiencies,” the federation’s outside counsel wrote.

Similarly, the Rural Hospital Coalition, a group of nearly 200 facilities in 33 states, wrote in a brief to the court this month that the higher payments its members received helped them stay in business. “Reversing the secretary’s authority to finalize this rule, let alone disrupting the implementation of an adjustment made effective nearly four years ago, is unusually burdensome, especially during an ongoing public health emergency,” the brief reads.

The 340B program allows not-for-profit hospitals and clinics to buy deeply discounted outpatient drugs from manufacturers and then charge Medicare and commercial payers higher prices for dispensing them. Those “savings” are channeled into services for the community or are used to offset uncompensated care and low reimbursement by public programs.

In 2018, the Trump administration reduced payments to 340B hospitals for covered outpatients drugs to average sales price minus 22.5%, a significant drop from the previous rate, which was average sales price plus 6%. Providers that don’t participate in 340B are still reimbursed for drugs under the old formula.

For 340B providers, except some rural and safety net hospitals, this amounts to a 30% cut, or a loss of $1.6 billion. Those monies were redistributed to all providers paid under the Medicare Outpatient Prospective Payment System in the form of a 3.2% reimbursement increase.

The AHA and other provider associations filed suit in 2018, arguing CMS exceeded its authority under Medicare statute by revising reimbursement rates without collecting hospital acquisition cost survey data. Standing law only allows HHS to make small adjustments, the plaintiffs contend.

“There is no hidden purpose embedded in [the law] that could justify giving the agency unfettered power to reimburse 340B hospitals—and 340B hospitals alone—based on acquisition costs without meeting the statute’s express requirements,” counsel for the AHA wrote in a briefing filed with the court last month.

The Justice Department under Trump and Biden counters that HHS has sufficient legal authority and that the cost data cited by the plaintiffs was unavailable when CMS wrote the regulation. The Justice Department also argues that judicial review is precluded by the law the created the outpatient payment system, so the court could throw the case out without ruling on the merits.

“If the court reaches the merits, it should uphold the rate adjustments,” the Justice Department wrote in a brief filed last month. “HHS must set reimbursement rates equal to drug acquisition costs if it has the specified survey data or if such data is not available, based on average price…. It is undisputed that survey data were not available here.” HHS “calculated the reimbursement rate based on average price and ‘adjusted’ it to reflect the substantial discounts that 340B hospitals receive,” the government argues.

An appeals court concluded last year that judicial review isn’t precluded, but sided with HHS on the case itself after a lower court ruled for the plaintiffs in 2019.

A key issue is how far agencies including the Health and Human Services Department can go in interpreting vague statutes and whether courts should give deference to an agency’s interpretation, said Andrew Ruskin, a partner at K&L Gates and member of its healthcare and Food and Drug Administration practice group.

If the Supreme Court rules for the hospitals, they may be retroactively reimbursed to make up for the lower payments they received during the two year the cuts were in force, Allison Hoffman, a University of Pennsylvania Carey Law School professor, wrote in a blog post for the Commonwealth Fund.

HHS began collecting the data necessary to make changes to 340B after the federal district court ruled for the plaintiffs, Hoffman wrote. The department’s latest outpatient payments regulation signals HHS intends to keep the 340B cuts in place absent court intervention.

If the court sides with HHS and lets the appeals court decision stand, the cuts would remain and more changes could happen in the future, potentially to programs outside of 340B.

The AHA expressed concern about this possibility when it requested the Supreme Court review the appeals court’s ruling.

“It is essential that this court not permit the court of appeals to effect such a vast shift in power away from the nation’s lawmakers and into the hands of unaccountable administrators,” the AHA brief says. Allowing HHS to keep the 340B cuts in place under these circumstances would be “a license for agencies to achieve almost any policy end they desire,” the association argues.