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340B Drug Pricing Program Litigation Update: Court Rejects CMS Drug Pricing Cuts

On December 27, 2018, the U.S. District Court for the District of Columbia issued an opinion that ruled against the Trump Administration in its plan to cut funding from the 340B Drug Pricing Program (“340B Program”).[1]

Background

As discussed in a November 17, 2018 posting on this blog, the reimbursement rates for the 340B Program were significantly reduced when the Centers for Medicare & Medicaid Services (“CMS”) promulgated the “Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs” (the “Final Rule”). The Final Rule decreased the reimbursement rates for participating hospitals purchasing medicine through the 340B Program from 6% above the average sales price to 22.5% below the average sales price.[2]

After the Final Rule was published on November 13, 2017, the American Hospital Association, America’s Essential Hospitals and the Association of American Medical Colleges (the “Plaintiffs”) sued the Department of Health and Human Services (“HHS”) and sought a preliminary injunction to stop the enforcement of the Final Rule.[3] The motion for the preliminary injunction was denied, so the Final Rule’s reimbursement cuts went into effect on January 1, 2018.

D.C. District Court’s Decision

At issue in in this case was whether the HHS Secretary had the authority to reduce the reimbursement rate to 22.5% below the average sales price. The statutorily established default benchmark for the drug reimbursement rate under the 340B Program is 6% above the average sales price, but the Secretary of HHS has the discretion to adjust that benchmark as needed.[4] The Plaintiffs argued that a nearly 30% reduction from the formula Congress set as the standard is not a modest change but rather a fundamental alteration of the statutory scheme established by Congress.[5] The District Court judge ultimately sided with the Plaintiffs and determined that HHS did not have the legal authority to reduce the payments to the extent that it did and that HHS had sidestepped the authority of Congress.[6] The judge granted the Plaintiffs’ motion for a permanent injunction to stop the enforcement of the Final Rule and ordered supplemental briefing on the question of the proper remedy.[7]

Looking Towards the Future

This ruling is not necessarily the end of the fight between 340B Program hospitals and the Trump Administration since HHS could choose to appeal the decision to a higher court. Nevertheless, for the time being, hospitals that participate in the 340B Program will undoubtedly be pleased to receive their funding back. Moreover, depending on the judge’s determination of an appropriate remedy, the hospitals could potentially be reimbursed for the payments that they did not receive in 2018.


[1] Les Masterson, “Court rejects 340B payment cuts in big win for hospitals,” HEALTHCAREDIVE (Dec. 31, 2018), https://www.healthcaredive.com/news/court-rejects-340b-payment-cuts-in-b....

[2] Id.

[3] Id.

[4] The American Hospital Association, et al., v. Azar, U.S. Dist. Ct. for D.C., p. 23-24 (Dec. 27, 2018).

[5] Id. at 27-28.

[6] Masterson, supra note 1.

[7] The American Hospital Association, et al., v. Azar at 2-3.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Matthew Goldman, Corporate Attorney, Sheppard Mullin Law Firm
Associate

Matthew Goldman is an associate in the Corporate Practice Group in the firm's Century City office and is a member of the firm's healthcare practice team.

Areas of Practice

Matthew’s practice blends the regulatory and transactional components of healthcare law, and includes representation of hospitals, managed care organizations, medical groups, and other healthcare entities and providers. On the regulatory side, Matthew’s practice is focused on licensing, regulatory compliance, and managed care arrangements. Matthew has extensive experience preparing Knox-...

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Jordan Grushkin, Attorney, Sheppard Mullin Law Firm, Health Care
Associate

Jordan Grushkin is an associate in the Corporate Practice group in the firm's Century City office.

  • J.D., Georgetown University Law Center, 2015

  • B.A., Georgetown University, 2015, magna cum laude

310.228.6152
Melissa Gertler, Sheppard Mullin Law Firm, Corporate Law Attorney, Century City
Associate

Melissa Gertler is an associate in the Corporate Practice Group in the firm's Century City office.

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