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The U.S. Court of Appeals Denies Rehearing on Cuts to 340B Drug Pricing Program

In a setback to hospitals challenging deep cuts to reimbursement for prescription drugs acquired through the 340B drug pricing program (“340B Program”), the U.S. Court of Appeals for the District of Columbia, on October 19, denied a request to reconsider a decision by three-judge panels of the Court upholding these cuts.  Short of a Supreme Court appeal, this decision effectively ends hospital challenges to these reimbursement reductions, and makes the implementation of additional cuts in 2021 a near inevitability.

The 340B Program, in which some 40% of U.S. hospitals participate, requires drug manufacturers to provide outpatient drugs to participating providers at heavily discounted rates.  Participating hospitals rely on profits from the differential between the reimbursement they receive for these drugs and the discounted rates they pay to fund patient care services.

CMS’ move to reduce 340B drug reimbursement originated in 2017, when it issued a final rule reducing hospital reimbursement under the 340B Program for 2018 from 6% over each drug’s average sales price to 22.5% below the average sales price, resulting in a total reimbursement reduction of $1.6 billion.  Several hospital groups sued to challenge this reduction in the U.S. District Court for the District of Columbia, claiming that the change was in violation of federal law and exceeded CMS’ statutory authority.  The District Court ruled in favor of the hospitals in December 2018, and ordered additional briefing to determine an appropriate remedy.  Nevertheless, on January 1, 2019, CMS effectuated its 2019 OPPS rule, which continued the 340B cuts first implemented in the prior year, and expanded them to additional hospital locations.  In May 2019, the District Court also found the 2019 rule unlawful, but did not vacate either rule, choosing instead to remand the rules to HHS for the agency to figure out how to “unscramble the egg”, given the complexities of Medicare reimbursement.

CMS did not revert to its prior payment methodology for 340B drugs, nor did it make retroactive payment adjustments to providers.  Instead, CMS appealed the District Court decisions to the Court of Appeals.  In July 2020, a three-judge panel of the Court of Appeals reversed the District Court, ruling in favor of CMS and clearing the way for CMS to continue and build up their cuts to 340B drug reimbursement.  In August 2020, CMS proposed further cuts to 340B reimbursement, with drugs to be reimbursed at average sales price minus 34.7%, plus an add-on of 6% of the products average sales price, for a net payment rate of average sales price minus 28.7%.

With the Court of Appeals’ denial of the hospitals’ request for an en banc rehearing, CMS’ 340B reimbursement cuts are very likely to stand, and new proposed cuts will almost certainly be implemented in 2021.  Although the American Hospital Association has stated that it is considering a Supreme Court petition, the likelihood that the Supreme Court would take the case is low.  Hospitals participating in the 340B Program, therefore, should brace for an additional reimbursement hit – a tough pill to swallow at the end of a year that has already posed unprecedented challenges for many providers.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 307
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About this Author

Associate

Ms. Kraus focuses her practice on representing healthcare entities in regulatory compliance matters.  Ms. Kraus advises clients on compliance with federal and state fraud and abuse laws, assists clients in responding to government investigations, and represents clients in False Claims Act litigation.  Ms. Kraus also assists clients with regulatory due diligence in transactional matters, and through advocacy with federal and state regulators, and leverages her background in health policy to help clients maximize opportunities in the changing healthcare landscape...

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