SCOTUS Hands 340B Hospitals a VictoryJune 15, 2022
In a unanimous decision announced today, the Supreme Court ruled that substantial pay cuts to the 340B drug discount program were unlawful.
The Court noted that HHS violated the Medicare statute when it chose not to survey hospitals on the costs of acquiring drugs before slashing payments to the 340B program, which requires drug manufacturers to discount outpatient drugs for certain safety-net providers, such as Medicare’s Disproportionate Share Hospitals.
“Absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates only for 340B hospitals; HHS’s 2018 and 2019 reimbursement rates for 340B hospitals were therefore unlawful,” wrote Justice Brett Kavanaugh, author of the court’s principal opinion. He further noted that the “text and structure” of the statue made it a “straightforward case.”
From 2006 until 2018, HHS did not conduct surveys to gauge hospitals’ acquisition costs and instead set their reimbursement rates at approximately 106%, without setting different rates for different hospitals groups.
“For 2018, HHS again did not conduct a survey. But this time it issued a final rule establishing separate reimbursement rates for hospitals that serve low-income or rural populations through the 340B program and all other hospitals,” Kavanaugh wrote.
While HHS argued that it is allowed to change the average price “as necessary,” he noted, “HHS’s power to increase or decrease the price is distinct from its power to set different rates for different groups of hospitals.”
The American Hospital Association (AHA) estimates that the cuts cost 340B hospitals $1.6 billion annually.
Under the Trump administration, CMS issued a final rule calling for “non-pass-through drugs” and biologics, with the exception of vaccines, to be reimbursed at a rate of average sales price (ASP) minus 22.5%, down from ASP plus 6%.
The AHA and America’s Essential Hospitals immediately threatened legal action, but the rule took effect the following year.
In 2018, HHS Secretary Alex Azar continued to call for more transparency and oversight of the 340B program, and suggested that the program’s benefits were being “diverted to unintended purposes, unrelated to supporting care for low-income patients.”
Upon hearing the Court’s decision, the AHA, America’s Essential Hospitals, and the Association of American Medical Colleges celebrated their victory.
“We are pleased that the U.S. Supreme Court unanimously agreed with us that the Department of Health and Human Services’ outpatient payment cuts to hospitals in the 340B Drug Pricing Program were unlawful,” the groups wrote in a joint press statement. “This decision is a decisive victory for vulnerable communities and the hospitals on which so many patients depend.”
The groups also noted that they are looking forward to working with the Biden administration and the courts “to develop a plan to reimburse 340B hospitals affected by these unlawful cuts while ensuring the remainder of the hospital field is not disadvantaged as they also continue to serve their communities.”
Maureen Testoni, president and CEO of the nonprofit 340B Health, also applauded what she viewed as the “correct decision,” recalling that some safety-net hospitals were forced to scale back or even eliminate services to vulnerable patients due to the 2018 cuts.
“We look forward to the next stage of the process involving remedies for hospitals that have been affected by these unlawful cuts,” she said.
Testoni also urged CMS to “abandon its policy of targeting 340B drugs for lower payment rates,” as it prepares to announce Medicare rates for 2023.