Understanding the Supreme Court Ruling on 340B

The Supreme Court ruling strikes down Medicare payment cuts.

On June 15, the U.S. Supreme Court sided with hospital groups in a case challenging the 340B payment cuts by the U.S. Department of Health and Human Services (HHS) over the past several years. 

The American Hospital Association (AHA) and other interested parties challenged the 2018 and 2019 reimbursement rates in federal court in the case of AHA v. Becerra.

The case centered around whether the Centers for Medicare & Medicaid Services (CMS) has the authority to make cuts to the program under its Medicare Outpatient Prospective Payment System (OPPS). Under the payment rule, HHS cut the reimbursement rate for covered drugs by 28.5 percent in 2018, but it later lowered the reimbursement rate cut to 22.5 percent, which was essentially $1.6 billion annually.  

Associate Justice Brett Kavanaugh, writing the opinion for the Court’s unanimous decision, said that absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rate for 340B hospitals. “HHS’s 2018 and 2019 reimbursement rates for 340B hospitals were therefore contrary to the statute and unlawful,” he wrote. He also stated that “340B hospitals perform valuable services for low-income and rural communities, but have to rely on limited federal funding for support.”

Maureen Testoni, head of 340B Health, a group representing 1,400 hospitals across the country, applauded the Supreme Court for making the correct decision in striking down these Medicare cuts. Some safety-net hospitals have reported being forced to eliminate or scale back services to patients in need because of the reductions, she said in a statement.

“As Justice Kavanaugh wrote for the court, we look forward to the next stage of the process involving remedies for hospitals that have been affected by these unlawful cuts,” the statement read. “We also renew our call for the Centers for Medicare & Medicaid Services (CMS) to abandon its policy of targeting 340B drugs for lower payment rates as it works to propose Medicare rates for 2023.”

Here is some background for those of you who may not be aware of what the 340B program is. Congress created it in 1992 to protect safety-net hospitals from escalating drug prices by allowing them to purchase outpatient drugs at a discount from manufacturers. In 2019, more than 2,500 hospitals participated in the program. The 340B program enables covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. A hospital typically pays 20 to 50 percent below the average sales price for the drugs, through the program. 

In summary, here are some quick facts:

1. This does not affect critical access hospitals (CAHs);
2. This does affect OPPS facilities;
3. This reverses a decision by CMS to cut reimbursement to OPPS facilities for medications that were purchased under the 340b program and administered/billed;
4. The original action cut margins on those medications, and this will restore those margins moving forward; and
5. Testoni’s statement says they will look at how OPPS facilities can be reimbursed for historical transactions that were deemed a part of this unlawful act by CMS. 

Going forward, the American Hospital Association, Association of American Medical Colleges, and America’s Essential Hospitals say they look forward to working with HHS and the courts to develop a plan to reimburse 340B hospitals affected by the cuts while ensuring other hospitals are not disadvantaged as they also continue to serve their communities.

Programming Note: Listen to Dr. John Zelem and his segment, “Journaling John MD,” today on Talk Ten Tuesdays, 10 Eastern.