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Federal Court Ruling Blocks Detrimental Payment Cut Impacting 340B Hospitals

December 28, 2018

The D.C. District Court blocked a nearly 30 percent payment cut impacting many hospitals in the 340B Drug Pricing Program—a program that helps hospitals and patients manage the ever-increasing burden of prescription drug costs.

Last November, three hospital groups—American Hospital Association (AHA), Association of American Medical Colleges, America's Essential Hospitals—and three plaintiff hospitals sued the U.S. Department of Health and Human Services (HHS) to stop a payment cut for outpatient drugs purchased under the 340B program. The policy under dispute reduced Medicare payments to certain hospitals by about $1.6 billion annually, starting on January 1, 2018.

Hospital advocates argued that the regulatory policy violated the law and should be set aside under the Administrative Procedure Act as unlawful and in excess of the HHS Secretary’s statutory authority.

In the December 27, 2018 ruling, Judge Rudolph Contreras wrote: "the Secretary's rate adjustment at issue here does not affect a single drug or even a handful of drugs, but rather potentially thousands of pharmaceutical products found in the 340B Program ... when viewed together, the rate reduction's magnitude and its wide applicability inexorably lead to the conclusion that the Secretary fundamentally altered the statutory scheme established by Congress for determining ... reimbursement rates, thereby exceeding the Secretary's authority."

The judge granted the hospital plaintiffs’ motion for a permanent injunction; and ordered the hospital associations and the government to both submit briefs about the proposed remedy within 30 days and responses to those briefs within 14 days after that.

D.C. Circuit Court of Appeals ruling during July had delayed a decision on the merits of the case because no claims had been filed when the lawsuit was brought to prevent the cuts. Hospital plaintiffs refiled the lawsuit during September once claims had progressed through the appeals process.

The 340B program has enabled Pennsylvania hospitals to care for low-income and uninsured patients by purchasing certain outpatient drugs from pharmaceutical manufacturers at discounted prices. Hospitals can then use the savings to provide an expanded range of comprehensive health services to their local communities, such as increased access to care, clinical pharmacy services, community outreach programs, free vaccines, and transportation to follow-up appointments.

The intent behind the federal program is to allow hospitals to stretch scarce resources to better serve vulnerable patients and communities. The program has been a particularly valuable tool as the price of prescription drugs places an increasing financial burden on patients and hospitals.

The D.C. District Court ruling validates the hospital community’s concerns with the regulatory policy, and blocks significant cuts that undermine a crucial program. HAP echoes a joint statement issued by the three hospital associations leading the lawsuit in applauding the carefully reasoned decision which will allow 340B hospitals to continue fulfilling the intent of the 340B program without being hampered by detrimental payment cuts.

HAP will keep Pennsylvania hospitals posted regarding next steps as the legal proceedings move forward.

For additional information, contact Jolene Calla, Esquire, HAP’s vice president, health care finance and insurance, or Laura Stevens Kent, HAP’s vice president, federal advocacy.

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