Understand how we got here — and how to move forward.


January 11, 2018

Hospital groups, health systems will appeal ruling that allowed 340B cuts to take effect

Daily Briefing

    Hospital groups and health systems on Tuesday notified a federal court that they intend to appeal a recent ruling that dismissed their lawsuit against HHS over cuts to Medicare's 340B drug discount program.

    Join the webconference: 340B and other oncology market trends in 2018

    About the 340B cuts

    The 340B program requires drug manufacturers to provide outpatient drugs to eligible health care providers at discounts ranging from 20% to 50%. About 40% of U.S. hospitals are eligible to participate in the program.

    CMS in November 2017 issued a final rule for the Hospital Outpatient Prospective Payment System (OPPS) changing the way hospitals are reimbursed under the program. Previously, hospitals purchased drugs at a discounted rate and are reimbursed at 6% on top of a drug's average sales price, but as of Jan. 1, hospitals are reimbursed at average sales price minus 22.5%, which CMS said would cut payments by $1.6 billion. CMS exempted from the payment cuts Prospective Payment System-exempt cancer hospitals, children's hospitals, critical access hospitals, rural sole community hospitals, and non-excepted hospital outpatient departments reimbursed under the Medicare Physician Fee Schedule. The reimbursement cuts also will not apply to vaccines, according to a CMS fact sheet.

    CMS said it will redistribute the $1.6 billion in savings by raising Medicare payments to hospitals for non-drug items and services under OPPS in calendar year (CY) 2018. The agency said it might revisit the payment rate changes in CY 2019. CMS previously said the changes would address rising costs under the program.

    Lawsuit details

    Hospital groups have argued the cuts could jeopardize services at safety-net hospitals. America's Essential Hospitals, the Association of American Medical Colleges, and the American Hospital Association, as well as Eastern Maine Healthcare Systems, Henry Ford Health System, and Park Ridge Health, in November 2017 filed a lawsuit against HHS seeking an injunction to stop HHS from implementing the cuts pending the lawsuit's resolution. The organizations argued that the 340B cuts violate the Social Security Act and exceed the HHS secretary's authority because Congress had intended for hospitals to receive discounts under the program.

    However, HHS in a motion to dismiss the lawsuit claimed that hospitals had "reaped substantial profits" from subsidies under the 340B program's previous system.

    U.S. District Judge Rudolph Contreras in a ruling issued late last month said the hospital groups lacked standing, citing a federal law that prevents providers from taking action against HHS payment rules until Medicare has rejected a claim. He wrote that hospitals filed the suit prematurely since the rule did not take effect until Jan. 1, adding that the groups will have to reference specific reimbursement claims to move forward with a lawsuit.

    According to The Hill, the hospital groups and health systems in the appeal notice said they disagreed with Contreras' ruling, which they noted does not address the merits of their claims (Gamble, Becker's Hospital Review, 1/9; AHA News, 1/9; Hellmann, The Hill, 1/9).

    Join the webconference: 340B and other oncology market trends in 2018

    Given that most Part B drug spending goes towards anti-cancer agents, oncology programs are disproportionately affected by changes to 340B. Join us on Tuesday, Feb. 13 to hear a complete analysis of the demographic shifts, new treatment technologies, and reimbursement and regulatory changes that have set the stage for a complex strategic planning process in the oncology market.

    Register Here

    Have a Question?


    Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.