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September 12, 2018

Hospitals sue HHS to end delay of 340B overcharge rule

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    The American Hospital Association (AHA) and other groups on Tuesday filed a lawsuit to compel HHS to release a final rule that would establish ceiling prices and penalties under Medicare's 340B Drug Discount Program.

    Download our one-page cheat sheet on Hospital Outpatient Prospective Payment System (HOPPS)


    Medicare's 340B program requires drug manufacturers to provide outpatient drugs to eligible health care providers at discounts ranging from 20% to 50%. The program, created by Congress in 1992 and expanded under the Affordable Care Act, focuses its discounts on hospitals with disproportionately low-income patient populations. However, the program has come under scrutiny, with some questioning the amount of charity care participating hospitals are providing.

    HHS in June delayed for the fifth time the effective date of a yet-to-be-released final rule that would penalize drugmakers that deliberately overcharge providers for drugs purchased under the 340B program. The yet-to-be-released final rule originally was scheduled to take effect Feb. 28, 2017, and the federal government was scheduled to begin enforcing it on April 1, 2017. The rule now is scheduled to take effect in July 2019.

    Little is known about the rule, since it has not been made public. But CQ News in September 2017 reported the final rule would levy fines up to $5,000 against drugmakers that "knowingly and intentionally" overcharge providers for drugs purchased through the 340B program and would require drugmakers to offer refunds for overcharges on new drugs rather than requiring providers to request refunds, as is currently required. According to Modern Healthcare, the final rule also would set drug price ceilings under the 340B program.

    Lawsuit details

    AHA and other groups in a lawsuit filed in U.S. District Court in the District of Columbia claim HHS' "repeated delays" of the final rule "are unreasonable, arbitrary, and capricious, in violation of the [federal] Administrative Procedure Act."

    The lawsuit claims HHS' "proffered rationales for their successive delays have shifted and been inconsistent, but the most frequent has been that delay has been needed to 'provide affected parties sufficient time to make needed changes to facilitate compliance'—despite the passage of the statutory requirements in 2010, a proposed rule in 2015 that put parties on notice, and numerous comment periods for consideration of the very same policy that was finalized in 2017." The suit continues, "That purported rationale and the others the department has offered have no support in the administrative record or otherwise."

    The lawsuit also asserts that, as a result of the delays, "some and possibly many [hospitals] have been overcharged by one or more drug companies."

    The lawsuit asks the court to declare HHS' delays unlawful and to compel the department to make the rule effective within 30 days of a court ruling.

    The other plaintiffs in the lawsuit are:

    • 340B Health;
    • America's Essential Hospitals (AEH);
    • The Association of American Medical Colleges;
    • Genesis Healthcare System;
    • Kearny County Hospital of Kansas; and
    • Rutland Regional Medical Center


    AHA President and CEO Rick Pollack said, "Our lawsuit will ensure that drug companies provide the transparency and accuracy that the government has found lacking and hold price gouging drug companies accountable."

    AEH President and CEO Bruce Siegel said, "While hospitals routinely meet rigorous requirements for accountability in the 340B program, the government has failed to hold manufacturers to the same standard. We must have a level playing field to ensure this program works as Congress intended, which is to help hospitals and other covered entities give vulnerable patients greater access to affordable drugs and health care services."

    Maureen Testoni, interim president of 340B Health, said, "Here we are eight years" after a government watchdog found drugmakers frequently overcharged for drugs, "with no evidence that the overcharging has abated, no transparency around prices, and providers still in the dark as to whether they are being overcharged" (Luthi, Modern Healthcare, 9/11; Morse, Healthcare Finance News, 9/11; Stein, Inside Health Policy, 9/11 [subscription required]; Cancryn, "Pulse," Politico, 9/12; Siddons, "TrumpTracker," CQ HealthBeat, 9/28/2017 [subscription required]).

    What you should know about the 2019 HOPPS proposed rule

    To learn more about Medicare Part B reimbursements and other provisions in the 2019 Hospital Outpatient Prospective Payment System (OPPS) proposed rule, watch the on-demand presentation and download our cheat sheet for a refresher on HOPPS.

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