In June, the Supreme Court unanimously rejected massive payment cuts to hospitals under the 340B drug discount program. In the ruling, the justices noted that the Department of Health and Human Services did not survey hospital costs before adjusting payments for 340B in a 2018 rule, which cut payments to hospitals in the program by nearly 30%. The agency repeated that approach in 2019 rulemaking, and attorneys for HHS argued before the court that the surveys were not required, but the Court disagreed.
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At issue in the case was a new Medicare payment policy announced in the calendar year 2018 and 2019 outpatient prospective payment system (OPPS), when HHS reduced payment rates for 340B drugs dispensed by hospitals by nearly 30%. These reductions were intended by HHS to approximate the discounts available to 340B hospitals on the price of purchasing drugs from drug manufacturers, reducing the savings generated by the 340B Program away from the 340B hospitals. The payment cuts were challenged by trade associations representing hospitals and certain individual non-profit hospital plaintiffs. Resolution of the issue has been pending since suit was first filed in 2017.
Justice Kavanaugh delivered the opinion for the unanimous Court, stating that the Medicare statute provides HHS with two options when HHS sets reimbursement rates, depending on whether HHS has conducted a survey of hospitals’ acquisition costs for certain outpatient prescription drugs. First, if HHS has conducted such a survey, HHS may set the reimbursement rates to the hospitals’ average acquisition costs of the given drug for that year and may vary the reimbursement rates by hospital group. Second, if HHS has not conducted such a survey, HHS must set the reimbursement rates based on the average sales price of the drugs charged by their respective pharmaceutical manufacturers.
The Court found that the proposed changes to reimbursement for only 340B hospitals was a variation of reimbursement rates by hospital groups, which, the Court opined, could not be done under the Medicare statute without conducting a survey of hospitals’ average acquisition costs in accordance with the first option described above. HHS implemented the separate reimbursement rates for non-340B hospitals and 340B hospitals in its 2018 and 2019 hospital OPPS final rules without such a survey. The Court concluded that if HHS has not conducted a survey of hospitals’ average acquisition costs, HHS may not vary the reimbursement rates for outpatient prescription drugs by hospital group, and as such, the reimbursement rates set in the CY 2018 and CY 2019 hospital OPPS final rules were unlawful.
While the Supreme Court clearly held that HHS’s 2018 and 2019 reimbursement rate cuts for 340B hospitals exceeded its authority under the Medicare statute, it did not clearly address how the violation should be remedied. The Court remanded the case to the lower courts for further proceedings consistent with its order.