Court orders HHS to vacate 340B payment discounts through 2022

By Dave Muoio / September 29, 2022

340B hospitals picked up a win Wednesday when a federal judge ordered that “defective” payment cuts for the drug discount program be tossed for the remainder of 2022.

U.S. District Judge Rudolph Contreras’ ruling addresses the first of two remedy questions stemming from June’s Supreme Court decision, in which the top court overturned a nearly 30% rate cut adjustment the Department of Health and Human Services (HHS) first introduced in 2018.

The Supreme Court unanimously rejected HHS’ argument that it did not need to survey hospitals’ acquisition costs before introducing the adjustment. The case was returned to lower courts to address potential remedies.

Hospital industry plaintiffs including the American Hospital Association (AHA), the Association of American Medical Colleges and America’s Essential Hospitals filed motions seeking to remedy years of unlawful underpayments to 340B hospitals and to vacate the 340B reimbursement rate of the Outpatient Prospective Payment System (OPPS) rule still in effect through the end of the year.

Addressing the latter, Contreras granted hospitals’ motion to vacate the 2022 reimbursement rate without injunction.  

The judge said HHS’ claims that vacatur of the 2022 rate would be disruptive were persuasive. HHS itself admitted that the remainder of 2022 accounts for “only … a small sliver of the overall time periods challenged in this action,” Contreras wrote, and the department has already begun taking steps to address a potential budgetary shortfall resulting from the Supreme Court’s ruling.

“In short, the Court finds that any disruption that will be caused by vacating the prospective portion of the 2022 OPPS Rule's 340B reimbursement rate does not rise to the level of justifying remand without vacatur,” the judge wrote.

Hospital industry stakeholders applauded the court’s decision.

“This is an important victory for 340B hospitals that have been fighting these unlawful Medicare cuts for nearly six years,” Maureen Testoni, president and CEO of 340B Health, which counts 1,400 hospitals as members. “The Centers for Medicare & Medicaid Services (CMS) has the clear responsibility to restore the appropriate payments for 340B drugs immediately, and now a federal court has ordered it to do so without delay.”

The immediate halt will help hospitals continue to provide services to their communities, AHA General Counsel and Secretary Melinda Hatton said in a statement already looking ahead to the court’s next decision.

“We continue to urge the administration to promptly reimburse all the hospitals that were affected by these unlawful cuts in previous years and to ensure the remainder of the hospital field is not penalized for their prior unlawful policy, especially as hospitals and health systems continue to deal with rising costs for supplies, equipment, drugs and labor,” she said.

AHA submitted several court filings in August warning against a budget-neutral recoupment plan that would require hospitals unaffected by the cuts to foot the bill.