Health systems sue feds over 340B registration policy reversal
By Alex Kacik / November 9, 2023
More than a dozen health systems sued the federal government regarding its reinstituted registration policy for offsite clinics of 340B-eligible hospitals.
Last month, the Health Resources and Services Administration reversed a policy that streamlined 340B certification during the COVID-19 pandemic. Hospitals participating in the drug pricing program, which provides an estimated 25% to 50% discount on outpatient drugs for organizations that treat low-income and uninsured patients, must register offsite clinics with HRSA and list them on Medicare cost reports for those clinics to qualify for 340B.
The reinstated registration process will allegedly cause delays of 8 to 23 months, the health systems said in a complaint filed Oct. 31 in the U.S. District Court for the District of Columbia.
"HRSA’s new rule is costing covered entities hundreds of millions of dollars—and if left unchecked, the losses will quickly be measured by the billions," the complaint alleges.
The health systems, which include St. Louis-based Mercy Health; Chicago-based Northwestern Medicine; Philadelphia-based University of Pennsylvania Health System; Palo Alto, California-based Stanford Health Care; Yale New Haven (Connecticut) Health, are seeking to vacate the registration policy for offsite clinics of 340B hospitals.
The policy reversal allegedly violates the required notice-and-comment rulemaking process, exceeds HRSA’s authority, conflicts with existing statute and is arbitrary and capricious, according to the complaint.
HRSA "believes program integrity is critically important to the long-term viability of the 340B program for all participants," a HRSA spokesperson said in a statement in response to the lawsuit. In the notice published Oct. 27 in the Federal Register, HRSA said it has had a hard time policing unregistered offsite clinics.
The health systems that filed the lawsuit listed several examples of the policy’s potential financial impact, one of which involved Glens Falls Hospital, a named plaintiff owned by Albany (New York) Med Health System.
Glens Falls Hospital opened an offsite cancer clinic on March 8, although it has not appeared on a Medicare cost report, the complaint says. The hospital estimates that the lost 340B savings from the policy reversal is allegedly $7 million, according to the lawsuit. Glens Falls is considering opening another offsite cancer clinic, but the registration delay would allegedly result in $6 million in lost savings if it were to open, court documents say. The hospital is reconsidering its plans to open the clinic, the complaint says.
This lawsuit represents the latest 340B-related legal development. Nearly 30 pharmaceutical companies have been withholding 340B discounts on medicines distributed through pharmacies that contract with providers, following a U.S. Court of Appeals for the 3rd Circuit ruling in January. Two similar cases are pending in federal appeals courts.
In addition, the American Hospital Association hinted at potential litigation that would challenge the recoupment element of a recently finalized 340B regulation. Under the final rule issued on Nov. 2, 340B hospitals will receive $9 billion by early next year in a move designed to compensate hospitals for 340B payment cuts in previous years. Lump sum remedy payments are tied to $7.8 billion in reduced reimbursement for other outpatient products and services because federal law requires the spending to be budget-neutral.