Judge tells HHS to revisit 340B after ruling cuts 'unlawful'

In the ruling filed on Monday, U.S. District Judge Rudolph Contreras sided with plaintiffs made up of hospital groups including the American Hospital Association, reaffirming cuts made under the 2018 Outpatient Prospective Payment System were unlawful. (Getty/jacoblund)

Cuts to the reimbursement rate to hospitals under the 340B drug discount program by the Department of Health and Human Services were unlawful, a U.S. district judge for the District Court of D.C. has ruled (PDF).

The American Hospital Association, America's Essential Hospitals and the Association of American Medical Colleges joined up with Eastern Maine Healthcare Systems, Henry Ford Health System and Fletcher Hospital to sue HHS in November 2017. The suit came after the Centers for Medicare & Medicaid Services issued a final rule that would slash payments to hospitals that participate in the 340B program.

CMS changed the program's payment rate from up to 6% more than the average price of drugs to 22.5% less than the average price, which cut $1.6 billion in 340B payments. There was an immediate outcry to the policy from hospitals and providers enrolled in the program.

RELATED: Hospital groups renew 340B fight with HHS lawsuit

In the ruling filed on Monday, Judge Rudolph Contreras sided with the hospital groups, reaffirming that cuts made under the 2018 Outpatient Prospective Payment System (OPPS) were unlawful and extended the ruling to include the 2019 cuts.

However, he did not grant the relief requested by the hospital groups, which included the difference between the amount they received under the 2018 and 2019 OPPS rules and the amount they are entitled. 

Instead—citing Medicare's complexity and the parties' wildly divergent positions on the issue—Contreras said, "the Court must determine how to 'unscramble the egg.'" He called for HHS to submit a status report by August 5 on a plan to remedy the issues raised in the 2018 and 2019 OPPS rules.

Per HHS' request, the court remanded the issue back to the agency to "consider and adopt an 'appropriate adjustment.'" 

RELATED: Hospital groups sue HHS over long-delayed 340B final rule

The AHA, AEH and AAMC issued a joint statement praising the judge's directive.

"We urge HHS to promptly comply with the judge’s ruling and restore to 340B hospitals all funds that have been unlawfully withheld," the groups said.

HHS declined to comment. However, HHS Secretary Alex Azar has previously defended the cuts, saying "the gap between prices paid by 340B entities and the compensation they receive has, in many cases, grown far too wide. That was the reason why the administration restructured reimbursement under Part B for 340B drugs—the first-ever major reform to reimbursement under 340B."

He also said the new payment level is still above the average price actually paid by 340B entities, "but it is closer to reality." 

The 340B drug discount program once enjoyed bipartisan support and has been expanded three times by Congress. But drug companies say it's grown too large and contributes to the rising cost of medication. Meanwhile, leaders of major health systems in both urban and rural settings have raised concerns over the serious risks they face if those savings sustain significant cuts.