Federal judge says HHS overstepped authority in cutting 340B payments

Drug prices
A federal judge has issued an injunction on the Department of Health and Human Services' cuts to 340B payments. (Getty/Tero Vesalainen)

Editor's note: This story has been updated to include a statement from HHS and the Federation of American Hospitals.

A federal judge has sided with hospitals in the ongoing battle over cuts to 340B drug discount payments, saying the Department of Health and Human Services’ rule slashing money to the program overstepped the agency's authority.

District Judge Rudolph Contreras from the District of Columbia has issued an injunction (PDF) on the final rule, as requested by the American Hospital Association, the Association of American Medical Colleges and America’s Essential Hospitals. 

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Contreras also denied HHS’ request for the hospital groups' ongoing litigation against the 340B payment cuts to be dismissed. 

The Centers for Medicare & Medicaid Services finalized the payment changes late last year, cutting the rate in 340B from up to 6% more than the average sales price for a drug to 22.5% less than the average sales price of a drug, slashing $1.6 billion in payments. 

Hospital groups have warned that the cuts could substantially hurt their bottom lines, especially for providers with large populations of low-income patients. Higher cost for drugs in 340B could also lead to access problems for these patients. 

RELATED: HHS finalizes January start date for long-delayed 340B final rule 

Contreras said in his opinion (PDF) that the payment changes overstepped HHS’ authority. 

Because the payment changes affect many drugs—any in the 340B program—and the payment cuts are a significant decrease, the agency bypassed Congress’ power to set those reimbursement rates with the rule, Contreras said. 

But simply siding with the hospital groups could prove disruptive, he said, as retroactively adjusting payments and reimbursing hospitals for lost money over the past year would impact budget neutrality, requiring cuts elsewhere to offset the payments. So both parties will have to reconvene to determine the best way forward, Contreras said. 

The AHA, AAMC and AEH issued a joint statement praising the ruling. 

“America’s 340B hospitals are immeasurably pleased with the ruling that the Department of Health and Human Services unlawfully cut 2018 payment rates for certain outpatient drugs,” the groups said.

“The court’s carefully reasoned decision will allow hospitals and health systems in the 340B Drug Pricing Program to serve their vulnerable patients and communities without being hampered by deep cuts to the program.” 

The case marks the groups’ second attempt at a legal challenge of the 340B cuts. A federal court rejected their initial appeal in July. 

An HHS spokesperson said in a statement emailed to FierceHealthcare that the agency is "disappointed" in Contreras' ruling, but said it looks forward to addressing the judge's concerns about potential disruption to payments.

"As the court correctly recognized, its judgment has the potential to wreak havoc on the system," the agency said. "Importantly, it could have the effect of reducing payments for other important services and increasing beneficiary cost-sharing."

Chip Kahn, president of the Federation of American Hospitals, said Contreras' ruling puts lowered drug costs, that benefit all hospitals, at risk.

"The DC Federal District Court’s ruling to stop reforms to Medicare payment for drugs acquired under the 340B drug discount program is unfortunate because it undermines HHS efforts to cut drug costs and promote fairer payments," Kahn said in a statement. 

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