District court remands 340B underpayment remedy to HHS despite hospitals' push for immediate relief

The Department of Health and Human Services (HHS) will have the final say in how to best compensate 340B hospitals for years of underpayments, disappointing industry groups that had hoped the courts would order a swift resolution.

For months, the courts have been unraveling a June Supreme Court decision declaring a nearly 30% payment rate cut first introduced in 2018 to be unlawful. The top court unanimously rejected HHS’ argument that it did not need to survey hospitals’ acquisition costs before introducing the adjustment but returned the case to lower courts to address potential remedies.

U.S. District Judge Rudolph Contreras in September ordered the Centers for Medicare & Medicaid Services (CMS) to vacate the lower rate for 2022’s remainder. His latest decision, released Tuesday, remands the issue of repayment back to HHS.

The American Hospital Association (AHA), which brought the original case back in 2018, had petitioned for injunctive relief and argued that “repaying those hospitals that were unlawfully underpaid, from 2018 to the present, the difference between what they were paid and [average sales price] plus 6%” as the “only one rational course for the agency to follow upon remand.”

Contreras, however, wrote that the court was “puzzled” by AHA’s argument that there was only a single option for remedy. Remanding to an agency is “ordinarily the appropriate course” in cases without a single rational course of action, he wrote, and still allows the AHA to seek additional review of HHS’ remedy if it is dissatisfied with the decision.

Though Contreras wrote that the court “expects that HHS will act promptly to remediate its underpayments,” hospital groups said they are “disappointed” that the judge chose to effectively extend the repayment delay by remanding the case.

“HHS recently indicated that it expects to propose a remedy by April,” AHA General Counsel and Secretary Melinda Hatton said in a statement on the district court’s decision. “We look forward to continuing to work with the Administration to develop a plan to swiftly repay 340B hospitals, with interest, while ensuring the remainder of the hospital field is not penalized as they too continue to serve and care for their patients and communities.”

Bruce Siegel, M.D., president and CEO of America’s Essential Hospitals, said in a statement that HHS’ underpayments—and now delayed repayments—undermined essential hospitals and have come at the worst possible time, as providers struggle with the heavy financial pressures of COVID-19.

“We urge HHS to honor the plain language of the ruling, which calls on the department to 'act promptly' to repay the more than five years of funding lost to these cuts,” he continued. “Essential hospitals cannot afford additional delays in repayment, and we stand ready to work with HHS to resolve this matter quickly.”

The restored payments have already been included in CMS’ 2023 Medicare Hospital Outpatient Prospective Payment System final rule. To stay budget neutral, CMS said it would also be implementing a -3.09% reduction to the payment rates for non-drug services.