On July 31, 2020, the D.C. Circuit Court of Appeals overturned a 2018 D.C. district court decision and found that the U.S. Department of Health and Human Services ("HHS") acted within its statutory authority in reducing Medicare Part B reimbursement rates by 28.5% for certain outpatient drugs to hospitals that participate in the federal 340B Drug Pricing Program. In short, this decision leaves intact, for now, HHS's cuts to reimbursement rates made in 2018 for drugs purchased by hospitals under the 340B Drug Pricing Program. On August 4, 2020, HHS also proposed for calendar year 2021 even steeper cuts in reimbursement for hospital-purchased outpatient 340B drugs. This alert details the D.C. Circuit's decision and its effect on Medicare covered drug reimbursement going forward, including the newly proposed reimbursement rates for 2021.
Background. The 340B Drug Pricing Program is a federal program in which pharmaceutical manufacturers provide certain outpatient drugs to eligible health care organizations'including hospitals serving a disproportionate share of low-income patients'at discounted prices.1 The issue before the Court was whether HHS had the statutory authority to "adjust" downward Medicare reimbursement by 28.5% for drugs purchased by hospitals participating in the federal 340B Drug Pricing Program ("340B Hospitals").
Medicare reimburses hospital purchased outpatient drugs under Medicare Part B through the Outpatient Perspective Payment System ("OPPS") under 42 U.S.C. ' 1395l(t). Certain drugs covered by Medicare Part B are known as "specified covered outpatient drugs" or "SCODs." The OPPS sets out a specific methodology for determining payment rates for these drugs, which allows HHS to determine the reimbursement rates for SCODs in one of two ways: it may use "the average acquisition cost for the drug" obtained from hospital survey data; or, if such survey data is not available, then "the average price for the drug" may be calculated and adjusted by HHS.2 Since 2006, HHS had not obtained hospital acquisition cost survey data and had used the average price of the drug to set the payment rates for SCODs. The average price of SCODs has ranged from 104% to 106% of the SCODs average sale price ("ASP") and, prior to 2018, all hospitals, other than Critical Access Hospitals, had been paid the same rate for SCODs.3
Effective January 1, 2018, however, HHS invoked its purported authority to adjust the average price metric and reduced the SCOD reimbursement rate for 340B Hospitals from 106% ASP to ASP minus 22.5%.4 HHS's stated reason for this change was to reduce the "profit" 340B Hospitals...
