On December 27, 2018, Judge Rudolph Contreras of the U.S. District Court for the District of Columbia ruled in favor of several associations and hospital plaintiffs, including the American Hospital Association (AHA) (Plaintiffs), finding that HHS exceeded its legal authority when it cut, by almost 30 percent, certain Medicare outpatient drug payments to hospitals under Medicare’s 340B program. The Court issued a merits decision while denying HHS’s motion to dismiss, concluding that HHS “exceeded [its] authority under 42 U.S.C. § 1395l(t)(14)(A)(iii)(II) in setting the 340B drug reimbursement rate in the 2018 OPPS Rule.” Given the ruling’s potentially drastic effects on the Medicare program, Judge Contreras ordered supplemental briefing before awarding Plaintiffs with any specific relief. The Court’s full opinion in American Hospital Association, et al. v. Azar, No. 18-2084(RC) (D.D.C. December 27, 2018) can be found here. Further background on the case can be found here.
Background on the 340B Program Rate Cut at Issue
Participating hospitals purchase 340B drugs at discounted rates and receive reimbursement by HHS at Outpatient Prospective Payment System (OPPS) rates after prescribing the drugs to Medicare beneficiaries. Before 2018, the OPPS reimbursement rate for the drugs was the average sales price (ASP) plus 6%. When HHS issued its final 2018 OPPS Rule, however, it pronounced a rate reduction for 340B drugs from ASP plus 6% to ASP minus 22.5% beginning in 2018. HHS claimed authority to pronounce such a reduction – one that would not be based on the drugs’ average acquisition costs – under 42 U.S.C. § 1395l(t)(14)(A)(iii)(II), which allows for calculation and adjustment “as necessary.”
The District Court’s Ruling
Renewing their efforts after an early dismissal, the Plaintiffs’ lawsuit challenged HHS’s 340B drug reimbursement rate reduction that became final in 2018. Plaintiffs argued that the reduction exceeded HHS’s statutory authority and violated the Administrative Procedure Act (APA) and the Social Security Act. Plaintiffs also requested either a preliminary or permanent injunction, asking the Court to direct HHS to “strike the changes in the payment methodology for 340B drugs from the OPPS Rule” and instead use the “methodology used in calendar year 2017 for all future 340B Program payments in 2018,” in addition to paying Plaintiffs the difference between reimbursements they received in 2018 under the new rates and reimbursements...
