Key Points:
- The Supreme Court invalidated 2018 and 2019 cuts to Medicare reimbursement rates for hospital outpatient drugs acquired through the 340B Drug Pricing Program, effectively reinstating the default rate of ASP plus 6 percent for those years.
- CMS now has the difficult task of designing and implementing an appropriate remedy, which itself may be subject to further litigation.
- The most immediate question for the agency is whether to use hospital drug acquisition cost survey data collected in 2020 to maintain reduced payment rates in CY 2023.
Background
The Social Security Act offers the Secretary of Health and Human Services (HHS) two options for setting Medicare reimbursement rates for separately payable outpatient drugs. The first option ('Option 1') is to use the average acquisition cost for the drug for that year, as determined by taking into account hospital acquisition cost survey data.1 Under this option, the statute allows the Secretary to vary the cost amount by hospital group.2 The second option ('Option 2'), available if hospital acquisition cost data are not available, is a default rate of average sales price (ASP) plus 6 percent, 'as calculated and adjusted by the Secretary as necessary . . . .'3 The Centers for Medicare & Medicaid Services (CMS), the HHS agency that administers the Medicare program, has historically used the Option 2 default rate and set reimbursement at ASP plus 6 percent.
In a 2017 rulemaking, CMS altered Medicare's payment methodology for separately payable outpatient drugs (including biologics) acquired through the 340B Drug Pricing Program.4 This change, effective calendar year (CY) 2018, reduced reimbursement for these discounted drugs under the hospital outpatient prospective payment system (OPPS) from the default rate of ASP plus 6 percent to ASP minus 22.5 percent.5 The agency explained that this change was intended to align payment with the resources of hospitals and their acquisition costs for these 340B drugs based on a 'conservative estimate' of the average minimum discount.6 The effect of this payment change was the reallocation of approximately $1.6 billion from 340B hospital drug payments to nondrug item and service payments for all hospitals under the OPPS.7 Additionally, Medicare beneficiaries who received 340B drugs benefited from the lower reimbursement, as the cost‑sharing obligation is generally 20 percent of the Medicare reimbursement rate.8
Certain hospitals and hospital associations sued CMS in federal district court over the reduced reimbursement for CY 2018, and later CY 2019, arguing that the agency exceeded its statutory authority by changing reimbursement rates for 340B-acquired drugs without first collecting acquisition cost data from hospitals through a survey, and inappropriately relying on its authority to 'adjust' drug payments.9 The district court found in favor of the plaintiffs. Pointing out that there was no survey data to support the use of the first statutory option (average acquisition costs), the court concluded that the magnitude and breadth of the cuts exceeded the adjustment authority Congress conferred upon the agency.10 CMS appealed, and the court of appeals reversed, concluding that CMS had...
