Health Law Daily 2019 340B Reimbursement rate unlawful as 2018 rate
Thursday, May 9, 2019

2019 340B Reimbursement rate unlawful as 2018 rate

By Gregory Kane, J.D., M.B.A.

HHS exceeded its statutory authority in reducing the 2018 Medicare reimbursement rates for drugs under the 340B Program and did it again when it implemented the same reimbursement rate in 2019.

It was previously ruled that HHS exceeded its statutory authority in reducing the 2018 Medicare reimbursement rates for drugs under the 340B Program by roughly 30 percent. While awaiting briefings on appropriate remedies from the parties, HHS set the 2019 reimbursement rates the same as had been found unlawful in 2018. The 2019 were found unlawful for the same reasons and both rules were remanded to the agency, but not vacated (American Hospital Association v. Azar, May 6, 2019, Contreras, R.)

Background. HHS's outpatient prospective payment system (OPPS) directly reimburses hospitals for outpatient services and pharmaceutical drugs provided to Medicare beneficiaries based on predetermined rates. The Secretary sets the annual rates under methodology authorized by Congress using hospital acquisition cost survey data or the average annual sales price for the drug plus 6 percent. Rates may be adjusted by the Secretary as necessary. This methodology is used to set rates for separately payable drugs covered by the 340B Program. A significant gap exited between 340B prices and Medicare reimbursement rates. 340B Program participants could purchase drugs at steeply discounted rates then seek reimbursement for those purchases at higher Medicare Part B rates. The Secretary attempted to narrow this spread by proposing a reduced reimbursement rate for 340 drugs from the average sales price (ASP) plus 6 percnet to ASP minus 22.5 percent. The Secretary's statutory ability to reduce the 2018 340B rate was limited by the data available to him—he did not have hospital acquisition cost data for 340B drugs and could therefore not invoke his express authority to set rates according to the drugs' average acquisition costs—so the Secretary used his authority to adjust rates set by the drugs ASP.

A group of hospital associations and non-profit hospitals objected to the adjustment during the notice and comment period, but the Secretary subsequently adopted the proposal. The hospitals sued, arguing that the Secretary had exceeded his statutory authority in violation of the Administrative Procedure Act and the Social Security Act. The court agreed holding that the Secretary violated the plain text of his authority when he adjusted the rates downward by 30 percent based on the drugs estimated acquisition costs rather than the drugs average sales prices. The court ordered supplemental briefings on proper remedies. Meanwhile, the Secretary opted to apply the same 340B rate in 2019 using the same rationale as in 2018—a rationale that the court found unlawful. Plaintiffs filed a supplemental complaint and moved to permanently enjoin the 2019 rule. HHS filed a motion to dismiss

Permanent Injunction. In defending the 2019 rates, the Secretary invited the court to reconsider its previous conclusion. The court declined the invitation and enjoined the 2019 rule for the same reason that it enjoined the 2018 rule; the Secretary acted ultra vires in setting the 2019 340B reimbursement rate. The court noted that the Secretary's violation of his statutory authority is readily apparent and adjustment is not the same as making basic and fundamental changes to the statutory scheme. The Secretary did not gather the statutorily required data to set the reimbursement rate based on acquisition costs making the methodology actually used to “adjust” the reimbursement rate entirely unconnected from the Medicare subsection the Secretary supposedly relied upon. That the adjustment was so significant was also a factor.

Remedies. Remand was determined to be a more appropriate remedy than an injunction. HHS has multiple options on remand including the mechanism recommended by plaintiffs, but the determination of the best course of action rest best with the agency. The court retained jurisdiction over the matter, however, and may reconsider imposing its own judgment on a remedy if the agency fails to promptly act.

The court rejected vacatur despite the substantial deficiencies by the Secretary. There can be no re-implementation of the 2018 and 2019 rates upon remand, but vacatur would likely be highly disruptive due to the complicated and intertwined nature of Medicare reimbursements, especially when some 2018 reimbursements have already taken place. The hospitals' motion for a permanent injunction was granted in part and defendant's motion to dismiss was denied.

The case is number 18-2084 (RC).

Attorneys: Margaret M. Dotzel (Zuckerman Spaeder, LLP) for American Hospital Association, Association of American Medical Colleges and America's Essential Hospitals. Justin Michael Sandberg, U.S. Department of Justice, for Alex M. Azar, II and United States Department of Health and Human Services. Kelly A. Carroll (Hooper Lundy & Bookman, PC) for Federation of American Hospitals.

Companies: American Hospital Association; Association of American Medical Colleges

MainStory: TopStory CaseDecisions CMSNews OPPSNews

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