Health Law Daily Court dismisses AHA’s challenge to 340B cuts
Tuesday, January 2, 2018

Court dismisses AHA’s challenge to 340B cuts

By Bryant Storm, J.D.

The American Hospital Association (AHA) must exhaust administrative remedies prior to challenging HHS cuts to the 340B Program in court. A district court denied the AHA’s motion for a preliminary injunction to prevent HHS from reducing reimbursement for 340B drugs from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent. The court did not rule on the merits of the case and instead held that, in the absence of a final decision from the HHS Secretary, the court lacked subject matter jurisdiction (American Hospital Association v. Hargan, December 29, 2017, Contreras, R.).

340B Program cuts. The 340B Program (see 42 U.S.C. §256b, as expanded by Secs. 2501, 7101, and 7102 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148)), requires drug manufacturers to provide covered outpatient drugs at a discounted price to covered facilities. In 2017, CMS issued a Final rule (82 FR 52356) changing its reimbursement for separately payable drugs and biologics (other than pass-through drugs and vaccines) acquired through the 340B Program from ASP plus 6 percent to ASP minus 22.5 percent (see CMS cut to 340B spending overshadows OPPS update; associations threaten suit, November 2, 2017).

Complaint. The AHA filed suit challenging the cuts, asserting that the reduction in reimbursement would threaten hospitals’ ability to provide care to communities, including underserved patient populations. Specifically, the AHA sought a preliminary injunction preventing the 340B provisions of the rule from taking effect on January 1, 2018, alleging that member hospitals and the populations served "would suffer significant and immediate harm" which would be "flatly inconsistent" with the purpose of the 340B program (see AHA makes good on threats to sue over 340B cuts, November 14, 2017). The AHA asserted that the nearly 30 percent reduction in the Medicare reimbursement rate for 340B drugs exceeded the Secretary’s statutory authority under 42 U.S.C. § 1395l(t)(14)(A)(iii) and, therefore, violated the Administrative Procedure Act (APA).

Jurisdiction. The court held that the Medicare Act limits federal court jurisdiction on claims arising under the statute to circumstances where the Secretary has rendered a final decision on the matter. In other words, before a federal court would have jurisdiction to decide the 340B issue, a claim must be presented to the HHS Secretary and administrative remedies must be exhausted. The court noted that the AHA had "not yet presented any specific claim for reimbursement to the Secretary upon which the Secretary might make a final decision." The court rejected the AHA’s argument that by commenting on the Proposed rule, the presentment requirement was satisfied, noting that those comments did not constitute "concrete claims for reimbursement."

Commentary. In a press release following the decision, Rick Pollack, AHA’s president and CEO, said: "we are disappointed in this decision from the court and will continue our efforts in the courts and the Congress to reverse these significant cuts to the 340B program."

The case is No. 1:17-cv-02447-RC.

Attorneys: Carlos T. Angulo (Zuckerman Spaeder, LLP) for American Hospital Association. Nikhel Sus, U.S. Department of Justice, for Eric D. Hargan, Acting Secretary, U.S. Department of Health and Human Services.

Companies: American Hospital Association; U.S. Department of Health and Human Services

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