Health Law Daily HHS’s motion to stay 340B Program final rule implementation denied
Tuesday, November 6, 2018

HHS’s motion to stay 340B Program final rule implementation denied

By Jeffrey H. Brochin, J.D.

A federal district court has denied the motion of the HHS to stay litigation filed by the American Hospital Association (AHA) and associated health care providers resulting from a several months-long delay in implementing a final rule for the 340B Program. Although HHS moved for the stay pending the outcome of planned rulemaking that would change the effective date of the rule from July 1, 2019 to January 1, 2019, the court found that it was not certain that the proposed rulemaking intended to move the effective date would in fact moot the case, nor was it certain that the rule would become final by the proposed January 1, 2019 effective date (American Hospital Association v. HHS, November 1, 2018, Bates, J.).

The 340B Program. The rule at issue is part of the 340B Program which was established by the Veterans Health Care Act of 1992, and was drafted in order to lower drug costs for certain federally-funded health providers serving low-income communities by setting maximum prices for covered outpatient drugs. In 2010, Congress instructed the Secretary of HHS to improve compliance by drug manufacturers with the 340B Program by, among other things, (1) developing and publishing standards and methodology for the calculation of ceiling prices for covered drugs; (2) establishing refund procedures for instances of manufacturer overcharges; (3) providing covered health care providers with access to the applicable ceiling prices via the HHS website; and (4) imposing sanctions on noncompliant manufacturers.

The AHA filed a lawsuit against HHS claiming that the agency’s decision to continue to delay implementation of a final rule it issued on January 5, 2017 was arbitrary and capricious and constituted "unreasonably delayed" agency action under the Administrative Procedure Act (APA) (see Court dismisses AHA’s challenge to 340B cuts, January 2, 2018).

Implementation delayed five times. HHS promulgated a 340B final rule on January 5, 2017, setting forth the calculation of the 340B ceiling price and application of civil monetary penalties to provide increased clarity in the marketplace for all 340B Program stakeholders as to the calculation of the 340B ceiling price. However, the court noted that during the nearly twenty-two months since HHS issued the final rule, the government has pushed back implementation of the rule five times, most recently delaying the effective date to July 1, 2019. The AHA alleged that these delays have caused significant harm to the approximately 2,487 covered 340B entities, causing the 340B entities to be overcharged for drugs.

Anticipation of rule implementation. Concurrent with the filing of the complaint, the AHA moved for summary judgment, and HHS moved to stay the case pending the outcome of an anticipated rule that would advance the effective date of the rule. In the alternative, they moved to stay briefing of summary judgment until after the court had decided the government’s yet-to-be-filed motion to dismiss. In support of their motion, HHS argued that January 1 is the earliest the rule could take effect because the 340B Program runs on a quarterly system, and the next quarter starts January 1. They further argued that moving the effective date to January 1, 2019 would provide the AHA with all the relief they sought in their complaint and would thereby moot the case, or at least narrow the relevant issues.

No guarantee of meeting proposed date. The court declined to stay the case pending the outcome of the government’s proposed rule because it was not certain that the proposed rulemaking moving the effective date would moot the case, nor was it certain that the proposed rulemaking moving the effective date to January 1 would in fact become final by that date. Although the government had curtailed the typical comment period from 30 days to 21 days, it was still not clear that any rule moving the effective date would become final sufficiently in advance of January 1, 2019. Accordingly, the court denied HHS’s motion to stay the case.

The case is No. 1:18-cv-02112-JDB.

Attorneys: William Barnett Schultz (Zuckerman Spaeder, LLP) for American Hospital Association, America's Essential Hospitals and Association of American Medical Colleges. Justin Michael Sandberg, U.S. Department of Justice, for Department of Health and Human Services and Alex M. Azar, II.

Companies: American Hospital Association; America's Essential Hospitals; Association of American Medical Colleges; Department of Health and Human Services

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