Health Reform WK-EDGE HHS granted final judgment in district court Medicare reimbursement rate ruling
Tuesday, July 23, 2019

HHS granted final judgment in district court Medicare reimbursement rate ruling

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

HHS was granted final judgment by the district court in its ruling that the department had exceeded its statutory authority in reducing the 2018 and 2019 Medicare reimbursement rates.

Summary. The district court entered final judgment on its previous ruling that the Department of Health and Human Services (HHS) exceeded its statutory authority in implementing rules that reduced the 2018 and 2019 Medicare reimbursement rates for drugs under the 340B Program by roughly 30 percent. Both rules were previously remanded to the agency, but not vacated, and the court had retained jurisdiction over the matter to ensure prompt action by HHS. HHS had argued that final judgement was necessary for expeditious review on the merits in the D.C. Circuit (American Hospital Association v. Azar, July 10, 2019, Contreras, R.).

Background. HHS’s Outpatient Prospective Payment System 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 240B 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 percent 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.

Plaintiffs, a group of hospital associations and non-profit hospitals, objected to the adjustment during the notice and comment period, but the Secretary adopted the proposal anyway. Plaintiffs brought suit 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 plan 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. The district court again found that HHS had exceeded it statutory authority in 2019 and remanded the 2018 and 2019 rules to the agency and retained jurisdiction over the matter so that the court could reconsider its remedy if HHS did not act promptly (see 2019 340B Reimbursement rate unlawful as 2018 rate, (May 9, 2019).

Plaintiffs moved for a firm date by which defendants had to propose a remedy to the court. HHS moved for reconsideration of the court’s order to remand and requested entry of final judgment so as to ensure expeditious review on the merits in the DC Circuit.

Final Judgement. Defendants argued that the district court’s retention of jurisdiction upon remand constituted clear error. While a court may retain jurisdiction, it is not required to do so. The discretion to retain jurisdiction is typically used in cases where an unreasonable delay of agency action or a failure to comply with statutory deadlines is present, no evidence of which existed in the present case. In addition, the Administrative Procedure Act does not permit the court to review a proposed rule before it becomes final. In order to afford the parties the opportunity for expedited review by the D.C. Circuit, the district court granted the motion for entry of final judgment. In doing so, the plaintiff’s motion for a firm date was rendered moot.

The case is No. 18-2084 (RC).

Attorneys: Margaret M. Dotzel (Zuckerman Spaeder, LLP) for American Hospital Association and Association of American Medical Colleges. Justin Michael Sandberg, U.S. Department of Justice, for Alex M. Azar II.

Companies: American Hospital Association; Association of American Medical Colleges

Cases: CaseDecisions 340BNews AgencyNews OutpatientFacilityNews ProviderPaymentNews ProgramIntegrityNews DistrictofColumbiaNews NewsFeed

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