Wilson Hayman, JD

Recently, the U.S. District Court for the District of Columbia issued a permanent injunction to the Department of Health and Human Services to stop a major reduction in 2018 Medicare reimbursement to hospitals and other providers participating in the 340B Drug Pricing Program. 

In its 2018 Outpatient Prospective Payment System (OPPS) final rule published on Nov. 13, 2017, HHS finalized a policy reducing the reimbursement rates for providers purchasing drugs through the 340B Program from 6% above the average sales price to 22.5% below the average sales price, effective Jan. 1, 2018. 

In American Hospital Association, et. al. v. Azar (Civil Action #18-2084), filed in the U.S. District Court for the District of Columbia in late 2017, plaintiffs American Hospital Association, other provider associations, and individual hospitals alleged that the Secretary of HHS Alex Azar’s reduction in reimbursement was arbitrary and capricious, contrary to law, and exceeded his authority. The plaintiffs moved for a preliminary or a permanent injunction to force the secretary to strike the change in payment methodology for 340B drugs and return to the OPPS rule and methodology used in calendar year 2017 for all future payments. 

Waiving Copays Constitutes Contractual, Legal Violations and Insurance Fraud

In its decision on Dec. 27, 2018, the court denied defendants’ motion to dismiss and concluded that the agency’s action was outside the secretary’s discretion. The court noted that Congress’ limited grant of power to the secretary to adjust drug pricing under 42 U.S.C. § 1395l(t)(14)(A)(iii)(II) did not confer unbridled authority to make basic and fundamental changes to the statutory rate structure. The court held that in light of the nearly 30% reduction from the formula that Congress expressly set and the reduction’s wide applicability, the secretary had exceeded his authority in setting the 340B drug reimbursement rates in the 2018 OPPS Rule. 

Despite the plaintiffs’ success on the merits, the court declined to vacate the 2018 OPPS final rule and compensate plaintiffs retroactively for the underpayments. The court reasoned that increasing the 340B program reimbursement rates for 2018 would require offsets from the increased 2018 OPPS payments made for other nondrug items and services. Because this situation could wreak havoc on Medicare Part B’s OPPS system, the court ordered the parties to submit supplemental briefs on the issue of the appropriate remedy to implement the ruling. Similarly, the court declined to impose injunctive relief concerning the HHS rule setting the 2019 340B reimbursement rates, noting that the complaint had not specifically challenged the 2019 rule.

In November 2018, HHS issued a regulation requiring CMS to reimburse providers for drugs purchased under Section 340B in calendar year 2019, using the same discounted 2018 methodology found to be illegal by the court. 

Plaintiffs subsequently filed an amended complaint and moved for a permanent injunction to stay the operation of this portion of the 2019 OPPS rule for the same reasons the court stayed the 2018 rule. Plaintiffs asked the court to order the defendants to issue an interim final rule providing for reimbursement of 340B drugs based on the statutory default rate of ASP plus 6%; and to order CMS to pay providers retroactively the additional amount to which they were entitled, plus interest, for drug claims paid before the effective date of the interim final rule.

This litigation is not over, and further orders are expected in coming months. In the meantime:

Providers purchasing Section 340B drugs need to monitor ongoing developments in this litigation.

Until the court orders repayment to providers for any past claims paid at the reduced 2019 OPPS rates, providers would be well advised to delay submitting claims as long as possible until a new injunction is in place that restores full reimbursement for 2019

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Author | Wilson Hayman, JD

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Providers Advised to Delay Claim Submission until 2019 OPPS Injunction