It has been more than a year since the Supreme Court ruled against the Department of Health and Human Services (HHS) and its 2018 decision to cut reimbursement rates to 340B Drug Pricing Program participants by more than 28%. But finally, those program participants are getting their due. They are set to receive a collective $9 billion lump sum payment from the Centers for Medicare & Medicaid Services (CMS).
The lump sum payment represents what the 1,600 covered hospitals would have saved if CMS had not reduced 340B reimbursement rates. It is a lot of money no matter how you slice it. As for HHS and CMS, last year’s Supreme Court decision put them on notice about how they calculate future rate reductions or increases.
The 2022 Supreme Court case arose from a U.S. Court of Appeals decision that let the government’s excessive rate reduction stand following a lawsuit by the American Hospital Association (AHA) and a number of other covered entities. According to the AHA complaint, the government implemented a rate reduction on 340B covered entities based on average drug prices for 2018 and 2019. However, the government never surveyed covered entities to find out how much they were actually paying to obtain discount drugs under the program.
Supreme Court justices unanimously sided with the AHA, finding that cutting reimbursement rates without doing an actual survey resulted in disparate adjustments that affected only one group of hospitals. The justices ruled that such disparate adjustments are not allowed under the law.
The whole thing started when HHS adjusted its reimbursement rates for 340B covered entities based on average drug costs. HHS is allowed to do so for drugs purchased under Medicare and Medicaid. However, 340B participation is a separate entity. Not every healthcare provider participating in Medicare/Medicaid also participates in the 340B program. In fact, the vast majority do not.
As a result, applying the Medicare/Medicaid standard is questionable. According to the Supreme Court, it is not allowed under the law unless the government conducts an actual survey to determine the average acquisition costs of every participating hospital. HHS did not conduct that survey, so they were not allowed to arbitrarily adjust reimbursement rates based on what they believed average drug prices to be.
Perhaps the most remarkable aspect of the court’s decision is that it was unanimous. That so rarely happens in this day and age. Yet the consensus among the court’s justices is pretty clear evidence that the HHS decision was a clear violation of the law. It is a big win for the 1,600 hospitals in line to split the lump sum payment.
The decision is also compelling evidence that the 340B Drug Pricing Program needs an overhaul. The program is so complex in some areas that covered entities need to call on Florida-based Ravin Consultants and other 340B drug pricing program experts to make sense of it all. And even at that, expert 340B consultants do not always get it right.
It is unclear what the combined supreme court decision and lump sum payment means moving forward. Government regulators still have quite a bit of latitude to administer the 340B program as they see fit. Meanwhile, covered entities and pharmaceutical companies continue to butt heads over who should be able to purchase discount drugs under 340B.
Perhaps the entire law needs to be scrapped and rebuilt from the ground up. The only other choice is to continue trying to work out disagreements with litigation. I am betting litigation will be the preferred course of action.