Supreme Court Strikes Down Medicare Part B Reimbursement Reduction for 340B Drugs | Manatt, Phelps & Phillips, LLP

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The Supreme Court yesterday issued a unanimous opinion striking down the federal government’s reduction in Medicare Part B reimbursement for 340B drugs for calendar years 2018 and 2019. As background, the Centers for Medicare & Medicaid Services (CMS), in the 2018 hospital outpatient prospective payment system (OPPS) final rule, reduced Medicare Part B payments to 340B hospitals (other than rural sole community hospitals, OPPS-exempt cancer hospitals, children’s hospitals and critical access hospitals) for 340B purchased drugs, from Average Sales Price (ASP) plus 6% to ASP minus 22.5%. In doing so, CMS stated that this reduction was intended to reflect hospitals’ true acquisition costs for 340B drugs. The reductions were continued in subsequent years and remain in effect today.

 

In yesterday’s opinion, which was written by Justice Brett Kavanaugh, the Court agreed with the American Hospital Association and other hospital groups that challenged the cuts, and found that the reductions were impermissible because CMS substantially reduced the reimbursement rates for one group of hospitals—340B hospitals—but did not conduct a survey of hospitals’ acquisition costs for outpatient prescription drugs, which is a statutory prerequisite for varying Part B reimbursement by hospital group. Click here for a copy of the opinion.

The opinion leaves CMS in a difficult position. Because changes under the OPPS must be budget neutral, CMS reallocated the $1.6 billion in annual savings resulting from the 2018 and 2019 cuts in reimbursement to 340B hospitals and redistributed them to all hospitals, both 340B and non-340B, for non-drug-related services. CMS will now have to determine how to reverse this reallocation, potentially resulting in recoupments of the payments that were made to hospitals out of the $1.6 billion in savings. Another open question relates to the status of the cuts in later years. While CMS conducted a survey of 340B hospital acquisition costs in 2020, it’s not clear whether that survey would be sufficient to justify the cuts in calendar year 2020 and thereafter.

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