January 2019

What happened?
A federal district court granted a permanent injunction against the Medicare Part B 2018 Outpatient Prospective Payment System (“OPPS”) payment cuts for separately payable, non-pass through drugs purchased through the 340B Drug Discount Program. 

Effective January 1, 2018, reimbursement for such drugs was reduced from Average Sales Price (“ASP”) + 6% to ASP – 22.5%. A group of hospital associations and nonprofit hospitals brought the legal challenge against the cuts, arguing that HHS exceeded its statutory authority when it slashed payments for 340B drugs by nearly 30%.

The DC District Court Judge Rudolph Contreras agreed with the plaintiffs, ruling that HHS had acted ultra vires when it imposed the 30 percent reduction to thousands of drugs and fundamentally altered the statutory scheme established by Congress. Judge Contreras specifically found that HHS’s modification to Medicare reimbursement of 340B drugs was far more than just an “adjustment” to the ASP + 6% rate set by Congress, and HHS lacked statutory authority to make such a significant change when the plain language of the statute was clear. Judge Contreras very clearly indicated that if HHS disagrees with the statutory scheme, HHS should take the issue up with Congress and “may not end-run Congress’s clear mandate.”

Although the plaintiffs’ request for relief included an order for HHS to restore the 2017 OPPS drug reimbursement methodology permanently and for HHS to make retroactive payments for the difference between the 2017 rates and the 2018 rates, Judge Contreras ordered supplemental briefings to decide the proper remedies in light of OPPS’s budget neutrality implications.

Why is this important? Who does this affect?
If upheld, Judge Contreras’s opinion and underlying analysis will likely be significant barriers for HHS to overcome when attempting to implement significant and broad-reaching 340B drug reimbursement reductions. While HHS does have other mechanisms at its disposal, this opinion makes it very clear that HHS does not have broad discretion to significantly modify drug reimbursement rates unless very specific requirements are met. At least in the short-term, this is good news for covered entities.

The Part B 340B drug payment cuts cost certain 340B hospitals—which by definition are nonprofit hospitals who serve a disproportionately high amount of low income individuals—an estimated 1.6 billion dollars in 2018. The cuts were implemented in a budget neutral manner, essentially redistributing those cuts as reimbursement increases for other Part B drugs and services, including to hospitals who are not eligible for 340B discounts. As such, this ruling will impact any Medicare-participating hospital subject to OPPS, including those who do not participate in the 340B Drug Discount Program.

Wasn’t this matter litigated already?
Yes. In November of 2017, shortly after HHS issued its 2018 OPPS final rule implementing the 340B payment cuts, the same group of hospitals and hospital associations challenged the rule in federal court, arguing that HHS exceeded its rulemaking authority. That challenge was dismissed in December of 2017, on procedural grounds—specifically, that the statute authorizing judicial review of such claims requires that a concrete claim for reimbursement be submitted to the Secretary of HHS for final decision before a federal court can review the decision. Because the 2018 payment cuts hadn’t been implemented yet, this procedural requirement was not satisfied. The DC Court of Appeals upheld the district court’s dismissal in July of 2018. The same group of plaintiffs refiled essentially the same challenge in September of 2018 after hospitals had submitted claims subject to the 2018 OPPS rule, satisfying the procedural requirement.

What happens next?
Typically, the remedy for an agency rule promulgated contrary to law is to vacate the rule. However, the court declined to impose any immediate remedy, noting that vacating the rule and requiring HHS to reimburse hospitals the difference between the old and new reimbursement methodologies would cause extreme disruption to the Part B payment system. Much of the potential for disruption arises from the Part B payment adjustment budget neutrality requirement. Simply put, the cuts to 340B drug reimbursement were offset by concomitant increases in Part B reimbursement for other drugs and services. Instead, the court solicited supplemental briefing from both parties on the appropriate remedy, due within 30 days of the order, with 14 days to issue reply briefs.

What should hospitals do now? Do we still have to include the JG/TB modifiers on claims for separately payable non-pass through drugs purchased on 340B discount?
Yes. Hospitals should continue to comply with the 2018 and 2019 OPPS regulations until the court determines an appropriate remedy, and stay tuned for further updates.

What about the payment cuts in the 2019 OPPS rule?
Judge Contreras specifically noted that the court does not have jurisdiction to enjoin HHS’s 340B payment reductions in its latest 2019 OPPS rule. The court noted that here, as was the case in the initial challenge to the 2018 OPPS rule, the court is foreclosed from judicial review because no claim for reimbursement has been presented under the 2019 rule – this changed when providers began submitting claims on January 1, 2019. Likewise, there is another pending lawsuit regarding the 2019 OPPS payment reductions. We will continue to monitor the pending litigation regarding the 2019 OPPS payment reductions.