Hospitals Lose Court Case Preventing Reimbursement Cuts to Some 340B Hospitals

Thoughtware Alert Aug 04, 2020
HC Health Care Cost Report TW

On July 31, 2020, the U.S. Court of Appeals overturned a District Court decision by stating that the U.S. Department of Health & Human Services (HHS) is within its authority to act on a subclause of the Medicare Outpatient Prospective Payment System (OPPS) statute to adjust reimbursement formulas for hospitals participating in the 340B Drug Pricing Program (340B Program).

Legal action began in 2018 with the reduction of reimbursement for specified covered outpatient drugs (SCOD). A drastic cut of 28.5 percent of reimbursement, for which hospital groups filed action, has been affirmed due to the stated OPPS goal of better “aligning payments to hospitals” with the actual 340B Program hospital costs. As covered in a prior BKD Thoughtware® article following this case, the District Court initially concluded that the HHS did not have the authority to adjust SCOD reimbursement rates. After an HHS appeal and issuance of a 340B Program acquisition cost survey, however, the Court of Appeals concluded that specific language within the OPPS statute can be interpreted as the HHS acting within its adjustment authority for oversight and update of payment metrics by hospital group, including 340B Program hospital payment rates.

Budget neutrality requires that the HHS redistribute the savings from these cuts to all hospitals by raising other non-340B Program hospital group Medicare Part B reimbursement rates. The HHS views this as a redistribution of resources, stating that increased profit should not be generated by subsidizing 340B hospital programs through Medicare Part B drug payments and should instead reflect actual acquisition costs that the 340B Program hospitals incur.

Hospitals and 340B Program organizations responding to this decision are resoundingly disappointed. 340B Health released a statement in response to the ruling stating that the 340B Program “enables safety-net hospitals, health centers, and clinics to stretch their scarce resources to serve more patients and provide more needed services” and that this ruling will cause forced cutbacks in services and much pain, especially during the COVID-19 pandemic. At this time, it’s not certain whether hospital associations will appeal this court ruling to the U.S. Supreme Court.

Read the court decision now.

For more information regarding the effect these sustained rate cuts may have on your organization, contact your BKD Trusted Advisor™ or submit the Contact Us form below.

Kate & Ben — How can we help you? Contact Us!

How can we help you?