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Essential Hospitals See New Win in Legal Challenge to 340B Payment Cuts

September 29, 2022

In a significant victory for essential hospitals, a federal district court on Sept. 28 ruled that the Department of Health and Human Services (HHS) must pay hospitals in the 340B Drug Pricing Program the full Medicare Part B drug payment rate for the remainder of calendar year (CY) 2022.

Judge Rudolph Contreras, of the U.S. District Court for the District of Columbia, granted a motion by America’s Essential Hospitals and other hospital and association plaintiffs to vacate the portion of the CY 2022 Outpatient Prospective Payment System (OPPS) final rule that continued the nearly 30 percent reduction in Part B drug payment rates for a fifth year. This decision effectively requires HHS to pay the full Part B drug payment rate to 340B hospitals for the remainder of the year. HHS will have to increase payments for OPPS claims going forward, but given the recency of the court decision, the agency has not yet indicated how it will act to comply with the court’s decision or whether it will seek to ask for more time to implement this decision or even seek to appeal.

The ruling comes on the heels of a favorable and unanimous U.S. Supreme Court decision in June that vacated the Part B drug cuts to 340B hospitals in 2018 and 2019. The Supreme Court remanded the case to the lower courts to determine the remedy for 2018 and 2019, which are the two years that were the subject of the lawsuit. HHS has used the same rationale as it did in 2018 and 2019 to continue the cuts through 2022. Notwithstanding the Supreme Court decision holding the previous years of the cut to be unlawful and HHS’ indication that it will reverse the cuts in 2023, HHS continues to apply reduced payment rates in 2022.

The district court granted the association’s motion to vacate, which means that HHS will have to revert to paying hospitals the full Part B drug payment rate of average sales price (ASP) plus 6 percent, instead of the reduced 77.5 percent of ASP payment rate. HHS had opposed the motion, arguing it would be disruptive to OPPS hospitals because any payment increase to 340B hospitals would have to be implemented in a budget-neutral manner, resulting in reduced payments for nondrug items and services. The court held HHS cannot use budget neutrality as an excuse to continue an unlawful policy for the remainder of 2022, stating the agency “should not be allowed to continue its unlawful 340B reimbursements for the remainder of the year just because it promises to fix the problem later.”

Meanwhile, the court noted in the ruling it is reviewing briefing submitted by plaintiffs and the government on the issue of remedy for previous years of cuts, including arguments related to the applicability of budget neutrality to such remedy, and will rule on remedy for years 2018 through the applicable period of 2022 at a later date. In briefing to the court, America’s Essential Hospitals has urged the court to order HHS to promptly make 340B hospitals whole for the past five years of Medicare Part B drug payment cuts.

Contact Director of Policy Rob Nelb, MPH, at or 202.585.0127 with questions.

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