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District Court Orders HHS to Develop Remedy to Unlawful 340B Payment Cuts

In a Jan. 10 ruling, the U.S. District Court for the District of Columbia ordered the Department of Health and Human Services (HHS) to develop a remedy for nearly five years of Medicare underpayments to 340B Drug Pricing Program hospitals. America’s Essential Hospitals and other plaintiff organizations had asked the judge to order an immediate repayment in full.

In a statement, the association expressed disappointment in the judge’s decision to give the agency discretion over development of the remedy, and emphasized that essential hospitals cannot afford additional delays in repayment.

Background

After the Supreme Court’s unanimous June 2022 decision that HHS lacked the statutory authority to implement the Medicare cuts for 340B hospitals that had been in place since 2018, the case was sent back to the D.C. District Court to rule on a remedy. America’s Essential Hospitals and the other hospital and association plaintiffs immediately moved for two separate injunctions from the District Court. First, the plaintiffs asked for an immediate halt to the ongoing implementation of the rule in 2022. That motion was swiftly granted, and, as of Sept. 28, 2022, all Medicare claims for 340B drugs are paid at the average sales price (ASP) plus 6 percent — the same rate as for non-340B drugs.

Repayment Ruling 

The plaintiffs’ second request ordered HHS to make prompt and full repayment of the difference between what 340B hospitals were paid for drugs and ASP plus 6 percent. Because the Supreme Court was clear that anything other than ASP plus 6 percent was unlawful, the plaintiffs contended that there is no discretion for HHS to exercise in fashioning a remedy, and therefore an order to repay is warranted.

Judge Rudolph Contreras, of the U.S. District Court for the District of Columbia, ruled otherwise, remanding to HHS to develop a remedy in the first instance. Judge Contreras disagreed that there is only one possible remedy available, noting that HHS could adopt a “prospective one-time rate increase that avoids calculating individual claims,” among other resolutions. As the court noted, HHS has stated in the 2023 final Medicare Outpatient Prospective Payment Rule (OPPS) that it plans to issue a separate proposed rule outlining a remedy prior to the 2024 proposed OPPS rule, and the ruling will allow the agency to pursue this course.

The judge also denied the hospitals’ request that 340B cuts in the 2018–2022 rules be “vacated,” which essentially means that this part of the rule would be revoked. Vacatur is the “normal remedy” according to the Court, unless the consequences of vacatur would be highly disruptive. Here, the court cited HHS’ “duty to maintain budget-neutral OPPS payments” as a potentially significant source of disruption. HHS could be required to retroactively lower rates for other services already paid for in order to maintain budget neutrality, although there was no official rule on whether budget neutrality applies to this kind of judicially mandated remedy.

Finally, Judge Contreras declined to retain jurisdiction over the case to ensure that HHS follows through with the remedy in a timely fashion as plaintiffs requested. Because he found no evidence of unreasonable delay on HHS’ part or other noncompliance, he found it unnecessary to retain jurisdiction.

Contact Senior Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

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About the Author

Faridat Animashaun is a policy associate at America's Essential Hospitals.

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