The U.S. Supreme Court on Wednesday sided with hospitals in a case challenging an HHS cut to outpatient drug payments for hospitals that treat low-income patients.
The unanimous decision caps a four-year court battle between the American Hospital Association and the HHS, with billions of dollars in play.
The court’s opinion, written by Justice Brett Kavanaugh, found that the HHS did not follow the law when it changed the rate of payments under the 340B drug discount program from the average sales price of the drugs plus 6% to the average sales price minus 22.5%.
The AHA argued the cut amounted to $1.6 billion annually for 340B hospitals.
In a statement Wednesday the hospital group, along with America’s Essential Hospitals and the Association of American Medical Colleges, said it was pleased with the decision.
“Now that the Supreme Court has ruled, we look forward to working with the Administration and the courts to develop a plan to reimburse 340B hospitals affected by these unlawful cuts while ensuring the remainder of the hospital field is not disadvantaged as they also continue to serve their communities,” the groups said.
The law gives the HHS two options for setting outpatient drug rates. One sets a rate for all hospital groups based on the average sales price from drug manufacturers. The other allows the agency to vary the rates by hospital group, but only if it has taken a survey of hospitals and has that data available.
Until 2018, the HHS had set rates across all hospital groups. But the cut that applied only to 340B hospitals, which serve low-income and rural communities, came without survey data. Lawyers for the HHS said during oral arguments in December that such surveys were "very burdensome on the hospitals" and provided inaccurate data.
The AHA and three individual hospitals argued this violated the law, and on Wednesday the Supreme Court agreed.
In his 14-page opinion, Kavanaugh said that without a survey, the HHS should not have cut rates only for one segment of hospitals. "The text and structure of the statute make this a straightforward case," he wrote.
The ruling reverses a 2020 decision from the U.S. Court of Appeals for the District of Columbia, which sided 2-1 with the HHS. That opinion stated the rate cut was “a fair, or even conservative, measure of the reduction needed to bring payments to those hospitals into parity with their costs to obtain the drugs.”
While 340B hospitals won out in this case, the drug discount program has not been without its critics.
The drugmaker lobby PhRMA — and some legislators in Congress — have criticized lack of oversight on how the money hospitals save is being used to help patients as well as what they argue is a general lack of transparency.
Another controversy in the program has surrounded drugmaker restrictions. About a year ago, some pharmaceutical companies stopped giving the ceiling price for providers dispensing the drugs through contract pharmacies, setting off a flurry of lawsuits from HHS’ Health Resources and Services Administration, which administers the program.