- The U.S. Supreme Court is set to hear oral arguments Tuesday in a case challenging HHS' payment rules for prescription drugs, which could ultimately shake up how hospitals across the country are reimbursed for certain outpatient prescription drugs through Medicare.
- The American Hospital Association argues HHS' 2018 change in the payment rule unfairly targets hospitals in the 340B program, which receive steep discounts on drugs for delivering care to needy patients.
- The question before the high court is whether HHS had the authority to change the reimbursement rule in the way that it did. A lower court initially sided with the hospital lobby, a decision that was later reversed by an appeals court, which AHA characterized as a "legal error."
In this case, billions of dollars are at stake for hospitals that participate in the 340B program.
AHA has argued that the 2018 payment rule change resulted in a $1.6 billion cut to 340B hospitals. The hospital lobby contends that HHS overstepped its authority — and congressional intent — in altering the payment rule.
Up until 2018, hospitals were reimbursed at a uniform rate for administering certain drugs, such as biologics or those used to treat cancer, on an outpatient basis through a hospital setting.
HHS decided to deviate from that uniform rate formula after several reports found that Medicare reimburses 340B hospitals for these specific drugs at significantly higher rates than what those hospitals paid to acquire the drugs in the first place. That raised concerns that 340B hospitals were profiting off of the discount arrangement that is intended to help them care for those in need.
The 340B program was designed to give steep drug discounts to hospitals that care for a disproportionate share of low-income patients. In exchange for participating in the Medicaid program, drug manufacturers are required to provide steep discounts to 340B hospitals. The idea was these discounts could help stretch "scarce federal resources," allowing hospitals to care for more needy patients.
But there is no requirement on how 340B hospitals use those savings, according to an Office of Inspector General report.
Following these reports, HHS said it changed the reimbursement rate for 340B hospitals downward to reflect the lower acquisitions costs that these hospitals are able to obtain. The payments went from the average sales price of the drug plus 6% to the average sales price minus 22.5%.
"HHS reasoned that the lower rate would 'better, and more appropriately, reflect the resources and acquisition costs that these hospitals incur,'" HHS said in its brief before the Supreme Court. HHS also argues that the change helps beneficiaries as their coinsurance rate is tied to the Medicare payment rate.
AHA contends HHS has "singled out" 340B hospitals.
It has caused an uproar from many hospitals all over the country. More than 35 hospital associations filed a brief in support of AHA's suit against HHS. Four academic medical centers voiced their opposition as well, including Yale New Haven Health System, BJC HealthCare, UPMC and Vanderbilt University Medical Center.