In a unanimous decision, the U.S. Supreme Court sided with the American Hospital Association (AHA), finding that the Department of Health and Human Services’ (HHS) reduction in outpatient drug reimbursement rates for 340B hospitals was unlawful.
The Court found HHS in violation of the law since they failed to conduct a survey of average acquisition costs before cutting reimbursement rates and then varied payments by hospital type.
- In 2018 and 2019, reimbursement rates by hospital type were 77.5% for 340B hospitals vs. roughly 106% for non-340B hospitals.
- Conversely, from 2006 to 2018, reimbursement rates didn’t vary by hospital groups and were roughly 106% across the board.
The change in the reimbursement rates in 2018 and 2019 had significant cost impacts to 340B hospitals amounting to roughly $1.6 billion each year.
After the ruling, no reimbursement plan was announced. However, AHA, Association of American Medical Colleges and America’s Essential Hospitals released a statement noting that they “look forward to working with the Administration and the courts to develop a plan to reimburse 340B hospitals affected….”
Medicare Statute Background
The law provides HHS two options to set certain outpatient prescription drugs’ reimbursement rates annually for hospitals prescribing to Medicare patients.
- Option 1: HHS surveys hospitals’ acquisition costs for each covered outpatient drug and “may set rates based on the hospitals’ ‘average acquisition cost’ for each drug, and may ‘vary’ the reimbursement rates ‘by hospital group.’”
- Option 2: If HHS doesn’t conduct surveys, HHS reimbursement rates must be “based on ‘the average price’ charged by the manufacturers for the drug….” Additionally, this option doesn’t allow HHS “to vary reimbursement rates for different hospital groups.”
About the 340B Program
The federal 340B Drug Pricing Program was established to enable participating hospitals who serve low-income and/or rural communities to purchase outpatient medications at a discounted price from drug manufacturers.
We will continue to monitor this development and provide updates as they become available.