Judge vacates reduced HHS drug reimbursement rates after SCOTUS ruled selective cuts to be ‘unlawful’

In June, the Supreme Court ruled unanimously that the Department of Health and Human Services in 2018-2019 had unlawfully made cuts to its Medicare Part B reimbursement rate for prescription drugs that applied only to some hospitals enrolled in a certain program but not others that weren’t in the program.

The case was remanded back to the lower courts to determine the necessary remedies, and a district court judge proceeded to vacate the unlawful payment cuts for the remainder of the year, the Conservative Brief reported.

HHS unlawfully reduced drug reimbursement rates for some hospitals

SCOTUSblog reported at the time of the Supreme Court’s unanimous ruling that the case of American Hospital Association v. Becerra involved cuts HHS made in 2018 to its reimbursement rate for outpatient prescription drugs, but only for hospitals in the 340B Drug Pricing Program, which covers hospitals serving low-income populations and allows them to purchase drugs from pharmaceutical companies at reduced rates compared to other hospitals.

In the 17-page opinion authored in June by Justice Brett Kavanaugh, it was noted that HHS had only two options with regard to setting the reimbursement rate — either conduct an in-depth survey of the acquisition costs for all hospitals and set variable rates accordingly or set a single rate for all hospitals based on the average sales price charged by the pharmaceutical companies.

No such surveys were ever conducted, though, and Kavanaugh wrote, “Absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates only for 340B hospitals; HHS’s 2018 and 2019 reimbursement rates for 340B hospitals were therefore unlawful.”

“The text and structure of the statute make this a straightforward case,” he added. “Because HHS did not conduct a survey of hospitals’ acquisition costs, HHS acted unlawfully by reducing the reimbursement rates for 340B hospitals.”

Unlawful reduced rate vacated; HHS tries to hide behind “budget neutrality”

Fast-forward to September, and it was reported that the case was back in the courtroom of U.S. District Judge Rudy Contreras of Washington D.C., who had previously ruled against HHS, prompting the appeal up to the Supreme Court, and was now tasked on remand with determining a remedy for the hospitals harmed by the unlawful actions of HHS.

The plaintiffs asked the judge for an injunction against HHS and to vacate the reduced reimbursement rates that remained for this calendar year, and though Judge Contreras denied the requested injunction as unnecessary, he wrote, “For the reasons stated below, the prospective portion of the 2022 reimbursement rate shall be vacated because it is defective and because vacating this portion of the 2022 OPPS Rule will not cause substantial disruption.”

The judge noted that HHS had admitted that its 340B reimbursement rate cuts were unlawful but had nonetheless argued that vacating those cuts for the rest of the year — which would force it to pay out the higher rate — would be “disruptive” to the department’s “budget neutrality” requirements.

“HHS is attempting to use budget neutrality now as a shield to justify ongoing and continuing application of an unlawful reimbursement rate that no amount of reasoning can rehabilitate on remand,” Contreras observed. “HHS has not cited a single case, nor is the court aware of any, that gives the agency this power.”

“The Court is troubled that HHS appears to rely on budget neutrality as a license ‘to continue violating the law for the remainder of the year and make up for it later,'” he added. “HHS 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.”

For what it is worth, this particular judicial smackdown of HHS is not yet finished, as the AHA plaintiffs are still attempting to get the 340B reimbursement rate cuts from 2020-2022 included in the case, and the judge has yet to determine how to compel HHS to make good on the prior underpayments — estimated to be around $1.6 billion per year — without financially harming other uninvolved hospitals due the aforementioned budget neutrality requirements.

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