340B Hospitals Prevail in Supreme Court, but Significant Questions Remain

On June 15, 2022, the Supreme Court of the United States ruled unanimously in favor of several hospital groups concluding that the Department of Health and Human Services (HHS) exceeded its statutory authority by implementing a discriminatory payment program that reimbursed hospitals participating in the 340B Drug Pricing Program (340B hospitals) less than non-340B hospitals, without first conducting a survey of 340B hospitals’ acquisition costs. Justice Kavanaugh, writing for Court in American Hospital Association et al. v. Becerra, No. 20-1114, found that “[u]nder the text and structure of the statute… [b]ecause HHS did not conduct a survey of hospitals’ acquisition costs, HHS acted unlawfully by reducing the reimbursement rates for 340B hospitals.” Through this opinion, the Court invalidated HHS’ 2018 and 2019 reductions of 28.5% to Medicare Part B reimbursement rates for 340B hospitals, amounting to approximately $3.2 billion withheld from 340B hospitals. Although this decision presents as a decisive victory for 340B-covered entity hospitals on its face, several significant questions remain unanswered.

First, the opinion implicates but does not address, potential remedies for the 340B hospitals. The Court did not decide on whether HHS is required to reimburse 340B hospitals for the $3.2 billion underpayment. Instead, the Court remanded this issue to the Circuit Court of Appeals or the District of Columbia Circuit, which will likely further remand the case to the District Court for further proceedings on this issue. Thus, the opinion leaves open a significant question: how will 340B hospitals subjected to HHS’s $3.2 billion in underpayments be made whole?

Resolving this question, which is now the task of the lower courts and HHS, is now more complicated because the payment rates for Medicare Part B outpatient services are based on HHS’ Outpatient Prospective Payment System (OPPS), and HHS must administer the OPPS in a budget-neutral manner. This leaves HHS with limited options if it is compelled to reimburse 340B hospitals the $3.2 billion. The budget-neutrality requirement of the OPPS may require that the funds reimburse 340B hospitals come from recouping excess payments made to non-340B hospitals during 2018 and 2019. Allocating these recoupments from non-340B hospitals will likely prove to be extremely difficult for HHS. Alternatively, HHS could pay 340B hospitals higher amounts in future years to offset losses in 2018-2019, but those higher payments also may need to come from reduced payments to non-340B hospitals during this time because of the OPPS. HHS also could derive a remedy in its 2023 payment policy based on the survey that it conducted in 2020 regarding hospital acquisition costs. It is also possible that Congress may provide HHS with additional funding, but this will likely bring into question the propriety of the 340B program as a whole.

Second, the opinion only applies to reimbursement rates for 2018 and 2019, leaving the validity of HHS payments to 340B hospitals in 2020-2022 and in the future an unanswered question. Of note, HHS retained its discriminatory reimbursement policies for 340B hospitals in contract years 2020-2022. Although HHS did perform a survey of hospital acquisition costs in 2020, stakeholders may assert that HHS did not incorporate this survey data into its 2020-2022 reimbursements. Also, when HHS conducted its survey in 2020, it did not seek acquisition cost data from non-340B hospitals, and HHS’ data collection methodologies were flawed and caused inconsistent reporting. Thus, HHS may need to account for the 2020-2022 underpayments in future rulemaking, or risk litigation over the continued application of HHS’ discriminatory reimbursement policy during these years.

Accordingly, AHA v. Becerra has left unanswered two important questions. Retrospectively, how will 340B hospitals be repaid the $3.2 billion properly owed to them? Prospectively, how will HHS’ future payment policies be impacted, and will they be based on survey data?

Typically released in early July, HHS’ OPPS for contract year 2023 may reveal the government’s intended future payment plan, and its proposed remedy for 2018 and 2019 underpayments. HHS may solicit comments on its proposed OPPS for 2023 from interested stakeholders.

How Frier Levitt Can Help

Hospitals participating in the 340B Drug Pricing Program as Covered Entities must be aware of the implications of this most recent Supreme Court decision and its implications both retroactively and in the future. Both 340B and non-340B hospitals alike should scrutinize HHS’ proposed OPPS for contract year 2023 to ascertain HHS’s plan for reimbursement. Interested parties should also be on the lookout for HHS 2023 OPPS because it may call on stakeholders to submit comments to potentially influence future payment policies. Depending on how HHS (and the lower courts) decides to reimburse 340B hospitals for underpayments in contract years 2018 and 2019 and determine the propriety of its reimbursements to 340B hospitals in contract years 2020-2022, further litigation to ensure 340B hospitals are appropriately paid may be necessary. Frier Levitt has extensive experience representing 340B Covered Entities, including 340B hospitals, in reimbursement disputes and contesting improper action by government agencies. Please contact us for a complimentary consultation or more information regarding this topic.