On June 15, the U.S. Supreme Court ruled in favor of the American Hospital Association (AHA) in its lawsuit against the federal Department of Health & Human Services (HHS) challenging HHS’ reduction of prescription drug reimbursement rates for 340B hospitals for 2018 and 2019.
Under the statutory framework, HHS has two procedures available for setting the reimbursement rates for hospitals. Under option 1, if the agency has conducted a survey of hospitals’ acquisition costs, HHS may set reimbursement rates based on the hospitals’ “average acquisition cost” for each drug. In that circumstance, option 1 authorizes HHS to vary those reimbursement rates for different groups of hospitals. Option 2 applies if HHS has not conducted a survey of hospitals’ acquisition costs; for those hospitals, the agency must set reimbursement rates based on the “average price” charged by manufacturers for the drug, subject to certain necessary adjustments. Option 2 does not authorize HHS to vary reimbursement rates for different groups of hospitals.
Until 2018, HHS utilized option 2 to set the reimbursement rates, setting the same rate for all hospitals. But in 2018, and without conducting a survey of average acquisition costs, HHS reduced reimbursement rates solely for 340B hospitals by approximately 30%, costing them approximately $1.6 billion in reimbursement for that year alone. HHS did the same in 2019. AHA and other provider groups sued, arguing the cuts were illegal because the Centers for Medicare & Medicaid Services didn’t survey hospitals to determine their average acquisition costs (option 1), and instead used the “average price” for the drugs (option 2).
In a unanimous decision, the court sided with AHA and the other plaintiffs, ruling that without conducting a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates of 340B hospitals, and thus its reimbursement rates for 2018 and 2019 were unlawful. The court sent the case back to the district court for further proceedings, which will include determination of an appropriate remedy for the 340B hospitals.
CHA joined 36 other state and regional hospital associations in submitting an amicus (friend of the court) brief in support of the plaintiffs’ position. The Supreme Court cited and relied upon this amicus brief in its opinion.