Supreme Court will hear case on cuts to hospitals in 340B program

This week, the U.S. Supreme Court will hear a case with enormous implications for hospitals.

The nation’s highest court will hear a case challenging the federal government’s cuts in reimbursements to hospitals in the 340B drug pricing program. The justices are slated to hear arguments in the case, American Hospital Association v. Becerra, on Nov. 30. Typically, the court issues its opinions weeks or months after hearing the arguments.

Under the 340B program, hospitals that treat a large number of low-income patients can buy some drugs at low costs and receive higher reimbursements. The federal government would typically reimburse hospitals at the average sales prices of the drug, which would be more than what the hospitals paid for it. The intent of the program is to help support hospitals treating patients in underserved areas.

In 2017, the Centers for Medicare and Medicaid Services reduced the reimbursement rates to 340B hospitals for certain outpatient drugs. The reimbursement rate was cut to 22.5% of the average sales price of those medications. The government said the reduction was appropriate since hospitals were obtaining the drugs at much cheaper prices.

The federal government contends it has broad authority to adjust the rates of reimbursements. A lower court ruling sided with the government.

The change in policy reduced reimbursements to 340B hospitals by an estimated $1.6 billion. The government says the savings in reimbursement rates was redistributed to all providers as payments for other services.

Hospitals argue the cuts threaten their ability to treat patients with lower incomes and those in areas with reduced access to healthcare. Critics have countered that hospitals shouldn’t be using 340B reimbursements solely to help sustain their operations.

Melinda Hatton, general counsel of the American Hospital Association, said via email the case has serious ramifications for hospitals serving patients in underserved communities.

“The continuation of deep payment cuts to 340B hospitals threatens their ability to care for their patients and communities, especially as the COVID-19 pandemic continues. In an era of skyrocketing drug prices, the 340B program plays a critical role in helping eligible hospitals provide a wide range of comprehensive services to vulnerable communities,” Hatton said.

In a brief filed with the court Nov. 19, the hospital association argued the U.S. Department of Health and Human Services improperly singled out the 340B hospitals in adjusting rates.

The hospitals argue the government needed to first conduct a study to change reimbursement rates for select hospitals, or the government had to set rates based on the average price of the drug. The hospitals argue the health department’s actions violated the Medicare statute.

The U.S. Supreme Court

Trade groups representing hospitals cheered when the Supreme Court said it would hear the case. Dozens of hospital groups and medical centers have filed briefs in support of the American Hospital Association and are calling for the government’s policy to be reversed.

In a brief filed with the court in September, more than 30 state hospital groups said the 340B program enables hospitals to serve the nation’s most impoverished residents. If the federal rule is allowed to stand, hospitals said they would have to roll back or even eliminate programs aiding patients battling cancer, mental health issues or opioid addiction. Hospitals in rural areas would be hit particularly hard, they argued.

“America’s 340B hospitals and patients cannot afford the massive cuts imposed by the CMS rule,” the hospital groups wrote in the brief.

The Association of American Medical Colleges is among the groups supporting the American Hospital Association in the suit.

“The current reimbursement rates reduce the 340B drug discounts granted to safety-net providers, many of which are teaching hospitals,” David J. Skorton, AAMC president and CEO, said in a statement in July.

“These hospitals use the current savings to deliver critical health care services to low-income and vulnerable patients, which includes providing free or substantially discounted drugs to low-income patients, establishing neighborhood clinics, and improving access to specialized care previously unavailable in some areas. A reversal of the cuts will ensure that low-income, rural, and other underserved patients and communities are able to access the vital services they need.”

Some critics have said the 340B program needs to be revamped.

Earlier this month, the Community Oncology Alliance issued a report saying that hospitals are charging high prices for some cancer drugs and aren’t doing enough to offer medications at lower prices for those with limited means or lacking insurance.

“Congress needs to fix this broken government program in a way that ensures the discounts go to patients,” Ted Okon, executive director of the alliance, said in a press release accompanying the report.

The hospital association has said the federal government requires participants in the 340B program to meet strict requirements, including regular audits.

Hospitals argue the 340B program has helped them to provide critical care to underserved communities. In a court filing, hospital trade groups said some medical centers couldn’t afford to continue some programs serving patients without the 340B program. Hospitals said they are using savings in drug costs to operate oncology centers, infusion centers, women’s health clinics and other programs to serve patients.

Healthcare systems aren’t doing anything inappropriate in using the savings from the 340B program to help sustain their operations, Hatton said. In fact, she said it’s exactly what Congress had in mind when the program was created in 1992.

“Congress established the 340B program to enable covered entities ‘to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services,’” Hatton said via email.

The arguments in the Supreme Court come after years of legal battles.

Alex Azar, former secretary of health and human services in President Trump’s administration, said in 2017 the change in reimbursement rates was needed to stretch scarce resources while providing care to those in need.

The hospital association and its supporters argue that the federal government adjusted the reimbursement rates improperly by not focusing on the average sales price but by the estimated acquisition costs for 340B hospitals. The hospitals argued the government violated the Medicare statute.

The U.S. District Court of the District of Columbia ruled in favor of the American Hospital Association in 2019. But the U.S. Court of Appeals sided with the Trump administration last year and upheld the adjusted reimbursement rates.

A key legal issue in the case rests on whether the court will defer to the federal agency’s actions, Allison K. Hoffman, a law professor at the University of Pennsylvania, wrote in a piece published on the Commonwealth Fund website.

“From a legal perspective, the case could be significant if the Court uses it to revisit legal doctrine on when agencies deserve deference in interpreting statutory language,” Hoffman wrote. She noted it will be interesting to see how the justices interpret statutory language allowing the health and human services secretary to adjust rates as necessary.

The case doesn’t affect a wide scope of drugs, Hoffman wrote. But she noted it affects a growing number of hospitals, with more than 2,100 hospitals participating in the program in 2014, up from less than 600 a decade earlier.

Maureen Testoni, president and CEO of 340B Health, an advocacy group, said in July she’s hopeful the Supreme Court ruling will restore the reimbursements. She’s also hoping President Joe Biden’s administration takes a fresh look at the policy on rates.

"We are hopeful that the justices will reverse the lower court decision that upheld these damaging cuts to many 340B hospitals treating patients with low incomes,” she said in a statement in July. “In the meantime, we continue to urge the Biden administration to change this harmful policy by abandoning the payment cuts for 2022 and beyond."

As for the hearing in the Supreme Court, Hatton, the AHA counsel, said the government has incorrectly interpreted the law, and that’s at the center of the case.

“We believe we have compelling arguments,” Hatton said.