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340B Hospitals Lose Court Challenge to OPPS Rate Cut

August 7, 2020

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CONTACTS
Ivy Baer, Senior Director and Regulatory Counsel

The U.S. Circuit Court of Appeals for the District of Columbia issued a 2-1 decision on July 31 in favor of the federal government in a case in which the AAMC, the American Hospital Association, and others contested the Department of Health and Human Services’ (HHS) authority to reduce payments for specified covered outpatient drugs to 340B hospitals under the Outpatient Prospective Payment System (OPPS). The Court heard oral arguments on Nov. 8, 2019 [see Washington Highlights, Nov. 14, 2019].

340B hospitals include publicly-funded hospitals and certain not-for-profit and federally-funded clinics. The reductions from the payment cut are significant — estimated by the Office of Management and Budget at $1.6 billion annually. 

The case stemmed from a rate cut imposed by the Centers for Medicare and Medicaid Services in 2018 that reduced the OPPS reimbursement for certain covered drugs by 28.5% for hospitals that participate in the 340B Drug Pricing Program, which is intended to provide hospitals and other providers with the resources to serve vulnerable populations in their communities. The District Court held that the rate reduction exceeded the HHS secretary’s authority. Due to worries that vacating the rule would lead to huge disruptions in hospital payments, the judge did not order a remedy.

In reversing the District Court’s decision, the Court of Appeals relied heavily on Chevron, a Supreme Court decision that established the principle that, in some cases, courts defer to an agency’s statutory interpretation unless that interpretation is unreasonable. The majority opinion stated, “We conclude that HHS’s interpretation … is not directly foreclosed and is reasonable.” The court also found that it was reasonable to make the adjustment to only a certain group of hospitals — in this case, those that participate in the 340B Drug Pricing Program.

The AAMC and other plaintiffs are considering further options to fight the harm that this decision will cause to 340B hospitals and their communities.

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