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The Gutting of the 340B Program

August 6, 2020

By: Becky Greenfield

Struggling hospital systems face yet another economic roadblock.  After a long, drawn-out legal battle between the Department of Health and Human Services (“HHS”) and certain hospital associations, an appellate court upheld HHS’ steep reimbursement cuts for outpatient drugs purchased through the 340B Drug Pricing Program (“340B Program”) for Medicare fee-for-service patients. 

Under the 340B Program established by Congress, eligible providers can purchase outpatient drugs from drug manufacturers at significant discounts, typically between 20% to 50% below the average sales price (“ASP”) for the covered drug. The program’s intent is “to allow safety net providers to increase patient services with the savings realized from participation in the 340B program.” In 2017, however, HHS took draconian measures, cutting Medicare fee-for-service (“FFS”) reimbursement for drugs purchased through the 340B program by approximately 30%. 

Litigation ensued to protect approximately the $1.6 billion at stake. On two separate occasions the American Hospital Association (“AHA”) and other hospital associations sued HHS, claiming HHS exceeded its administrative authority by slashing 340B Program reimbursement. The district court found the hospitals’ in favor of each case. 

However, on July 31, 2020, the appellate court overturned the district’s court ruling and found HHS reasonably interpreted the 340B Program statute.  

The savings achieved by HHS through this ruling will be distributed to all hospitals in a budget-neutral manner as enhanced reimbursement for Medicare Part B services, meaning 340B Program hospitals will only receive a fraction of this money back through the performance of other outpatient services. 

 The current situation only continues to get worse for hospitals participating in the 340B Program.  As stated in  the Outpatient Prospective Payment System (OPPS) proposed rule for 2021, HHS intends to gut this program even further by implementing an additional 6% reimbursement cut.   

But wait, there’s more. 340B Program hospitals aren’t only experiencing these reimbursement cuts for Medicare FFS patients. Medicare Advantage plans are also cutting reimbursement for drugs acquired through the 340B Program, arguing they are only required to pay a certain percentage of the Medicare fee-for-service reimbursement.  

CMS has declared that the 340B payment reductions do not specifically apply to Medicare Advantage plans, but rather, the contract between the hospital and the payor governs whether the reductions apply.  With some payors temporarily suspending payment reductions while the AHA lawsuit was pending, hospitals can likely expect to see these suspensions lifted in the near future, now that the appellate court has ruled.

340B hospitals should take a careful look at their current Medicare Advantage contracts to determine whether a reduction is defendable under its terms. They should also consider language that would protect future reimbursement reductions for 340B drugs as they negotiate or renegotiate new agreements and amendments.  

1. Am. Hosp. Ass’n v. Azar, 19-5048, 2020 WL 4378021 (D.C. Cir. July 31, 2020).
2. https://www.hhs.gov/opa/grants-and-funding/340b-drug-pricing-program/index.html
3. Reimbursement was cut from 6% over the standard ASP to 22% less than the ASP.
4. Am. Hosp. Ass’n v. Azar, 348 F. Supp. 3d 62 (D.D.C. 2018); Am. Hosp. Ass’n v. Azar, 385 F. Supp. 3d 1 (D.D.C. 2019).
5. CMS-1736-P. 
6. CMS 340B FAQ 2018.