Although a refiling of the lawsuit is expected, the main 2018 battle over 340B could shift to competing legislation that has been introduced in Congress.


Jan. 2—Medicare payment cuts to hospitals in the 340B program went into effect Jan. 1 after a federal judge deemed too premature a last-minute request to block the new policy.

Federal Judge Rudolph Contreras dismissed a request by three hospital advocacy groups, a hospital, and two health systems for an injunction that would have prevented $1.6 billion in cuts to the 340B program from taking effect. The decision was issued Dec. 29.

The payment policy changes were finalized in a Nov. 1 final rule from the Centers for Medicare & Medicaid Services (CMS). Under the new policy, hospitals receive 22.5 percent less than the average sales price for drugs purchased through the 340B program, while $1.6 billion in 340B payments is redistributed into the overall Medicare payment pool.

Later in November, the American Hospital Association, America's Essential Hospitals, and the Association of American Medical Colleges filed a lawsuit to prevent the payment cuts. The lawsuit was joined by Eastern Maine Healthcare Systems, Henry Ford Health System, and Fletcher Hospital. 

In response to the ruling, the hospital advocacy groups said in a written statement that they “will continue to pursue the lawsuit following a district court decision granting the government’s motion to dismiss it.”

The court decision stemmed from the lack of a reduced payment to a hospital—at the time of the decision—on which hospitals could base their claim, said Jim Landman, JD, PhD, director of healthcare finance policy, perspectives and analysis, for HFMA.

“Without that concrete claim, the court lacked jurisdiction and dismissed the case,” Landman said. “The plaintiffs should be able to bring suit again once they are able to establish a concrete claim (after the changes have taken effect), and providers should expect that the plaintiffs will bring suit again now that the changes are taking effect with the new year.”

Hospitals had urged that the 340B changes be blocked because they violated the Social Security Act, but the judge did not rule on the merits of that argument.

The Coming Fight

The court decision closely followed an unsuccessful push by hospital advocates to block the 340B cut through an omnibus federal spending bill that was enacted just before Christmas.

That push followed the introduction of legislation to block the cut, which slices nearly 30 percent off Medicare payments to certain public and not-for-profit hospitals for outpatient drugs purchased under the 340B program. Reps. David McKinley (R-W.Va.) and Mike Thompson (D-Calif.) introduced the bill to prevent the 340B cuts.

“The effort to roll back the Part B cuts will definitely continue,” said Richard Sorian, a spokesman for 340B Health, an organization of 340B hospitals.

While hospital groups have pledged to continue the legal challenge, Sorian noted that the legislative drive likewise will continue into 2018. McKinley’s bill garnered 165 cosponsors in just over one month, Sorian noted.

“Congress has the authority to block the cuts, and hospitals will continue to press for action as part of the current negotiations over a fiscal 2018 appropriations bill,” Sorian said.

That legislation will compete with a rival bill introduced in December by Reps. Larry Bucshon, MD, (R-Ind.) and Scott Peters (D-Calif.). The bill would impose a temporary moratorium on the enrollment of new disproportionate share hospitals in the 340B program and would institute new reporting requirements for hospital participants.

Stephen Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America, said in a written statement that the latter bill “helps to stem the long-time abuse of the 340B program by some of the nation’s wealthiest hospitals while ensuring that rural hospitals and grantees can continue to use the program to help patients.”

Hospital Strategies

Hospitals have yet to implement new policies in response to the 340B cuts because they just began Jan. 1, said Fred Bentley, a vice president for Avalere Health. But they are looking at both cost reductions and ways to offset the cuts with increased revenue.

Planned cuts are focused on services outside community hospitals’ core business, in areas such as substance abuse services, tobacco cessation programs, and transportation services.

“Some of those things that 340B savings helped subsidize maybe are ancillary to what you might think a safety net hospital has to provide to the community,” Bentley said in an interview. “They are definitely looking to trim back or eliminate those programs.”

Additionally, some health systems are cutting services in their oncology programs because those programs derived so much support from 340B, he said.

“That really does start to cut pretty close to the bone from a clinical perspective,” Bentley said.

Layoffs—especially among administrative staff—also are under consideration.

Efforts to increase revenue include plans to urge commercial insurers to help offset the Medicare payment cuts so that the hospital can continue to provide a full range of services in areas such as cancer care.

“I don’t want to pretend that a lot of safety net hospitals, who quite frankly don’t have huge commercial contracts to begin with, are going to have that sort of clout,” Bentley said.

The first of three steps that Matt Partsch, director of pharmacy consulting for Premier, urged affected providers to take is to assess how the rule will impact their organization.

“We have been working with our members to complete this task,” he said.

Secondly, hospitals need to make sure they’re complying with the instructions from CMS on identifying 340B drugs.

340B Health has been directing hospitals to CMS’s Dec. 13 FAQ document on using modifiers to identify 340B drugs.

Finally, Partsch urged hospitals to develop strategies to offset the impact of the 340B changes on their organization’s overall margins.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Tuesday, January 02, 2018