District Court Vacates 340B Cuts, But Don’t Expect Immediate Payment Rate Restoration - McDermott Will & Emery

District Court Vacates 340B Cuts, But Don’t Expect Immediate Payment Rate Restoration

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On September 28, 2022, the US District Court for the District of Columbia vacated the 2022 rule under which the US Department of Health and Human Services (HHS) reduced Medicare Part B payments on 340B drugs paid under the Outpatient Prospective Payment System (OPPS), restoring payments to the full OPPS rate. This ruling is consistent with the Supreme Court of the United States’ June 2022 decision, which held that identical predecessor rules implemented by HHS in 2018 and 2019 were contrary to law. While this decision represents another win for 340B hospitals in their long battle against reductions in 340B drug rates, hospitals subject to the 340B payment reductions should not expect to see more money any time soon—and when they do receive the amounts owed by HHS, those amounts may be less than expected.

In Depth


We previously analyzed the 340B payment reductions and litigation in a series of articles:

The issues began in 2018, when HHS implemented a 28.5% reduction to payments for most 340B drugs paid under OPPS, lowering the reimbursement amounts from average sales price (ASP) plus 6% to ASP minus 22.5%. (PPS-exempt cancer hospitals, PPS-exempt children’s hospitals and rural sole community hospitals that participate in the 340B Program and are paid under OPPS were not subject to the payment cuts. Critical access hospitals are not paid under OPPS and therefore were not subject to the payment cuts.) The payment reduction was implemented in a “budget neutral” manner, such that the estimated dollars of the payment reduction for 340B drugs were used to increase payments on other items and services paid under OPPS. Hospitals subject to the reductions immediately sued HHS in federal district court, alleging that HHS did not have the authority to reduce 340B reimbursement rates in this manner. The district court agreed with the hospitals, but the US Court of Appeals for the District of Columbia Circuit reversed the district court. The Supreme Court then reversed the DC Circuit in June 2022 and vacated the 2018 rule. The Supreme Court remanded the case to the district court to determine any remedies following the vacatur.

On remand, the hospitals filed motions for both prospective and retrospective relief. They asked the district court to vacate the 2022 rule to restore payments to the full OPPS rate for the balance of the year, and to order HHS to pay the hospitals the amount of the payment reductions from the prior years.

Summary of the Decision

The district court’s September 28, 2022, decision addresses only the hospitals’ request for prospective relief. HHS had argued that hospitals’ motion would require the district court to not only vacate the 2022 rule but also issue an injunction to return to the full OPPS payment rate. The district court disagreed and simply vacated the part of the 2022 rule that effectuates the 340B payment reductions. The district court reasoned that an injunction was unnecessary because vacating the rule automatically returned the payment rate for 340B drugs to the rate applicable to all other (non-340B) hospitals. The district court also rejected HHS’s argument that vacating the rule for the remainder of 2022 would violate budget neutrality requirements, reasoning that any remedy would necessarily implicate budget neutrality principles, and the budgetary impact of a vacatur effective September 28 would not be significant.

Immediate Effect of the Decision

The district court’s decision vacates the 340B payment cuts for the remainder of 2022 and does so without requiring budget neutrality (i.e., a corresponding decrease in payments to other items and services paid under OPPS). But 340B hospitals should not expect to see an immediate restoration of 340B claims payment to the full OPPS amount because HHS must reprogram its payment systems, which will take some time. It could be weeks or months before the payments are restored. Further, although the district court’s order does not require budget neutrality, HHS could attempt to maintain budget neutrality by implementing a downward adjustment on payments to all hospitals for other items and services for the remainder of 2022. The result of such a downward reduction would be a payment reduction for non-340B hospitals and possibly a net reduction in reimbursement for 340B hospitals the remainder of 2022. HHS may also appeal the district court’s order, which could delay any restoration of the payment rates while the matter is pending before the appeals court.

Issues the Decision Does Not Address

The district court did not address the issue of remedies for payment reductions made from January 1, 2018, to September 28, 2022, and stated that it would address that issue in a future order. While the district court was unsympathetic to HHS’s budget concerns as to the remainder of 2022, it acknowledged that the amount of money at issue for the remaining months of 2022 is much smaller than the amount involved from 2018 through 2022. In fact, based on the 2023 OPPS proposed rule, the amount at issue from 2018 through 2022 could be more than $10 billion. Given those considerations, 340B hospitals should not assume that the district court will order HHS to make retrospective payments for the period of 2018 through 2022. Nor should 340B hospitals assume that any such retrospective remedy order from the district court will extend to 340B hospitals that are not members of the American Hospital Association or otherwise named plaintiffs in the case. HHS has argued that any relief ordered by the court in this case (as opposed to retrospective relief developed and implemented by HHS through notice and comment rulemaking) should be limited to named plaintiffs.

340B hospitals should also proceed with caution when applying claim modifiers to identify 340B drugs. The district court’s decision to vacate part of the 2022 OPPS rule relates only to the 2022 payment rule and is silent regarding the requirements to apply modifiers to claims for 340B drugs. In the 2023 OPPS proposed rule, HHS proposed to discontinue the 340B payment cuts but retain the modifier requirement, indicating that HHS views the payment portion of the rule and the modifier requirements to be separate and distinct requirements.


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