HHS defends its authority to cut 340B payments

HHS urged a federal appeals court on Friday to uphold its reimbursement cuts to providers under the 340B drug program, saying Congress gave it the authority to make the changes.

Although a lower court ruled in May that the payment changes were unlawful, HHS said it can change 340B drug reimbursements just like any other payments under the Outpatient Prospective Payment System. Government attorney Alisa Klein told three judges on the U.S. Court of Appeals for the District of Columbia Circuit that taxpayers and Medicare beneficiaries are being ripped off because hospitals are overcharging them for drugs under the 340B program, which wastes taxpayer dollars and increases copays for Medicare beneficiaries.

“The purpose of OPPS is to set fair rates,” Klein said.

But the appellate judges questioned what authority Congress gave HHS to alter 340B payments, noting the agency didn’t use the methods outlined in the legislation. Instead, the government used a different formula and data that it said was a close approximation.

Klein argued that Congress didn’t realize how difficult it would be for the government to get the information it needed about acquisition costs, so the CMS exercised its power under OPPS to find a suitable alternative and “everybody knows” the agency has the power to make these changes.

But that didn’t hold water with Judge Patricia Millett on the panel.

“We’re supposed to say that (Congress) didn’t know what they were doing?” she said.

The judges also expressed skepticism of the American Hospital Association’s arguments to eliminate the 340B cuts. William B. Schultz, a partner at Zuckerman Spaeder and counsel for AHA, said the CMS inappropriately used information on the large discrepancy between hospitals’ acquisition costs for drugs and their 340B reimbursements to justify the payment formula changes.

HHS must continue to reimburse providers based on the 340B payment approach spelled out by Congress, regardless of their real-world impacts, Schultz argued. He said the formula had been in place since Congress created the 340B program, and lawmakers didn’t change it even though they had multiple opportunities.

But Judge Sri Srinivasan suggested that the AHA’s arguments took too much power from the agency by claiming Congress didn’t give HHS the authority to slash 340B payments even if it knew that hospitals were being reimbursed too much.

“What would be the point of denying CMS that authority?” Srinivasan said.

“What is HHS supposed to do if they have very reliable data about expanding overpayments to hospitals?” Millett said.

Schultz argued that the law’s text doesn’t support the government’s arguments, and HHS should ask Congress to rewrite the 340B statute if they want to change the program’s reimbursement.

The AHA asked the D.C. Circuit to decide the case before Jan. 1 to ensure 340B payments can fall in line with the ruling when the new year starts.

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