This week, a federal court found the administration’s 340B program rates to be fatally flawed; the HHS Secretary “patently violated” the governing law.

The 340B program is designed to support critical access hospitals and other safety-net providers by providing targeted subsidies for their outpatient prescription drug costs; an administration rule appealed by industry associations would have cut this support by about 30% from 2017 levels. As described by the court, the agency elected to adjust 340B rates “based not on the drugs’ average sale prices — as dictated by the statutory text — but on the drugs’ estimated acquisition costs.”

This ruling applies to the 2019 rates, much as a previous ruling reached the same conclusion with respect to the 2018 rates. The court has ordered the agency back to the drawing board for both years, and “expects HHS to resolve this issue promptly,” ordering the parties to provide a status report in three months’ time. The court said it was a very close call, but decided to stop short of invalidating the rules entirely — noting that vacating two years’ Medicare reimbursement rules could wreak havoc on administering Medicare, especially since budget-neutrality laws likely mean that any increase in 340B payments would have to be offset by reductions in other Medicare payments. Re-setting other payment levels, recouping payments from other providers, and recalculating patient-pay amounts would be an administrative nightmare. (It may be interesting to explore further whether the budget-neutrality rules would necessarily apply in the case of a court-ordered revision to a single reimbursement rule.)

The 340B program is just one example of the myriad ways in which the federal government helps underwrite the delivery of health care services by safety-net providers. The program has been examined from every angle over the years, and there are numerous bills, congressional committee hearings and GAO reports that have looked at improvements that may be needed in order to ensure that the program does what it is supposed to do.

Here’s hoping that the federales can continue to invest effectively in addressing both the healthcare needs of those served by safety-net providers and the social determinants of health that may help reduce the need for healthcare services.

David Harlow
The Harlow Group LLC
Health Care Law and Consulting

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