Supreme Court’s 340B Ruling Resonates Throughout Healthcare Industry

The discounted drug program is viewed as vital for vulnerable populations.

With all eyes on the U.S. Supreme Court, as pending landmark decisions on abortion and gun access loom large in the public consciousness, another type of decision flew right under the radar of the national news media earlier this week.

But it sure didn’t escape the attention of healthcare leaders.

Following a four-year court battle, a rare unanimous decision among the justices ruled that the U.S. Department of Health and Human Services (HHS) had acted in violation of established law when it changed payment rates to hospitals under the 340B discount drug program.

Healthcare Dive reported that the cuts in question, reducing the payments from the average sales price of 340B drugs plus 6 percent to the average sales price minus 22.5 percent, wound up costing 340B hospitals $1.6 billion annually.

“We are pleased that the U.S. Supreme Court unanimously agreed with us that the (HHS) outpatient payment cuts to hospitals in the 340B Drug Pricing Program were unlawful. This decision is a decisive victory for vulnerable communities and the hospitals on which so many patients depend,” the American Hospital Association (AHA) – a plaintiff in the case – AAMC, and America’s Essential Hospitals said in a joint statement. “340B discounts help hospitals devote more resources to services and programs for vulnerable communities and increase access to prescription drugs for low-income patients. Now that the Supreme Court has ruled, we look forward to working with the Administration and the courts to develop a plan to reimburse 340B hospitals affected by these unlawful cuts, while ensuring the remainder of the hospital field is not disadvantaged as they also continue to serve their communities.”

The Health Resources and Services Administration (HRSA) has estimated the value of the 340B program at 5 percent of the total massive U.S. drug market, with one estimate citing $38 billion in 340B drugs purchased in 2020, and consistently high spending increases from year to year. Champions of the program laud its benefits for outpatients from underserved communities, while critics decry what they describe as a lack of oversight and clear regulatory framework.

A post by reporter James Romoser on SCOTUSblog, which follows the machinations of the Supreme Court, broke the ruling down concisely.

“The agency’s rationale for the cut was that, under federal law, pharmaceutical companies are obligated to sell the drugs to 340B hospitals at reduced prices. Medicare’s reimbursement rates to the hospitals should reflect the hospitals’ lower costs, the government reasoned,” Romoser wrote. “The hospital industry challenged the cut, arguing that the relevant provision of the Medicare statute does not authorize the government to pay lower rates to 340B hospitals while maintaining higher rates for other hospitals. The government responded that the statute authorizes HHS to ‘adjust’ the ‘average price’ of outpatient drugs when calculating reimbursement rates. That adjustment authority, the government argued, includes the ability to vary reimbursement rates among hospital groups.”

Romoser also noted that Associate Justice Brett Kavanaugh, who penned the 14-page ruling, said the text and structure of the applicable statute “do not permit the reimbursement cut in these circumstances.”

“A separate provision of the statute would allow the government to vary the rates it pays for outpatient drugs, but only if the government first conducts a time-consuming survey of hospitals – which it did not do here,” the post read.

Romoser further noted that Kavanaugh’s ruling did not invoke what’s known as “Chevron deference,” which he described as a 38-year-old doctrine under which courts generally defer to agencies’ statutory interpretations; some business organizations and conservative groups, he reported, had called on the court to use the case to reconsider or even overturn Chevron.

“The court declined that invitation. Instead, Kavanaugh’s opinion simply ignored Chevron,” the post read. “He did not cite the case even once, instead opting to reject the agency’s interpretation under ordinary principles of statutory analysis. For a court that is increasingly skeptical of the administrative state, Chevron’s absence speaks volumes. There may not be five votes to scrap Chevron altogether, but if the court simply stops applying it, the doctrine may be shunned into oblivion.”

For now, though, hospital and advocacy groups are simply relieved that a thorn in the sides of their bottom lines has been removed amid difficult times, allowing them to refocus on the core mission.

“We applaud the U.S. Supreme Court for making the correct decision in striking down these Medicare cuts to payments for 340B drugs. Some safety-net hospitals have reported being forced to eliminate or scale back services to patients in need because of the reductions that have been in place since 2018,” 340B Health President and CEO Maureen Testoni, head of a group representing 1,400 hospitals across the country, said in a statement. “As Justice Kavanaugh wrote for the court, ‘340B hospitals perform valuable services for low-income and rural communities, but have to rely on limited federal funding for support.’ We look forward to the next stage of the process involving remedies for hospitals that have been affected by these unlawful cuts. We also renew our call for the Centers for Medicare & Medicaid Services (CMS) to abandon its policy of targeting 340B drugs for lower payment rates as it works to propose Medicare rates for 2023.”