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HHS unlawfully varied hospital reimbursement rates, Supreme Court says

By Tierney Sneed, Ariane de Vogue and Tami Luhby, CNN

The Supreme Court said Wednesday that the US Department of Health and Human Services failed to follow the proper procedures in varying reimbursement rates in a drug program aimed at hospitals that typically serve larger shares of disadvantaged patients.

The decision was a narrow one and the court stopped short of a broader ruling that would have undermined HHS’ authority. The unanimous opinion was written by Justice Brett Kavanaugh.

The court said HHS acted unlawfully in how it went about varying the rates.

“In short, the statute allows HHS to set reimbursement rates based on average price and affords the agency discretion to ‘adjust’ the price up or down. But unless HHS conducts a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates by hospital group,” Kavanaugh wrote.

In its oral argument, the government said that HHS had not previously conducted the needed surveys because they are “very burdensome” on study takers and hospitals and because they don’t produce very accurate results.

At issue in the case was how HHS set Medicare reimbursement rates for certain prescription drugs in its so-called 340B drug program. The hospital industry group challenged a Trump-era rule that reduced the rates.

The 340B program requires pharmaceutical manufacturers to provide hefty discounts on certain drugs sold to safety-net hospitals. Starting in 2018, HHS cut the reimbursement rates for hospitals in the 340B program by nearly a third, while paying higher rates to other hospitals. The agency argued that 340B hospitals were able to “generate significant profits” under the system.

The hospitals countered, saying the funding helped offset the costs of treating the uninsured and underinsured in low-income and rural communities. And, they noted, Congress never said that 340B hospitals should be reimbursed less for outpatient prescription drugs.

The change in rates has cost 340B hospitals an estimated $1.6 billion in Medicare funding annually, the decision cited.

A trio of hospital and medical college industry groups said Wednesday that they look forward to working with HHS and the courts to develop a plan to reimburse the hospitals affected by the rate cuts.

“This decision is a decisive victory for vulnerable communities and the hospitals on which so many patients depend,” the American Hospital Association, the Association of American Medical Colleges 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.”

This story has been updated with additional details.

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