Supreme Court to decide legality of drug payment cuts to 340B hospitals

Provider groups have expressed support for a Supreme Court decision to hear a challenge to the Department of Health and Human Services’ move to cut hospital reimbursement in the 340B drug payment program.

On July 2, the Supreme Court agreed to hear the case of the American Hospital Association et al versus Xavier Becerra, secretary of HHS. The court is expected to hear the case during its next session, which begins in October.

At question is whether HHS has the legal authority to make the adjustments to Medicare Part B reimbursement under the Outpatient Prospective Payment System.

The cuts were made by the Trump Administration. The decision was upheld by a U.S. Court of Appeals in August 2020.

The appeals court decision spurred drugmakers to stop providing the discounts to 340B hospitals.

More recently, drug companies have balked at giving the drug discounts to contract, for-profit pharmacies. 

On June 30, Boehringer Ingelheim, one of the world’s largest drug companies, according to 340B Health, sent a letter to hospitals participating in the 340B drug pricing program informing them of the company’s intent, starting on August 1, to cut the discounted prices for covered drugs dispensed in community pharmacies.


The appeals court ruling allowed HHS to reduce reimbursement for Medicare Part B drugs to 340B hospitals. Hospitals realized close to a 30% cut in drug payment. 

Former HHS Secretary Alex Azar said that because of the cuts, patients would pay less out-of-pocket for drugs in the Medicare Part B program, but hospitals contended it would hurt both patients and hospitals that serve a large number of Medicare, Medicaid, the uninsured and other vulnerable patients.

Provider groups, including the plaintiffs, welcomed the decision by the Supreme Court to hear the case. 

American Hospital Association General Counsel Melinda Hatton said, “We are pleased that the U.S. Supreme Court has agreed to hear the compelling arguments in our case on payments cuts to the 340B drug pricing program that are adversely impacting care to patients.

“We are hopeful that the Court will reject the appellate court decision deferring to the government’s interpretation of the law that clearly imperils the important services that the 340B program helps allow eligible hospitals and health systems to provide to vulnerable communities, many of which would otherwise be unavailable.”

“We are pleased that the Supreme Court has agreed to review the appellate court decision, which we believe was legally flawed,” said 340B Health president and CEO Maureen Testoni. “We are hopeful that the justices will reverse the lower court decision that upheld these damaging cuts to many 340B hospitals treating patients with low incomes. In the meantime, we continue to urge the Biden administration to change this harmful policy by abandoning the payment cuts for 2022 and beyond.”

Association of American Medical Colleges president and CEO Dr. David J. Skorton said, “The AAMC looks forward to the consideration of this case, which challenges the authority of the Department of Health and Human Services to make significant cuts to 340B reimbursements without following the method set in statute. The current reimbursement rates reduce the 340B drug discounts granted to safety-net providers, many of which are teaching hospitals.

“These hospitals use the current savings to deliver critical healthcare services to low-income and vulnerable patients, which includes providing free or substantially discounted drugs to low-income patients, establishing neighborhood clinics, and improving access to specialized care previously unavailable in some areas.”


The 340B program allows safety-net hospitals to buy drugs at discounted prices, but get reimbursed at regular Medicare rates, using the difference to offset the operational costs of serving disadvantaged patients who are not covered under commercial insurance and its higher reimbursement rates.

However, some argue that hospitals are taking advantage of the discounts for profit.

In May 2019, the U.S. District Court said the drug reimbursement rate in the 2019 OPPS rule was unlawful, because it was implemented against the Medicare Act’s plain test. It remanded the 2018 and 2019 OPPS rules back to HHS.

HHS said it was inappropriate for hospitals to use Medicare to subsidize operations, and the appeals court agreed, overturning the district court’s ruling.

Twitter: @SusanJMorse
Email the writer: [email protected]

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