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Law360 (October 20, 2020, 7:03 PM EDT) -- The full D.C. Circuit won't rethink a panel's decision that the U.S. Department of Health and Human Services lawfully cut billions of dollars from reimbursements for drugs bought through a discount program for hospitals in low-income areas.
The appellate court on Friday denied the American Hospital Association's bid for en banc rehearing of a July split panel decision, which reversed a lower court's finding that HHS exceeded its authority when it slashed Medicare reimbursement by nearly 30% for drugs purchased in the so-called 340B discount program.
The challenged majority opinion held that HHS used acceptable data to make the cuts and understandably decided against continuing to pay more for 340B drugs than hospitals had paid to obtain them.
340B rates are governed by the Outpatient Prospective Payment System statute. Under that statute, Congress' "primary goal is to reimburse providers for their acquisition costs," and HHS has latitude to determine how that reimbursement is set, U.S. Circuit Judge Sri Srinivasan wrote for the majority in July.
HHS pitched the cut rates as a reform that would put money in the pockets of Medicare beneficiaries, who are liable for 20% of the government's drug payment rate.
The AHA was joined by two other trade groups — America's Essential Hospitals and the Association of American Medical Colleges — to challenge the cuts to 340B, which requires drugmakers to discount thousands of medications for hospitals serving underprivileged areas.
In September, the trade group asked the court to rethink the panel decision, arguing that the appellate court didn't address an important question about the scope of HHS's power to determine how it spends billions of dollars in taxpayer funds. The reduction is worth about $1.6 billion annually, according to the AHA.
While HHS has always followed a specific drug reimbursement formula that applied to all participating hospitals, the cuts at issue create a "brand new authority" for HHS to reimburse some hospitals more than others, which contradicted with Congress' intent, the trade group argued.
AHA general counsel Melinda Hatton said in a statement to Law360 on Tuesday that the organization was "deeply disappointed" with the appellate court's ruling, which she said "conflicts with Congress' clear intent and defers to the government's inaccurate interpretation of the law."
"Hospitals that rely on the savings from the 340B program are also on the front-lines of the COVID-19 pandemic, and these cuts will result in the continued loss of resources at the worst possible time," her statement said. "We are evaluating all of our remaining options to repeal these unlawful cuts, including petitioning the Supreme Court to hear the case."
Representatives for the federal government did not immediately respond to requests for comment.
The AHA is represented by Donald B. Verrilli Jr. and Jeremy S. Kreisberg of Munger Tolles & Olson LLP, and Margaret M. Dotzel, William B. Schultz and Ezra B. Marcus of Zuckerman Spaeder LLP.
HHS is represented by Mark B. Stern and Laura E. Myron of the U.S. Department of Justice's Civil Division.
The case is American Hospital Association et al. v. Azar et al., case number 19-5048, in the U.S. Court of Appeals for the District of Columbia Circuit.
--Additional reporting by Jeff Overley and Kevin Stawicki. Editing by Haylee Pearl.
For a reprint of this article, please contact reprints@law360.com.
