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Law360 (September 15, 2020, 5:03 PM EDT) -- The American Hospital Association has asked the full D.C. Circuit to reconsider a panel ruling that the U.S. Department of Health and Human Services lawfully made billions of dollars in reimbursement cuts for drugs purchased through a special discount program for hospitals in low-income areas.
The split three-member panel made a grave error when it reversed a lower court's finding that HHS exceeded its authority by slashing Medicare reimbursement by nearly 30% for drugs purchased in the 340B discount program — a reduction worth about $1.6 billion annually, the health care industry group said Monday in its petition for rehearing.
"That cut will threaten the ability of 340B hospitals to maintain their services to vulnerable communities — a risk that is especially acute as a pandemic continues to sweep the nation with a disproportionate effect on low-income and minority populations," the petition said. "Before HHS is able to inflict such a devastating blow to safety-net hospitals and their patients, the full court should review HHS's authority."
By letting the ruling stand, the appeals court is failing to address a critical question about the scope of HHS' power to determine how it spends billions of dollars in taxpayer funds, the trade group said. While HHS has always followed a specific drug reimbursement formula that applied to all participating hospitals, the AHA said, the new cuts create a "brand new authority" for HHS to reimburse some hospitals more than others in contradiction with Congress' intent.
The majority opinion in July, penned by U.S. Circuit Judge Sri Srinivasan, held that HHS used acceptable data to make the reductions and understandably decided against continuing to pay more for 340B drugs than hospitals paid to acquire them.
"HHS permissibly read the statute to allow it to implement the 340B payment reduction," Judge Srinivasan wrote. "HHS reasonably concluded that it need not continue subsidizing 340B providers with Part B (i.e. taxpayer) funds and Medicare beneficiaries' copayments."
Under the Outpatient Prospective Payment System statute that governs 340B rates, Congress' "primary goal is to reimburse providers for their acquisition costs," and HHS has latitude to determine how that reimbursement is set, Judge Srinivasan wrote.
The majority relied on Chevron deference, which tells courts to accept reasonable agency interpretations of ambiguous laws, in finding that the statutory text can be read different ways and that HHS' reading is permissible.
But in a dissent, U.S. Circuit Judge Cornelia Pillard said HHS improperly ignored statutory text requiring it to consider data on drug acquisition costs.
"If Congress wanted HHS ... just to do its best to approximate those costs and then vary them by hospital groups according to its unchecked policy judgment, it easily could have written the statute to say so," Judge Pillard wrote.
HHS pitched the reduced 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.
U.S. District Judge Rudolph Contreras ruled in 2019 that HHS exceeded its authority by slashing the reimbursements, saying the agency "patently violated" the disputed statutory text.
The AHA was joined by two other trade groups — America's Essential Hospitals and the Association of American Medical Colleges — in challenging the cuts to 340B. The program requires drugmakers to discount thousands of medications — typically by 20% to 50% — for hospitals that serve underprivileged areas.
Counsel and representatives for the parties did not immediately respond to requests for comment.
The hospitals are 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. Editing by Adam LoBelia.
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