The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Taxpayers and Patients Win First Round on 340B Drug Discount Rule

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


Citizens Against Government Waste (CAGW) discussed in its November 7, 2017 WasteWatcher blog, a Centers for Medicare and Medicaid Services (CMS) final rule for Medicare Part B that will lower costs to taxpayers and Medicare beneficiaries for certain outpatient pharmaceuticals purchased under the 340B drug discount program. (Part B drugs are administered by a doctor.)  The rule was announced on November 1 and was scheduled to go into effect on January 1, 2018. The government reimbursement rate for these drugs will now be the average sales price (ASP) minus 22.5 percent instead of ASP plus six percent. It is important to point out that a March 2016 MedPac report (page 76) notified Congress that the discounts received across all 340B providers, such as hospitals, averaged 34 percent of ASP and allowed certain providers “to generate significant profits when they administer Part B drugs.”

A lawsuit was almost immediately filed by the American Hospital Association, the Association of American Medical Colleges, and America’s Essential Hospitals, that challenged the rule.  The hospitals asked the court to prevent the cuts from taking effect, arguing CMS had no authority to change the payment rate.  CMS asked the court to dismiss the lawsuit.  The court heard the arguments on December 21, with a ruling expected before January 1, 2018.

Sure enough, on December 29, when most people were focused on their holiday vacation or preparing for New Year’s Eve, U.S. District Judge Rudolph Contreras for the federal district court in Washington, D.C. dismissed the suit, stating that the hospitals had prematurely sued the Department of Health and Human Services (HHS) and CMS for the Part B reimbursement rule change.  According to the January 2 , 2018, edition of Inside Health Policy, the judge said, “the hospitals had failed to present any concrete claims to CMS for a final decision on reimbursement since the cuts hadn’t gone into effect at the time.”  The hospitals argued the decision simply means the court viewed the lawsuit as premature and did not consider the merits of their argument.

The judge’s decision means that starting January 1, 2018, hospitals will begin to receive a lower government reimbursement for drugs purchased under the 340B discount program.  But, the fight is not over.  Once the reimbursement cuts are effective and there is data available, expect the hospital groups to refile their lawsuit.  Meanwhile, legislation has been introduced to reverse the CMS rule and CAGW’s lobbying arm, the Council for Citizens Against Government Waste, wrote a letter on November 28 to the House of Representatives asking members to oppose the bill.

CAGW is not new to the 340B program controversy and has called for reforming the drug discount program for some time.  In a September 27, OpEd in The Hill, a Washington, D.C. political newspaper, CAGW laid out the reasons why the program had become problematic, essentially becoming a profit-making scheme for hospitals.  CAGW also weighed in on the rule change with a comment sent to CMS on November 21.

CAGW disagrees with the notion that CMS does not have the authority to make this change.  The Medicare statute allows the HHS Secretary to adjust Medicare Part B payment rates, including those purchased under the 340B program and believes CMS will win this case on the merits

And CAGW agrees with CMS Administrator Seema Verma’s tweet on January 3 when she said, “The recent court decision is a win for patients.  We are pleased that CMS can proceed with taking steps to lower prescription drugs for seniors and other Medicare beneficiaries.”

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