Taxpayers and Patients Win Second Round on 340B Drug Discount Rule | Citizens Against Government Waste

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

The WasteWatcher

In January, Citizens Against Government Waste (CAGW) discussed a court case concerning a November 1, 2017 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.  It is expected the rule will save Medicare beneficiaries an estimated $320 million on copayments in 2018 alone.  Medicare Part B drugs are administered by a doctor.

Followers of this blog know CAGW has long called for reforms to the 340B drug discount program, which was designed to help low-income patients without insurance get access to significantly discounted pharmaceuticals utilized in out-patient care.  Instead of passing along the discounts to their patients, the program has been used like an ATM by many hospitals to pad their budgets.  The program has grown exponentially, especially since the Patient Protection and Affordable Care Act (Obamacare) expanded the number of entities that could utilize 340B discounted drugs.  In 2007, purchases made under the program were $3.9 billion.  In 2016 purchases totaled $16.2 billion, which was in and of itself a 34 percent increase from the 2015 amount of $12 billion.

The November 2017 rule changed the Medicare Part B payment rate to hospitals from the Average Sales Price (ASP) plus 6 percent for handling and administering costs to ASP minus 22.5 percent.  CMS noted that a MedPac May 2015 report to Congress examined chemotherapy drugs and drug administration services between 2008 to 2012 and found that ‘‘Medicare spending grew faster among hospitals that participated in the 340B program for all five years than among hospitals that did not participate in the 340B program at any time during [the study] period.’’  In addition, a March 2016 MedPac report found that, “discounts across all 340B providers (hospitals and certain clinics) average 34 percent of ASP, allowing these providers to generate significant profits when they administer Part B drugs.”  CMS reasoned that even with the change in payment, providers would still be able to make enough money to handle and administer the Part B drugs.  The $1.6 billion savings as a result of the change would be used in a budget neutral way by distributing the money equally for non-drug items and service across all hospital outpatient services.

The American Hospital Association and the trade associations for America’s Essential Hospitals and American Medical Colleges immediately sued CMS in November 2017 over the rule in the U.S. District Court for D.C., claiming CMS had no authority to change the payment rate.  CMS asked the court to drop the lawsuit.  On December 29, 2017, the district court dismissed the lawsuit, stating the hospitals had prematurely sued because the cuts had not gone into effect.

The hospital associations appealed the decision and argued their case before the United States Court of Appeals for the District of Columbia on May 4, 2018, after the cuts had been implemented.  Yesterday, the court announced it had unanimously upheld the lower court’s ruling that the Trump administration could cut the payment rate to ASP minus 22.5 percent.  The three-judge panel also argued that the hospitals lacked standing because no claims had been rejected by CMS under the new rule.

The hospitals have stated they will refile in the district court.  Meanwhile, the savings are being used to help pay for a lot more outpatient services, not boosting hospital profits.

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