U.S. Supreme Court Decision on Medicare Cuts to 340B

Speaker 1 (00:04): Welcome to 340B Insight from 340B Health. David Glendinning (00:13): Hello from Washington D.C. and welcome back to 340B Insight, the podcast about the 340B drug pricing program. I'm David Glendinning with 340B Health. Our guest today is Amanda Nagrotsky, senior counsel here at 340B Health. We invited Amanda back on the show because we just had a major legal development for the 340B drug pricing program. In a unanimous decision, the US Supreme Court said Medicare payment cuts to many 340B hospitals that have been in place since 2018 are unlawful. The development is a major one for the hospitals that have been fighting these cuts for years, and we wanted one of our legal experts take on what this means going forward. But before we go to that interview, let's take a minute to cover some of the other latest news about 340B. 340B was in the spotlight on Capitol Hill recently through a pair of major events that focused on how crucial the program is for safety net providers and the patients in need who rely on them for care. For the first time, 340B was the subject of a special series of lawmaker speeches on the floor of the US House of Representatives. 340B Health worked closely with Congresswoman Abigail Spanberger, a Democrat from Virginia, and Congressman John Rose, a Republican from Tennessee to make this special hour of remarks possible. These leaders were joined by lawmakers from both sides of the political aisle who also spoke passionately about the need to protect 340B. They called on the Department of Health and Human Services to step up its enforcement actions against the drug companies that have imposed unlawful restrictions on 340B contract pharmacy. One of the many highlights of the speeches was from Congressman Rose, who said, "If Big Pharma would just play by the rules and abide by the law, I am sure we wouldn’t be in the position we are today. However, the big pharmaceutical companies aren’t playing by the rules, and they are showing no signs that they have an interest in doing so. All we are asking is that they, too, are held accountable to the law. That is it. Nothing more, nothing less. In the meantime, we will continue to push back on their brazen attempts to undermine the law because I know we are on the right side of this fight." You can find recorded video of all the remarks in the show notes. And the very next day, more than 250 hospital and health system professionals from 45 states took to Capitol Hill, virtually that is, to advocate for 340B to their elected officials. This 340B Health Virtual Hill Day gave our members the chance to speak with House and Senate lawmakers and their staff advisors to discuss what Congress can do to help address the contract pharmacy dispute, discriminatory payment policies and other issues. And now for our feature interview with Amanda Nagrotsky. It is rare for any legal case to come before the highest court in the land, let alone a case focusing on 340B hospitals. So we wanted to dedicate one of our episodes just to this decision and what it could mean. Myles Goldman sat down with Amanda to learn more. Here's that conversation. Myles Goldman (03:45): Thank you, David. I'm joined by 340B Health [inaudible 00:03:48] Amanda Nagrotsky. Amanda, it's good to have you back on 340B Insight. We have a lot to discuss with this major US Supreme Court decision. Amanda Nagrotsky (03:57): Thanks so much Myles. It's great to be back. Myles Goldman (03:59): The US Supreme Court issued a decision earlier this month on Medicare Part B cuts for 340B drugs. Before we discuss the decision, can you give us an overview of what led up to this point? Amanda Nagrotsky (04:12): Sure, Myles. Beginning in 2018, CMS implemented payment cuts to certain 340B hospitals that are paid under the hospital outpatient perspective payment system or the OPPS. And since 2018, Medicare has paid 340B disproportionate share hospitals and rural referral centers, almost 30% less for separately payable Part B drugs compared to non-340B hospitals. So 340B hospitals that have been subject to these cuts are reimbursed at average sales price, minus 22.5%, whereas non-340B hospitals that are not subject to these cuts are paid at 106% of ASP. Freestanding children's and cancer hospitals are not subject to these cuts and Medicare rural sole community hospitals are exempt as well. Critical access hospitals are not subject to the cuts either. These hospitals are not paid under the OPPS. In September 2018, hospitals and hospital associations went to court and sued HHS over the payment cuts in district court in the District of Columbia. And the hospitals argued that HHS exceeded its authority when Medicare imposed payment cuts in 2018 and 2019. The district court issued its decision in the summer of 2019, agreeing with the hospitals that had sued. HHS ended up appealing that decision to the court of appeals for the D.C. circuit, which issued a decision in favor of HHS the following year. And then the hospitals appealed that decision to the Supreme Court, which agreed to review the case. And Myles, that's really, really rare. Less than 3% of petitions to the Supreme Court are granted every year. About a year later, we have this decision from the Supreme Court, which is a real victory for 340B hospitals. Myles Goldman (06:19): Well thank you for recapping sort of the long and winding road that has gotten us to this Supreme Court's decision. Tell us more about what that decision says. Amanda Nagrotsky (06:27): Sure. The Supreme Court held that the Medicare statute doesn't allow HHS to vary reimbursement rates by hospital group, unless HHS has conducted a survey of hospitals' drug acquisition costs. And because HHS had not conducted a survey of hospitals' acquisition costs, the Supreme Court said that payment cuts that Medicare made to 340B hospitals in 2018 and 2019 were unlawful. HHS ended up conducting a drug acquisition cost survey of 340B hospitals in the spring of 2020, but hasn't based the payment cuts on the survey. And although the Supreme Court's decision concerned only the payment cuts for 340B hospitals for 2018 and 2019, the decision establishes precedent for subsequent years. Myles Goldman (07:21): Are there any ramifications to this decision that go beyond how much Medicare will pay for outpatient drugs? Amanda Nagrotsky (07:28): That's a great question and it's a question that we've been getting from hospitals. Does this decision have implications for payers other than Medicare? And while there isn't anything in the decision that directly impacts PBMs, pharmacy benefit managers, it certainly removes a precedent that some PBMs have relied on to justify their own payment reductions to pharmacies that dispense 340B drugs. If CMS decides to completely abandon the payment cuts to 340B hospitals as a result of the Supreme Court decision, then the PBMs won't be able to point to government policy to justify their own payment cuts. Myles Goldman (08:09): I believe this was a 14-page court decision. As you've been reviewing Amanda, is there anything else that has stood out to you? Amanda Nagrotsky (08:18): Yes. The fact that this was a unanimous decision does stand out to me. All nine justices agreeing isn't common. And to your point Myles, this was a relatively short decision and the court described this case as straightforward, which may explain why it didn't take many, many pages for the court to issue its decision. The court also made several mentions of the important role that 340B plays in the healthcare safety net. These statements are called dicta, and in legal lingo that just means that these statements aren't binding on other courts, but it's still really significant language that's coming from the Supreme Court. And just to give you a few examples, "340B hospitals perform valuable services for low income and rural communities." The Supreme Court also said and acknowledged that it may very well be that reimbursement payments for 340B drugs were intended to offset the considerable costs of providing healthcare to low-income patients and rural patients. Myles Goldman (09:22): Well, appreciate your observations on that. Moving forward, how might the court's decision affect future Medicare 340B OPPS payment rules? When do we expect to hear about the 2023 payment rate? Amanda Nagrotsky (09:39): That is the question or a key question, and there are a couple of different ways that CMS may choose to proceed for calendar year 2023. The agency might completely abandon the cuts and restore payment to 340B hospitals at the full rate of 106% of average sales price. That is the approach that 340B Health will be advocating for as we await the proposed rule for 2023. CMS could also try to rely on the survey it conducted in 2020 to propose maintaining the current cuts or to propose new, even deeper cuts. We could also see CMS propose an entirely new survey, although that is unlikely, given that CMS typically issues the proposed OPPS rule in July or early August. And the calendar year 2023 OPPS rule is currently pending at the White House Office of Management and Budget. The Supreme Court's decision may delay the release of the rule if CMS needs to make changes to it as a result. Myles Goldman (10:44): You mentioned before this idea of surveying hospitals. Tell me more about that aspect to this issue. Amanda Nagrotsky (10:50): Sure. CMS surveyed 340B hospitals in the spring of 2020 to collect their acquisition costs for 340B medications. And most hospitals that responded to the survey opted for CMS's quick survey, where hospitals indicated that CMS could use their 340B ceiling prices obtained from HRSA as reflective of hospital acquisition costs. And that raised questions because acquisition costs don't always match 340B ceiling prices. But the quick survey option was significantly less burdensome than the alternative detailed survey option that CMS provided, which allowed hospitals to calculate their individual drug acquisition costs for separately payable Part B drugs. Both of these survey options had big flaws and CMS claimed that the data from the acquisition cost survey that it conducted would support even deeper payment cuts. I mentioned earlier that it's unclear whether CMS might try to use the data obtained from that survey to justify a proposal to continue or deepen the payment cuts to 340B hospitals. Myles Goldman (11:59): If CMS were to survey hospitals in the future, does 340B Health have concerns about a new survey? Amanda Nagrotsky (12:06): Absolutely. If CMS were to survey hospitals in the future, that would signal that CMS intends to continue payment reductions to 340B hospitals paid under the OPPS. CMS's payment reduction policy undermines 340B's purpose of using savings from pharmaceutical discounts to subsidize safety net providers. And 340B Health is fundamentally opposed to CMS or any other payer for that matter, taking the financial benefit from 340B away from the safety net providers for which it's intended. And in the past, CMS has attempted to justify the payment cuts as following Medicare's general goal of aligning payment with the costs that providers incur. But that rationale just isn't appropriate for 340B drugs where the acquisition cost is set by federal law at a below-market price with the intended purpose of subsidizing services provided by safety net providers to patients living with low incomes and those living in rural areas. Myles Goldman (13:10): Thank you for diving into the details of the survey issue with us. Another big question on a lot of people's minds is what about repayments to hospitals that were paid at the lower rates in 2018 and 2019? Did the Supreme Court speak to that? And what are the next steps? Amanda Nagrotsky (13:26): The Supreme Court did not address what the remedy should be, although the Supreme Court did acknowledge the competing arguments made by HHS and the hospitals about how complicated a potential remedy would be given budget neutrality concerns. HHS has argued that it would be difficult to walk back the higher payments that Medicare has made to all hospitals that are paid under the OPPS under budget neutrality rules that require the redistribution of the amounts cut from 340B drug payments. Whereas the hospitals have argued to the court that the remedy doesn't need to be budget neutral. So it shouldn't be all that complicated for CMS to repay affected hospitals. The case is being remanded back down to the federal appeals court, which may remand the case to the district court that initially ruled in favor of the hospitals and had previously asked both sides for their ideas on a potential remedy for 340B hospitals. The government's appeal put that on hold. So we may see that process begin again if the case is indeed remanded back to the district court in D.C. Myles Goldman (14:34): As we wait for next steps to develop, is there anything 340B hospitals should be doing? Amanda Nagrotsky (14:40): We do not expect any immediate changes to what Medicare pays 340B hospitals for outpatient drugs. 340B hospitals should continue to bill Medicare for outpatient drugs using any 340B billing modifiers that hospitals have been required to include on their Part B claims. The Supreme Court did not issue a ruling on the current payment cuts. And until CMS changes its billing instructions, it's just the safest course of action for hospitals to continue billing the way that they have been. Including the modifiers will not only help ensure compliance with CMS guidance that's out there, but will also help hospitals to track which claims received reduced payments, which may be useful in obtaining any kind of repayment for paid claims subject to the cuts depending on where things go with repayment. And while the remedy remains unclear and as the legal process continues to unfold, 340B Health continues to encourage hospitals affected by the payment cuts to file claims appeals to ensure their full right to reimbursement for paid claims in 2022. And Myles, for a refresher on all of these developments, because there have been so many developments, 340B Health members can visit the OPPS resource center on our website. Myles Goldman (15:58): And we'll try to include that in our show notes as well, Amanda. As you said, there's been so many developments with this, so we appreciate you taking the time to walk us through all of it. I'm sure we'll continue to be following it here on 340B Insight. Thank you for joining us. Amanda Nagrotsky (16:15): Thank you so much for having me. David Glendinning (16:17): Our thanks again to Amanda Nagrotsky for giving our listeners her expert legal take on this high court decision. As always, we will be keeping the lookout for the next proposed Medicare payment rule and any other post-decision developments in the case. Those of you who are 340B Health members will be receiving regular updates from us on this important issue. And we encourage you to check out the show notes to access the additional resources Amanda noted. And whether or not you are one of our members, we'd like to hear from you about this show. You can email your episode ideas and feedback to podcast@340bhealth.org. We will be back after the July 4th holiday. We wish you a happy and safe Independence Day. As always, thanks for listening and be well. Speaker 1 (17:09): Thanks for listening to 340B Insight. Subscribe and rate us on Apple Podcasts, Google Play, Spotify, or wherever you listen to podcasts. For more information, visit our website at 340bpodcast.org. You can also follow us on Twitter @340BHealth and submit a question or idea to the show by emailing us at podcast@340bhealth.org.