Judge allows 340B drug payment cuts for 2018 to proceed pending a final ruling

On December 29, 2017, a ruling by a US District Court Judge denied a preliminary injunction to the cuts to Medicare Part B reimbursement rates for 340B drugs pending a final legal decision in a suit filed by a group of about 30 affected hospitals and related associations. The plaintiffs initially filed suit on November 13, with an initial hearing held on December 21 in which the plaintiffs advocated for a preliminary injunction of the rule. In denying of the preliminary injunction, the rate cuts took effect on January 1, 2018.

The suit stems from a provision in the Medicare Outpatient Prospective Payment System (OPPS) final rule issued on November 1, 2017. In the final rule, the Centers for Medicare and Medicaid Service (CMS) announced that it would no longer reimburse certain 340B-purchased drugs at the standard Part B rate of Average Sales Price (ASP) plus 6 percent, instead paying a rate of ASP minus 22.5 percent.

In the final rule, CMS said the payment reduction is intended to help reduce out-of-pocket costs for Medicare Part B enrollees, whose cost sharing under Part B is based on Medicare-approved charges for covered goods and services. Because Medicare statute requires that any regulatory changes to Medicare payment be budget neutral, this change is projected to shift $1.6 billion in Part B dollars away from 340B hospitals to an across-the-board upward adjustment of 3.2 percent for all non-drug OPPS payment rates in 2018, regardless of 340B participation. The Deloitte Reg Pulse blog has a posting with more details on this policy, including 340B Medicare claims billing requirements for applicable covered entities.

The district court judge’s opinion focuses on the court’s jurisdiction over the matter, rather than the particular merits of the case. The ruling cites requirements under administrative law that a plaintiff bring claims of actual damages, rather than projections of any future impacts.  Although this ruling precluded an injunction on the payment policy being implemented, it leaves room for the suit to go forward, where the argument focuses on language describing CMS’ authorities to interpret Medicare payment requirements outlined in the Social Security Act. In a statement issued by the American Hospital Association, several plaintiffs are quoted as saying they will continue to challenge the policy in both Congress and the courts.

In addition to the lawsuit, proposed legislation restoring parity for Part B 340B drugs has been introduced by Rep. David McKinley (R-W.Va.), with a bipartisan mix of 228 representatives having signed onto a letter in support of maintaining current reimbursement rates for 340B purchased under Part B.

Medicare Part B payment reductions for 340B drugs are currently in effect; hospitals and other affected entities will need to be in compliance with the policy. Deloitte will continue to monitor ongoing developments in both litigation and legislation, as well as the reaction from the life sciences and provider communities, including any subsequent changes to commercial reimbursement strategies.


Anne Phelps
Principal | Deloitte Risk and Financial Advisory
US Health Care Regulatory Leader
Deloitte & Touche LLP
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Karolyn Woo
Principal | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Daniel Esquibel
Senior Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Tony Lesser
Senior Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Ethan Joselow
Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

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