Cuts to 340B program went into effect on January 1

But does CMS has legal authority to reduce payments to disproportionate share hospitals?

Disproportionate share hospitals and rural referral centers lost their bid to stop CMS from implementing cuts to a federal drug pricing program that supports health care services for low-income patients. The 340B program provides discounted outpatient drugs to eligible safety-net health care facilities.

Hospital group plaintiffs were seeking an injunction that would prevent slashes to reimbursement rates from taking effect on January 1, 2018, arguing that the cuts would cause irreparable harm by forcing the reduction or elimination of services and programs. U.S. District Court Judge Rudolph Contreras dismissed the case on procedural grounds, leaving open the question of whether CMS has the legal authority to reduce payments to 340B hospitals and opening the door for future court rulings.

The now-enacted CMS regulation reduces payments for 340B drugs paid under Medicare Part B by lowering the reimbursement rate from average sales price (ASP) plus 6% to ASP minus 22.5%—estimated to save pharmaceutical manufacturers $1.6 billion annually. CMS said that the savings will be redistributed to offset health care costs to all Medicare beneficiaries.

Supporters of the 340B drug pricing law say it was intended to allow safety-net providers to stretch their scarce resources to serve more low-income patients and communities. Critics claim that some 340B hospitals used the funding to increase profits and did not directly pass savings on to patients.

In a December 29, 2017, statement, 340B Health—a membership organization representing public and private nonprofit hospitals and health systems—said that the decision “not to halt implementation of the Medicare Part B payment reduction to 340B hospitals is disappointing but in no way ends the debate over this onerous and harmful regulation.”

The organization called on Congress to take action to reverse the cuts. “If these cuts remain in place, many safety net hospitals will be forced to cut back on services, close service sites, and let go clinicians and other caregivers. These payment cuts do nothing to lower drug prices, do not save Medicare a dollar, and won’t reduce costs for seniors and other patients,” the statement said.

In January, the U.S. House Energy and Commerce Committee released a report noting that while 340B enjoys strong bipartisan report, the committee has concerns that congressional intent and parameters for the program are unclear and asserting that the Health Resources and Services Administration “lacks sufficient regulatory authority to adequately oversee the program and clarify program requirements.”