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  • Writer's pictureJoshua Free

Hospital Industry Wins 340B DSH Rates Fight. Sort of.

But maybe it's 3 steps forward, 4 steps back. You see what I did there? I guess it should be 40...ok nevermind, the pun wasn't that good.

Multiple news outlets are reporting that the controversial 340B DSH hospital cuts were deemed unlawful by the Supreme Court on Wednesday. In American Hospital Assoc. v. Becerra, the hospital industry challenged a trump era rule that took Medicare rates at DSH hospitals and a few others from the usual ASP+6% to ASP-22.5% under the Hospital Outpatient Prospective Payment System.


I encourage you to take the reporting from our bumbling traditional media outlets with a huge grain of salt when it comes to these highly nuanced matters. You can read the actual SCOTUS language by going to their website and decide for yourself what it means.


“In short, the statute allows HHS to set reimbursement rates based on average price and affords the agency discretion to ‘adjust’ the price up or down. But unless HHS conducts a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates by hospital group,” wrote Justice Kavanaugh.


If this sounds familiar, it should. The matter has been in various stages of legal wrangling for more than 4 years since the AHA sued the Trump administration, then under HHS Secretary Alex Azar. There, a lower court ruled in favor of AHA, but not because HHS lacks authority to set reimbursement. The court actually ruled that HHS failed to properly follow the Administrative Procedures Act, which generally requires posted notice and a comment period among other things. The victory was a bit sour for a few reasons--it was deemed too difficult to recalculate payments to hospitals, so the hospitals were never going to be made whole. Then, the administration proceeded to propose the exact same rates for the following year. I'm not clear if they went ahead and followed the Administrative Procedures Act the next time around, but it didn't matter because HHS won the case on appeal.


Ironically, current HHS Secretary Becerra has been a proponent of the 340B program, so it's a little funny to see him named in the suit. As head of the department, I guess he gets the honor. I preferred AHA v. Azar in the original filing, considering that Alex Azar is a big-pharma insider who, in my opinion, brought a very distorted view of the 340B program to HHS. As a side note, he was

invited to speak at 340B Coalition Summer Conference back in 2018, and was quickly whisked off stage after completely butchering the mechanics of 340B covered entity eligibility. The point he made, after which the crowd quickly slipped into hushed chattering and even some boos, was (paraphrasing) this: "The affordable care act drastically expanded Medicaid, covering millions more people and reducing our uninsured population. We should need LESS 340B, yet the program and number of covered entities has grown." Based on his pharma roles and fervent opposition to the program, we all expected him to know what the #$%& he was talking about. But I digress.


So where does that leave us? Xavier Becerra certainly has a more open minded view of the 340B program than his predecessor, and I don't think he wants to continue poking DSH hospitals in the eye. That said, it appears that HHS has the opportunity to set these rates however they want with a little more effort in establishing acquisition costs. So while Becerra may let this issue fade away, whoever comes in next may not. The court did not rule (as best I can tell) that the lower rates effectively shift 340B dollars away from covered entities counter to congressional intent of the 340B statute, which would have been a much preferred outcome. As long as the door is open, some future bureaucrat is likely to peek through in the future.


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