Court Orders HHS To Restore Full Payments to Hospitals in 340B Drug Pricing Program

As hospitals in Arkansas face mounting financial challenges from inflation and personnel costs, a recent federal court decision offers a bright spot for certain hospitals that treat large numbers of patients with low incomes or without health insurance.

In 2017, the U.S. Department of Health and Human Services (HHS) issued a rule reducing the reimbursement rate for hospitals that participate in the 340B drug pricing program. The 340B program allows certain healthcare organizations to buy drugs from manufacturers at heavily reduced prices to help them serve uninsured and low-income patients.

Prior to the 2017 rule, the reimbursement rate for certain drugs covered under Medicare was 106% of the average sales price (ASP). The 2017 rule established a separate reimbursement rate for 340B hospitals at 77.5% of the ASP, while maintaining the existing rate for non-340B hospitals.

The rate reduction was challenged in court by the American Hospital Association and other hospital groups on the basis that HHS did not conduct a survey of hospitals’ acquisition costs and therefore could not set reimbursement rates for 340B hospitals that were different from other hospitals’ rates. In June 2022, the U.S. Supreme Court unanimously held that HHS exceeded its statutory authority by reducing the rate for 340B hospitals without having first conducted the statutorily mandated survey. The court sent the case back to the U.S. District Court for the District of Columbia to decide remedies.

On Sept. 28, 2022, the district court issued an order to vacate the HHS rule with respect to payments to 340B hospitals, meaning the 340B reimbursement rate will revert to the default rate (ASP plus 6%) for the remainder of 2022. The court will resolve underpayments that were made to 340B hospitals under the unlawful reimbursement rates at a later date. The immediate relief granted by the court could result in unexpected but welcome revenue for Arkansas hospitals in a time of considerable financial pressure.

To learn more about the history of the 340B program and how it works, see our explainer.