Hospitals Face Medicare Drug Pay Cuts as Court Fight Looms

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By Eric Topor

A hospital group isn’t giving up its court fight with the HHS over cuts to a Medicare drug discount program that took effect Jan. 1.

A lawsuit filed by the American Hospital Association seeking to block a Medicare rule implementing an almost 30 percent cut to reimbursements for drugs obtained under the 340B program was dismissed Dec. 29 for lack of proper standing. But AHA General Counsel Melinda Hatton told Bloomberg Law Jan. 2 that "[t]here are a number of avenues for pursuing our legal challenge to the court’s decision and we expect to announce shortly which route or routes we intend to take.”

The AHA could appeal the ruling or refile the lawsuit based on actual Medicare claims affected by the 340B program cut in an effort to address the standing issue the U.S. District Court for the District of Columbia cited in its dismissal order. A legislative effort is also underway to rescind the program cut in the form of a proposed House bill ( H.R. 4392) introduced Nov. 14, though its prospects for passage aren’t known.

Mark D. Polston, a partner at King & Spalding in Washington, told Bloomberg Law Jan. 2 that an appeal of the dismissal would be “difficult” because the plaintiffs, which also include the Association of American Medical Colleges and America’s Essential Hospitals, would need “to convince the court of appeals to address the case on an expedited basis” and show that the trial court’s ruling was incorrect.

Cost, Liability Uncertainties

In the meantime, hospitals that depend on the 340B program to help fund hospital operations face an uncertain cost-benefit analysis going forward, according to Justin C. Linder, a health-care attorney with Dughi, Hewit & Domalewski PC in Cranford, N.J. Linder told Bloomberg Law Jan. 2 that hospitals are struggling not only with uncertainty over the 340B reimbursement cuts—and whether litigation or legislation will reverse them—but also with implementing a set of modifiers announced Dec. 13 that hospitals participating in the 340B program must use starting Jan. 1.

“It’s not an easy fix” to incorporate the modifiers into hospital billing systems, Linder said. There’s a cost associated with compliance with the modifier requirement and discerning which drugs purchased through the 340B program were prescribed to which patients, and this cost, combined with reduced reimbursements, could lead some hospitals to decide to drop out of the program, Linder said. Drugs obtained through the 340B program are administered by physicians on an outpatient basis through Medicare Part B.Hospitals that are unable to implement the modifiers and continue to bill Medicare for drugs acquired through the 340B program could be required to return those reimbursements as overpayments within 60 days, Linder said. Failure to do so, he cautioned, could transform a known overpayment into a false claim, exposing a hospital to triple damages and per claim fines under the False Claims Act. Linder suggested that hospitals struggling with implementing the modifiers follow the Centers for Medicare & Medicaid Services’ suggestion in the Dec. 13 modifier announcement to coordinate with their designated Medicare administrative contractor (MAC). The CMS said in the announcement that a hospital encountering difficulty implementing the modifiers into its billing system “should contact its MAC to discuss whether holding claims or rebilling claims may be an option.”

Additional Lawsuits From Hospitals Unlikely

Linder didn’t believe that other hospitals would file their own parallel litigation against the Department of Health and Human Services over the reimbursement cuts. Instead, he predicted that hospitals would leave the legal and congressional lobbying efforts to reverse the 340B rule and the reimbursement cut to their respective industry groups, though Linder said members of Congress would be hearing from hospitals in their districts on the issue.

Polston said the AHA could ask the court to halt the rate cut as a preliminary matter if it refiles its lawsuit, irrespective of whether the lawsuit is ultimately successful or any retroactive payments are later issued. Linder said a refiled lawsuit should “move fairly quickly,” which could bring some needed certainty to hospitals dependent on the 340B program.

To contact the reporter on this story: Eric Topor in Washington at

To contact the editor responsible for this story: Peyton Sturges at

For More Information

The 340B modifiers announcement is at 4392 is at

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