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Recent Decisions in American Hospital Association (AHA) Lawsuits

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On July 17, 2020, The District of Columbia Circuit Court sided with HHS, deciding that they did have the authority to implement rate cuts for services provided in excepted off-campus provider-based departments (PBDs) of the hospital in order to control unnecessary increases in hospital outpatient services. They disagreed with the district court’s prior ruling that rate reductions for off-campus PBDs fall outside of the agency’s statutory authority.

As a result of the decision, evaluation and management services provided in all off-campus PBD locations will be reimbursed at a rate equal to the rate received under the Physician Fee Schedule (PFS) rather than receiving the OPPS rate. For CY 2020, clinic visits provided in an off-campus PBD have an unadjusted national rate of $46.37 versus a rate of $115.93 for clinic visits provided at the hospital.

As a result of the decision, evaluation and management services provided in all off-campus PBD locations will be reimbursed at a rate equal to the rate received under the Physician Fee Schedule (PFS) rather than receiving the OPPS rate. For CY 2020, clinic visits provided in an off-campus PBD have an unadjusted national rate of $46.37 versus a rate of $115.93 for clinic visits provided at the hospital.

Due to what CMS saw as an unnecessary rise in the provision of clinic visits at off-campus PBD locations, they implemented a phased reduction in reimbursement over two years, beginning in CY 2019.

A group of hospitals filed suit against these reimbursement reductions in December 2018, claiming that HHS lacked the statutory authority to implement changes to off-campus PBD reimbursement rates. In September 2019, the district court agreed with the hospitals and set aside the regulation implementing the rate reduction. In spite of the ruling against the government, they continued phasing in the second half of the reimbursement cuts for CY 2020 while appealing the district court’s decision.

With the recent favorable ruling, CMS has proposed to continue the reduced reimbursement rate for all clinic visits provided to Medicare beneficiaries in an off-campus PBD setting for the foreseeable future. In response, the AHA has called upon Congress and the Trump administration to enact legislation that would reverse these non-budget-neutral cuts. The AHA is also reviewing the decision to determine if there are additional avenues to pursue within the legal system.

Disclosure of Negotiated Charges

On June 23, 2020, the District Court for the District of Columbia rejected challenges brought by hospitals and the AHA to HHS’ final rule requiring that hospitals make public a list of standard charges for items and services they provide. They disagreed with the contentions that these requirements exceed statutory authority granted to HHS, violate the First Amendment, and were arbitrary and capricious under the Administrative Procedure Act. Although the AHA filed an appeal in July with the District of Columbia Court of Appeals, it is unlikely that a decision will be forthcoming prior to the implementation date of January 1, 2021.

As things currently stand, the final rule requires hospitals to develop and publish a list of five “standard charges” for all items and services provided by the hospital. The list of standard charges includes:

  • Gross charge
  • Cash or “self-pay” charge
  • Payer-specific negotiated charge for all third-party payers
  • Deidentified minimum charge across all third-party payers
  • Deidentified maximum charge across all third-party payers

Additionally, each hospital must publish a listing of 300 “shoppable services” to include 70 services mandated by CMS in addition to 230 services selected by each hospital using frequently-performed services that could be shopped by patients in advance of the service as a guide.

All of this information must be prominently displayed on a publicly-available website that can be accessed without restriction. Further, the pricing information must be updated at least annually, and the file containing the information must be made available in a machine-readable format such as .XML, .JSON, or .CSV.

CMS declined to provide further specifics as to how hospitals should accomplish this task, leaving most hospitals scrambling to interpret and comply with the regulations while simultaneously dealing with the COVID-19 public health emergency. CMS also stated their belief that the regulations do not go far enough to address the issue of pricing transparency for healthcare services and that they expect to implement additional regulations in the future.

340B Payment Reductions

The District of Columbia Circuit Court dealt another blow to hospitals by ruling in favor of the United States Department of Health & Human Services (HHS) regarding 340B Payment Reductions on July 31, 2020. They disagreed with the district court’s prior ruling that HHS had exceeded its statutory authority by reducing drug reimbursement rates for 340B drugs. As a result of the decision, drugs acquired under the 340B program will continue to receive a reimbursement reduction under the Outpatient Prospective Payment System (OPPS).

As a result of the decision, drugs acquired under the 340B program will continue to receive a reimbursement reduction under the Outpatient Prospective Payment System (OPPS).

In January 2018, the Centers for Medicare & Medicaid Services (CMS) reduced the reimbursement rate for specified covered outpatient drugs (SCODs) acquired under the 340B drug program from Average Sales Price (ASP) + 6% to ASP minus 22.5% in order to address the large gap between purchase price and OPPS reimbursement for 340B drugs. CMS believes that this large gap allows 340B providers to generate significant profits when administering 340B drugs and has led to the administration of unnecessary drugs in the Medicare population. CMS hoped to curtail what they see as overutilization of Part B drugs through this payment reduction.

Hospitals immediately filed a lawsuit on the day the final rule reducing 340B reimbursement rates was published in November 2017 on the grounds that CMS lacked the statutory authority to adjust rates for SCODs. The district court sided with hospitals in their published ruling in December 2018, and CMS was ordered to develop a plan that would reverse the reimbursement cuts. CMS instead filed an appeal with the D.C. Circuit Court. Rather than reversing the cuts, they continued reimbursing 340B drugs using the ASP minus 22% rate for CY 2019 and CY 2020.

Now that CMS has received a favorable ruling from the Court of Appeals, they have proposed further reduction in the reimbursement rates for SCODs acquired under the 340B program. For CY 2021, they are proposing to pay for 340B drugs at a rate of ASP minus 28.7% while non-340B drugs will continue to be reimbursed under the OPPS at a rate equal to ASP + 6%.

Now that CMS has received a favorable ruling from the Court of Appeals, they have proposed further reduction in the reimbursement rates for SCODs acquired under the 340B program. For CY 2021, they are proposing to pay for 340B drugs at a rate of ASP minus 28.7% while non-340B drugs will continue to be reimbursed under the OPPS at a rate equal to ASP + 6%.

CMS also broached the idea of implementing steeper cuts in reimbursement based upon hospital survey data that was collected earlier in the year. They are currently soliciting feedback on both of these methodologies and will publish their final decisions in the OPPS Final Rule later this year. Either way, 340B hospitals can expect to see further cuts to the reimbursement rates for SCODs acquired under the 340B program.

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