Skip to Main Content

November 21, 2023   

The Medicare Final Rule Regarding 340B Underpayment

This Briefing is brought to you by AHLA’s In-House Counsel Practice Group.
  • November 21, 2023
  • Andrew D. Ruskin , K&L Gates LLP

After years of uncertainty and seemingly endless litigation, there is finally an end to one chapter of the dispute surrounding Medicare underpayments for 340B drugs, but possibly the beginning of another one, or even two. The 340B Program allows certain safety net hospitals (referred to as “covered entities”) to purchase drugs from pharmaceutical manufacturers at a significant discount. In 2018, the Centers for Medicare & Medicaid Services (CMS) implemented a policy (published in 2017) that reduced payment for 340B drugs when used in the hospital outpatient department (HOD). CMS relied on statutory authorities for this policy that were highly suspect, which led the American Hospital Association (AHA) and others to challenge the policy in court. After several levels of appeal, the Supreme Court finally issued a decision in this case in June 2022. The Court unanimously held that CMS had acted ultra vires in promulgating its 340B policy and remanded for further action on a remedy. Seventeen months and two more court decisions later, CMS has finally agreed to make covered entities whole with a lump sum adjustment, but there is a catch. CMS had initially reallocated the drug payment cut savings to other HOD items and services, and now, claiming it is bound by budget neutrality requirements, it plans to take back these reallocated funds. That will depress HOD funding to all providers, extending out for 16 years, to the tune of $7.8 billion. Somewhat tangentially, CMS has also disavowed any role in connection with covered entity disputes with their Medicare Advantage (MA) plans, where covered entities are struggling to obtain “make whole” payments from them as well. In light of CMS’ actions (or inactions) and as discussed below, CMS’ approach means there are still to-do items on in-house counsels’ checklists.


You must be logged in to access this content.