In June of 2022, the Supreme Court of the United States unanimously held in American Hospital Association v. Becerra that the United States Department of Health and Human Services (“HHS”) and the Centers for Medicare and Medicaid Services (“CMS”) overstepped their statutory authority when cutting 340B-related reimbursements to hospitals from 2018 through 2022.[1] As a result, CMS has since issued a final rule explaining how it will remedy its unlawful cuts to hospitals effective January 25, 2024.[2]

The final rule states that CMS will repay impacted 340B hospitals a one-time, lump sum payment to address improperly reduced Medicare fee-for-service drug claims (i.e., Traditional Medicare claims). In aggregate, the payments are expected to be upwards of $9 billion. However, to maintain budget neutrality, CMS will also recoup overpayments of $7.8 billion from other hospital providers. CMS will begin recoupment of these overpayments in 2026 in the form of a reduction in the OPPS conversion factor 0.5% for the next 14 years.

The final rule, however, does not sufficiently address how it will make 340B hospitals whole with respect to managed-Medicare claims (i.e., Medicare Advantage claims).  The final rule could effectively allow Medicare Advantage Organizations (“MAOs”) to receive a “windfall” in the form of reduced outpatient drug reimbursement that MAOs paid to hospitals in line with CMS’s prior rate cuts.  In briefly discussing this issue, CMS’s final rule helpfully highlights that:

(1) if an affected 340B hospital is not contracted with the MAO (i.e., is out-of-network) then the MAO must pay the affected hospital for services and items in at least the amount it would have received under the original medical payment rules from 2018-2022, in accordance with 1852(a)(2) of the Social Security Act and 42 U.S.C 1395w-22; and

(2) if an affected 340B hospital is contracted with the MAO (i.e., is in-network) then the MAO will be required to repay the hospital only in accordance with its agreed upon private contractual terms.

Due to the manner in which CMS has addressed the above MAO claim issue, it is critical for 340B hospitals to evaluate their Medicare Advantage relationships in order to identify what additional amounts, if any, MAOs may owe to affected 340B hospitals. 

Dinsmore’s healthcare attorneys have deep 340B and payor litigation expertise, and have been actively following the developments of the American Hospital Association decision over the past two years. If you would like assistance in evaluating your potential to recover repayments, please do not hesitate to reach out to your Dinsmore attorney.