$9B ‘Remedy’ to SCOTUS Ruling Still Leaves Patients Behind

In July 2023, the Centers for Medicare and Medicaid Services (CMS) issued a proposed ‘remedy’ to the United States Supreme Court’s 2022 ruling in American Hospital Association v. Becerra. In the case, AHA argued that the U.S. Department of Health and Human Services (HHS) misapplied statutory rulemaking powers when reducing certain payments to 340B hospitals from 2018 to 2022 because the federal agency had not completed a survey of those hospitals drug acquisition costs, as outlined in statute. HHS argued the interpretation of the statutory language should yield to their interpretation due to the precedent set by Chevron, which held that, generally speaking, courts and private actors should allow executive agencies to define the meaning in statutory language when it’s reasonably interpreted in multiple ways outside of those issues defined by legislators.

The idea behind Chevron Deference is that these agencies are generally responsible for making rules and enforcing them and courts don’t necessarily want to be bogged down by bad-faith claims on what certain statutory language actually means. In this instance, despite fears SCOTUS might overturn Chevron, the high court did not touch the precedent but did reject HHS’ claim regarding interpretation of the statutory language – a survey must be performed or based on the average sales price by drug manufacturers (with certain adjustments). The Court ordered HHS to review the ruling and issue a ‘remedy’ to fill the gap created by what the affected hospitals would have made from 2018 to 2022 rather than a setting a specific dollar amount like one might see in a civil judgment. CMS’ estimated dollar amount is just about $9 billion across affected hospitals and CMS is proposing to make those payments in one lump sum to the approximate 1,600 affected hospitals.

In an addendum to the proposed rule, the amount of money going to each hospital is listed out. The addendum has to be downloaded from the CMS website under the filename NPRM OPPS Remedy for 340B-Acquired Drug Payment Addendum AAA. A curious reader should note, the entities listed are by hospital, not by hospital system. There’s some really interesting tid bits in the spreadsheet worth pointing out.

To illustrate how lucrative hospitals view the 340B gravy train, let’s look at Cleveland Clinic. Cleveland Clinic will receive about $35 million in remedy payments, but in 2018 only had $74 or so in drug claims. If that makes your eyes pop, it should. The clinic went from about $10 million in drug claims in 2020 to almost $1.4 billion 2022. According to Cleveland Clinic’s 2021 tax return, the provider’s financial assistance ‘at cost’ (or ‘charity care’) as was about $177 million or about 1.5% of its total expenses.

Various Bon Secours hospitals will receive almost $50 million.

Ascension hospitals will receive about $45 million.

If those two hospital chains sound familiar, they should. Bon Secours was the subject of The New York Times article highlighting how the hospitals system abused 340B, specifically, by investing program revenues from poorer neighborhoods into richer communities. Dr. Lucas English, in the article, described the practice as “…laundering money through this poor hospital to its wealthy outposts.”

Ascension was the subject of another explosive NYT investigation for chronic understaffing in the name of decreasing expenses, even at the cost of patient safety. The whole design left the facilities in the system unprepared for the COVID-19 pandemic, which eventually lead to the system hiring contract and traveling medical staff in order to keep up – tossing the labor and wage ecosystem in healthcare into an upward spiral of costs which would be later passed onto patients by way of increased insurance premiums.

These aren’t the only two systems in the dataset that deserve scrutiny but they certainly represent a tiny sample of why the discount drug program needs reform.

Ultimately, the issue with these payments isn’t necessarily “hospitals shouldn’t get them” but “Why should bad-actors be further rewarded when they’ve already been shown to be abusing the program?”

Earlier this year, Kaiser Family Foundation analyzed charity care vs. realized tax breaks hospitals enjoy. Hospitals received about $28.1 billion in tax breaks while only dolling out about $16 billion in charity care – and that’s before the entirely non-transparent revenues generated from 340B. All of these entities are registered as “non-profit” but that $12 billion gap and stories like Bon Secours and Ascension and even the Cleveland Clinic’s leave even a casual viewer asking “But are they really?”

Earlier this month, Lown Institute’s Vikas Saini stated, “The distinction between not-for-profit and for-profit – certainly in health care and certain in relationship to hospitals – is negligible or nonexistent.”

SCOTUS wasn’t tasked with considering if hospitals that might receive a differential payment might not necessarily be operating within the intent of the 340B program but this kind of highlights why Congress can’t leave this issue to the courts to hammer out between the parties. Congress has a chance and, arguably the obligation, to make sure sufficient statutory provisions exist to actually meet achieve the intent of the program. Indeed, not acting to reform the program, in light of these “remedy” payments, will only encourage more bad actors to abuse 340B.