Below is an excerpt of an article published in American Health Law Association’s Regulation, Accreditation, and Payment Practice Group on March 21, 2024.

The 340B program, as established under Section 340B to the Public Health Service Act (PHSA), Pub. L. No. 78-410, 58 Stat. 682 (1944) (“340B Statute”),[1] has experienced significant legal challenges over the last few years propelled by certain Medicare underpayments and drug manufacturer litigation. The following is a brief summary of the current status of these developments.

  1. 340B Payment Remediation

On November 2, 2023, the Department of Health and Human Services (HHS) issued a Final Rule to remediate certain underpayments to 340B hospitals for 340B drugs from CY2018 through September 27, 2022.[2] This Final Rule was issued following SCOTUS’ unanimous ruling that HHS’ reduced payment rate to certain 340B covered entity hospitals during this period constituted an unlawful payment cut.[3] On remand to the district court, the U.S. District Court for the District of Columbia vacated the differential payments to 340B covered entity hospitals prospectively as of the date of the ruling on September 28, 2022, and remanded to HHS to remediate the underpayments.[4] Following the Court’s decision, HHS found itself in the unfavorable position of trying to retrospectively untangle payments which were and continue to be subject to budget neutrality requirements.[5]

In the Final Rule, HHS determines the most administratively feasible solution is to provide a one-time lump sum payment to each affected 340B covered entity hospital based on the difference in amount they would have received, rather than to reprocess all claims for 340B drugs during this period.[6] The Final Rule sets forth the payment amount to each of the approximately 1,700 affected 340B covered entity hospitals.[7] In the Final Rule, HHS makes the remedy payments pursuant to its equitable adjustment authority, which would “not be 340B drug payments subject to beneficiary copayments” and “do not authorize providers to seek additional beneficiary copayments.”[8]

Further, owing to statutory budget neutrality requirements, HHS will implement a prospective offset to the higher payments for non-340B drugs and services that were paid under the same outpatient prospective payment system (“OPPS”) during the applicable time period (CY2018 through September 27, 2022).[9] Under the Final Rule, in order to make up the $7.8 billion overpayment for non-340B drugs and services, while minimizing the financial burden on impacted hospitals, HHS will reduce future payments of non-340B drugs and services by an annual .5% conversion factor, to be paid out over an estimated 16 years.[10] This payment reduction will begin in CY2026 to avoid overburdening hospitals that may still be dealing with the lingering effects of COVID-19 workforce and supply shortages, and resulting inflation.[11] This adjustment will not apply to hospitals enrolled in Medicare on or after January 1, 2018, which would not have fully benefited from the increased payments for non-340B drugs and service during the full affected time period.[12] Read the full article.

[1] Public Health Service Act, § 340B (PHSA) (codified at 42 U.S.C. § 256b).

[2] See Dept. Health & Human Servs., Final Rule, Medicare Program; Hospital Outpatient Prospective Payment System: Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018–2022, 88 Fed. Reg. 77150, 77186 (Nov. 8, 2023);, Fact Sheet, CY 2024 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Final Rule (CMS 1786-FC) (Nov. 2, 2023),

[3] See Am. Hosp. Assn v. Becerra, 142 S. Ct. 1896 (2022).

[4] See Am. Hosp. Ass’n v. Becerra, No. 18-cv-2084, 2022 WL 4534617 (D.D.C. Sept. 28, 2022) (ruling on plaintiff’s first motion to vacate the 340B payment rate for the remainder of 2022); Am. Hosp. Assn. v. Becerra, No. 1:18-cv-02084-RC (D.D.C. Jan. 10, 2023) (ruling on plaintiff’s second motion to remand to HHS to establish remedial payments for CY2018 through CY2022).

[5] Id.; 88 Fed. Reg. 77150, 77151-52 (Nov. 8, 2023).

[6] 88 Fed. Reg. 77150, 77154-56 (Nov. 8, 2023) (“We acknowledged that reprocessing every single claim might be a potential approach to remedy this situation if it were administratively achievable.”).

[7] Id. at 77164 (setting forth individual payments to hospitals in Addendum AAA to the Final Rule).

[8] Id. at 77164-65.

[9] Id. at 77170, 77181.

[10] Id.

[11] Id. at 77172, 77180.

[12] Id. at 77182-83.