United States District Court, District of Columbia
MEMORANDUM OPINION GRANTING IN PART PLAINTIFFS'
MOTION FOR A PERMANENT INJUNCTION; REMANDING THE 2018 AND
2019 OPPS RULES TO HHS
Rudolph Contreras, United States District Judge.
I.
INTRODUCTION
This
Court previously held that the Department of Health and Human
Services (“HHS”) exceeded its statutory authority
when it reduced the 2018 Medicare reimbursement rate for
certain pharmaceutical drugs-those covered by the “340B
Program”-by nearly 30%. In that decision, the Court
asked the parties to provide supplemental briefing regarding
the appropriate remedy. That briefing is now ripe for the
Court's consideration. Plaintiffs, a group of hospital
associations and non-profit hospitals, [1] have also filed a
supplemental complaint raising a new claim. They contend that
HHS once again exceeded its statutory authority when it
implemented the same 340B reimbursement rate for 2019 that
the Court held was unlawfully implemented in
2018.[2]
For the
reasons stated below, the Court concludes that HHS's 2019
340B reimbursement rate is unlawful, for the same reasons
that the 2018 rate was unlawful. The Court also concludes
that, despite the fatal flaw in the agency's rate
adjustments, vacating HHS's 2018 and 2019 rules is not
the best course of action, given the havoc vacatur may wreak
on Medicare's administration. Rather, the Court will
remand the two rules to the agency, giving it the first crack
at crafting appropriate remedial measures. The Court expects
HHS to resolve this issue promptly.
II.
BACKGROUND
This
Court's most recent opinion contains a detailed
discussion of this case's background and procedural
history, and the relevant statutes and regulations. See
Am. Hosp. Assoc. v. Azar (“AHA”), 348
F.Supp.3d 62, 66-72 (D.D.C. 2018). The Court will briefly
summarize the relevant background here.
Medicare
is a federal health insurance program for the elderly and
disabled, established by Title XVIII of the Social Security
Act. See 42 U.S.C. §§
1395-1395lll.[3] Medicare Part A provides coverage for
inpatient hospital care, home health care, and hospice
services. Id. § 1395c. Medicare Part B provides
supplemental coverage for other types of care, including
outpatient hospital care. Id. §§ 1395j,
1395k. HHS's Outpatient Prospective Payment System
(“OPPS”), which directly reimburses hospitals for
outpatient services and pharmaceutical drugs provided to
Medicare beneficiaries, is a component of Medicare Part B.
See id. at 1395l(t). OPPS requires
“payments for outpatient hospital care to be made based
on predetermined rates.” Amgen, Inc. v. Smith,
357 F.3d 103, 106 (D.C. Cir. 2004). Under this system, the
Secretary-through the Centers for Medicare and Medicaid
Services (“CMS”)-sets annual OPPS reimbursement
rates prospectively, before a given year, rather than
retroactively based on covered hospitals' actual costs
during that year.[4]
Medicare
Part B reimburses, among other products and services,
“specified covered outpatient drugs”
(“SCODs”) provided by hospitals to Medicare
beneficiaries. 42 U.S.C. § 1395l(t)(14)(A).
SCODS are a subset of “separately payable drugs,
” which are not bundled with other Medicare Part B
outpatient services, and are therefore reimbursed on a
drug-by-drug basis. See id. §
1395l(t)(14)(B). Congress has authorized two
potential methodologies for setting SCOD rates. First, if the
Secretary has certain “hospital acquisition cost survey
data, ” he must set the reimbursement rate for each
SCOD according to “the average acquisition
cost for the drug for that year . . . as determined by
the Secretary taking into account” the survey data.
Id. § 1395l(t)(14)(A)(iii)(I)
(emphasis added). Second, if the survey data is not
available, each SCOD's reimbursement rate must be set
equal to “the average [sales] price
[(“ASP”)] for the drug in the year established
under . . . section 1395w-3a . . . as calculated and adjusted
by the Secretary as necessary for purposes of this
paragraph.” Id. §
1395l(t)(14)(A)(iii)(II) (emphasis added). Section
1395w-3a, in turn, provides that a given drug's default
reimbursement rate is the average sales price
(“ASP”) of the drug plus 6%.[5]
The
Secretary applies the same methodologies used to set SCOD
reimbursement rates to set rates for separately payable drugs
covered by the “340B Program.”[6] See
Veterans Health Care Act of 1992, Pub L. No. 102-585, §
602, 106 Stat. 4943, 4967-71. The 340B Program “imposes
ceilings on prices drug manufacturers may charge for
medications sold to specified health care facilities.”
Astra USA, Inc. v. Santa Clara Cty., 563 U.S. 110,
113 (2011); see also 42 U.S.C. §
256b(a)(1)-(2).[7] The statutory provisions that establish
those price ceilings are independent from the statutory
provisions that establish Medicare reimbursement rates. Put
another way, the 340B Program caps the prices that eligible
providers pay for covered drugs, but Medicare Part B sets the
reimbursement rates those providers receive for prescribing
covered drugs to Medicare beneficiaries. Until recently,
there was a significant spread between 340B prices and
Medicare reimbursement rates. 340B Program participants could
purchase drugs at steeply discounted rates under the Program,
then seek reimbursement for those purchases at the higher
Medicare Part B rates established by OPPS. The
Secretary's attempt to narrow the spread triggered this
litigation.
In
mid-2017, the Secretary proposed reducing reimbursement rates
for SCODs and other 340B drugs, from ASP plus 6% to ASP minus
22.5%. Medicare Program: Hospital Outpatient Prospective
Payment and Ambulatory Surgical Center Payment Systems and
Quality Reporting Programs, 82 Fed. Reg. 33, 558, 33, 634
(Jul. 20, 2017) (codified at 42 C.F.R. pt. 419). The
Secretary asserted that this change was necessary to
“make Medicare payment for separately payable drugs
more aligned with the resources expended by hospitals to
acquire such drugs[, ] while recognizing the intent of the
340B program to allow covered entities, including eligible
hospitals, to stretch scarce resources while continuing to
provide access to care.” Id. at 33, 633.
The
Secretary's statutory authority to reduce the 2018 340B
rate was limited by the data available to him. Because he did
not “have hospital acquisition cost data for 340B
drugs, ” 82 Fed. Reg. at 33, 634, he could not invoke
his express authority under 42 U.S.C. §
1395l(t)(14)(A)(iii)(I) to set rates according to
the drugs' average acquisition costs. Instead, he invoked
subsection (t)(14)(A)(iii)(II), which allows him to set rates
according to the drugs' average sales prices, “as
calculated and adjusted by the Secretary as necessary.”
82 Fed. Reg. at 33, 634. The Secretary proposed to
“adjust the applicable payment rate as necessary”
for separately payable 340B drugs, “to ASP minus
22.5[%].” Id. According to the Secretary, the
adjustment was necessary because ASP minus 22.5% was the
average 340B discount estimated by the Medicare Payment
Advisory Commission (“MedPAC”), and thus
“better represents the average acquisition cost for
[340B] drugs and biologicals.” Id. Plaintiffs
objected to this adjustment, but the Secretary rejected their
objections and adopted the proposal. See Medicare
Program: Hospital Outpatient Prospective Payment and
Ambulatory Surgical Center Payment Systems and Quality
Reporting Programs (“2018 OPPS Rule”), 82 Fed.
Reg. 52, 356, 52, 362 (Nov. 13, 2017) (codified at 42 C.F.R.
pt. 419). HHS reimbursed 340B drugs at ASP minus 22.5%
throughout 2018.
Having
failed to defeat the 2018 340B rate adjustment during the
notice and comment period, Plaintiffs challenged the 2018
OPPS Rule in this Court. See AHA, 348 F.Supp.3d at
71- 72. They argued that the Secretary exceeded his statutory
authority in setting the 2018 340B rate, in violation of the
Administrative Procedure Act (“APA”) and the
Social Security Act. See Id. at 71. This Court
agreed. It held that the Secretary violated subsection
(t)(14)(A)(iii)(II)'s plain text when he invoked that
provision to “adjust” 340B rates downward by 30%,
based not on the drugs' average sales prices-as dictated
by the statutory text-but on the drugs' estimated
acquisition costs. See Id. at 79-83. The Court
ordered the parties to provide supplemental briefing on the
proper remedy. See Id. at 86.
The
Secretary has continued to apply the same 340B rate in 2019.
See Medicare Program: Changes to Hospital Outpatient
Prospective Payment and Ambulatory Surgical Center Payment
Systems and Quality Reporting Programs (“2019 OPPS
Rule”), 83 Fed. Reg. 58, 818, 58, 979 (Nov. 21, 2018)
(codified at 42 C.F.R. pt. 419). And in adopting that rate,
the Secretary incorporated by reference his rationale for
adopting the 2018 340B rate, the rationale that this Court
later held was contrary to law. See Id. at 58, 981
(referring commenters to the Secretary's “detailed
response regarding [his] statutory authority to require
payment reductions for [340B drugs] in the CY 2018 OPPS/ASC
final rule”).
Plaintiffs
have filed a supplemental complaint, see Suppl.
Compl., ECF No. 39, and moved to permanently enjoin the 2019
OPPS Rule, see Pls.' Mot. Permanent Inj.
Covering 2019 OPPS Rule (“Pls.' Mot. Inj.”),
ECF No. 35. That motion, and the parties' remedies
briefing, is now ripe for the Court's review. The Court
will first consider Plaintiffs' motion to enjoin the 2019
OPPS Rule, then the parties' remedies briefing. It grants
Plaintiffs' motion in part, and remands both the 2018 and
2019 OPPS Rules to HHS, giving the Secretary the first crack
at crafting an appropriate remedy.
III.
MOTION FOR PERMANENT INJUNCTION
Rather
than fully briefing Plaintiffs' motion to enjoin the 2019
OPPS Rule, the parties have elected to incorporate by
reference their arguments regarding the 2018 OPPS
Rule.[8]Plaintiffs proffer that “[f]or all of
the reasons that the Court has already articulated with
respect to the 2018 OPPS Rule, the 2019 OPPS Rule is
ultra vires and unlawful.”[9] Pls.' Mot.
Inj. at 2. Defendants respond that their arguments for
denying Plaintiffs' challenge to the 2018 OPPS Rule
“provide ample bases for rejecting”
Plaintiffs' challenge to the 2019 OPPS Rule. Defs.'
Opp'n Pls.' Mot. Inj. at 1, ECF No. 42. Recognizing
that the Court “rejected those arguments in the context
of the 2018 OPPS Rule, ” Defendants “respectfully
request that the Court reconsider its conclusion.”
Id. at 2. The Court declines Defendants'
invitation. It enjoins the 2019 OPPS Rule for the same reason
that it enjoined the 2018 OPPS Rule. In the interest of
thoroughness, the Court will briefly summarize that
reasoning.
First,
Plaintiffs have sufficiently exhausted their administrative
remedies, such that they may challenge the 2019 OPPS Rule in
federal court. To seek judicial review, a plaintiff
challenging a Medicare-related agency action must satisfy two
requirements established by 42 U.S.C. § 405(g). See
Shalala v. Ill. Council on Long Term Care, Inc., 529
U.S. 1, 12-15 (2000). First, a jurisdictional, non-waivable
“requirement that a claim for benefits shall have been
presented to the Secretary.” Mathews v.
Eldridge, 424 U.S. 319, 328 (1976). Second, a
non-jurisdictional “requirement that the administrative
remedies prescribed by the Secretary be exhausted.”
Id. This second requirement may be waived by the
agency or a court. See id. at 330. Together, the two
requirements serve the practical purpose of “assur[ing]
the agency greater opportunity to apply, interpret, or revise
policies, regulations, or statutes.” Ill.
Council, 529 U.S. at 13.
Plaintiffs
satisfied § 405(g)'s first, non-waivable requirement
when Henry Ford Hospital presented HHS with two claims for
reimbursement for 340B drugs prescribed under the 2019 OPPS
Rule. See ECF Nos. 34-1 & 34-2. In response, HHS
dutifully applied the 2019 340B reimbursement rate challenged
by Plaintiffs: ASP minus 22.5%.[10] Id. Defendants
do not contest that Henry Ford Hospital's 2019 claims
satisfy § 405(g)'s presentment requirement.
Plaintiffs
need not satisfy § 405(g)'s second requirement, that
they fully exhaust the administrative process, because
exhaustion would be futile. As this Court previously noted,
plaintiffs need not exhaust their administrative remedies
when “(1) the issue raised is entirely collateral to a
claim for payment; (2) plaintiffs show they would be
irreparably injured were the exhaustion requirement enforced
against them; [or] (3) exhaustion would be futile.”
AHA, 348 F.Supp.3d at 75 (alteration in original)
(quoting Triad at Jeffersonville I, LLC v. Leavitt,563 F.Supp.2d 1, 16 (D.D.C. 2008)); see also Tataranowicz
v. Sullivan, 959 F.2d 268, 274 (D.C. Cir. 1992). In such
circumstances, a “district court may, in its
discretion, excuse exhaustion if ‘the litigant's
interests in immediate judicial review outweigh the
government's interests in the efficiency or
administrative autonomy that the exhaustion doctrine is
designed to further.'” Avocados Plus Inc. v.
Veneman,370 F.3d 1243, 1247 (D.C. Cir. 2004) (quoting
McCarthy v. Madigan,503 U.S. 140, 146 (1992)). More
specifically, the court must consider whether judicial
resolution of ...