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Federal Litigation Update And Proposed Rule On Pharmacy Benefit Managers

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Court Strikes Down CMS Hospital Wage Level Regulations


On March 2, 2022 the United States District Court for the District of Columbia found in favor of a hospital group challenging the 2019 "low wage index hospital policy" adopted by Health and Human Services ("HHS"). The regulation was aimed to address wage disparities among hospitals by increasing the amount hospitals in certain low-wage geographic areas receive in Medicare reimbursement payments while offsetting that increase by reducing reimbursement payments for all hospitals.


The hospital group alleged that this policy would ultimately result in a reduction in Medicare reimbursement for hospitals and that HHS did not have the statutory authority to adjust Medicare reimbursement for low-wage hospitals in the manner it did. In sum, the Court found that "because HHS must use wage data to calculate the relative hospital wage levels of particular geographic regions as compared to the national average, the agency exceeded its statutory authority when it altered the wage index for hospitals in the bottom quartile, such that those hospitals' wage index values were neither based on survey data nor rough approximations of the relative hospital wage levels."


As a result, the Court ultimately concluded that the hospitals met "the burden of showing that the wage indices violated the Medicare statute" and thus "the [low wage index hospital policy] must be set aside because it conflicts with Congress's statutory directive."


Court Affirms Denial of Hospital Medicare Reimbursement for Resident Training Costs


On March 7, 2022, the Tenth Circuit Court of Appeals affirmed a decision by the United States District Court for the District of Oklahoma denying the challenge of three teaching hospitals appealing the denial of Medicare reimbursements despite new rules under the Affordable Care Act ("ACA") that would permit reimbursement if applied retroactively.

In this case, the hospitals that filed suit had shared the cost to train residents off-site from 2001-2006 despite the fact that at that time a teaching hospital could obtain reimbursement only by incurring "substantially all" of a resident's training costs under the Omnibus Reconciliation Act of 1986, Pub. L. No. 99-509, § 9314, 100 Stat. 1874, 2005. As a result of these shared costs by the hospitals, the government denied reimbursement and the hospitals filed their administrative appeal. However, while the appeal was pending, Congress enacted the ACA, which created a new standard for reimbursement that permitted shared costs on a proportional basis.


The hospitals argued that the changes brought by the ACA to resident training cost sharing should be retroactive and thus their appeal of the Medicare reimbursement denial should be granted in their favor. The Court disagreed and found that "[w]hen the teaching hospitals incurred the training costs, the Medicare statutes didn't permit reimbursement for shared costs."


As such, the Court concluded that although the ACA "softened" the challenged restrictions when it was passed in 2010, these changes were not to be made retroactively, and thus the hospitals were not entitled to reimbursement for their shared costs in training residents from 2001 to 2006.


CMS Seeks to Reduce Beneficiary Cost-Sharing by Limited PBM Clawbacks


On January 6, 2022 the Centers for Medicare and Medicaid Services ("CMS") released a proposed rule, 87 FR 1842, which would, in part, require Medicare Part D plans to apply all "price concessions" they receive from network pharmacies at the point of sale in order to reduce beneficiary cost-sharing.


This proposed rule, set to take effect as of January 1, 2023 if it becomes final, is in response to a practice of pharmacy benefit managers ("PBMs") whereby they enter into arrangements with pharmacies called "price concessions" whereby the PBM can "clawback" payments to pharmacies if certain metrics are not met.


Currently, the rules require that "negotiated prices" of drugs include all network pharmacy price concessions except those contingent amounts that cannot "reasonably be determined" at the point-of-sale. This exception ultimately permits negotiated prices to not reflect those performance-based pharmacy price concessions.


The new rule would eliminate this exception and redefine "negotiated price" to be "the lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D plan sponsor or the sponsor's intermediary." CMS further proposes that a definition be added for "price concession" "in a broad manner to include all forms of discounts and direct or indirect subsidies or rebates that serve to reduce the costs incurred under Part D plans by Part D sponsors."


CMS issued a fact sheet for the proposed rule.