Court rejects Trump’s effort to cut payments for prescription drugs

WASHINGTON >> A federal court has rejected President Donald Trump’s first major effort to cut payments for prescription drugs, saying the administration went far beyond its legal authority.

The Trump administration made a “drastic departure from the statutorily mandated rates” when it reduced payments to hospitals for drugs given to Medicare beneficiaries in outpatient clinics, Judge Rudolph Contreras of the U.S. District Court here said in the decision, issued late last month.

Alex Azar, the secretary of health and human services, “may not end-run Congress’ clear mandate,” the judge said.

The court is still considering how to compensate hospitals for the money lost, estimated at $1.6 billion for last year. The cuts are still in effect, but the court has asked the government and hospitals to propose a remedy.

At issue is a federal program that allows hospitals serving large numbers of low-income people to get discounts from drug manufacturers on certain prescription drugs, including many used to treat cancer and HIV/AIDS.

Medicare pays for the drugs when Medicare beneficiaries receive them as outpatients at more than 1,000 hospitals that participate in the program. The Trump administration concluded that Medicare was paying hospitals much more than they spent to acquire the drugs.

So federal officials cut the reimbursement rate last year — to 77.5 percent of a drug’s average sales price, from 106 percent.

Hospital executives told the judge that as a result of the reductions, they would have to cut back or eliminate some services.

Under the Medicare law, Contreras said, federal officials have the power to “adjust” reimbursement rates. But, he said, they abused that power and “fundamentally altered the statutory scheme established by Congress for determining” reimbursement rates.

Azar “may either collect the data necessary to set payment rates based on acquisition costs, or he may raise his disagreement with Congress,” but he may not circumvent the mandate of Congress, said Contreras, who was appointed by President Barack Obama. The government had acknowledged that it did not know the precise amount of the difference between what hospitals were paying for the drugs and what Medicare was reimbursing them.

The program, created under Section 340B of the Public Health Service Act, is commonly known as the 340B program.

Caitlin Oakley, a spokeswoman for Azar, said today: “We are disappointed with the court’s ruling and are evaluating next steps. As the court correctly recognized, its judgment has the potential to wreak havoc on the system.”

Oakley said the decision could increase costs for Medicare patients, who are generally responsible for 20 percent of the Medicare-approved amount for outpatient drugs covered by the program. Most people on Medicare have supplementary insurance, like a Medigap policy or retiree health benefits, to help pay their share of the bill.

The lawsuit challenging the Medicare cuts was filed by the American Hospital Association; by two trade groups representing teaching and public hospitals; and by three providers: Henry Ford Health System, based in Detroit; Park Ridge Hospital, in Hendersonville, North Carolina; and Eastern Maine Healthcare Systems, now known as Northern Light Health.

Dr. Robert A. Chapman, a medical oncologist at Henry Ford Health System, described the administration’s action as an example of “reverse Robin Hood.” Under the policy, he said, the government took money from hospitals serving large numbers of low-income people and redistributed most of it to hospitals that did not qualify for the program.

When Medicare cuts its payments to hospitals, Chapman said, it tends to offset the discounts that hospitals receive from drug manufacturers.

Melinda R. Hatton, a senior vice president and the general counsel of the American Hospital Association, said the court was “holding the administration’s feet to the fire to comply with the law.” Hospitals use savings from the program to pay for myriad services in low-income communities, she said.

In a speech in May in the Rose Garden, Trump announced what he called “the most sweeping action in history to lower the price of prescription drugs for the American people.” He persuaded some pharmaceutical executives to roll back or postpone price increases over the summer.

And at a campaign rally in October in Wisconsin, Trump said: “You will see, very soon, drug prices will go plunging downward. You wait, you watch.”

But drugmakers have increased prices on hundreds of products this month, provoking an angry reaction from the president.

In a Twitter post over the weekend, Trump said: “Drug makers and companies are not living up to their commitments on pricing. Not being fair to the consumer, or to our Country!”

Many of those commitments were carefully hedged and temporary. Pfizer, for example, said in July that it was rolling back price increases to give Trump time to work on his “blueprint to lower drug prices.”

Pfizer said then that its prices would remain at the lower level until the president’s blueprint took effect or until the end of 2018, “whichever is sooner.”

Members of Congress from both parties, including Speaker Nancy Pelosi and Sen. Chuck Grassley, R-Iowa, said they were hoping to work with Trump to rein in drug prices. But so far, Trump appointees have generally expressed more interest in unilateral administrative actions than in legislative solutions.