While Trump appears to be a Medicare advocate in hopes of winning over the senior vote for re-election, the Trump Administration has actually been fighting in court with public and nonprofit hospitals since 2017. The administration has been planning to slash the reimbursement rates for drugs prescribed to Medicare patients at low-income hospitals.
The litigation predates the coronavirus pandemic, but the stakes are higher as hospitals nationwide lose tens of billions of dollars weekly while nonessential services and elective surgeries are on hold because of the pandemic crisis.
Pandemic amplifies need for hospitals, not budget cuts
Now is certainly not the time for budget cuts in hospitals, as the country is undergoing a pandemic with numbers that are plateauing. “The pandemic amplifies the significance of this policy, but the fact remains that there were winners and losers with the policy and it’s always going to be a zero-sum game,” said Kelly Cleary, who spent three years as the chief legal officer for the the Centers for Medicare & Medicaid Services (CMS). “If the court rules against the agency and the agency is forced to walk back the policy, that stands to negatively impact thousands of hospitals.”
“If [hospitals] lost that money now, it would make an already dire financial situation worse,” said Lindsay Wiley, director of the Health Law and Policy Program at American University Washington College of Law.
While waiting for the DC Circuit to make a ruling, CMS launched a survey to collect data from 340B hospitals that the CMS planned to use in court. Hospitals workers opposed the survey and asked for a delay, because resources were stretched enough let alone time to fill out extra paperwork.
“Now is not the time to distract hospitals’ attention from the vital job at hand to complete a CMS survey on drug acquisition costs. By launching a survey with no notice on April 24 and providing less than three weeks to respond, CMS is creating an unnecessary burden on hospitals at the worst possible moment,” added Maureen Testoni, president and CEO of 340B Health, a membership group for hospitals and health systems that participate.
Trump and healthcare budgets timeline
Hospitals have been battling with the Trump administration in court for three years over a plan to slash the reimbursement rate that hospitals get for certain drugs prescribed to Medicare patients by nearly 30 percent.
Though the hospitals and healthcare facilities won the first round, the U.S. Court of Appeals for the DC Circuit has yet to rule, and for now the cut is still in effect. In the meantime, CMS is exploring another way to make the cut if they lose the case, over the objection of hospitals and facilities.
1992- Congress created the 340B program in 1992, which enables covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. The collection of hospitals typically serves lower-income patients who can buy outpatient drugs at a discounted price.
Healthcare providers eligible for the program can buy outpatient drugs at discounted rates from pharmaceutical companies. Hospitals prescribe those drugs to patients covered by Medicare, the federal insurance program for people who are over the age of 65 or have disabilities, and must submit claims to the government for reimbursement.
2006- Starting in 2006, Congress gave the CMS two options to set the drug reimbursement rate:
- Rely on what hospitals were actually paying to buy drugs if it had “statistically sound survey data.”
- If that wasn’t available, the average sales price of the drugs. (If the agency used the second, alternative option, Congress set a default rate: the average sales price plus 6 percent.)
2015- In support of the rate cut, the CMS pointed to a 2015 report by the Government Accountability Office that showed hospitals participating in the program had an incentive to prescribe more drugs than hospitals that weren’t in the program, and that meant higher copayments for Medicare patients who were prescribed more drugs or higher-priced drugs. The agency concluded hospitals were receiving too much of a net financial benefit.
2016- Donald Trump is elected as President to the United States.
Trump’s presidential campaign promised no medicare cuts
“The GOP platform advocates a “premium support model” for Medicare that would “guarantee to every enrollee an income-adjusted contribution toward a plan of their choice, with catastrophic protection.” In other words, privatization. Republicans would “save Medicare by modernizing it,” the platform says.
But Washington Post columnist Marc Thiessen on June 20 quoted Trump as saying, during the primaries, “Every Republican wants to do a big number on Social Security, they want to do it on Medicare, they want to do it on Medicaid. And we can’t do that. And it’s not fair to the people that have been paying in for years.”
Trump also promised that he could negotiate decrease in drug prices
He stunned Republicans by joining Hillary Clinton and Bernie Sanders in a Medicare proposal to negotiate prescription drug prices. Trump said it hasn’t been done thus far, because politicians are beholden to pharmaceutical industry donations. But with his negotiation skills, he could accomplish it, he said, claiming this change would save billions of dollars.
(The current law doesn’t allow Medicare to negotiate with drug companies.)
Like Clinton, Trump has also called for a change in U.S. law to allow importation of drugs from foreign countries, including Canada, to save Americans money.
2017- The CMS announced in 2017 that it was slashing the reimbursement rate from six percent above the average price of the drugs to 22.5 percent below the average cost. The agency said the program gave hospitals an incentive to over-prescribe drugs and cost patients more money, and should not provide subsidization of other services.
In the summer of 2017, the Trump administration followed by announcing a plan to change the rate. Under the new rule, the Medicare agency said it would pay the average sales price of drugs minus 22.5 percent. That rate would come closer to matching the discounted rate hospitals were paying through the 340B program, the agency said.
Let it be known that, until 2017, these hospitals were reimbursed by the federal government for drugs prescribed to Medicare patients at a higher rate than the discounted price the hospitals paid.
2018- In 2018, Park Ridge Health, a nonprofit healthcare network in western North Carolina that serves a large population of lower-income patients, was delayed plans to buy a new CT scanner for stroke patients.
The Trump administration had drastically scaled back a federal drug reimbursement program that benefitted public and not-for-profit hospitals. Park Ridge, now called AdventHealth Hendersonville, stood to lose $3.3 million per year, the hospital’s chief financial officer wrote in a court affidavit, and it wasn’t just the CT scanner on the line. That money went toward a variety of services for elderly and poor patients, including new cancer treatment facilities, women’s healthcare, and partnerships with nonprofits on issues like prescription drug abuse.
phRMA responds
“PhRMA is concerned that the 340B program continues to grow rapidly and without patient benefits, thus increasingly departing from its purpose and statutory boundaries,” the group wrote. “This growth in the 340B program creates market-distorting incentives that affect consumer prices for medicines, shift care to more expensive hospital settings, and accelerate provider market consolidation.”
Hospitals that supported the program, meanwhile, said the proposal punished providers who work with vulnerable patients, and they urged the CMS to focus its efforts instead on bringing down drug costs.
The agency disputed that the plan was punitive and said that “lowering the price of pharmaceuticals is a top priority,” but was outside the scope of what it was considering at the time.
Millions in losses for hospitals
The CMS estimated that cutting the reimbursement rate for the drugs would reduce the amount of money paid to hospitals by $1.6 billion in 2018 alone. Scaling back that funding would actually increase the rates paid by the government for other services for Medicare patients since the payment system has to be “budget neutral,” but Park Ridge and other hospitals that took the administration to court experienced net losses of millions of dollars.
The American Hospital Association, a lead plaintiff, stated, “The COVID-19 pandemic has created the greatest financial crisis in history for America’s hospitals and health systems, with our field losing over $50 billion each month. While it is too soon to have precise data on the full impact of this pandemic, the unlawful Medicare cuts that we are contesting in federal court have added significantly to the financial pressure all hospitals face.”
