Dive Brief:

• An Alabama health system is suing Humana for allegedly underpaying for outpatient drugs provided under the 340B drug discount program to Medicare Advantage patients.
• Baptist Health said reimbursements for the medications were determined by a payment model that was later invalidated, and the insurer continues to benefit from a “windfall” of underpayments due to the health system, according to the lawsuit. 
• The suit comes months after the CMS finalized a rule that aimed to fix years of illegal payment cuts in the 340B program. Hospitals had previously argued the solution didn’t consider how MA insurers would benefit financially from the remedy. 

Dive Insight: 

The 340B program requires pharmaceutical companies to give discounts — which can range from 25% to 50% of the medication’s cost — to providers who serve low-income communities. 

The program aims to help safety-net providers better serve vulnerable groups, and it has grown significantly since 340B was created in 1992. 

But in 2018, the CMS cut Medicare payments for certain drugs acquired under the 340B program, setting off a legal challenge that hospitals eventually won in front of the Supreme Court four years later. 

To fix the underpayments, regulators decided to pay each hospital in 340B a lump sum that would total $9 billion overall. But the fix needed to be budget neutral, so the CMS would cut payments to all hospitals for non-drug items and services over 16 years. 

In comments on the proposal, the American Hospital Association argued there was a “significant problem” with the plan, noting many MA insurers pay hospitals according to traditional Medicare rates.

Payers would benefit from reducing the non-drug payments to hospitals, and wouldn’t be required to repay 340B providers for the lower payments between 2018 and 2022, commenters argued on the rule, which was finalized in November. 

In response, regulators said they appreciated the concerns, but that they were outside the scope of the rule and “CMS cannot interfere in the payment rates that MAOs [Medicare Advantage organizations] set in contracts with providers and facilities.”

In the Baptist lawsuit, the health system reported it contacted Humana multiple times about retroactive adjustments and remedy payments, but the insurer’s counsel disputed any obligation to make those payments.

“Humana’s refusal to act has worked a substantial windfall to Humana as it continues to hold funds provided by CMS for Humana’s Medicare Advantage plans without reimbursing Baptist Health for the amounts owed to it under the Agreement,” the system said in the lawsuit.

Humana said it does not comment on ongoing litigation.