Trump administration can cut drug subsidies to hospitals - U.S. court

(Reuters) - A divided U.S. appeals court on Friday ruled the Trump administration had the authority to reduce subsidies Medicare pays certain hospitals to obtain discounted pharmaceutical medications.

The U.S. Court of Appeals for the District of Columbia Circuit by a 2-1 vote overturned a judge’s decision that the administration lacked authority to cut such payments by $1.6 billion in 2018.

The cuts reduced subsidies for purchases by nonprofit hospitals of outpatient drugs bought through the 340B Drug Pricing Program, which allows them to buy medications at steep discounts and seek reimbursement.

A 2017 rule by the U.S. Department of Health and Human Services sought to address a gap between the discounted drug prices and the reimbursement rate that gave hospitals a substantial profit margin.

The American Hospital Association and hospitals sued, arguing HHS’ 28.5% rate cut rested on an impermissible interpretation of the statute governing Medicare, the government healthcare program for people aged 65 and older.

U.S. Circuit Judge Sri Srinivasan, writing for the majority, said “HHS’s decision to lower drug reimbursement rates for 340B hospitals rests on a reasonable interpretation of the Medicare statute.”

U.S. Circuit Judge Cornelia Pillard dissented, saying the statute did not allow HHS to “take a major bite” out of funding for “financially strapped, public and nonprofit safety-net hospitals serving vulnerable populations.”

HHS Secretary Alex Azar called the ruling a “major victory for President Trump’s agenda of lower drug prices and better healthcare for all Americans.”

The American Hospital Association called on the administration to reverse the “harmful policy.”

Republican President Donald Trump’s administration has argued the payment system in place before the rate cuts led to unnecessarily high Medicare spending on prescription drugs.

It again cut the reimbursement rate for 2019, though U.S. District Judge Rudolph Contreras last year held that the change, like the 2018 ones, was unlawful.

Reporting by Nate Raymond in Boston; Editing by Richard Chang and Jonathan Oatis