News & Insights


May 13, 2019

Health Headlines – May 13, 2019

Federal Court Declines to Vacate Secretary’s Ultra Vires 340B Rate Cut and Remands to CMS to Fashion Proper Remedy – In a long-awaited ruling, on May 6, 2019, Judge Rudolph Contreras of the U.S. District Court for the District of Columbia declined to vacate the Secretary’s CYs 2018 and 2019 Outpatient Prospective Payment System (OPPS) Final Rules, which cut by nearly 30 percent the OPPS payment rates for drugs purchased under the 340B Drug Pricing Program.  In an earlier ruling in late 2018, Judge Contreras held that the Secretary’s rate cut was ultra vires because it violated a statutory command to set OPPS drug payment rates using either hospital acquisition cost data or the drug’s average sales price (ASP).  Given that ruling’s potentially drastic effect on the Medicare program, Judge Contreras had ordered supplemental briefing before awarding plaintiffs with any specific relief.  Am. Hosp. Ass’n v. Azar, 348 F. Supp. 3d 62, 86–87 (D.D.C. 2018), available here.  In his latest ruling, Judge Contreras declined to vacate the rule, which effectively would have required the Secretary to reimburse hospitals for claims that had been underpaid due to the rate cut.  Instead, Judge Contreras decided to give the Secretary the “first crack at crafting an appropriate remedy.”  The Court’s full opinion in Am. Hosp. Ass’n v. Azar, No. 18-2084(RC) (D.D.C. May 6, 2019) can be found here.  Further background on the case can be found here.

By way of background, the 340B Drug Discount Program allows covered entities—including certain qualifying hospitals—to purchase drugs for outpatients at discounted rates.  Some drugs that are provided as hospital outpatient department services are separately payable under the OPPS.  Before 2018, CMS typically set the OPPS reimbursement rate for such drugs at ASP plus 6 percent, which historically is higher than the discounted rates 340B hospitals paid for these drugs.  When the Secretary issued his final 2018 OPPS Final Rule, however, he markedly reduced the rates for 340B drugs from ASP plus 6 percent to ASP minus 22.5 percent to reflect the average acquisition costs for 340B drugs as identified by the HHS Office of Inspector General.  The Secretary’s rule reduced OPPS payment rates for these drugs by nearly 30 percent. 

Shortly after the promulgation of the 2018 OPPS Final Rule, the plaintiffs, comprised of several associations (including the American Hospital Association) and a handful of hospitals, challenged the Secretary’s 340B drug reimbursement rate reduction.  Initially, the plaintiffs’ lawsuit was dismissed because they had failed to present their legal challenge to the Secretary in the context of a concrete claim for payment.  See Am. Hosp. Ass’n v. Hargan, 289 F. Supp. 3d 45, 55 (D.D.C. 2017), aff’d, Am. Hosp. Ass’n v. Azar, 895 F.3d 822, 828 (D.C. Cir. 2018).  After remedying this defect, plaintiffs refiled their lawsuit once again challenging the CY 2018 OPPS rate cut.  On December 27, 2018, Judge Contreras granted the plaintiffs’ motion for summary judgement, ruling that the Secretary’s decision to set OPPS payment rates for separately payable drugs at ASP minus 22.5 percent was ultra vires and exceeded his authority under the OPPS statute.   Specifically, Judge Contreras ruled that Congress gave the Secretary a binary option when setting OPPS drug reimbursement rates: set rates based upon hospital acquisition costs collected pursuant to a survey conducted by the Secretary or set rates based on the drug’s ASP.  Am. Hosp. Ass’n v. Azar, 348 F. Supp. 3d 62, 82–83 (D.D.C. 2018).  Judge Contreras, at that time, required the parties to submit additional briefing on the appropriate remedy to correct the Secretary’s violation of law. 

In their additional briefing, plaintiffs sought injunctive relief and for the court to order the Secretary to pay as if the 340B rate reduction never took effect, i.e., to retroactively pay plaintiffs’ claims under the ASP plus 6 percent methodology.  The Secretary, conversely, requested the court to remand without vacatur both the 2018 OPPS Final Rule and the 2019 OPPS Final Rule (which plaintiffs had challenged in the interim).  Although the typical remedy in an APA case is vacatur of the agency’s unlawful rulemaking, in his May 9, 2019 final decision, Judge Contreras expressed concern with the potentially “highly disruptive” nature of vacatur.  Citing Allied-Signal, Inc. v. U.S. Nuclear Regulatory Commission, 988 F.2d 146, 150–51 (D.C. Cir. 1993), the court weighed the seriousness of the Secretary’s deficiencies against the “disruptive consequences of an interim change that may itself be changed.”  Despite noting that the Secretary’s deficiencies were “substantial,” the court held that the “factors weigh[ed], ever so slightly, against vacatur.”

Vacatur, the court noted, would have required the Secretary to retroactively reimburse plaintiffs for 340B drugs at ASP plus 6 percent.  Because Medicare outpatient rates are budget neutral, the “savings” the Secretary realized from the nearly 30 percent rate cut were used to incrementally raise payment rates for all other Medicare Part B products and services.  Budget neutrality arguably could require the Secretary to recoup payments made across providers, causing extensive administrative burdens and disruption.  Further, the court noted the likely possibility the Secretary may not be able to retroactively adjust 340B payments, at least not in a budget neutral manner.

In order to avoid the havoc that retroactive relief might bring, Judge Contreras concluded that vacating the 2018 and 2019 OPPS Final Rules “would do more harm than good, despite the fatal flaws in the Secretary’s 340B rate adjustments.”  Consequently, the court remanded the 2018 and 2019 OPPS Final Rules to the Secretary without vacatur.  The court’s ruling effectively gives the Secretary the power to fashion his own reasonable remedy to address his violation of the OPPS statute.  The parties must submit a status report regarding their progress in fashioning a remedy before August 5, 2019.

King & Spalding will continue to monitor American Hospital Association v. Azar to provide timely updates on the definitive resolution of this case.

Reporter, Matthew W. Horton, Washington, D.C., +1 202 626 9256,

DOJ Releases New Guidelines on Proactive Cooperation During FCA Investigations – On May 7, 2019, the United States Department of Justice (DOJ) delivered new guidance on how potential False Claims Act (FCA) defendants can receive leniency in exchange for proactively disclosing misconduct and taking other cooperative actions (the New Guidelines).  The New Guidelines are set forth at new Section 4-4.112 of the Justice Manual and stress the importance of taking FCA-related accusations seriously and being proactive in evaluating potential FCA violations. 

Section 4-4.112 of the Justice Manual states that the New Guidelines “identify factors that will be considered and the credit that will be provided by [DOJ] attorneys when entities voluntarily self-disclose misconduct that could serve as the basis for False Claims Act (FCA) liability and/or administrative remedies, take other steps to cooperate with FCA investigations and settlements, or take adequate and effective remedial measures.” press release, the most important of these factors is the voluntary disclosure of false billing practices, which Assistant Attorney General Jody Hunt stated is the “most valuable form of cooperation.”

The New Guidelines state that entities that make proactive, timely, and voluntary self-disclosure to the DOJ about misconduct will receive credit during the resolution of an FCA case.  Entities may also receive credit if they take certain steps, other than self-disclosure, to cooperate with an ongoing investigation. The DOJ provides the following actions as examples of cooperation:

  • Identifying individuals substantially involved in or responsible for the misconduct;
  • Disclosing relevant facts and identifying opportunities for the government to obtain evidence relevant to the government’s investigation that is not in the possession of the entity or individual or not otherwise known to the government;
  • Preserving, collecting, and disclosing relevant documents and information relating to their provenance beyond existing business practices or legal requirements;
  • Identifying individuals who are aware of relevant information or conduct, including an entity’s operations, policies, and procedures;
  • Making available for meetings, interviews, examinations, or depositions an entity’s officers and employees who possess relevant information;
  • Disclosing facts relevant to the government’s investigation gathered during the entity’s independent investigation (not to include information subject to attorney-client privilege or work product protection), including attribution of facts to specific sources rather than a general narrative of facts, and providing timely updates on the organization’s internal investigation into the government’s concerns, including rolling disclosures of relevant information;
  • Providing facts relevant to potential misconduct by third-party entities and third-party individuals;
  • Providing information in native format, and facilitating review and evaluation of that information if it requires special or proprietary technologies so that the information can be evaluated;
  • Admitting liability or accepting responsibility for the wrongdoing or relevant conduct; and
  • Assisting in the determination or recovery of the losses caused by the organization’s misconduct.

In considering the value of any voluntary disclosure or additional cooperation, the DOJ will consider the following factors: (1) the timeliness and voluntariness of the assistance; (2) the truthfulness, completeness, and reliability of any information or testimony provided; (3) the nature and extent of the assistance; and (4) the significance and usefulness of the cooperation to the government.

DOJ attorneys will also consider whether an entity has taken appropriate remedial actions in response to an FCA violation. Such remedial actions may include:

  • Demonstrating a thorough analysis of the cause of the underlying conduct and, where appropriate, remediation to address the root cause;
  • Implementing or improving an effective compliance program designed to ensure the misconduct or similar problem does not occur again;
  • Appropriately disciplining or replacing those identified by the entity as responsible for the misconduct either through direct participation or failure in oversight, as well as those with supervisory authority over the area where the misconduct occurred; and
  • Any additional steps demonstrating recognition of the seriousness of the entity’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.

The types of credit an entity may receive for disclosing, cooperating, and remediating include (but are not limited to):

  • A reduction in penalties or damages;
  • Notification of relevant agencies about the entity’s cooperation so that the agency may consider this factor in evaluating administrative actions such as suspension, debarment, or a civil monetary decision;
  • Public acknowledgment of the entity’s cooperation; and/or
  • Assistance with resolving qui tam litigation.

Healthcare entities are advised to take internal allegations of potential FCA violations seriously and to thoroughly investigate the facts surrounding such allegations.  If misconduct has taken place, entities that act swiftly to assist the government in its investigation of the misconduct may receive significant benefits from the government, such as the types of credit listed above.  While entities are not necessarily required to take the actions outlined in the New Guidelines, doing so in response to alleged FCA violations may make favorable outcomes, such as a reduction in penalties and positive media coverage, more likely.

Reporter, Elizabeth Han, Houston, +1 713 276 7319,  

President Trump Urges Congress to End “Surprise Medical Billing,” Bipartisan Legislation Expected but Ramifications for Stakeholders Unclear – During a May 9, 2019 press event, President Trump urged Congress to pass legislation that would protect patients from surprise medical bills.  “Surprise medical billing” occurs when a patient seeks care at an in-network facility but receives treatment or services from a provider that is out of network.  As a result, the patient is billed for the costs associated with the out-of-network services.  A bipartisan group of Senators expects to unveil their legislative approach soon, with the goal of sending a bill to the President in July 2019 to create patient protections against surprise medical billing.  It remains to be seen, however, which stakeholders—hospitals, providers, or insurers—will shoulder the greatest financial burden as costs are shifted away from patients. 

Surprise medical billing is often the result of insurers using narrow networks of providers.  While narrow networks are generally associated with lower health insurance premiums, the services of specialty providers or consultants may not be covered under the network.  For example, a patient who is treated for an arm fracture at an in-network hospital may have the X-ray image interpreted by an out-of-network radiologist.  In that scenario, the patient is responsible for the out-of-network costs associated with the imaging interpretation.

During the press event, President Trump outlined the following five principles to guide Congress in developing bipartisan legislation to end surprise medical billing.

  • Balance billing should be prohibited for emergency care.
  • For non-emergency care, patients should be given prices for all services and out-of-pocket payments for which they will be responsible prior to their treatment.
  • Patients should not be responsible for surprise bills from out-of-network providers that they did not choose themselves.
  • The legislation should not increase federal healthcare expenditures.
  • The legislation should include all types of insurance.

Senators plan to introduce a bill “soon” and send legislation to the President in July to limit surprise medical bills.  Senators leading the effort include Bill Cassidy (R-LA), Maggie Hassan (D-NH), and Lamar Alexander (R-TN).  Previous drafts of similar legislation varied in terms of prescribed solutions; some favored arbitration while others proposed regulating out-of-network charges.  House Energy and Commerce Chairman Frank Pallone (D-NJ) and ranking Republican Greg Walden (R-OR) issued a joint statement noting their commitment to addressing surprise billing and announcing “we have been working together on a bipartisan solution to protect patients that we hope to announce soon.”  With insurers, providers, and hospitals each having distinct interests as stakeholders in surprise medical billing reform, it is unknown which stakeholders Congress will select to absorb the costs that are shifted away from patients.  

President Trump’s remarks are available here

Reporter Michael L. LaBattaglia, Washington, D.C., +1 202 626 5579,


King & Spalding Roundtable: Just Around the Corner – FDA’s Proposed Rule Would Make Major Changes in Requirements for U.S. Mammography Facilities – King & Spalding will host a webinar on Thursday, May 16, 2019, from 1:00 to 2:15 p.m. ET about FDA’s recently proposed rule that would amend the regulations at 21 C.F.R. Part 900 issued under the (MQSA) for the first time since 2002. If finalized, the amended rule would impose extensive new compliance requirements on all facilities across the United States that perform screening and diagnostic mammography studies, except facilities under the jurisdiction of the Department of Veterans Affairs. The proposed rule would also enhance FDA’s oversight of mammography facilities and broaden the scope of its enforcement actions. The webinar would provide an overview of key changes in proposed rule, address the impact on medical outcome audits, clarify the implications for CMS reimbursement, and explore the compliance and risk management implications for healthcare facilities. Registration for the event is available here.

Atlanta Life Sciences & Healthcare Group: Spring Networking Event – The on Thursday, May 16, 2019 from 5:30 to 7:30 p.m. ET.  The Atlanta Life Sciences & Healthcare Group is an educational, networking and social resource for professionals working in or serving the life sciences and healthcare industry. In addition to drinks and hors d’oeuvres, this event will feature a brief presentation from Tom Brems, Vice President of Corporate Finance at Children’s Healthcare of Atlanta, regarding recent developments in his organization and the Atlanta healthcare industry. Registration for the event is available here.