Humana sued by Alabama Health System to recover Medicare payments

Baptist Health has taken legal action against Humana, alleging that the payer’s Medicare Advantage plans have failed to adequately compensate for outpatient drugs obtained through the 340B Drug Pricing Program. This dispute arises from a 2022 Supreme Court decision that altered rates established by the federal government.

The Department of Health and Human Services (HHS) reduced outpatient drug payments to hospitals participating in the 340B program by nearly 30% in 2018. This program mandates drug manufacturers to offer drugs at discounted rates to safety-net providers. However, the Supreme Court deemed this reduction unlawful in 2022, prompting HHS to issue a one-time lump sum repayment of around $9 billion to affected hospitals nationwide.

Baptist Health, headquartered in Montgomery, Alabama, contends that Humana’s Medicare Advantage plans should adhere to the same standards. The health system claims that Humana’s failure to do so constitutes a breach of its obligation to pay the correct legal amount for services rendered. This assertion is outlined in the complaint filed by Baptist Health in the Circuit Court of Montgomery County, Alabama, which has been subsequently transferred to the U.S. District Court for the Middle District of Alabama.

According to the complaint, Baptist Health’s hospitals have been in-network with Humana’s Medicare Advantage plans since 2005. The contracts between the parties specify payment rates to Baptist Health as a portion of a Baptist Health hospital’s Medicare allowable amount at the time of service. Essentially, Humana’s payments for outpatient prescription drugs to Baptist Health should align with the lawful rates set by the Centers for Medicare and Medicaid Services (CMS) for traditional Medicare.

Two Baptist Health hospitals, Baptist Medical Center South and Baptist Medical Center East, participate in the 340B program under agreements with Humana. Baptist Health has communicated with Humana following the court’s decision, urging compliance with CMS’s retroactive adjustments and repayments. Despite these efforts, Humana has refused to compensate Baptist Health for the discrepancies between actual payments received and payments under the amended Medicare allowable rate.

Baptist Health emphasizes that Humana’s refusal to act has resulted in significant financial gain for the payer, as it retains funds provided by CMS for its Medicare Advantage plans without reimbursing Baptist Health as required under their agreement.

Baptist Health in Alabama, distinct from Baptist Health based in Louisville, Kentucky, operates three hospitals and various primary and specialty care services throughout the state. It serves a substantial number of low-income and vulnerable patients in central Alabama and is regarded as the largest medical provider in Montgomery.

The 340B program has attracted attention from industry groups, with pharmaceutical companies and critics expressing concerns about its significant growth and alleging misuse by health systems for increased revenue. Lawmakers have initiated investigations into the spending practices of certain hospital systems that have saved funds through the program.

Last year, the Health Resources and Services Administration, overseeing the 340B program, began adjusting pandemic-era flexibilities that eased the criteria for providers to dispense discounted drugs at new outpatient sites. However, a federal district court ruling against the administration may have compromised its oversight authority, potentially enabling hospitals to claim more discounts.