U.S. Supreme Court Rejects Medicare’s $1.6 Billion Reimbursement Reduction for Hospitals

The U.S. Supreme Court today has overturned the D.C. Circuit ruling that upheld the U.S.Department of Health and Human Services (HHS’) $1.6 billion annual reduction within the 340B program. In an opinion drafted by Justice Kavanaugh, the Court believed that HHS failed to gather a survey of hospital acquisition costs before deciding on the payment reductions at issue. 

Absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates only for 340B hospitals; HHS’s 2018 and 2019 reimbursement rates for 340B hospitals were therefore unlawful. The text and structure of the statute make this a straightforward case. Because HHS did not conduct a survey of hospitals’ acquisition costs, HHS acted unlawfully by reducing the reimbursement rates for 340B hospitals. HHS maintains that even when it does not conduct a sur- vey, the agency still may “adjus[t]” the average price “as necessary.” §1395l(t)(14)(A)(iii)(II). But HHS’ power to increase or decrease the price is distinct from its power to set different rates for different groups of hospitals. Moreover, HHS’s interpretation would make little sense given the statute’s overall structure. Under HHS’s interpretation, the agency would never need to conduct a survey of acquisition costs if it could proceed under option 2 and then do everything under option 2 that it could do under option 1. That not only would render irrelevant the survey prerequisite for varying reimbursement rates by hospital group, but also would render largely irrelevant the provision of the statute that precisely details the requirements for surveys of hospitals’ acquisition costs. See §1395l(t)(14)(D). Finally, HHS’s argument that Congress could not have intended for the agency to “overpay” 340B hospitals for prescription drugs ignores the fact that Congress, when enacting the statute, was well aware that 340B hospitals paid less for covered prescription drugs. It may be that the reimbursement pay- ments were intended to offset the considerable costs of providing healthcare to the uninsured and underinsured in low-income and rural communities. Regardless, this Court is not the forum to resolve that policy debate.

The Court did not entertain the possibility of overturning Chevron v. Natural Resources Defense Council, which requires judicial deference to reasonable agency readings of ambiguous statutes, as the Court did not address this legal theory. 

The Court decision can be found here.

This is a big development for 340B stakeholders. 

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