On Wednesday, the Supreme Court unanimously ruled that the Department of Health and Human Resources (HHS) unlawfully reduced Medicare reimbursements to hospitals that serve low-income or rural populations depriving them of $1.6 billion annually in American Hospital Assn. v. Becerra.
According to the opinion authored by Justice Kavanaugh, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 sets out a framework that HHS must employ annually to set reimbursement rates for certain prescription drugs provided by hospitals to Medicare patients.
Under the framework, the HHS has two options. The first option applies if HHS has conducted a survey of hospital acquisition costs for each covered drug and allows the agency to set the reimbursement rate based on the hospitals’ “average acquisition cost” and then HHS may “vary” the reimbursement rates by hospital group. The second option applies if HHS does not conduct a survey and requires HHS to set reimbursement rates based on “the average price” charged by manufacturers as calculated and “adjusted” by HHS. Further, the opinion states that the second option does not allow HHS to vary reimbursement rates for different hospital groups.
The Court states that, from 2006 until 2018, HHS did not conduct surveys and relied on the second option without varying reimbursement rates for different hospital groups. However, the opinion states that in 2018, HHS issued a final rule establishing separate reimbursement rates for 340B hospitals that serve low-income or rural populations.
The American Hospital Association initiated the present lawsuit challenging the final rule and the reimbursement rates set by HHS for 340B hospitals. HHS responded by arguing that the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 precluded judicial review and that the authority to “adjust” under the second option allowed them to vary the reimbursement rates by hospital group. The district court rejected HHS’s arguments and the D.C. Circuit reversed holding that the statute did not preclude judicial review and upheld HHS’s reduced reimbursement rates for 340B hospitals.
The Supreme Court unanimously held that the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 does not preclude judicial review of HHS’s reimbursement rates under the statutes text and the traditional presumption in favor of judicial review of administrative action. Further, the Court ruled that absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates only for 340B hospitals.
The opinion stated that text and structure of the statute made this a straightforward case. The Court found HHS’s interpretation would render the first option largely irrelevant if it never needed to conduct a survey of acquisition costs and still vary reimbursements based on hospital group under the second option.
Therefore, the Court found that HHS 2018 final rule and separate reimbursements rates for 340B hospitals was unlawful and reversed the D.C. Circuit’s decision, remanding the case for further proceedings.