HHS Restricts Medicare Reimbursements for 340B Hospitals Without Required Cost Survey: Comprehensive Analysis of American Hospital Assn. v. Becerra

Introduction

American Hospital Association et al. v. Becerra, decided by the U.S. Supreme Court on June 15, 2022, addresses a pivotal issue in healthcare administration and federal regulatory authority. The case revolves around whether the Department of Health and Human Services (HHS) lawfully reduced Medicare reimbursement rates for Section 340B hospitals without conducting the mandated survey of hospitals' acquisition costs for outpatient prescription drugs.

The core conflict pits the American Hospital Association and other hospital groups against HHS, challenging the agency's authority to differentiate reimbursement rates for specific hospital groups—particularly those serving low-income or rural populations—without adhering to the statutory requirements.

Summary of the Judgment

The Supreme Court affirmed that HHS's actions in setting distinct Medicare reimbursement rates for 340B hospitals in 2018 and 2019 were unlawful. The Court held that without conducting the required survey of hospitals' acquisition costs, HHS lacked the statutory authority to vary reimbursement rates based on hospital groups. Additionally, the Court clarified that the Medicare statute does not preclude judicial review of HHS's reimbursement rate determinations.

Consequently, the judgment reversed the decision of the U.S. Court of Appeals for the District of Columbia Circuit and remanded the case for further proceedings in line with the Supreme Court's findings.

Analysis

Precedents Cited

The Supreme Court's decision in this case is grounded in established precedents that emphasize the presumption in favor of judicial review of administrative actions unless explicitly precluded by statute. Key cases include:

Mach Mining, LLC v. EEOC, 575 U.S. 480 (2015): Established that judicial review of final agency actions is available unless a statute clearly indicates otherwise.
Weyerhaeuser Co. v. United States Fish and Wildlife Service, 586 U.S. ___ (2018): Reinforced the strong presumption in favor of judicial review.
Babb v. Wilkie, 589 U.S. ___ (2020): Highlighted the necessity of adhering to statutory prerequisites before agencies can exercise discretionary powers.

These precedents collectively underscore the Court's commitment to ensuring that agencies operate within the bounds of their statutory authority and that administrative actions remain subject to judicial scrutiny when mandated by the statute.

Legal Reasoning

The Court meticulously dissected the Medicare statute to determine the scope of HHS's authority. The statute provides HHS with two options for setting reimbursement rates for outpatient prescription drugs:

Option 1: Applicable if HHS conducts a survey of hospitals' acquisition costs, allowing the agency to set rates based on average acquisition costs and vary rates by hospital group.
Option 2: Applicable if no such survey is conducted, requiring HHS to set rates based on the average sales price of drugs without varying rates by hospital group.

HHS opted for Option 2 in 2018 and 2019 but proceeded to differentiate reimbursement rates for 340B hospitals—actions reserved for Option 1. The Court found no statutory basis to permit such variation without the requisite survey, emphasizing that Option 2 does not encompass the authority to adjust rates based on hospital groups.

Furthermore, HHS's argument that it could "adjust" prices under Option 2 to justify rate variations was rejected. The Court clarified that price adjustments pertain only to modifying the average price for drugs, not in establishing different rates for distinct hospital groups.

The structural and textual analysis of the statute made it evident that Congress intended strict compliance with the survey prerequisite before granting HHS the discretion to vary rates by hospital groups, thereby ensuring fairness and preventing arbitrary rate adjustments.

Impact

This landmark decision reaffirms the necessity for federal agencies to adhere strictly to statutory directives, particularly when allocating financial resources across different groups. For the healthcare sector, the ruling has several profound implications:

Administrative Compliance: HHS and similar agencies must ensure that they fully comply with statutory requirements before implementing policy changes that differentiate among service providers.
Judicial Oversight: The decision strengthens the role of the judiciary in overseeing administrative actions, ensuring that agencies do not exceed their legal authority.
340B Program Funding: Hospitals benefiting from the 340B program can expect more stable reimbursement rates, preserving funding crucial for serving underserved populations.
Future Legislative Clarity: Congress may need to provide clearer guidelines if it intends for agencies like HHS to have broader discretionary powers in healthcare reimbursement settings.

Ultimately, the ruling enhances accountability within federal agencies and ensures that healthcare funding mechanisms operate transparently and within legal frameworks.

Complex Concepts Simplified

The judgment employs several legal and administrative terms that can be complex. Here's a breakdown of key concepts:

Section 340B Hospitals: Hospitals that participate in the 340B Drug Pricing Program, which allows eligible hospitals to purchase outpatient drugs at discounted prices.
Medicare Reimbursement Rates: The rates at which Medicare reimburses hospitals for outpatient prescription drugs provided to Medicare beneficiaries.
Acquisition Cost Survey: A systematic collection of data regarding the costs hospitals incur to acquire prescription drugs, essential for determining accurate reimbursement rates.
Judicial Review: The process by which courts evaluate the legality and appropriateness of administrative actions taken by government agencies.
Option 1 and Option 2: The two pathways outlined in the Medicare statute for setting reimbursement rates, contingent on whether a survey of acquisition costs has been conducted.

Conclusion

The Supreme Court's decision in American Hospital Assn. v. Becerra establishes a crucial precedent in healthcare administration and federal regulatory practice. By upholding the necessity for HHS to conduct an acquisition cost survey before varying Medicare reimbursement rates for specific hospital groups, the Court underscores the importance of adhering to statutory mandates and ensuring equitable treatment of healthcare providers.

This judgment not only protects 340B hospitals from unwarranted financial adjustments but also reinforces the broader principle that federal agencies must operate within the confines of their legal authority. As a result, the ruling fosters greater transparency and accountability in the administration of federal healthcare programs, ultimately benefiting both healthcare providers and the populations they serve.