Uniform Medicare Reimbursement Rates for 340B Hospitals Must Follow Acquisition Cost Surveys: A Landmark Supreme Court Decision

Introduction

In the pivotal case of American Hospital Association, et al., Petitioners v. Xavier Becerra, Secretary of Health and Human Services, et al. (142 S. Ct. 1896, 2022), the United States Supreme Court addressed the legal boundaries of the Department of Health and Human Services' (HHS) authority to set Medicare reimbursement rates for outpatient prescription drugs. This case specifically scrutinized whether HHS could unilaterally reduce reimbursement rates for a particular group of hospitals—the 340B hospitals—without conducting the statutory requirement of surveying hospitals' acquisition costs for these drugs.

The dispute Centers around HHS's 2018 and 2019 adjustments to reimbursement rates for 340B hospitals, which serve predominantly low-income and rural communities. The decision holds significant implications for federal healthcare policy, hospital funding, and the interpretation of Medicare statutes.

Summary of the Judgment

The Supreme Court, delivered by Justice Kavanaugh, ruled in favor of the Petitioners—the American Hospital Association and other hospital groups—holding that HHS acted beyond its statutory authority by reducing reimbursement rates for 340B hospitals without conducting the required acquisition cost surveys. The Court emphasized that, absent such surveys, HHS must adhere to uniform reimbursement rates based on the average sales price of drugs, as mandated by the Medicare statute.

Consequently, the Court reversed the decision of the U.S. Court of Appeals for the D.C. Circuit, which had upheld HHS's reduced rates, and remanded the case for further proceedings consistent with the opinion, thereby reinforcing the necessity of adhering to statutory prerequisites before implementing differentiated reimbursement strategies.

Analysis

Precedents Cited

The judgment references several key precedents that illuminate the Court's reasoning:

• Weyerhaeuser Co. v. United States Fish and Wildlife Service: Emphasized the presumption in favor of judicial review of agency actions unless explicitly precluded by statute.
• Mach Mining, LLC v. EEOC: Reinforced the standard that judicial review is generally available for final agency actions unless clearly restricted.
• Babb v. Wilkie, Sandoz Inc. v. Amgen Inc., and RUSSELLO v. UNITED STATES: These cases underscored the importance of adhering to statutory directives in agency rule-making, reinforcing that agencies cannot expand or contract their authority beyond what Congress has explicitly provided.
• Chicago v. Fulton, Maine Community Health Options v. United States, and WHITMAN v. AMERICAN TRUCKING ASSNS., INC.: These cases supported the principle that significant aspects of statutory text should not be undermined by overly broad interpretations.

These precedents collectively informed the Court’s affirmation of strict adherence to statutory requirements and the limited scope of agency discretion.

Legal Reasoning

The Court's legal reasoning hinged on a meticulous interpretation of the relevant Medicare statute, particularly 42 U.S.C. § 1395l (t)(14). The statute delineates two clear options for setting reimbursement rates:

• Option 1: If HHS conducts a survey of hospitals' acquisition costs, it may base reimbursement rates on these costs and vary rates by hospital group.
• Option 2: If no survey is conducted, HHS must base rates on the average sales price from manufacturers and cannot vary rates among hospital groups.

HHS had not conducted the required acquisition cost surveys for the years in question but proceeded to implement different reimbursement rates for 340B hospitals, effectively granting them a reduced reimbursement rate based on an assumption of lower acquisition costs. The Court found this action unconstitutional as it contravened the explicit statutory requirement that varying reimbursement rates must be predicated on surveyed acquisition costs.

Additionally, HHS's argument that the statutory provision allowing for "adjustment" of average prices implicitly granted authority to vary rates by hospital group was rejected. The Court held that such an interpretation would effectively nullify the necessity of conducting surveys, which was a fundamental requirement established by Congress to ensure equitable and data-driven reimbursement practices.

Impact

This judgment has profound implications for federal healthcare administration and hospital funding. Key impacts include:

• Agency Accountability: Reinforces the principle that federal agencies must operate within the bounds of their statutory authority, emphasizing the importance of adherence to legislative mandates.
• Healthcare Funding: Ensures that 340B hospitals, which serve vulnerable populations, cannot be financially disadvantaged through unilateral reimbursement rate changes without proper statutory compliance, thus safeguarding their ability to provide essential services.
• Statutory Interpretation: Clarifies the necessity for agencies to follow explicit procedural requirements (like cost surveys) before implementing differentiated policies, thereby promoting transparency and fairness in federal programs.
• Future Litigation: Sets a precedent for similar cases where agencies may attempt to deviate from statutory requirements, serving as a judicial check on administrative overreach.

In the broader legal context, this decision underscores the judiciary's role in ensuring that executive agencies do not exceed their legislated powers, thereby maintaining the balance of powers foundational to the U.S. governance system.

Complex Concepts Simplified

340B Hospitals

The 340B program requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices. 340B hospitals are typically safety-net providers serving low-income and rural communities, allowing them to expand services and reduce costs for patients.

Acquisition Cost Surveys

These are surveys conducted to determine the actual costs incurred by hospitals to acquire prescription drugs. The data collected is used to accurately set reimbursement rates, ensuring hospitals are fairly compensated based on their true costs.

Reimbursement Rates

Reimbursement rates refer to the amount HHS pays hospitals for prescription drugs provided to Medicare patients. These rates are crucial for hospital financial planning and the sustainability of services.

Medicare Statute 42 U.S.C. § 1395l (t)(14)

This statute outlines the specific methodologies that HHS must follow to set reimbursement rates for outpatient prescription drugs, including conditions under which rates can be varied among different hospital groups.

Conclusion