Hospitals and university medical centers—in a case pivoting on how much authority a federal agency should have—are asking the Supreme Court to turn back drug reimbursement rate cuts they say threaten health-care services for America’s most vulnerable populations.
One one side, the American Hospital Association and its supporters argue that the Health and Human Services Department overstepped its statutory authority when it slashed almost 30% in Medicare reimbursement rates paid to hospitals in the government’s 340B drug discount program.
The aim of the 29-year-old program is to help hospitals and other facilities stretch their funds—optimally using the savings to expand services—by requiring pharmaceutical manufacturers taking part in Medicaid to discount their outpatient prescription drugs.
Medicaid, a state-federal program, provides health-care coverage for low-income adults, children, pregnant women, and people with disabilities. Facilities eligible for the program include children’s hospitals, federally funded HIV/AIDS treatment and service programs, black lung clinics, and hospitals treating a disproportionate share of patients on Medicaid and Medicare, the federal insurance program for older Americans.
If the “final rule is allowed to stand, 340B providers will be forced to eliminate or dramatically curtail some crucial programs that treat a wide range of medical conditions—from cancer to mental health disorders to diabetes to opioid addiction,” said a group of over 35 state and regional hospital associations backing the AHA and the American Association of Medical Colleges.
“Scores of low-income, uninsured, underinsured, and homeless patients, as well as those living in rural communities, will be unable to receive the same level of care,” they said in a brief.
Others, though, credit the HHS’ cuts with curbing inefficiencies and broadening the pool for Medicare services. The HHS claimed $1.6 billion was saved and redistributed to providers for other services.
The Rural Hospital Coalition, which represents around 200 hospitals, said the savings helped in mitigating the “serious financial stresses” that have led many rural hospitals to close.
The HHS “equitably distributing” its savings “is providing desperately needed relief for rural hospitals—hospitals fighting to keep their doors open and survive,” the group said in its brief. In the past decade alone, 136 rural hospitals have closed, it said.
Agency Power
Key to the dispute—to be argued Nov. 30 before the high court—is the precedent of “Chevron deference,” a legal doctrine directing courts to honor agency interpretations of vague laws.
The U.S. Court of Appeals for the District of Columbia Circuit found the HHS reasonably interpreted that the law allowed it to cut reimbursement rates.
But AHA and AAMC characterized the move as “a license for agencies to achieve almost any policy end they desire,” and legal experts and trade associations see the case as an opportunity for the high court to address the doctrine’s scope.
“If this Court determines Chevron deference grants HHS the massive power to alter a federal statute based on a thin reed of ambiguity—affecting billions of dollars in statutory benefits—then the Court should ‘confront whether Chevron continues to be good law,’” the National Right to Work Legal Defense Foundation, a group advocating against required union memberships, said in a September filing, quoting the AHA and AAMC.
‘Vague’ Authority
AHA and its fellow petitioners say their case tees up an issue of “central importance to the separation of powers.”
Petitioners argue that, when the HHS cut reimbursement rates, it didn’t use the right data, as required by the Medicare Prescription Drug, Improvement, and Modernization Act, to pay hospitals based on average drug acquisition costs and to vary rates by hospital group. A district court’s determination that the cuts were unlawful was overturned by the D.C. Circuit , which deferred to the HHS’ view under Chevron deference.
“The court of appeals allowed HHS to make fundamental changes to the statutory structure of the Medicare drug-reimbursement scheme solely based on the agency’s vague, ancillary authority to ‘adjust’ reimbursement rates,” AHA said in appealing to the Supreme Court. The decision reflects “a troubling trend” of courts giving agencies too much leeway to interpret statutes, it said.
Others agree. The New Civil Liberties Alliance says it’s “particularly disturbed by the appeals court’s decision not to exercise its independent judgment regarding the best reading of the statute at issue.”
Likewise, the Americans for Prosperity Foundation says deference doctrines like Chevron “wrongly place a thumb on the scale in favor of the nation’s most powerful litigant”—the federal government—while the Chamber of Commerce argues that the “misuse of Chevron is all too common in the lower courts, and it is likely to continue absent the clearest and strongest of messages from the Supreme Court.”
The National Association of Home Builders, American Farm Bureau Foundation, and other trade groups say their members are often affected by judicial deference doctrines, and that Chevron harkens to an era of “massively unconstrained” judicial discretion.
“This case presents an opportunity to meaningfully improve the law—by clearly and emphatically enforcing the proper limits on Chevron deference,” the groups said in their brief.
Financial Burden
One point of agreement, from all sides, is that the court’s ruling will have a big impact on providers by either allowing, or curtailing, the HHS’ power to shift federal funding around.
The Federation of American Hospitals said in a brief that it represents over 1,000 “tax-paying hospitals and health systems,” many of which help the same communities as those aided by 340B entities but for whom the 340B program helps increase financial burdens.
“Non-340B hospitals bore the financial burden of the prior payment policy despite serving similar levels of uninsured or otherwise vulnerable patients as 340B hospitals, often in the same or demographically similar communities,” FAH said.
The revised policy, it said, “recaptures savings that benefited only 340B hospitals and reallocates those savings across all acute care hospitals,” achieving “a balance that is both more efficient and more equitable.”
But top university medical centers argue that 340B has successfully provided patients with access to health-care at no cost to taxpayers.
“Safety-net hospitals invest their 340B savings in a wide variety of programs to meet the needs of their local communities and to help vulnerable patients,” Yale’s New Haven Health System, University of Pittsburgh Medical Center (UPMC), and others said. “Providing medical services to poor, underserved populations carries with it a hefty price tag.”
The case is American Hospital Association, et al., Petitioners vs. Xavier Becerra, Secretary of Health and Human Services, U.S., No. 20-1114, Argument Set For 11/30/21
