U.S. Supreme Court Ruled Against HHS “May Not Vary Reimbursement Rates” Absent Survey Of Hospitals Acquisition Cost

WASHINGTON, D.C. (June 15, 2022)— The U.S. Supreme Court released its decision in the 

The American Hospital Association and other interested parties challenged the 2018 and 2019 reimbursement rates in federal court. In response, HHS first contended that various statutory provisions
precluded judicial review of those rates. 


“The agency also argued that it could vary the reimbursement rates by hospital group under its option 2 authority to “adjust” the price-based reimbursement rates. The District Court rejected HHS’s argument that the statute precluded judicial review, concluded that HHS had acted outside its statutory authority, and remanded the case to HHS to consider an appropriate remedy. The D. C. Circuit, however, reversed. The court ruled that the statute did not preclude judicial review, and upheld HHS’s reduced
reimbursement rates for 340B hospitals.” 


The Court wrote “the statute does not preclude judicial review of HHS’s reimbursement rates.” “Here, no
provision in the Medicare statute precludes judicial review of the 2018 and 2019 reimbursement rates. HHS cites two nearby provisions that preclude review of the general payment methodology that HHS employs to set rates for other Medicare outpatient services,” the Court further wrote.

But HHS sets rates for outpatient prescription drugs using a different payment methodology. HHS also argues that other statutory requirements would make allowing judicial review of the 2018 and 2019 reimbursement rates impractical. Regardless, such arguments cannot override the text of the statute and the traditional presumption in favor of judicial review of administrative action.

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 Court said “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’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.


Justice Kavanaugh,  delivered the opinion for a unanimous Court.  

Kavanaugh wrote “under the Medicare statute, the Department of Health and Human Services must reimburse hospitals for certain outpatient prescription drugs that the hospitals provide to Medicare patients. HHS’s total reimbursements to hospitals for prescription drugs add up to tens of billions of dollars every year. 

“To set the reimbursement rates for the prescription drugs, HHS has two options under the statute.”

Kavanaugh further stated “for 2018 and 2019, HHS did not conduct a survey of hospitals’ acquisition costs for outpatient prescription drugs. But HHS nonetheless substantially reduced the reimbursement rates for one group of hospitals—Section 340B hospitals, which generally serve low-income or rural communities. For those 340B hospitals, this case has immense economic consequences, about $1.6 billion annually.”

Read the entire opinion here.


Source: U.S. Supreme Court

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