The Supreme Court ruled unanimously that the Department of Health and Human Services (HHS) unlawfully decreased prescription drug reimbursements to hospitals by as much as $1.6 billion annually as part of a program to help poor patients.
The ruling, a victory for hospitals serving low-income people, enables these hospitals to seek the funding improperly withheld from the federal government. The reimbursement cuts were ordered by the Trump administration in 2018 and defended in court by the Biden administration. The government argued that the rate reductions would reflect more accurately the cost of purchasing drugs for hospitals and that it was authorized to do so under a statutory provision that granted regulators the authority to order rate adjustments.
However, HHS improperly depended on a formula that Congress only made available under specific circumstances, which were not applicable in the case, the court determined. In 2003, President George Bush signed into law the Medicare Prescription Drug, Improvement, and Modernization Act. The law requires HHS to set reimbursement rates each year for selected outpatient prescription drugs provided by hospitals according to a predetermined formula.
Despite the Biden administration’s insistence, the Supreme Court did not consider whether the so-called Chevron doctrine articulated by the Supreme Court in 1984 applied to the case. In Chevron v. Natural Resources Defense Council, the high court reasoned that while courts “must give effect to the unambiguously expressed intent of Congress,” where the courts find that “Congress has not directly addressed the precise question at issue” and “the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”
The Supreme Court apparently concluded that the issues involved were sufficiently straightforward that Chevron did not need to be reviewed.
Judge Brett Kavanaugh wrote the court’s opinion, issued on June 15 following oral arguments on November 30, 2021. The opinion reverses a decision by the U.S. Court of Appeals for the District of Columbia Circuit.
According to a news website, to qualify as a 340B hospital, a hospital needs to meet certain criteria. Among them, it must be owned or operated by a state or local government, be a public or private nonprofit corporation and be formally authorized to exercise governmental powers by a state or local government, or be a private nonprofit hospital that is under contract with a state or local government to provide health care services to low-income individuals who do not qualify for Medicare or Medicaid benefits, a joint federal-state program for the indigent.
The court stated: “We do not agree with HHS’s interpretation of the statute … [and] conclude that, absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates for 340B hospitals. HHS’s 2018 and 2019 reimbursement rates for 340B hospitals were therefore contrary to the statute and unlawful.”
The Supreme Court overturned the D.C. Circuit’s decision and remanded the case to this court “for further proceedings consistent with this opinion.”