US Supreme Court Issues Opinion on American Hospital Association v. Becerra

By July 2022, the U.S. Supreme Court is expected to issue its verdict American Hospital Association v. Becerraa case that not only has significant implications for healthcare providers, but may also affect the respect that all federal courts accord to administrative interpretations of ambiguous statutes (aka the rafters Teach).


The US Supreme Court is set to deliver its much-anticipated opinion American Hospital Association v. Becerra until the end of the current term (June or July 2022). The American Hospital Association’s (AHA) appeal in this case is against a decision by the U.S. Court of Appeals for the District of Columbia Circuit affirming the final ruling by the U.S. Department of Health and Human Services (HHS) establishing Medicare reimbursement for 340B drugs was cut. While the case has significant implications for many hospitals participating in the 340B program, the advisory’s implications may be more far-reaching. At its core, the case isn’t about payments for $340 billion drugs, it’s a vehicle for the Supreme Court to scrutinize the vitality and scope of the drug rafters Doctrine of judicial deference to administrative interpretations of ambiguous laws.

The legal arguments in detail

The 340B program helps certain “covered facilities” — including many hospitals — stretch scarce federal funds by allowing facilities to purchase certain eligible outpatient medications from manufacturers at a discount.

The Social Security Act provides that the amount the Centers for Medicare & Medicaid Services (CMS) pays hospitals for outpatient medication under the Medicare Outpatient Hospital Prospective Payment System (OPPS) is equal to:

  • “(I) at average cost [(AAC)] for the drug for that year (that of the Secretary’s choice [of HHS]may vary by hospital group (as defined by the secretary based on the volume covered). [outpatient department] OPD benefits or other relevant characteristics)) as determined by the Secretary taking into account the hospital acquisition cost survey data referred to in subparagraph (D); or

  • “(II) if hospital acquisition cost data is not available, the average price for the drug … as calculated and adjusted by the Secretary to the extent necessary for the purposes of this paragraph.” (42 USC §1395l

From 2006 to 2017, HHS calculated reimbursement rates based on the average selling price (ASP) of the drug. HHS used the ASP instead of the drug’s AAC because HHS had no hospital acquisition cost survey data available. This method resulted in all OPPS-paid hospitals, including OPPS-paid hospitals participating in 340B, receiving reimbursement of 104% to 106% of the ASP for outpatient medications.

In 2018, HHS issued a final rule providing that HHS may reimburse 340B hospitals for outpatient medications paid for under OPPS an amount intended to approximate 340B’s discounted AAC, rather than an amount that based on ASP. The final rule recognized that the Secretary is free to vary reimbursement by hospital group based on the extent of outpatient services covered or other relevant characteristics. It also provided that in cases of insufficient data, the HHS secretary “may calculate and adjust the reimbursement amount as necessary for the purposes of the Act.” The final rule reduced payments to 340B hospitals to 77.6% of ASP, a roughly 30% reduction from the 106% of ASP they previously received.

The AHA claims that the rate change exceeds the limits of a legally permitted “adjustment.” That is, the AHA claims that HHS lacks the legal authority to base reimbursement on AAC in the absence of cost collection data and that it cannot vary rate-based rates by hospital group. According to the AHA, Congress incorporated the collection requirement to ensure accurate, consistent, and transparent calculation of reimbursement rates. By eliminating this requirement, HHS acted beyond its statutory authority and contrary to the intent of Congress.

AHA similarly argues that the final rule is not defensible rafters because the law is clear and unambiguous. Congress required a cost summary when rates are based on AAC or vary by hospital group, and Congress has not authorized HHS to waive that requirement.

AHA urges court to approach rafters deference as she approached Oops deference one Kisor v. Wilkie (139 S.Ct. 2400 (2019)). Oops Deference is the judicial doctrine of confining itself to an agency’s reasonable interpretation of its own truly ambiguous regulations. In kisorthe Court retained the doctrine but ruled that lower courts must exhaust the canons of regulatory interpretation before applying the doctrine to truly ambiguous rules.

The AHA contends that the court should similarly exhaust its interpretive statutory tools—taking into account the language, structure, operation, and provenance of the 340B statute—before resorting to HHS’s interpretation of the statute rafters. The AHA’s view is that the statute is clear and no recourse to it rafters Reverence is necessary. If HHS wants to differentiate its reimbursement methodology across hospital categories, it must follow the law and conduct expense reporting or get Congress to change the law.

In contrast, HHS argues that the clear legal language gives HHS discretion to set the reimbursement rate at AAC. If cost collection data is not available, the Secretary of Health and Human Services can “calculate and adjust the rates as necessary for the purposes of the Act”. The rate change is an adjustment that is supported by evidence and justifies the purpose of the law, which is to align reimbursement rates as closely as possible with acquisition costs. HHS claims the court would reach the same conclusion with a lawsuit rafters, just like the DC circuit. The DC Circuit concluded that Congress had not clearly prevented HHS from adjusting reimbursement and that HHS’s view was not manifestly unreasonable.

The future of rafters homage

This case offers the Supreme Court an opportunity to examine the vitality of rafters and the limits of its application. In fact, some commentators were surprised that the court agreed certiorari in which case and assume that this is the case in order to make a re-evaluation rafters (For an example of these discussions see here, here and here.).

The court has several options. First, affirm the DC Circuit Court’s decision and reasoning, which included a framing rafters that is favorable for the government. Second, tip over rafters. Third, take a page out kisor by keeping rafters and revitalizing the frontiers of its application. The second option would shift power from the executive to the legislature and judiciary, giving Congress more incentive to draft legislation that is both comprehensive and clear. The third option would be too, albeit to a lesser extent.

Amicus Briefs were submitted by a wide range of stakeholders, including trade associations representing not only healthcare providers but many other regulated industries as well. Many healthcare providers argued that 340B hospitals serve underserved and disadvantaged patients and therefore should not bear the brunt of a rate reduction. Other healthcare providers (mainly hospitals ineligible for the 340B program) argued that the interpretation of HHS reclaims dollars previously reserved for 340B hospitals and redistributes those dollars to all acute care hospitals eligible under the OPPS system, which furthers the original objective of the OPPS system by incentivizing the efficient delivery of outpatient services.

Stakeholders outside of the healthcare industry typically commented on the scope and vitality of rafters. Some have argued that rafters raises concerns about separation of powers because it expands the executive at the expense of the legislature and judiciary. The unintended consequence of rafters is that it encourages Congress to pass ambiguous legislation and evade accountability by delegating complicated policy decisions to unelected agency personnel. Other stakeholders argued that agency staff may not be impartial and rafters political intervention in the implementation of laws. Other stakeholders generally supported the preservation of rafters and argued that it was consistent with the separation of powers and, if properly applied, would not lead to an expansion of the administrative state.

At the hearing, Supreme Court justices repeatedly raised questions about the viability of rafters. Justices Kagan, Sotomayor and Breyer asked questions indicating they do not believe that is the case for annulment rafters. Justices Gorsuch, Kavanaugh and Barrett questioned whether the statute’s ambiguity raises a simple interpretative issue for the court to resolve or whether it is an issue that needs to be resolved rafters Analysis and implied delegation to an agency. None of the polls indicated that a majority of judges would vote in favor of repeal rafters.

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