Win for hospitals: Unanimous SCOTUS overturns 2018 and 2019 340B drug reimbursement cuts

The US Supreme Court unanimously held on Wednesday, June 15, that the Department of Health and Human Services (HHS) 2018 and 2019 reimbursement rate reduction targeting payment to 340B Drug Discount Program hospitals was unlawful and violated the plain language of the program statute.

In American Hospital Association v. Becerra, the petitioners argued that HHS illegally cut drug reimbursement rates for 340B Drug Discount Program hospitals. HHS countered that it had the authority to adjust the drug reimbursement rates under the statute, which it did in 2018 and 2019 by reducing outpatient drug reimbursement to 340B programs by almost 30 percent.

The 340B Drug Discount Program requires manufacturers to sell prescription drugs at discounted rates to hospitals that care for a disproportionate share of low-income and rural patients. HHS has historically reimbursed 340B Drug Discount Program-participating hospitals for outpatient prescription drugs at the same rate as other hospitals, allowing 340B hospitals to offset the considerable costs of providing healthcare to uninsured and underinsured patients in low-income and rural communities.

The opinion, delivered by Justice Kavanaugh on behalf of the unanimous Court, held that although HHS has authority to adjust the average drug price up or down, this general authority is distinct from HHS's ability to set different rates for different groups of hospitals under the 340B Drug Discount Program statute. The Court, reading the plaint text of the statute and given the traditional presumption in favor of a judicial review of administrative action, found that HHS can only set different reimbursement rates for different hospitals if it conducts a survey of hospitals' drug acquisition costs. Justice Kavanaugh found the case to be straightforward: "Because HHS did not conduct a survey of hospitals' acquisition costs, HHS acted unlawfully by reducing reimbursement rates for 340B hospitals."

The opinion is likely good news for 340B hospitals but leaves several issues unresolved. The American Hospital Association decision only applies to 2018 and 2019 reimbursement rates, leaving later payment cuts an open question. Additionally, the Court did not address potential remedies but rather remanded the case to the District Court.

It is also notable and somewhat unexpected that the Court did not expressly address issues of Chevron deference but focused on principles of statutory interpretation. Some prognosticators expected the American Hospital Association matter to be an opportunity for the Court to reevaluate or possibly overturn Chevron deference. So, for those closely watching this case as an opportunity for the Court to revisit Chevron, the future of that doctrine remains to be seen.