HHS may not vary Medicare prescription drug reimbursement rates by hospital group unless it surveys hospital acquisition costs.
A 2006 Medicare statute offers the Department of Health and Human Services (HHS) two alternatives for setting reimbursement rates for certain prescription drugs hospitals provide to Medicare patients. 42 U.S.C. § 1395l(t)(14)(A)(iii). The first option applies if HHS has surveyed hospitals’ acquisition costs for each covered outpatient drug; HHS then sets the reimbursement rate based on “the average acquisition cost” of each drug, which may vary “by hospital group.” The second option applies if no survey was taken, in which case HHS must set the reimbursement rate based on the average price manufacturers charge for the drug as “calculated and adjusted by the Secretary.” HHS did not conduct any surveys or attempt to use the first option for more than a decade. Instead, it used the second option and reimbursed all hospitals at the same adjusted manufacturers’ price. But in 2018 and 2019, without conducting surveys, HHS established separate reimbursement rates for hospitals serving lower-income and rural populations through the 340B program. The American Hospital Association and other interested parties challenged the disparate 2018 and 2019 reimbursement rates for 340B hospitals in federal court. The district court ruled for the Association. The D.C. Circuit reversed and the U.S. Supreme Court granted certiorari.
The Supreme Court unanimously reversed the D.C. Circuit, holding that HHS may not vary the reimbursement rates for 340B hospitals if it fails to conduct a survey of hospital acquisition costs and instead sets the reimbursement rate based on the average manufacturer charge. The Court concluded that a federal law permitting 340B hospitals to pay less for covered prescription drugs was immaterial. Congress was aware of that law when it later enacted the prescription drug reimbursement provisions, which allow HHS to vary reimbursement rates by hospital group only when HHS has performed a survey of hospital acquisition costs. The Court acknowledged that Congress may have intentionally allowed 340B hospitals to receive prescription drugs reimbursements in excess of their acquisition costs to help offset other costs they incur when providing healthcare to uninsured and underinsured individuals, and those who live far away from hospitals and clinics. The Court also rejected HHS’s argument that the Medicare statute precludes judicial review of reimbursement rates since HHS relied on Medicare previsions other than the provisions governing prescription drug reimbursement rates. The Court neither mentioned the doctrine of Chevron deference nor gave HHS’s interpretation of the Medicare Act any deference.