Am. Hosp. Ass'n v. Becerra

• Court: U.S. Supreme Court
• Writing for the Court: Justice KAVANAUGH delivered the opinion of the Court.
• Citation: Am. Hosp. Ass'n v. Becerra, 142 S.Ct. 1896 (2022)
• Decision Date: 15 June 2022
• Docket Number: 20-1114
• Parties: AMERICAN HOSPITAL ASSOCIATION, et al., Petitioners v. Xavier BECERRA, Secretary of Health and Human Services, et al.

142 S.Ct. 1896

AMERICAN HOSPITAL ASSOCIATION, et al., Petitioners

v.Xavier BECERRA, Secretary of Health and Human Services, et al.

No. 20-1114

Supreme Court of the United States.

Argued November 30, 2021

Decided June 15, 2022

Donald B. Verrilli, Jr., Washington, DC, for Petitioners.

Christopher G. Michel, Washington, DC, for Respondents.

Donald B. Verrilli, Jr., Counsel of Record, Elaine J. Goldenberg, Rachel G. Miller-Ziegler, Munger, Tolles & Olson LLP, Washington, DC, Brandon E. Martinez, Munger, Tolles & Olson LLP, Los Angeles, CA, for Petitioners.

Brian H. Fletcher, Acting Solicitor General, Counsel of Record, Brian M. Boynton, Acting Assistant Attorney General, Edwin S. Kneedler, Deputy Solicitor General, Christopher G. Michel, Assistant to the Solicitor General, Alisa B. Klein, Laura E. Myron, Attorneys, Department of Justice, Washington, DC, for Respondents.

Justice KAVANAUGH delivered the opinion of the Court.

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. First, if HHS has conducted a survey of hospitals' acquisition costs for the drugs, HHS may set the reimbursement rates based on the hospitals' average acquisition costs—that is, the amount that hospitals pay to acquire the prescription drugs—and may vary the reimbursement rates for different groups of hospitals. Second and alternatively, if HHS has not conducted such a survey, HHS must instead set the reimbursement rates based on the average sales price charged by manufacturers for the drugs (with certain adjustments), and HHS may not vary the reimbursement rates for different groups of hospitals.

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.

The question is whether the statute affords HHS discretion to vary the reimbursement rates for that one group of hospitals when, as here, HHS has not conducted the required survey of hospitals' acquisition costs. The answer is no. We therefore reverse the judgment of the U.S. Court of Appeals for the D.C. Circuit.

I

A

In 2003, Congress passed and President George W. Bush signed landmark legislation expanding Medicare to cover prescription drugs. See Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 117 Stat. 2066, 42 U.S.C. § 1395. Under that 2003 law, HHS must annually set reimbursement rates for certain outpatient prescription drugs provided by hospitals. § 1395l (t)(14).

The Medicare statute meticulously lays out the formula that HHS must employ to set those reimbursement rates. As relevant here, the agency's reimbursement rate for each covered outpatient prescription drug "shall be equal" to one of two measures:

"(I) to the average acquisition cost for the drug for that year (which, at the option of the Secretary, may vary by hospital group (as defined by the Secretary based on volume of covered OPD services or other relevant characteristics)), as determined by the Secretary taking into account the hospital acquisition cost survey data under subparagraph (D); or

"(II) if hospital acquisition cost data are not available, the average price for the drug in the year established under section 1395u(o ) of this title, section 1395w–3a of this title, or section 1395w–3b of this title, as the case may be, as calculated and adjusted by the Secretary as necessary for purposes of this paragraph." § 1395l (t)(14)(A)(iii) (emphasis added).

To simplify a bit: Congress afforded HHS two options to set the reimbursement rates for hospitals. Option 1 applies if the agency has conducted a survey of hospitals' acquisition costs—that is, the amount that hospitals pay to acquire the prescription drugs. If the agency has conducted a survey and collected that data, HHS may set reimbursement rates based on the hospitals' "average acquisition cost" for each drug. See § 1395l (t)(14)(A)(iii)(I) ; see also § 1395l (t)(14)(D) (requirements for conducting surveys of hospitals' drug acquisition costs). Importantly for present purposes, if HHS has conducted a survey of hospitals' acquisition costs, option 1 authorizes HHS to vary those reimbursement rates for different groups of hospitals.

Option 2 applies if HHS has not conducted a survey of hospitals' acquisition costs. In that circumstance, the agency must set reimbursement rates based on "the average price" charged by manufacturers for the drug, as "calculated and adjusted by the Secretary as necessary for purposes of " this statutory provision. § 1395l (t)(14)(A)(iii)(II). The statute in turn sets "the average price" as 106 percent of the drug's average sales price. See ibid . (citing § 1395w–3a). Critically, option 2 does not authorize HHS to vary reimbursement rates for different groups of hospitals.

For more than a decade after those provisions took effect in 2006, HHS did not conduct a survey of hospitals' acquisition costs. Indeed, HHS has only once attempted to conduct such a survey—in 2020, after this litigation commenced. At oral argument in this Court, the Government explained that HHS had not previously attempted to conduct such surveys because the surveys are "very burdensome on the study takers," are "very burdensome on the hospitals," and do not "produce results that are all that accurate." Tr. of Oral Arg. 41–42.

As a result, until 2018, HHS consistently relied on option 2 and set reimbursement rates for each drug based on the average-sales-price data provided by manufacturers. Every year, HHS set the reimbursement rates at about 106 percent of each covered drug's average sales price, and HHS used the same reimbursement rates for all hospitals. In other words, until 2018, HHS never varied the reimbursement rates by hospital group. See Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, 82 Fed. Reg. 52490, 52494–52495 (2017).

During its rulemaking for 2018, HHS proposed a change to reduce the reimbursement rates only for 340B hospitals. Importantly, HHS did not conduct a survey of hospital acquisition costs. As a policy matter, HHS said that its existing reimbursement rates resulted in what the agency viewed as overpayments to hospitals that serve low-income or rural populations through the federal 340B program. Federal law requires drug manufacturers to sell prescription drugs to those 340B hospitals at prices below those paid by other hospitals. See 42 U.S.C. § 256b(a)(1) (setting a "ceiling price" that manufacturers can charge to 340B hospitals). Consistent with the Medicare statute, however, HHS historically had reimbursed 340B hospitals for covered outpatient prescription drugs at the same reimbursement rates that were set for all other hospitals. For 2018, HHS said that the uniform reimbursement rates combined with the discounted prices paid by 340B hospitals for prescription drugs meant that 340B hospitals were able to "generate significant profits" when they provided the prescription drugs to Medicare patients. 82 Fed. Reg. 52494.

In response to HHS's proposed change, the 340B hospitals countered that, under the Medicare statute, HHS could not single out 340B hospitals without conducting a survey of hospitals' acquisition costs. With respect to HHS's policy arguments, the 340B hospitals explained that the reimbursement payments for prescription drugs helped those hospitals offset the considerable costs of providing healthcare to the uninsured and underinsured in low-income and rural communities. The 340B hospitals pointed out, moreover, that Congress had long been aware of the situation. Indeed, the hospitals claimed that Members of Congress not only were aware, but actually intended for the 340B program's drug reimbursements to subsidize other services provided by 340B hospitals. The hospitals noted that Congress had never singled out 340B hospitals for lower Medicare reimbursements for outpatient prescription drugs. Nor, until 2018, had HHS ever done so. Furthermore, the 340B hospitals asserted that reducing their reimbursement rates for prescription drugs would force those hospitals to eliminate or dramatically curtail other crucial programs that provide a wide range of medical services in low-income and rural communities—such as treatments for cancer, mental health issues, opioid addiction, and diabetes.

In the final rule for 2018, HHS decided to establish two separate reimbursement rates: one rate for non-340B hospitals and another rate for 340B hospitals. The reimbursement rate for non-340B hospitals remained at the historical rate of approximately 106 percent of the average sales price for each drug. But HHS established a substantially reduced rate for 340B hospitals—a rate equal to 77.5 percent of the average sales price for each drug. In setting that rate, HHS relied on an estimate from the Medicare Payment Advisory Commission that 340B hospitals obtained prescription drugs at an average discount of at least 22.5 percent below the average sales price charged by manufacturers. Id ., at 52496, 52499. HHS estimated that the reduction in the reimbursement rates for 340B hospitals would save Medicare (and deprive 340B hospitals of) about $1.6 billion annually, which by law would be re-allocated for other Medicare services. Id., at 52509–52510. For 2019, HHS set reimbursement rates for 340B hospitals in the same way.

When setting the 2018 and 2019 reimbursement rates, HHS acknowledged that it...