Supreme Court Will Hear Challenge to Medicare Drug Payment Cuts


July 2, 2021 7:44 pm

The Supreme Court agreed Friday to hear a case challenging cuts the Department of Health and Human Services made to Medicare prescription-drug reimbursements for hospitals that serve low-income and underserved communities.

The American Hospital Association (AHA) and the Association of American Medical Colleges (AAMC), which filed the petition to the high court with various hospital and health systems, argued HHS unlawfully slashed nearly 30% in Medicare reimbursement rates for specified covered outpatient drugs paid to hospitals participating in a drug discount, or 340B, program.

Under the 340B program, drug manufacturers must provide participating hospitals substantial discounts on prescription drugs in order to have their products covered by Medicaid, the low-income federal insurance plan. The discounts help these hospitals stretch scarce resources.

The HHS didn’t use the proper data required by the Medicare Prescription Drug, Improvement, and Modernization Act to pay hospitals based on the average acquisition cost for drugs and to vary those rates by hospital group, AHA, AAMC and the health systems argued.

A federal district court agreed the cuts were unlawful, but that decision was overturned by the U.S. Court of Appeals for the District of Columbia. The appeals court upheld the rate cut. Citing Chevron, a Supreme Court precedent that directs courts to defer to an agency’s interpretation when laws are unclear, the court found HHS had reasonably interpreted the statute as allowing the agency to make adjustments to avoid reimbursing those hospitals at much higher levels than their actual costs to acquire the drugs.

In their appeal to the Supreme Court, the AHA, AAMC, and health systems argue the court of appeals wrongly relied on Chevron to conclude the agency could decide for itself whether or not to adhere to the law’s stringent requirements for setting cost-based rates.

The case “raises questions of fundamental importance regarding the limits of federal agency interpretive authority,” they said.

HHS counters, “the court of appeals correctly found that, faced with that disparity between 340B hospitals’ acquisition costs and the Medicare payment amounts that they and other providers received,” HHS was authorized adjust its payments.

As for the $1.6 billion the agency saved by the cuts, the HHS said it redistributed that money to all providers as additional reimbursement payments for other services. 

In a friend-of-the-court brief, however, 36 nonprofit state and regional hospital associations said the rule drastically raised drug prices for safety-net hospitals. 

“If the new rule is allowed to stand, safety-net providers will be forced to eliminate or dramatically curtail crucial programs that treat a wide range of medical conditions—from cancer to mental health disorders to diabetes to opioid addiction,” the groups said.

The case is Am. Hospital Ass’n v. Becerra, U.S., No. 20-1114, 6/21/21.