SCOTUS Strikes Down 340B Cuts; Hospitals Whoop

The unanimous ruling in American Hospital Association v. Becerra sets up the potential for hospitals to collect billions of dollars in 340B back payments.

Hospital stakeholders offered a collective booyah on Wednesday after learning that the U.S. Supreme Court struck down the federal government's 28.5% cuts to drug reimbursements under the 340B program.

The unanimous ruling in American Hospital Association v. Becerra – written by Justice Brett Kavanaugh -- sets up the potential for hospitals to claw back some of the $3.2 billion in 340B payments owed to them in 2018 and 2019.

The high court said that the cuts, which took effect during the Trump administration, were illegal because the U.S. Department of Health and Human Services did not first survey the hospitals' drug acquisition costs before making the cuts, which the justices said violates protections against varying payment rates for some hospitals.

Wednesday's ruling overturns a federal appeals court ruling in favor of HHS and sends the case back to the lower court for further review. However, SCOTUS offered no potential remedies for the dispute.

The American Hospital Association, America's Essential Hospitals, and the Association of American Medical Colleges issued a joint statement shortly after Wednesday's ruling praising the decision and saying they were "looking forward to working with the Administration and the courts to develop a plan to reimburse 340B hospitals affected by these unlawful cuts while ensuring the remainder of the hospital field is not disadvantaged as they also continue to serve their communities."

Legal Scholars React

Stephanie Kennan, a senior member of the Federal Public Affairs group at McGuireWoods Consulting, said the ruling could greatly affect hospital reimbursements, with SCOTUS pushing HHS to compile the correct data to determine a reasonable reimbursement rate.

"This opinion calls out HHS for not surveying hospital acquisition costs before making decisions about 340B reimbursement rates," Kennan said. "It is important that the program be available for those who need it -- but it is as important to get the data correct to determine reasonable reimbursement and achieve the goals of the program."

Allison Hoffman, a professor at the University of Pennsylvania Carey Law School, called the ruling "a straightforward reading of the statute."

"The implication of this decision is that HHS will have to repay the 340B hospitals the difference between their lower rate and a higher rate paid other hospital for the two years at issue (2018 and 2019)," Hoffman said. "After that point, HHS collected survey data that will justify lower rates consistent with the Medicare statute."

"The larger policy issue, which this case leaves unresolved, is how to tailor federal support for hospitals that disproportionally care for underserved populations," she said.

Cary Coglianese, director of the Penn Program on Regulation at Carey Law School, said the high court "dodged entirely the question of the status of its longstanding precedent in Chevron v. NRDC."

"The question was teed up by the litigants and received sustained consideration by the justices during oral argument. In fact, the very first question following the petitioner's opening statement—asked by the otherwise long-quiet Justice Thomas— directly raised the issue of whether the Court should overturn Chevron," Coglianese said. "But in the end, the court did not even cite to Chevron in its unanimous decision today in;Becerra, let alone give any discussion to it."

"But perhaps the mere fact that the court says simply that it 'does not agree' with HHS means that Chevron is actually dead," Coglianese said. "Perhaps in the future judges are supposed to conduct their own interpretation of statutes without ever any regard or deference given to the agency's role under a statute authorizing it to implement its terms."

"We simply do not know. It is conceivable still that the court will provide further clarity about Chevron’s status in another case remaining to be decided this term, such as Becerra v. Empire Health or West Virginia v. EPA. Both these other cases involve disputes involving agencies' interpretations of statutes."

"Of course, it is also possible that the court will in these cases again simply give Chevron the silent treatment. If so, the silence we saw in today's decision may be part of a deliberate strategy of allowing Chevron to wither on the jurisprudential vine and ultimately die from desuetude. We will have to wait and see."