U.S. Supreme Court hears arguments on cuts to hospitals

Healthcare systems have a great deal at stake in the highly awaited case. Hospitals say reduced payments in the 340B drug program threaten their ability to serve vulnerable communities.

The U.S. Supreme Court heard arguments in a case with enormous financial implications for hospitals.

The case, American Hospital Association v. Becerra, centers on the federal government’s 340B drug discount program and the reduction of reimbursements for hospitals. Lawyers representing the hospital association and the federal government made their arguments before the justices in the long-awaited case Tuesday.

The hospital association said the government’s cuts to the program threaten the ability of healthcare systems to provide care to vulnerable communities. The government contends the change in reimbursements represents a better use of resources.

The justices focused much of their questioning on the scope of the law and the government’s authority to reduce reimbursements. But they also asked questions about the impact of the cuts on hospitals and their ability to serve patients.

In the 340B program, hospitals that treat low-income patients can buy some drugs at low costs and receive higher reimbursements. The program is intended to support hospitals treating patients in underserved areas. More than 2,000 hospitals now participate in the program.

In 2017, the U.S. Department of Health and Human Services reduced the reimbursement rates for certain outpatient drugs in the 340B program. The reimbursement rate was cut to 22.5% of the average sales price of the drugs. The government said the reduction was appropriate since hospitals were acquiring the drugs at much cheaper prices.

The policy change reduced reimbursements to 340B hospitals by an estimated $1.6 billion.

The American Hospital Association and supporting hospitals contend the government’s cuts were done improperly and illegally.

The hospitals argue the government needed to first conduct a study to change reimbursement rates for select hospitals, or the government had to set rates based on the average price of the drug. The hospitals argue the health department’s actions violated the Medicare statute.

Donald B. Verrilli, Jr., the attorney representing the American Hospital Association, told the justices the health department didn’t use the average cost of drugs but instead relied on an estimate of the acquisition price for 340B hospitals. The government doesn’t have the authority under the law to do that, he argued.

“Congress spoke directly to the question of when rates can be based on acquisition costs and varied by hospital groups, and that's when it conducts a cost study,” Verrilli said. “Congress surely did not delegate to HHS the authority to remove that statutory requirement.”

The government has argued the department has broad authority to readjust reimbursement rates as necessary.

Verrilli said the government went beyond the language of the Medicare statute. “This Court has said over and over again that agencies can't invoke purpose to go beyond the specific means that Congress prescribed,” he told the justices.

While much of the discussion was on the legal authority to change reimbursements, Verrilli’s final remarks focused on the impact on patient care. With the loss of $1.6 billion in reimbursements to 340B hospitals, Verrilli said, “You are reducing the care that they provide to underserved populations by that amount.”

After a lower court sided with the government, hospitals have been anxiously awaiting for the case to reach the Supreme Court.

A key issue in the case from a legal perspective is what kind of deference the court would grant the federal agency in its decision. The case centers around a 1984 ruling - Chevron v. Natural Resources Defense Council  - that found courts should typically defer to federal agencies in their interpretation of statutes.

Legal experts have said if the court goes against the Chevron ruling, it could have significant ramifications.

In court Tuesday, Justice Stephen Breyer said the court’s ruling “has implications well beyond this case.”

While the cuts occurred during the Trump administration, the federal government has continued to defend the policy under President Joe Biden.

Christopher G. Michel, assistant to the U.S. solicitor general, told the court the health department acted within the authority of the statute.

“Petitioners ask this Court to hold that Congress compelled Medicare to knowingly and dramatically overpay 340B hospitals for covered drugs at the direct expense of Medicare beneficiaries and other hospitals,” Michel said. “Neither the statutory text nor common sense supports that result.”

Michel said Congress intended the “common-sense notion” that reimbursements would be based on the acquisition price.

He added the government wasn’t trying to dismiss the work of 340B hospitals.

“What we're saying is that the Medicare program was not designed to subsidize 340B hospitals,” Michel said. He argued the savings from the policy change is used to reimburse healthcare providers in other ways.

Several hospital groups have filed amicus briefs with the court in support of the hospital association.

Hospitals argue that they may not be able to sustain some services in low-income and disadvantaged communities if the cuts in the 340B program are allowed to stand. They said the cuts would hurt hospitals serving inner cities and rural areas with limited healthcare access. Justice Brett Kavanaugh noted the services of rural hospitals in some of his questioning.

Hospital advocates have asked the Biden administration to reconsider its policy.

At the same time, groups representing for-profit hospitals and rural hospitals have filed briefs supporting the government’s position. They note that the changes in Medicare’s policy have increased reimbursements to hospitals outside the 340B program and aided their ability to provide services to vulnerable patients.

Some critics have said the 340B program needs to be revamped, arguing that patients are paying higher prices and aren’t seeing the benefits of discounts on essential drugs.

The court typically issues its ruling weeks or even months after arguments are heard. In all likelihood, hospitals won’t see the ruling on this until sometime in the new year.