American Hospital Assn. v. Becerra

Supreme Court of the United States
596 U. S. ____ (2022) (2022)

ELI5:

Rule of Law:

Under the Medicare statute, the Department of Health and Human Services (HHS) may not vary reimbursement rates for outpatient prescription drugs among different hospital groups unless it has first conducted a survey of the hospitals' acquisition costs.

Facts:

The Medicare statute provides two options for HHS to set reimbursement rates for outpatient prescription drugs provided by hospitals.
Option 1 allows HHS to set rates based on the 'average acquisition cost' and to 'vary' these rates 'by hospital group,' but only if HHS has first conducted a survey of hospital acquisition costs.
Option 2 applies if acquisition cost data is unavailable (i.e., no survey was conducted). It requires HHS to set rates based on the manufacturer's 'average price,' which the Secretary may 'adjust[t] as necessary.' This option does not contain language authorizing rate variation by hospital group.
From 2006 until 2018, HHS never conducted a cost survey, relied on Option 2, and set a uniform reimbursement rate (approximately 106% of the average sales price) for all hospitals.
A specific group of hospitals, known as 340B hospitals, serve low-income or rural communities and are legally entitled to purchase prescription drugs from manufacturers at significantly discounted prices.
For its 2018 and 2019 reimbursement rules, HHS did not conduct a survey of hospital acquisition costs.
Despite not conducting a survey, HHS established two different reimbursement rates: the historical rate for non-340B hospitals and a substantially lower rate (77.5% of the average sales price) specifically for 340B hospitals.
HHS claimed its statutory authority under Option 2 to 'adjust' the average price implicitly allowed it to create different rates for different hospital groups.

Procedural Posture:

The American Hospital Association, along with other hospital groups (Plaintiffs), sued the Secretary of Health and Human Services in the U.S. District Court for the District of Columbia (a federal trial court), challenging the 2018 and 2019 reimbursement rules.
The District Court rejected HHS's argument that the statute precluded judicial review and granted summary judgment to the hospitals, finding HHS had exceeded its statutory authority.
The District Court remanded the case to HHS to devise an appropriate remedy.
HHS (Appellant) appealed the decision to the U.S. Court of Appeals for the D.C. Circuit.
A divided panel of the D.C. Circuit Court of Appeals reversed the District Court, upholding HHS's reimbursement rates.
The American Hospital Association (Petitioner) petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.

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Issue:

Does the Medicare statute permit the Department of Health and Human Services to vary reimbursement rates for different groups of hospitals when it has not conducted a survey of hospitals' acquisition costs?

Opinions:

Majority - Justice Kavanaugh

No. When HHS does not conduct a survey of hospitals’ acquisition costs, it may not vary reimbursement rates for different hospital groups. The text and structure of the statute are straightforward. The statute provides two distinct options: Option 1 explicitly authorizes HHS to vary rates by hospital group, but only after conducting a survey. Option 2, which applies when no survey is conducted, lacks any such authorization. HHS's power under Option 2 to 'adjust' the average price is distinct from the power to set different rates for different groups; an adjustment can move the single average-price number up or down, but it cannot create multiple different average prices for different groups for the same drug. To interpret the general 'adjustment' power as including the specific power to vary rates by group would render the survey prerequisite in Option 1 entirely meaningless, violating the principle that statutes should be read to give every clause effect. The survey requirement is an important procedural prerequisite that protects hospitals from being targeted for lower rates without adequate data. HHS's policy arguments about 'overpaying' 340B hospitals are matters for Congress to resolve, not the Court.

Analysis:

This case is a significant administrative law decision reinforcing the principles of textualism and statutory structure in interpreting an agency's authority. The unanimous Court held that an agency cannot use a general grant of authority (the power to 'adjust' prices) to bypass a specific, conditional requirement (the need for a survey to vary rates). This decision limits HHS's discretion in setting Medicare rates, forcing it to comply with the explicit procedural steps laid out by Congress. It signals to all federal agencies that their authority is strictly cabined by the statutory text and that courts are unlikely to permit them to find implicit powers that would render other parts of the statute superfluous.

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