The U.S. Supreme Court is hearing arguments this morning in a lawsuit challenging CMS's nearly 30% cut in 340B hospitals' drug reimbursement.

340B Providers Take Center Stage Before U.S. Supreme Court Today

The U.S. Supreme Court is hearing arguments this morning in a lawsuit challenging the nearly 30% cut since 2018 in what Medicare Part B pays hospitals for 340B-purchased physician administered drugs.

Arguments in American Hospital Association v. Becerra are due to start a little after 11 a.m. Eastern and last an hour. We will report later today on what the justices asked lawyers representing 340B hospitals and the Biden administration. Audio is being live streamed on the court’s website. Under the heading Oral Arguments, look for the green Live button and Live Oral Argument Audio subheading.

A key issue before the court is whether the U.S. Centers for Medicare & Medicaid Services (CMS) during the Trump administration had authority to set Part B drug reimbursement for 340B disproportionate share hospitals, rural referral centers, and non-rural sole community hospitals at average sales prices (ASP) -22.5% while keeping it for all other hospitals at ASP +6%.

CMS announced early this month that it will keep the cut in place next year. “The 340B program does not contemplate subsidization from Medicare in the form of payments far exceeding hospitals’ acquisition costs,” CMS said in its calendar year 2022 hospital Outpatient Prospective Payment System (OPPS) final rule.

In addition to taking up the question of whether CMS had the authority to make the payment cuts under Medicare’s hospital outpatient prospective payment system (OPPS), the court has asked the parties to brief and argue whether AHA’s challenge is precluded by a provision in the OPPS statute that limits judicial review of certain agency determinations. It is one of four health care cases in this year’s docket.

The 340B program and the drug reimbursement cut’s effect on safety-net care are not expected to be a significant focus of the arguments. The justices and lawyers instead are expected to concentrate on how much deference lower courts should give to federal agency interpretations of federal statutes, and what tests lower courts should use to determine whether an agency’s interpretation is valid. 

According to University of Pennsylvania law professor Allison Hoffman, a victory by 340B hospitals may be of limited value. In a Commonwealth Fund blog post, Hoffman argues that “even if the Court decides against CMS and strikes down the rule, the most the 340B providers would get is retroactive payments for the two years at issue in the case. After the 2018 federal district court ruling against CMS in this case, the agency began collecting survey data from 340B hospitals on what they pay for drugs. With this survey data, the statute unambiguously allows CMS to reimburse based on hospital acquisition costs, and to vary those reimbursements by hospital group, rather than on average prices.”

The case is drawing considerable attention because the court’s decision will have implications that reach far beyond the 340B program and health care. The Wall Street Journal’s lead editorial yesterday was about the case, for example.  A wide ranging group of conservative organizations and business groups have submitted amicus briefs urging the court to reverse the payment cuts on the grounds that the appeals court was too deferential to CMS’s interpretation of the Medicare statute.  The groups believe that, too often, lower courts reflexively deem federal laws to be ambiguous and defer to federal agencies’ interpretations of such laws. 

This is the second time the Supreme Court has agreed to decide a case involving the 340B program. The last time was a decade ago in AstraZeneca v. Santa Clara County, in which it held that covered entities lacked the right to sue drug manufacturers in federal court over alleged violations of the 340B statute but instead need to rely on the government to serve as its advocate.

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