On June 15, 2022, the Supreme Court unanimously decided to reverse the judgment of the U.S. Court of Appeals for the D.C. Circuit. AHA v. Becerra, 142 S. Ct. 1896, 1906 (2022).  The issue was whether the Medicare statute affords the Department of Health and Human Services (“HHS”) discretion to vary the reimbursement rates under the 340B program for 340B hospitals without conducting any survey on the hospitals’ costs. Id. at 1899. The Supreme Court answered this question in the negative. Id.

In the unanimous opinion, authored by Judge Kavanaugh, the Supreme Court emphasized that “[f]or those 340B hospitals, this case has immense economic consequences, about $1.6 billion annually.”  Id. During 2018 and 2019, HHS greatly reduced the reimbursement rates for 340B hospitals without conducting surveys on the hospitals’ costs for outpatient prescription drugs. Id.

The Supreme Court further explained that the 2003 Medicare Modernization Act (“Act”) not only authorizes HHS to set reimbursement rates for covered outpatient prescription drugs provided by hospitals but the Act also provides the manner in which HHS must set reimbursement rates. Id. at 1903. The statute provides two possibilities for HHS to establish the rate. First, HHS may collect survey data of the hospitals’ acquisition cost for outpatient drugs. §1395l(t)(14)(A)(iii)(I). On the other hand, if cost data is not available, HHS may collect cost data from drug manufacturers. §1395l(t)(14)(A)(iii)(II).

Ultimately, the Supreme Court did not agree with HHS’s position and concluded that “absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates for 340B drugs for hospitals. HHS’s 2018 and 2019 340B drug reimbursement rates for 340B hospitals were therefore contrary to the statute and unlawful.” AHA v. Becerra, 142 S. Ct. 1896, 1906 (2022).