Justices Rule Feds Exceeded Authority With Medicare Reimbursement Cuts

June 15, 2022 by Dan McCue
Justices Rule Feds Exceeded Authority With Medicare Reimbursement Cuts
The Supreme Court is seen at sundown in Washington. (AP Photo/J. Scott Applewhite)

WASHINGTON — In a unanimous decision, the Supreme Court on Wednesday ruled federal regulators improperly cut drug reimbursement payments to hospitals in low-income communities beginning in 2018, a move that cost hospitals and clinics billions of dollars.

The ruling in American Hospital Association v. Becerra reverses a 2020 court of appeals decision upholding the authority of the Department of Health and Human Services to significantly cut payments to certain hospitals that participate in the 340B Drug Pricing Program. 

So-called 340B hospitals typically serve a high percentage of low-income patients. The government argued that reimbursing these hospitals at the same rate as other hospitals that pay more created an incentive for the hospitals to overprescribe the drugs or prescribe more expensive drugs.

Writing for the court, Justice Brett Kavanaugh acknowledged the “immense economic consequences” the ruling would have but said in the end, the court’s decision was straightforward: “Because HHS did not conduct a survey of hospitals’ acquisition costs, HHS acted unlawfully by reducing the reimbursement rates for 340B hospitals.” 


In a joint statement, the American Hospital Association, Association of American Medical Colleges, America’s Essential Hospitals and three hospital members called the decision “a decisive victory for vulnerable communities and the hospitals on which so many patients depend.”

“340B discounts help hospitals devote more resources to services and programs for vulnerable communities and increase access to prescription drugs for low-income patients,” the associations continued.

The groups went on to say that now that the Supreme Court has acted, they look 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.”

Under Medicare, which provides health insurance for nearly 60 million people aged 65 and older or people with certain disabilities, health care providers are reimbursed by the government for a wide range of expenses including drugs used in outpatient care.


For years, hospitals were reimbursed at a rate based on the average price of the drugs. 

In 2018, however, the Trump administration said that 340B hospitals and clinics would be reimbursed at a lower rate because under federal law, pharmaceutical companies had to let them buy drugs at a lower cost. 

In the view of the White House, Medicare’s reimbursement rates to the hospitals should reflect these lower costs.

HHS promptly cut the reimbursement rate by nearly 30%, an annual decrease to 340B hospitals and clinics of about $1.6 billion.

The hospital industry challenged the cut, arguing that the relevant provision of the Medicare statute does not authorize the government to have a two-tiered reimbursement system allowing it to pay lower rates to 340B hospitals while maintaining higher rates for other hospitals. 

Kavanaugh agreed.


“Regardless of the scope of HHS’ authority to ‘adjust’ the average price up or down under the statute, the statute does not grant HHS authority to vary the reimbursement rates by hospital group unless HHS has conducted the required survey of hospitals’ acquisition costs,” he wrote.

Dan can be reached at [email protected] and @DanMcCue

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