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Low-Income Drug Discount Fight Looms in HHS’s Supreme Court Loss

June 17, 2022, 9:35 AM

A US Supreme Court loss for the HHS in a Medicare case gives the agency ammunition in a broader battle over drugmaker discounts for low-income Americans.

All nine Supreme Court justices agreed that the Department of Health and Human Services wrongly slashed $1 billion a year in drug reimbursements to hospitals through a 30-year-old government program designed to help at-need populations. The HHS and hospitals are now on the same side in another courtroom conflict over that program—whether the HHS can require that drugmakers offer discounts to certain pharmacies.

“HHS now has strong precedent and language to lean on from the Supreme Court,” said Vacheria Keys, director of regulatory affairs at the National Association of Community Health Centers. “This intention of how Congress wanted this program to work, having the Supreme Court speak on part of it gives HHS something else to stand on in court.”

Bloomberg Law data show at least nine federal cases involving the HHS over 340B program discounts. The 340B statute requires drugmakers to discount their drugs for providers that serve low-income populations in exchange for allowing their drugs to be covered in Medicaid and Medicare Part B.

The Supreme Court in its opinion didn’t directly address the broader question of whether courts should honor agency interpretations of vague laws, also known as Chevron deference. But some attorneys say the ruling still emboldens courts to second-guess agency interpretations.

“What the court has done here is to create a workaround, or at least a partial workaround, for a doctrine that the majority anyway didn’t agree with,” said David Slovick, a partner at Barnes & Thornburg LLP.

Legal observers expected the justices in this case to opine on the doctrine, which has been criticized by the court’s conservative members for giving agencies too much power.

‘Favorable View’ of 340B

Congress created 340B in 1992 to stretch federal resources, with certain hospitals, AIDS programs, and family planning clinics among the outlets entitled to discounts the program provided.

In 2020, Eli Lilly and Co., AstraZeneca plc, and other drugmakers began limiting distribution of discounted drugs to for-profit pharmacies offering medications on behalf of providers participating in 340B, citing program mismanagement and a burgeoning number of for-profit pharmacies.

A bevy of litigation soon followed, with Novartis Pharmaceuticals Corp. and others still duking it out with the government at the appellate level.

While the justices’ decision centers on a separate 340B issue, “it would not surprise me if you see references to this opinion in those other cases,” said Emily Cook, a McDermott Will & Emery LLP partner.

According to Cook, of particular importance in the contract pharmacy disputes may be language in the opinion, authored by Justice Brett Kavanaugh, that notes “340B hospitals perform valuable services for low-income and rural communities but have to rely on limited federal funding for support.”

Language in the opinion “suggests that the court does have a very favorable view of the 340B program and the hospitals that participate in that program,” Cook said.

“It protects the intent of the 340B statute, that the resources would be available for those of us, whether a hospital or health center, that serve vulnerable populations,” said Sue Veer, president and CEO of Carolina Health Centers.

Agency Authority

The outcome of the case may extend well beyond the confines of 340B, as attorneys say it encourages lower courts to weigh in on agencies’ statutory interpretations.

“This is going to have a ripple effect in all other areas of administrative law,” Slovick said.

“This really does go a long way to at least impairing the Chevron deference doctrine,” he said. “It gives lower federal courts more leeway to decide that an agency rulemaking is contrary to the text of a federal statute.”

The US Court of Appeals for the District of Columbia Circuit cited the doctrine in its ruling in the case when it deferred to the HHS’s interpretation of the 340B statute.

The Supreme Court opinion “did not once use the word Chevron and did not once use the word deference,” but it “goes a long way to providing an end run to the Chevron deference doctrine,” Slovick said.

In the opinion, Kavanaugh writes that “HHS’s contrary interpretation of the statute—and its broad understanding of its adjustment authority—would make little sense given the statute’s overall structure.”

The ruling is “a fairly strong rebuke from the Supreme Court about how the agency has attempted to overstep its authority,” said Mark Polston, a partner in King & Spalding’s health-care practice.

“If they know the Supreme Court unanimously thinks it’s the duty of the courts to do their own interpretation of statute,” then “there will be justices of the lower courts who take notice of that and perhaps follow suit,” he said.

Unlawful Cuts

The HHS hasn’t faced the last of the blowback over its call to slash reimbursement rates.

By this ruling saying HHS’ interpretation of that statute was incorrect, I would imagine on remand HHS will be required to pay those hospitals the difference that they didn’t get paid in the first place,” said Neal Peterson, partner of Dorsey & Whitney LLP’s health-care transactions and regulations practice group.

Those cuts “have really been a roadblock” for hospitals “to do as much as they possibly could for their communities,” said Beth Feldpush, senior vice president of policy and advocacy at America’s Essential Hospitals.

“The affirmation by the Supreme Court that those payment cuts were unlawful really, in effect, supports the intent of the 340B program,” she said.

The case is Am. Hospital Ass’n v. Becerra, U.S., No. 20-1114, 6/15/22.

To contact the reporters on this story: Ian Lopez in Washington at ilopez@bloomberglaw.com; Allie Reed in Washington at areed@bloombergindustry.com

To contact the editor responsible for this story: Alexis Kramer at akramer@bloomberglaw.com