Medicare Case Could Let Justices Rein in Federal Agencies (1)

Nov. 30, 2021, 6:42 PMUpdated: Nov. 30, 2021, 8:21 PM

The U.S. Supreme Court wrestled with a healthcare dispute that could end up with courts once and for all leaving federal agencies with less deference on thorny questions across all areas of law.

Tuesday’s oral argument focused on a technical question in a Medicare case. But looming larger was the simmering controversy over who should get the final word on interpreting ambiguous agency statutes—courts or the government.

The Supreme Court’s ruling, expected by July, could have “implications well beyond this case,” Justice Stephen Breyer said as the court heard the dispute over drug reimbursement rates the government pays to hospitals caring for underserved communities.

Breyer and other justices were referring to Chevron deference, a doctrine that says courts should generally defer to an agency’s interpretation of ambiguous statutes. It’s been criticized in recent years, including by some of the court’s newest conservative members. The court has so far stopped short of overturning it.

In the case argued Tuesday, the U.S. Court of Appeals for the D.C. Circuit sided with the government in a challenge brought by hospitals to Trump-era rules on drug reimbursement rates. The appeals court said the statutory language was unclear and deferred to the Health and Human Services Department’s interpretation under Chevron.

Troubling Trend

Critics concerned that agencies wield too much power see the current court as open to their calls to rein in the bureaucracy. So far the Supreme Court hasn’t been willing to overturn Chevron and its offshoots. Instead, the court has tinkered with the rules to encourage lower courts to serve as a check on agency power.

Justice Neil Gorsuch on Tuesday asked the Justice Department attorney defending the Trump-era healthcare reimbursement decisions why courts, rather than agencies, make shouldn’t the tough interpretative choices.

Gorsuch suggested that ambiguity alone shouldn’t be enough to swing the case to the government in all circumstances. But, he said, there’s been a “troubling trend” of lower court rulings in which judges just seem to throw up their hands in the face of tough statutory language.

Justice Brett Kavanaugh, too, was critical of the judiciary’s dependence on deference. He noted that even under Chevron, courts are supposed to take a crack at saying what the law is. They are supposed to use all the statutory interpretation tools in their toolbox, he said.

“Presumably, if you do that, you get an answer,” Kavanaugh said.

Justice Amy Coney Barrett said that it “seems to me that that might be just an interpretive question, you know, the classic problem of statutory interpretation that a court should resolve.”

What the Law is

Former U.S. Solicitor General Donald Verrilli, who represents the hospitals challenging reimbursement rates, said the case on Tuesday illustrates how lower courts have shirked their duty to say what the law is.

The Medicare provisions allow the government to use hospital “average acquisition costs” to determine reimbursement rates, so long as the government conducts a survey of those costs. If a survey isn’t possible, the law says the government can use “average price.”

Average cost and average price can be quite different, Barrett said, likening the gap to the sticker price of a car versus the price paid to take it off the lot.

The government wants to use average cost, even without the required survey. Justice Elena Kagan said that makes no sense.

“The text of the statutory provision sets it up as, if you do a survey, you can do one thing, and if you don’t do a survey, you can’t do that thing,” Kagan told Justice Department attorney, Christopher Michel. “And you’re saying that this delegation should be read to say, if you do a survey, you can do this thing, and if you don’t do a survey, you can also do this thing.”

“Why would Congress have written a statute like that?” she asked.

Nevertheless, the D.C. Circuit upheld the government’s use of the cost measure—not because it agreed that was the best reading of the case, but because it was a reasonable one.

Slashed Reimbursements

A ruling in the American Hospital Association’s favor could protect over $1 billion in annual funds for hospitals serving low income communities that rely on Medicare reimbursement to cover costs.

AHA argues that HHS acted beyond its statutory authority when it slashed around 30% in Medicare reimbursements participating in the government’s 340B drug discount program.

Hospitals use savings from the 340B program to provide additional healthcare services to at-need communities. HHS’ slash to reimbursements cut 340B hospitals by $1.6 billion annually, which AHA argues poses a serious threat to their abilities to offer services.

AHA says that the government unfairly singled out 340B providers when slashing drug reimbursements and didn’t use the proper data required under he Medicare Prescription Drug, Improvement, and Modernization Act. A district court found the cuts unlawful before the D.C. Circuit overturned them.

Interest groups like the New Civil Liberties Alliance and Americans for Prosperity Foundation have lined up behind the hospitals, arguing the case fits into a broader trend of courts granting too much leeway to interpret statutes.

The case is American Hospital Association v. Becerra, U.S., No. 20-1114.

(Updates throughout with quotes from justices, details of argument and Medicare case.)

To contact the reporters on this story: Kimberly Strawbridge Robinson in Washington at krobinson@bloomberglaw.com; Ian Lopez in Washington at ilopez@bloomberglaw.com

To contact the editors responsible for this story: Seth Stern at sstern@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com

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