Am. Hosp. Ass'n v. Azar
348 F. Supp. 3d 62
D.C. Cir.2018Background
- Plaintiffs (hospital associations and nonprofit hospitals) challenged HHS/CMS's 2018 OPPS rule that cut Medicare Part B reimbursement for drugs acquired through the 340B program from ASP+6% to ASP−22.5%.
- 340B permits covered hospitals to buy certain outpatient drugs at steep discounts; OPPS historically reimbursed those drugs at ASP+6% (the statutory benchmark under 42 U.S.C. § 1395w-3a and § 1395l(t)(14)(A)(iii)(II)).
- HHS justified the cut as aligning Medicare payments with 340B acquisition costs and reducing perceived overutilization and beneficiary cost-sharing; it used a MedPAC average discount (22.5%) to estimate acquisition costs in absence of hospital acquisition cost survey data.
- Plaintiffs sued under the APA and Social Security Act (42 U.S.C. § 405(g)), seeking vacatur of the rate change, retroactive and prospective application of prior methodology, and damages for underpayments.
- The government moved to dismiss for lack of jurisdiction (failure to exhaust, statutory preclusion, committed-to-discretion), and argued the Secretary had authority to "calculate and adjust" rates; the court found jurisdiction and addressed the merits.
- The Court held the Secretary acted ultra vires by making a sweeping nearly 30% reduction applicable to many drugs—effectively a fundamental restructuring beyond the limited "adjust" authority—and granted injunctive relief while ordering supplemental briefing on remedies because of budget-neutrality and systemic disruption concerns.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction / exhaustion under §405(g) | Exhaustion would be futile because the rule is final and administrative bodies lack power to overturn it | Plaintiffs must exhaust administrative remedies before judicial review | Court waived exhaustion as futile and exercised jurisdiction under §405(g) |
| Statutory preclusion of review (42 U.S.C. §1395l(t)(12)) | §(t)(12) does not clearly bar review of ultra vires action; ultra vires claims are reviewable | §(t)(12) generally precludes review of OPPS adjustments | Court: ultra vires review available; §(t)(12) does not bar review because Secretary exceeded statutory authority |
| Scope of Secretary's authority to “calculate and adjust” rates (§1395l(t)(14)(A)(iii)(II)) | Adjustment authority is limited; cannot fundamentally change statutory ASP+6% scheme to approximate acquisition costs without required survey data | "Adjust" language gives broad discretion to modify rates as necessary (subject only to being a function of average price) | Court: reduction to ASP−22.5% across thousands of drugs was a fundamental change beyond "adjustment" authority → ultra vires |
| Remedy and disruption (vacatur, retroactivity, budget neutrality) | Seek vacatur, application of 2017 methodology, and retroactive payments | Emphasizes budget-neutrality and systemic disruption from retroactive reallocation of payments | Court ordered supplemental briefing before fashioning remedy because vacatur/retroactivity would have complex, disruptive budget-neutral offsets |
Key Cases Cited
- Amgen, Inc. v. Smith, 357 F.3d 103 (D.C. Cir.) (limits on Secretary's adjustment authority; ‘‘adjustments’’ cannot remake statutory scheme)
- Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (1994) (burden of establishing federal jurisdiction)
- Heckler v. Ringer, 466 U.S. 602 (1984) (Medicare-related review and §405(g) framework)
- Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1 (2000) (§405(h) channeling—exacting exhaustion requirement)
- Mathews v. Eldridge, 424 U.S. 319 (1976) (administrative exhaustion and final agency decision requirement)
- Abbott Laboratories v. Gardner, 387 U.S. 136 (1967) (presumption of judicial review of administrative action)
- Leedom v. Kyne, 358 U.S. 184 (1958) (judicial review of ultra vires agency action)