967 F.3d 818
D.C. Cir.2020Background
- Medicare Part B reimburses hospitals for certain outpatient drugs (SCODs) under the Outpatient Prospective Payment System (OPPS); OPPS rates are set annually by HHS via notice-and-comment rulemaking.
- 42 U.S.C. § 1395l(t)(14) provides two alternative SCOD pricing methods: (I) average acquisition cost (requires hospital survey data and allows variation by hospital group), or (II) average price (ASP) "as calculated and adjusted by the Secretary as necessary for purposes of this paragraph."
- HHS historically used ASP (≈106% of ASP) because the acquisition-cost survey data required by (I) were unavailable; all hospitals were reimbursed at the same ASP-plus rate.
- In 2018 HHS invoked subclause (II) to cut SCOD reimbursement for 340B-participating hospitals to 77.5% of ASP (a 28.5% reduction), reasoning that 340B hospitals purchase drugs at steep discounts and reimbursement should approximate acquisition costs.
- Hospitals sued; the district court held HHS exceeded statutory authority and remanded; the D.C. Circuit addressed (a) whether §1395l(t)(12) precluded judicial review, and (b) whether HHS lawfully used subclause (II) to make the 340B-specific cut.
- The court of appeals held judicial review was not precluded and, applying Chevron deference, concluded HHS reasonably interpreted subclause (II) to permit the 340B adjustment and reversed the district court (with a partial dissent disagreeing on statutory text and scope of ‘‘adjust’’).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §1395l(t)(12) bars judicial review of HHS’s SCOD-rate adjustments | Hospitals: (t)(12) bars review because SCOD rates are part of OPPS rate-setting covered by paragraphs (2) and (9). | HHS: SCOD adjustments fall within nonreviewable OPPS actions under (t)(12). | Court: (t)(12) does not clearly preclude review of actions under paragraph (14); no clear & convincing evidence Congress intended to bar review. |
| Whether HHS had authority under §1395l(t)(14)(A)(iii)(II) to cut SCOD payments to 340B hospitals | Hospitals: Subclause (II) cannot be used to approximate acquisition cost or to do what (I) permits; (I)’s survey requirements control and foreclose (II) being used to vary rates by hospital group. | HHS: Subclause (II)’s authority to "calculate and adjust" ASP "as necessary" includes tailoring payments (including to reflect 340B discounts) to further paragraph (14)’s purpose of approximating acquisition costs. | Court: HHS’s reading is reasonable; Chevron deference applies; HHS permissibly adjusted ASP to bring 340B reimbursements closer to acquisition cost. |
| Whether HHS may vary rates by hospital group under subclause (II) absent acquisition-cost survey data | Hospitals: Only subclause (I) authorizes hospital-group variation (and only with required survey data); (II) is silent, so uniform rates required. | HHS: (II)’s broad adjustment power permits focused adjustments (including by hospital group) to fulfill paragraph (14)’s purposes. | Court: Statute does not unambiguously preclude group-specific adjustments under (II); HHS’s tailored reduction is permissible. |
| Whether the magnitude/scope of the 28.5% cut exceeds the meaning of "adjust" | Hospitals: "Adjust" implies modest changes; a near one-third cut targeted at one group is beyond adjustment authority. | HHS: "Adjust" is ambiguous as to size; the cut was supported by reliable data and was a conservative approximation of 340B discounts. | Court: "Adjust" is ambiguous on size; under Chevron the agency’s substantial adjustment was reasonable here. |
Key Cases Cited
- Chevron U.S.A., Inc. v. Nat. Res. Def. Council, 467 U.S. 837 (U.S. 1984) (establishes two-step deference framework for agency statutory interpretation)
- Amgen, Inc. v. Smith, 357 F.3d 103 (D.C. Cir. 2004) (discusses limits on HHS "adjustment" authority under OPPS and presumption of review)
- Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667 (U.S. 1986) (strong presumption favoring judicial review of administrative action)
- MCI Telecomms. Corp. v. AT&T Co., 512 U.S. 218 (U.S. 1994) (interprets "modify" to mean moderate or minor change; informs limits on statutory terms like "adjust")
- Barnhart v. Walton, 535 U.S. 212 (U.S. 2002) (agency interpretations of statutes they administer entitled to deference when reasonable)
- Util. Air Regulatory Grp. v. EPA, 573 U.S. 302 (U.S. 2014) (agencies may not rewrite unambiguous statutory terms to fit policy goals)
- National Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644 (U.S. 2007) (addresses resolving statutory ambiguity in favor of reasonable agency interpretation)
- Mercy Hosp., Inc. v. Azar, 891 F.3d 1062 (D.C. Cir. 2018) (overlap among statutory provisions does not automatically create ambiguity)
- Tenet HealthSystems HealthCorp. v. Thompson, 254 F.3d 238 (D.C. Cir. 2001) (agency OPPS rulemaking entitled to deference in health-care payment context)
- Cares Cmty. Health v. HHS, 944 F.3d 950 (D.C. Cir. 2019) (context on 340B hospitals’ reliance on Part B reimbursement revenue)