The Supreme Court heard oral arguments Tuesday in a case in which billions of dollars are at stake for certain hospitals administering outpatient drugs like those used to treat cancer — and the debates got quite technical.
At times, the thrust of Tuesday's arguments seemed to center around debating single words and phrases to determine whether HHS had the authority to change payment rules in 2018 for a certain category of hospitals known as 340B hospitals, which receive steep discounts on drugs for caring for a large share of needy patients.
Justice Elena Kagan seemed to have the strongest line of questioning. It was critical of the government's stance that it could single out and lower 340B hospitals' reimbursement for these outpatient drugs while all other hospitals continued to be paid at the same uniform rate.
HHS cut the rate from the average sales price of the drugs plus 6% to the average sales price minus 22.5%. The American Hospital Association, which brought the challenge heard Tuesday, has argued that the slash resulted in a $1.6 billion cut to hospitals in the program. The payment change came amid criticism that 340B hospitals' savings from the program aren't monitored to ensure they get back to patients.
The law gives HHS two pathways for setting rates for the drugs. It can either base the rate on the average acquisition cost — what hospitals actually paid to obtain the drug — so long as it conducts a survey to collect the data. And if it has the data, it can vary the rates by hospital group. However, if HHS does not have the survey data, it is to set rates based on the average price for the drug.
The problem for HHS is that it did not obtain survey data on drug acquisition costs. But it still changed the rate for 340B hospitals, varying it from all other hospitals.
Kagan appeared to side with the AHA's assertion that this move was outside the bounds of HHS' authority. AHA has argued the law is not ambiguous on this command and Kagan seemed to agree.
"You can charge acquisition cost when you've done a survey. And when you haven't done a survey — which the agency has refused to do for years — well, then you don't get to do this. You have to do something else," Kagan said pointedly to Christopher Michel, assistant to the solicitor general.
Michel argued a single phrase at the end of the statute gives the agency license to make the rate change that targets 340B hospitals, regardless of whether they obtained survey data. Michel recited the phrase to Kagan, "as adjusted by the Secretary for purposes of this paragraph."
Kagan didn't seem swayed.
"But not to override the point of doing survey in order to get acquisition costs," Kagan quickly shot back.
Ultimately, the change resulted in a $1.6 billion reimbursement cut to hospitals in the 340B program.
The case drew additional attention over whether the court would overrule a key legal doctrine referred to as Chevron deference. The doctrine essentially defers to a federal agencies' interpretation of statutes when they're ambiguous.
The key word there is ambiguous — whether the statute is unclear. Even the hospital lobby's lawyers argued Tuesday that the statute is understandable as written.
"We think this is a situation in which the statute is clear, unambiguous ... therefore, one doesn't get to the question of whether Chevron needs to be overruled," Don Verrilli, the plaintiff's lawyer, said.
The court's more conservative members seemed to harp on Chevron. The first question of the entire case was from Justice Clarence Thomas, who asked bluntly, "Are you arguing that we should overrule Chevron?"
Later on, Justice Neil Gorsuch questioned the basic idea of Chevron.
"What's ambiguous enough to trigger deference to the government?" he asked, adding, "How much ambiguity is enough?"
Michel, the lawyer representing the government, did not have an answer.
"These cases always tend to arise or often tend to arise in circumstances just like this, where the government seeking deference for a rule that advantages it," Gorsuch said.
A decision in this case is expected some time next summer.