Dec 1, 2021 - Health

Supreme Court weighs whether hospital drug cuts are valid

A doctor in blue protective gear stands in a hospital COVID-19 unit with medical equipment outside of rooms.

Photo: Megan Jelinger/AFP via Getty Images

The U.S. Supreme Court heard oral arguments Tuesday about whether the federal government had the authority to cut hospitals' payments for outpatient drugs.

Why it matters: The controversial case involves billions of dollars for hospitals, pits not-for-profit hospitals against rural and for-profit facilities, and tests the broader legal theory of whether federal agencies can take matters into their own hands when laws are vague.

Details: Justices questioned Donald Verrilli, the former U.S. Solicitor General representing the American Hospital Association and other hospitals, and Christopher Michel of the Department of Justice.

  • Hospitals pocket large savings when acquiring certain drugs through a federal program called 340B.
  • Medicare, under the Trump administration, instituted a 28.5% cut to those drug payments starting in 2018. Research indicated some hospitals were profiting excessively from the program.
  • Justices peppered both sides about whether Medicare's rate adjustment abided with the law.

Zoom in: The crux of the case falls on the so-called Chevron doctrine, which says federal agencies like Medicare have some leeway to interpret ambiguous laws, and courts should defer to them.

  • However, after decades of using this legal doctrine, "How much ambiguity is enough?" Justice Neil Gorsuch asked.
  • "I'm not sure anybody's answered that question," Michel said. And in this case, "I don't think there's much ambiguity at all," he said.

The bottom line: A ruling against hospitals would redistribute large sums of money from a drug discount program that many experts believe the hospital industry has abused, and it would solidify Medicare's ability to make these types of adjustments based on current law.

Go deeper: Overviews from legal experts Nicholas Bagley and Allison Hoffman.

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