American Hospital Association v. Becerra
The Facts
HHS reduced reimbursements to 340B-program hospitals for outpatient drugs from the standard rate to the average sales price minus 22.5 percent, saving an estimated $1.6 billion annually. The American Hospital Association challenged the rule, arguing HHS exceeded its statutory authority and failed to comply with APA notice-and-comment requirements.
The Application
HHS's reduction of reimbursement rates for 340B hospitals represented a permissible exercise of the agency's existing statutory authority under the Medicare Act, not a substantive change requiring notice-and-comment rulemaking. The Court rejected AHA's argument that HHS lacked authority to adjust rates without surveying hospitals' acquisition costs, holding that the statute provided sufficient discretion for the agency to set rates based on average sales price methodologies. Because HHS was interpreting and applying its original statutory mandate rather than fundamentally altering prior policy, the Administrative Procedure Act did not require pre-implementation notice and comment from affected hospitals.
The Conclusion
**Court ruled 9-0 for HHS.** Hospitals lost; the reduced reimbursement rates were upheld as a lawful exercise of the agency's rate-setting authority.
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Case Analysis
Overview
The Supreme Court unanimously upheld the Department of Health and Human Services' 2019 rule reducing Medicare reimbursement rates for prescription drugs dispensed by 340B hospitals. The Court held that HHS acted within its statutory authority under the Medicare Act and that its interpretation did not require notice-and-comment rulemaking.
Facts
HHS reduced reimbursements to 340B-program hospitals for outpatient drugs from the standard rate to the average sales price minus 22.5 percent, saving an estimated $1.6 billion annually. The American Hospital Association challenged the rule, arguing HHS exceeded its statutory authority and failed to comply with APA notice-and-comment requirements.
Issue
Whether HHS exceeded its authority under the Medicare Act by reducing drug reimbursement rates for 340B hospitals without conducting a survey of hospitals' acquisition costs.
Rule
Agency action is upheld when it falls within the plain text of the governing statute; notice-and-comment rulemaking is required only when an agency changes existing rules, not when it exercises statutory discretion within the original framework.
Analysis
HHS's reduction of reimbursement rates for 340B hospitals represented a permissible exercise of the agency's existing statutory authority under the Medicare Act, not a substantive change requiring notice-and-comment rulemaking. The Court rejected AHA's argument that HHS lacked authority to adjust rates without surveying hospitals' acquisition costs, holding that the statute provided sufficient discretion for the agency to set rates based on average sales price methodologies. Because HHS was interpreting and applying its original statutory mandate rather than fundamentally altering prior policy, the Administrative Procedure Act did not require pre-implementation notice and comment from affected hospitals.
Conclusion
**Court ruled 9-0 for HHS.** Hospitals lost; the reduced reimbursement rates were upheld as a lawful exercise of the agency's rate-setting authority.
Notes
OT2021. Added via SCOTUS bulk import 2026-05-14
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