WILL CHEVRON FALL THIS TERM?

            The Supreme Court’s 1984 Chevron decision generally allows administrative agencies leeway when interpreting ambiguous statutes.  It has had its critics over the years, including some of the current members of the Supreme Court.  The Court typically hears a number of cases each term that implicate Chevron, and this term is no exception.  One has drawn attention as a case the Court might use to overrule Chevron.  That case, American Hospital Association v Becerra, which involves the method Medicare uses to reimburse hospitals that serve underserved populations for drugs prescribed to their outpatients, had its oral argument on November 30, 2021.  Any doubt the Chevron might be at stake was answered by Justice Thomas who opened the questioning by asking the lawyer for the Hospital Association, which lost at the DC Circuit, whether, if the Court thought DC Circuit correctly applied Chevron to allow the cost approach recently adopted by Medicare, he was asking that the Court overrule Chevron.

            But that is about as far as the drama went.  Lawyers for both parties seem to think they can win on a straightforward application of Chevron to this case, and neither leaped at the chance to question Chevron’s validity.  So if members of the Court are thinking of using this case as a vehicle to overrule Chevron, they got no help from the parties on how to approach such a considerable change in the law.

            The oral argument was mostly about the minutia of the statutory language that directs Medicare on how to set reimbursements rates for hospitals that have prescribed drugs to outpatients.  As such, the argument is virtually incomprehensible without some background, which is readily available in the D.C. Circuit’s opinion in the case that can be found at 967 F.3d 818.  First, the statute.  It proscribes two different methods Medicare must use.  If Medicare has surveyed hospitals on the costs they incur when purchasing drugs, then it is to reimburse hospitals at the “average acquisition cost for the drug.”  If no such survey has been performed, then it must use the “average price for the drug,” a figure that is to be determined by a process set forth in a different statute and amounts to 106% of the costs a hospital incurs.  No such survey has been performed, and, though Medicare has for years reimbursed all hospital under the second approach, in 2017, it reduced its reimbursements to hospitals that serve underserved populations because pharmaceutical companies sell them drugs at a discount.  This change reduced reimbursements to this group of hospitals by about $1.6 billion annually, which is why the American Hospital Association sued. 

            The Hospital Association’s’ arguments is that Medicare can’t take hospital acquisition costs into account except under the first method, which it cannot use because it hasn’t performed a cost survey.  Phrased in Chevron terms, the Association’s argument is that the statute is clear and Medicare lacks discretion to do anything but reimburse all hospitals at the same rate if it has not done a survey.  Medicare’s counter-argument is that its approach is consistent with the second approach because the statue allows Health and Human Services to “adjust” the price metric “as necessary.”  In Chevron terms, the adjustment language gave the agency discretion to create more than one category of hospital and to reimburse the categories differently.

            For the most part, the Court was most concerned that if it read the statute either way that the litigants proposed some of the language of the statute would be surplusage, and since the general rule is that statutes should be interpreted so that every portion of it is given meaning, the justices seemed unhappy with the alternatives presented.  One justice wondered whether a statute could be so vague that the discretion typically allowed agencies under Chevron to interpret vague statutes should not apply.  Another justice suggested that Chevron might not be applicable to this situation because the case presented a major issue, a concept the Court has used to avoid deferring to an agency when the topic is so significant that it cannot be believed the Congress left it to the agency to decide in its discretion.  Neither of these trial balloons would help the Court figure out how to come up with an interpretation of the statute that gave meaning to every word.

            Chevron makes issues of statutory interpretation turn on whether a statute is vague or not.  That simply is not the problem here.  The problem is that either Medicare has the authority to take its current approach or it does not.  However, vague the statute might be, there can really be only one correct answer.  There is no need to defer to the agency, as the DC Circuit did.  There is a need to determine whether Medicare’s approach is allowable under the very specific directions given it by Congress.  On this, Medicare has the better of the argument.  Hospitals that serve underserved communities have been getting drug discounts of between 25 and 55 percent.  A survey would have allowed Medicare to base reimbursements on the actual drug discounts received by particular hospitals.  But in the absence of such a survey, Medicare could take note that this group of hospitals was getting at least a 25% discount, and base reimbursements on the lowest discount received by these hospitals.  The authority Congress gave Medicare under the second approach to make adjustments must mean at least that Medicare can create more than one category of hospital and reimburse based on its general knowledge of the price this category pays for drugs.

            It is possible them that the Supreme Court could use this case to overturn Chevron, but I doubt it will until it is presented with a case in which the agency should lose, but the only way to achieve that would be to overturn Chevron.