Becerra: A Hint at a Post-Chevron World

            Back in 2021, one case, American Hospital Association v. Becerra, seemed to be teed up for the Supreme Court to reconsider its 1984 Chevron decision that generally allows administrative agencies leeway when interpreting ambiguous statutes.  The legal world would have heard about it if that had happened, but it didn’t.  When the decision came out in June 2022, the Court unanimously rejected Health and Human Services’s position that it had the statutory authority to reimburse drug costs for Medicare patients at a different and lower rate for hospitals that serve underserved populations because those hospitals get discounts from drug manufacturers.  Instead of accepting HHS’s Chevron argument that the Court should defer to the agency’s interpretation that the governing statute gave it discretion to take this approach, the Court did what I urged in a previous New England Law Review article, Rethinking Chevron, actually analyze the statute to see if it really granted the discretion the agency claimed exists. 

            This may be an indication that the Court will be moving away from Chevron, but although it is my view that it is typically easier to figure out whether a statute grants an agency discretion than it is to figure out how to apply Chevron, the decision illustrates once again that statutory interpretation is not easy.  Before the decision was issued, I had predicted when I commented on the case, that the Court would uphold the agency’s approach because the statutory language was broad enough to encompass HHS’s two-tier approach to drug cost reimbursement.  HHS relied on a provision that directed it to set reimbursement rates based on “the average price for the drug in the year. . . as calculated and adjusted by the Secretary.”  The Secretary’s power to make adjustments suggests some level of discretion in how to set reimbursement rates. Thus, the only question was whether a two-tiered reimbursement rate would be a potentially allowable adjustment. 

            The Court did not attempt to directly figure out the breadth of the Secretary’s adjustment discretion.  It went another route.  It was noted that, since the advent of the drug reimbursement program, HHS has used only one reimbursement rate.  That might be telling if the issue was whether the agency had any discretion at all, as it was in a dispute in FDA v. Brown & Williamson Tobacco Corp., 529 U.S.120 (2000) over whether the Food and Drug Administration could regulate cigarettes.  Justice O’Connor’s decision that the agency could not regulate cigarettes relied, in part, on the fact that the agency had said for decades that it did not have such authority.  But in this case, when the statute gives HHS some discretion, the agency’s prior practice of using only one reimbursement rate, which was probably the easiest to administer, sheds no light on how much discretion the adjustment language gives the agency.

            But the main point made by Justice Kavanaugh, who wrote the opinion, was that another provision foreclosed this option.  He focused on language that allowed HHS, if it had conducted a survey of every hospital’s acquisition costs, to set separate, individual reimbursement rates for every hospital in the country.  That provision also allowed HHS the option to create reimbursement rates that “vary by hospital group.”  Kavanaugh concluded that if the provision made hospital-by-hospital rate setting allowable exclusively when a survey was conducted, then the allowance of rates that vary by hospital group must also be allowable only if a nationwide survey was performed.  This is not the most plausible reason Congress added this language.  Rather than limiting the HHS Secretary’s adjustment discretion if no cost survey was performed, the provision allowing rates to vary by hospital group made clear that just because the agency went to the trouble of finding every hospital’s drug acquisition costs, it did not have to set separate reimbursement rates for the more than 6,000 hospitals in the country.  Chances are that if you gather data on such a large number of establishments, you will find that some of the data points will cluster in groups.  So if the costs faced by large urban teaching hospitals are similar and the costs to rural hospitals in the Great Plains states are also similar, HHS could set different reimbursement rates for these and other hospital groupings; it need not set 6,000 separate rates.  The very fact that Congress thought to emphasize to the agency that it could set reimbursement rates by hospital groupings when it had done a cost survey suggests that this was an ordinary way of setting rates that the agency could use when it did not perform a cost survey.  Thus, neither factor on which the Court relied supports its conclusion.

            It is not that I’m unhappy with the decision.  This means that more money goes to a hospital in Chicago where my daughter, the doctor, works with an underserved community.  But it does show that the Court is a bit rusty when addressing statutory interpretation questions that did not have to be figured out in the Chevron era.