The Supreme Court appeared receptive to the claim that Medicare overstepped its authority when it cut the amount that it paid certain hospitals for drugs they dispensed in their outpatient departments. None of the justices voiced sympathy with the government’s argument that Congress had precluded judicial review of the question. And while oral argument mainly involved a technical discussion about statutory meaning, several of the conservative justices toyed with the possibility of abandoning Chevron deference — the principle that the courts will defer to an agency’s reasonable interpretation of the statute that it administers.
It is always treacherous to try to anticipate what the justices will decide from the questions they ask at oral argument. Still, it’s safe to say that the hospitals challenging Medicare’s rate change had a good day in court. If they prevail, 340B hospitals will recoup billions in withheld payments and will continue to have an enormous incentive to dispense expensive drugs in their outpatient centers, even when cheaper and equally effective alternatives exist.
That’s a bad policy outcome, whatever the Supreme Court thinks the law requires. If Medicare lacks the legal power to fix it, however, it will be up to Congress to narrow the gap between 340B drug costs and Medicare payments. We could be waiting a very long time for a solution.