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Profs. Cary Coglianese and Allison Hoffman share their insights on American Hospital Association v. Becerra

November 23, 2021

The case centers on the Chevron doctrine, which provides that courts should defer to an administrative agency’s reasonable interpretation of an ambiguous statute.

On November 30, the Supreme Court will hear oral arguments in American Hospital Association v. Becerra, a case that presents the Court to reconsider, or even abandon, a longstanding legal principle known as the Chevron doctrine.

The Chevron doctrine derives from the 1984 case of Chevron v. NRDC, in which the Court ruled that if a statute isn’t clear, courts should defer to an administrative agency’s interpretation of the statute so long as it is reasonable. Chevron is one of the most widely cited decisions governing how federal administrative agencies carry out the responsibilities Congress has given to them.

The issue facing the Court in Becerra is whether judicial deference under the Chevron doctrine permits the Department of Health and Human Services to set lower reimbursement rates to certain hospitals for outpatient drugs when treating Medicare patients.

The Office of Communications at the University of Pennsylvania Carey Law School spoke with Cary Coglianese, Edward B. Shils Professor of Law and Professor of Political Science, and Allison K. Hoffman, Professor of Law, about the case.

Coglianese specializes in the study of administrative law and regulatory processes, with an emphasis on the empirical evaluation of alternative processes and strategies and the role of public participation, technology, and business-government relations in policy-making.

Hoffman is an expert on health care law and policy and examines some of the most important legal and social issues of our time, including health insurance regulation, the Affordable Care Act, Medicare and retiree healthcare expenses, and long-term care.

Professor Coglianese:

“Everyone interested in the law governing the vast bureaucracy of the federal government should keep their eyes on American Hospital Association v. Becerra,” Coglianese said.

Cary Coglianese, Edward B. Shils Professor of Law Cary Coglianese, Edward B. Shils Professor of LawCoglianese noted that several members of the current Court have been especially critical of Chevron deference, claiming that it calls for judges to abdicate their responsibilities to interpret statutory meaning.

“The AHA case this Term may well provide the Court with the vehicle to pronounce this deference doctrine dead,” he said. “What would remain to take its place is not known, but it seems likely only to create confusion and uncertainty about the meaning of the law governing the administrative state.”

In his scholarship, notably in a recent article, “Chevron’s Interstitial Steps,” Coglianese has examined how the Court has justified the Chevron doctrine in the past and how operates as a matter of law. He has argued that, when properly understood, the Chevron doctrine not only does not amount to any abdication of judicial duty but actually reflects a fidelity to Congress and to the law.

“Judges are involved throughout the entire process of conducting Chevron analysis,” Coglianese explained, “and they can hardly be said to have abdicated their role when both steps of Chevron’s famous two-step framework call for legal judgment — as do the necessary steps in between the two steps.”

In another work, “The Ambiguity in Judge Kavanaugh’s Chevron Critique,” published in The Regulatory Review, Coglianese discussed Justice Kavanaugh’s criticisms of Chevron and the difficulty of resolving them any better than with the current Chevron doctrine.

“If Chevron were to be overturned, judicial decisions might not actually prove to be any more principled and predictable,” he wrote. “Statutory interpretation is not like solving a simple mathematical equation. Judges will most certainly disagree with each other even under Judge Kavanaugh’s preferred approach of having judges always seek the ‘best reading’ of a statute.”

Professor Hoffman:

The upcoming case of American Hospital Association v. Becerra “deals with whether hospitals can retain the benefit of drug discounts they get for serving low-income and vulnerable populations,” said Hoffman. “Under a program called 340B, qualifying providers get discounts on drugs that can be as much as 25 to 50 percent off of what they would otherwise pay. They can administer these drugs to any of their patients and bill insurers, including Medicare or private insurance. Until recently, providers would retain the full difference between what a patient’s insurer pays and the discounted price, using the extra to subsidize other areas of their operations.

Allison Hoffman, Professor of Law Allison Hoffman, Professor of LawIn 2018, the Centers for Medicare and Medicaid Services (CMS) dramatically reduced how much they pay for a subset of drugs that patients receive in hospital outpatient departments, typically for cancer treatment, called specified covered outpatient drugs (SCODs). They reasoned that the new price was closer to what the hospitals actually paid. Part of what likely motivated CMS is that the number of hospitals in the 340B program has ballooned in recent years and includes many hospitals that arguably do not need subsidization. The spending on SCODs has also grown significantly. With this reduction, Medicare saved, and hospitals lost, an estimated $1.6 billion dollars in 2018.

The Court will decide if the Medicare statute, which has detailed language on how to pay for SCODs, allows this decrease. From a health policy perspective, the case has limited impact because it only deals with a limited period of reimbursement. From the perspective of agency deference, however, the case might have more bite.”

Hoffman recently expounded upon her insights on this case in “Supreme Court Will Determine Whether 340B Hospitals Retain Discounts on Medicare Part B Drugs,” published by The Commonwealth Fund.

“Regardless of how the Supreme Court decides, the case raises the question of whether there is a better way to subsidize the operations of hospitals serving low-income populations than the ability to retain excess reimbursement rates on discounted outpatient drugs,” she writes.

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