This educational guide is based on the linked primary sources. It is not a Court publication, is not affiliated with the Court, and is not legal advice.
In brief
Overview
The Supreme Court held that the Department of Health and Human Services may not vary Medicare reimbursement rates for 340B hospitals without first conducting a survey of hospitals’ acquisition costs; the 2018 and 2019 rates were therefore contrary to the statute and unlawful.
The Court reversed the judgment of the U.S. Court of Appeals for the D.C. Circuit and remanded the case for further proceedings consistent with its opinion.
Background and question before the Court
The dispute centered on whether HHS could set different Medicare reimbursement rates for 340B hospitals using “option 2” (price‑based calculation) without first conducting a cost‑study of hospitals’ acquisition costs as required by the statute.
What each side argues
American Hospital Association (Petitioner)
According to American Hospital Association (Petitioner), the petitioners argued that the reimbursement rates for 340B hospitals differed from those for other hospitals and that HHS failed to conduct the statutory cost study.
According to American Hospital Association (Petitioner), they contend that Congress did not intend to delegate to HHS the authority to vary reimbursement rates without a cost study.
According to American Hospital Association (Petitioner), they assert that Congress legislates not only objectives but also the means, requiring a cost‑study to ensure accuracy and transparency.
According to American Hospital Association, the AHA and other interested parties challenged the 2018 and 2019 reimbursement rates in federal court.
Department of Health and Human Services (HHS)
HHS maintains that, even without a cost‑study, it may “adjust” the average price as necessary under the statutory provision.
What happened at oral argument
Justice Thomas asked whether the Court should overrule Chevron to reach the statutory approach the petitioners were taking.
According to Justice Thomas, justice Thomas also inquired how often the petitioners had conducted subclause 1 surveys.
Justice Sotomayor asked what to do with the calculation in section 3a.
According to Justice Kavanaugh, justice Kavanaugh questioned whether the term “overpayment” with respect to 340B hospitals was appropriate.
Justice Breyer asked whether the government agrees with the statement of when Chevron deference applies.
What the Court decided
The Court concluded that, absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates for 340B hospitals; the 2018 and 2019 rates were contrary to the statute and unlawful.
The judgment of the U.S. Court of Appeals for the D.C. Circuit was reversed and the case was remanded for further proceedings consistent with this opinion.
Why it matters
HHS’s total reimbursements to hospitals for prescription drugs total tens of billions of dollars each year.
For 340B hospitals, the case involves economic consequences of about $1.6 billion annually.
Statutory “option 2” does not authorize HHS to vary reimbursement rates for different groups of hospitals.
According to 37 State and Regional Hospital Associations, amici noted that the payments to 340B hospitals help offset the considerable costs these providers incur in caring for the uninsured, underinsured, and patients in remote areas.
Terms to know
No glossary terms are available for this guide.
Primary sources
Read the source materials on the official site or open the immutable repository copy used for this guide.
- 5abc85a12288b0d42d2c-r1-04c04c6f4ebb6c86.pdforal argument transcript
- 9845ad03a008a24637b3-r1-4a073a7488831863.pdfopinion
Guide generated September 28, 2026. Automated validation accepted this version.