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American Hospital Association v. Azar

United States Court of Appeals, District of Columbia Circuit

July 17, 2018

American Hospital Association, et al., Appellants
v.
Alex Michael Azar II, in his official capacity as the Secretary of Health and Human Services and United States Department of Health and Human Services, Appellees

          Argued May 4, 2018

          Appeal from the United States District Court for the District of Columbia (No. 1:17-cv-02447)

          Michael R. Smith argued the cause for appellants. With him on the briefs were Carlos T. Angulo and Wen W. Shen.

          Chad I. Golder and Sarah G. Boyce were on the brief for amici curiae 35 State and Regional Hospital Associations in support of plaintiff-appellants.

          Laura Myron, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Chad A. Readler, Acting Assistant Attorney General, Jessie K. Liu, U.S. Attorney, and Mark B. Stern, Attorney, Robert P. Charrow, General Counsel, U.S. Department of Health and Human Services, Kelly M. Cleary, Deputy General Counsel, Janice L. Hoffman, Associate General Counsel, Susan M. Lyons, Deputy Associate General Counsel for Litigation, and Robert W. Balderston, Attorney.

          Before: Srinivasan, Millett, and Katsas, Circuit Judges.

          OPINION

          Katsas, Circuit Judge

         To obtain judicial review of claims arising under the Medicare Act, a plaintiff must first present the claims to the Secretary of Health and Human Services. In this case, we consider whether a plaintiff may satisfy this presentment requirement by filing comments in an informal rulemaking. We also consider whether a plaintiff may cure any failure to present through administrative filings made while a case is pending on appeal.

         I

         The Medicare program provides federally-funded health insurance to qualifying elderly and disabled individuals. 42 U.S.C. § 1395 et seq. Part A of Medicare covers primarily inpatient hospital services, while Part B includes coverage for outpatient hospital care. See id. §§ 1395c, 1395j, 1395k.

         The Outpatient Prospective Payment System ("OPPS"), a component of Part B, reimburses hospitals that provide covered outpatient services. Id. § 1395l(t). Under the OPPS, hospitals receive set payments for particular services rendered, as determined under a formula that is fixed in advance and adjusted annually. See id. A hospital seeking reimbursement must file an administrative claim with a Medicare administrative contractor (also known as a "fiscal intermediary") acting on behalf of the Secretary. 42 C.F.R. § 424.32. If dissatisfied with the contractor's initial determination, the hospital then may pursue within HHS various other avenues for redetermination, reconsideration, hearings, and appeals. See 42 U.S.C. § 1395ff; 42 C.F.R. § 405.904. Congress has precluded judicial review of various classifications, calculations, and adjustments of the OPPS reimbursement rates. See id. § 1395l(t)(12).

         This case involves the so-called "340B Program," which allows certain hospitals to purchase outpatient drugs from manufacturers at or below specified prices. See Public Health Services Act § 340B, 42 U.S.C. § 256b. When hospitals treat Medicare beneficiaries with these drugs, they are reimbursed through OPPS.

         In setting the annual reimbursement rates for drugs obtained through the 340B Program, the Secretary must use either the "average acquisition cost" of the drug, taking into account "hospital acquisition cost survey data," or, if those data are unavailable, the "average price" of the drug, as established under different provisions of Medicare. 42 U.S.C. § 1395l(t)(14)(A)(iii). The relevant cross-referenced provision fixes payment rates at 106% of the average sales price. See id. § 1395w-3a(b). If the average-price metric is used, this 106% figure may be "adjusted by the Secretary as necessary for purposes of [OPPS]." Id. § 1395l(t)(14)(A)(iii)(II). The Secretary does not have acquisition cost survey data, so he historically has set the OPPS reimbursement rate for drugs purchased through the 340B Program at 106% of the average sales price, without any adjustments. See Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, 77 Fed. Reg. 68, 210, 68, 382-86 (Nov. 15, 2012).

          The regulation at issue here sets the OPPS reimbursement rate for these drugs for 2018. It reduces the rate from 106% to 77.5% of the average sales price. Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, 82 Fed. Reg. 52, 356, 52, 493-511 (Nov. 13, 2017). In reducing the rate, the Secretary invoked his authority to adjust the average-price determination for OPPS purposes. See id. at 52, 496. To justify the reduction, he cited various studies indicating that ...


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