The US Supreme Court ruled unanimously Wednesday that the Department of Health and Human Services (HHS) may not cut Medicare drug reimbursement for a specific group of hospitals without a survey of hospitals’ pharmaceutical acquisition costs.

The American Hospital Association (AHS) sued HHS over HHS’s plan to reduce reimbursement rates for “340b hospitals,” which serve low-income and rural populations. HHS did not conduct a survey that would have allowed them to vary rates between hospitals. AHS argued that, under 42 USC § 1395l(t)(14)(A)(iii)(II), HHS was required to set reimbursement rates at the average price hospitals at which bought each drug from the manufacturer for all hospitals. The US District Court sided with AHS, while the US Court of Appeals for the District of Columbia (DC) Circuit ruled in favor of HHS.

Justice Brett Kavanaugh delivered the opinion of the court, reversing the DC circuit. Kavanaugh called the case “straightforward” and said that:

The data regarding variation in hospitals’ acquisition costs in turn help HHS determine whether and how much it should vary the reimbursement rate among hospital groups. … But absent that survey data, as Congress determined, HHS may not make “billion-dollar decisions differentiating among particular hospital groups.”

Kavanaugh’s opinion did not mention the principle of Chevron deference, which stipulates that courts must defer to a federal agency’s interpretation of ambiguous statutes when it is “not unreasonable.” The DC circuit relied upon this principle when delivering its opinion, but the principle’s applicability was rejected by the Supreme Court.