How Hospital Reimbursement Rates May Decide the Future of the Administrative State

Away from the spotlights of mainstream media, the healthcare industry has been quietly holding its breath for a new landmark ruling. Since December 2021, they expect a final decision on American Hospital Association v. Becerra.

This case started as a purely monetary issue: it deals with the limits on hospital reimbursement rates and who should be in charge of deciding them. However, there is a deeper issue at stake here. It offers an opportunity to revise the power of the Federal Government and its ability to solve any regulatory ambiguities in its favor.

American Hospital Association v. Becerra: What is at Stake Here?

The case was started by the American Hospital Association, a group representing private and public hospitals and health care networks from across the country. The lawsuit was addressed to Xavier Becerra, the Secretary of Health and Human Services.

In 2018, the Department of Health and Human Services (HHS) reduced the reimbursement rates for a specific category of hospitals. The rationale behind this decision is that these hospitals could acquire specific drugs more cheaply, at prices below the reimbursement amounts. According to the HHS, Medicare’s statutes prohibit it from reimbursing hospitals at a profit.

In reality, Medicare’s original statute does not say this clearly and leaves it open to interpretation. Initially, the district court ruled that the HHS was wrong and had exceeded its power by unilaterally lowering its prices. However, the U.S. Courts of Appeals determined the opposite.

What makes this case special?

The difference in coverage between what Medicare wants to reimburse, and the usual money received by hospitals, could provide a sizable dent in revenue for healthcare providers. Naturally, this money will have to come from somewhere else, ranging from staffing cuts to increased prices for other services or patients with other types of insurance.

So far, the alarm bells should have been confined to the healthcare industry, and this is perhaps why the media has left the case largely alone. However, the real issue is whether the HHS should be allowed to interpret any ambiguity in its favor.

By siding with the HHS, the Court of Appeals applied the “Chevron Deference.” This regular practice was first recorded in 1984 during Chevron versus the Natural Resources Defense Council.

In this case, the Supreme Court determined that the courts should defer to the specialist government agencies whenever a regulatory ambiguity arose, as long as the government’s interpretation was “not unreasonable.” This is because the agency in charge of a statute or issue (for example, education, health, or environmental defense) is considered to have expert knowledge of the industry and the laws regulating it.

Essentially, the agency knows better, and it’s their law, so they know what the law says. 

According to Alison Somin, a legal analyst with the Pacific Legal Foundation, the Chevron deference departs from the principle of judicial impartiality. 

The dangers of letting government solve any ambiguity

By allowing the Federal Government to decide what the law is, government agencies have been allowed to progressively increase their powers. Whenever there has been room to increase the degree of intrusiveness of regulations, the Chevron Deference opens the gate for it.

What the Final Ruling Could Mean

Now that the case is before the Supreme Court, Justice Samuel Alito recognized the danger. To overrule the HHS, it may be necessary to overrule the Chevron Deference or limit its powers.

On the one hand, this could question many previous cases in which Chevron already played a role. At the same time, it offers an opportunity to curb the continued growth of the administrative state and create a more flexible and dynamic society.

Grassroots Pulse covers public policy and political issues aimed at engaging highly-active policy makers, donors, and grassroots leaders at the forefront of the political process in America today.

Image Credit: Photo by Ian Hutchinson on Unsplash

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