Commercial Litigation Update

Biometric technologies—such as fingerprint scanners, facial recognition systems, and retina scans—are now commonplace in modern business operations. From employee timekeeping systems to facility security and customer-facing applications, these tools offer efficiency and convenience for many businesses. But these same conveniences have sparked backlash in the form of privacy litigation. In Illinois especially, companies are facing a surge of class-action lawsuits under the state’s Biometric Information Privacy Act (“BIPA”), a pioneering law that imposes strict requirements on the use of biometric data and hefty penalties for companies failing to adhere to the law. This trend is not confined to Illinois: a growing patchwork of similar laws in other states means that using biometrics without proper safeguards can expose companies nationwide to significant statutory damages and legal risks.

The U.S. Supreme Court’s ruling in American Hospital Association (“AHA”) v. Becerra (2022) sent shockwaves through the 340B drug pricing program when it held that CMS’ reduction of reimbursement for drugs purchased under the 340B program was not permitted by law. The Supreme Court chose not to address potential remedies and remanded the case back to the D.C. District Court for further proceedings on how to correct the underpayments. Instead of vacating the unlawful reimbursement rates, the District Court decided to remand without vacatur, allowing HHS the opportunity to remediate its underpayments.^[1] AHA v. Becerra (2023).

In response, the Centers for Medicare & Medicaid Services (CMS) issued a 2023 Final Rule mandating a retroactive lump-sum reimbursement to 340B participating hospitals for 340B underpayments made between 2018 and 2022. The Supreme Court’s decision, coupled with CMS’s administrative action, has led to significant contractual disputes and regulatory challenges as 340B contract hospitals seek restitution for past financial shortfalls while Medicare Advantage organizations (“MAOs”) grapple with the fiscal implications of these payment adjustments. The stakes are high, with hospitals seeking significant back payments and MAOs pushing back, arguing that their obligations are dictated by contracts, not federal rulemaking. As legal battles unfold, the question remains: Who is financially responsible for correcting these underpayments? This article analyzes these developments, focusing on the litigation between hospitals and MAOs and offering strategic contractual considerations in this shifting landscape.

[1] The court reasoned that vacatur would be highly disruptive due to the complexity of the Medicare system and potential budget neutrality concerns.