The U.S. Supreme Court granted HHS’ petition for certiorari in Azar v. Allina Health Services after the D.C. Circuit’s decision resulted in a circuit split by holding that the notice-and-rulemaking requirements of Soc. Sec. Act §1871(a)(2) apply to interpretive rules. The Court’s grant of certiorari is limited to the question of whether Soc. Sec. Act §1871(a)(2) or (a)(4) required HHS to conduct notice-and-comment rulemaking before providing the challenged instructions to a Medicare administrator contractor (MAC) making initial determinations of payments due under Medicare.
Certain hospitals serving a disproportionate number of low-income patients receive a disproportionate share hospital (DSH) adjustment. In 2004 (Final rule, 69 FR 48916, August 11, 2004) CMS determined that a patient who receives coverage for Part A benefits through a private health plan under Part C is a "patient entitled to benefits under Medicare Part A" for purposes of determining a hospital’s DSH Medicare fraction under Soc. Sec. Act §1886(d)(5)(F)(vi)(I). A district court in a separate case vacated the final rule (see Final rule resulting in significantly reduced reimbursement rates to low income hospitals vacated, April 2, 2014).
In June 2014, when CMS calculated Medicare fractions for fiscal year (FY) 2012, it included Part C days based on its interpretation of the statute. The Allina hospitals challenged CMS’ calculation of the Medicare fractions, arguing that Soc. Sec. Act §1871 requires the Secretary to engage in notice-and-comment rulemaking before it could base its calculations for the FY 2012 fractions on its interpretation of the Act.
The district court granted summary judgment to CMS (see CMS ultimately prevails in hospital’s suit for uncompensated care, August 18, 2016), and the D.C. Circuit reversed and remanded, finding that section 1871 required HHS to conduct notice-and-comment rulemaking before CMS provided contracts with its calculation of the hospitals’ FY 2012 Medicare fractions (see Change in reimbursement adjustment formula without notice and comment violates Medicare, July 27, 2017). For more on the history of this case, see Allina II decision: Too soon to declare a win for providers? September 12, 2017.
In its petition for cert, HHS also argued that the appellate court’s decision undermines its ability to administer the Medicare reimbursement process through MACs and poses significant costs on the government (see Interpretative battle continues, HHS seeks cert in Allina II, May 1, 2018). The petition noted that the Medicare fraction issue alone affects between $3 and $4 billion in Medicare funding.
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