Health Law Daily Supreme Court sides with hospitals, ending interpretive battle
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Monday, June 3, 2019

Supreme Court sides with hospitals, ending interpretive battle

By Cathleen Calhoun, J.D.

Government can’t create a "self-serving label" when deciding if notice-and-comment demands apply.

The U.S. Supreme Court held that the government failed to identify a lawful excuse for neglecting its statutory notice-and-comment obligations when making changes to its calculation of a hospital’s Medicare fraction. In a 7 – 1 decision, the high court affirmed the D.C. Court of Appeal’s under §1395hh(a)(2), finding that notice-and-comment obligations were required before changes were implemented to include Medicare Part C beneficiaries in a hospital’s Medicare fraction. The court noted that the language in the Medicare law, not the language in the Administrative Procedure Act (APA), was applicable (Azar, Secretary of Health and Human Services v. Allina Health Services, No. 17–1484, June 3, 2019)

Changing policies. Over the years, the policy of including Part C beneficiaries in the Medicare fraction has been changed by the government agency overseeing the program. Medicare Part C allows beneficiaries to choose to have the government pay their private insurance premiums rather than pay for their hospital care directly. As a result, the question became whether Part C patients should be counted as "entitled to benefits under" Part A when calculating a hospital’s Medicare fraction. The government agency’s policy shifted as follows:

  • 2004: a final rule is issued declaring that agency would count Part C patients, but that rule was later vacated after hospitals filed legal challenges.
  • 2013: a new rule is issued prospectively readopting the policy of counting Part C patients.
  • 2014: unable to rely on the vacated 2004 rule or the prospective 2013 rule, the agency posted on its website the Medicare fractions for fiscal year 2012, noting that they included Part C patients.

The hospitals filed suit, claiming, among other things, the government had violated the Medicare Act’s requirement to provide public notice and a 60-day comment period for any "rule, requirement, or other statement of policy . . . that establishes or changes a substantive legal standard governing . . . the payment for services," §1395hh(a)(2) (see Allina II decision: Too soon to declare a win for providers?September 12, 2017).

Court’s findings. The Court found that the government’s arguments failed to support its conclusion that no notice was required and noted the following:

  • The government’s interpretation, that because the policy of counting Part C patients in the Medicare fractions would be treated as interpretive rather than substantive under the APA, it had no statutory obligation to provide notice and comment before adopting its new policy, can’t be right. The Medicare Act doesn’t use the word "substantive" in the same way the APA does.
  • The Medicare Act contemplates that "statements of policy" like the one at issue here canestablish or change a "substantivelegal standard." Statements of policy are notsubstantive under the APA. This suggests that the Medicare Act isn’t using the word "substantive" the same way as the APA.
  • The government’s reading would mean incoherence in the Medicare statute—subsection(e)(1) of §1395hh(a)(2) gives the government limited authority to make retroactive "substantive change[s]" in "statements of policy."That statutory authority would make no sense if the Medicare Act used the term "substantive" as the APA does.
  • If Congress had also wanted to borrow the otherAPA exemption, for interpretive rules and policy statements, it could have easily cross-referenced that exemption.

Conclusion. The Court found that all available evidence showed that the phrase "substantive legal standard," appearing in §1395hh(a)(2), (and apparently nowhere else in the U. S. Code) was not the same as the term "substantive rule" in the APA. However, the Court would not go so far as to say that the hospitals’ interpretation, adopted by the court of appeals, was correct in every instance. Also, regarding the government’s insistence that the statute "does not speak directly to the issue" and "leaves a gap," the Court held that when the government establishes or changes an avowedly "gap"-filling policy, it can’t evade its notice-and-comment obligations on its current arguments.

Expert commentary. Attorneys with the firm of Hooper, Lundy & Bookman, PC, provided commentary to Wolters Kluwer regarding the decision and its impact on providers and Medicare rulemaking going forward. Partners Katrina A. PagonisRobert L. Roth, and John R. Hellow, along with founding partners Patric Hooper and Lloyd A. Bookman, and associate, Kelly A. Carrollcontributed. "Although the Court suggests that this decision will have fairly limited impact in terms of requiring that certain policies currently contained in the Provider Reimbursement Manual be adopted through notice-and-comment rulemaking, the implications for the Supreme Court’s decision on Medicare policymaking are potentially significant…The Allina decision makes clear that, over the past three decades, CMS has been required to provide notice and comment for all substantive legal standards in Medicare. This decision will aid providers, beneficiaries, and other stakeholders that have been adversely impacted by sub-regulatory guidance and will aid efforts to ensure that future Medicare policies are only adopted with proper notice and after consideration of public comments."

The case is No. 17–1484.

Attorneys: Noel J. Francisco, U.S. Department of Justice, for Alex M. Azar II. Stephanie A. Webster (Akin Gump Strauss Hauer & Feld, LLP) for Allina Health Services. Katrina A. Pagonis, Robert L. Roth John R. Hellow, Patric Hooper Lloyd A. Bookman, Kelly A. Carroll, for Hooper Lundy & Bookman.

Companies: Allina Health Services

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