In a landmark decision on June 3, 2019, the Supreme Court held that the Department of Health and Human Services (HHS) was required to engage in notice and comment rulemaking before publishing methodology (Medicare Fractions) that affected the Medicare reimbursement amounts owed to hospitals that serve a significantly disproportionate number of low income patients. And, the implications of the decision are much broader than that. The decision is Azar v. Allina Health Servs., No. 17-1484, 587 U.S. __, 2019 WL 2331304 (2019).
In 2014, HHS published an instruction as to the Medicare Fractions to be used in calculating adjustments paid to hospitals that served a disproportionate number of low income patients for fiscal year 2012. At the top of the spreadsheet containing those fractions, HHS noted that it had included Medicare Part C (Medicare Advantage) days in the Medicare Fractions – a practice that had not undergone notice and comment rulemaking and that reduced payments to hospitals. In Allina, the Supreme Court held that HHS could not use the 2014 instruction to place Part C days in hospitals’ Medicare Fractions because the instruction had not undergone notice and comment rulemaking.
The analysis of whether an agency is required to undergo notice and comment rulemaking is different depending whether the applicable standard is that set forth in the Administrative Procedure Act (APA) (applicable to many agencies but not to public benefit programs like Medicare), or the Medicare Statute (applicable to Medicare rules and policies). The APA requires notice and comment rulemaking for “substantive rules,” whereas the Medicare Statute requires notice and comment rulemaking for “substantive legal standards.” In Allina, the Supreme Court held that “substantive rules” are not the same as “substantive legal standards.”
In Allina, the Supreme Court chose not to disturb the D.C. Circuit’s holding that an HHS standard must undergo notice and comment rulemaking if it requires Medicare Administrative Contractors (fka fiscal intermediaries) to apply a new or different standard that impacts a hospital’s right to receive payment from the Medicare program. This holding provides hospitals and their representatives new legal arguments against reimbursement policies implemented without notice and comment rulemaking, and requires HHS to give affected parties advance notice of potential changes in the law and an opportunity to be heard on those changes. The U.S. District Court for D.C. – where the vast majority of challenges to Medicare rules and policies are brought – is bound by the D.C. Circuit’s holding. Other jurisdictions may be inclined to follow suit.