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On January 15, 2019, the Supreme Court heard oral arguments in
Azar v. Allina Health Services, a prominent case involving
a challenge by hospitals over when Medicare's instructions to
its contractors impact a "substantive legal standard" and
thus must be issued through formal rulemaking. As discussed in our
prior post, the Court is reviewing the U.S. Court of Appeals
for the D.C. Circuit's decision that threw out a Medicare rate
calculation methodology for Disproportionate Share Payments (DSH)
to hospitals adopted by the U.S. Department of Health and Human
Services (HHS) for its failure to undergo notice and comment
rulemaking. During oral arguments, the Court grappled with a
broader question: what is the legal standard for when HHS must use
formal rulemaking and not "interpretative" instructions
to its contractors in the administration of the Medicare
program?
Highlights from Oral Argument
Only seven of the nine justices
participated in the argument: Justice Kavanaugh, who authored the
appellate decision, recused himself; Justice Ginsburg was
recovering from a medical procedure.
Justice Sotomayor began her
questioning two sentences into the government's opening
statement. Sotomayor expressed concern with the line the government
was attempting to draw between interpretive rules, which do not
require notice and comment rulemaking under the Administrative
Procedures Act ("APA"), and substantive rules, which do.
The distinction between interpretative and substantive rules
remains an open and disputed area in administrative law. Sotomayor
also seemed to suggest that "changes in how people are being
paid" are substantive changes.
Justices Sotomayor, Gorsuch and Kagan
pushed back against the government's position that the notice
and comment requirements of the APA, which have an exception for
interpretive guidance, and the Medicare act, which requires
rulemaking for any new or changed substantive legal standard, are
functionally equivalent, despite their textual differences.
Sotomayor suggested that Congress's decision "to
intentionally alter" the language of the notice and comment
requirements of the Medicare Act, which initially mirrored the APA,
demonstrates that the Medicare Act and APA requirements are not
coextensive.
The Hospital Respondents attempted to
address the government's concern that HHS's ability to
efficiently administer the Medicare program would be hampered if
the Supreme Court holds that the Medicare statute contains no
exception to notice and comment rulemaking for interpretative
rules. The hospitals suggested during argument that in their view
and based on their review of the thousands of pages of Medicare
guidance and manuals promulgated by CMS, only 35 pages would
require notice and comment rulemaking.
The hospitals also argued that the
government-issued Medicare rate calculations were binding, and
therefore substantive and subject to notice and comment rulemaking.
Chief Justice Roberts seemed unconvinced, stating that the rate
calculations at issue are interim calculations and therefore
"not binding at all."
Conclusion
If oral argument is any indication, the Justices do not seem to
be dividing along party lines. During argument, the Justices
expressed substantial support for the Court of Appeals' opinion
that vacated the 2012 Medicare formula. An affirming opinion from
the Court would provide up to $4 billion to health systems in
withheld DSH payments. We will provide analysis of the Court's
decision when issued, and will continue to provide updates
periodically as the potential impact of this litigation
develops.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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