United States: Allina Comes To Our Neck Of The Woods

Last Updated: November 19 2019
Article by James Beck

Last term, in a case that the Blog completely ignored, the Supreme Court held that a provision of the Medicare Act, 42 U.S.C. §1395hh(a)(2), required the Centers for Medicare & Medicaid Services ("CMS") to subject all Medicare-related determinations "that establish[] or change[] a substantive legal standard" to formal notice-and-comment rulemaking. Such determinations explicitly include (as per that statutory provision) "scope of benefits," "payment for services," and "eligibility of individuals, entities, or organizations to furnish or receive services or benefits." Id. The case is Azar v. Allina Health Services, 139 S. Ct. 1804 (2019). Allina didn't involve anything concerning prescription medical products, so it didn't seem particularly relevant to us. Allina also made what appears to be a fine distinction that only administrative lawyers – that is, not us – could love:

The government's interpretation can't be right. Pretty clearly, the Medicare Act doesn't use the word "substantive" in the same way the APA does − to identify only those legal standards that have the "force and effect of law."

139 S. Ct. at 1811. The decision that the Supreme Court affirmed had filled in the blanks to hold:

In other words, as relevant here, the Medicare Act requires notice-and-comment rulemaking for any (1) "rule, requirement, or other statement of policy" that (2) "establishes or changes" (3) a "substantive legal standard" that (4) governs "payment for services." Id. §1395hh(a)(2). . . . "Substantive law" is law that "creates, defines, and regulates the rights, duties, and powers of parties." A "substantive legal standard" at a minimum includes a standard that "creates, defines, and regulates the rights, duties, and powers of parties."

Allina Health Services v. Price, 863 F.3d 937, 943 (D.C. Cir. 2017) (citation omitted), aff'd, 139 S. Ct. 1804 (2019).

So what? Get to the point.

To put it bluntly, Allina may well mean "sayonara" for a lot of False Claims Act litigation, including those bedeviling our prescription medical product manufacturing clients – because CMS has been shirking its regulatory responsibilities for many years. So said a judge in our neighborhood, just the other day. See Polansky v. Executive Health Resources, Inc., 2019 WL 5790061 (E.D. Pa. Nov. 5, 2019). Polansky also involved reimbursement, and it followed these logical steps:

  1. The Medicare Act required CMS to subject all "substantive legal standards" to notice and comment rulemaking. 1395hh(a)(2).
  2. Allina held that "substantive legal standards" swept more broadly than just what had force of law under the Administrative Procedure Act.
  3. The District of Columbia Circuit got it right on what "substantive legal standards" did mean in §1395hh(a)(2).
  4. The standard at issue in Polansky affected how much somebody could get reimbursed by Medicare, and thus was a "substantive legal standard."
  5. CMS (as with virtually everything else it has done) didn't use notice-and-comment rulemaking.
  6. Therefore the improperly promulgated standard could not be enforced by anybody by means of the False Claims Act.

That last step, of course is the most important one, so we'll quote Polansky's holding directly:

The determinative issue in this Court's Allina analysis is whether the . . . policy referenced in the 1989 Manual and its predecessors is a "substantive legal standard" within the scope of Section 1395hh(a)(2). If so, then Relator's . . . claims fail as a matter of law, because it is undisputed that the . . . policy did not go through notice and comment as required by Section 1395hh(a)(2) for substantive legal standards. Applying the definition elucidated by the District of Columbia Circuit, it is clear that the . . . policy contained in the CMS manual is a "substantive legal standard" and therefore required notice and comment rulemaking procedures.

Polansky, 2019 WL 5790061, at *14 (emphasis added). With respect to any "substantive legal standard" "contained in agency manuals that had not been promulgated pursuant to notice and comment, Allina compels the conclusion that there can be no FCA liability." Id. at *16.

That's a big deal. It's almost like preemption, since it doesn't matter how strong or weak (and the court thought these claims were pretty weak, see id. at *8-10) the FCA claim is, if such a claim is based on something CMS did that hasn't gone through notice-and-comment rulemaking, the claim fails. So every pending Medicare-related FCA claim – including all claims against prescription medical product manufacturers or suppliers − needs to be examined for invalidity under Allina.

Perhaps fittingly Polansky was decided on Election Day. In the Eastern District of Pennsylvania at least, it was time to throw the bum FCA claims out.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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