Azar v. Allina Health Servs. — June 2019 (PDF)

MEDICARE — DISPROPORTIONATE SHARE PAYMENTS
RULEMAKING — NOTICE & COMMENT

Azar v. Allina Health Servs.
No. 17-1484 (June 3, 2019)

The Supreme Court of the United States affirmed a court of appeals decision that the government’s policy that reduced payments to hospitals serving low-income patients must be vacated for failing to identify a lawful excuse for neglecting its statutory notice-and-comment obligations under the Medicare statute. In 2014, the government changed its policy in counting Part C enrollees of Medicare as “entitled to benefits under” Part A when calculating additional payments to hospitals that serve a “disproportionate number” of low-income patients. The additional payments are calculated by “Medicare fraction,” which uses the time the hospital spent caring for patients who were “entitled to benefits under” Medicare Part A as the denominator. Since Part C enrollees tend to be wealthier than Part A enrollees, counting them makes the fraction smaller and reduces hospitals’ payments considerably. A group of hospitals sued, claiming violation of 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.”

The government argued that the policy of counting Part C patients in the Medicare fractions would be treated as interpretive rather than substantive under the Administrative Procedure Act (“APA”), and it had no statutory obligation to provide notice and comment before adopting the policy. The Court rejected this argument, holding the Medicare Act and the APA do not use the word “substantive” in the same way, by looking at the statutes’ textual meanings and their legislative history. The government further argued that the notice and comment requirement would be excessively burdensome for Medicare interpretive rules. The Court rejected this argument, holding that the courts are not qualified and constitutionally entitled to rewrite clear statutes, and the government failed to provide support for its arguments and to acknowledge the potential countervailing benefits of notice and comment.