Azar v. Allina Health Services
Wikipedia · Justia (with opinion) · Docket · oyez.org
Argued on Jan 15, 2019.Decided on Jun 3, 2019.
Petitioner: Alex M. Azar, II, Secretary of Health and Human Services.Respondent: Allina Health Services, et al..
Advocates: Edwin S. Kneedler (Deputy Solicitor General, Department of Justice, for the petitioner)
Pratik A. Shah (for the respondents)
Facts of the case (from oyez.org)
The U.S. Department of Health and Human Services (HHS) administers the Medicare program, which provides health insurance to Americans 65 and older. Patients may obtain coverage under different “parts” of Medicare, two of which are at issue in this case. When patients enrolled in Medicare Part A receive healthcare, the government makes direct payments to hospitals for the services provided. Patients enrolled in Medicare Part C receive a government subsidy to enroll in a private insurance plan. Importantly, patients enrolled in Part A tend to have lower incomes than those enrolled in Part C.
HHS contracts with “fiscal intermediaries” to reimburse healthcare service providers for services rendered to Medicare Part A patients. These intermediaries make an initial payment based on an estimate of the cost of services provided and are later adjusted based on actual cost reports.
The Medicare Act authorizes reimbursement adjustments to increase payments to hospitals that treat a disproportionately high number of low-income patients. The rate of adjustment is calculated in part based on the number of “patient days” for patients “entitled to benefits under part A” of Medicare. In 2012, HHS sought to interpret this phrase as including patient days for patients entitled to benefits under Part C of Medicare as well. Including Part C days in the adjustment calculus would result in lower reimbursement rates, which translates into hundreds of millions of dollars.
The plaintiff hospitals challenged the rate adjustment in the Provider Reimbursement Review Board, as required by statute. The Board concluded that it lacked authority to resolve the issue, which triggered expedited review before the federal district court. The district court granted summary judgment to HHS, finding that the rate adjustment was an “interpretive rule” under the Administrative Procedure Act (APA) and thus was exempt from the APA’s notice-and-comment requirement for new rules. The hospitals appealed, and the U.S. Court of Appeals for the D.C. Circuit reversed, finding that the adjustment was not merely an “interpretive rule” and that HHS violated the Medicare Act by promulgating the rule without providing notice and the opportunity for comment.

Question
Do the Administrative Procedure Act and Medicare Act require the US Department of Health and Human Services to provide notice and an opportunity to comment before implementing a rule changing its Medicare reimbursement formula?

Conclusion
The Department of Health and Human Services neglected its statutory duty to provide notice and an opportunity to comment before implementing a rule changing its Medicare reimbursement formula. Justice Neil Gorsuch delivered the opinion for the 7-1 majority.
The Court focused on whether the government’s announcement in 2014 established or changed a substantive legal standard (as opposed to an interpretive legal standard). Under the Administrative Procedure Act (APA), in order to establish or change a substantive legal standard, an agency must provide notice and an opportunity to comment. A substantive legal standard is one that has the “force and effect of law,” while an interpretive legal standard merely advises the public of the agency’s construction of the statutes and rules it administers. Specifically, under the APA, statements of policy are definitionally not substantive. The Medicare Act uses the word “substantive” in a different way. Under the Medicare Act, “statements of policy” can establish or change a “substantive legal standard.” Had Congress wanted to incorporate t