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Health Law Scan

Legal Insights and Perspectives for the Healthcare Industry

The healthcare industry awaits the US Supreme Court’s decision in Azar v. Allina Health Services with nervous anticipation. The high court stepped in to settle the dispute and the broader legal question developing among the circuit courts relating to the Centers for Medicare & Medicaid Services’ (CMS) authority to adopt so-called “interpretive rules” affecting significant Medicare program policies. CMS asserts that it possesses such authority under the Medicare Act based on an analogous exception in the more general Administrative Procedures Act (APA), which permits agencies to adopt interpretive rules, and CMS has used this presumed authority to sidestep the formalities of notice and comment rulemaking in certain Medicare policy changes. In the instant case, CMS was defending its ability to change, without notice and comment, its construction of the statutory phrase “entitled to Medicare Part A” in the Medicare disproportionate share (DSH) payment formula, a change that ultimately worked to dilute the amount of Medicare DSH payments for hundreds of hospitals. The US Court of Appeals for the DC Circuit rejected CMS’s argument.

According to the transcript of oral argument, the Supreme Court also showed skepticism in the agency’s position given the distinction in the language of the Medicare Act and the APA, and the former’s clear requirement that “no rule, requirement, or other statement of policy…shall take effect unless it is promulgated” through notice and comment rulemaking, together with the equally clear absence of any interpretive rule exception as is expressly included in the APA. This was the primary thrust of the decisionmaking rationale of the DC Circuit’s opinion in favor of Allina Health Services, written by now-Justice Brett Kavanaugh (who has recused himself from the Supreme Court’s decision).

The Court did not appear to wholeheartedly embrace CMS’s pleas that the Medicare system would be burdened by having its “thousands of pages of Medicare manuals” subject to a notice and comment rulemaking process, though Justice Stephen Breyer grilled Allina’s counsel with respect to the purported problem of policy changes taking 19 “Christmases to come.” Ultimately, CMS was confronted by the fact that it does use notice and comment rulemaking with efficiency for many annual program changes and that it even tried and failed to do so for the Medicare DSH payment matter at issue before the Court.

For those subject to Medicare’s vast regulatory scheme, their right to a formal notice and comment process for changes in Medicare policy affecting their operations now lingers in the balance of the Supreme Court’s scales. All eyes will watch where they settle.