Azar v. Allina Health Services
139 S. Ct. 1804, 2019 U.S. LEXIS 3888, 587 U.S. 566 (2019)
Rule of Law:
Under the Medicare Act, the Department of Health and Human Services must provide public notice and a 60-day comment period for any rule, requirement, or statement of policy that establishes or changes a substantive legal standard governing payment for services, regardless of whether it constitutes an interpretive rule under the Administrative Procedure Act.
Facts:
- The federal government pays hospitals for providing care to Medicare patients, offering additional payments to institutions serving a disproportionate number of low-income patients.
- These payments are calculated using a 'Medicare fraction,' which measures the percentage of patient time spent caring for low-income Medicare patients.
- In 1997, Congress created Medicare Part C (Medicare Advantage), allowing beneficiaries to use private insurance paid for by the government.
- Because Part C patients tend to be wealthier, counting them in the Medicare fraction generally reduces the reimbursement payments hospitals receive for low-income care.
- For several years, the agency overseeing Medicare fluctuated on whether to count Part C patients in the fraction, eventually proposing to count them in 2003 but vacillating in subsequent years.
- In 2014, the agency posted a spreadsheet on its website announcing the 2012 Medicare fractions for hospitals nationwide.
- This spreadsheet noted that the fractions included Part C patients, a methodology that significantly reduced payments to hospitals.
- The agency provided no advance notice and no opportunity for public comment before posting the new policy on the website.
Procedural Posture:
- A group of hospitals sued the Department of Health and Human Services in federal district court, claiming the government violated the Medicare Act by skipping notice-and-comment obligations.
- The U.S. Court of Appeals for the D.C. Circuit ruled in favor of the hospitals.
- The government petitioned the U.S. Supreme Court for certiorari to resolve a conflict between circuit courts regarding notice-and-comment requirements.
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Issue:
Does the Medicare Act require the Department of Health and Human Services to conduct notice-and-comment rulemaking before establishing a policy that changes the calculation method for hospital reimbursement payments, even if that policy functions as an interpretive rule rather than a substantive rule under the Administrative Procedure Act?
Opinions:
Majority - Justice Gorsuch
Yes, the Medicare Act requires notice and comment for this policy because it changes a substantive legal standard governing payment. The Court reasoned that the Medicare Act (42 U.S.C. § 1395hh(a)(2)) specifically mandates notice and comment for any 'statement of policy' that establishes or changes a 'substantive legal standard.' This language differs significantly from the Administrative Procedure Act (APA), which exempts 'interpretive rules' and 'statements of policy' from such requirements. If the Medicare Act were interpreted to track the APA exactly, as the government argued, the statutory phrase 'statement of policy' would be rendered incoherent, because under the APA, statements of policy are by definition not substantive rules. Furthermore, Congress expressly borrowed the APA's 'good cause' exemption in the Medicare Act but notably omitted the 'interpretive rule' exemption, suggesting the omission was intentional. Therefore, the agency cannot evade notice requirements simply by labeling a substantive change in payment policy as an interpretive rule or internet posting.
Dissenting - Justice Breyer
No, the Medicare Act's notice-and-comment provisions should be interpreted to align with the Administrative Procedure Act, exempting interpretive rules. The dissent argued that in administrative law, 'substantive legal standard' and 'regulation' are terms of art referring to legislative rules that bind the public, as opposed to interpretive rules. Justice Breyer contended that the inclusion of 'statements of policy' in the statute was likely intended to prevent the agency from disguising substantive rules as policy statements, not to expand the scope of rulemaking requirements. Practically, the dissent warned that the Medicare program relies on thousands of pages of manual instructions and interpretive rules; requiring formal notice-and-comment procedures for all of them would be overly burdensome and could 'cripple' the administration of the program.
Analysis:
This decision establishes a significant distinction between the Administrative Procedure Act (APA) and the Medicare Act regarding agency rulemaking. By rejecting the government's argument that the Medicare Act merely mirrors the APA's distinction between substantive (legislative) and interpretive rules, the Court imposed a stricter procedural burden on the Department of Health and Human Services (HHS). This ensures that healthcare providers have a statutory right to participate in the formation of policies affecting reimbursement, even when those policies are technically 'interpretive' or informal. This ruling limits the agency's ability to use 'gap-filling' measures, such as website postings or manual updates, to alter payment standards without public process.
