Supreme Court Asked How Rules Are Made for Medicare Payments

By Matthew Vadum
Matthew Vadum
Matthew Vadum
Matthew Vadum is an award-winning investigative journalist and a recognized expert in left-wing activism.
January 15, 2019Updated: January 15, 2019

A Midwestern hospital chain asked the Supreme Court to find that the U.S. Department of Health and Human Services shortchanged it by as much as $4 billion by altering its Medicare hospital reimbursement formula without first conducting a formal notice-and-comment rulemaking process.

Minneapolis-based Allina Health Services, a non-profit health care system that runs 13 hospitals and upwards of 90 clinics in Minnesota and western Wisconsin, is challenging the formula-changing decision that was made in 2013 by the Obama administration. The Trump administration defended that decision during oral arguments before the Supreme Court on Jan. 15.

Allina had asked the Provider Reimbursement Review Board for relief, but the entity said it lacked jurisdiction to hear the case. Allina took the matter to a U.S. district court, eventually losing at the appellate level.

The case, known as Azar, Sec. of H&HS v. Allina Health Services, is important because it affects payments that the Center for Medicare and Medicaid Services (CMS), which is part of HHS, makes to hospitals like those in the Allina chain that disproportionately serve low-income patients. CMS pays out $120 billion every year to cover Medicare inpatient care across the nation.

Although legal observers say any ruling the Supreme Court may make is likely to be limited to Medicare funding rates in effect from 2005 through 2013, the court’s decision may clarify how federal agencies engage in the rulemaking process.

The Supreme Court agreed Sept. 27 to hear the case, which is an appeal of a ruling by the U.S. Court of Appeals for the District of Columbia Circuit.

‘Notice and Comment’

HHS Secretary Alex M. Azar asked the court to review the circuit court ruling that determined his agency ran afoul of the Medicare Act by skipping the notice-and-comment rulemaking process. It’s the administration’s position that the formal rulemaking process wasn’t required by the statute.

The case could have larger ramifications that could “substantially undermine effective administration of the Medicare program” if members of the Supreme Court buy into the legal reasoning advanced by Allina, U.S. Solicitor General Noel J. Francisco argued in a brief.

If CMS were legally bound to carry out a notice-and-comment rulemaking in this case, it could also face the unreasonable burden of having to conduct rulemaking processes frequently in its everyday business, which would be disruptive and counterproductive, Francisco argued.

Allina disagrees. In court documents, it argued the question at hand is “a unique circumstance,” and therefore any impact “would be extremely limited” if the Supreme Court were to affirm the D.C. Circuit Court ruling.

Allina and other hospitals say the Medicare Act required CMS to provide “the public with notice and opportunity for comment” before altering the formula used to calculate reimbursements.

Friend-of-the-court briefs were filed supporting Allina’s position, including by the American Hospital Association, the Federation of American Hospitals, and the Association of American Medical Colleges. The AHA argues the administration is exaggerating the potential impact that affirmance would have on CMS operations.

“Not all CMS policies need to go through notice-and-comment; just those, like the determination here, that substantively alter how providers are paid,” the group stated in its brief.

The trial court sided with the government, finding HHS didn’t contravene the Medicare Act’s procedural requirements because the formula revision arose out of an interpretive rule.

But the D.C. Circuit disagreed, finding “that HHS violated the Medicare Act when it changed its reimbursement adjustment formula without providing notice and opportunity for comment.” The language of the Medicare Act “expressly requires notice-and-comment rulemaking,” the circuit found, adding it was important to respect the will of Congress.

Oral Arguments

Oral arguments before the Supreme Court on Jan. 15 consisted largely of discussions of the meaning of specific words in the Medicare Act and in other statutes, and abstract, highly technical ruminations about administrative law.

In an animated discussion with Justice Stephen Breyer, attorney Pratik Shah for Allina, suggested that calling something by an inappropriate name doesn’t invalidate it or alter the law. Even in administrative law, “if you call a legislative rule a ham sandwich, that doesn’t get you out of the notice-and-comment requirement.”

“If you called an interpretive rule or a statement of policy, there is an exception for those, but if it’s actually a legislative rule, you have to go through notice-and-comment.”

Shah told the court his client was treated unfairly and arbitrarily by the government.

“That annual prospective payment rulemaking is hundreds of pages long. And the agency already puts everything governing prospective payment systems that has a substantive effect into that rulemaking. In fact, 16 times before this case, it adjusted the treatment of certain categories of days through the prospective payment system rulemaking.”

Justice Neil Gorsuch expressed frustration during the presentation of Deputy Solicitor General Edwin Kneedler, suggesting more than once that he was being evasive.

“Mr. Kneedler, there’s a lot of words there, but I’m not sure there’s an answer to Justice [Elena] Kagan’s question … I’m going to give you an opportunity to try again, because it’s very important to me as well. Aren’t you using the word ‘substantive’ in two different senses?” Gorsuch said.

Only seven of the court’s nine justices attended the oral arguments.

Justice Brett Kavanaugh recused himself because he wrote the decision that forms the basis of this appeal, when he was a judge sitting on the District of Columbia Circuit.

Justice Ruth Bader Ginsburg, 85, is convalescing at home after surgeons excised two cancerous growths from a lung on Dec. 21. It was her second consecutive week of not attending court arguments. Nonetheless, Ginsburg, who has access to the briefs and transcripts of arguments, is expected to take part in the case.