Medicare: Rulemaking and Rate Cuts under Azar v. Allina Health Services

By Lorianne Sainsbury-Wong posted Fri February 07,2020 08:58 AM


A federal agency's website posting of a "policy statement" skipped statutory notice and comment protections under the Medicare program.  The internet posting that drastically – and retroactively -- would have reduced Medicare payments to 3,500 hospitals is more than an interpretive rule change. It is a substantive legal standard under the Medicare Act.

The Centers for Medicare & Medicaid Services (CMS), as part of the Department of Health and Human Services (HHS), bypassed Medicare's public notice and 60-day comment period without a lawful excuse for doing so.  Arguably, the agency sought expedient and less costly decision-making through its authority to issue binding "statements of policy".  However, the government's attempts to justify the policy change as interpretive rulemaking under the Administrative Procedure Act (APA), which has no notice or comment period, failed. Lawsuits ensued, causing a conflict in U.S. Circuit Court decisions.  SCOTUS granted the government's petition for certiorari.  Azar v. Allina Health Services, No. 17-1484, 587 U.S. ___, 139 S. Ct. 1804 (2019).  

Medicare covers approximately 20% of the nation’s population – mostly elderly and disabled persons. Spending nearly $700 billion annually, Medicare assists vulnerable individuals to offset unaffordable healthcare costs for chronic conditions and illness. Medicare also plays a leading role in incentivizing and financially sustaining hospitals that treat approximately 60 million Medicare-eligible individuals. 

The proposed rate calculation would have resulted in Medicare cuts of $3–4 billion over a nine-year period to Disproportionate Share Hospital (DSH) payments.  In general, hospitals receive supplemental payments in proportion to the amount of care they provide to low-income and indigent patients.  DSH funds to hospitals offset the costs of treating low income, uninsured, or otherwise disadvantaged patients.  Although qualified individuals have a right to Medicare benefits, the payment reductions would have caused barriers in access to medically necessary services.   

However Allina, a 7-1 SCOTUS decision (Justice Gorsuch), is more than a testimonial to Medicare’s dominance in our healthcare industry. Allina is also more than a statutory construction case. DSH payments are subject to a formula, which the government cannot sua sponte alter by forgoing Medicare's mandatory notice to the public and an opportunity to be heard or submit comments, subject to publication in the Federal Register. Allina provides a legal test to scrutinize sub-regulatory Medicare guidance and other statement of policy decisions that impact substantive legal standards.

Lorianne M. Sainsbury-Wong, Esq., CHPC, CPCO | MBA Civil Litigation Section Council Member  and MBA Health Law Section, Former Chairperson