Supreme Court Nixes Medicare-Reimbursement Formula

WASHINGTON (CN) – The Supreme Court on Monday struck down the federal government’s formula for calculating Medicare payments to hospitals that care for large numbers of low-income patients.

A hospital network whose operations include the Montefiore Medical Center, Mount Sinai Medical Center and New York Presbyterian Hospital Weill Cornell Medical Center, Allina Health Services initiated the dispute here over fractions that the U.S. Centers for Medicare & Medicaid Services used to determine the total amount of payment that a hospital should receive under the Medicare program.

Though a federal judge granted the government summary judgment, holding that the calculations at issue did not require notice-and-comment rulemaking, Allina petitioned the Supreme Court for relief following a reversal by the D.C. Circuit.

The court was nearly unanimous this morning in finding that the public should have been given time to weigh before the government changed the reimbursement formula for hospitals that serve a “disproportionate number” of low-income people.

Regulators announced that they would “dramatically — and retroactively — reduce[] payments to hospitals serving low-income patients” in 2014, according to the ruling. 

“Because affected members of the public received no advanced warning and no chance to comment first, and because the government has not identified a lawful excuse for neglecting its statutory notice-and-comment obligations, we agree with the court of appeals that the new policy cannot stand,” Justice Neil Gorsuch wrote for the majority.

The government uses a fraction to calculate the amount of money hospitals receive under Medicare. On the top of the fraction is the amount of time the hospital cared for patients who were eligible for both Medicare Part A and “income support payments” under the Social Security Act.

This number is then divided by the amount of time the hospital spent with patients “entitled to benefits” under Medicare Part A.

But in 1997, Congress added Medicare Part C, through which eligible people can have the federal government pay the premiums on their private insurance plans rather than reimburse the hospital directly.

In 2004, the Department of Health and Human Services said it would count people enrolled in Medicare Part C in with the bottom half of the Medicare fraction, which necessarily lowered payments to hospitals. That rule fell to a slew of court challenges.

But while calculating payments to hospitals for fiscal year 2012 in 2014, the agency published a spreadsheet that showed the Medicare fraction for that year at 3,500 hospitals. The spreadsheet noted Medicare Part C patients were included in the fraction’s denominator.

A group of hospitals sued over the change and the D.C. Circuit agreed with them that the government had skipped out on its obligation to provide notice to the public.

Congress has required the government to give 60 days’ notice of some types of changes to the Medicare program, during which time members of the public can give their input on the proposal. As relevant to the hospitals’ challenge, the law requires notice for changes to “a substantive legal standard.”

Though the government said Congress simply meant to borrow a less-restrictive standard from the Administrative Procedure Act, Gorsuch 

determined that Congress meant to cover just the type of change the government made in 2014 when it enacted the notice requirement.

The Trump appointee also wrote that agencies cannot use the courts to correct what it sees as bad policy from the legislative branch.

“But as the government knows well, courts aren’t free to rewrite clear statutes under the banner of our own policy concerns,” Gorsuch wrote. “If the government doesn’t like Congress’ notice-and-comment policy choices, it must take its complaints there.”

In a solitary dissent, Justice Stephen Breyer wrote that the history of administrative law suggests Congress used the word “substantive” to refer to rules that have “the force and effect of law.” Interpretive rules, which the government says address the change to the Medicare formula, only state an agency’s understanding of a statute or regulation it administers.

In the APA, the foundational statute of administrative law, substantive rules require notice and comment, while interpretive rules do not. Breyer said this gives support to the idea that Congress meant to keep the same standard for changes to Medicare.

“By using words with meanings that are well settled in the APA context, Congress made clear that the notice-and-comment requirement in the Medicare Act applies only to substantive, not interpretive, rules,” Breyer wrote. “The statutory language, at minimum, permits this interpretation and the statute’s history and the practical consequences provide further evidence that Congress had only substantive rules in mind.”

Breyer warned the court’s decision could “cause serious confusion or delay,” as every minor rule change related to Medicare is met with a court challenge. He said the justices should have sent the case back to the D.C. Circuit to determine whether the change to the formula is interpretive or substantive.

Justice Brett Kavanaugh had been on the D.C. Circuit panel that ruled on the case in 2017 and did not participate in this year’s proceedings before the Supreme Court. 

The hospitals were represented before the Supreme Court by Akin Gump attorney Stephanie Webster. A spokesman for the firm declined to comment on the opinion.

A representative for the Centers for Medicare & Medicaid Services, which is part of the Department of Health and Human Services, said the office is reviewing the decision.

Stephanie Kennan, a senior vice president for federal public affairs at McGuireWoods Consulting, warned Monday that the court’s ruling will burden HHS.

“The court’s decision makes HHS and its agencies less nimble in changing policy,” Kennan said in a statement. “Many important policy changes have occurred without notice and comment rulemaking.”

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