SCOTUS Opinion: Medicare Act Requires Notice And Comment Before Any Changes To “Medicare Fraction”

Under the Medicare Act, the enforcing agency is required to go through a public notice and comment period before changing any “substantive legal standard” affecting Medicare benefits. 42 U.S.C. sec. 1395hh(a)(2). Under Medicare Part A, the federal government paid hospitals who served low-income patients through a “Medicare fraction,” which was calculated by dividing the time spent by a hospital caring for Part A-entitled patients who were also entitled to Social Security support payments by the time spent caring for patients entitled to benefits under Part A. Later, Congress created Part C, in which those eligible could opt to have the government pay their private insurance premiums instead of the hospitals directly. The agency decided to include Part C patients in the Medicare fraction, which significantly lowered the payments to the hospitals serving low-income patients. Those hospitals sued, arguing that the agency did not fulfill the notice-and-comment obligations under the Medicare Act. The agency argued that the change was interpretive, not substantive, as the Administrative Procedure Act (APA) delineates, and thus there was no such obligation. The D.C. Circuit agreed with the hospitals and vacated the change, creating a circuit split. In Azar v. Allina Health Services, the Court, in a 7-1 decision by Justice Gorsuch (Justice Kavanaugh recused), affirmed. First, the majority held that the Medicare Act used its own definition of “substantive legal standard” that was distinct from the APA’s definition. Under the Medicare Act, a “statement of policy” qualified as a substantive legal standard, while it would not under the APA. The change to the Medicare fraction was a “statement of policy,” at the very least, and thus required notice and comment. Justice Breyer dissented, arguing that the APA’s definitions should apply instead. A link to the opinion is here.