Allina Health Services v. Thomas Price

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 11, 2017 Decided July 25, 2017

No. 16-5255

ALLINA HEALTH SERVICES, DOING BUSINESS AS UNITED

HOSPITAL, DOING BUSINESS AS UNITY HOSPITAL, DOING

BUSINESS AS ABBOTT NORTHWESTERN HOSPITAL, ET AL.,

APPELLANTS

v.

THOMAS E. PRICE, SECRETARY, UNITED STATES DEPARTMENT

OF HEALTH AND HUMAN SERVICES,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:14-cv-01415)

Stephanie A. Webster argued the cause for appellants.

With her on the briefs were Pratik A. Shah, Christopher L.

Keough, James H. Richards, and Hyland Hunt.

Stephanie R. Marcus, Attorney, U.S. Department of

Justice, argued the cause for appellee. With her on the brief

was Mark B. Stern, Attorney.

Before: HENDERSON, KAVANAUGH, and MILLETT, Circuit

Judges.

2

Opinion for the Court filed by Circuit Judge KAVANAUGH.

KAVANAUGH, Circuit Judge: Several hospitals have

challenged the formula used by the Department of Health and

Human Services for calculating certain Medicare

reimbursement adjustments for fiscal year 2012. As relevant

here, the hospitals argued before the District Court that HHS

violated the Medicare Act by changing the reimbursement

adjustment formula without providing the public with notice

and opportunity for comment.

The District Court ruled that HHS did not violate the

Medicare Act’s procedural requirements. The District Court

reasoned that (i) the Medicare Act incorporates the

Administrative Procedure Act’s exception to notice-and-

comment rulemaking for interpretive rules and (ii) HHS’s

issuance of the reimbursement adjustment formula here

constituted an interpretive rule. The District Court granted

summary judgment to HHS.

We disagree with the District Court. We conclude that

HHS violated the Medicare Act when it changed its

reimbursement adjustment formula without providing notice

and opportunity for comment. We reverse the judgment of the

District Court and remand for proceedings consistent with this

opinion.

I

A

Through the Medicare program, the Federal Government

provides health insurance to Americans who are 65 or older, as

well as to disabled Americans. See generally Social Security

Amendments of 1965, Pub. L. No. 89-97, sec. 102, 79 Stat.

3

286, 291-332 (codified as amended at 42 U.S.C. § 1395 et

seq.). The Department of Health and Human Services

administers and oversees Medicare. Patients can obtain

insurance under different Medicare “parts.” Two of those parts

are relevant here. Medicare Part A provides Medicare

enrollees with government-administered health insurance

through which the Government makes direct payments to

hospitals for healthcare services provided. See 42 U.S.C.

§§ 1395c to 1395i–5. Part C provides enrollees with

government-subsidized enrollment in private insurance plans.

See id. §§ 1395w–21 to 1395w–29.

HHS contracts with companies known as fiscal

intermediaries to reimburse healthcare service providers for

services rendered to Medicare Part A patients. Fiscal

intermediaries make initial payments to hospitals for a given

cost year. Those initial payments are based on estimates of the

hospitals’ actual costs. The initial payments are later adjusted

based on providers’ actual cost reports.

A provider who disagrees with a fiscal intermediary’s

reimbursement or adjustment decision may appeal that

decision to the Provider Reimbursement Review Board within

HHS. See 42 U.S.C. § 1395oo. The Board may affirm,

modify, or reverse the fiscal intermediary’s decision. Id.

§ 1395oo(d). But importantly, the Board does not have the

authority to declare statutes or regulations invalid. See

Bethesda Hospital Association v. Bowen, 485 U.S. 399, 406

(1988); 42 C.F.R. § 405.1842(f)(2)(ii).

As relevant here, the Medicare Act authorizes

reimbursement adjustments in order to increase payments to

hospitals that treat a disproportionately high number of low-

income patients. See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). That

adjustment is known as the “disproportionate share hospital

4

adjustment.” The adjustment is calculated for each hospital by

adding two fractions that together approximate the proportion

of low-income patients treated at that hospital over a certain

time period. See id. § 1395ww(d)(5)(F)(vi). HHS calculates

and publishes one of those fractions – the Medicare fraction –

for each hospital in the Nation every year. HHS requires the

fiscal intermediaries to use HHS’s published Medicare

fractions in calculating each hospital’s final reimbursement

adjustment. See 42 C.F.R. § 412.106(b)(2), (5).

Among other things, the Medicare fraction incorporates

the number of each hospital’s patient days for patients “entitled

to benefits under part A” of Medicare. 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)(I). The meaning of that phrase has

been the subject of much debate (and litigation). The dispute

is over whether the phrase “entitled to benefits under Part A”

should be read to refer not only to Part A enrollees, but also to

patients enrolled in a Part C plan.

For reasons that are beyond the scope of this opinion, HHS

now believes that the phrase “entitled to benefits under Part A”

should also include patients enrolled in a Part C plan. HHS

therefore contends that Part C patient days should be included

in the Medicare fractions. Many hospitals disagree. They

argue that Part C enrollees are not “entitled to benefits under

Part A” and that Part C days therefore should not be included

in Medicare fractions.

That difference in interpretation makes a huge difference

in the real world. Part C enrollees tend to be wealthier than

Part A enrollees. Including Part C days in Medicare fractions

therefore tends to lead to lower reimbursement rates.

Ultimately, hundreds of millions of dollars are at stake for the

Government and the hospitals. See Northeast Hospital Corp.

v. Sebelius, 657 F.3d 1, 5 (D.C. Cir. 2011).

5

Before 2004, HHS had not treated Part C enrollees as

“entitled to benefits under Part A.” See id. at 15. In 2004,

however, HHS promulgated a rule announcing that Part C

enrollees are “entitled to benefits under Part A” and that HHS

would therefore include Part C days in Medicare fractions. See

Medicare Program; Changes to the Hospital Inpatient

Prospective Payment Systems and Fiscal Year 2005 Rates, 69

Fed. Reg. 48,916, 49,099 (Aug. 11, 2004). That 2004 rule

would have applied HHS’s changed interpretation

prospectively to all Medicare fraction calculations from fiscal

year 2005 onward. However, this Court vacated the 2004 rule

on the grounds that it was not a logical outgrowth of the

proposed rule and had therefore been improperly issued

without notice and opportunity for comment. See Allina Health

Services v. Sebelius, 746 F.3d 1102, 1107-09 (D.C. Cir. 2014).

As a result, HHS can no longer rely on the 2004 interpretation.

In 2013, HHS promulgated a new rule again announcing

that HHS would treat Part C enrollees as “entitled to benefits

under Part A” and that HHS would therefore include Part C

days in Medicare fractions. See 78 Fed. Reg. 50,496, 50,614

(Aug. 19, 2013). The 2013 rule is prospective only: It applies

to Medicare fractions calculated for fiscal year 2014 and

beyond. Id. at 50,619. It does not address the definition of

“entitled to benefits under Part A” for any fiscal years before

2014. In sum, HHS has no promulgated rule governing the

interpretation of “entitled to benefits under Part A” for the

fiscal years before 2014.

B

In June 2014, HHS published the Medicare fractions to be

used in calculating disproportionate share hospital adjustments

for fiscal year 2012. At the top of the spreadsheet containing

6

those fractions, HHS noted that it had included Part C days in

the Medicare fractions. The spreadsheet contained the 2012

Medicare fractions for all hospitals nationwide.

Plaintiffs in this case are hospitals that provide health care

to low-income Medicare patients and that are therefore entitled

to disproportionate share hospital adjustments. Those hospitals

here challenge HHS’s June 2014 decision to include Part C

days in the 2012 Medicare fractions.

As required by statute, the hospitals first sought review by

the Provider Reimbursement Review Board within HHS. But

the hospitals believed that the Board did not have the authority

to resolve the hospitals’ challenges because the hospitals’

challenges related to the validity of several HHS regulations.

Under HHS’s rules implementing the Medicare statute, the

Board may not review challenges “either to the

constitutionality of a provision of a statute, or to the substantive

or procedural validity of a regulation.” 42 C.F.R.

§ 405.1842(f)(1). The hospitals therefore sought expedited

judicial review, which is available under the statute when the

Board certifies that it does not have authority to resolve a

provider’s challenge. When the Board so certifies, the provider

may bring suit in district court without proceeding through the

full Board review process. See 42 U.S.C. § 1395oo(f)(1).

Here, the Board agreed with the hospitals that it did not

have the authority to resolve the hospitals’ challenge. That no-

authority determination allowed the hospitals to promptly bring

suit in District Court challenging HHS’s decision to include

Part C days in the Medicare fractions for fiscal year 2012.

In the District Court, HHS moved to dismiss the hospitals’

case on the ground that the case was premature. HHS argued

that the Board’s no-authority determination was erroneous, and

7

that the District Court therefore did not have authority to

consider the challenges to the Medicare fractions until the

Board ruled on that claim. The hospitals responded that the

Board’s no-authority determination was not reviewable by the

District Court and that, in any event, the Board’s no-authority

determination was correct. The District Court agreed with

HHS that the District Court could review the Board’s no-

authority determination. The District Court agreed with the

hospitals, however, that the Board’s no-authority

determination was correct. The District Court therefore denied

HHS’s motion to dismiss.

Both sides then moved for summary judgment on the

merits of the hospitals’ challenges. The hospitals contended

that HHS violated the Administrative Procedure Act and the

Medicare Act by including Part C days in the fiscal year 2012

Medicare fractions without first providing the public with

notice and opportunity for comment. They also argued that the

calculations were arbitrary and capricious. HHS responded

that its decision was procedurally and substantively proper.

The District Court granted summary judgment to HHS.

First, the District Court held that the June 2014 decision to

include Part C days in the 2012 Medicare fractions was an

“interpretive rule” under the APA. As a result, the District

Court concluded that HHS’s publication of the fiscal year 2012

Medicare fractions was statutorily exempt from the APA’s

notice-and-comment requirements. Second, the District Court

held that the Medicare Act incorporated the APA’s notice-and-

comment exception for interpretive rules. The District Court

therefore held that HHS had not violated the Medicare Act’s

procedural requirements. Third, the District Court held that

HHS’s decision to include Part C days in the 2012 Medicare

fractions was not arbitrary and capricious.

8

The hospitals now appeal the District Court’s grant of

summary judgment to HHS. This Court reviews a district

court’s grant of summary judgment de novo. See Southeast

Alabama Medical Center v. Sebelius, 572 F.3d 912, 916 (D.C.

Cir. 2009).

II

HHS’s Provider Reimbursement Review Board concluded

that it lacked authority to decide this dispute. The Board

therefore certified the case for expedited judicial review in the

District Court. The District Court concluded that it had

authority to decide the case. We must first consider whether

the District Court correctly concluded that it had authority to

decide the case now, or whether the dispute instead should have

been decided first by HHS’s Provider Reimbursement Review

Board.

HHS argues that the dispute should have been decided first

by the Board. The hospitals raise two alternative points in

response. They contend that the District Court may not review

the Board’s no-authority determination. The hospitals also

argue in the alternative that even if the District Court may

review the Board’s no-authority determination, the Board here

was correct to conclude that it did not have authority to hear

the hospitals’ challenge. We agree with the hospitals on both

alternative arguments.

To begin, the hospitals are correct that a district court may

not review the Board’s no-authority determination at HHS’s

request. The Medicare Act states that providers – and only

providers – “shall” have “the right to obtain” expedited judicial

review “whenever the Board determines . . . that it is without

authority to decide” a particular question. 42 U.S.C.

9

§ 1395oo(f)(1) (emphasis added).1 In other words, providers

are guaranteed expedited judicial review when the Board

makes a no-authority determination, as the Board did here.

The statute conditions expedited judicial review in the district

court on the existence of that no-authority determination, not

on whether that determination is correct.

The statutory structure confirms that reading of the text. A

provider may bring suit in the district court even when the

Board fails to make a timely determination of its authority to

decide a case. See id. (“If the Board fails to render such

determination within such period, the provider may bring a

civil action (within sixty days of the end of such period) with

1

As relevant here, the statutory provision for expedited judicial

review reads: “Providers shall also have the right to obtain judicial

review of any action of the fiscal intermediary which involves a

question of law or regulations relevant to the matters in controversy

whenever the Board determines (on its own motion or at the request

of a provider of services as described in the following sentence) that

it is without authority to decide the question, by a civil action

commenced within sixty days of the date on which notification of

such determination is received. If a provider of services may obtain

a hearing under subsection (a) of this section and has filed a request

for such a hearing, such provider may file a request for a

determination by the Board of its authority to decide the question of

law or regulations relevant to the matters in controversy

(accompanied by such documents and materials as the Board shall

require for purposes of rendering such determination). The Board

shall render such determination in writing within thirty days after the

Board receives the request and such accompanying documents and

materials, and the determination shall be considered a final decision

and not subject to review by the Secretary. If the Board fails to

render such determination within such period, the provider may bring

a civil action (within sixty days of the end of such period) with

respect to the matter in controversy contained in such request for a

hearing.” 42 U.S.C. § 1395oo(f)(1).

10

respect to the matter in controversy contained in such request

for a hearing.”). As the hospitals rightly point out, it would be

“nonsensical if judicial review could be defeated by

disagreement with the Board’s no-authority decision, even

though the Board’s failure to make such a decision

undisputedly confers federal court jurisdiction.” Allina Reply

Br. 5.

Put simply, Congress has allowed providers to seek

immediate judicial review when the Board concludes that an

extensive and time-consuming administrative process before

the Board would likely be pointless. Requiring parties in

district court to fully brief and re-litigate the Board’s

assessment of its own lack of authority – a question that may

often be inextricably linked to the merits of a provider’s

challenge – runs entirely counter to that statutory scheme.2

In any event, even if we were wrong about that point, the

Board here was correct in deciding that it did not have authority

to resolve the hospitals’ challenge. Under HHS regulations

implementing the statute’s expedited judicial review

procedure, the Board “must grant” expedited judicial review if

the legal question raised “is a challenge either to the

constitutionality of a provision of a statute, or to the substantive

or procedural validity of a regulation.” 42 C.F.R.

§ 405.1842(f)(1). The hospitals here pressed two arguments

before the Board. Both arguments challenged the “substantive

or procedural validity” of different regulations. Id.

§ 405.1842(f)(1)(ii). First, the hospitals argued that HHS erred

when it chose to apply the formula from the vacated 2004 rule

2

We recognize that our decision here breaks with other courts

of appeals that have concluded that the Board’s no-authority

determinations are reviewable. See, e.g., Providence Yakima

Medical Center v. Sebelius, 611 F.3d 1181, 1187 n.7 (9th Cir. 2010).

11

in calculating the 2012 fractions. The hospitals’ first argument

therefore raised the question of the 2004 rule’s continuing legal

validity. Second, the hospitals argued that HHS violated

various procedural requirements by promulgating a new

regulation without notice-and-comment rulemaking. That

argument turned on whether the decision to include Part C days

in the 2012 Medicare fractions constituted a new regulation,

and if it did, whether that new regulation was procedurally

valid. Both of the hospitals’ arguments raise legal questions

about the “substantive or procedural validity of a regulation.”

Id. The Board’s no-authority determination was correct. The

District Court correctly concluded that it had authority to

decide the case now.

III

A

We turn therefore to the hospitals’ claim that HHS violated

the Medicare Act by failing to provide for notice and comment

before including Part C days in the 2012 Medicare fractions.

We agree with the hospitals that HHS unlawfully failed to

provide for notice and comment.

The Medicare Act describes in fairly straightforward

language when notice and comment is necessary. Paragraph

(2) of Section 1395hh(a) provides:

No rule, requirement, or other statement of policy (other

than a national coverage determination) that establishes or

changes a substantive legal standard governing the scope

of benefits, the payment for services, or the eligibility of

individuals, entities, or organizations to furnish or receive

services or benefits under this subchapter shall take effect

12

unless it is promulgated by the Secretary by regulation

under paragraph (1).

42 U.S.C. § 1395hh(a)(2). Paragraph (1), in turn, requires the

HHS Secretary to “prescribe such regulations as may be

necessary to carry out the administration of the insurance

programs” under the Medicare Act. Id. § 1395hh(a)(1). With

a few exceptions not relevant here, “the Secretary shall provide

for notice of the proposed regulation” to allow “for public

comment thereon.” Id. § 1395hh(b)(1).

In other words, as relevant here, the Medicare Act requires

notice-and-comment rulemaking for any (1) “rule,

requirement, or other statement of policy” that (2) “establishes

or changes” (3) a “substantive legal standard” that (4) governs

“payment for services.” Id. § 1395hh(a)(2). All four

requirements are readily met here.

First, HHS’s inclusion of Part C days in the fiscal year

2012 Medicare fractions is, at the very least, a “requirement.”

Fiscal intermediaries are commanded to use HHS’s Medicare

fractions in calculating adjustment amounts. See 42 C.F.R.

§ 412.106(b)(2), (5). Those fractions treat Part C enrollees as

“entitled to benefits under Part A.” The fiscal intermediaries

are therefore required to include Part C days in their

calculations as they determine reimbursement adjustments. In

short, HHS promulgated a “requirement” when it announced

that the 2012 Medicare fractions would include Part C days.

Second, HHS’s inclusion of Part C days in the fiscal year

2012 Medicare fractions represents a change in HHS’s

standards. Before 2004, HHS’s standard practice was to

exclude Part C days from Medicare fractions. See Northeast

Hospital Corp. v. Sebelius, 657 F.3d 1, 15 (D.C. Cir. 2011).

HHS’s 2004 rule attempted to change that standard so that the

13

Medicare fractions would include Part C days. Id. at 14. But

that rule was vacated. See Allina Health Services v. Sebelius,

746 F.3d 1102, 1111 (D.C. Cir. 2014) (Allina I). Although

HHS promulgated a new rule in 2013 that includes Part C days

in Medicare fractions, that rule applies only prospectively to

reimbursement adjustments for fiscal years 2014 and beyond.3

As a result, the pre-2004 standard of excluding Part C days

from Medicare fractions remains the baseline practice from

which this Court must evaluate any decisions for 2012. The

decision to include Part C days in the 2012 Medicare fractions

is therefore a change from prior practice.

Third, HHS’s inclusion of Part C days in the fiscal year

2012 Medicare fractions establishes a “substantive legal

standard.” “Substantive law” is law that “creates, defines, and

regulates the rights, duties, and powers of parties.” BLACK’S

LAW DICTIONARY (10th ed. 2014). A “substantive legal

standard” at a minimum includes a standard that “creates,

defines, and regulates the rights, duties, and powers of parties.”

That is precisely what HHS’s 2012 Medicare fractions do. The

fiscal intermediaries must use HHS’s published Medicare

fractions in determining how much the hospitals will be

reimbursed. HHS’s fractions therefore define the scope of

hospitals’ legal rights to payment for treating low-income

patients.

Fourth, HHS’s inclusion of Part C days in the fiscal year

2012 Medicare fractions governs “payment for services.” The

fractions are used to calculate the payment that providers will

receive for providing healthcare services to low-income

patients. The inclusion of Part C days means that the providers

will now receive lower payments.

3

The 2013 rule is the subject of pending litigation in the District

Court. We express no views on the merits of that case.

14

In sum, HHS’s decision to include Part C days in the 2012

Medicare fractions is covered by the text of

Section 1395hh(a)(2). The Medicare Act therefore required

HHS to engage in notice-and-comment rulemaking before

deciding to include Part C days in the 2012 Medicare fractions.

Because HHS did not undertake notice-and-comment

rulemaking, the 2012 Medicare fractions are procedurally

invalid.

B

HHS’s arguments to the contrary are not persuasive.

First, HHS argues that the fractions are not a “rule,

requirement, or statement of policy” because the fractions

apply only to the parties in this particular case for the year

2012. That argument is factually inaccurate. HHS published

Medicare fractions for every hospital in the country. All of

those fractions include Part C days. Indeed, during oral

argument, HHS forthrightly acknowledged that it would

“generally” maintain a “consistent interpretation” for all

hospitals for a given year, meaning that the policy applied to

the hospitals in this case would apply to all hospitals

nationwide. Tr. of Oral Arg. at 29:20-21. Moreover, as the

hospitals point out, the 2012 Medicare fractions will be the

basis not just for 2012 adjustments, but also for interim 2013

payments until HHS publishes the 2013 fractions. See 42

C.F.R. § 413.64(e). In other words, the decision to include Part

C days in the 2012 Medicare fractions affects more hospitals

than just the parties in this particular case for this particular

year.

Second, HHS argues that the Medicare Act incorporates

the APA’s exceptions to notice-and-comment requirements.

15

According to HHS, even if the decision to include Part C days

in the fiscal year 2012 Medicare fractions is a rule, it is at most

an “interpretive rule” for purposes of the APA. As a result, it

is exempt from the APA’s – and, by extension, the Medicare

Act’s – notice-and-comment requirements.

The problem with that argument is that the Medicare Act

does not incorporate the APA’s interpretive-rule exception to

the notice-and-comment requirement. (Therefore, we need not

decide whether HHS’s decision to include Part C days in the

2012 Medicare fractions was in fact an interpretive rule.)

Unlike the APA, the text of the Medicare Act does not

exempt interpretive rules from notice-and-comment

rulemaking. On the contrary, the text expressly requires

notice-and-comment rulemaking. The Medicare Act states:

“No rule, requirement, or other statement of policy . . . shall

take effect unless it is promulgated” through notice-and-

comment rulemaking. 42 U.S.C. § 1395hh(a)(2) (emphasis

added); id. § 1395hh(b)(1). The provision does not include an

exception for interpretive rules. By contrast, the APA requires

notice and comment only for “proposed rule making” and

exempts “interpretative rules, general statements of policy,

[and] rules of agency organization, procedure, or practice”

from notice-and-comment requirements. 5 U.S.C. § 553(b).

We must respect Congress’s use of different language and its

establishment of different notice-and-comment requirements in

the Medicare Act and the APA. Cf. WILLIAM N. ESKRIDGE JR.,

INTERPRETING LAW: A PRIMER ON HOW TO READ STATUTES

AND THE CONSTITUTION 109-10 (2016) (“Where a statute

repeatedly uses one term or phrase, one expects that a

materially different phraseology demands a different

reading.”); ANTONIN SCALIA & BRYAN A. GARNER, READING

LAW: THE INTERPRETATION OF LEGAL TEXTS 170 (2012) (“[A]

material variation in terms suggests a variation in meaning.”).

16

Moreover, Congress knew how to incorporate the APA’s

notice-and-comment exceptions into the Medicare Act when it

wanted to. After all, the Medicare Act expressly incorporates

other APA notice-and-comment exceptions. Specifically, the

Medicare Act incorporates the APA’s “good cause” exception.

See 42 U.S.C. § 1395hh(b)(2) (Notice-and-comment

rulemaking requirement “shall not apply where— . . .

subsection (b) of section 553 of title 5 does not apply pursuant

to subparagraph (B) of such subsection.”). But in the Medicare

Act, Congress did not incorporate the APA’s interpretive-rule

exception to notice-and-comment requirements.

We recognize that we are breaking with several other

courts of appeals by holding that the Medicare Act does not

incorporate all of the APA’s exceptions to the notice-and-

comment requirement. See, e.g., Via Christi Regional Medical

Center, Inc. v. Leavitt, 509 F.3d 1259, 1271 n.11 (10th Cir.

2007); Baptist Health v. Thompson, 458 F.3d 768, 776 n.9 (8th

Cir. 2006); Omni Manor Nursing Home v. Thompson, 151 Fed.

App’x 427, 431 (6th Cir. 2005); Warder v. Shalala, 149 F.3d

73, 79 n.4 (1st Cir. 1998).4 But we respectfully disagree with

those opinions. As discussed, we conclude that the Medicare

Act does not incorporate the APA’s interpretive-rule exception

to the notice-and-comment requirement.

4

As HHS points out, this Court’s prior decision in Monmouth

Medical Center v. Thompson, 257 F.3d 807, 814 n.2 (D.C. Cir.

2001), noted the question of whether the Medicare Act incorporates

the APA’s interpretive-rule exception. But as HHS recognizes,

Monmouth did not “expressly decide the question” raised here. HHS

Br. 44.

17

C

Finally, even if HHS were correct that the Medicare Act

somehow incorporated the APA’s notice-and-comment

exception for interpretive rules, HHS would still not prevail

here. That is because another provision of the Medicare Act,

Section 1395hh(a)(4), expressly required notice and comment

in this case. Section 1395hh(a)(4) reads in full:

If the Secretary publishes a final regulation that includes a

provision that is not a logical outgrowth of a previously

published notice of proposed rulemaking or interim final

rule, such provision shall be treated as a proposed

regulation and shall not take effect until there is the further

opportunity for public comment and a publication of the

provision again as a final regulation.

42 U.S.C. § 1395hh(a)(4). In other words, if a regulation

includes a “provision that is not a logical outgrowth of a

previously published notice of proposed rulemaking,” that

provision may not become legally operative until it has gone

through notice-and-comment rulemaking. Id.

Section 1395hh(a)(4) applies with full force here. This

Court vacated HHS’s 2004 rule treating Part C enrollees as

“entitled to benefits under Part A” because the 2004 rule “was

not a logical outgrowth of the proposed rule.” Allina I, 746

F.3d at 1109. HHS therefore had to provide a “further

opportunity for public comment and a publication of the

provision again as a final regulation” before HHS could re-

impose the rule. 42 U.S.C. § 1395hh(a)(4). HHS did not do

so. And HHS could not circumvent this requirement by

claiming that it was acting by way of adjudication rather than

rulemaking. The statutory text says that the vacated rule may

not “take effect” at all until there has been notice and comment.

18

* * *

Because we conclude that HHS has failed to provide notice

and comment as required by the Medicare Act, we need not

consider whether HHS’s decision was arbitrary and capricious.

We reverse the judgment of the District Court and remand for

proceedings consistent with this opinion.

So ordered.