Amicus Curiae Brief — Alex M. Azar, II, Secretary of Health and Human Services, Petitioner v. Allina Health Services, et al.

No. 17-1484

IN THE

Supreme Court of the United States

_________

ALEX M. AZAR, II, SECRETARY OF HEALTH AND

HUMAN SERVICES,

Petitioner,

v.

ALLINA HEALTH SERVICES, et al.,

Respondents.

_________

On Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

_________

BRIEF OF THE AMERICAN HOSPITAL

ASSOCIATION, FEDERATION OF AMERICAN

HOSPITALS, AND ASSOCIATION OF AMERICAN

MEDICAL COLLEGES AS AMICI CURIAE IN

SUPPORT OF RESPONDENTS

_________

MELINDA REID HATTON

MAUREEN D. MUDRON

LAWRENCE HUGHES

AMERICAN HOSPITAL

ASSOCIATION

800 Tenth Street, N.W.

Two City Center

Suite 400

Washington, D.C. 20001

(202) 638-1100

SHEREE R. KANNER

SEAN MAROTTA

Counsel of Record

KYLE M. DRUDING

HEATHER A. BRIGGS

HOGAN LOVELLS US LLP

555 Thirteenth Street, N.W.

Washington, D.C. 20004

(202) 637-4881

sean.marotta@hoganlovells.com

Counsel for American

Hospital Association

Counsel for Amici Curiae

Additional Counsel:

KATHLEEN TENOEVER

ERIN RICHARDSON

FEDERATION OF

AMERICAN HOSPITALS

750 9th Street, N.W.

Suite 600

Washington, D.C. 20001

(202) 624-1500

Counsel for Federation of

American Hospitals

FRANK TRINITY

IVY BAER

ASSOCIATION OF AMERICAN

MEDICAL COLLEGES

655 K Street, N.W.

Suite 100

Washington, D.C. 20001

Counsel for Association of

American Medical Colleges

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES........................................ii

STATEMENT OF INTEREST ....................................1

SUMMARY OF ARGUMENT.....................................3

ARGUMENT ...............................................................5

I. NOTICE

AND

COMMENT

FOR

SUBSTANTIVE LEGAL STANDARDS

IMPLEMENTING THE MEDICARE ACT

IS ESSENTIAL GIVEN MEDICARE’S

SIZE AND SCOPE ..............................................5

II. PETITIONER’S NEW POLICY ON

PART

C

DAYS

CHANGES

A

SUBSTANTIVE LEGAL STANDARD

AND THEREFORE REQUIRED NOTICE

AND COMMENT .............................................. 11

A. Section 1395hh(a)(2) Required Notice

and Comment Here...................................... 12

B. The Government’s Workability Concerns Are Overblown.................................... 19

CONCLUSION .......................................................... 23

(i)

ii

TABLE OF AUTHORITIES

Page

CASES:

Allina Health Servs. v. Sebelius,

746 F.3d 1102 (D.C. Cir. 2014) ..................8, 10, 11

American Nat’l Red Cross v. S.G.,

505 U.S. 247 (1992) ..............................................13

Appalachian Power Co. v. EPA,

208 F.3d 1015 (D.C. Cir. 2000) ......................17, 18

Billings Clinic v. Azar,

901 F.3d 301 (D.C. Cir. 2018) ................................7

Bowen v. Georgetown Univ. Hosp.,

488 U.S. 204 (1988) ..............................................17

Catholic Health Initiatives Iowa Corp. v.

Sebelius,

718 F.3d 914 (D.C. Cir. 2013) ................................7

Christopher v. SmithKline Beecham Corp.,

567 U.S. 142 (2012) ..............................................17

Clarian Health W., LLC v. Hargan,

878 F.3d 346 (D.C. Cir. 2017) ..........................5, 21

Department of Homeland Sec. v. MacLean,

135 S. Ct. 913 (2015)............................................12

Environmental Integrity Project v. EPA,

425 F.3d 992 (D.C. Cir. 2005) ..............................11

FCC v. Fox Television Stations, Inc.,

556 U.S. 502 (2009) ..............................................10

MCI Telecomms. Corp. v. FCC,

57 F.3d 1136 (D.C. Cir. 1995) ................................9

National Elec. Mfrs. Ass’n v. EPA,

99 F.3d 1170 (D.C. Cir. 1996) ................................9

iii

TABLE OF AUTHORITIES—Continued

Page

National Med. Enters. v. Bowen,

851 F.2d 291 (9th Cir. 1988)................................20

National Petrochemical & Refiners

Ass’n v. EPA,

643 F.3d 958 (D.C. Cir. 2011) ..............................12

Northeast Hosp. Corp. v. Sebelius,

657 F.3d 1 (D.C. Cir. 2011) ....................................8

Perez v. Mortgage Bankers Ass’n,

135 S. Ct. 1199 (2015)..........................................13

Russello v. United States,

464 U.S. 16 (1983)................................................12

South Shore Hosp., Inc. v. Thompson,

308 F.3d 91 (1st Cir. 2002) ..................................20

Schweiker v. Gray Panthers,

453 U.S. 34 (1981)..................................................7

Shalala v. Guernsey Mem’l Hosp.,

514 U.S. 87 (1995)..........................................19, 20

Shalala v. Illinois Council on Long Term

Care, Inc.,

529 U.S. 1 (2000)....................................................6

Smiley v. Citibank (S. Dakota), N.A.,

517 U.S. 735 (1996) ................................................9

Trust Under Will of Wills v. Burwell,

306 F. Supp. 3d 684 (E.D. Pa. 2018) ...................20

United States v. Mead Corp.,

533 U.S. 218 (2001) ................................................9

iv

TABLE OF AUTHORITIES—Continued

Page

ADMINISTRATIVE PROCEEDINGS:

Health All. Hospital Leominster, Mass. v.

BlueCross BlueShield Ass’n/NHIC Corp.,

No. 06-0984, 2013 WL 11261923

(PRRB Sept. 24, 2013) .........................................20

LAC ESRD Pre-Composite Rate Grp. v.

BlueCross BlueShield Ass’n/Blue Cross of

Cal.,

No. 92-0110G, 1999 WL 766795 (PRRB

Sept. 21, 1999) .....................................................20

Provena Health 2006 LIP SSI Percentage

Calc. Grp. v. National Gov’t Servs., Inc.,

No. 09-0939GC, 2015 WL 10371518

(PRRB Dec. 30, 2015)...........................................20

STATUTES:

5 U.S.C. § 553(c)......................................................13

5 U.S.C. § 553(d) .....................................................13

42 U.S.C. § 1395hh(a)(2) ................................ passim

42 U.S.C. § 1395oo(a)..............................................15

42 U.S.C. § 7607(d) .................................................12

Administrative Procedure Act,

60 Stat. 237 (1946) ...............................................13

Omnibus Budget Reconciliation Act of

1987, Pub. L. No. 100-203, § 4035(b)...................14

REGULATIONS:

42 C.F.R. pt. 405, subpt. R .....................................15

42 C.F.R. § 405.1842(f)(1)(ii) ..................................15

42 C.F.R. § 405.1867...............................................15

v

TABLE OF AUTHORITIES—Continued

Page

Office of Mgmt. and Budget, Final Bulletin

for Agency Good Guidance Practices,

72 Fed. Reg. 3432 (Jan. 25, 2007) .............9, 17, 18

LEGISLATIVE MATERIAL:

H.R. Rep. No. 100-391 (1987) .................................14

OTHER AUTHORITIES:

Robert A. Anthony, Interpretive Rules,

Policy Statements, Guidances, Manuals

and the Like-Should Federal Agencies Use

Them to Bind the Public?,

41 Duke L.J. 1311 (1992).....................................18

Centers for Medicare & Medicare Servs.,

CMS Fast Facts: CMS Program Data Populations (July 2018), available at

https://go.cms.gov/1JjCGaC ...................................6

Centers for Medicare & Medicare Servs.,

National Health Expenditure Data:

Historical (Jan. 8, 2018), available at

https://go.cms.gov/1Jy5kin.....................................6

Juliette Cubaski & Tricia Neuman, The

Facts on Medicare Spending and Financing, Henry J. Kaiser Family Foundation

(June 22, 2018), available at

https://bit.ly/2BTku4o ........................................5, 6

David L. Franklin, Legislative Rules,

Nonlegislative Rules, and the Perils of the

Short Cut, 120 Yale L.J. 276 (2010) ....................21

Jacob E. Gersen, Legislative Rules

Revisited, 74 U. Chi. L. Rev. 1705 (2007)............13

vi

TABLE OF AUTHORITIES—Continued

Page

Eleanor D. Kinney, The Accidental Administrative Law of the Medicare Program,

15 Yale J. Health Policy, L. & Ethics 111

(2015)..................................................................6, 7

Mem. from Att’y Gen., U.S. Dep’t of

Justice (Nov. 16, 2017), available at

https://bit.ly/2E2otkb .....................................18, 19

Kevin W. Saunders, Interpretative Rules

with Legislative Effect: An Analysis and A

Proposal for Public Participation,

1986 Duke L.J. 346 (1986)...................................10

Eugene Scalia, Essay, The Value of Public

Participation in Rulemaking,

Penn. Reg. Rev. (Sept. 25, 2017), available at https://bit.ly/2fKUoZk ................................10

IN THE

Supreme Court of the United States

_________

No. 17-1484

_________

ALEX M. AZAR, II, SECRETARY OF HEALTH AND

HUMAN SERVICES,

Petitioner,

v.

ALLINA HEALTH SERVICES, et al.,

_________

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

_________

BRIEF OF THE AMERICAN HOSPITAL

ASSOCIATION, FEDERATION OF AMERICAN

HOSPITALS, AND ASSOCIATION OF AMERICAN

MEDICAL COLLEGES AS AMICI CURIAE IN

SUPPORT OF RESPONDENTS

_________

STATEMENT OF INTEREST

The American Hospital Association, Federation of

American Hospitals, and Association of American

Medical Colleges respectfully submit this brief as

amici curiae.1

1

No party or counsel for a party authored or paid for this brief

in whole or in part, or made a monetary contribution to fund

the brief’s preparation or submission. No one other than amici

or their members or counsel made a monetary contribution to

the brief. All parties have consented to the filing of this brief.

2

The American Hospital Association (AHA) represents nearly 5,000 hospitals, healthcare systems, and

other healthcare organizations. AHA members are

committed to improving the health of the communities they serve and to helping ensure that care is

available to and affordable for all Americans. The

AHA educates its members on healthcare issues and

advocates to ensure that their perspectives are

considered in formulating health policy.

The Federation of American Hospitals (FAH) is the

national representative of more than 1,000 investorowned or managed community hospitals and health

systems throughout the United States. FAH’s members include teaching and non-teaching hospitals in

urban and rural America, as well as inpatient rehabilitation, psychiatric, long-term acute care, and

cancer hospitals.

Dedicated to a market-based

philosophy, the Federation provides representation

and advocacy on behalf of its members to Congress,

the Executive Branch, the judiciary, media, academia, accrediting organizations, and the public.

The Association of American Medical Colleges

(AAMC) is a not-for-profit association representing

all 152 accredited U.S. and 17 accredited Canadian

medical schools, nearly 400 major teaching hospitals

and health systems, and 90 academic and scientific

societies. Through these institutions and organizations, the AAMC represents 173,000 full-time faculty

members, 89,000 medical students, 129,000 resident

physicians, and more than 60,000 graduate students

and postdoctoral researchers in the biomedical

sciences.

The question presented here is of tremendous importance to amici’s members. The federal Medicare

3

program enables amici’s members to provide the

wide range of critical healthcare services on which

their patients and communities rely. And the patients and communities for whom this issue of Medicare administration matters most are among the

country’s most vulnerable.

By evading the notice-and-comment process required by 42 U.S.C. § 1395hh(a)(2), the Department

of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) were

allowed to impose their own substantive policy views

without understanding their direct impact on

healthcare providers and those they serve. That

procedural shortcut leads to policies that harm those

affected by them, as well as inconsistency and uncertainty in how providers’ Medicare reimbursements

may be determined from year to year. Because

“[n]otice and opportunity for comment are critically

important for determining and meaningfully considering the true impact of any payment policy change

on hospitals” (Br. in Opp. 38), the Court should

affirm the judgment below.

SUMMARY OF ARGUMENT

I. Notice and comment is a mainstay of administrative law. Rightly so. Notice and comment is a

critical procedural protection that enables public

participation for those stakeholders most likely to be

affected by contemplated agency policymaking and

allows agencies’ decisionmaking to be informed and

responsive. To be sure, adding this additional layer

of protection comes with certain trade-offs. But

when an agency seeks to create, define, and regulate

the rights, duties, and obligations of parties in a

manner that entails substantial real-world impact,

4

notice and comment should be required. And for

changes that alter the substantive legal standards

governing Medicare payments, Congress has mandated precisely that. See 42 U.S.C. § 1395hh(a)(2).

The size and scope of the federal Medicare program

demonstrate why notice and comment is essential for

agency conduct altering payment policies. Even

seemingly minor changes carry the potential for

enormous consequences. The extensive history of

this litigation, including CMS’s repeated attempts to

evade the specific payments due Respondents, reflects the stakes for agency action, even if the agency

tries to underplay the significance of those actions.

Had the proper procedures been followed from the

outset, the parties and the public alike would have

benefitted from the notice and comment Congress

prescribed for exactly these circumstances.

II. Congress here required the opportunity for public participation through notice and comment before

HHS and CMS could alter the Disproportionate

Share Hospital (DSH) fraction calculations that

determine the payments due providers under the

DSH program. The text of Section 1395hh(a)(2),

distinct from the Administrative Procedure Act

(APA), extends to any change to the substantive legal

standards governing Medicare payments. Petitioner’s after-the-fact justification offered in defense of

CMS’s decision to forgo notice and comment by

labeling its Medicare-fraction calculations “interpretive only” lacks merit.

That Congress required CMS to undertake notice

and comment here does not mean CMS must always

do so. Nor does the fact-sensitive decision below

render the Medicare program unworkable more

5

broadly. True guidance documents, which instruct

but do not dictate, need not go through notice and

comment, as subsequent case law applying the

decision below confirms. See Clarian Health W., LLC

v. Hargan, 878 F.3d 346 (D.C. Cir. 2017). The decision below therefore will not upset HHS and CMS’s

administration of the Medicare program.

The Court should affirm the D.C. Circuit’s judgment.

ARGUMENT

I. NOTICE

AND

COMMENT

FOR

SUBSTANTIVE

LEGAL

STANDARDS

IMPLEMENTING THE MEDICARE ACT IS

ESSENTIAL GIVEN MEDICARE’S SIZE AND

SCOPE.

Congress required notice and comment for any

“rule, requirement, or other statement of policy” that

“changes a substantive legal standard governing”

payments for Medicare services, 42 U.S.C.

§ 1395hh(a)(2), for good reason. When it comes to

Medicare, seemingly small changes can have outsized results.

This case is a perfect example.

Whether Part C days count in the Medicare or Medicaid fraction has substantial real-world impact. That

decision alone affects billions of dollars of federal

funding according to the Government’s own estimate.

See Pet. 14. It is precisely the sort of substantive

legal standard that should be subject to public input.

1. Medicare is a program of great importance to the

health of our nation. Total Medicare benefits entailed more than $700 billion in federal spending in

2017, almost double the $425 billion spent in 2007.

Juliette Cubaski & Tricia Neuman, The Facts on

Medicare Spending and Financing, Henry J. Kaiser

6

Family Foundation (June 22, 2018).2

Medicare

expenditures were also 15 percent of total federal

spending in 2017; by 2028, Medicare’s share is

expected to rise to 18 percent. See id. And Medicare

alone accounts for roughly 20 percent of the $3.3

trillion a year spent on health care nationally. See

Centers for Medicare & Medicare Servs., National

Health Expenditure Data: Historical (Jan. 8, 2018).3

In Calendar Year 2018, CMS estimates that an

average of 59.1 million people will have received

benefits under Parts A and B each month. Centers

for Medicare & Medicare Servs., CMS Fast Facts:

CMS Program Data - Populations (July 2018).4

With its growth, the Medicare program has become

“a massive, complex health and safety program * * *

embodied in hundreds of pages of statutes and

thousands of pages of often interrelated regulations.”

Shalala v. Illinois Council on Long Term Care, Inc.,

529 U.S. 1, 13 (2000). And its administration is

difficult. “Over the years, HHS and CMS have come

to appreciate their roles as regulatory and procurement agencies when it comes to the administration of

the Medicare program. But the history of the program suggests that HHS and CMS did not come

easily to this realization.” See Eleanor D. Kinney,

The Accidental Administrative Law of the Medicare

Program, 15 Yale J. Health Policy, L. & Ethics 111,

138 (2015). Today, Medicare is “governed by a

complex web of legislative rules, interpretive rules

and manuals, policy guidance and computer pro2

Available at https://bit.ly/2BTku4o.

3

Available at https://go.cms.gov/1Jy5kin.

4

Available at https://go.cms.gov/1JjCGaC.

7

grams” that “guide a host of decisions” concerning

the program’s operations. Id. at 111. As a result,

even seemingly small tweaks to a subcomponent of

the Medicare program can have far-reaching consequences.

2. The saga of the policy at issue here—whether

Part C managed-care patients should be counted as

entitled to benefits under the Part A fee-for-service

component of the Medicare program—exemplify why

Congress wanted public input on all substantive

standards. The DSH adjustment is just one part of

the constantly changing and “byzantine process” that

governs Medicare payments to hospitals. Billings

Clinic v. Azar, 901 F.3d 301, 309-311 (D.C. Cir.

2018); accord Schweiker v. Gray Panthers, 453 U.S.

34, 43 (1981) (describing the Medicare program as

“Byzantine” and “among the most intricate ever

drafted by Congress.”). Similarly “byzantine” is the

process for determining the “Medicare and Medicaid

fractions” used to “provide a proxy for the total lowincome patient percentage” when calculating the

DSH adjustment itself. Catholic Health Initiatives

Iowa Corp. v. Sebelius, 718 F.3d 914, 916 (D.C. Cir.

2013). “Many aspects of the DSH adjustment have

been challenged over the years,” see id. at 917, as

would be expected given this complexity and the

Government’s shifting understanding of that legal

landscape.

Whether Part C days are included in the Medicare

or Medicaid fraction may seem like a minor issue.

But it has far-reaching effects.

As Petitioner

stressed in its bid for this Court’s review, the status

of Part C days implicates $3 to $4 billion in Medicare

spending that supports the work of hospitals that

disproportionately serve vulnerable populations. See

8

Pet. 14. And for the individual hospitals whose

funding turns on that determination, “the practical

consequences of this dispute number in the hundreds

of millions of dollars.” Northeast Hosp. Corp. v.

Sebelius, 657 F.3d 1, 5 (D.C. Cir. 2011); accord Allina

Health Servs. v. Sebelius, 746 F.3d 1102, 1107 (D.C.

Cir. 2014) (observing the “enormous financial consequences for the hospitals”). The effects go far beyond

the financial, however, as that funding translates

directly into a wide range of critical services for lowincome patients. Given these effects, the determination to include Part C days in the Medicare or Medicaid fraction calls out for notice and comment like

any other major policy change.

Petitioner argues that upholding the decision below

would mire the Medicare system in red tape by

subjecting every CMS decision to notice and comment. Pet. Br. 41-43. That concern is overblown, as

we explain below. Infra pp. 19-22. Petitioner’s true

motive instead is to seek a special rule that allows

CMS to avoid the DSH-adjustment payments due by

changing a substantive legal standard governing the

payment calculation without advance notice and

comment. By recharacterizing as mere suggestions

CMS’s mandates to Medicare contractors, hospitals,

and the Provider Reimbursement Review Board

(PRRB), and then disclaiming Section 1395hh(a)(2)’s

purportedly burdensome and unworkable notice-andcomment procedures, Petitioner is trying to escape

CMS’s payment obligations. The Court should not

allow that to happen.

3. Notice and comment is not just the law. It also

improves policy outcomes. This Court has long

recognized that “fairness and deliberation” should

9

undergird any “administrative action with the effect

of law.” United States v. Mead Corp., 533 U.S. 218,

230 (2001).

Notice and comment is the principal way “to assure

due deliberation.” Smiley v. Citibank (S. Dakota),

N.A., 517 U.S. 735, 741 (1996). And it serves two

central purposes. First, providing for notice and

comment directs the regulatory process “to reintroduce public participation and fairness to affected

parties after governmental authority has been delegated to unrepresentative agencies.” National Elec.

Mfrs. Ass’n v. EPA, 99 F.3d 1170, 1174 (D.C. Cir.

1996) (quoting MCI Telecomms. Corp. v. FCC, 57

F.3d 1136, 1141 (D.C. Cir. 1995)). Second, notice and

comment “promot[es] informed agency action” by

making sure that “‘the agency will have before it the

facts and information relevant to a particular administrative problem.’” Id. (quoting MCI Telcomms., 57

F.3d at 1141). By guaranteeing both public participation and informed agency action, the notice-andcomment requirement works toward a better administrative process for all.

To be sure, the notice-and-comment process may

require that agencies invest greater time and deliberation than they may otherwise be inclined to do.

But in the Medicare context and outside of it, “[p]readoption notice-and-comment can be most helpful for

significant guidance documents that are particularly

complex, novel, consequential, or controversial.” See

Office of Mgmt. and Budget, Final Bulletin for Agency Good Guidance Practices, 72 Fed. Reg. 3432, 3438

(Jan. 25, 2007). And when “controlling effect” is

given to agency conduct setting a substantive legal

standard on issues of sufficient “importance,” such

rules should “be promulgated only following public

10

participation.” Kevin W. Saunders, Interpretative

Rules with Legislative Effect: An Analysis and A

Proposal for Public Participation, 1986 Duke L.J.

346, 383 (1986).

Notice and comment helps not just the public, but

also the courts. Just as notice and comment allows

“the public * * * a chance to speak and be heard,” it

allows a reviewing court to assess whether “the

public [was] listened to” and whether “its evidence

and point of view” were considered. Eugene Scalia,

Essay, The Value of Public Participation in Rulemaking, Penn. Reg. Rev. (Sept. 25, 2017) (emphasis in

original).5 That enables the federal courts to provide

a meaningful check on administrative conduct and

inject another layer of accountability into the process, which is critical to our constitutional framework. See FCC v. Fox Television Stations, Inc., 556

U.S. 502, 536 (2009) (Kennedy, J., concurring) (explaining the importance of judicial review given “the

administrative agency’s unique constitutional position” as “the exact locus of its powers present questions that are delicate, subtle, and complex”).

The Medicare program, too, benefits from notice

and comment. By refusing to allow public participation on the challenged policy concerning the treatment of Part C patients in the Medicare and Medicaid fractions, CMS deprived itself and the public of

the benefits of these statutorily mandated procedural

protections. Indeed, had CMS opened up the decisionmaking process to public scrutiny rather than

“pull a surprise switcheroo,” Allina Health Servs.,

5

Available at https://bit.ly/2fKUoZk.

11

746 F.3d at 1108 (quoting Environmental Integrity

Project v. EPA, 425 F.3d 992, 994 (D.C. Cir. 2005)),

Respondents’ resort to this torturous litigation may

never have been necessary. When it works as intended, notice and comment catches mistakes before

they are made. Without it—as here—it can lead to

over a decade of litigation.

II. PETITIONER’S NEW POLICY ON PART C

DAYS CHANGES A SUBSTANTIVE LEGAL

STANDARD AND THEREFORE REQUIRED

NOTICE AND COMMENT.

Petitioner argues that CMS’s calculation of the socalled Medicare fraction—a portion of the formula

that determines the DSH payment given to hospitals

serving the most-vulnerable populations—did not

require notice-and-comment rulemaking because it

was merely a “nonbinding interpretation of a statute.” See Pet. Br. 20-41. That litigation position is

not only contrary to the Medicare Act, as described

above, it is also at odds with the APA, and the contemporaneous views of CMS’s own officials.

Further, it is contrary to the government’s—

including the current Administration’s—view of the

line between interpretive and legislative rules outside the Medicare context. The Department of Justice and other federal agencies have concluded that

rules that create, define, and regulate the rights,

duties, and obligations of parties—whatever their

label—are substantive legal standards and must be

subjected to notice and comment. CMS could not

include Part C days in the Medicare fraction without

first going through notice and comment.

12

A.

Section 1395hh(a)(2) Required Notice and

Comment Here.

1. Petitioner contends that Congress in Section

1395hh(a)(2) actually imported the APA, including

its interpretive-rule exemption for notice and comment. Pet. Br. 22-28. But three different canons of

construction counsel against that conclusion.

First, Congress did not import or cross-reference

the APA’s interpretive-rule exemption in Section

1395hh(a)(2). Cf. 42 U.S.C. § 7607(d) (stating that

the Clean Air Act’s rulemaking provisions “shall not

apply in the case of any rule or circumstance referred

to” in the APA’s interpretive-rule exception). Congress “knew how to distinguish between regulations

that have the force and effect of law and those that

did not, but chose not to do so in” Section

1395hh(a)(2).

Department of Homeland Sec. v.

MacLean, 135 S. Ct. 913, 921 (2015).

Second, Petitioner’s argument would result in Section 1395hh(a)(2)’s rulemaking provision meaning

the exact same thing as the APA’s, despite using

different language. Yet the Court “refrain[s] from

concluding * * * that the differing language * * * has

the same meaning.” Russello v. United States, 464

U.S. 16, 23 (1983).

Finally, the APA provides the “default” rules when

an agency’s organic act does not provide specific

ones. See National Petrochemical & Refiners Ass’n v.

EPA, 643 F.3d 958, 961 (D.C. Cir. 2011) (Brown, J.,

dissenting from denial of rehearing en banc) (noting

the “default notice-and-comment procedures of the

APA”). If Section 1395hh(a)(2) were to mean the

exact same thing as the APA’s rulemaking provision,

then Congress would have had no reason to pass

13

Section 1395hh(a)(2). And this Court “requir[es] a

change in language to be read, if possible, to have

some effect.” American Nat’l Red Cross v. S.G., 505

U.S. 247, 263 (1992). Reading Section 1395hh(a)(2)

to be congruent with the APA would make Congress’s amendment adding the section a nullity.

2. For more than seventy years, the APA has governed federal agencies engaging in rulemaking. 60

Stat. 237 (1946). Under the APA, agencies must

provide a public notice-and-comment period to “give

interested persons an opportunity to participate in

the rule making [process] through submission of

written data, views, or arguments.”

5 U.S.C.

§ 553(c). The APA distinguishes between “substantive” or “legislative” rules and “interpretive” rules.

Generally speaking, promulgating “legislative” rules

requires notice and comment, while “interpretive”

rules do not. Compare id., with id. § 553(d). But the

APA does not define the difference between the two.

Despite decades of case law, the distinction between “legislative” and “interpretive” rules remains

muddled. The “precise meaning” of the “term ‘interpretative rule,’ or ‘interpretive rule,’” has been “the

source of much scholarly and judicial debate.” Perez

v. Mortgage Bankers Ass’n, 135 S. Ct. 1199, 1204

(2015) (declining to “wade into that debate”). The

line is one that “‘breeds bewilderment and frustration’” and has variously been called “‘fuzzy,’ ‘tenuous,’ ‘baffling,’ ‘blurred,’ and ‘enshrouded in considerable smog’” by courts and commenters alike. See

Jacob E. Gersen, Legislative Rules Revisited, 74 U.

Chi. L. Rev. 1705, 1708-09 (2007) (citations and

footnotes omitted).

14

Congress enacted the Medicare Act’s distinct notice-and-comment requirements—which direct HHS

to engage in notice-and-comment rulemaking for any

“rule, requirement, or other statement of policy” that

“establishes or changes a substantive legal standard

governing * * * payment for services”—against this

backdrop. See Omnibus Budget Reconciliation Act of

1987, Pub. L. No. 100-203, § 4035(b). Congress was

concerned that “important polices [were] being

developed without benefit of the public notice and

comment period.” H.R. Rep. No. 100-391, at 430

(1987).

So rather than rely on an amorphous distinction

between legislative and interpretative rules, Congress laid down a bright line: Any HHS action—even

one that is a mere “statement of policy”—that “establishes or changes a substantive legal standard” in the

enumerated areas must go through notice and comment.

See 42 U.S.C. § 1395hh(a)(2).

Section

1395hh(a)(2)’s text reflects that congressional decision, declining to incorporate the APA’s broad exemption for interpretative rules. See Pet. App. 12a.

Under the proper Section 1395hh(a)(2) standard,

CMS’s inclusion of Part C days in the Medicare

fraction had to go through notice and comment. As

the D.C. Circuit explained, CMS’s inclusion of Part C

days in the Medicare fraction was a “requirement”

because CMS’s contractors are required to use the

fraction that CMS calculates when making DSH

payment decisions. Pet. App. 12a. CMS’s inclusion

of Part C days in the fraction is also a change in

standards because CMS previously excluded Part C

days from the Medicare fraction. Id. at 13a. And

CMS’s inclusion of Part C days in the Medicare

fraction is a substantive legal standard because it

15

“define[s] the scope of hospitals’ legal rights to payment for treating low-income patients.” Id. at 14a.

The D.C. Circuit correctly concluded that CMS’s

inclusion of Part C days in the Medicare fraction had

to undergo notice and comment.

3. Petitioner’s contention that CMS’s calculation of

the Medicare fraction was merely nonbinding guidance falls all-the-more flat because CMS’s own

Provider Reimbursement Review Board (PRRB)

understood the policy to bind it, not merely guide it.

The PRRB is an independent administrative forum

that hears disputes concerning final reimbursement

determinations made by CMS or by Medicare contractors. See 42 C.F.R. pt. 405, subpt. R; 42 U.S.C.

§ 1395oo(a); Pet. App. 25a. The PRRB is required to

apply the Medicare Act, agency regulations, and

CMS rulings. See 42 C.F.R. § 405.1867. But the

PRRB need not follow “interpretive rules, general

statements of policy, and rules of agency organization, procedure, or practice.” Id.

The PRRB can authorize expedited judicial review—allowing the appellant to skip over the PRRB

portion of the Medicare appeals process—when “[t]he

Board lacks the authority to decide a specific legal

question” because it challenges “the substantive or

procedural validity of a regulation or CMS ruling.”

Id. § 405.1842(f)(1)(ii). In other words, if the appellant’s challenge goes to the validity of a substantive

standard, the PRRB itself can authorize the appellant to bypass the Board’s review. See id.

Here, in granting expedited judicial review of

whether CMS’s 2012 DSH calculations were procedurally invalid, the PRRB found it was bound by the

vacated 2004 rule incorporating Part C patient days

16

as part of the Medicare fraction. Pet. App. 57a, 72a;

see also Resp. Br. 16-17. The PRRB understood that

“it is bound by the regulation,” regardless of whether

the regulation itself was “valid.” Pet. App. 57a, 72a

(emphases added). And what the Board did not say

is equally important: had it viewed the decision as a

nonbinding “interpretive rule” or “statement of

policy,” as Petitioner asserts it should have, the

Board would have considered CMS’s calculations but

been free to deviate from them.

Importantly, the PRRB also granted expedited

judicial review based upon its determination that it

was “without the authority to decide the legal question of whether the regulation regarding the treatment of Medicare Part C days is valid and whether

the Secretary’s actions * * * are legal.” Id. Simply

put, the PRRB concluded that it did not have authority to determine the legality of the agency’s action

following vacatur of the 2004 rule.

The PRRB’s decision to grant expedited judicial

review cannot be squared with Petitioner’s made-forlitigation assertion that CMS had issued a “nonbinding interpret[ive]” standard only. Rather, the record

belies that assertion. Not only were Respondents’

arguments before the PRRB uncontested, the intermediary on the other side of Respondents’ appeal did

not oppose expedited review. Id. Further, the D.C.

Circuit held that the PRRB properly concluded that

expedited judicial review was warranted (Pet. App.

10a-11a), and Petitioner has not contested that

finding in this Court. Thus, as the case comes to this

Court, CMS’s own independent adjudicators correctly

determined that the inclusion of Part C days in the

Medicare fraction was a binding standard.

17

That conclusion dramatically undercuts Petitioner’s argument that the PRRB could have come to its

own conclusion as to whether Part C days were

properly included. This Court declines to credit

agency litigating positions that are “wholly unsupported * * * by administrative practice,” Bowen v.

Georgetown Univ. Hosp., 488 U.S. 204, 212 (1988),

and that are a “post hoc rationalization advanced by

an agency seeking to defend past agency action

against attack.” Christopher v. SmithKline Beecham

Corp., 567 U.S. 142, 155 (2012) (citation, internal

quotation marks, and brackets omitted). It should do

so again and reject Petitioner’s argument that the

PRRB could have rejected CMS’s inclusion of Part C

days in the Medicare fraction.

4. Petitioner’s contention that CMS’s inclusion of

Part C days in the Medicare fraction was merely a

nonbinding interpretation is further undercut by the

Government’s own warnings against slapping the

“interpretive” label on substantive legal standards.

The Office of Management and Budget in 2007

issued a best-practices document cautioning that

“[e]xperience has shown” that interpretive documents “may be poorly designed or improperly implemented,” and these “documents may not receive the

benefit of careful consideration accorded under the

procedures for regulatory development and review,”

including notice and comment. 72 Fed. Reg. at 3432.

As the D.C. Circuit has summarized the typical

offending pattern: “Congress passes a broadly worded statute. The agency follows with regulations * * *.

Then as years pass, * * * the agency offers more and

more detail regarding what its regulations demand

of regulated entities. Law is made, without notice

and comment, without public participation.” Appa-

18

lachian Power Co. v. EPA, 208 F.3d 1015, 1020 (D.C.

Cir. 2000).

That creation of substantive legal standards without advance notice and comment comes with serious

consequences. As OMB further warned, “[c]oncern

about whether agencies are properly observing the

notice-and-comment requirements * * * has received

significant attention. The courts, Congress, and

other authorities have emphasized that rules which

do not merely interpret existing law or announce

tentative policy positions but which establish new

policy positions that the agency treats as binding

must comply with the APA’s notice-and-comment

requirements, regardless of how they initially are

labeled.” 72 Fed. Reg. at 3433; see also Robert A.

Anthony, Interpretive Rules, Policy Statements,

Guidances, Manuals and the Like-Should Federal

Agencies Use Them to Bind the Public?, 41 Duke L.J.

1311 (1992); 72 Fed. Reg. at 3432 n.2.

Just this past year, the Department of Justice announced its own position that “interpretations” such

as the one at issue here require notice and comment.

The Attorney General cautioned in a November 2017

memorandum that “the Department has in the past

published guidance documents—or similar instruments of future effect by other names, * * * —that

effectively bind private parties without undergoing

the rulemaking process.” Mem. from Att’y Gen., U.S.

Dep’t of Justice 1 (Nov. 16, 2017).6 He then announced that “[t]he Department will no longer engage in this practice. Effective immediately, Department components may not issue guidance docu6

Available at https://bit.ly/2E2otkb.

19

ments that purport to create rights or obligations

binding on persons or entities outside the Executive

Branch.” Id.

These problems with substantive standards adopted without notice and comment are precisely the

ones Congress intended to solve when it enacted

Section 1395hh(a)(2). When a policy such as the one

offered by CMS here effectively binds regulated

parties and agency officials alike, the agency must

first go through proper notice-and-comment channels. Petitioner’s attempt to relabel its policy a

“nonbinding interpretation” is simply another instance of a rule masquerading as a guidance document. The Court should not countenance it.

B.

The Government’s Workability Concerns

Are Overblown.

Petitioner contends that an “interpretation of Section 1395hh” giving effect to the statute’s plain

language “would substantially undermine HHS’s

ability to administer Medicare in a workable manner.” See Pet. Br. 41-43. But Petitioner’s administrability concerns are overblown. Not all CMS

policies need go through notice and comment; just

those, like the determination here, that substantively alter how providers are paid.

1. CMS need not engage notice and comment for

true guidance documents that do not tie the hands of

the agency or the PRRB. For instance, Petitioner

frets that a ruling for Respondents will upend the

Provider Reimbursement Manual. Pet. Br. 41-42.

But this Court and others have repeatedly concluded

that the Manual is merely an interpretive guide that

does “not have the force and effect of law.” See, e.g.,

Shalala v. Guernsey Mem’l Hosp., 514 U.S. 87, 99

20

(1995); South Shore Hosp., Inc. v. Thompson, 308

F.3d 91, 103 (1st Cir. 2002); National Med. Enters. v.

Bowen, 851 F.2d 291, 293 (9th Cir. 1988); see also

Trust Under Will of Wills v. Burwell, 306 F. Supp. 3d

684, 693 (E.D. Pa. 2018) (holding that comparativevolume consideration in a CMS Survey & Certification Memorandum provided only “some form of

guidance as to how the legal standards are applied”

when “the agency maintains the same authority to

grant or deny applications as it would without a

stated public policy”). The decision below does not

challenge these consistent holdings.

CMS generally also need not put its policies

through notice and comment when they can be

disregarded by agency adjudicators like the PRRB.

The PRRB can—and does—routinely reject CMS

guidance as inconsistent with the Medicare Act or

HHS regulations. See, e.g., Provena Health 2006 LIP

SSI Percentage Calc. Grp. v. National Gov’t Servs.,

Inc., No. 09-0939GC, 2015 WL 10371518, at *5

(PRRB Dec. 30, 2015); Health All. Hospital Leominster, Mass. v. BlueCross BlueShield Ass’n/NHIC

Corp., No. 06-0984, 2013 WL 11261923, at *7 (PRRB

Sept. 24, 2013); LAC ESRD Pre-Composite Rate Grp.

v. BlueCross BlueShield Ass’n/Blue Cross of Cal.,

No. 92-0110G, 1999 WL 766795, at *9 (PRRB Sept.

21, 1999). When the PRRB can and does reject a

CMS determination, that is strong evidence that the

determination does not bind the agency and thus is

not a “requirement” under Section 1395hh(a)(2). But

those instances stand in stark contrast to the Medicare-fraction determination challenged here, which

the PRRB understood to bind it. See supra pp. 15-16.

2. Tellingly, Petitioner’s administrability fears

have not materialized in the D.C. Circuit. The D.C.

21

Circuit in applying the decision below has not applied a blanket rule that all Medicare administrative

materials issued by HHS and CMS now require

notice and comment, as the Petitioner apparently

fears. The D.C. Circuit has held that instructions in

the Medicare Claims Processing Manual issued by

CMS “do not alter the applicable legal standards”

when those instructions “set forth an enforcement

policy” only. Clarian Health, 878 F.3d at 354-356.

The D.C. Circuit observed that, unlike the Part C

days DSH policy here, “the agency maintains the

same authority * * * that it had prior to the adoption

of the Manual instructions” and the instructions

neither “change the legal standards that govern the

hospitals” nor “change the legal standards that

govern the agency” because “the instructions bind

neither CMS nor the Board in adjudications.” Id.

That is exactly right. And it confirms that CMS can

operate under the test adopted below.

If anything, Medicare’s regulatory process may run

more efficiently under Section 1395hh(a)(2)’s relatively clearer “substantive legal standards” test. The

uncertainty about when notice and comment is

required under the APA’s legislative–interpretive

dichotomy, supra, pp. 13-14, pervades rulemaking

challenges. “Even by the standards of administrative law—a field in which uniform, predictable rules

of black-letter law are hard to come by—the resulting litigation is considered notoriously difficult.”

David L. Franklin, Legislative Rules, Nonlegislative

Rules, and the Perils of the Short Cut, 120 Yale L.J.

276, 278 (2010). The D.C. Circuit’s standard, under

which notice and comment are required when the

agency policy would change a substantive legal

standard affecting the rights, duties, and powers of

22

regulated parties (Pet. App. 12a-14a), is moredefinitive, providing more guidance to CMS policymakers than the APA’s amorphous tests and better

aligned with the text of the Medicare statute. But at

the very least, it will not grind the machinery of the

Medicare system to a halt.

23

CONCLUSION

For the foregoing reasons, as well as those in Respondents’ brief, the D.C. Circuit’s judgment should

be affirmed.

Respectfully submitted,

MELINDA REID HATTON

MAUREEN D. MUDRON

LAWRENCE HUGHES

AMERICAN HOSPITAL

ASSOCIATION

800 Tenth Street, N.W.

Two CityCenter

Suite 400

Washington, D.C. 20001

(202) 638-1100

SHEREE R. KANNER

SEAN MAROTTA

Counsel of Record

KYLE M. DRUDING

HEATHER A. BRIGGS

HOGAN LOVELLS US LLP

555 Thirteenth Street, N.W.

Washington, D.C. 20004

(202) 637-4881

sean.marotta@hoganlovells.com

Counsel for American

Hospital Association

Counsel for Amici Curiae

KATHLEEN TENOEVER

ERIN RICHARDSON

FEDERATION OF

AMERICAN HOSPITALS

750 9th Street, N.W.

Suite 600

Washington, D.C. 20001

(202) 624-1500

FRANK TRINITY

IVY BAER

ASSOCIATION OF AMERICAN

MEDICAL COLLEGES

655 K Street, N.W.

Suite 100

Washington, D.C. 20001

Counsel for Federation of

American Hospitals

Counsel for Association of

American Medical Colleges

DECEMBER 2018