Amicus Curiae Brief — Azar v. Allina Health Servs., 139 S. Ct. 51 (2018) (No. 17-1484)

No. 17-1484

Iu the Supreme Court of the Anited States

ALEX M. AZAR II, SECRETARY OF HEALTH AND HUMAN

SERVICES, PETITIONER

Vv.

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 AMICI CURIAE CATHOLIC

HEALTH, ROCHESTER REGIONAL HEALTH,

and SANFORD HEALTH IN SUPPORT OF

RESPONDENTS

John J. Bursch

Counsel of Record

BURSCH LAW PLLC

9339 Cherry Valley

Ave SE, #78

Caledonia, MI 49316

(616) 450-4235

jbursch@burschlaw.com

Counsel for Amicus Curiae

QUESTION PRESENTED

Whether the Department of Health and Human

Services was required to conduct notice-and-comment

rulemaking before changing a substantive legal

standard governing payment to hospitals under

Medicare, a change that will cost hospitals as much as

$4 billion for care they have already provided to low-

income patients without private health insurance.

TABLE OF CONTENTS

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Statutory Provisions Involved .................................++. 3

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STI iasocsiicinia thictieedceenndnibaeaipciananiadecaclibidieiiebacineiaaniad 6

Medicare reimbursement in plain English ................ 6

Medicare notice-and-comment requirements............. 7

A brief history of the Department’s position on

the disproportionate-services adjustment ........... 8

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j REESE SSRs yr se eee cer once a area a 11

|. The Government’s application of its new,

Department-friendly payment standard—

without notice or comment—violates the

payment-for-services provision in § (a)(2).......... 11

Il. The Government's change to its Department-

friendly payment standard—without notice

or comment—violates the not-a-logical-

outgrowth provision in § (a)(4) as well............... 14

I el 15

TABLE OF AUTHORITIES

Cases

Allina Health Servs. v. Sebelius,

746 F.3d 1102 (D.C. Cir. 2014) ........................... 14

Exxon Mobil Corp. v. Allapattah Servs., Inc.,

a ncpeemibenmbennes 13

Chamber of Commerce v. Whiting,

site 13

Shannon v. U.S.,

I 13

Statutes

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INTEREST OF AMICI CURIAE'

Catholic Health is a non-profit healthcare system

that provides care to Western New Yorkers across a

network of hospitals, primary care centers, imaging

centers, and other community ministries. The system

includes Kenmore Mercy Hospital, Mercy Hospital of

Buffalo, Mount St. Mary’s Hospital, Sisters of Charity

Hospital, and St. Joseph Campus.

Rochester Regional Health provides comprehensive

care for Western New York and the Finger Lakes

region through a broad spectrum of resources, an

ability to advocate for better care, a commitment to

innovation, and an abiding dedication to caring for the

community. The system includes Rochester General!

Hospital, Unity Hospital, Newark-Wayne Community

Hospital, Clifton Springs Hospital & Clinic, and United

Memorial Medical Center.

Sanford Health is headquartered in the Dakotas

and is the largest, rural, nonprofit health care system

in the nation, with 45 hospitals and 289 clinics in nine

states and five counties. With 28,000+ employees,

including 1,300+ physicians in more than 80 specialty

areas of medicine, Sanford Health is the largest

employer in the Dakotas.

' Pursuant to Supreme Court Rule 37.6, amici curiae state that

this brief was not authored in whole or in part by counsel for any

party, and that no such counsel or party made a monetary

contribution to fund the preparation or submission of the brief. A

monetary contribution was made by McKay Consulting, Inc., an

entity which is not a party to the case. In accordance with this

Court's Rule 37.2, all counsel consented to the filing of the brief.

Amici have a strong interest in the outcome of this

case, as they will suffer significant and direct financial

loss if the government can change without notice the

way that hospitals are reimbursed for services already

provided to patients pursuant to the Medicare system.

The government estimates that loss to be in the range

of $3-$4 billion solely for the change at issue here. Pet.

14, 23.

Equally concerning to Amici, the Department’s

theory will justify similar changes to payment

standards in the future, all without providing Amici or

other hospitals the opportunity for the public notice

and comment that Congress intended. Amici

respectfully request that this Court affirm the well-

reasoned decision of the D.C. Circuit.

STATUTORY PROVISIONS INVOLVED

42 U.S.C. § 1395hh(a)(2) states, in relevant part:

No [1] rule, requirement, or other statement of

policy . . . that [2] establishes or changes [3] a

substantive legal standard [4] governing .. .

the payment for services . . . shall take effect

unless it is promulgated by the Secretary by

regulation [through notice-and-comment rule-

making}.

42 U.S.C. § 1395hh(a)(4) states:

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. [Emphasis added. |

INTRODUCTION

Every business in the country understands that the

cost of goods and services it provides must have a close

nexus to the amount of revenue the business expects to

collect. Businesses that lack the ability to align costs

and revenues go bankrupt.

The situation is no different for our nation’s

hospitals. This is particularly true when hospitals

serve patients who depend on the government to pay

the medical bills. Hospitals are happy to serve such

patients. But the services they provide must be

calibrated to the amount of revenue the hospitals can

expect. Otherwise, hospitals, too, will go bankrupt.

Congress understood this reality when it enacted

the notice-and-comment requirements that apply to

Department of Health and Human Services changes in

hospital reimbursement payment standards. Rather

than incorporate the Administrative Procedures Act,

Congress enacted two unique provisions. The first is 42

U.S.C. § 1395hh(a)(2), the “payment for services”

provision. The second is 42 U.S.C. § 1395hh(a)(4), the

“not a logical outgrowth” provision. In tandem, §§ (a)(2)

and (a)(4) ensure that no hospital! is stuck with the bill

when the Department changes without advance notice

how it reimburses hospitals.

Yet surprise is exactly what the Department

sprung here. With the issuance of its 2012 Medicare

“fractions” in 2014, the Department told hospitals that

their reimbursements would be calculated at a lower

rate. And the Department implemented this change

with no notice or opportunity for hospitais to comment,

contrary to §§ (a)(2) and (a)(4).

This change, if affirmed, will have a devastating

impact on hospitals, especially those that have been

most generous in serving low-income patients. In its

petition, the government estimates the impact between

$3 and $4 billion for fiscal years 2005 through 2013.

Pet. 14, 23.

These amounts show why Congress dictated in

§ (a)(2) that the Department provide notice and an

opportunity to comment when it alters standards

governing the “payment for services” that hospitals

receive. The requirement does not prohibit the

Department from making changes; it merely prohibits

the Department from pulling the rug out from under

hospitals by unfairly changing the reimbursement

payment standard without advance notice and an

opportunity to comment.

Moreover, the burden on the Department is

modest. The typical notice-and-comment period in this

arena takes about 102 days. Br. in Opp’n App. la—3a.

Yet those 15 weeks make all the difference in the world

to hospitals. That is why the Department routinely

provided notice and an opportunity to comment in

more than a dozen previous attempts to revise the

same payment standard at issue in this litigation. Br.

in Opp’n App. 4a—6a.

As the D.C. Circuit concluded, § (a)(2)’s language is

“fairly straightforward” (especially for Medicare) and

its provisions are “readily met” here. Pet. App. 12a

(Kavanaugh, J.). This Court should affirm the D.C.

Circuit and hold the Department’s 2012 reimburse-

ment payment standard invalid.

STATEMENT

Medicare reimbursement in plain English

Medicare provides health insurance to elderly and

disabled Americans. Pet. App. 2a. Patients can obtain

insurance under different Medicare “Parts” specifying

varying hospital-reimbursement methods. Pet. App.

2a—3a. What’s important here is that monies paid to

hospitals under Part A are adjusted when hospitals

provide disproportionate services to low-income

patients. Pet. App. 3a. This adjustment is based on the

sum of two fractions. /bid. The first fraction measures

the percentage of Part A patients who are eligible for

supplementary security income benefits. The second

measures the percentage of all patients who were

Medicaid-eligible but not Part A-eligible.

The dispute arises out of the Department's decision

to change how it calculates the fractions used to

determine a hospital's disproportionate share hospital

reimbursement. As noted, the new standard will short

the nation’s hospitals between $3 and $4 billion. Pet.

14, 23. (Curiously, after relying in its petition on this

massive change in the “payment for services” that

hospitals receive, the Department’s merits brief now

suggests there might be no impact, Gov't Br. 4-5,

highlighting the need for notice and public comment.)

Such a change in reimbursement dollars has a

serious impact on an individual hospital's solvency and

ability to provide future services. The question

presented is whether the government was obligated to

give hospitals advance notice and an opportunity to

comment before the Department unilaterally

implemented this change.

Medicare notice-and-comment requirements

Congress could have easily incorporated the APA

when it established the notice-and-comment require-

ments for Department proposals to change Medicare

reimbursement methods. It did not. Under the APA,

only proposed “rules” require notice and an opportunity

to comment. And even then, the APA excepts

“interpretative rules, general statements of policy,

jand] agency organization, procedure, [and] practice,”

plus circumstances where the regulating agency for

“good cause” finds that notice and comment are

“impracticable, unnecessary, or contrary to the public

interest. 5 U.S.C. § 553(b)(A), (B).

For Medicare, Congress broadened the types of

covered agency actions to include not only “rules,” but

“requirements,” and “statements of policy” as well. 42

U.S.C. § 1395hh(a)(2). So, whereas the APA excludes

statements of policy from notice-and-comment

procedures, § (a)(2) expressly includes them.

Congress then specified the subject matter to

which § (a)(2) applies. Notice and comment are

required when a rule, requirement, or statement of

policy involves “the scope of benefits, the payment for

services, or the eligibility . . . to furnish or receive

services.” Ibid.

As the D.C. Circuit explained, the above require-

ments constitute steps one and four of a four-factor

inquiry under § (a)(2) for determining when notice and

comment are necessary: (1) a rule/requirement/state-

ment of policy that (2) “establishes or changes” (3) a

“substantive legal standard” (4) governing the scope of

benefits/ payment for services/eligibility. Pet. App. 12a.

In 2003, Congress created an extra layer of notice-

and-comment protection for hospitals. This layer

cannot be found in the APA. And it prohibits a

Department regulatory provision from going into effect

until after notice and adequate opportunity to

comment. The requirement is triggered whenever a

provision of the original (invalidated) final rule “is not

a logical outgrowth of a previously published notice of

proposed rulemaking or interim final rule.” 42 U.S.C.

§ 1395hh(a)(4) (emphasis added).

A brief history of the Department’s position on

the disproportionate-services adjustment

The parties’ dispute is over how the Department

calculates the fractions used to calculate the dispropor-

tionate services adjustment. The nitty-gritty of the

Department’s thinking on the issue is of no moment.

What does matter is the chronology for the

Department’s reimbursement payment standard:

e 2003 & before: hospital-friendly standard

under the 1986 regulation

e 2003: the beginning of the faulty notice and

comment; proposed rule clarifies that

hospital-friendly standard does apply

e 2004: faulty notice and comment; final rule

adopts Department-friendly standard

2007: with no notice or comment, amended

regulation “confirms” 2004 final rule

2011: D.C. Circuit voids 2004 final rule’s

retroactive application

e 2013: after notice and comment, prospective

new rule adopts Department-friendly

payment standard

e 2014: D.C. Circuit vacates 2004 final rule

altogether; not a “logical outgrowth” of

the proposed rule

e 2014: 16 days after D.C. Circuit decision,

Department issues fractions for 2012

adjustments, using Department-friendly

rule and without notice and comment

e 2017: D.C. Circuit reverses Department’s 2012

fractions because notice and comment

was required

In its 2017 decision, the D.C. Circuit concluded

that the Department's issuance of the adjustment

fractions for 2012 violated both of Medicare’s notice-

and-comment provisions. The Department violated the

“payment for services” standard in § (a)(2) because the

new payment standard was (1) a “requirement” that (2)

“changed” (3) a “substantive legal standard” (4) “used

to calculate the payment that providers will receive.”

Pet. App. 12a—14a. And the Department violated the

“not a logical outgrowth” standard in § (a)(4) because

the Department's action in promulgating the new

standard was “not a logical outgrowth of a previously

published notice of proposed rulemaking.” Pet. App.

17a—18a (citation omitted).

The D.C. Circuit denied the Department’s request

for rehearing en banc without a single member of the

court calling for a vote. Pet. App. 77a—78a, 79a—80a.

The Court then granted the Department’s petition.

10

SUMMARY OF ARGUMENT

It is perverse for the government to tell hospitals

that they will be reimbursed for services one way and

then change the payment standard without formal

notice. Congress so recognized when it enacted two

separate statutes requiring the government to give

notice and an opportunity for hospitals to comment

before such changes are implemented. And while the

Department is always free to change a reimbursement

standard if it so chooses, the Department must give

fair notice first. That never happened here when, in

2014, the Department started applying a Department-

friendly payment standard with no notice or

opportunity to comment. The D.C. Circuit was right to

enforce Congress’s intent and invalidate the

Department’s actions.

The Department advances a garbled reading of

§§ (a)(2) and (a)(4). The Department urges the Court to

allow the Government to skim some $3 to $4 billion

that the Department would have been obligated to pay

under the previous reimbursement payment standard.

And that request necessarily requires the Court to

greatly expand the Department’s opportunity to make

changes in payment-for-services standards in the

future without first notifying hospitals of the

modification. The Department’s position flouts the

plain, statutory language and any notion of fairness.

This Court should summarily reject it.

1]

ARGUMENT

[t is undisputed that the Department did not use

the notice-and-comment process to promulgate the

revised reimbursement standard when it published the

new fractions for 2012 in 2014. If §§ (a)(2) or (a)(4)

required that process, then the Department’s actions

are void. Because the D.C. Circuit correctly concluded

that notice and comment was required under both

provisions, this Court should affirm.

i. The Government's application of its new,

Department-friendly payment standard —

without notice or comment—violates the

payment-for-services provision in § (a)(2).

Once all the Medicare and administrative-law

argle-bargle is cleared away, this case is not difficult.

With an admitted $3 to $4 billion at stake, this is

precisely the scenario Congress envisioned when it

enacted § (a)(2) and directed the Department not to

modify the payment standard for calculating payments

for hospital services absent notice and comment.

Respondents’ prima facie case for showing § (a)(2)'s

applicability is straightforward, just as the D.C. Circuit

concluded. First, the Department's new payment

standard is, at the very least, a “requirement” or

“statement of policy” guiding payment calculations.

The Department does not contest the latter, Govt. Br.

39-41, even though Respondents raised it below, Resp’t

C.A. Br. 25; Resp’t C.A. Reply 11, and again in this

Court, Resp’t Br. 27-29. And the Department’s own

description of its 2014 action shows it was, in fact, a

“statement of policy.” Resp’t Br. 27—28.

12

Second, it is not possible to say that a payment-

standard modification resulting in reimbursement

checks that collectively shortchange hospitals

somewhere between $3 to $4 billion is not a “change.”

The Government does not contest this point, nor could

it.

Third and fourth, the standard for calculating a

hospital’s reimbursement is “a substantive legal

standard governing . . . the payment for services.” As

the D.C. Circuit explained, “substantive law” is law

that “creates, defines, and regulates the rights, duties,

and powers >f parties.” Pet. App. 13a—l4a (citing

Black’s Law Dictionary (10th Ed. 2014). When the

Department revises a payment standard that

determines a hospital’s reimbursement amount, that

revision “defines” the rights of parties.

The Department ignores this plain application of

§ (a)(2)’s language and urges this Court to import the

APA’s distinction between legislative and interpreta-

tive rules. Govt Br. 21—29. But as noted above,

Congress did not incorporate the APA by reference in

§ (a)(2); it rejected the APA’s standards. For example,

§ (a)(2) requires notice-and-comment procedures for

statements of policy, while the APA expressly excludes

them. 5 U.S.C. § 553(b)(A). Section (a)(2) also requires

notice-and-comment for “requirements,” a term the

APA does not even use. Section (a)(2) has a minimum

60-day minimum comment period, 42 U.S.C.

§ 1395hh(b)(1), whereas the APA’s period is only a

minimum of 30 days, 5 U.S.C. § 553(d). So, it is

nonsensical to argue that the APA’s standards have

any force in the context of a § (a)(2) inquiry.

13

In addition, the phrase “substantive legal

standard” is unique to § (a)(2). The APA does not use

those words in combination, even one time. Instead,

the APA refers to a “substantive rule.” 5 U.S.C.

§ 553(d). So, this is not even a case where the

Department is attempting to use words in one statute

to discern the meaning of the same words in an

unrelated statute, an analysis that is itself disfavored.

Chamber of Commerce v. Whiting, 563 U.S. 582, 612

(2011) (Breyer, J., dissenting) (use of the same word in

an unrelated statute does not “demonstrate what scope

Congress intended the word” to have in the statute

being scrutinized). The Department is using different

words in an unrelated statute to discern the meaning of

§ (a)(2). That exercise is as illogical as it sounds.

The Department tries to argue that legislative

history shows conclusively that § (a)(2) incorporates

the APA’s standards by silence. Gov't Br. 30—37. But

“courts have no authority to enforce a principle gleaned

solely from legislative history that has no statutory

reference point.” Shannon v. U.S., 512 U.S. 573, 583

(1994) (cleaned up). “Congress’s ‘authoritative

statement is the statutory text, not the legislative

history.’ ” Whiting, 563 U.S. at 599 (quoting Ex2x0n

Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546,

568 (2005)).

There is no statutory reference point for the

Department's position here. That the Department

would spend eight precious pages of briefing to make

an incorporation-by-legislative-history argument says

everything this Court needs to know about the merits

of the Department’s textual arguments.

14

Il. The Government’s change to its Department-

friendly payment standard—without notice

or comment—violates the not-a-logical-

outgrowth provision in § (a)(4) as well.

Independent of § (a)(2), § (a)(4) similarly requires

notice and an opportunity to comment when the

Department promulgates a regulatory provision that is

not a “logical outgrowth” of the proposed regulation. 42

U.S.C. § 1395hh(a)(4). A provision may not become

legally operative until going through the notice-and-

comment process. /d.

Here, the D.C. Circuit vacated the Department's

2004 rule adopting the Department-friendly

reimbursement standard because the 2004 rule “was

not a logical outgrowth of the proposed rule,” which

was the hospital-friendly standard. Allina Health

Servs. v. Sebelius (Allina I), 746 F.3d 1102, 1109 (D.C.

Cir. 2014). To re-impose the voided rule, § (a)(4)

required the Department to give the public notice and

an opportunity to comment. But the Department did

not do so with respect to its 2014 promulgation of the

2012 fractions based on the same, vacated payment

standard.

The Department’s response to this second notice-

and-comment requirement is to say that it was acting

by way of adjudication, rather than rulemaking. Gov't

Br. 46-49. But adjudication is not an exception that

appears in § (a)(4)’s text. And the Department's

nationwide policy was not an adjudication in any

event. Resp’t Br. 51—52. Section (a)(4) required notice

and comment before the Department could impose its

new reimbursement payment standard.

15

CONCLUSION

The judgment of the D.C. Circuit Court of Appeals

should be affirmed.

Respectfully submitted,

John J. Bursch

Counsel of Record

Bursch Law PLLC

9339 Cherry Valley

Ave SE, #78

Caledonia, Michigan 49316

(616) 450-4235

jbursch@burschlaw.com

DECEMBER 2018 Counsel for Amici Curiae