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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0826%3A12

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2018

## Text

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
I ee cordeeeaioaingl 7, 12,13

ie II encpiniccncccicieseninsddevenhduesbianisiaaibinth passim

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0826%3A12. Public record. Not legal advice.