Azar v. Allina Health Servs.

139 S.Ct. 1804

Alex M. AZAR, II, Secretary of Health and Human Services, Petitioner

v.ALLINA HEALTH SERVICES, et al.

No. 17-1484

Supreme Court of the United States.

Argued January 15, 2019

Decided June 3, 2019

Noel J. Francisco, Solicitor General, Department of Justice, Washington, DC, for Petitioner.

Hyland Hunt, Of Counsel, Deutsch Hunt PLLC, Stephanie A. Webster, Pratik A. Shah, Christopher L. Keough, J. Harold Richards, Martine Cicconi, Akin Gump Strauss, Hauer & Feld LLP, Washington, DC, for Respondents.

Noel J. Francisco, Solicitor General, Joseph H. Hunt, Assistant Attorney General, Edwin S. Kneedler, Deputy Solicitor General, Hashim M. Mooppan, Deputy Assistant Attorney General, Anthony A. Yang, Sopan Joshi, Assistants to the Solicitor General, Mark B. Stern, Stephanie R. Marcus, Attorneys, Department of Justice, Washington, DC, for Petitioner.

Edwin S. Kneedler, Washington, DC, for Petitioner.

Pratik A. Shah, Washington, DC, for Respondents.

Justice GORSUCH delivered the opinion of the Court.

One way or another, Medicare touches the lives of nearly all Americans. Recognizing this reality, Congress has told the government that, when it wishes to establish or change a "substantive legal standard" affecting Medicare benefits, it must first afford the public notice and a chance to comment. 42 U.S.C. § 1395hh(a)(2). In 2014, the government revealed a new policy on its website that dramatically—and retroactively—reduced payments to hospitals serving low-income patients. Because affected members of the public received no advance warning and no chance to comment first, and because the government has not identified a lawful excuse for neglecting its statutory notice-and-comment obligations, we agree with the court of appeals that the new policy cannot stand.

I

Today, Medicare stands as the largest federal program after Social Security. It spends about $ 700 billion annually to provide health insurance for nearly 60 million aged or disabled Americans, nearly one-fifth of the Nation's population. Needless to say, even seemingly modest modifications to the program can affect the lives of millions.

As Medicare has grown, so has Congress's interest in ensuring that the public has a chance to be heard before changes are made to its administration. As originally enacted in 1965, the Medicare Act didn't address the possibility of public input. Nor did the notice-and-comment procedures of the Administrative Procedure Act apply. While the APA requires many other agencies to offer public notice and a comment period before adopting new regulations, it does not apply to public benefit programs like Medicare. 5 U.S.C. § 553(a)(2). Soon enough, though, the government volunteered to follow the informal notice-and-comment rulemaking procedures found in the APA when proceeding under the Medicare Act. See Clarian Health West, LLC v. Hargan , 878 F. 3d 346, 356–357 (CADC 2017).

This solution came under stress in the 1980s. By then, Medicare had grown exponentially and the burdens and benefits of public comment had come under new scrutiny. The government now took the view that following the APA's procedures had become too troublesome and proposed to relax its commitment to them. See 47 Fed. Reg. 26860–26861 (1982). But Congress formed a different judgment. It decided that, with the growing scope of Medicare, notice and comment should become a matter not merely of administrative grace, but of statutory duty. See § 9321(e)(1), 100 Stat. 2017; § 4035(b), 101 Stat. 1330–78.

Notably, Congress didn't just adopt the APA's notice-and-comment regime for the Medicare program. That, of course, it could have easily accomplished in just a few words. Instead, Congress chose to write a new, Medicare-specific statute. The new statute required the government to provide public notice and a 60-day comment period (twice the APA minimum of 30 days) for any "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 [Medicare]." 42 U.S.C. § 1395hh(a)(2).

Our case involves a dispute over this language. Since Medicare's creation and under what's called "Medicare Part A," the federal government has paid hospitals directly for providing covered patient care. To ensure hospitals have the resources and incentive to serve low-income patients, the government has also long offered additional payments to institutions that serve a "disproportionate number" of such persons. § 1395ww(d)(5)(F)(i)(I). These payments are calculated in part using a hospital's so-called "Medicare fraction," which asks how much of the care the hospital provided to Medicare patients in a given year was provided to low-income Medicare patients. The fraction's denominator is the time the hospital spent caring for patients who were "entitled to benefits under" Medicare Part A. The numerator is the time the hospital spent caring for Part-A-entitled patients who were also entitled to income support payments under the Social Security Act. § 1395ww(d)(5)(F)(vi)(I). The bigger the fraction, the bigger the payment.

Calculating Medicare fractions got more complicated in 1997. That year, Congress created "Medicare Part C," sometimes referred to as Medicare Advantage. Under Part C, beneficiaries may choose to have the government pay their private insurance premiums rather than pay for their hospital care directly. This development led to the question whether Part C patients should be counted as "entitled to benefits under" Part A when calculating a hospital's Medicare fraction. The question is important as a practical matter because Part C enrollees, we're told, tend to be wealthier than patients who opt for traditional Part A coverage. Allina Health Services v. Price , 863 F. 3d 937, 939 (CADC 2017). So counting them makes the fraction smaller and reduces hospitals' payments considerably—by between $ 3 and $ 4 billion over a 9-year period, according to the government. Pet. for Cert. 23.

The agency overseeing Medicare has gone back and forth on whether to count Part C participants in the Medicare fraction. At first, it did not include them. See Northeast Hospital Corp. v. Sebelius , 657 F. 3d 1, 15–16 (CADC 2011). In 2003, the agency even proposed codifying that practice in a formal rule. 68 Fed. Reg. 27208. But after the public comment period, the agency reversed field and issued a final rule in 2004 declaring that it would begin counting Part C patients. 69 Fed. Reg. 49099. This abrupt change prompted various legal challenges from hospitals. In one case, a court held that the agency couldn't apply the 2004 rule retroactively. Northeast Hospital , 657 F. 3d at 14. In another case, a court vacated the 2004 rule because the agency had " ‘pull[ed] a surprise switcheroo’ " by doing the opposite of what it had proposed. Allina Health Services v. Sebelius , 746 F. 3d 1102, 1108 (CADC 2014). Eventually, and in response to these developments, the agency in 2013 issued a new rule that prospectively "readopt[ed] the policy" of counting Part C patients. 78 Fed. Reg. 50620. Challenges to the 2013 rule are pending.

The case before us arose in 2014. That's when the agency got around to calculating hospitals' Medicare fractions for fiscal year 2012. When it did so, the agency still wanted to count Part C patients. But it couldn't rely on the 2004 rule, which had been vacated. And it couldn't rely on the 2013 rule, which bore only prospective effect. The agency's solution? It posted on a website a spreadsheet announcing the 2012 Medicare fractions for 3,500 hospitals nationwide and noting that the fractions included Part C patients.

That Internet posting led to this lawsuit. A group of hospitals who provided care to low-income Medicare patients in 2012 argued (among other things) that the government had violated the Medicare Act by skipping its statutory notice-and-comment obligations. In reply, the government admitted that it hadn't provided notice and comment but argued it wasn't required to do so in these circumstances. Ultimately, the court of appeals sided with the hospitals. 863 F. 3d at 938. But in doing so the court created a conflict with other circuits that had suggested, if only in passing, that notice and comment wasn't needed in cases like this. See, e.g. , Via Christi Regional Medical Center, Inc. v. Leavitt , 509 F. 3d 1259, 1271, n. 11 (CA10 2007) ; Baptist Health v. Thompson , 458 F. 3d 768, 776, n. 8 (CA8 2006). We granted the government's petition for certiorari to resolve the conflict. 585 U.S. ––––, 139 S.Ct. 51, 201 L.Ed.2d 1129 (2018).

II

This case hinges on the meaning of a single phrase in the notice-and-comment statute Congress drafted specially for Medicare in 1987. Recall that the law requires the government to provide the public with advance notice and a chance to comment on any "rule, requirement, or other statement of policy" that "establishes or changes a substantive legal standard governing ... the payment for services." § 1395hh(a)(2). Before us, everyone agrees that the government's 2014 announcement of the 2012 Medicare fractions governed "payment for services." It's clear, too, that the government's announcement was at least a "statement of policy" because it "le[t] the public know [the agency's] current ... adjudicatory approach" to a critical question involved in calculating payments for thousands of hospitals nationwide. Syncor Int'l Corp. v. Shalala , 127 F. 3d 90, 94 (CADC 1997). So whether the government had an obligation to provide notice and comment winds up turning on whether its 2014 announcement established or changed a "substantive legal standard." That phrase doesn't seem to appear anywhere else in the entire United States Code, and the parties offer at least two ways to read it.

The hospitals suggest the statute means to...