HHS OGC Weighs in on Sub-Regulatory Guidance in Advisory Opinion: What It Might Mean for False Claims Act Cases After Azar v. Allina Health Services

The U.S. Supreme Court’s 2019 decision in Azar v. Allina Health Services¹ effectively curtailed the enforceability of certain Medicare policies established without notice-and-comment rulemaking. As a result, health care fraud cases brought under the False Claims Act (FCA), which are predicated on sub-regulatory guidance, face heightened scrutiny after Allina.²

In a recent Advisory Opinion, the Health and Human Services Office of the General Counsel (HHS-OGC) provided its interpretation of Allina and how violations of sub-regulatory guidance affect the ability of governmental enforcement agencies and relators to bring and support FCA actions moving forward.³ Specifically, on 3 December 2020, HHS-OGC issued Advisory Opinion 20-05 on Implementing Allina. While HHS-OGC considers the Advisory Opinion nonbinding and it lacks the force of law, the Advisory Opinion provides HHS-OGC’s current views on the implementation of Allina, specifically surrounding the definition and interpretation of a “substantive legal standard.” Key takeaways are as follows:

• After Allina, policies that establish or change substantive legal standards related to the scope and award of benefits under the Medicare Act are likely unenforceable as predicates to FCA actions unless promulgated under the formal rulemaking process. Allina has cast doubt on the viability of many health care fraud claims commonly brought under the FCA.
• The Advisory Opinion offers HHS-OGC’s interpretation of Allina, stating that claims citing to guidance that is closely tied to statutory or regulatory requirements may continue, however, guidance that creates policies or rules not closely tied to statutory or regulatory requirements cannot be the basis for an enforcement action.
• Considering Allina, recent court opinions, and the Advisory Opinion, collectively, defendants facing FCA actions based solely on violations of sub-regulatory guidance may have a strong argument that falsity under the FCA cannot be established if the guidance is not tied directly to statutory or regulatory text and was issued without proper notice-and-comment rulemaking.
• The impact of Allina on the Government’s and relators’ ability to pursue FCA actions predicated on improperly issued sub-regulatory guidance is unknown but key to that determination will be how narrowly guidance must be tailored to existing statutes or regulatory requirements.

A review of Allina and the Advisory Opinion are described in further detail below.

In Allina, the Supreme Court considered whether HHS was required to undertake notice-and-comment rulemaking under the Medicare Act before implementing a change to a Medicare reimbursement formula.⁴ According to the Supreme Court, while statements of policy may be treated as interpretive rules under the Administrative Procedure Act and, therefore, do not require notice-and-comment rulemaking, the Medicare Act’s more stringent regulatory framework provides that “‘statements of policy’ can establish or change a ‘substantive legal standard.’”⁵ Consequently, under the terms of the Medicare Act, any issuance that “establishes or chang[es] a substantive legal standard” governing the scope of Medicare benefits, including the eligibility to provide services and payment for services, must undergo notice-and-comment rulemaking.⁶

Key to the Court’s 7–1 decision is its holding that “when the government establishes or changes an avowedly ‘gap’-filling policy, it can’t evade its notice-and-comment obligations under [the Medicare Act] § 1395hh(a)(2)….”⁷ In practice, Allina means that any policy interpreting a broadly worded statute or regulation related to the scope and award of benefits under the Medicare Act is unenforceable absent this formal rulemaking process.⁸

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