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Azar v. Allina Health Services

United States Supreme Court

June 3, 2019

ALEX M. AZAR, II, SECRETARY OF HEALTH AND HUMAN SERVICES, PETITIONER
v.
ALLINA HEALTH SERVICES, ET AL.

          Argued January 15, 2019

          CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

         Syllabus

         The Medicare program offers additional payments to institutions that serve a "disproportionate number" of low-income patients. 42 U.S.C. §§1395ww(d)(5)(F)(i)(I). These payments are calculated in part using what is called a hospital's "Medicare fraction." The fraction's denominator is the time the hospital spent caring for patients who were "entitled to benefits under" Medicare Part A, while 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). Congress created Medicare Part C in 1997, leading to the question whether Part C enrollees should be counted as "entitled to benefits under" Part A when calculating a hospital's Medicare fraction. Respondents claim that, because Part C enrollees tend to be wealthier than Part A enrollees, counting them makes the fraction smaller and reduces hospitals' payments considerably. In 2004, the agency overseeing Medicare issued a final rule declaring that it would count Part C patients, but that rule was later vacated after hospitals filed legal challenges. In 2013, it issued a new rule prospectively readopting the policy of counting Part C patients. In 2014, unable to rely on either the vacated 2004 rule or the prospective 2013 rule, the agency posted on its website the Medicare fractions for fiscal year 2012, noting that they included Part C patients. A group of hospitals, respondents here, sued. They claimed, among other things, that the government had violated the Medicare Act's requirement to provide public notice and a 60-day comment period for any "rule, requirement, or other statement of policy . . . that establishes or changes a substantive legal standard governing . . . the payment for services," §1395hh(a)(2). The court of appeals ultimately sided with the hospitals.

         Held: Because the government has not identified a lawful excuse for neglecting its statutory notice -an d-comment obligations, its policy must be vacated. Pp. 5-17.

(a) This case turns on whether the government's 2014 announcement established or changed a "substantive legal standard." The government suggests the statute means to distinguish a substantive from an interpretive legal standard and thus tracks the Administrative Procedure Act (APA), under which "substantive rules" have the "force and effect of law," while "interpretive rules" merely "advise the public of the agency's construction of the statutes and rules which it administers," Perez v. Mortgage Bankers Assn., 575 U.S. 92, . Because the policy of counting Part C patients in the Medicare fractions would be treated as interpretive rather than substantive under the APA, the government submits, it had no statutory obligation to provide notice and comment before adopting the policy.
The government's interpretation is incorrect because the Medicare Act and the APA do not use the word "substantive" in the same way. First, the Medicare Act contemplates that "statements of policy" can establish or change a "substantive legal standard," §1395hh(a)(2), while APA statements of policy are not substantive by definition but are grouped with and treated as interpretive rules, 5 U.S.C. §553(b)(A). Second, §1395hh(e)(1)-which gives the government limited authority to make retroactive "substantive change [s]" in, among other things, "interpretative rules" and "statements of policy"-would make no sense if the Medicare Act used the term "substantive" as the APA does, because interpretive rules and statements of policy-and any changes to them-are not substantive under the APA by definition. Third, had Congress wanted to follow the APA in the Medicare Act and exempt interpretive rules and policy statements from notice and comment, it could have simply cross-referenced the exemption in §553(b)(A) of the APA. And the fact that Congress did cross-reference the APA's neighboring good cause exemption found in §553(b)(B), see §1395hh(b)(2)(C), strongly suggests that it "actfed] intentionally and purposefully in the disparate" decisions, Russello v. United States, 464 U.S. 16, 23. Pp. 5-12.
(b) The Medicare Act's text and structure foreclose the government's position in this case, and the legislative history presented by the government is ambiguous at best. The government also advances a policy argument: Requiring notice and comment for Medicare interpretive rules would be excessively burdensome. But courts are not free to rewrite clear statutes under the banner of their own policy concerns, and the government's argument carries little force even on its own terms. Pp. 13-16.
(c) Because this Court affirms the court of appeals' judgment under §1395hh(a)(2), there is no need to address that court's alternative holding that §1395hh(a)(4) independently required notice and comment. Nor does this Court consider the argument, not pursued by the government here, that the policy did not "establisfh] or changfe]" a substantive legal standard-and so did not require notice and comment under §1395hh(a)(2)-because the statute itself required the government to count Part C patients in the Medicare fraction. Pp. 16-17.

863 F.3d 937, affirmed.

          GORSUCH, J., delivered the opinion of the Court, in which ROBERTS, C. J., and Thomas, Ginsburg, Alito, Sotomayor, and Kagan, JJ., joined. BREYER, J., filed a dissenting opinion. KAVANAUGH, J., took no part in the consideration or decision of the case.

          OPINION

          GORSUCH JUSTICE

         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 Clarion 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 switch-eroo'" 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. (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 distinguish a substantive from a procedural legal standard. On this account, a substantive standard is one that "creates duties, rights and obligations," while a procedural standard specifies how those duties, rights, and obligations should be enforced. Black's Law Dictionary 1281 (5th ed. 1979) (defining "substantive law"). And everyone agrees that a policy of counting Part C patients in the Medicare fraction is substantive in this sense, because it affects a hospital's right to payment. From this it follows that the public had a right to notice and comment before the government could adopt the policy at hand. 863 F.3d, at 943.

         Very differently, the government suggests the statute means to distinguish a substantive from an interpretive legal standard. Under the APA, "substantive rules" are those that have the "force and effect of law," while "interpretive rules" are those that merely "'advise the public of the agency's construction of the statutes and rules which it administers.'" Perez v. Mortgage Bankers Assn., 575 U.S. __92, - (2015) (slip op., at 2-3). On the government's view, the 1987 Medicare notice-and-comment statute meant to track the APA's usage in this respect. And the government submits that, because the policy of counting Part C patients in the Medicare fractions would be treated as interpretive rather than substantive under the APA, it had no statutory obligation to provide notice and comment before adopting its new policy.

         Who has the better reading? Several statutory clues persuade us of at least one thing: The government's interpretation can't be right. Pretty clearly, the Medicare Act doesn't use the word "substantive" in the same way the APA does-to identify only those legal standards that have the "force and effect of law."

         First, the Medicare Act contemplates that "statements of policy" like the one at issue here can establish or change a "substantive legal standard." 42 U.S.C. §1395hh(a)(2) (emphasis added). Yet, by definition under the APA, statements of policy are not substantive; instead they are grouped with and treated as interpretive rules. 5 U.S.C. §553(b)(A). This strongly suggests the Medicare Act just isn't using the word "substantive" in the same way as the APA. Even the government acknowledges that its contrary reading leaves the Medicare Act's treatment of policy statements "incoherent." Tr. of Oral Arg. 19.

         To be sure, the government suggests that the statutory incoherence produced by its reading turns out to serve a rational purpose: It clarifies that the agency overseeing Medicare can't evade its notice-and-comment obligations for new rules that bear the "force and effect" of law by the simple expedient of "call[ing]" them mere "statements of policy." Id., at 19-20. The dissent echoes this argument, suggesting that Congress included "statements of policy" in §1395hh(a)(2) in order to capture "substantive rules in disguise." Post, at 5 (opinion of BREYER, J.).

         But the statute doesn't refer to things that are labeled or disguised as statements of policy; it just refers to "statements of policy." Everyone agrees that when Congress used that phrase in the APA and in other provisions of §1395hh, it referred to things that really are statements of policy. See, e.g., Pacific Gas & Elec. Co. v. Federal Power Comm'n, 506 F.2d 33, 38 (CADC 1974); post, at 4-5 (discussing § 139 5hh(e)(1)). Yet, to accept the government's view, we'd have to hold that when Congress used the very same phrase in §1395hh(a)(2), it sought to refer to things an agency calls statements of policy but that in fact are nothing of the sort. The dissent admits this "may seem odd at first blush," post, at 5, but further blushes don't bring much improvement. This Court does not lightly assume that Congress silently attaches different meanings to the same term in the same or related statutes. See Law v. Siegel, 571 U.S. 415, 422 (2014).

         Besides, even if the statute's reference to "statements of policy" could bear such an odd construction, the government and the dissent fail to explain why Congress would have thought it necessary or appropriate. Agencies have never been able to avoid notice and comment simply by mislabeling their substantive pronouncements. On the contrary, courts have long looked to the contents of the agency's action, not the agency's self-serving label, when deciding whether statutory notice-and-comment demands apply. See, e.g., General Motors Corp. v. Ruckelshaus, 742 F.2d 1561, 1565 (CADC 1984) (en banc) ("[T]he agency's own label, while relevant, is not dispositive"); Guardian Fed. Sav. & Loan Assn. v. Federal Sav. & Loan Ins. Corp., 589 F.2d 658, 666-667 (CADC 1978) (if "a so-called policy statement is in purpose or likely effect ... a binding rule of substantive law," it "will be taken for what it is"). Nor is there any evidence before us suggesting that Congress thought it important to underscore this prosaic point in the Medicare Act (and yet not in the APA)-let alone any reason to think Congress would have sought to make the point in such an admittedly incoherent way.

         Second, the government's reading would introduce another incoherence into the Medicare statute. Subsection (e)(1) of §1395hh gives the government limited authority to make retroactive "substantive change[s]" in, among other things, "interpretative rules" and "statements of policy." But this statutory authority would make no sense if the Medicare Act used the term "substantive" as the APA does. It wouldn't because, again, interpretive rules and statements of policy-and any changes to them-are not substantive under the APA by definition.

         Here, too, the government offers no satisfactory reply. It concedes, as it must, that the term "substantive" in subsection (e)(1) can't carry the meaning it wishes to ascribe to the same word in subsection (a)(2). Tr. of Oral Arg. 16-18. So that leaves the government to suggest (again) that the same word should mean two different things in the same statute. In (e)(1), the government says, it may bear the meaning the hospitals propose, but in (a)(2) it means the same thing it does in the APA. But, once more, the government fails to offer any good reason or evidence to unseat our normal presumption that, when Congress uses a term in multiple places within a single statute, the term bears a consistent meaning throughout. See Law, 571 U.S., at 422.

         Third, the government suggests Congress used the phrase "substantive legal standard" in the Medicare Act as a way to exempt interpretive rules and policy statements from notice and comment. But Congress had before it- and rejected-a much more direct path to that destination. In a single sentence the APA sets forth two exemptions from the government's usual notice -and-comment obligations:

"Except when notice or hearing is required by statute, this subsection [requiring notice and comment] ...

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