ALEX M. AZAR, II, SECRETARY OF HEALTH AND HUMAN SERVICES, PETITIONER
ALLINA HEALTH SERVICES, ET AL.
January 15, 2019
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE
DISTRICT OF COLUMBIA CIRCUIT
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.
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.
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.
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.
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).
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.
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.
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.
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.
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
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
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.
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.
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.
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
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."
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.
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
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).
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.
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.
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
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] ...