Allina Health Services v. Thomas Price , 863 F.3d 937 ( 2017 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 11, 2017 Decided July 25, 2017
No. 16-5255
ALLINA HEALTH SERVICES, DOING BUSINESS AS UNITED
HOSPITAL, DOING BUSINESS AS UNITY HOSPITAL, DOING
BUSINESS AS ABBOTT NORTHWESTERN HOSPITAL, ET AL.,
APPELLANTS
v.
THOMAS E. PRICE, SECRETARY, UNITED STATES DEPARTMENT
OF HEALTH AND HUMAN SERVICES,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:14-cv-01415)
Stephanie A. Webster argued the cause for appellants.
With her on the briefs were Pratik A. Shah, Christopher L.
Keough, James H. Richards, and Hyland Hunt.
Stephanie R. Marcus, Attorney, U.S. Department of
Justice, argued the cause for appellee. With her on the brief
was Mark B. Stern, Attorney.
Before: HENDERSON, KAVANAUGH, and MILLETT, Circuit
Judges.
2
Opinion for the Court filed by Circuit Judge KAVANAUGH.
KAVANAUGH, Circuit Judge: Several hospitals have
challenged the formula used by the Department of Health and
Human Services for calculating certain Medicare
reimbursement adjustments for fiscal year 2012. As relevant
here, the hospitals argued before the District Court that HHS
violated the Medicare Act by changing the reimbursement
adjustment formula without providing the public with notice
and opportunity for comment.
The District Court ruled that HHS did not violate the
Medicare Act’s procedural requirements. The District Court
reasoned that (i) the Medicare Act incorporates the
Administrative Procedure Act’s exception to notice-and-
comment rulemaking for interpretive rules and (ii) HHS’s
issuance of the reimbursement adjustment formula here
constituted an interpretive rule. The District Court granted
summary judgment to HHS.
We disagree with the District Court. We conclude that
HHS violated the Medicare Act when it changed its
reimbursement adjustment formula without providing notice
and opportunity for comment. We reverse the judgment of the
District Court and remand for proceedings consistent with this
opinion.
I
A
Through the Medicare program, the Federal Government
provides health insurance to Americans who are 65 or older, as
well as to disabled Americans. See generally Social Security
Amendments of 1965, Pub. L. No. 89-97, sec. 102, 79 Stat.
3
286, 291-332 (codified as amended at 42 U.S.C. § 1395 et
seq.). The Department of Health and Human Services
administers and oversees Medicare. Patients can obtain
insurance under different Medicare “parts.” Two of those parts
are relevant here. Medicare Part A provides Medicare
enrollees with government-administered health insurance
through which the Government makes direct payments to
hospitals for healthcare services provided. See 42 U.S.C.
§§ 1395c to 1395i–5. Part C provides enrollees with
government-subsidized enrollment in private insurance plans.
See id. §§ 1395w–21 to 1395w–29.
HHS contracts with companies known as fiscal
intermediaries to reimburse healthcare service providers for
services rendered to Medicare Part A patients. Fiscal
intermediaries make initial payments to hospitals for a given
cost year. Those initial payments are based on estimates of the
hospitals’ actual costs. The initial payments are later adjusted
based on providers’ actual cost reports.
A provider who disagrees with a fiscal intermediary’s
reimbursement or adjustment decision may appeal that
decision to the Provider Reimbursement Review Board within
HHS. See 42 U.S.C. § 1395oo. The Board may affirm,
modify, or reverse the fiscal intermediary’s decision. Id.
§ 1395oo(d). But importantly, the Board does not have the
authority to declare statutes or regulations invalid. See
Bethesda Hospital Association v. Bowen, 485 U.S. 399, 406
(1988); 42 C.F.R. § 405.1842(f)(2)(ii).
As relevant here, the Medicare Act authorizes
reimbursement adjustments in order to increase payments to
hospitals that treat a disproportionately high number of low-
income patients. See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). That
adjustment is known as the “disproportionate share hospital
4
adjustment.” The adjustment is calculated for each hospital by
adding two fractions that together approximate the proportion
of low-income patients treated at that hospital over a certain
time period. See id. § 1395ww(d)(5)(F)(vi). HHS calculates
and publishes one of those fractions – the Medicare fraction –
for each hospital in the Nation every year. HHS requires the
fiscal intermediaries to use HHS’s published Medicare
fractions in calculating each hospital’s final reimbursement
adjustment. See 42 C.F.R. § 412.106(b)(2), (5).
Among other things, the Medicare fraction incorporates
the number of each hospital’s patient days for patients “entitled
to benefits under part A” of Medicare. 42 U.S.C.
§ 1395ww(d)(5)(F)(vi)(I). The meaning of that phrase has
been the subject of much debate (and litigation). The dispute
is over whether the phrase “entitled to benefits under Part A”
should be read to refer not only to Part A enrollees, but also to
patients enrolled in a Part C plan.
For reasons that are beyond the scope of this opinion, HHS
now believes that the phrase “entitled to benefits under Part A”
should also include patients enrolled in a Part C plan. HHS
therefore contends that Part C patient days should be included
in the Medicare fractions. Many hospitals disagree. They
argue that Part C enrollees are not “entitled to benefits under
Part A” and that Part C days therefore should not be included
in Medicare fractions.
That difference in interpretation makes a huge difference
in the real world. Part C enrollees tend to be wealthier than
Part A enrollees. Including Part C days in Medicare fractions
therefore tends to lead to lower reimbursement rates.
Ultimately, hundreds of millions of dollars are at stake for the
Government and the hospitals. See Northeast Hospital Corp.
v. Sebelius, 657 F.3d 1, 5 (D.C. Cir. 2011).
5
Before 2004, HHS had not treated Part C enrollees as
“entitled to benefits under Part A.” See id. at 15. In 2004,
however, HHS promulgated a rule announcing that Part C
enrollees are “entitled to benefits under Part A” and that HHS
would therefore include Part C days in Medicare fractions. See
Medicare Program; Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2005 Rates, 69
Fed. Reg. 48,916, 49,099 (Aug. 11, 2004). That 2004 rule
would have applied HHS’s changed interpretation
prospectively to all Medicare fraction calculations from fiscal
year 2005 onward. However, this Court vacated the 2004 rule
on the grounds that it was not a logical outgrowth of the
proposed rule and had therefore been improperly issued
without notice and opportunity for comment. See Allina Health
Services v. Sebelius, 746 F.3d 1102, 1107-09 (D.C. Cir. 2014).
As a result, HHS can no longer rely on the 2004 interpretation.
In 2013, HHS promulgated a new rule again announcing
that HHS would treat Part C enrollees as “entitled to benefits
under Part A” and that HHS would therefore include Part C
days in Medicare fractions. See 78 Fed. Reg. 50,496, 50,614
(Aug. 19, 2013). The 2013 rule is prospective only: It applies
to Medicare fractions calculated for fiscal year 2014 and
beyond. Id. at 50,619. It does not address the definition of
“entitled to benefits under Part A” for any fiscal years before
2014. In sum, HHS has no promulgated rule governing the
interpretation of “entitled to benefits under Part A” for the
fiscal years before 2014.
B
In June 2014, HHS published the Medicare fractions to be
used in calculating disproportionate share hospital adjustments
for fiscal year 2012. At the top of the spreadsheet containing
6
those fractions, HHS noted that it had included Part C days in
the Medicare fractions. The spreadsheet contained the 2012
Medicare fractions for all hospitals nationwide.
Plaintiffs in this case are hospitals that provide health care
to low-income Medicare patients and that are therefore entitled
to disproportionate share hospital adjustments. Those hospitals
here challenge HHS’s June 2014 decision to include Part C
days in the 2012 Medicare fractions.
As required by statute, the hospitals first sought review by
the Provider Reimbursement Review Board within HHS. But
the hospitals believed that the Board did not have the authority
to resolve the hospitals’ challenges because the hospitals’
challenges related to the validity of several HHS regulations.
Under HHS’s rules implementing the Medicare statute, the
Board may not review challenges “either to the
constitutionality of a provision of a statute, or to the substantive
or procedural validity of a regulation.” 42 C.F.R.
§ 405.1842(f)(1). The hospitals therefore sought expedited
judicial review, which is available under the statute when the
Board certifies that it does not have authority to resolve a
provider’s challenge. When the Board so certifies, the provider
may bring suit in district court without proceeding through the
full Board review process. See 42 U.S.C. § 1395oo(f)(1).
Here, the Board agreed with the hospitals that it did not
have the authority to resolve the hospitals’ challenge. That no-
authority determination allowed the hospitals to promptly bring
suit in District Court challenging HHS’s decision to include
Part C days in the Medicare fractions for fiscal year 2012.
In the District Court, HHS moved to dismiss the hospitals’
case on the ground that the case was premature. HHS argued
that the Board’s no-authority determination was erroneous, and
7
that the District Court therefore did not have authority to
consider the challenges to the Medicare fractions until the
Board ruled on that claim. The hospitals responded that the
Board’s no-authority determination was not reviewable by the
District Court and that, in any event, the Board’s no-authority
determination was correct. The District Court agreed with
HHS that the District Court could review the Board’s no-
authority determination. The District Court agreed with the
hospitals, however, that the Board’s no-authority
determination was correct. The District Court therefore denied
HHS’s motion to dismiss.
Both sides then moved for summary judgment on the
merits of the hospitals’ challenges. The hospitals contended
that HHS violated the Administrative Procedure Act and the
Medicare Act by including Part C days in the fiscal year 2012
Medicare fractions without first providing the public with
notice and opportunity for comment. They also argued that the
calculations were arbitrary and capricious. HHS responded
that its decision was procedurally and substantively proper.
The District Court granted summary judgment to HHS.
First, the District Court held that the June 2014 decision to
include Part C days in the 2012 Medicare fractions was an
“interpretive rule” under the APA. As a result, the District
Court concluded that HHS’s publication of the fiscal year 2012
Medicare fractions was statutorily exempt from the APA’s
notice-and-comment requirements. Second, the District Court
held that the Medicare Act incorporated the APA’s notice-and-
comment exception for interpretive rules. The District Court
therefore held that HHS had not violated the Medicare Act’s
procedural requirements. Third, the District Court held that
HHS’s decision to include Part C days in the 2012 Medicare
fractions was not arbitrary and capricious.
8
The hospitals now appeal the District Court’s grant of
summary judgment to HHS. This Court reviews a district
court’s grant of summary judgment de novo. See Southeast
Alabama Medical Center v. Sebelius, 572 F.3d 912, 916 (D.C.
Cir. 2009).
II
HHS’s Provider Reimbursement Review Board concluded
that it lacked authority to decide this dispute. The Board
therefore certified the case for expedited judicial review in the
District Court. The District Court concluded that it had
authority to decide the case. We must first consider whether
the District Court correctly concluded that it had authority to
decide the case now, or whether the dispute instead should have
been decided first by HHS’s Provider Reimbursement Review
Board.
HHS argues that the dispute should have been decided first
by the Board. The hospitals raise two alternative points in
response. They contend that the District Court may not review
the Board’s no-authority determination. The hospitals also
argue in the alternative that even if the District Court may
review the Board’s no-authority determination, the Board here
was correct to conclude that it did not have authority to hear
the hospitals’ challenge. We agree with the hospitals on both
alternative arguments.
To begin, the hospitals are correct that a district court may
not review the Board’s no-authority determination at HHS’s
request. The Medicare Act states that providers – and only
providers – “shall” have “the right to obtain” expedited judicial
review “whenever the Board determines . . . that it is without
authority to decide” a particular question. 42 U.S.C.
9
§ 1395oo(f)(1) (emphasis added).1 In other words, providers
are guaranteed expedited judicial review when the Board
makes a no-authority determination, as the Board did here.
The statute conditions expedited judicial review in the district
court on the existence of that no-authority determination, not
on whether that determination is correct.
The statutory structure confirms that reading of the text. A
provider may bring suit in the district court even when the
Board fails to make a timely determination of its authority to
decide a case. See id. (“If the Board fails to render such
determination within such period, the provider may bring a
civil action (within sixty days of the end of such period) with
1
As relevant here, the statutory provision for expedited judicial
review reads: “Providers shall also have the right to obtain judicial
review of any action of the fiscal intermediary which involves a
question of law or regulations relevant to the matters in controversy
whenever the Board determines (on its own motion or at the request
of a provider of services as described in the following sentence) that
it is without authority to decide the question, by a civil action
commenced within sixty days of the date on which notification of
such determination is received. If a provider of services may obtain
a hearing under subsection (a) of this section and has filed a request
for such a hearing, such provider may file a request for a
determination by the Board of its authority to decide the question of
law or regulations relevant to the matters in controversy
(accompanied by such documents and materials as the Board shall
require for purposes of rendering such determination). The Board
shall render such determination in writing within thirty days after the
Board receives the request and such accompanying documents and
materials, and the determination shall be considered a final decision
and not subject to review by the Secretary. If the Board fails to
render such determination within such period, the provider may bring
a civil action (within sixty days of the end of such period) with
respect to the matter in controversy contained in such request for a
hearing.” 42 U.S.C. § 1395oo(f)(1).
10
respect to the matter in controversy contained in such request
for a hearing.”). As the hospitals rightly point out, it would be
“nonsensical if judicial review could be defeated by
disagreement with the Board’s no-authority decision, even
though the Board’s failure to make such a decision
undisputedly confers federal court jurisdiction.” Allina Reply
Br. 5.
Put simply, Congress has allowed providers to seek
immediate judicial review when the Board concludes that an
extensive and time-consuming administrative process before
the Board would likely be pointless. Requiring parties in
district court to fully brief and re-litigate the Board’s
assessment of its own lack of authority – a question that may
often be inextricably linked to the merits of a provider’s
challenge – runs entirely counter to that statutory scheme.2
In any event, even if we were wrong about that point, the
Board here was correct in deciding that it did not have authority
to resolve the hospitals’ challenge. Under HHS regulations
implementing the statute’s expedited judicial review
procedure, the Board “must grant” expedited judicial review if
the legal question raised “is a challenge either to the
constitutionality of a provision of a statute, or to the substantive
or procedural validity of a regulation.” 42 C.F.R.
§ 405.1842(f)(1). The hospitals here pressed two arguments
before the Board. Both arguments challenged the “substantive
or procedural validity” of different regulations. Id.
§ 405.1842(f)(1)(ii). First, the hospitals argued that HHS erred
when it chose to apply the formula from the vacated 2004 rule
2
We recognize that our decision here breaks with other courts
of appeals that have concluded that the Board’s no-authority
determinations are reviewable. See, e.g., Providence Yakima
Medical Center v. Sebelius, 611 F.3d 1181, 1187 n.7 (9th Cir. 2010).
11
in calculating the 2012 fractions. The hospitals’ first argument
therefore raised the question of the 2004 rule’s continuing legal
validity. Second, the hospitals argued that HHS violated
various procedural requirements by promulgating a new
regulation without notice-and-comment rulemaking. That
argument turned on whether the decision to include Part C days
in the 2012 Medicare fractions constituted a new regulation,
and if it did, whether that new regulation was procedurally
valid. Both of the hospitals’ arguments raise legal questions
about the “substantive or procedural validity of a regulation.”
Id. The Board’s no-authority determination was correct. The
District Court correctly concluded that it had authority to
decide the case now.
III
A
We turn therefore to the hospitals’ claim that HHS violated
the Medicare Act by failing to provide for notice and comment
before including Part C days in the 2012 Medicare fractions.
We agree with the hospitals that HHS unlawfully failed to
provide for notice and comment.
The Medicare Act describes in fairly straightforward
language when notice and comment is necessary. Paragraph
(2) of Section 1395hh(a) provides:
No 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 this subchapter shall take effect
12
unless it is promulgated by the Secretary by regulation
under paragraph (1).
42 U.S.C. § 1395hh(a)(2). Paragraph (1), in turn, requires the
HHS Secretary to “prescribe such regulations as may be
necessary to carry out the administration of the insurance
programs” under the Medicare Act. Id. § 1395hh(a)(1). With
a few exceptions not relevant here, “the Secretary shall provide
for notice of the proposed regulation” to allow “for public
comment thereon.” Id. § 1395hh(b)(1).
In other words, as relevant here, the Medicare Act requires
notice-and-comment rulemaking for any (1) “rule,
requirement, or other statement of policy” that (2) “establishes
or changes” (3) a “substantive legal standard” that (4) governs
“payment for services.” Id. § 1395hh(a)(2). All four
requirements are readily met here.
First, HHS’s inclusion of Part C days in the fiscal year
2012 Medicare fractions is, at the very least, a “requirement.”
Fiscal intermediaries are commanded to use HHS’s Medicare
fractions in calculating adjustment amounts. See 42 C.F.R.
§ 412.106(b)(2), (5). Those fractions treat Part C enrollees as
“entitled to benefits under Part A.” The fiscal intermediaries
are therefore required to include Part C days in their
calculations as they determine reimbursement adjustments. In
short, HHS promulgated a “requirement” when it announced
that the 2012 Medicare fractions would include Part C days.
Second, HHS’s inclusion of Part C days in the fiscal year
2012 Medicare fractions represents a change in HHS’s
standards. Before 2004, HHS’s standard practice was to
exclude Part C days from Medicare fractions. See Northeast
Hospital Corp. v. Sebelius, 657 F.3d 1, 15 (D.C. Cir. 2011).
HHS’s 2004 rule attempted to change that standard so that the
13
Medicare fractions would include Part C days. Id. at 14. But
that rule was vacated. See Allina Health Services v. Sebelius,
746 F.3d 1102, 1111 (D.C. Cir. 2014) (Allina I). Although
HHS promulgated a new rule in 2013 that includes Part C days
in Medicare fractions, that rule applies only prospectively to
reimbursement adjustments for fiscal years 2014 and beyond.3
As a result, the pre-2004 standard of excluding Part C days
from Medicare fractions remains the baseline practice from
which this Court must evaluate any decisions for 2012. The
decision to include Part C days in the 2012 Medicare fractions
is therefore a change from prior practice.
Third, HHS’s inclusion of Part C days in the fiscal year
2012 Medicare fractions establishes a “substantive legal
standard.” “Substantive law” is law that “creates, defines, and
regulates the rights, duties, and powers of parties.” BLACK’S
LAW DICTIONARY (10th ed. 2014). A “substantive legal
standard” at a minimum includes a standard that “creates,
defines, and regulates the rights, duties, and powers of parties.”
That is precisely what HHS’s 2012 Medicare fractions do. The
fiscal intermediaries must use HHS’s published Medicare
fractions in determining how much the hospitals will be
reimbursed. HHS’s fractions therefore define the scope of
hospitals’ legal rights to payment for treating low-income
patients.
Fourth, HHS’s inclusion of Part C days in the fiscal year
2012 Medicare fractions governs “payment for services.” The
fractions are used to calculate the payment that providers will
receive for providing healthcare services to low-income
patients. The inclusion of Part C days means that the providers
will now receive lower payments.
3
The 2013 rule is the subject of pending litigation in the District
Court. We express no views on the merits of that case.
14
In sum, HHS’s decision to include Part C days in the 2012
Medicare fractions is covered by the text of
Section 1395hh(a)(2). The Medicare Act therefore required
HHS to engage in notice-and-comment rulemaking before
deciding to include Part C days in the 2012 Medicare fractions.
Because HHS did not undertake notice-and-comment
rulemaking, the 2012 Medicare fractions are procedurally
invalid.
B
HHS’s arguments to the contrary are not persuasive.
First, HHS argues that the fractions are not a “rule,
requirement, or statement of policy” because the fractions
apply only to the parties in this particular case for the year
2012. That argument is factually inaccurate. HHS published
Medicare fractions for every hospital in the country. All of
those fractions include Part C days. Indeed, during oral
argument, HHS forthrightly acknowledged that it would
“generally” maintain a “consistent interpretation” for all
hospitals for a given year, meaning that the policy applied to
the hospitals in this case would apply to all hospitals
nationwide. Tr. of Oral Arg. at 29:20-21. Moreover, as the
hospitals point out, the 2012 Medicare fractions will be the
basis not just for 2012 adjustments, but also for interim 2013
payments until HHS publishes the 2013 fractions. See 42
C.F.R. § 413.64(e). In other words, the decision to include Part
C days in the 2012 Medicare fractions affects more hospitals
than just the parties in this particular case for this particular
year.
Second, HHS argues that the Medicare Act incorporates
the APA’s exceptions to notice-and-comment requirements.
15
According to HHS, even if the decision to include Part C days
in the fiscal year 2012 Medicare fractions is a rule, it is at most
an “interpretive rule” for purposes of the APA. As a result, it
is exempt from the APA’s – and, by extension, the Medicare
Act’s – notice-and-comment requirements.
The problem with that argument is that the Medicare Act
does not incorporate the APA’s interpretive-rule exception to
the notice-and-comment requirement. (Therefore, we need not
decide whether HHS’s decision to include Part C days in the
2012 Medicare fractions was in fact an interpretive rule.)
Unlike the APA, the text of the Medicare Act does not
exempt interpretive rules from notice-and-comment
rulemaking. On the contrary, the text expressly requires
notice-and-comment rulemaking. The Medicare Act states:
“No rule, requirement, or other statement of policy . . . shall
take effect unless it is promulgated” through notice-and-
comment rulemaking. 42 U.S.C. § 1395hh(a)(2) (emphasis
added); id. § 1395hh(b)(1). The provision does not include an
exception for interpretive rules. By contrast, the APA requires
notice and comment only for “proposed rule making” and
exempts “interpretative rules, general statements of policy,
[and] rules of agency organization, procedure, or practice”
from notice-and-comment requirements. 5 U.S.C. § 553(b).
We must respect Congress’s use of different language and its
establishment of different notice-and-comment requirements in
the Medicare Act and the APA. Cf. WILLIAM N. ESKRIDGE JR.,
INTERPRETING LAW: A PRIMER ON HOW TO READ STATUTES
AND THE CONSTITUTION 109-10 (2016) (“Where a statute
repeatedly uses one term or phrase, one expects that a
materially different phraseology demands a different
reading.”); ANTONIN SCALIA & BRYAN A. GARNER, READING
LAW: THE INTERPRETATION OF LEGAL TEXTS 170 (2012) (“[A]
material variation in terms suggests a variation in meaning.”).
16
Moreover, Congress knew how to incorporate the APA’s
notice-and-comment exceptions into the Medicare Act when it
wanted to. After all, the Medicare Act expressly incorporates
other APA notice-and-comment exceptions. Specifically, the
Medicare Act incorporates the APA’s “good cause” exception.
See 42 U.S.C. § 1395hh(b)(2) (Notice-and-comment
rulemaking requirement “shall not apply where— . . .
subsection (b) of section 553 of title 5 does not apply pursuant
to subparagraph (B) of such subsection.”). But in the Medicare
Act, Congress did not incorporate the APA’s interpretive-rule
exception to notice-and-comment requirements.
We recognize that we are breaking with several other
courts of appeals by holding that the Medicare Act does not
incorporate all of the APA’s exceptions to the notice-and-
comment requirement. See, e.g., Via Christi Regional Medical
Center, Inc. v. Leavitt, 509 F.3d 1259, 1271 n.11 (10th Cir.
2007); Baptist Health v. Thompson, 458 F.3d 768, 776 n.9 (8th
Cir. 2006); Omni Manor Nursing Home v. Thompson, 151 Fed.
App’x 427, 431 (6th Cir. 2005); Warder v. Shalala, 149 F.3d
73, 79 n.4 (1st Cir. 1998).4 But we respectfully disagree with
those opinions. As discussed, we conclude that the Medicare
Act does not incorporate the APA’s interpretive-rule exception
to the notice-and-comment requirement.
4
As HHS points out, this Court’s prior decision in Monmouth
Medical Center v. Thompson, 257 F.3d 807, 814 n.2 (D.C. Cir.
2001), noted the question of whether the Medicare Act incorporates
the APA’s interpretive-rule exception. But as HHS recognizes,
Monmouth did not “expressly decide the question” raised here. HHS
Br. 44.
17
C
Finally, even if HHS were correct that the Medicare Act
somehow incorporated the APA’s notice-and-comment
exception for interpretive rules, HHS would still not prevail
here. That is because another provision of the Medicare Act,
Section 1395hh(a)(4), expressly required notice and comment
in this case. Section 1395hh(a)(4) reads in full:
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.
42 U.S.C. § 1395hh(a)(4). In other words, if a regulation
includes a “provision that is not a logical outgrowth of a
previously published notice of proposed rulemaking,” that
provision may not become legally operative until it has gone
through notice-and-comment rulemaking. Id.
Section 1395hh(a)(4) applies with full force here. This
Court vacated HHS’s 2004 rule treating Part C enrollees as
“entitled to benefits under Part A” because the 2004 rule “was
not a logical outgrowth of the proposed rule.” Allina I, 746
F.3d at 1109. HHS therefore had to provide a “further
opportunity for public comment and a publication of the
provision again as a final regulation” before HHS could re-
impose the rule. 42 U.S.C. § 1395hh(a)(4). HHS did not do
so. And HHS could not circumvent this requirement by
claiming that it was acting by way of adjudication rather than
rulemaking. The statutory text says that the vacated rule may
not “take effect” at all until there has been notice and comment.
18
* * *
Because we conclude that HHS has failed to provide notice
and comment as required by the Medicare Act, we need not
consider whether HHS’s decision was arbitrary and capricious.
We reverse the judgment of the District Court and remand for
proceedings consistent with this opinion.
So ordered.