New Guidance On Medicare Payment Rule Enforcement

A few days before Thanksgiving, the news media published an internal memo by the Office of General Counsel (OGC) at the US Department of Health and Human Services (Department) to officials at the Centers for Medicare and Medicaid Services (CMS). The memo expressed OGC's views on the impact of the Supreme Court's Azar v. Allina Health Services, et. al., No. 17-1484 decision earlier this year on the enforcement of various CMS guidance. Specifically, OGC states that Medicare payment rules that meet the Court's standard that did not go through notice-and-comment rulemaking cannot form the basis for an enforcement action, including an overpayment finding.

The issue in this case was whether the Department's determination that Medicare Part C patients should be included in the Medicare fraction represented a change in a "substantive legal standard" within the meaning of Section 1871(a)(2) of the Social Security Act (SSA). If the answer was yes, then notice-and-comment procedures were required under the title 18 of the SSA. In a 7-1 decision, the court held that the inclusion of Part C patients in the Medicare fraction was "substantive." The court explained that the "substantive legal standard" under Section 1871(a)(2) of the SSA means any legal standard or determination that creates rights and obligations, such as the scope of benefits, payment for services, eligibility of individuals to receive benefits, or eligibility of individuals, entities or organizations to furnish services.

OGC concludes that, according to the Supreme Court, Congress imposed a notice-and-comment requirement for substantive Medicare rules in a broader range of circumstances than otherwise would be required under the Administrative Procedure Act. Therefore, CMS guidance documents, such as the Medicare Internet-Only Manuals, setting forth interpretive payment rules, are legally nonbinding and may not be used as the basis of an enforcement action. As an example, if a "broadly worded statute or regulation can be interpreted a variety of...