Allina Health Services v. Sebelius

United States District Court for the District of Columbia · Administrative Law

Administrative LawNotice-and-comment rulemakingArbitrary and capricious reviewMedicare reimbursementAPAMedicare ActDSH paymentsMedicare Part C

Facts

The hospitals are disproportionate share hospitals that receive additional Medicare payments based on a statutory formula including a Medicare/SSI fraction and a Medicaid fraction. Until 2004, the Secretary's actual practice was to exclude Medicare Part C inpatient days from the Medicare fraction. In a 2003 notice of proposed rulemaking, the Secretary proposed to clarify that Part C days should not be included in the Medicare fraction and instead should be counted in the Medicaid fraction, but in the 2004 final rule she adopted the opposite policy and said Part C days would be included in the Medicare fraction. The regulatory text was not amended until 2007, when the Secretary characterized the change as a technical correction and CMS began collecting the data needed to implement the new policy.

Issue

Whether the Secretary validly changed the DSH calculation to include Medicare Part C days in the Medicare/SSI fraction for FY 2007. More specifically, did the Secretary violate the APA and Medicare Act by adopting in the final rule a position that was not a logical outgrowth of the proposed rule, and was the policy change inadequately explained and therefore arbitrary and capricious?

Rule

Under the APA and the Medicare Act, a final rule may differ from a proposed rule only if it is a logical outgrowth of the notice of proposed rulemaking, meaning interested parties should have anticipated the change and had a fair opportunity to comment. When an agency changes course, it ordinarily must display awareness that it is changing position and supply a reasoned analysis for the change; failure to do so renders the action arbitrary and capricious. In deciding remedy, courts apply the Allied-Signal factors, considering the seriousness of the deficiencies and the disruptive consequences of vacatur.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

The Federal Farm Payments Bureau publishes an NPRM stating that crop-insurance subsidies for farms using solar-powered irrigation "should not be counted" in the acreage-based bonus formula and instead "should be counted" in a separate conservation formula. The notice gives a short explanation for that position and does not suggest any other alternative. In the final rule, the Bureau adopts the opposite policy and counts those subsidies in the acreage-based bonus formula.

If an affected farming cooperative in Kansas challenges the final rule, which argument is strongest?

Explanation. A final rule may differ from a proposal only if it is a logical outgrowth of the NPRM—meaning interested parties should have anticipated the change and had a fair chance to comment. Where the NPRM is framed as a specific proposal in one direction, and the final rule adopts the polar opposite position, affected parties would not reasonably have anticipated that reversal. The majority rejected the idea that merely identifying an issue with two theoretical outcomes automatically gives notice of both. (Derived from Allina Health Services v. Sebelius (n.d.).)