Allina Health Services v. Kathleen Sebelius
409 U.S. App. D.C. 133
| D.C. Cir. | 2014Background
- Hospitals serving many elderly and low-income patients rely on supplemental DSH payments calculated by Medicare's disproportionate share formula (Medicare and Medicaid fractions).
- A 2004 final rule counted Part C (Medicare Advantage) days in the Medicare fraction, reducing hospital reimbursements by tens of millions annually.
- Northeast Hospital Corp. v. Sebelius held the interpretation was not unambiguously foreclosed and left open whether it could apply retroactively to earlier years.
- Hospitals challenged the 2004 rule in district court; the court vacated the rule for failing to be a logical outgrowth and for inadequately explaining a policy change, ordering recalculation with Part C days counted in Medicaid fraction.
- The Secretary appealed; the court addressed whether the proposed rule’s notice was adequate to support a reversal of prior policy.
- The court ultimately held the 2004 rule lacked adequate notice and opportunity to comment and vacated it, while remanding on remedy to avoid directing the agency how to recalculate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was the 2004 final rule a logical outgrowth of the 2003 proposed rule? | Hospitals: yes, proposal opened door to reconsideration. | Secretary: no, proposal merely clarified existing practice. | No; not a logical outgrowth |
| Did the rule violate notice requirements under § 553 by not being a logical outgrowth or adequately explaining policy change? | Hospitals: final rule failed to anticipate reversal and harmed interests. | Secretary: proposal alerted necessary changes and impact would be minor. | Yes; notice inadequate, rule vacated |
| Should vacatur be the appropriate remedy? | Hospitals: vacatur warranted due to fundamental notice flaw. | Secretary: remedy could be less drastic or tailored. | Vacatur upheld; remand guided reconsideration |
Key Cases Cited
- Northeast Hospital Corp. v. Sebelius, 657 F.3d 1 (D.C. Cir. 2011) (interpretation not unambiguously foreclosed; retroactivity concerns)
- Environmental Integrity Project v. E.P.A., 425 F.3d 992 (D.C. Cir. 2005) (final rule reversed; notice cannot mislead about openness to reconsideration)
- CSX Transp., Inc. v. Surface Transp. Bd., 584 F.3d 1076 (D.C. Cir. 2009) (final rule must be a logical outgrowth of proposed rule)
- Ass'n of Private Sector Colleges & Universities v. Duncan, 681 F.3d 427 (D.C. Cir. 2012) (final rule must be a logical outgrowth; anticipate modification)
- Vermont Yankee Nuclear Power Corp. v. National Resources Defense Council, 435 U.S. 519 (1978) (agency may rely on internal information in rulemaking; disclosure issues)
- Checkosky v. SEC, 139 F.3d 221 (D.C. Cir. 1998) (remand process; agency to resolve problems anew)
- Sugar Cane Growers Co-op. of Florida v. Veneman, 289 F.3d 96 (D.C. Cir. 2002) (harmless error doctrine not applicable to serious notice defects)
- Monmouth Medical Ctr. v. Thompson, 257 F.3d 807 (D.C. Cir. 2001) (APA notice principles in Medicare context)
- Heartland Reg'l Med. Ctr. v. Sebelius, 566 F.3d 193 (D.C. Cir. 2009) (fundamental notice flaws generally require vacatur)