900 F.3d 1022
8th Cir.2018Background
- Medicaid pays states for care to low-income individuals; Congress authorized Disproportionate Share Hospital (DSH) payments to help hospitals that serve many Medicaid patients.
- Congress limited DSH payments to "costs incurred during [the] year of furnishing hospital services."
- In 2008 the Secretary adopted a regulation (42 C.F.R. § 447.299(c)(16) as then written) defining "total annual uncompensated care costs" and listing payments that must be subtracted from hospital costs; the regulation did not explicitly mention private third‑party insurance.
- The Secretary later published FAQ 33 (online, without notice-and-comment) instructing hospitals to offset private insurance payments against uncompensated care for Medicaid‑eligible days.
- Children’s Hospitals sued, arguing FAQ 33 was a legislative rule promulgated without required APA notice-and-comment and thus invalid; the district court partially granted summary judgment for the hospitals and vacated FAQ 33.
- The government appealed; the Eighth Circuit affirmed, holding FAQ 33 was a substantive legislative rule (not interpretative) and thus invalid for lack of APA rulemaking procedures.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FAQ 33 is a legislative rule subject to APA notice-and-comment | FAQ 33 imposes new substantive reporting/deduction requirements (private insurance offsets) and thus is a legislative rule adopted without APA procedures | FAQ 33 merely interprets existing regulation and clarifies how to calculate uncompensated care (analogous to a Medicare guideline in Shalala) | FAQ 33 is a legislative rule that expanded §447.299 and must be set aside for failure to follow notice-and-comment |
| Whether the pre‑2008 regulation or preamble required deducting private insurance from uncompensated care | The regulation and preamble do not include private insurance among required deductions; FAQ 33 unlawfully adds that requirement | The regulation’s terms (e.g., "uncompensated" or "unreimbursed") implicitly require counting third‑party payments | Court found the regulation and preamble did not include private insurance deductions; Secretary cannot read a substantive change into the rule as interpretation |
Key Cases Cited
- Iowa League of Cities v. EPA, 711 F.3d 844 (8th Cir. 2013) (distinguishes legislative rules from interpretative rules for APA notice-and-comment)
- Shalala v. Guernsey Memorial Hosp., 514 U.S. 87 (1995) (upheld an informal reimbursement guideline as interpretative where it did not substantively change regulations)
- U.S. Telecom Ass’n v. FCC, 400 F.3d 29 (D.C. Cir. 2005) (explains that rulemaking is required for substantive additions to regulations)
- N.H. Hosp. Ass’n v. Azar, 887 F.3d 62 (1st Cir. 2018) (concluded similar FAQ was a legislative rule and invalid without notice-and-comment)