N.H. Hosp. Ass'n v. Azar
887 F.3d 62
1st Cir.2018Background
- Medicaid reimburses states for care of eligible low-income patients; Congress created Disproportionate Share Hospital (DSH) payments to help hospitals that treat many indigent patients.
- 1993 amendment capped DSH payments at a hospital's "costs incurred," net of Medicaid payments and uninsured-patient payments, and assigned the Secretary authority to determine "costs incurred."
- 2003 statute added state reporting and independent audit requirements to verify compliance with the DSH cap but did not define whether Medicare or private insurance reimbursements must be netted.
- In 2008 the Secretary issued a reporting regulation (after notice-and-comment) that largely echoed statutory terms but did not expressly address Medicare/private-insurance offsets in the regulatory text; the preamble mentioned Medicare offsets.
- In 2010 CMS published FAQs (without notice-and-comment) stating Medicare and private insurance reimbursements must be deducted when calculating "costs incurred;" New Hampshire hospitals were audited under that interpretation and faced recoveries.
- District court enjoined enforcement of FAQs as procedurally invalid under the APA for lack of notice-and-comment; First Circuit affirmed on the same procedural ground, without reaching the substantive statutory-interpretation question.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Secretary's FAQ pronouncement that Medicare and private-insurance payments must be offset when calculating "costs incurred" is an interpretive rule (exempt from notice-and-comment) or a legislative/substantive rule (requiring notice-and-comment) | FAQ announces a substantive change affecting hospitals' rights/obligations and thus required notice-and-comment under the APA | FAQ is an interpretive clarification of statute/regulation and is exempt from notice-and-comment; 2008 rule (and its preamble) already addressed the issue | Legislative/substantive: the FAQ effected a substantive policy choice and thus required notice-and-comment; FAQ is procedurally invalid |
| Whether the 2008 regulation and its preamble (promulgated after notice-and-comment) supplied sufficient notice and exercised the Secretary's delegated policymaking authority so that the FAQs were merely interpretive | Preamble and regulation do not adopt or plainly disclose the Medicare/private-insurance offset policy; FAQs cannot be treated as interpretive gloss | Secretary contends the 2008 rule/preamble sufficiently implemented the policy and FAQ merely interpreted it | 2008 regulation text is silent and cannot be fairly read to have exercised the delegated policy choice; a substantive policy cannot be adopted in a preamble without notice-and-comment |
| Whether courts should defer to the agency's characterization or preamble to justify the FAQ policy | Plaintiffs: agency characterization and preamble cannot cure lack of required notice-and-comment for a substantive rule | Secretary: deference to agency interpretation of its regulation and preamble is appropriate | No Chevron/Mead deference where a substantive policy was adopted without required procedures; deference is inappropriate here |
| Remedy for procedural violation | Plaintiffs seek vacatur/injunction against enforcement of the FAQs for affected fiscal years | Secretary argues prior notice-and-comment or later rulemaking moots relief; new 2017 rule (after notice-and-comment) mirrors FAQ but does not apply to challenged years | Court affirms permanent injunction against enforcement of FAQs for the years at issue; declines to rule on merits or on validity of the 2017 rule |
Key Cases Cited
- Warder v. Shalala, 149 F.3d 73 (1st Cir. 1998) (framework for distinguishing interpretive vs. legislative rules)
- Guernsey Mem'l Hosp. v. Shalala, 514 U.S. 87 (Sup. Ct. 1995) (interpretive rules do not have force of law; context where agency merely followed statutory command)
- La Casa Del Convaleciente v. Sullivan, 965 F.2d 1175 (1st Cir. 1992) (agency characterization not dispositive; notice-and-comment required for substantive policy)
- Gen. Motors Corp. v. Ruckelshaus, 742 F.2d 1561 (D.C. Cir. 1984) (discussing the interpretive/legislative rule distinction)
- Elec. Privacy Info. Ctr. v. DHS, 653 F.3d 1 (D.C. Cir. 2011) (agency cannot avoid notice-and-comment by issuing a broad regulation then announcing specific obligations by interpretation)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (Sup. Ct. 2016) (procedurally defective regulations may not merit Chevron deference)