Supreme Court Case Has Broad Implications for Medicare Policy

This case of goes beyond DSH payments.

Earlier this month the U.S. Supreme Court decided an appeal brought by Allina and many other hospitals challenging the methodology the government used when calculating disproportionate share payments.

But even if this sounds irrelevant, don’t stop reading, because this decision will have an impact on nearly every Medicare policy. The hospitals were challenging whether the Centers for Medicare & Medicaid Services (CMS) had properly followed its obligations to provide notice of a rule.

The question was whether Medicare Advantage patients counted as Medicare patients when calculating the disproportionate share payment, often referred to as DSH. The substance of the case is not terribly important at this point, because the specific legal issue has since been resolved through rulemaking.

The decision analyzes whether the program guidance prior to the rulemaking was valid. The government asserted that because its policy was merely interpreting a rule rather than serving as a substantive matter of policy, the government’s action was permissible under the Administrative Procedures Act. The Supreme Court, in a 7-1 decision, concluded that CMS couldn’t enforce its policy. 

The reason was somewhat surprising. The court determined that the Administrative Procedures Act doesn’t apply to the Medicare program. Instead, the Medicare program has its own notice and comment requirements that are different from the APA. The differences mean that there is less flexibility for the government.

This case is quite technical, and I won’t claim I understand all of its ramifications yet. But one key point is clear – the Medicare Manuals are not entitled to the same level of deference applied to government regulations. (Note that the National Coverage Determination (NCD) Manual may be an exception to the statement. There is a much stronger argument that NCDs are binding. LCDs (Local Coverage Decisions), by contrast, are not.) 

I regularly assert that Medicare Manuals are not binding and are not rules. This Supreme Court case strongly reinforces that argument. Before you refund money, you should determine whether there is a statute or regulation compelling the refund. 

This decision provides further support for the conclusion that one is not legally obligated to refund based on statements in the Manuals alone.