Earlier this month and with little fanfare, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would invoke CMS’s rarely used retroactive-rulemaking authority to essentially ensure that, despite the Supreme Court’s adverse rulemaking decision in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019), CMS will apply the same Medicare payment methodology found procedurally improper in Allina. CMS’s invocation of its retroactive-rulemaking authority to effectively circumvent Allina sets a potentially dangerous precedent that should not go unnoticed by all Medicare stakeholders.

Both Allina and the recent proposed rule concern the methodology by which CMS calculates additional Medicare payments to hospitals that serve a disproportionate number of low-income patients. These payments are calculated in part by using a hospital’s “Medicare fraction,” whereby the denominator represents the time the hospital spent caring for patients “entitled to benefits under” Medicare Part A, and the numerator represents the time the hospital spent caring for patients entitled to income support under the Social Security Act. For over a decade, CMS and industry stakeholders have debated whether enrollees in managed care plans under Medicare Part C should be counted as patients who are “entitled to benefits under” Medicare Part A.

At issue in Allina was a 2014 posting on CMS’s website that set forth the Medicare fractions for fiscal year 2012 and noted that the fractions now included Part C patients. A group of hospitals sued, claiming that CMS’s publication of the Medicare fractions on its website violated the Medicare Act’s unique rulemaking requirement found at 42 U.S.C. § 1395hh. The case ultimately made its way to the Supreme Court of the United States, which sided with the plaintiff-hospitals. The Supreme Court held that CMS’s changed policy violated the Medicare Act’s rulemaking requirement, which applies to any “rule, requirement, or other statement of policy . . . that establishes or changes a substantive legal standard governing the scope of [Medicare] benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits.”

However, if finalized, CMS’s recent proposed rule could render the Allina plaintiffs’ victory mostly pyrrhic. Expressly issued “in response to the ruling in . . . Allina,” the proposed rule would “create a policy governing the treatment of days associated with beneficiaries enrolled in Medicare Part C for discharges occurring prior to October 1, 2013.” Unsurprisingly, that “policy” would be to include Part C patients in the Medicare fractions at issue. In other words, the proposed rule would accomplish retroactively what the procedurally improper issuance in Allina would have accomplished: inclusion of Part C patients in the Medicare fractions.

The ostensible legal basis for CMS’s proposed rule? An infrequently invoked provision of the Medicare Act—42 U.S.C. § 1395hh(e)(1)(A)—that authorizes CMS to engage in retroactive rulemaking when the Secretary of Health and Human Services determines (1) that such retroactive application is necessary to comply with statutory requirements or (2) that failure to apply a rule retroactively “would be contrary to the public interest.” In this instance, CMS claims that retroactive rulemaking is necessary so that CMS can comply with its statutory obligation to make disproportionate share hospital payments for fiscal years before 2014 pursuant to duly promulgated regulations. In other words, CMS is now using the Medicare Act’s rulemaking requirement as an excuse to engage in retroactive rulemaking.

Alternatively, the agency claims that retroactive rulemaking is necessary to avoid an outcome that would be contrary to the public interest. CMS frames the proposed rule as being in the public interest because the agency must calculate Medicare fractions for “hundreds of hospitals” with open cost reports using a duly promulgated regulation. CMS also claims that the public interest is being served because the proposed rule “permit[s] interested stakeholders to comment on the proposed approach and for the agency to have the benefit of those comments in the development of any final rule.”

It remains to be seen whether CMS’s stated rationale will withstand the scrutiny of commenters and, if finalized, subsequent judicial review. Regardless, CMS’s recent decision to invoke its retroactive-rulemaking authority to avoid the consequences of the agency’s own rulemaking violation sets a potentially dangerous precedent. It is tantamount to giving the agency a get-out-of-jail-free card that would allow CMS to retroactively “fix” its own rulemaking failures however it sees fit and whenever it sees fit, something Congress surely did not intend and something that could eventually have significant ramifications for False Claims Act litigation.

Those wishing to comment on CMS’s proposed rule have until October 5 to do so.