Azar v. Allina Health Services

The case arose when the Department of Health and Human Services, under Secretary Alex M. Azar II, changed the methodology for calculating Medicare disproportionate share hospital payments without notice-and-comment rulemaking. Allina Health Services and other hospitals sued, arguing that the 2004 policy change affected a substantive legal standard and thus required public notice and comment under the Medicare Act. The District Court and D.C. Circuit sided with the hospitals. The Supreme Court granted certiorari. On June 3, 2019, in a 5-4 decision authored by Justice Gorsuch, the Court affirmed the lower court. It held that the statute's plain text mandates notice and comment whenever the agency establishes or changes a substantive legal standard governing payment, rejecting the government's argument that the action was a mere interpretive rule exempt from such procedure.

The Supreme Court affirmed the D.C. Circuit in a 5-4 decision, holding that HHS must conduct notice-and-comment rulemaking before changing a substantive legal standard for Medicare DSH payments.

Whether the Medicare Act requires notice-and-comment rulemaking for a policy that alters a substantive legal standard affecting hospital payments, or whether the policy can be implemented without such procedure as an interpretive rule.

The ruling reinforced administrative law constraints on federal agencies by requiring adherence to the notice-and-comment process when altering substantive legal standards. It signaled judicial scrutiny of agency attempts to bypass public participation. For healthcare providers, the decision ensured greater transparency and predictability in Medicare reimbursement, protecting billions of dollars in payments from unilateral executive changes.