Rule2023-12308
Medicare Program; Treatment of Medicare Part C Days in the Calculation of a Hospital's Medicare Disproportionate Patient Percentage
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 9, 2023
Effective
August 8, 2023
Issuing agencies
Health and Human Services DepartmentCenters for Medicare & Medicaid Services
Abstract
This final action establishes a policy concerning the treatment of patient days associated with persons enrolled in a Medicare Part C (also known as "Medicare Advantage") plan for purposes of calculating a hospital's disproportionate patient percentage for cost reporting periods starting before fiscal year (FY) 2014 in response to the Supreme Court's ruling in Azar v. Allina Health Services, 139 S. Ct. 1804 (June 3, 2019).
Full Text
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<title>Federal Register, Volume 88 Issue 111 (Friday, June 9, 2023)</title>
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[Federal Register Volume 88, Number 111 (Friday, June 9, 2023)]
[Rules and Regulations]
[Pages 37772-37793]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-12308]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 412
[CMS-1739-F]
RIN 0938-AU24
Medicare Program; Treatment of Medicare Part C Days in the
Calculation of a Hospital's Medicare Disproportionate Patient
Percentage
AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).
ACTION: Final action.
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SUMMARY: This final action establishes a policy concerning the
treatment of patient days associated with persons enrolled in a
Medicare Part C (also known as ``Medicare Advantage'') plan for
purposes of calculating a hospital's disproportionate patient
percentage for cost reporting periods starting before fiscal year (FY)
2014 in response to the Supreme Court's ruling in Azar v. Allina Health
Services, 139 S. Ct. 1804 (June 3, 2019).
DATES: The policy set out in this final action is effective August 8,
2023.
FOR FURTHER INFORMATION CONTACT: Donald Thompson, <a href="/cdn-cgi/l/email-protection#185c595b587b756b3670706b367f776e"><span class="__cf_email__" data-cfemail="d296939192b1bfa1fcbabaa1fcb5bda4">[email protected]</span></a>,
(410) 786-4487.
SUPPLEMENTARY INFORMATION:
I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
This final action creates a policy governing the treatment of days
associated with beneficiaries enrolled in Medicare Part C for
discharges occurring prior to October 1, 2013, for the purpose of
determining the additional Medicare payments to subsection (d)
hospitals under section 1886(d)(5)(F) of the Social Security Act (the
Act).
2. Summary of Major Provisions
Section 1886(d)(5)(F) of the Act provides for additional Medicare
payments to subsection (d) hospitals that serve a significantly
disproportionate number of low income patients. The Act specifies two
methods by which a hospital may qualify for the Medicare
disproportionate share hospital (DSH) payment adjustment. Under the
first method, hospitals that are located in an urban area and have 100
or more beds may receive a Medicare DSH payment adjustment if the
hospital can demonstrate that, during its cost reporting period, more
than 30 percent of its net inpatient care revenues are derived from
State and local government payments for care furnished to needy
patients with low incomes. This method is commonly referred to as the
``Pickle method.'' The second method for qualifying for the DSH payment
adjustment, which is more common, is based on a complex statutory
formula under which the DSH payment adjustment is based on the
hospital's geographic designation, the number of beds in the hospital,
and the hospital's disproportionate patient percentage (DPP). A
hospital's DPP is the sum of two fractions: the ``Medicare fraction''
and the ``Medicaid fraction.'' The Medicare fraction (also known as the
SSI fraction or SSI ratio) is computed by dividing the number of the
hospital's inpatient days that are furnished to patients who were
entitled to both Medicare Part A and Supplemental Security Income (SSI)
benefits by the hospital's total number of patient days furnished to
patients entitled to benefits under Medicare Part A. The Medicaid
fraction is computed by dividing the hospital's number of inpatient
days furnished to patients who, for such days, were eligible for
Medicaid, but were not entitled to benefits under Medicare Part A, by
the hospital's total number of inpatient days in the same period.
Because the DSH payment adjustment is part of the hospital
inpatient prospective payment system (IPPS) for acute care hospitals,
the statutory references to ``days'' in section 1886(d)(5)(F) of the
Act have been interpreted to apply only to hospital acute care
inpatient days. Regulations located at 42 CFR 412.106 implement the
Medicare DSH payment adjustment and specify how the DPP is calculated
as well as how beds and patient days are counted in determining the
Medicare DSH payment adjustment.
3. Summary of Costs and Benefits
Including days associated with patients enrolled in Medicare Part C
in the calculation of the Medicare fraction and excluding them from the
calculation of the numerator of the Medicaid fraction, does not have
any additional costs or benefits relative to the Medicare DSH payments
that have already been made because those payments were made under the
policy reflected in the fiscal year (FY) 2005 IPPS final rule (69 FR
49099) (prior to it having been vacated). The effect of this final
action is to provide certainty as to how Part C days will be treated
for DSH calculations for cost years not governed by the FY 2014 IPPS/
Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) final
rule (78 FR 50614; hereinafter referred to as ``the FY 2014 IPPS final
rule''), resolving any uncertainty that may otherwise continue into the
future.
B. Background
In August 2020, we issued a proposed rule, which appeared in the
Federal Register on August 6, 2020 (85 FR 47723) (hereinafter referred
to as the ``August 2020 proposed rule''). The proposed rule would
establish a policy concerning the treatment of patient days associated
with persons enrolled in a Medicare Part C (also known as ``Medicare
Advantage'' or ``MA'') plan for purposes of calculating a hospital's
disproportionate patient percentage for cost reporting periods starting
before October 1, 2013, in response to the Supreme Court's ruling in
Azar v. Allina Health Services.
We received approximately 110 timely pieces of correspondence
containing multiple comments on the August 2020 proposed rule.
Summaries of the public comments received and our responses to those
public comments are set forth in section II. of this final action.
[[Page 37773]]
II. Provisions of the Regulations--Treatment of Patient Days Associated
With Patients Enrolled in Medicare Advantage Plans With Discharge Dates
Before October 1, 2013, in the Medicare and Medicaid Fractions of the
Disproportionate Patient Percentage (DPP)
Medicare Advantage (MA) plans are authorized under Medicare Part C.
The regulation at 42 CFR 422.2 defines MA plan to mean ``health
benefits coverage offered under a policy or contract by an MA
organization that includes a specific set of health benefits offered at
a uniform premium and uniform level of cost-sharing to all Medicare
beneficiaries residing in the service area of the MA plan . . . .''
Generally, each MA plan must at least provide coverage of all services
that are covered by Medicare Part A and Part B, but also may provide
for Medicare Part D benefits and/or additional supplemental benefits.
However, certain items and services, such as hospice benefits, continue
to be covered under Medicare Part A fee-for-service (FFS) even if a
beneficiary chooses to enroll in an MA plan. Generally, under Sec.
422.50 of the regulations, an individual is eligible to elect an MA
plan if he or she is entitled to Medicare Part A and enrolled in
Medicare Part B. This is in accordance with section 1851(a)(3) of the
Act, which requires that individuals enrolling in MA plans must be
entitled to benefits under Part A and enrolled under Part B. Dually
eligible beneficiaries (individuals entitled to Medicare and eligible
for Medicaid) may choose to enroll in an MA plan.
In the FY 2004 IPPS proposed rule (68 FR 27208), in response to
questions about whether the patient days associated with patients
enrolled in an MA plan should be counted in the Medicare fraction or
the Medicaid fraction of the DPP calculation, we proposed that once a
beneficiary enrolls in an MA plan, patient days attributable to the
beneficiary would not be included in the Medicare fraction of the DPP.
(We note, at the time of the FY 2004 IPPS proposed rule and FY 2005
rulemaking, Medicare Part C was referred to as Medicare + Choice (M+C);
however, to avoid confusion we use the current terminology (MA) when
referring to Medicare Part C.) Instead, those patient days would be
included in the numerator of the Medicaid fraction, if the patient also
were eligible for Medicaid. In the FY 2004 IPPS final rule (68 FR
45422), we did not respond to public comments on this proposal, due to
the volume and nature of the public comments we received, and we
indicated that we would address those comments later in a separate
document. In the FY 2005 IPPS proposed rule (69 FR 28286), we stated
that we planned to address the FY 2004 comments regarding MA days in
the IPPS final rule for FY 2005. After considering comments on this
proposal, we decided not to implement the policy as proposed. Instead,
in the FY 2005 IPPS final rule (69 FR 49099; hereinafter referred to as
``the FY 2005 IPPS final rule''), we determined that, under Sec.
412.106(b)(2)(i) of the regulations, MA patient days should be counted
in the Medicare fraction of the DPP calculation. We explained that,
even where Medicare beneficiaries enroll in an MA plan, they are still
entitled to benefits under Medicare Part A. Therefore, we noted that if
an MA beneficiary is also entitled to SSI benefits, the patient days
for that beneficiary would be included in the numerator of the Medicare
fraction (as well as in the denominator) and not in the numerator of
the Medicaid fraction. We note that, despite our statement in the FY
2005 IPPS final rule that the text of the regulation at Sec.
412.106(b)(2)(i) would be revised to state explicitly that the days
associated with MA beneficiaries are included in the Medicare fraction,
due to a clerical oversight, the regulation at Sec. 412.106(b)(2)(i)
was not amended to reflect this policy until 2007 (72 FR 47384).
In 2012, a district court vacated the final policy adopted in the
FY 2005 IPPS final rule on the basis that the final rule was not a
``logical outgrowth'' of the proposed rule. Allina Health Svcs. v.
Sebelius, 904 F. Supp. 2d 75, 89 (D.D.C. 2012). In the FY 2014 IPPS/
LTCH PPS proposed rule (hereinafter referred to as ``the FY 2014 IPPS
proposed rule''), we proposed to re-adopt the policy of including MA
patient days in the Medicare fraction prospectively for FY 2014 and
subsequent fiscal years (78 FR 27578). We finalized this proposal in
the FY 2014 IPPS final rule (78 FR 50614). We made no change to the
regulation text at Sec. 412.106(b)(2)(i) because the text of the
regulation which was revised in 2007 (72 FR 47384) to incorporate the
policy we first adopted in the FY 2005 IPPS final rule, already
reflected the policy we again adopted in the FY 2014 IPPS final rule.
In 2014, the United States Court of Appeals for the D.C. Circuit upheld
the district court's holding that the policy adopted in the FY 2005
IPPS final rule requiring inclusion of Part C days in the Medicare
fraction was not a logical outgrowth of the proposed rule, but left
open the possibility that the agency could treat Part C days the same
way through adjudication.
In Azar v. Allina Health Services, 139 S. Ct. 1804 (June 3, 2019,
hereinafter referred to as Allina II), the Supreme Court considered a
challenge to the agency's inclusion of MA patient days in the Medicare
fractions it published for FY 2012. Section 1871(a)(2) of the Act
requires notice-and-comment rulemaking for any Medicare ``rule,
requirement, or other statement of policy'' that ``establishes or
changes a substantive legal standard governing the scope of benefits,
the payment for services, or the eligibility of individuals, entities,
or organizations to furnish or receive services or benefits.'' The
Supreme Court held that section 1871(a)(2) of the Act required CMS to
engage in notice-and-comment rulemaking before adopting its ``avowedly
gap-filling policy'' regarding treatment of inpatient days for
beneficiaries enrolled in MA plans for purposes of calculating the DPP.
Section 1871(e)(1)(A) of the Act authorizes CMS to engage in
retroactive rulemaking when the Secretary determines that such
retroactive application is necessary to comply with statutory
requirements or that a failure to apply a policy retroactively would be
contrary to the public interest. For example, CMS has invoked its
authority to engage in retroactive rulemaking under section
1871(e)(1)(A) of the Act in connection with its policy related to bad
debt (see the FY 2021 IPPS/LTCH PPS proposed rule (85 FR 32867)),
predicate facts and cost report reopening (see the CY 2014 OPPS final
rule (78 FR 75165)), and the low-volume hospital adjustment (see the FY
2020 IPPS/LTCH PPS final rule (84 FR 42349)).
The Secretary has determined that to the extent there is a
statutory gap to fill with respect to the treatment of Part C patient
days, retroactive application is necessary to comply with statutory
requirements and a failure to apply this policy retroactively would be
contrary to the public interest. Section 1886(d)(5)(F) of the Act
requires CMS to make DSH payments to eligible hospitals. Calculating
such payments, in turn, requires CMS to calculate a Medicare fraction
and a Medicaid fraction for each hospital. Under section
1886(d)(5)(F)(vi)(I) of the Act, the Medicare fraction must include the
patient days for beneficiaries ``entitled to benefits under part A.''
The Court of Appeals for the D.C. Circuit has held that the Medicare
statute does not speak directly to how Part C days should be treated
for purposes of DSH calculations, that is, whether Part C
[[Page 37774]]
patients are ``entitled to benefits under part A'' and should therefore
be included in the Medicare fraction, or whether they are not so
entitled, and should therefore be included in the numerator of the
Medicaid fraction if they are also eligible for Medicaid. (See
Northeast Hospital Corporation v. Sebelius, 657 F.3d 1, 13 (D.C. Cir.
2011) (hereinafter referred to as ``Northeast''.) However, the court
has also found that section 1886(d)(5)(F)(vi) of the Act requires the
Secretary to account for Part C days in the DPP calculation by
including them in one of the fractions (Medicare or Medicaid) and
excluding them from the other. (See Allina Health Services. v.
Sebelius, 746 F.3d 1102, 1108 (D.C. Cir. 2014) (hereinafter referred to
as ``Allina I'').)
Since the publication of our proposed rule, the Supreme Court
handed down its decision in Becerra v. Empire Health Foundation, 142 S.
Ct. 2354, 1368 (June 24, 2022) (hereinafter referred to as ``Empire'').
In Empire, the Supreme Court held that the statutory text is clear that
``being `entitled' to Medicare benefits . . . means--in the [DSH]
fraction descriptions, as throughout the statute--meeting the basic
statutory criteria.'' (142 S. Ct. at 2362.) Part C enrollees, who by
definition must be ``entitled'' to Part A benefits to enroll under Part
C, necessarily meet the basic statutory criteria (essentially that they
are over 65 or disabled). Empire did not address Part C days
specifically, it addressed the same statutory language that is the
subject of the August 2020 proposed rule, the meaning of ``entitled to
benefits under part A of [Medicare].'' The Supreme Court held that the
Secretary was correct in interpreting that phrase as denoting a legal
status that does not turn on whether Medicare pays for any particular
hospital day. The Supreme Court concluded that the ``[t]ext, context,
and structure all support calculating the Medicare fraction HHS's way.
In that fraction, individuals `entitled to [Medicare Part A] benefits'
are all those qualifying for the program.'' We believe it is now clear
that the statute itself requires the Secretary to count Part C days in
the Medicare fraction because Medicare beneficiaries remain ``entitled
to [Medicare Part A]'' regardless of whether they enroll in Part C,
just as do beneficiaries who have exhausted their coverage for a spell
of illness. Nonetheless, Empire did not address specifically whether
Part C enrollees remain ``entitled to Part A,'' and because the FY 2005
IPPS final rule was vacated, the Secretary ``has no promulgated rule
governing'' the treatment of Part C days ``for the fiscal years before
2014.'' Allina Health Servs. v. Price, 863 F.3d 937, 939 (D.C. Cir.
2017). As a result, to the extent there is still a statutory gap for
the Secretary to fill after Empire regarding the treatment of Part C
days in the Medicare DSH payment calculation, CMS must determine
whether beneficiaries enrolled in Part C are ``entitled to benefits
under part A'' and so must be included in the Medicare fraction (and
excluded from the numerator of the Medicaid fraction), or are not so
entitled and so must be excluded from the Medicare fraction (and
included in the numerator of the Medicaid fraction, if dually
eligible). The Secretary has therefore determined that, in order to
comply with the statutory requirement to make DSH payments and in order
to address any potential statutory gap, to the extent one might remain
after Empire, it is necessary for CMS to engage in retroactive
rulemaking to establish a policy to govern whether individuals enrolled
in MA plans should be included in the Medicare fraction or in the
numerator of the Medicaid fraction, if dually eligible, for fiscal
years before 2014.
We continue to believe, as we stated in the preamble to the FY 2014
IPPS final rule (78 FR 50614 and 50615) and have consistently expressed
since the issuance of the FY 2005 IPPS final rule, that individuals
enrolled in MA plans are ``entitled to benefits under part A'' as the
phrase is used in the DSH provisions at section 1886(d)(5)(F)(vi) of
the Act. Even without relying on the Supreme Court's decision in
Empire, which in our view confirms our interpretation, we believe this
is the best reading of the statute.
Section 226 of the Act provides that an individual is automatically
``entitled'' to Medicare Part A when the person reaches age 65,
provided that the individual is entitled to Social Security benefits
under section 202 of the Act, or becomes disabled. Beneficiaries who
are enrolled in MA plans provided under Medicare Part C continue to
meet all of the statutory criteria for entitlement to Medicare Part A
benefits under section 226 of the Act. Moreover, section 1851(a)(3) of
the Act provides that in order to enroll in Medicare Part C a
beneficiary must be ``entitled to benefits under Part A and enrolled
under Part B.'' Thus, by definition, a beneficiary must be entitled to
Part A to be enrolled in Part C. There is nothing in the Act that
suggests that beneficiaries who enroll in a Medicare Part C plan
thereby forfeit their entitlement to Medicare Part A benefits. To the
contrary, enrollment in a plan under Medicare Part C is simply an
option that a person entitled to Part A benefits may choose as a way to
receive their Part A benefits. A beneficiary who enrolls in Medicare
Part C is entitled to receive benefits under Medicare Part A through
the MA plan in which he or she is enrolled, and the MA organization's
costs in providing such Part A benefits are paid for by CMS with money
from the Medicare Part A Trust Fund. In addition, under certain
circumstances, Medicare Part A pays directly for care furnished to
patients enrolled in Medicare Part C plans, rather than indirectly
through Medicare Part A Trust Fund payments to MA organizations. For
example, under section 1852(a)(5) of the Act, if, during the course of
the year, the scope of benefits provided under Medicare Part A expands
beyond a certain cost threshold due to congressional action or a
national coverage determination, Medicare Part A will pay providers
directly for the cost of those services provided to beneficiaries
enrolled in Part C. Similarly, Medicare Part A pays directly for
hospice care furnished to MA patients who elect under section
1812(d)(1) of the Act to receive such care from a particular hospice
program and, under certain circumstances, for federally qualified
health center (FQHC) services provided to MA patients by FQHCs that
contract with MA organizations under sections 1853(h)(2) and 1853(a)(4)
of the Act, respectively. Thus, we continue to believe that a patient
enrolled in an MA plan remains entitled to benefits under Medicare Part
A, and patient days associated with that patient should be counted in
the Medicare fraction of the DPP, and not (in the case of a dually-
eligible patient) the numerator of the Medicaid fraction.
Additionally, the Secretary has determined that it is in the public
interest for CMS to adopt a retroactive policy for the treatment of MA
patient days in the Medicare and Medicaid fractions through notice and
comment rulemaking for discharges before October 1, 2013 (the effective
date of the FY 2014 IPPS final rule). CMS must calculate DSH payments
for periods that include discharges occurring before the effective date
of the prospective FY 2014 IPPS final rule for hundreds of hospitals
whose DSH payments for those periods are still open or have not yet
been finally settled, encompassing thousands of cost reports. In order
to calculate these payments, CMS must establish Medicare fractions for
each applicable cost reporting period during the time period for which
there is currently no regulation in place that
[[Page 37775]]
expressly addresses the treatment of Part C days. Because the Supreme
Court has held in Allina II that, unless an exception applies, CMS
cannot establish or change ``an avowedly `gap'-filling policy'' under
the Medicare statute except by notice-and-comment rulemaking, we have
concluded that, to the extent there is a gap after Empire, the only way
for CMS to resolve this issue and properly calculate DSH payments for
time periods before FY 2014 is to promulgate a new regulation through
notice-and-comment rulemaking that would apply retroactively to the
determination of Medicare and Medicaid fractions for this time period.
Consequently, retroactive rulemaking is not only necessary to comply
with the statutory requirement to calculate DSH payments, it is also
necessary to avoid an outcome that would be contrary to the public
interest. Absent such a retroactive rulemaking, if there is a gap in
the statute to fill, the Secretary would be unable to calculate and
confirm proper DSH payments for time periods before FY 2014, which
would be contrary to the public interest of providing additional
payments to hospitals that serve a significantly disproportionate
number of low-income patients, as expressed in the DSH provisions of
the Medicare statute. Moreover, to the extent the Secretary must adopt
an approach to calculate those payments, it is in the public interest
to permit 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 action. Therefore, for the purposes of
calculating the Medicare and Medicaid fractions for cost reporting
periods that include discharges before October 1, 2013, in the August
2020 proposed rule (85 FR 47725), we proposed to adopt the same policy
of including MA patient days in the Medicare fraction that was
prospectively adopted in the FY 2014 IPPS final rule and to apply this
policy retroactively to any cost reports that remain open for cost
reporting periods starting before October 1, 2013. We stated that we
did not expect the proposed policy to have an effect on payments as the
payments previously made already reflect the proposed policy. We did
not propose any change to the regulation text because the current text
at Sec. 412.106(b)(2)(i) reflects the policy being proposed for fiscal
years before FY 2014. In the August 2020 proposed rule (85 FR 47726),
we stated that because we proposed to establish this policy
retroactively, it would cover cost reporting periods for which many
cost reports have already been final settled. Consistent with 42 CFR
405.1885(c)(2), any final action retroactively adopting the policy at
42 CFR 412.106(b)(2)(i) for fiscal years before FY 2014 would not be a
basis for reopening these final settled cost reports, irrespective of
how payments in those cost reports were calculated.
In the August 2020 proposed rule, we sought comments on our
proposed approach to include MA patient days in the Medicare fraction
for fiscal years before FY 2014, and also on an alternative, of
including MA patient days for dually eligible beneficiaries in the
numerator of the Medicaid fraction for those fiscal years, which we
discussed in detail in section V. of the August 2020 proposed rule (85
FR 47727). We summarize and respond to the public comments received on
our proposal and the alternative approach considered in the proposed
rule.
Comment: Some commenters stated that the statute unambiguously
forecloses the Secretary's interpretation and is self-executing, so
retroactive rulemaking cannot be justified.
Response: We disagree that the statute unambiguously forecloses the
Secretary's interpretation. Quite the opposite is true; based on the
Supreme Court's intervening decision in Empire, we believe the statute
itself requires the Secretary to count Part C days in the Medicare
fraction, exactly as contemplated in the August 2020 proposed rule. To
the extent that the statute itself establishes the applicable
``substantive legal standard,'' there is no need for a ``gap-filling
policy'' that would trigger the notice-and-comment obligations of
section 1871(a)(2) of the Act, nor any resulting need to rely on the
retroactive rulemaking authority under section 1871(e) of the Act. The
Supreme Court in Allina II made clear that while notice-and-comment
rulemaking is required to change or establish an ``avowedly `gap'-
filling policy,'' its holding should not be construed to require such
rulemaking where the substantive legal standard is established by the
statute itself. (139 S. Ct. at 1816-17.) Of course, to the extent
notice-and-comment rulemaking is required under Allina II, we continue
to believe that this final action is a necessary and appropriate
exercise of the Secretary's retroactive rulemaking authority under
section 1871(e) of the Act. In our view, however, Empire now makes
clear that the interpretation set forth in this final action simply
reflects the ``substantive legal standard'' already set forth in the
statute and the action thus does not ``establish or change'' that
standard.
Although Empire did not address Part C days specifically, it
addressed the same statutory language at issue here, and its analysis
of that language compels the conclusion that Part C days must be
treated as days for which patients are ``entitled to part A benefits.''
Under the governing statutory language, patients are ``entitled'' to
Part A benefits if they meet the basic statutory criteria for such
entitlement under section 226 of the Act--essentially, if they are over
65 or disabled. (142 S. Ct. at 2358, 2361-62, 2365-66.) As noted
previously, Part C enrollees must, by definition, meet these statutory
criteria. And because their enrollment in MA does not change their age
or disability status, such enrollment also does not change their
entitlement to benefits under Part A.\1\ There is no indication in the
Empire Court's opinion to suggest that some other interpretation might
be permissible. To the contrary, the Court held that the meaning of the
statute was clear (indeed, ``surprisingly clear''), and that the
Secretary had ``correctly'' interpreted the statutory language.\2\ It
also held that the alternative reading (including the reading advanced
by the plaintiffs in Northeast, a Part C days case) would render
various statutory provisions ``unworkable or unthinkable or both,''
which ``is not the statute Congress wrote.'' \3\ It further found that
excluding Medicare beneficiaries from the Medicare fraction denominator
simply because payment was not made under Medicare Part A would
``deflate'' the Medicare fraction denominator and ``distort[ ] what the
Medicare fraction is designed to measure--the share of low-income
Medicare patients relative to the total.'' \4\ The same concern applies
at least as much, if not more, in the context of Part C days.
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\1\ 142 S. Ct. at 2364 (explaining that ``entitlement'' arises
when a person meets the basic criteria and, unless a disability
diminishes, ``never goes away'').
\2\ Id. at 2362.
\3\ Id. at 2364.
\4\ Id. at 2367-68.
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In short, based on the Empire Court's clarification of the
governing statute, we now believe the interpretation announced here
simply reflects the substantive legal standard already established in
``the statute Congress wrote,'' and that this action itself does not
establish or change that standard.\5\ That being the case, we now
believe that notice-and-comment rulemaking is not required under Allina
II, and the interpretation set forth in this action is proper without a
need to rely on the
[[Page 37776]]
Secretary's retroactive rulemaking authority.
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\5\ 142 S. Ct. at 2364.
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Alternatively, if notice-and-comment rulemaking is required, then
we continue to believe this action reflects an appropriate exercise of
the Secretary's retroactive rulemaking authority. The commenters are
incorrect to say the statute unambiguously forecloses the Secretary's
interpretation. Even before the Supreme Court in Empire found that the
Secretary had correctly construed the statutory language, the D.C.
Circuit in Northeast held that ``the statute does not unambiguously
foreclose the Secretary's interpretation.'' \6\ The D.C. Circuit found
that Congress ``left a statutory gap, and it is for the Secretary . . .
to fill that gap.'' \7\ Thus, to the extent that any such gap remains
in the wake of the Supreme Court's clarification in Empire, the
decision in Allina II would require notice-and-comment rulemaking to
establish the gap-filling policy stated in this action.\8\
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\6\ 657 F.3d at 2.
\7\ Id. at 13.
\8\ 139 S. Ct. at 1816-17.
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Comment: Several commenters stated that retroactive rulemaking in
this context offends ``fundamental notions of justice'' and the public
interest and sets a dangerous precedent by giving CMS a way to evade
the notice-and-comment requirements of the Medicare statute and the
Administrative Procedure Act (APA) whenever it loses a procedural
challenge in court. Some stated that retroactive rulemaking subverts
what the Supreme Court in Allina II identified as Congress' purpose in
the notice-and-comment requirement--giving the public fair warning and
a chance to be heard. Some commenters suggested that it is poor public
policy and contrary to the public interest to finalize a retroactive
rule when the earlier rulemaking was found deficient on logical
outgrowth grounds. A commenter stated that CMS's proposal suggests that
there are no practical consequences associated with the agency's
failure to comply with the APA.
Response: To the extent that Empire has now held that our
interpretation of the statute reflects its clear meaning, we need not
rely on retroactive rulemaking authority, as discussed previously. But
to the extent retroactive rulemaking is necessary, we do not agree that
retroactive rulemaking here offends justice, sets a dangerous
precedent, or evades the APA's notice-and-comment rulemaking
requirement. As described in the August 2020 proposed rule and herein,
this retroactive rulemaking is authorized by statute, specifically
section 1871(e) of the Act, complies with the Medicare statute's
notice-and-comment requirement, and implements the Supreme Court's
decision in Allina II, thereby upholding fundamental notions of
justice. The Supreme Court did not expressly instruct CMS to promulgate
a retroactive rule, but it did hold that the Medicare statute requires
the agency to engage in notice-and-comment rulemaking before it may
either ``establish'' or ``change'' a substantive legal standard, such
as its policy governing the treatment of Part C days in the DSH
statute, if such a policy is intended to fill a statutory gap. As noted
previously, because the FY 2005 IPPS final rule was vacated, no policy
governing the treatment of Part C days has been established by
rulemaking for fiscal years before 2014. Thus, for fiscal years not
already addressed by the FY 2014 IPPS final rule,\9\ whether CMS
interprets the statute to treat beneficiaries enrolled in Part C as
``entitled to benefits under part A'' or as not so entitled, the
Medicare statute requires a policy established by notice-and-comment
rulemaking to resolve the issue for these years, at least to the extent
that any statutory ``gap'' remains to be filled after Empire. If CMS
were to proceed to calculate DSH adjustments for fiscal years before
2014 without a promulgated rule in place, this would (to the extent any
gap remains) be contrary to the holding of Allina II because the
Supreme Court held that gaps in the Medicare statute can only be filled
via rulemaking (unless an exception applies). The Allina II plaintiffs
prevailed only on their procedural challenge. No provision of either
the Medicare statute or the APA requires CMS to adopt a different
substantive legal standard. Instead, the Medicare statute contemplates
that ``if the Secretary publishes a final regulation that includes a
provision that is not a logical outgrowth of'' a proposed rule, as
happened here, under section 1871(a)(4) of the Act, ``such provision''
may still take effect after ``further opportunity for public comment
and a publication of the provision again as a final regulation.'' Here,
the August 2020 proposed rule provided that further opportunity, and
all interested parties have had a full opportunity to share their views
on the proper interpretation of the statute. We have fully considered
all comments received before finalizing this action.
---------------------------------------------------------------------------
\9\ For more information on the FY 2014 IPPS final rule, which
became effective October 1, 2013, we refer readers to 78 FR 50614.
---------------------------------------------------------------------------
We are not setting a precedent in this action that the agency can
always engage in retroactive rulemaking when courts find that one of
our final rules is not a logical outgrowth of the associated proposed
rule. Retroactive rulemaking is authorized only when the Secretary
determines that retroactive application: (1) is necessary to comply
with statutory requirements; or (2) that a failure to do so would be
contrary to the public interest. These circumstances will not always be
present. For example, as to necessity to comply with statutory
requirements, there will not always be, as there is here, a statutory
directive to calculate payments that demands an interpretation of the
very statutory provision interpreted in the vacated rule coupled with
the absence of a prior rule addressing the issue that needs to be
resolved (here, how to treat days attributable to Part C enrollees in
the DPP).
We do not agree that this retroactive rulemaking has deprived the
public of a chance to be heard as the agency has provided a period for
comment and considered all the comments submitted.
We also do not agree with the underlying premise that either the
APA or the Medicare statute require some sort of punitive
``consequences'' to an agency as the result of a logical outgrowth
deficiency, especially where, as here, the alternative interpretation
(that Part C enrollees are not entitled to benefits under Part A) would
be contrary to statute. CMS has given the public a chance to submit
comments and has considered those comments, thereby curing the
procedural error.
Comment: Some commenters stated that the DSH statute does not
require any specific treatment of Part C days and so retroactive
rulemaking is not authorized because retroactivity is not ``necessary
to comply with statutory requirements'' as contemplated by section
1871(e)(i) of the Act. Similarly, a commenter asserted that because the
D.C. Circuit in Northeast and the D.C. District Court in Alegent
Health-Immanuel Medical Center v. Sebelius, 917 F. Supp. 2d 1 (D.D.C.
2012), have read the statute to permit excluding Part C days from the
Medicare fraction, retroactive rulemaking would not be necessary to
comply with the statute. Some commenters stated that retroactive
rulemaking is only permitted to adopt what they believe to be CMS' pre-
2004 policy.
Response: The commenters misunderstand the Secretary's position in
the August 2020 proposed rule. Section 1871(e) of the Act authorizes
retroactive rulemaking when the Secretary determines that, in order to
[[Page 37777]]
comply with statutory requirements, it is necessary to apply a
``substantive change in regulations, manual instructions,
interpretative rules, statements of policy, or guidelines of general
applicability . . . retroactively to items and services furnished
before the effective date of the change.'' Here the DSH statute
requires the Secretary to calculate DSH payments by, in part, treating
Part C enrollees as either ``entitled to benefits under part A'' or as
not so entitled, but there is no promulgated rule governing the
treatment of Part C days for fiscal years before 2014. Therefore,
unless the statute itself establishes the substantive legal standard,
retroactive rulemaking is required in order make the statutorily
required DSH adjustments. In other words, the Secretary's determination
that retroactive rulemaking is necessary to comply with statutory
requirements is not based on the view that the statute admits of only
one interpretation of ``entitled to benefits under part A,'' which the
Court in Empire has now confirmed. Rather, the basis of the
determination is that the statute requires the Secretary to make DSH
adjustments, which in turn requires him (to the extent the statute
itself contains any ambiguity or ``gap'') to interpret the phrase
``entitled to benefits under part A'' as that phrase relates to Part C
days, and the Supreme Court has instructed that such an interpretation
must be promulgated by notice-and-comment rulemaking. This same
conclusion--that retroactive rulemaking is required--results even if
CMS found the commenters' preferred treatment of Part C days to be the
better interpretation and wished to adopt it. Northeast and Alegent did
not address section 1871 of the Act and have been superseded in some
respects by the Supreme Court's decision in Allina II.
Comment: A commenter stated that CMS has authority to adopt a
retroactive rule only if the substantive change in the regulation
itself is required, in other words, only if the statute unambiguously
requires the proposed interpretation. Some commenters stated that,
contrary to the August 2020 proposed rule (as they interpret it), the
Allina cases created no legal ambiguity and so retroactive rulemaking
is not required. Another commenter stated that any legal ambiguity is
already resolved by following the precedent of Northeast.
Response: By its terms, section 1871(e)(1)(A)(i) of the Act permits
retroactive rulemaking when the Secretary determines rulemaking is
``necessary to comply with statutory requirements,'' not only when the
Secretary determines that the interpretation embodied in a proposed
regulation is itself unambiguously required by the statute. Where the
statute admits of only one interpretation, rulemaking (prospective or
retroactive) may not be required at all. In Allina II, the Court held
that rulemaking is necessary under section 1871(a)(2) of the Act when
HHS's policy fills a statutory gap. Here, as noted before, the D.C.
Circuit previously found that the statute is ambiguous as to whether
Part C days are days of beneficiaries ``entitled to benefits under Part
A,'' and that the Secretary's interpretation is not foreclosed.
Subsequently, in Empire, the Supreme Court held that ``entitled to
benefits under part A'' clearly refers to ``all those qualifying for
the [Medicare] program.'' (142 S. Ct. at 2368.) We believe this
reasoning supports the Secretary's interpretation that ``entitled to
benefits under part A'' includes Part C enrollees since, in order to
enroll in Part C, an individual must be entitled to Part A.\10\
---------------------------------------------------------------------------
\10\ 142 S. Ct. at 2359 (``[E]ntitlement to Part A generally
enables a patient to enroll (if he wishes) in Medicare's other
programs . . . [including] Part C's coverage.'') (citing section
1851(a)(3) of the Act)).
---------------------------------------------------------------------------
Some commenters appear to have misunderstood the discussion of
legal ambiguity in the August 2020 proposed rule. In that rule, we
stated that failing to finalize a regulation through notice-and-comment
rulemaking would create ``legal ambiguity'' in the future as to the
Secretary's treatment of Part C days for fiscal periods before 2014. As
noted previously and in the August 2020 proposed rule, until this
action is finalized and in effect, no regulation governs the treatment
of Part C days for years before FY 2014. Because there is no rule
governing the treatment of Part C days for discharges before October 1,
2013, the Secretary concluded he must promulgate a rule that governs
this period--whether the rule counts the Part C days in the numerator
of the Medicaid fraction (for individuals also eligible for Medicaid),
as most commenters desire, or in the Medicare fraction, as CMS
proposed. The Northeast decision striking down the exclusion of Part C
days from the numerator of the Medicaid fraction for FYs 1999 to 2002
and holding that the Secretary could not apply her 2004 interpretation
retroactively to those years does not control in the face of the
Supreme Court's decision in Allina II, as discussed throughout this
action.
Comment: Some commenters stated that there was no missed statutory
deadline to justify a retroactive rule.
Response: Section 1871(e) of the Act authorizes retroactive
rulemaking when the Secretary determines that, in order to comply with
statutory requirements, it is necessary to apply a ``substantive change
in regulations, manual instructions, interpretative rules, statements
of policy, or guidelines of general applicability'' or it is in the
public interest. The Secretary's authority to undertake retroactive
rulemaking is not limited to instances when a statutory deadline has
been missed. As explained in this action, the Secretary has determined
that retroactive rulemaking is necessary to comply with statutory
requirements, to the extent a statutory gap is left to fill after
Empire, and is in the public interest.
Comment: Some commenters stated that the Secretary's argument that
retroactive rulemaking is in the public interest is circular because it
presupposes that the DSH statute cannot be given effect except through
regulation. Some stated that the Secretary's arguments that a
retroactive rule would be in the public interest simply repeat his
arguments for why a retroactive rule is required by statute.
Response: We do not agree that the conclusion that the treatment of
Part C days cannot be resolved without rulemaking is a mere
presupposition, and therefore that the Secretary's argument is
circular. Rather, as stated previously, there is no ``promulgated rule
governing the treatment of Part C days for fiscal years before 2014''
(Allina Health Servs., 863 F.3d at 939), and the Supreme Court held
that the Secretary cannot establish or change an avowedly gap-filling
policy for the treatment of Part C days without first promulgating a
regulation. Thus, to the extent the Supreme Court in Empire did not
foreclose any other interpretation of the statute than the one the
Secretary proposes, the need for rulemaking on the treatment of Part C
days under the statute is not a presumption. We also believe it is in
the public interest for the Secretary to enact rulemaking that reflects
what he believes is the best interpretation of the statute, one
consistent with what the Supreme Court has since described as the clear
meaning of the statute, because to do otherwise may result in payments
from the Medicare Trust Fund in excess of what he believes is
authorized in the DSH statute.
Comment: Some commenters stated that the Medicare statute's
authorization of a retroactive substantive change in regulations may
apply only when the Secretary determines that the change has a positive
impact on providers.
[[Page 37778]]
Similarly, some commenters stated that CMS does not have authority to
act retroactively because its proposed rule would cause a loss to most
hospitals and the public interest exception was intended to apply only
where beneficial to providers. Some commenters relied on language in a
2001 Ways and Means Committee report that stated that a retroactive
substantive change would be permissible if it would ``have a positive
effect on beneficiaries or providers of services and suppliers.''
Response: By its terms, the statute as enacted does not restrict
the Secretary's determination that a retroactive substantive change in
regulations is in the public interest only in those instances where the
change would have a positive impact on providers. The statute refers to
``public interest'' not ``providers' interest.'' It is in each
providers' interest to receive as much in DSH payments as possible. It
is in the public interest that hospitals are paid in accordance with
the statute. To the extent that any statutory gap remains following the
Supreme Court's Empire decision, the Secretary believes rulemaking on
the Part C days issue for years prior to the FY 2014 IPPS final rule is
required by Allina II and is in the public interest. We believe that
the interpretation articulated in the August 2020 proposed rule best
reflects the statutory text as well as congressional intent. We also
believe that applying that interpretation retroactively is in the
public interest because the alternative interpretation (that Part C
enrollees are not entitled to benefits under Part A) would in many
instances result in payments in excess of what Congress intended.
Comment: A commenter reasoned that because the D.C. Circuit held in
Allina Health Services v. Price that CMS could not bypass notice-and-
comment rulemaking and resolve the treatment of Part C days through
adjudication, which is inherently retroactive, retroactive rulemaking
is likewise impermissible.
Response: The Medicare statute at section 1871(e)(1)(A) of the Act
expressly provides authority for retroactive rulemaking under certain
conditions, as explained previously, and for the reasons articulated in
the August 2020 proposed rule and in this final action, the Secretary
finds that those conditions are met here.
Comment: Most commenters opposed CMS's proposal and urged CMS to
exclude Part C days from the Medicare fraction of the DPP calculation
and include them (for dually eligible individuals) in the numerator of
the Medicaid fraction. (We note that, as explained previously, all
patient days, regardless of eligibility for Medicaid or entitlement to
Medicare Part A, are included in the denominator of the Medicaid
fraction.) Many commenters disagreed that individuals enrolled in Part
C are ``entitled'' to benefits under Part A and asserted that the
proposed interpretation is inconsistent with their view of the intent
of the statute. Commenters cited the following statutory provisions in
support of their arguments:
<bullet> Section 226(c)(1) of the Act, which states that
entitlement of an individual to hospital insurance benefits for a month
under Part A ``shall consist of entitlement to have payment made under,
and subject to the limitations in, part A.''
<bullet> Section 1851(a)(1) of the Act, which states persons
eligible for Medicare Advantage are ``entitled to elect to receive
benefits'' either ``through the original Medicare fee-for-service
program under parts A and B'' or ``through enrollment in a [Medicare
Advantage plan] under [Part C].''
<bullet> Section 1851(i)(1) of the Act, which states that
``payments under a contract with a [Medicare Advantage] organization .
. . with respect to an individual electing a [Medicare Advantage] plan
. . . shall be instead of the amounts which (in the absence of the
contract) would otherwise be payable under parts A and B . . .''
Commenters contended that individuals who enroll in an MA plan
receive benefits under Part C and not Part A, and so cannot be
``entitled'' to benefits under Part A. Some stated that, because the
payments received by providers under contract with the MA organization
are made instead of the amounts that would otherwise be payable under
Part A, Part C enrollees are not entitled to benefits under Part A.
Some commenters stated that a patient who is enrolled in Part C on a
given patient day is not entitled to Part A benefits ``for that
hospitalization''; several argued that while a beneficiary must at some
point be entitled to benefits under Part A in order to enroll in Part
C, once they do so they are no longer entitled to benefits under Part
A. Similarly, a commenter suggested that the benefits to which
beneficiaries are entitled under Part A are ``subject to the
limitations'' of Part A, but Part C enrollees may receive benefits from
their MA plans that are in excess of benefits to which they are
entitled under Part A, such that beneficiaries must not be entitled to
benefits under Part A.
Response: We disagree with the commenters, and we believe the
Supreme Court's intervening decision in Empire now forecloses the
commenters' interpretation. (142 S. Ct. 2354, 2368.) Indeed, even
before Empire, we did not find these comments persuasive. These
comments are the same or similar to comments CMS received in response
to the proposed prospective rule concerning the treatment of Part C
days that was finalized in the FY 2014 IPPS final rule.\11\ We continue
to disagree that Medicare beneficiaries enrolled in Part C no longer
receive benefits under Part A and that, because the payment structure
of Part C applies (that is, CMS pays the MA plans so that the plans may
make payments to hospitals for the care of the beneficiaries), those
beneficiaries are not entitled to Part A benefits. As we stated in the
FY 2014 final rule, section 226 of the Act provides that an individual
is automatically ``entitled'' to Medicare Part A when the person
reaches age 65, provided that the individual is entitled to Social
Security Benefits under section 202 of the Act, or becomes disabled.
---------------------------------------------------------------------------
\11\ For more information on that rule, including a summary of
the comments received, we refer readers to 78 FR 50496.
---------------------------------------------------------------------------
We continue to believe, as we concluded in the FY 2014 IPPS final
rule, that Congress uses the phrase ``entitled to benefits under part
A'' consistently to refer to an individual's legal status as a Medicare
Part A beneficiary. This phrase is used in numerous other sections of
the Medicare statute, indicating that it has a specific, consistent
meaning throughout the statutory scheme, rather than a varying,
context-specific meaning in each section and subsection. Enrolling in
Part C does not change an enrollee's status as a Medicare Part A
beneficiary and does not remove or reduce any benefits the beneficiary
would otherwise have received; indeed, the MA plan must provide the
benefits to which the beneficiary is entitled under Part A as described
by section 1852(a)(1)(A) and (B)(i) of the Act and may provide
additional supplemental benefits as described by section 1852(a)(3)(C)
of the Act. The D.C. Circuit rejected many of the commenters' views
that the agency's interpretation is inconsistent with the plain
language of the statute. (Northeast, 657 F.3d at 6-13.) We note that
the Supreme Court in Empire further explained that, for purposes of
calculating hospitals' DPPs, ``individuals `entitled to [Medicare Part
A] benefits' are all those qualifying for the program'' and that
entitlement to Part A benefits is, ``according to the statute, simply a
legal status arising from'' meeting the statutory criteria in
[[Page 37779]]
section 226(a)-(b) of the Act. (142 S. Ct. 2354 at 2368 and 2363
(emphasis added).) A person's entitlement to Part A benefits arises
when the ``person meets the basic statutory qualifications and (unless
a disability diminishes) never goes away.'' (Id. at 2364.)
In response to commenters' concerns about section 226(c)(1) of the
Act, we note that, for purposes of section 226(c)(1) of the Act,
beneficiaries enrolled in Part C are having payment made under Part A
for the month in question, via the Part A component of the monthly
payment made to the MA organization, and are receiving Part A benefits
subject to the limitations on such benefits provided for in Part A.
In response to commenters' concerns about section 1851(a)(1) of the
Act, we note that, for purposes of section 1851(a)(1) of the Act, the
``benefits'' referenced in the phrase quoted by the commenters
(``entitled to elect to receive benefits'') are the benefits provided
for in Part A and Part B. Thus, this language confirms that
beneficiaries enrolled in Part C remain ``entitled'' to benefits under
Part A, and thus supports our interpretation of the statute. It is only
the vehicle ``through'' which such Part A benefits are received that
changes, from the ``fee-for-service'' method spelled out under Part A
to the capitation payment method spelled out in Part C.
Section 1851(i)(1) of the Act similarly refers only to whether Part
A benefits are provided via payments to, and by, the MA organization or
direct payments made under the ``fee-for-service'' payment procedures
provided for in Part A and Part B. It is only the process for
furnishing these benefits that is at issue in the provision, not
entitlement to such benefits themselves. That Part C enrollees may
receive supplementary benefits beyond what other Part A-entitled
beneficiaries are entitled to does not deprive the Part C enrollees of
entitlement to Part A benefits.
Commenters who argue that it is obvious that a beneficiary cannot
be entitled to both Part C and Part A benefits on the same day confuse
the method for covering Part A benefits with whether an individual is
entitled to receive such benefits. The question of whether a
beneficiary is ``entitled'' to Part A benefits is distinct from how the
provider is paid for furnishing those benefits. As we stated in the
August 2020 proposed rule (85 FR 47725), and has been subsequently
affirmed by the Supreme Court in Empire, section 226 of the Act
identifies statutory criteria for an individual's entitlement to Part A
benefits. (142 S. Ct. at 2362.) Beneficiaries who are enrolled in MA
plans provided under Medicare Part C continue to meet all the statutory
criteria for entitlement to Medicare Part A benefits under section 226
of the Act. Moreover, section 1851(a)(3) of the Act provides that, in
order to be eligible to enroll in Medicare Part C, a beneficiary must
be ``entitled to benefits under Part A and enrolled under Part B.''
Thus, by definition, a beneficiary must be entitled to Part A to be
enrolled in Part C. We do not believe that the Act suggests that
beneficiaries who enroll in a Medicare Part C plan thereby forfeit
their entitlement to Medicare Part A benefits. To the contrary, as
affirmed in Empire, because they continue to meet the basic statutory
criteria for entitlement under the statute (that is, being over 65 or
disabled), their entitlement status is unaffected by such enrollment.
(142 U.S. at 2362.) In our view, enrollment in a plan under Medicare
Part C is simply an option that a person entitled to Part A benefits
may choose as a way to receive their Part A benefits. A beneficiary who
enrolls in Medicare Part C is entitled to receive benefits under Part A
through the MA plan in which he or she is enrolled, and the MA
organization's costs for providing such Part A benefits are paid for by
CMS with money from the Medicare Part A Trust Fund.
In addition, under certain circumstances, Medicare Part A pays
providers directly for care furnished to patients enrolled in Medicare
Part C plans, rather than indirectly through capitated payments to MA
organizations from the Medicare Part A Trust Fund. For example, under
section 1852(a)(5) of the Act, if, during the course of the year, the
scope of benefits provided under Medicare Part A expands beyond a
certain cost threshold due to Congressional action or a national
coverage determination, Medicare Part A will pay providers directly for
the cost of those services provided to beneficiaries enrolled in Part
C. Similarly, Medicare Part A pays directly for hospice care (a Part A
benefit) furnished to MA patients who elect under section 1812(d) of
the Act to receive such care from a particular hospice program and,
under certain circumstances, for FQHC services provided to MA patients
for FQHCs that contract with MA organizations under sections 1853(h)(2)
and 1853(a)(4) of the Act, respectively. Thus, we continue to believe
that a patient enrolled in an MA plan remains entitled to benefits
under Part A and should be counted in the Medicare fraction, not in the
numerator of the Medicaid fraction (should the Part C enrollee also be
eligible for Medicaid). Indeed, in light of the Supreme Court decision
in Empire, we do not believe the statute can properly be read
otherwise.
Comment: Some commenters stated that the Secretary's interpretation
of ``entitled to benefits under part A'' in the DSH statute is
inconsistent with his interpretation of ``entitled to [SSI] benefits''
in that same statute because he treats people as ``entitled'' to
Medicare Part A benefits if they meet the statutory criteria for
entitlement, regardless of whether Medicare pays for hospital services
during a given hospital stay, but treats patients as ``entitled'' to
SSI benefits only if they are actually paid those monthly cash benefits
for the month(s) in which they are hospitalized. Some commenters
suggested that, if CMS interprets ``entitled'' to Medicare to include
unpaid days it must include in the Medicare fraction numerator days for
beneficiaries who are (they argue) ``entitled'' to SSI but who do not
receive any cash benefit. Some commenters proposed additional Social
Security Administration status codes that, in their opinion, should be
included in the numerator of the Medicare fraction because they capture
individuals who, purportedly, are entitled to SSI.
Response: The meaning of ``entitled to [SSI] benefits'' in the DSH
statute is beyond the scope of this action. However, we note that, as
the Secretary explained in the FY 2014 IPPS final rule (78 FR 50617),
the differing interpretation of these two distinct phrases is based on
the two different kinds of entitlements at issue. Because SSI is a cash
benefit, and because entitlement to that benefit depends on factors
(such as income level) that can change over time, only a person who is
actually entitled to be paid these benefits for the month in question
is considered entitled to those benefits. This differs from entitlement
to Medicare benefits under Part A, which are a distinct set of health
insurance benefits where an individual's entitlement to such benefits
does not generally evolve over time. The health insurance benefits also
include ongoing, continuous coverage for various specified kinds of
healthcare service, regardless of income status or other financial
factors.\12\ The Secretary has more extensively addressed these two
different kinds of entitlement for purposes of the DSH calculation in
another notice-and-comment rulemaking. For more information, we refer
readers to the FY 2011 IPPS/LTCH
[[Page 37780]]
PPS final rule (75 FR 50275 through 50286). That rulemaking further
elaborates on the reasons for distinguishing between entitlement to SSI
benefits and entitlement to Medicare benefits under Part A. (Id. at 75
FR 50280 and 50281.) We note also that courts have upheld the
Secretary's distinction between these two different kinds of
entitlement against similar allegations of ``inconsistency.'' \13\
---------------------------------------------------------------------------
\12\ 142 S. Ct. at 2363 (emphasizing that Part A entitlement
under the statute ``reflects the complexity of health insurance'').
\13\ Metro. Hosp. v. HHS, 712 F.3d 248, 268 (6th Cir. 2013);
Advoc. Christ Med. Ctr. v. Azar, No. 17-CV-1519 (TSC), 2022 WL
2064830, at *9 (D.D.C. June 8, 2022); Florida Health Scis. Ctr. v.
Becerra, 19-cv-3487-RC, 2021 WL 2823104, at *15-16 (D.D.C. July 7,
2021).
---------------------------------------------------------------------------
Comment: Some commenters stated that the August 2020 proposed rule
did not discuss the phrase ``for such days'' in the DSH statute and
impermissibly seeks to eliminate that statutory clause through
rulemaking. Other commenters state the phrase ``for such days'' could
or must be interpreted to exclude Part C days from the Medicare
fraction, which includes days for patients who ``(for such days) were
entitled to benefits under part A.'' (Section 1886(d)(5)(F)(vi) of the
Act.) These commenters believe this phrase requires that, to be
included in the Medicare fraction, a patient must be entitled to Part A
hospital benefits on the patient day being counted, and that Part C-
enrolled patients are not so entitled.
Some commenters agree with then-Judge Kavanaugh's concurrence in
Northeast when he reasoned that the statute's use of ``were'' indicates
that the calculation of the Medicare fraction is meant to determine
``what kind of benefits a specific patient received on a specific day''
and so HHS must ``isolate hospital days attributable to patients who
were, on those days, receiving benefit payments through Part A of
Medicare,'' which in his (and the commenters') view excludes a Part C
enrollee. (Northeast, 657 F.3d. at 19 (Kavanaugh, J., concurring).)
Moreover, these commenters assert that since a patient who is receiving
benefits under Part A for a given day cannot also receive benefits
under MA for that day, the ``for such days'' language indicates there
is a clear delineation between MA days and Medicare Part A days.
Response: The Secretary's interpretation does not seek to eliminate
the clause ``for such days.'' As the Supreme Court explained in Empire:
The ``(for such days)'' phrase instead works as HHS says: hand
in hand with the ordinary statutory meaning of ``entitled to [Part
A] benefits.'' The parenthetical no doubt tells HHS to ask about a
patient on a given day. But the query the agency must make is not
whether that patient on that day has received Part A payments; the
query is, consistent with what ``entitled'' means all over the
statute, whether that patient on that day is qualified to do so.
142 S. Ct at 2365 (emphasis added). We note that Justice Kavanaugh
authored the dissenting opinion in Empire, adhering to his view in his
Northeast concurrence. The majority in Empire accepted the Secretary's
view and necessarily rejected then-Judge Kavanaugh's interpretation of
``for such days'' in Northeast.
In the Secretary's view, Part C enrollees are entitled to all Part
A benefits (including hospital benefits) regardless of how those
benefits are (or are not) paid, that is they are ``entitled'' to Part A
benefits when providers are paid by an MA organization (which in turn
is paid from the Part A trust fund) and also when providers are paid
directly from the Part A trust fund, such as in the case of hospice
benefits. Part A entitlement is a status that does not change with
enrollment in Part C. The Secretary's interpretation, which is the same
one adopted by the Supreme Court in Empire, gives meaning to the clause
``for such days'' and does isolate hospital days attributable to
patients who were entitled to--meaning qualified for--Part A benefits
on specific patient days. An individual's entitlement to Medicare Part
A is largely, but not perfectly static, and ``[n]ot every patient who
meets the criteria . . . during some portion of his hospital stay will
meet those criteria for all of the stay.'' Northeast, 657 F.3d at 12.
For example, ``a person who collects Social Security and who turns 65
during his hospital stay will become `entitled' to benefits under Part
A on his sixty-fifth birthday,'' and ``a person under age 65 who
reaches his twenty-fifth calendar month of entitlement to disability
benefits under [section 223 of the Act] during his hospital stay will
become `entitled' to benefits under Part A upon reaching his twenty-
fifth month of disability entitlement.'' (Id.) For such beneficiaries,
the days before they become entitled to benefits under Part A are
excluded from the Medicare fraction, but the days on or after they
become entitled to benefits under Part A are included in that
fraction.\14\
---------------------------------------------------------------------------
\14\ Empire, 142 S. Ct. at 2366 (``By the way, said Congress . .
.: If someone turns 65 during the year the fraction covers, make
sure to exclude his pre-birthday hospital days.'').
---------------------------------------------------------------------------
Although our interpretation of the statute is not driven by the
financial impact of that interpretation, we note also that excluding
Part C days from the Medicare fraction based on the commenters'
understanding of the statutory phrase ``for such days'' may put some
hospitals in a worse position than the Secretary's view because those
days would not necessarily be includable (for individuals also eligible
for Medicaid) in the Medicaid fraction. The statutory language defining
the Medicaid fraction only counts in that fraction patient days
attributable to patients who ``were not entitled to benefits under part
A [of Medicare]'' (section 1886(d)(5)(F)(vi)(II) of the Act); that
phrase is not modified with the same ``for such days'' phrase that is
present in the statutory language defining the Medicare fraction
(section 1886(d)(5)(F)(vi)(I) of the Act). Therefore, under Empire,
``the `not entitled' phrase in [the Medicaid fraction] should mean
(consistent with the rest of the statute) not qualifying for
Medicare,'' which includes Part C enrollees that the commenters ``would
oust from the Medicare fraction,'' and those Part C enrollees thus
would ``fall . . . outside the Medicaid fraction,'' too. (142 S. Ct. at
2367.)
Comment: A commenter stated that because the statute expressly
references Part C days in the indirect medical education (IME)
provisions of the Balanced Budget Act of 1997 (Pub. L. 105-33) (BBA) in
order to provide IME payments to hospitals in connection with patients
enrolled in Part C plans, but did not also change the DSH statute to
expressly refer to Part C days, the DSH Medicare fraction should not be
interpreted to include Part C days and the Medicaid fraction should not
be interpreted to exclude Part C days because Congress did not mean for
Part A and Part C to be synonymous.
Response: The IME add-on for patients enrolled in Part C plans
under section 1886(d)(5)(B) of the Act is designed to compensate IPPS
teaching hospitals for increases in costs that are presumed to occur as
an indirect consequence of the involvement of student doctors in
patient care. Payments for IME costs in traditional Medicare are
calculated on the basis of payments for discharges (Section
1886(d)(5)(B) of the Act); this language does not include any reference
to entitlement to Part A benefits. Prior to the BBA, Medicare did not
make any separate payment to hospitals for IME costs associated with
Medicare patients enrolled in Part C plans. Sections 4622 and 4624 of
the BBA directed the Secretary to provide for an additional payment
amount to hospitals for IME in connection with Medicare beneficiaries
enrolled in a Part C plan. Congress expressly referenced Part C in the
IME provisions of the BBA because neither hospitals nor Part C plans
are paid by
[[Page 37781]]
the Secretary on the basis of discharges of Part C enrollees. (Section
1886(d)(5)(B) of the Act.) We disagree with the commenter that because
the DSH statute does not expressly mention Part C days, the statute
unambiguously treats such days as days for which beneficiaries are not
entitled to Part A. Rather, other statutory provisions contemplate that
Part C enrollees remain entitled to Part A, indicating that the statute
includes them in the Medicare fraction. The Secretary's position is not
that ``Part A'' and ``Part C'' are synonymous, but that Part C
enrollees remain entitled to benefits under Part A.
Comment: A commenter stated that CMS is proposing to remove the
word ``covered'' from the regulation. Other commenters stated that CMS
implicitly conceded that Part C days are not ``covered'' days when it
stated in the FY 2014 IPPS final rule that the corresponding proposed
rule did not propose any change to the text of the regulation because
``the current text [already] reflects the policy [that was] proposed''
(78 FR 50615). The commenters appeared to mean that if, in CMS's view,
the text of the regulation did not need to change in the FY 2014 IPPS
final rule in order to include Part C days in the Medicare fraction,
that is because the word ``covered'' had already been removed from the
text of the regulation.
Response: We disagree with the suggestion that in the August 2020
proposed rule, CMS proposed to remove the word ``covered'' from the
regulation; the regulation had already been revised to remove the word
``covered'' (69 FR 49099). Although the FY 2005 IPPS final rule was
vacated by the D.C. Circuit as to its treatment of Part C days in
Allina I, that decision did not address the issue of exhausted benefit
days; that is, days that are not ``covered.'' Before we proposed the
August 2020 proposed rule, the regulation had already been revised to
remove the word ``covered'' (69 FR 49099). We also disagree with the
commenters' interpretation that the statement in the FY 2014 IPPS final
rule implied that Part C days are not ``covered days.'' When CMS stated
in the FY 2014 IPPS proposed rule that the text already reflected the
proposed policy, that was because the text of 42 CFR
412.106(b)(2)(i)(B) and (b)(2)(iii)(B) expressly included Part C days
in the Medicare fraction numerator and denominator, not because the
word ``covered'' had already been removed from the regulation. In the
FY 2005 IPPS final rule, the agency had stated that it was ``revising
[its] regulations''--which at the time simply parroted the language of
the statute--to specifically ``include the days associated with M+C
beneficiaries in the Medicare fraction of the DSH calculation'' (69 FR
49099). Although, the agency inadvertently failed to make that revision
in the text of the regulations at that time, the Secretary made a
``technical correction'' to the regulations in 2007 to expressly
incorporate the interpretation announced in the FY 2005 IPPS final
rule. (72 FR 47384 (August 22, 2007))
Comment: A commenter read our description of the alternative
considered in the August 2020 proposed rule to contemplate the
restoration of the term ``covered'' to the DSH regulation (meaning that
exhausted benefit or unpaid days would not be included in the
calculation of the Medicare fraction), which the commenter favored.
Response: This commenter misunderstood our proposal and the
alternative considered. As discussed in more detail elsewhere in the
action, under both our proposal and the alternative considered, Part C
days would be treated as ``covered'' days for the purposes of
calculating a hospital's DPP and neither the rule proposed nor the
alternative considered directly addressed the status of exhausted
benefit or other unpaid days. As we did not propose the change the
commenter supports, we will not be adopting the commenter's suggestion.
Comment: A commenter stated that the August 2020 proposed rule is
arbitrary and capricious because the Secretary excludes from the
Medicare fraction patient days paid under Medicare Part B and patient
days for areas of a hospital not payable under Part A.
Response: The August 2020 proposed rule is not inconsistent with
the exclusion of Part B days from the Medicare fraction; to enroll in
Part B under section 1836 of the Act, an individual need not be
``entitled to benefits under part A.'' In a December 2, 2015 decision
on remand in Allina I, the Administrator explained that the restriction
on patient days to certain units of the hospital is entirely unrelated
to the Secretary's interpretation of ``entitled to benefits under part
A'' but is instead based on an interpretation of the term ``patient
days'' in the DSH provision as limited to inpatient days payable under
the IPPS.
Comment: Several commenters stated that the August 2020 proposed
rule is inconsistent with the D.C. Circuit's holding in Allina Health
Services v. Price, 863 F.3d 937 (D.C. Cir. 2017) and the Supreme
Court's decision in Allina II because those cases held that the
Secretary cannot undertake a policy change without first promulgating a
regulation. Several commenters stated that the August 2020 proposed
rule disregarded or circumvented the Supreme Court's holding in Allina
II. Some commenters stated that CMS must not interpret the statute to
treat Part C days as days beneficiaries are entitled to benefits under
Part A because CMS has, purportedly, gotten more than one adverse
decision on this issue. They argue that the higher DSH payments that
would be calculated by excluding these days from the Medicare fraction
and including them in the Medicaid fraction numerator (for patients
also eligible for Medicaid) have therefore been wrongfully withheld
from providers for many years.
Response: We agree that the Supreme Court in Allina II held that,
because the policy on the treatment of Part C days in the DSH
calculation was intended to address an avowed statutory gap, the
Secretary cannot establish or change such a policy without first
promulgating a regulation. The purpose of this final action is to
comply with that requirement (to the extent any gap-filling policy is
even necessary now that the Supreme Court has clarified the meaning of
``entitled to benefits under part A,'' as discussed more elsewhere),
not to disregard or circumvent the Court's ruling. As stated in Allina
Health Services, there is ``no promulgated rule governing the
[treatment of Part C days] for the fiscal years before 2014.'' (863
F.3d at 939.) The Secretary explained in briefing to the Supreme Court
in Allina II that if the Medicare statute required the Secretary's
interpretation of ``entitled to benefits under part A'' to be
promulgated through notice-and-comment procedures (as the Supreme Court
ultimately held), then notice-and-comment rulemaking would also be
necessary before the Secretary could adopt the respondents' preferred
interpretation. And, even if considered retroactive in application,
this action will not be effective until after the completion of this
notice-and-comment rulemaking, which will have given interested parties
the opportunity to present their arguments as to the proper
interpretation of the statute and given the Secretary the opportunity
to consider those arguments before the action is finalized.
No final binding court decision has found fault with the
Secretary's interpretation of ``entitled to benefits under part A'' to
include Part C enrollees. That is why, after the Supreme Court issued
its Allina II decision, the United States District
[[Page 37782]]
Court for the District of Columbia remanded to the Secretary cases
presenting the Part C days issue, holding that the district court had
``no basis to direct the agency as to what the formula for the [DSH]
recalculation should be'' because ``this was the aspect of the case
left open by previous opinions.'' (In Re Allina II-Type DSH Adjustment
Cases, Misc. No. 19-0190, Dkt. 74 (D.D.C. Jan. 19, 2021).)
Indeed, the weight of authority--in our view--now conclusively
shows that the Secretary's interpretation of the relevant phrase is
permissible, if not required, under the language of the statute. In
Northeast, the D.C. Circuit held that ``the Balanced Budget Act of
1997, Public Law 105-33, 111 Stat 251, which enacted M+C, as well as
subsequent amendments to Part C, assume that a person enrolled in [Part
C] remains entitled to benefits under Part A, and nothing in the text
or structure of the DSH fractions compels a different result.'' Most
importantly, the Supreme Court's decision in Empire has now confirmed
the validity of the Secretary's interpretation. While Empire addressed
exhausted benefit and other unpaid days, not Part C days, the Court's
reasoning confirms that ``entitled to benefits under part A'' should be
read to include Part C days. The Court concluded that the statutory
text is clear: ``being `entitled' to Medicare benefits . . . means--in
the [DSH] fraction descriptions, as throughout the statute--meeting the
basic statutory criteria.'' (Empire, 142 S. Ct at 2362.) Part C
enrollees, who by definition must be ``entitled'' to Part A benefits,
necessarily meet these basic statutory criteria. They do not cease to
meet them through enrollment in Part C because such enrollment does not
affect their age or disabled status.
Comment: Some commenters stated that CMS did not change what they
call its ``covered days'' rule when Part C was added to the statute,
and that CMS has acknowledged that, before the FY 2005 IPPS final rule,
it had a practice of excluding Part C days from the Medicare fraction.
The commenters appear to suggest that the pre-FY 2005 regulation
therefore excluded Part C days from the Medicare fraction because they
are (purportedly) not ``covered days.''
Response: This argument was made by plaintiffs in Allina Health
Services v. Price, 863 F.3d 937, 939 (D.C. Cir. 2017) and rejected by
the D.C. Circuit, which held in that case that ``HHS has no promulgated
rule governing the interpretation of `entitled to benefits under part
A' for the fiscal years before 2014.'' (Emphasis added.) The 1986
regulation, which preceded the FY 2005 IPPS final rule, established the
limitation to ``covered'' days and was promulgated more than a decade
before the creation of Medicare Part C and thus plainly could not have
addressed whether enrollees in the later-created Part C program are
``entitled to benefits'' under Part A. And the ``covered'' days
limitation in the pre-FY 2005 IPPS final rule was not based on any
interpretation of ``entitled to benefits under part A,'' nor did it
establish any policy that would have excluded Part C days. Rather, as
the Secretary explained in the 1986 rulemaking, the rule was intended
to clarify that it ``refer[red] only to Medicare covered days,'' that
is, days for which Medicare is authorized to make payment.\15\ The
``covered'' limitation was an interpretation of the statutory phrase
``for such days,'' which modifies the phrase ``entitled to benefits
under part A'' (51 FR 31460 and 31461). The determination of whether a
patient day is ``covered'' has never depended on whether the day is
attributable to an individual under the traditional Part A fee-for-
service program or one enrolled in a managed care plan, such as under
Part C. A Part C enrollee is entitled to receive benefits under Part A
through the Part C plan in which he is enrolled, and such benefits are
paid from the Medicare Part A Trust Fund. (Section 1853(f) of the Act.)
Therefore, Part C days have always been considered to be paid or
``covered'' days even though Medicare payments for Part C days are made
to managed care plans rather than directly to hospitals.
---------------------------------------------------------------------------
\15\ See the September 3, 1986 Federal Register (51 FR 31460 and
31461) and 42 CFR 409.3 (``Covered'' refers to ``services for which
the law and the regulations authorize Medicare payment.'').
---------------------------------------------------------------------------
Comment: Some commenters stated that because the Ninth Circuit in
Empire v. Becerra, 958 F.3d 873 (2020), vacated CMS's regulatory
amendment in the FY 2005 IPPS final rule that removed the word
``covered'' from the DSH regulation, and (purportedly) did so on a
nationwide basis, the previous regulation was reinstated and so only
``covered'' days can be included in the Medicare fraction. According to
these commenters, Part C days can therefore not be included in the
Medicare fraction because they are not paid for under Part A and so are
not ``covered'' days. These commenters also believe that the Secretary
ought to have discussed Empire in the proposed rule.
Response: The Supreme Court reversed the Ninth Circuit's decision
in Empire, concluding that ``individuals `entitled to [Medicare Part A]
benefits' are all those qualifying for the program, regardless of
whether they are receiving Medicare payments for part or all of a
hospital stay.'' (142 S. Ct. at 2368 (alteration in original).) Empire
did not involve the treatment of Part C days, nor did the Ninth
Circuit's analysis of its own prior precedent bear directly on that
issue, which is why the Ninth Circuit's holding was not discussed in
the August 2020 proposed rule. Regardless, and putting aside the fact
that the Ninth Circuit's decision in Empire was overturned by the
Supreme Court, any relevance of the Ninth Circuit's decision in Empire
to the Part C days issue would lie only in the Ninth Circuit's
interpretation of ``entitled to benefits under part A,'' an issue that
was addressed at length in the August 2020 proposed rule. The Secretary
has explained why Part C enrollees remain entitled to benefits under
Part A and also that, because MA plans are paid from the Part A trust
fund and use such payments to pay hospitals for Part C days, Part C
days are ``covered'' days. Accordingly, the Ninth Circuit's conclusion
that only ``covered'' or paid days are included in the Medicare
fraction would not have required the exclusion of Part C days. In any
event, the Supreme Court's holding in Empire that individuals who meet
the basic statutory criteria for Medicare Part A benefits are
``entitled to benefits under part A,'' and their patient days are
included in the Medicare fraction, has now confirmed the Secretary's
interpretation.
Comment: Some commenters stated that CMS must apply what they
assert is its pre-FY 2005 practice of excluding Part C days from the
Medicare fraction. Of these, some rely on CropLife America v. EPA, 329
F.3d 876, 879 (D.C. Cir. 2003), and Action on Smoking & Health v.
C.A.B., 713 F.2d 795, 797 (D.C. Cir. 1983), for the proposition that
when an agency's rule is vacated, the agency's previous practice is
reinstated. In Action on Smoking the Court of Appeals held that its
vacatur of the challenged portion of a rule ``had the effect of
reinstating the rules previously in force.'' In CropLife America the
Court of Appeals held that the consequence of vacatur of a rule was the
restoration of ``the agency's previous practice.'' Some of these
commenters stated that CMS must therefore exclude Part C days from the
Medicare fraction and include them in the Medicaid fraction (for
individuals also eligible for Medicaid) either based on the pre-FY 2005
regulation or based on a ``clarification'' of its regulation to reflect
the pre-FY 2005 ``policy'' for years before the effective date of the
prospective rule. Some commenters
[[Page 37783]]
stated that the Supreme Court's Allina II decision does not prevent CMS
from reverting to its prior practice because the statute requires
notice and comment only for ``rule[s], requirement[s] or other
statement[s] of policy,'' not practices. Some commenters stated that
the pre-FY 2005 practice could be reinstated without notice-and-comment
rulemaking because the practice did not impose any ``requirement'' to
which section 1871(a)(2) of the Act would apply, unlike the FY 2005
IPPS final rule that was vacated in Allina I. A commenter relied on
Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914 (D.C.
Cir. 2013), in support of their argument that, whether a prior policy
or practice is valid is irrelevant to the question of whether
retroactive rulemaking is permissible; it matters only that such policy
existed.
Response: To the extent these comments suggest that the agency must
apply an alleged pre-FY 2005 practice of excluding Part C days from the
Medicare fraction and including them in the Medicaid fraction, we
believe that approach would violate existing law. First, as discussed
in more detail previously, we believe that the statute, as construed in
Empire, does not reasonably permit the agency to treat persons enrolled
in Medicare Advantage as not ``entitled'' to benefits under Part A.
Second, to the extent that the statute, as construed in Empire, does
not itself establish the applicable substantive legal standard, then
the Supreme Court's Allina II decision requires the agency to engage in
notice-and-comment rulemaking to address whatever statutory ``gap''
might remain as to that issue. We do not agree that the agency could,
consistent with Allina II, adopt an approach on the treatment of Part C
days by relying on an alleged pre-FY 2005 practice, even if the
practice could be said to amount to a ``policy.'' If rulemaking was
required to change the Secretary's approach, as held in Allina II, then
rulemaking was also required to establish the Secretary's approach in
the first place.
Moreover, in a December 2, 2015 decision on remand in Allina I, the
Administrator determined that ``it has never been CMS policy for Part C
days to be included in the numerator of the Medicaid fraction, nor has
CMS included such days'' as a matter of practice. The Secretary's
practice prior to FY 2005 was to exclude Part C days from both the
Medicare fraction and from the numerator of the Medicaid fraction (for
individuals also eligible for Medicaid), and no approach to Part C days
was embodied in a notice-and-comment rule before the now-vacated rule.
We recognize that the D.C. Circuit in Northeast stated, in the context
of discussing retroactivity, that the agency had a pre-FY 2005
``practice'' of excluding Part C days from the Medicare fraction (657
F.3d at 17), but that case did not hold that this practice amounted to
a policy or that the agency had adopted a legal interpretation of the
statute that would require the Secretary to account for Part C days in
the manner preferred by providers. Most importantly, the D.C. Circuit
has confirmed that any such practice, however characterized, did not
amount to a notice-and-comment rule, as required to establish a gap-
filling policy under the Supreme Court's Allina II decision.
Specifically, the D.C. Circuit found that HHS has ``no promulgated
rule'' governing the treatment of Part C days for fiscal years prior to
FY 2014. (863 F.3d at 939.)
Neither CropLife nor Action on Smoking and Health were Medicare
cases and so they did not address section 1871(a)(2) of the Act. Under
the Supreme Court's opinion in Allina II, pursuant to that provision a
``substantive legal standard'' concerning the treatment of Part C days
can be established or changed only via notice and comment rulemaking,
not merely by practice. Contrary to some commenters' suggestion, there
is no valid substantive legal standard embodied in agency practice that
the agency could ``reinstate'' for years prior to the effective date of
the prospective rule, nor any ``policy'' created by adjudication or
otherwise. The prior practice did not establish any policy consistent
with section 1871(a)(2) of the Act as construed by the Supreme Court in
Allina II. No commenter identified statutory language, or language from
the Supreme Court in Allina II, that would suggest that the Secretary
could establish a substantive legal standard concerning the treatment
of Part C days simply by adopting a practice in the absence of notice-
and-comment rulemaking.
As noted, the agency's prior practice was generally to exclude the
days from both the Medicare fraction and the numerator of the Medicaid
fraction (for individuals also eligible for Medicaid). In order to
resolve the Part C days issue for pending appeals for cost years ending
before the effective date of the prospective FY 2014 IPPS final rule,
CMS must put these days in either the Medicare fraction or in the
Medicaid fraction numerator (for individuals also eligible for
Medicaid). In other words, CMS must instruct its contractors as to
where these days are to be placed for DSH calculations for pending
appeals. We do not agree that, after holding that the agency did not
follow the proper procedure in adopting a policy regarding the
treatment of Part C days after its rule was vacated, the Supreme Court
contemplated that the Secretary could simply adopt a policy by
reverting to an alleged prior practice that could not itself have
established any policy under the terms of section 1871(a)(2) of the
Act.
We also do not agree that the Secretary could finalize a rule that
``clarifies'' or ``codifies'' the regulation to reflect what some
commenters refer to as the pre-FY 2005 ``policy.'' First, we believe
that the characterization of the agency's practice of generally
excluding Part C days from the Medicare fraction as a ``policy'' is
mistaken. As already noted, and as we explained in the prospective FY
2014 IPPS final rule (78 FR 50496), as a matter of practice, the
Secretary generally excluded these days from both the Medicare fraction
and the numerator of the Medicaid fraction (for individuals also
eligible for Medicaid). In order for a regulation to reflect the
general pre-FY 2005 practice, the Secretary would have to interpret the
DSH statute to treat Part C days as both days on which beneficiaries
are ``not entitled to benefits under part A'' (and thus to be excluded
from the Medicare fraction) AND ``entitled to benefits under part A''
(and thus to be excluded from the numerator of the Medicaid fraction
(for individuals also eligible for Medicaid)). Such an interpretation
would not be a ``clarification,'' as it would interpret the phrase
``entitled to benefits under part A'' in two different ways in the same
clause of the statute and would not be in accord with Allina I, 746
F.3d at 1108, which stated that the statute ``unambiguously'' requires
Part C days to be counted in one fraction or the other because ``a Part
C-enrolled individual is either eligible for Medicare Part A, or not.''
Id. Second, as discussed further elsewhere, such a policy would be
inconsistent with what the Supreme Court has now held in Empire is the
clear meaning of ``entitled to benefits under part A'': ``meeting the
basic statutory criteria.'' (142 S. Ct. 2362.) Part C enrollees must
meet the basic statutory criteria to enroll in Part C and do not cease
to meet them through enrollment in Part C. For these reasons, we
believe it would be legally impermissible to adopt a rule that codifies
the agency's past practice.
Comment: Some commenters stated that CMS's prior practice (before
FY 2005) was to exclude Part C days from the Medicare fraction and
include them in the Medicaid fraction. Some commenters stated the D.C.
Circuit held
[[Page 37784]]
in Allina I that prior to FY 2005 the Secretary put Part C days in the
Medicaid fraction.
Response: As explained previously, in a December 2, 2015 decision
on remand in Allina I, the Administrator determined that ``it has never
been CMS policy for Part C days to be included in the numerator of the
Medicaid fraction, nor has CMS included such days'' as a matter of
practice. Part C days were thus generally excluded from both fractions,
and no regulation governed the issue before FY 2005. And in Allina I,
the D.C. Circuit did not hold that the Secretary had a policy of
putting Part C days in the Medicaid fraction, but instead stated, in
connection with the logical outgrowth challenge at issue there, that
``a party reviewing the Secretary's notice of proposed rulemaking
understandably would have assumed that the Secretary was proposing to
`clarify' a then-existing policy, i.e., one of excluding Part C days
from the Medicare fraction and including them in the Medicaid
fraction.'' (746 F.3d at 1108.) But the Court of Appeals did not say
that this was CMS's actual policy or practice.
Comment: A commenter argued that the proposed interpretation is
inconsistent with statements the Secretary made in the Federal Register
(68 FR 45419) stating that section 1886(d)(5)(F) of the Act requires
him to consider only inpatient days to which the prospective payment
system applies.
Response: The commenter mischaracterizes our statement in the
Federal Register, which was discussing our interpretation of ``patient
days'' and was unrelated to when a patient is considered entitled to
benefits under Part A.
Comment: Numerous commenters stated that higher payments to
hospitals, especially safety net hospitals, and especially during and
in light of the COVID-19 pandemic, are in the public interest, with
some commenters specifying programs they state they cannot expand
without higher DSH payments. Commenters also asserted that many
hospitals will receive less in DSH payments under the Secretary's
proposed interpretation than they would under the alternative
interpretation that Part C enrollees are not ``entitled to benefits
under part A,'' and therefore they suggested the public interest lies
in making DSH adjustments using their preferred interpretation.
Similarly, some commenters criticized the August 2020 proposed rule for
suggesting that, in the Secretary's (purported) view, the alternative
model is not in the public interest because it costs more than would
effectuating the proposed model. A commenter stated that the ``public
interest'' exception does not apply merely because the agency is
required to pay monies that it owes.
Response: We are adopting the interpretation of ``entitled to
benefits under part A'' that we believe best comports with the statute
enacted by Congress. Indeed, based on the Supreme Court's decision in
Empire, we believe our interpretation is the only reasonable
interpretation. We also do not agree it would be good public policy or
in the public interest to promulgate a retroactive rule embodying the
interpretation that beneficiaries enrolled in Part C are not entitled
to Part A. Not only would this be a change from the position CMS has
articulated consistently for many years, we believe that such an
interpretation, in many instances, would result in payments in excess
of what Congress authorized in the DSH statute and would be contrary to
the Supreme Court's holding in Empire that a beneficiary is ``entitled
to benefits under part A'' whenever he meets the statutory criteria for
entitlement.
In any event, for all the reasons articulated in the August 2020
proposed rule and reiterated in this final action, we believe the
better interpretation by far is that beneficiaries enrolled in Part C
remain ``entitled to benefits under part A.'' And the Supreme Court's
decision in Empire confirms this view, given its holding that, in the
Medicare fraction of a hospital's DSH adjustment, ``individuals
`entitled to [Medicare Part A] benefits' are all those qualifying for
the program, regardless of whether they are receiving Medicare payments
for part or all of a hospital stay.'' (142 S. Ct. at 2368 (alteration
in original).) Congress, not the Secretary, can decide whether the
resulting DSH payments are adequate, insufficient, or even too
generous. ``[T]he point of the DSH provisions is not to pay hospitals
the most money possible; it is instead to compensate hospitals for
serving a disproportionate share of low-income patients.'' (Id. at
2367.)
Comment: A commenter argued that the D.C. Circuit's decision in
Allina Health Services. v. Price, 863 F.3d 937, 939 (D.C. Cir. 2017)
forecloses retroactive rulemaking here because that case held that
section 1871(a)(4) of the Act applied and required notice and comment
before a rule can ``take effect'' when a regulatory provision is not
the logical outgrowth of a proposed rulemaking. The commenter states
that there are two possible meanings of ``take effect'' in section
1871(a)(4) of the Act, and the proposed retroactive rulemaking is
impermissible under either of them. According to the commenter, either
this final action will be impermissibly made effective earlier than the
notice-and-comment period that was required under section 1871(a)(4) of
the Act, or the action will be made effective later than the required
notice-and-comment period but will apply to cost reporting periods pre-
dating that period in violation of section 1871(e)(1)(C) of the Act,
which provides, ``No action shall be taken against a provider of
services or supplier with respect to noncompliance with such a
substantive change for items and services furnished before the
effective date of such a change.'' Relatedly, some commenters stated
that retroactive rulemaking in the face of a logical outgrowth finding
renders section 1871(a)(4) of the Act meaningless.
Response: We do not agree that the D.C. Circuit's holding in Allina
Health Services v. Price concerning section 1871(a)(4) of the Act
forecloses retroactive rulemaking here. The D.C. Circuit in Allina I
held that the FY 2005 IPPS final rule was not a logical outgrowth of
the proposed rule. Allina I, 746 F.3d at 1109. Section 1871(a)(4) of
the Act states that ``[i]f the Secretary publishes a final regulation
that includes a provision that is not a logical outgrowth, such
provision shall be treated as a proposed regulation and shall not take
effect until there is the further opportunity for public comment and a
publication of the provision again as a final regulation.'' There was
no retroactive rule challenged in Allina Health Services v. Price the
providers in that case challenged SSI ratios that included Part C days
that CMS posted after the FY 2005 IPPS final rule had been vacated.
Thus, the D.C. Circuit was considering whether section 1871(a)(2) of
the Act incorporates the APA's notice-and-comment exception for
interpretive rules. In that context, the D.C. Circuit held that even if
section 1871(a)(2) of the Act did incorporate an exception for
interpretive rules (which the Supreme Court subsequently held it does
not), section 1871(a)(4) of the Act required ``further opportunity for
public comment and a publication of the provision again as a final
regulation' before HHS could re-impose the rule.'' 863 F.3d at 945.
This final action complies with that holding as it follows a further
opportunity for public comment on a proposed rule and results in
publication of a final action. This action will not ``take effect''
until after the notice-and-comment period has closed. Section
1871(e)(1)(C) of the Act is irrelevant here because CMS is not taking
any enforcement action against
[[Page 37785]]
providers for noncompliance with the policy adopted in this retroactive
rulemaking. Instead, CMS will issue NPRs and revised NPRs, the DSH
adjustments of which will be calculated pursuant to this final action.
Finally, retroactive rulemaking after a failure of logical outgrowth
problem does not render section 1871(a)(4) of the Act meaningless both
because the retroactive rulemaking follows an opportunity for public
comment, as required, and because CMS can only exercise retroactive
rulemaking authority based on a finding that doing so ``is necessary to
comply with statutory requirements'' or that failing to do so ``would
be contrary to the public interest.'' (Section 1871(e)(1)(A) of the
Act.)
Comment: A commenter argued that promulgation of retroactive
rulemakings to remedy procedural defects in a rule ``make a mockery of
the provisions of the [Administrative Procedure Act],'' citing
Georgetown University Hospital v. Bowen, 821 F.2d 750, 758 (D.C. Cir.
1987).
Response: In Georgetown University Hospital, the D.C. Circuit noted
that the circuit had ``previously held that the effect of invalidating
an agency rule is to `reinstat[e] the rules previously in force.' ''
(Id. at 757 (alteration in original) (emphasis omitted).) Here, there
was no rule governing the treatment of Part C days ``previously in
force.'' Moreover, that 1987 case pre-dated Congress' express grant of
authority to the Secretary for retroactive rulemaking; section 1871(e)
of the Act was added by section 903 of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, Public Law 108-173, 117
Stat. 2066, 2376. To the extent Empire has not resolved the
interpretive issue, the Medicare statute would require rulemaking,
where it might not otherwise have been required under the APA, and the
Medicare statute explicitly authorizes retroactive rulemaking.
Comment: Some commenters stated the retroactivity provision was
intended to prevent HHS from generally applying rules retroactively by
``changing the rules'' and then ``punishing providers,'' or ``taking
action against'' them, and the provision specifically bars the agency
from ``reimposing'' a rule on the Part C days issue on which the
commenters assert HHS has lost three times in the Court of Appeals and
once in the Supreme Court.
Response: We agree that Congress intends that HHS not generally
apply a substantive change in regulations retroactively. Yet Congress
did authorize retroactive rulemaking in specified circumstances. HHS's
intent is not to punish providers in any way, nor do we believe this
action punishes them. This action will affect final payment
determinations for many providers with a new rulemaking that applies
retroactively, but providers have been on notice of the Secretary's
interpretation since no later than the publication of the FY 2005 IPPS
final rule. While that rule eventually was vacated on notice-and-
comment grounds in 2014, even then the D.C. Circuit prohibited the
district court from directing the agency to calculate DSH fractions by
excluding Part C days from the Medicare fraction. The Secretary has
advanced the same interpretation of the statute consistently since the
publication of the FY 2005 IPPS final rule. And that rule was
consistent with both the agency's prior rulemaking on HMO days and its
longstanding definition of ``entitled'' under the Medicare statute,
promulgated in 1983, as meaning that ``an individual meets all the
requirements for Medicare benefits'' (42 CFR 400.202). Providers,
therefore, cannot be said to have relied on a contrary interpretation
at a minimum since FY 2005. Moreover, the D.C. Circuit has never taken
issue with the Secretary's interpretation, even when it invalidated the
FY 2005 IPPS final rule on procedural grounds. The Supreme Court also
did not address the merits of the Secretary's interpretation when it
held that the Secretary could not use Medicare fractions embodying that
interpretation that were published in the absence of notice and comment
rulemaking. (139 S. Ct. at 1816-17 (notice-and-comment rulemaking is
required to change or establish an ``avowedly `gap'-filling
policy.'').) After the Supreme Court issued its Allina II decision, the
United States District Court for the District of Columbia remanded
cases presenting the Part C days issue to the agency, holding that the
court had ``no basis to direct the agency as to what the formula for
the [DSH] recalculation should be'' because ``this was the aspect of
the case left open by previous opinions.'' In Re Allina II-Type DSH
Adjustment Cases, Misc. No. 19-0190, Dkt. 74 (Jan. 19, 2021). Paying
providers in accordance with the Secretary's interpretation after
remedying the procedural problems identified by the D.C. Circuit and
the Supreme Court is consistent with those court decisions and
permitted by section 1871(e) of the Act under these circumstances. We
do not agree that paying providers consistent with our interpretation
of the statute punishes providers.
Comment: Some commenters stated the proposed retroactive rulemaking
was foreclosed by Supreme Court precedent prohibiting giving
retroactive effect to statutes burdening private rights.
Response: We disagree that hospitals have any private right to
compensation in excess of what Congress has provided for according to
the best interpretation of the DSH statute. Nor was it reasonable for
providers to expect that the Secretary would change his long-standing
consistent interpretation of the DSH statute in the absence of any
binding court ruling rejecting that interpretation on the merits.
Comment: Some commenters stated that the Medicare statute
authorizes the Secretary to ``change'' a policy retroactively, but not
to ``establish'' one, and because the Secretary concedes he did not
have a regulation in place that governed the treatment of Part C days,
he cannot establish one retroactively, relying on Bowen v. Georgetown
Hosp., 488 U.S. 204 (1988).
Response: Section 1871(e) of the Act authorizes the Secretary to
retroactively effect a ``substantive change in regulations, manual
instructions, interpretive rules, statements of policy, or guidelines
of general applicability'' when the Secretary makes one or both of
specified determinations. We believe this rulemaking effects a
``substantive change'' to the DSH regulations, which until now did not
address how to treat Part C days in the DSH calculation for discharges
prior to October 1, 2013. Bowen held that the Medicare statute's grant
of authority to provide in regulation for ``suitable retroactive
corrective adjustments,'' section 1861(v)(1)(A) of the Act, did not
provide authority for the promulgation of retroactive cost limit rules
and neither did the Secretary's general rulemaking authority. (488 U.S.
at 209.) However, Bowen pre-dates Congress' grant of retroactive
rulemaking authority at section 1871(e) of the Act that the Secretary
relies upon in this action and so its interpretation of ``suitable
retroactive corrective adjustments'' does not speak to the
interpretation of the far broader ``substantive change in regulations''
language in section 1871(e).
Comment: Some commenters stated that the August 2020 proposed rule
flouts the D.C. Circuit's decision in Northeast. In that case, a
hospital challenged the Secretary's exclusion of Part C days from the
numerator of the Medicaid fraction for FYs 1999 to 2002. The court of
appeals held that the
[[Page 37786]]
Secretary could not apply his interpretation retroactively to those
years. Commenters noted that the August 2020 proposed rule did not
mention Northeast or any of the agency's prior instructions to its
contractors acquiescing in that decision and subsequent resolution of
cases challenging application of the FY 2005 IPPS final rule to earlier
periods. Some commenters stated that Northeast controls the treatment
of Part C days for all years prior to the prospective FY 2014 IPPS
final rule. Some commenters stated that, contrary to the holding of
Northeast, the August 2020 proposed rule ``attaches new legal
consequences to hospitals' treatment of low-income patients during the
relevant time period.''
Response: In Northeast, the D.C. Circuit observed ``[i]t is well
settled that an agency may not promulgate a retroactive rule absent
express congressional authorization.'' (657 F.3d at 13.) The Secretary
had not invoked the retroactive rulemaking authority in Northeast, and
neither party brought that authority to the court's attention. That
circumstance likely explains the court's statement that it was ``aware
of no statute that authorizes the Secretary to promulgate retroactive
rules for the DSH calculations.'' (657 F.3d at 17.) Such a statute does
exist, however, and the Secretary is invoking it here. The D.C. Circuit
has held that the Medicare statute ``unambiguously requires that Part C
days be counted in one fraction or the other'' (Allina I, 746 F.3d at
1108), yet does not dictate which fraction (Northeast, 657 F.3d at 13).
And, to the extent the statute could still be said to ``leave[ ] a
`gap' for the agency to fill'' (Allina II, 139 S. Ct. at 1817) after
the Supreme Court's clarifying decision in Empire, the Secretary cannot
decide where to put the Part C days without first undertaking notice-
and-comment rulemaking (Id.). In other words, because there is no rule
governing the treatment of Part C days for discharges before October 1,
2013, if there is a statutory gap left to fill post-Empire, a rule that
governs this period would be necessary even if the Secretary were to
adopt the hospitals' preferred interpretation. In many cases, even a
rule interpreting ``entitled to benefits under part A'' to exclude Part
C days from the Medicare fraction (as most commenters would prefer)
would itself attach new legal consequences to past discharges because
the appeals were of DSH adjustments that were based on the (later-
vacated) rule that embodied the Secretary's interpretation.
Comment: Several commenters inferred from CMS's promulgation of the
FY 2014 IPPS final rule that CMS understood and impliedly conceded that
it lacked authority to implement a retroactive rule.
Response: The prospective nature of the FY 2014 IPPS final rule did
not reflect any understanding by CMS that it lacked authority to
promulgate a retroactive rule. The FY 2014 IPPS final rule appeared in
the Federal Register on August 19, 2013 (78 FR 50496), before the D.C.
Circuit affirmed the vacatur of the FY 2005 IPPS final rule in Allina I
in 2014. Furthermore, in Allina I, the D.C. Circuit reversed the
district court's decision insofar as it prohibited the Secretary from
applying his interpretation to the Allina I plaintiffs' FY 2007 DSH
adjustments on remand. The Secretary interpreted this aspect of the
D.C. Circuit's Allina I decision to mean that he could proceed to
calculate DSH adjustments for cost years predating the prospective FY
2014 IPPS final rule by interpreting the DSH statute's treatment of
Part C days in adjudications. The Administrator issued a 46-page
decision after remand in that case, concluding anew that Part C days
are to be included in the Medicare fraction. However, as discussed
previously, the agency's attempt to resolve this issue through
adjudication was rejected in Allina II, and so the Secretary must
instead proceed by rulemaking, to the extent there is a statutory gap
to fill.
Comment: Some commenters stated that the August 2020 proposed rule
is unfair to DSH hospitals because they have challenged the treatment
of Part C days for more than a decade and now CMS is, in their view,
attempting to circumvent the results of that litigation and reduce
payments they believe are rightfully due to the hospitals. Similarly,
many commenters expressed the opinion that it is unfair to hospitals to
attempt to remedy notice and comment problems so many years after the
D.C. Circuit vacated the rule; some commenters expressed that hospitals
have counted on receiving additional money in DSH adjustments that
would result from excluding Part C days from the Medicare fraction.
Response: Hospitals have pursued procedural challenges to the FY
2005 IPPS final rule, however, that rule was not vacated on logical
outgrowth grounds until 2014. This action implements the subsequent
directive of the Supreme Court that the Secretary establish or change a
substantive legal standard concerning the treatment of Part C days only
by rulemaking, if there is still a statutory gap to fill, and thus we
do not agree that it is unfair for HHS to propose and finalize such a
rule. We do not agree that it was reasonable for hospitals to have
counted on additional reimbursement as a result of the Allina
litigation since neither the D.C. Circuit nor the Supreme Court
addressed the merits of our interpretation of ``entitled to benefits
under part A'', and the Secretary has consistently articulated the same
interpretation for nearly twenty years. Nor do we agree that the
Secretary's interpretation reduces payments that are due to hospitals.
The Secretary believes this final action embodies the correct
interpretation of the Medicare statute and that the alternative
interpretation, that beneficiaries enrolled in Part C are not entitled
to benefits under Medicare Part A, would, in many cases, result in
payments in excess of what Congress intended.
Comment: Some commenters who disagreed that retroactive rulemaking
is required here stated that if CMS nonetheless concludes that
retroactive rulemaking is required, it should propose to adopt its
prior practice of excluding Part C days from the Medicare fraction. A
commenter stated that adoption of the August 2020 proposed rule is
impermissibly retroactive, but CMS could instead simply ``codify'' the
agency's prior agency practice and such rule would not be retroactive
because, unlike the proposed interpretation, the alternative
interpretation would (purportedly) not attach new legal consequences to
events completed before its enactment.
Response: In order to exclude Part C days from the Medicare
fraction, the Secretary would have to construe ``entitled to benefits
under part A'' in the Act as excluding Part C days, and construe ``not
entitled to benefits under part A'' as including these days. The
Secretary has never so interpreted the Act. As explained previously, we
believe the correct interpretation of the statute is that beneficiaries
enrolled in Part C remain entitled to Part A and that the commenters'
proposed interpretation would require ``entitled to benefits under part
A'' to mean something different in the DSH statute than it does in
other parts of the Medicare statue. The Supreme Court in Empire has
foreclosed the commenters' interpretation. Even setting aside that the
general prior practice was to exclude Part C days from both the
Medicare fraction and the numerator of the Medicaid fraction, we do not
agree that a rule that codified such a practice would not also be
retroactive. Section 1871(a)(2) of the Act contemplates that policies
are ``establishe[d] or change[d]'' only by notice and comment
rulemaking. As acknowledged by the
[[Page 37787]]
D.C. Circuit in Northeast, no rule addressed the treatment of Part C
days before the FY 2005 IPPS final rule, and, of course, that rule was
then vacated.
Comment: Some commenters stated that other instances of retroactive
rulemaking by CMS are distinguishable from this instance.
Response: The citation to other instances of retroactive rulemaking
in the August 2020 proposed rule was intended to illustrate that
retroactive rulemaking is not unprecedented, not because the same legal
arguments justify each instance of retroactive rulemaking.
Comment: A commenter stated that CMS should finalize a policy of
excluding Part C days from the Medicare fraction and including those
days for individuals also eligible for Medicaid in the numerator of the
Medicaid fraction and could lawfully do so because CMS gave the public
an opportunity to comment on that proposal in the FY 2004 IPPS proposed
rule.
Response: The Secretary believes the correct interpretation of the
statute is that Part C enrollees remain entitled to benefits under Part
A and for that reason will not finalize a policy of excluding such days
from the Medicare fraction. Moreover, the Supreme Court's decision in
Empire forecloses a policy of excluding Part C days from the Medicare
fraction and including those days for individuals also eligible for
Medicaid in the numerator of the Medicaid fraction.\16\ In any event,
there has been notice of and an opportunity to comment in advance on
the interpretation adopted in this final action. Thus, even if the
statute itself does not give rise to the substantive legal standard
adopted here, thereby necessitating reliance on retroactive rulemaking
authority, the public has now had an opportunity to comment on the
proper interpretation of the statute, and we have considered all
comments to the August 2020 proposed rule that were timely submitted as
part of the development of this final action.
---------------------------------------------------------------------------
\16\ 142 S. Ct. at 2362 (``The text and context support the
agency's reading: HHS has interpreted the words in those provisions
to mean just what they mean throughout the Medicare statute.'').
---------------------------------------------------------------------------
Comment: A commenter stated that because there was no valid
regulation governing the treatment of Part C days between FY 2005 and
FY 2014, there is a legitimate legal question of what policy governs
their proper treatment, and this question should be determined by the
courts in light of facts and circumstances that existed during those
years. The commenter stated that CMS's proposed rule would usurp the
authority of the courts.
Response: We agree that no valid regulation governs the treatment
of Part C days between FY 2005 and FY 2014, and even before FY 2005.
But CMS's interpretation of the proper treatment of Part C days has
been consistent since FY 2005. The D.C. Circuit in Allina I held the
lower court erred by directing the Secretary to include Part C days in
the numerator of the Medicaid fraction, recognizing that it was an open
question whether CMS could apply its interpretation retroactively
through adjudication. And then the Supreme Court in Allina II concluded
that the Secretary could only apply any gap-filling interpretation
through rulemaking. Therefore, the courts have used their authority to
judge the Secretary's acts, and there will be an opportunity for
providers to exhaust administrative remedies and seek judicial review
of the interpretation embodied in this final action, and so the role of
the courts is preserved.
Comment: Some commenters stated that in 2012 (after the Northeast
decision), Medicare contractors were instructed to include Part C days
for dual-eligibles in the Medicaid fraction numerator for discharges on
or after January 1, 1999, and before October 1, 2004. Along the same
lines, some commenters noted that Medicare contractors have finalized
some cost reports that were remanded under CMS Ruling 1498-R of appeals
specific to the Baystate case (which concerned the SSI data used by CMS
in calculating the Medicare fraction) with Part C days for dually
eligible beneficiaries included in the Medicaid fraction numerator,
while other cost reports that are the subject of appeals remanded under
1498-R will be finalized, pursuant to this final action, with Part C
days included in the Medicare fraction instead. A commenter questioned
what will happen for cost reports that have Part C days in the Medicaid
fraction numerator but are still subject to remand or realignment where
the Medicare fraction will be revised. And similarly, a commenter
stated that there will be cost reports where Part C days for discharges
before October 1, 2004, were already included in the Medicaid fraction
but will now be finalized with these days included in the Medicare
fraction. A commenter requested that the Secretary make a distinction
between discharges occurring prior to October 1, 2004, and later
discharges to avoid what the commenter sees as arbitrary treatment
depending on when remands or resolutions are completed and to avoid
counting Part C days in both fractions.
Response: We appreciate the commenters' concern with treating all
hospitals fairly. We do not agree that it is arbitrary or capricious to
treat hospitals' Part C days differently on the basis of the timing of
their appeals vis-[agrave]-vis Supreme Court and lower court decisions.
The instructions to contractors that issued after the Northeast
decision cannot control over the holding of the Supreme Court in Allina
II. It is also not unusual for cost reports to be finalized differently
from one another with respect to a legal issue depending on the outcome
of litigation raising that issue and the status of a hospital's appeal
at the time of a final non-appealable decision. Providers will also be
able to request to have their Medicare fraction realigned to be based
on their individual cost reporting periods rather than the Federal
fiscal year, in accordance with the normal rules. Providers who remain
dissatisfied after receiving NPRs and revised NPRs that reflect the
interpretation adopted in this final action retain appeals rights and
can challenge the reasonableness of the Secretary's interpretation set
forth in this final action.
Comment: A commenter sought clarification concerning whether this
action applies to pre-2000 discharges of patients enrolled in managed
care organizations, such as health maintenance organizations (HMOs), or
only to patients enrolled in Part C plans (first known as Medicare +
Choice and later as Medicare Advantage plans). The commenter stated
that the action should not be applied to pre-2000 patient discharges
for days attributable to patients enrolled in Medicare HMOs authorized
under section 1876 of the Act. The commenter stated that the
application of this action to pre-2000 days would be inconsistent with
Baptist Medical Center v. Burwell, 2019 WL 978957 (D.D.C. Feb. 29,
2019).
Response: The treatment of patients entitled to benefits under Part
A and enrolled in an HMO authorized under section 1876 of the Act is
outside of the scope of this rulemaking, which applies to discharges of
patients enrolled in Part C prior to FY 2014. We note, however, that
section 1876 of the Act repeatedly refers to beneficiaries who are
``entitled to benefits under part A,'' and as stated throughout this
final action preamble, the statute unambiguously requires the inclusion
in the Medicare fraction of patients entitled to benefits under Part A.
Comment: Some commenters stated that the August 2020 proposed rule
would renege on the statements included in reopening notices issued
between 2013 and 2015 that the CMS would adjust DSH calculations in the
[[Page 37788]]
event of an unfavorable final, non-appealable decision in Allina I.
Response: Between 2013 and 2015 the Secretary did not yet know that
neither Allina I nor Allina Health Services v. Burwell, 201 F. Supp. 3d
94 (D.D.C. 2016) (the district court case that became Allina II) would
not lead to a final, non-appealable decision on the merits of his
interpretation of ``entitled to benefits under part A'' to include Part
C days. In 2016, the district court upheld the Secretary's
interpretation in Allina Health Services v. Burwell but neither the
D.C. Circuit nor the Supreme Court reached the merits of that
interpretation.
Once this final action is effective, the Secretary will commence
issuing NPRs and revised NPRs pursuant to the action, including for
those NPRs previously held open.
Comment: Some commenters stated that the action, if it finalizes
the policy proposed, will deprive hospitals with pending appeals of the
Part C days issue of their right to be heard in court. Some commenters
characterized a final action that embodies the proposed interpretation
as a ``non-action'' of the Secretary and questioned how hospitals will
appeal the alleged ``non-action'' of the Secretary, if a hospital's DSH
payments calculated under the new action do not change.
Response: Providers with pending appeals subject to this action
challenge DSH payments that were based on Medicare fractions that were
issued in the absence of a valid rule addressing the Part C days issue
(or, providers brought appeals to the Provider Reimbursement Review
Board based on untimely NPRs and challenge Medicare fractions issued in
the absence of a valid rule). The Secretary has already acquiesced in
the Supreme Court's Allina II holding that if the statute itself does
not dictate the substantive legal standard, then such fractions could
not be lawfully issued without rulemaking. Providers who have pending
appeals reflecting fractions calculated in the absence of a valid rule
will receive NPRs or revised NPRs reflecting DSH fractions calculated
pursuant to this new final action and will have appeal rights with
respect to the treatment of Part C days in the calculation of the DSH
fractions contained in the NPRs or revised NPRs. Providers whose
appeals of the Part C days issue have been remanded to the Secretary
will likewise receive NPRs or revised NPRs reflecting fractions
calculated pursuant to this new final action, with attendant appeal
rights. Because NPRs and revised NPRs will reflect the application of a
new DSH Part C days rule, CMS will have taken action under the new
action, and the new or revised NPRs will provide hospitals with a
vehicle to appeal the new final action even if the Medicare fraction or
DSH payment does not change numerically.
Comment: Some commenters stated that the August 2020 proposed rule
is unfair because it did not mention CMS Ruling 1739-R (hereinafter
referred to as ``the Ruling''), that the Ruling demonstrates that the
outcome of the rulemaking was pre-ordained, and that the Ruling would
deprive providers of appeal rights. Some commenters recommended that
the final action state that the hospitals may ``reinstate'' any appeals
remanded under the Ruling within a year after the issuance of the final
action. Some commenters stated that it is unfair that the Ruling
permits CMS to ``reopen'' properly appealed cost reports to apply this
final action, but does not permit providers to cite this action as a
basis for reopening closed cost reports.
Response: The Ruling is outside the scope of this action, but we
will respond to the concern about appeal rights. The commenters
misperceive the purpose and intended effect of the Ruling. The Ruling
was not intended to cut off appeal rights and will not operate to do
so. It was intended to promote judicial economy by announcing HHS's
response to the Supreme Court's decision in Allina II. After the
Supreme Court made clear that CMS could not resolve the avowedly gap-
filling issue of whether Part C enrollees are or are not ``entitled to
benefits under part A'' for years before FY 2014 without rulemaking,
HHS issued the Ruling so that providers would not need to continue
litigating over DPP fractions that were issued in the absence of a
valid rule. In other words, the point of the Ruling was to avoid
wasting judicial, provider, and agency resources on cases in which the
Secretary agreed that, after the Supreme Court's decision in Allina II,
he could not defend such appeals of fractions issued in the absence of
a valid regulation.
Because rulemaking would be necessary to the extent there remains a
statutory gap to fill after Empire, and irrespective of what
interpretation CMS were to adopt, the Ruling does not demonstrate that
the outcome of any rulemaking was foreordained. CMS's intention was
(and is) to issue new and revised NPRs consistent with this final
action, in order to implement the statute and respond to the Supreme
Court's decision in Allina II. When the Secretary's treatment of Part C
days in this final action is reflected in NPRs and revised NPRs,
providers, including providers whose appeals were remanded under the
Ruling, will be able to challenge the agency's interpretation by
appealing those NPRs and revised NPRs. While some providers have
already received reopening notices and had their NPRs held open for
resolution of the Part C days issue, the issuance of new NPRs and
revised NPRs pursuant to remands under the Ruling are not reopenings.
Comment: Some commenters stated that in his petition for certiorari
in Allina II, the Secretary said that a loss would result in
significant costs, so the Secretary presumed he would have to pay these
sums to providers if he lost that case.
Response: The Secretary's petition stated that ``the particular
issue in this case concerning the proper interpretation of the
Medicare-fraction statute alone implicates between $3 and $4 billion in
reimbursement for FY2005 through FY2013.'' The Secretary's
acknowledgement that the underlying merits issue implicated significant
costs to the Medicare program neither stated nor implied that an
adverse Supreme Court decision that did not touch on the merits of his
interpretation would lead him to pay providers according to their
preferred interpretation.
Comment: A commenter speculated that some hospitals may have made
financial decisions, such as taking out debt through notes or bonds, or
taking on construction projects, on the basis of their expectation
that, after the Supreme Court's decision in Allina II, additional DSH
funds would be forthcoming. This same commenter noted that the
Secretary's November 15, 2019 motion to voluntarily remand the
consolidated cases presenting the Allina issue in In Re Allina II-Type
DSH Adjustment Cases, Misc. No. 19-0190 (D.D.C.), stated that voluntary
remand would give the providers that had appeals pending before the
district court the ``functional equivalent of a victory on the merits
without any need to litigate the matter''; this commenter interpreted
this statement to mean that CMS was intending to pay additional DSH
funds after recalculating Medicare fractions to exclude Part C days.
Response: No hospital commented that it had made financial
decisions in reliance on the expectation of additional payment after
the Supreme Court's decision, based on the expected exclusion of Part C
days from the Medicare fraction for years with open appeals. Nor would
such reliance have been reasonable, as the reasonableness of the
Secretary's interpretation was not the issue before the Supreme Court
in Allina II, nor did it opine on this issue.
[[Page 37789]]
The Secretary's statement in district court that a remand was the
functional equivalent of a victory for plaintiff hospitals did not
imply that the Secretary intended to pay plaintiffs according to their
preferred interpretation of the DSH statute. The Secretary's November
15, 2019 motion to voluntarily remand the consolidated cases that
presented the Allina issue stated accurately that a remand would give
the plaintiff hospitals all they could achieve in a victory in their
challenge to the procedural defects of the Secretary's calculation of
Medicare fractions in the absence of a validly promulgated rule:
namely, a remand for further proceedings consistent with the Supreme
Court's decision. In other words, there was no need to litigate the
issue of whether notice-and-comment rulemaking was necessary for
deciding the treatment of Part C days because the cases were all
controlled by the Supreme Court's decision in Allina II. Moreover, the
Secretary disclosed in his November 15, 2019 motion to dismiss that he
was contemplating retroactive rulemaking. And, as noted, the Supreme
Court had not addressed the reasonableness of the Secretary's
interpretation of the DSH statute, and Allina II pre-dated Empire
wherein the Court agreed with the Secretary's interpretation of what it
means to be ``entitled to benefits under part A'' of the Act.
Comment: Some commenters, relying on the Ninth Circuit's Empire
decision, stated that the Secretary's interpretation of ``entitled to
benefits under part A'' impermissibly treats ``entitled'' and
``eligible'' as synonymous. According to these commenters,
beneficiaries are ``entitled'' to Part A benefits only on covered days
but are eligible for Medicaid on days for which Medicaid does not pay.
Therefore, these commenters conclude, the Secretary errs in treating a
day for which Medicare Part A does not pay as a day for which that
patient is entitled to benefits under Part A.
Response: Whether exhausted benefit days and Medicare Secondary Pay
days attributable to Medicare beneficiaries should be included in the
Medicare fraction even though Medicare has not paid for them is beyond
the scope of this action and has been resolved by the Supreme Court in
Empire. As the Secretary explained in his briefing in that case,
Congress's use in the Medicare and Medicaid fractions of ``entitled''
and ``eligible'' in referring to the Medicare and Medicaid programs,
respectively, merely reflects Congress's usage of different terminology
in the underlying Medicare and Medicaid statutes. (Northeast, 657 F.3d
at 12.) The Supreme Court agreed with this reading of the statute.
(Empire, 142 S. Ct. at 2363 n.3.) Moreover, as noted previously, CMS
has always considered Part C days to be covered days.
Comment: Some commenters stated that CMS is mistaken that the
Supreme Court's holding in Allina II requires notice-and-comment
rulemaking to resolve fiscal years before the FY 2014 final rule became
effective. They state that the Court held only that ``the rule'' before
it was invalid because it did not go through notice-and-comment
rulemaking. They further assert that because the D.C. Circuit in Allina
I held that CMS could resolve the treatment of Part C days in the DSH
fraction by adjudication, and CMS agreed with this in its briefing in
Allina II, CMS could now proceed by adjudication, and retroactive
rulemaking is therefore not required.
Response: We disagree that there was a rule at issue in Allina II.
Rather, plaintiffs in that case challenged the publication of Medicare
fractions on CMS's website, fractions that CMS had expected could be
used in DSH calculations, then appealed and, under Allina I, resolved
by adjudication. However, the Supreme Court in Allina II held that
publishing of the Medicare fractions was ``at least a `statement of
policy' because it `le[t] the public know [the agency's] current . . .
adjudicatory approach' to a critical question involved in calculating
payments for thousands of hospitals nationwide.'' (139 S. Ct. at 1810
(alterations in original).) The Court held that, because that policy
established an avowedly gap-filling substantive legal standard, the
Medicare statute required notice-and-comment rulemaking.
The Secretary does not see an adjudicatory approach to the
treatment of Part C days that would be consistent with the Supreme
Court's holding in Allina II (at least to the extent that a statutory
gap remains after Empire). Medicare fractions necessarily include or
exclude Part C days. Whether Part C enrollees are ``entitled to
benefits under part A,'' or are not so entitled, is a legal question
that does not turn on facts unique to any particular hospital. Thus, to
resolve this issue by adjudication, hospitals would appeal fractions
that, just as in Allina II, would necessarily already reflect a policy
establishing the substantive legal standard of which DPP fraction
includes Part C days and would end in final agency decisions that
reflect the same policy in each case.
Comment: Some commenters stated that their Medicare Administrative
Contractors (MACs) are still issuing NPRs applying the vacated policy;
thus, they opine, the Secretary is being disingenuous in claiming that
retroactive rulemaking is necessary to calculate fractions. Similarly,
some commenters stated that because CMS issued fractions before FY 2005
without a regulation governing the treatment of Part C days, CMS knows
that it can calculate fractions in the absence of a rule.
Response: After the Supreme Court's decision in Allina II, in April
2020 the Secretary instructed MACs to stop issuing NPRs calculating DSH
fractions until promulgation of a new final rulemaking. That some
contractors issued NPRs before this instruction or contrary to the
instruction does not demonstrate that the Secretary is being
disingenuous. Where providers have challenged the treatment of Part C
days in NPRs prior to this final action, the Secretary has sought to
have these cases remanded for recalculation under the final action.
While it is operationally possible to calculate DSH fractions in the
absence of a new rulemaking, any such fractions must necessarily treat
Part C enrollees as entitled to benefits under Part A or as not-so
entitled. After the Supreme Court's ruling in Allina II, establishing
or changing a policy concerning Part C days in the absence of
rulemaking is impermissible, to the extent there is a gap to fill in
the statute. Whether calculating DSH fractions is feasible as a
practical matter and whether such calculations are legally permissible
(either procedurally or as a matter of interpretation) are distinct
questions.
Comment: Some commenters stated that CMS did not collect
information about Part C days from non-teaching hospitals prior to
October 1, 2006, and therefore cannot ``enforce'' the August 2020
proposed rule as written; some of these commenters refer to Transmittal
1311 issued July 29, 2007, which instructed providers to submit ``no-
pay'' claims for Medicare Advantage days because Medicare Advantage
plans would no longer be required to submit ``encounter days'' for
inclusion in the Medicare Provider and Analysis Review (MedPAR) file.
Some of these comments argue that because Transmittal 1311 was not
itself promulgated by regulation it is invalid under the Supreme
Court's decision in Allina II. Some commenters described various change
requests relating to data for Part C days that CMS issued to hospitals
over the years and speculated as to the significance of the timing of
those requests. Some stated that, because CMS has different data for
teaching hospitals than non-teaching hospitals it will necessarily
apply
[[Page 37790]]
different ``methodologies'' to these different types of hospitals
(teaching hospitals and other hospitals), whereas the statute does not
provide for different treatment. A commenter suggested that CMS should
choose a method of treating Part C days for which the Part C data is
available for all hospitals for all discharges before the FY 2014 IPPS
final rule became effective on October 1, 2013; this commenter stated
that this would mean excluding Part C days from the Medicare fraction
and including them (for individuals also eligible for Medicaid) in the
Medicaid fraction numerator. A commenter stated that it would be
arbitrary and capricious and contrary to the public interest for CMS to
apply the August 2020 proposed rule to all hospitals for all discharges
prior to October 1, 2013, when it does not have necessary data to
include Part C days for all hospitals, and some hospitals will lack the
ability to supply this data.
Response: Transmittal 1311 is outside the scope of this action. At
least some of these commenters appear to believe, mistakenly, that CMS
will require hospitals to submit information about their Part C days
for periods prior to October 1, 2006. This action concerns the
Secretary's interpretation of ``entitled to benefits under part A'' as
it relates to the treatment of Part C days. That interpretation is
logically distinct from any operational issues with whether or not CMS
is able to include all such days in the Medicare fraction for any given
hospital. We do not agree that if Part C days are not included in a
hospital's Medicare fraction because CMS and the hospital do not have
the necessary data that this means that CMS is applying a different
methodology to that hospital than it applies to a hospital for which it
does have such data. Nor do we agree that the Secretary's
interpretation of the statute should be determined by what data is
readily available for all or most hospitals.
After considering the comments received, we are finalizing our
proposal that a patient enrolled in an MA plan remains entitled to
benefits under Medicare Part A and will be counted in the Medicare
fraction of the DPP and not counted in the numerator of the Medicaid
fraction.
III. Collection of Information Requirements
This document does not impose information collection requirements,
that is, reporting, recordkeeping, or third-party disclosure
requirements. Consequently, there is no need for review by the Office
of Management and Budget under the authority of the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.).
IV. Regulatory Impact Analysis
A. Statement of Need
This final action is necessary to create a policy governing the
treatment of days associated with beneficiaries enrolled in Medicare
Part C for discharges occurring prior to October 1, 2013, for the
purposes of determining additional Medicare payments to subsection (d)
hospitals under section 1886(d)(5)(F) of the Act.
B. Overall Impact
We have examined the impact of this action as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993) as
amended by Executive Order 14094 (April 6, 2023), Executive Order 13563
on Improving Regulation and Regulatory Review (January 18, 2011), the
Regulatory Flexibility Act (RFA) (5 U.S.C. 603), section 1102(b) of the
Act, section 202 of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1532), Executive Order 13132 on Federalism (August 4, 1999), and the
Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Section
3(f) of Executive Order 12866, as amended recently by Executive Order
14094, defines a ``significant regulatory action'' as an action that is
likely to result in a rule: (1) having an annual effect on the economy
of $200 million or more in any 1 year, or adversely and materially
affecting a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, territorial, or
tribal governments or communities; (2) creating a serious inconsistency
or otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impact of entitlements,
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or (4) raising legal or policy issues for which
centralized review would meaningfully further the President's
priorities or the principles set forth in Executive Order 12866.
The discussion accompanying our proposal along with this Regulatory
Impact Analysis (RIA) demonstrate that this final action has been
analyzed consistent with the regulatory philosophy and principles
identified in Executive Orders 12866 and 13563, the RFA, and section
1102(b) of the Act. We note that Medicare DSH payments affect a
substantial number of small rural hospitals, as well as other classes
of hospitals, and the effect of Medicare DSH payments on some hospitals
is significant.
An RIA must be prepared for major rules that are subject to Section
3(f)(1) of Executive Order 12866 (effect on economy of $200 million or
more in any 1 year). This action is subject to Section 3(f)(1) of
Executive Order 12866 and also meets the definition in 5 U.S.C. 804(2)
(Congressional Review Act). Accordingly, we have prepared an RIA that
to the best of our ability presents the costs and benefits of the
action.
C. Detailed Economic Analysis
In the August 2020 proposed rule (85 FR 47726), we explained that
DSH payments made under our proposed policy, which we are finalizing
here, would not differ from hospitals' historical DSH payments. We also
stated that Medicare DSH payments have already been made under the
policy reflected in the proposal (prior to the previous rule which
governed the treatment of these days having been vacated by the Court
of Appeals, which was affirmed by the Supreme Court's decision).
Therefore, the effect of the August 2020 proposed rule being finalized
here would be to avoid the consequences of legal ambiguity created by
the absence of any properly promulgated regulation that would otherwise
continue into the future; the resulting costs, benefits, and transfer
impacts are thus highly uncertain. In other words, given that there is
currently no regulation governing the treatment of Part C days for the
period before FY 2014, it is not clear what to compare an estimate of
DSH payments under the policy we are finalizing in order to determine
the effect of this policy on DSH payments during that time period.
In the August 2020 proposed rule (85 FR 47726 through 47727), we
stated that there are multiple possible trajectories whereby agency
actions could be made consistent with the Supreme Court's ruling
requiring notice-and-comment rulemaking. The proposed (and now final)
policy provides one such trajectory, and we stated that DSH payments
made under the proposed policy would not differ from hospitals'
historical DSH payments; as such, this comparison between DSH payments
under our proposed policy and hospitals' historical DSH payments
[[Page 37791]]
quantifies one point within the relevant uncertainty range of potential
costs, benefits, and transfer impacts. In order to explore another
possible trajectory (and thus to quantify an additional point within
the relevant uncertainty range), we also discussed our consideration of
an alternative approach that excluded days associated with patients
enrolled in Medicare Part C from the calculation of the Medicare
fraction and included them in the numerator of the Medicaid fraction
(for those patients who are dually eligible). In addition, we explained
that we were not proposing such a policy because we continue to
believe, as we stated in the preamble to the FY 2014 IPPS final rule
(78 FR 50614 and 50615) and have consistently expressed since the
issuance of the FY 2005 IPPS final rule, that individuals enrolled in
MA plans are ``entitled to benefits under part A'' as the phrase is
used in the DSH provisions at section 1886(d)(5)(F)(vi) of the Act.
However, in conjunction with the August 2020 proposed rule, we created
a public use data file in order to facilitate public comment and
analysis of our proposal and the alternative approach. This file was
made available in the Downloads section of the Disproportionate Share
Hospital web page on the CMS website: <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh</a>. The file
contained an illustrative model at the hospital level of the potential
effect on the DSH adjustment of excluding days associated with patients
enrolled in Medicare Part C from the Medicare fraction and including
them in the numerator of the Medicaid fraction (for those patients who
are dually eligible).
Based on this illustrative model, in the August 2020 proposed rule
we stated that under the alternative approach, most hospitals' Medicare
DSH payments would increase relative to their historical Medicare DSH
payments; however, some hospitals' Medicare DSH payments would decrease
or not change. As discussed in the proposed rule (87 FR 47727), in
aggregate, the modelled Medicare DSH payments under the alternative
approach would increase by 6 percent relative to the historical
Medicare DSH payments, which for the hospitals represented in the model
meant approximately a net $0.6 billion annualized increase for their
longest cost reporting period ending between January 1, 2013, and
December 31, 2013. In that same proposed rule, we stated that these
estimates were for illustrative purposes and involved modelling
assumptions (for example, use of a proxy for the Medicaid days
associated with patients enrolled in Medicare Part C, as described
previously), which may differ from actual calculations that would be
done during cost report review and settlement processes by contractors
if such a policy were adopted. These expenditures (or, as regards
payments already made for past years, the avoidance of potentially
necessary reimbursements from providers to the Trust Fund) would be
classified as transfers to Medicare providers. In addition, we sought
comments on this illustrative model of the alternative approach and the
assumptions used in this analysis. For additional details on the
illustrative model, we refer readers to the August 2020 proposed rule
(85 FR 47726 through 47727).
Comment: We received many comments about the financial impact of
the August 2020 proposed rule and the modeling of the alternative
approach. Many commenters stated that the August 2020 proposed rule did
not attempt to address what the loss in DSH payments associated with
the agency's retroactive proposal would mean to safety net hospitals.
Several commenters estimated that for 2004 to 2013 there would be a
multibillion dollar difference under the proposed policy compared to
the alternative approach.
Many commenters stated that the alternative approach underestimated
the impact on hospitals. Many of these commenters used their own data
to argue that the estimated impact of the proposed rule was higher than
the amount reflected under the alternative approach. Some commenters
stated that CMS's calculations under the alternative approach using the
illustrative model (that is, removing Part C days from the Medicare
fraction and including in the Medicaid fraction days associated with
patients enrolled in Medicare Part C who were also eligible for SSI as
a proxy for counting Medicaid eligible days) are ``suspect'' due to
issues with the CMS's data file, such as the exclusion of Medicaid
patients. These commenters suggested that CMS should have validated
data by requesting from providers the patient eligibility information.
Some commenters disagreed with the August 2020 proposed rule's
description of the summary of costs and benefits described as ``highly
uncertain'' because the commenters stated CMS has actual hospital data
for October 1, 2005, through September 30, 2013, and they believe that
data should have been used by CMS to calculate ``more accurate''
estimates, at least for discharges after September 30, 2005, instead of
using a proxy as CMS did with its alternative model of using days
associated with patients enrolled in Medicare Part C who were also
eligible for SSI benefits as a proxy to count Medicaid days for FY
2013. Commenters stated that over the years CMS has been inconsistent
in its estimates of the financial impact of including Part C days in
the Medicare fraction and excluding them from the numerator of the
Medicaid fraction. Some commenters stated that CMS ought to have sought
patient details concerning Part C days from its contractors to account
in its alternative calculations for Part C beneficiaries who are
eligible for Medicaid but who do not receive SSI benefits. In addition,
some commenters stated that CMS's modeling of the alternative approach
failed to account for the impact on capital DSH payments, and another
commenter indicated that the model did not include hospitals that do
not currently qualify for DSH payments, but would qualify for DSH under
the alternative approach.
Some commenters faulted CMS's proxy modeling assumption because it
did not account for beneficiaries enrolled in Part C who receive SSI
but who are not eligible for Medicaid. Specifically, commenters
expressed that CMS's estimates exclude the very large number of
Medicaid patients who are not receiving SSI benefits, thereby
understating the effect of the issue on the Medicaid fraction. In
addition, some commenters stated that it was unreasonable for CMS to
use only 2013 data or any proxy at all, and that providers did not have
the information about financial impact they needed to comment
meaningfully.
Response: We thank the commenters for their input. Regarding the
comments on the financial impact of the proposal, we stated in the
August 2020 proposed rule that the DSH payments under the proposed
policy will not differ from historical payments for years after FY 2005
for most hospitals because CMS has made payments under the same
interpretation, an interpretation which has never been substantively
struck down. Many commenters compared the difference in the estimated
DSH payments between the proposal and alternative approach using the
hospitals' own estimates. Commenters' ability to do so overwhelmingly
shows that many commenters were able to meaningfully engage with the
August 2020 proposed rule's policy proposal and alternative approach
model.
There has been more than a decade of litigation over the treatment
of Part C days in DSH calculations, and it is widely understood by DSH
hospitals,
[[Page 37792]]
and the Secretary has acknowledged, that the financial impact of the
Secretary's interpretation of ``entitled to benefits under part A'' to
include Part C days in the Medicare fraction as compared with excluding
them, is significant. While hospitals may argue whether the Secretary
has over- or under-stated that number in the proxy described in the
August 2020 proposed rule's alternative approach, by the time the
August 2020 proposed rule was published hospitals had years of
experience of the financial impact of the Secretary's interpretation,
as the Secretary has been applying his policy to DSH adjustments for
years.\17\
---------------------------------------------------------------------------
\17\ FY 2013 IPPS/LTCH PPS final rule (78 FR 50614) (explaining
that the policy was adopted in 2004 and CMS regulations were amended
in 2007); id. at 50620 (noting explicit instructions in 2007 and
2009 that hospitals submit information for Part C patients after the
agency discovered that hospitals were not submitting the necessary
information).
---------------------------------------------------------------------------
Regarding the commenters who stated CMS should have used
alternative data sources and/or hospitals' patient level data and/or
different assumptions for the illustrative model of the alternative
approach, in the August 2020 proposed rule we stated that these
estimates are for illustrative purposes and involve modelling
assumptions (for example, use of a proxy for the Medicaid days
associated with patients enrolled in Medicare Part C, as described
previously) which may differ from actual calculations that would be
done during cost report review and settlement processes by contractors
if such a policy were adopted (85 FR 47727). In other words, the proxy
assumption and alternative approach model were intended to approximate
the potential impact of the proposed interpretation and facilitate
comment, rather than to reflect actual payment calculations.
We note that, under the Administrative Procedure Act, a proposed
rule is required to include either the terms or substance of the
proposal or a description of the subjects and issues involved. We
disagree with the commenters' assertion the August 2020 proposed rule
did not provide an opportunity to meaningfully comment on the financial
impact of the proposed policy. The August 2020 proposed rule did
include a detailed discussion of our proposed policy and alternative
approach to facilitate comments. Furthermore, as discussed, many
commenters were able to meaningfully engage with the policy proposal
and alternative approach, as evidenced by the analyses they provided in
their comments, including comparisons of the difference in estimated
DSH payments between the proposal and alternative approach using
hospitals' own estimates. Accordingly, we believe interested parties
were able to meaningfully comment on our proposed policy and the
alternative approach.
In addition, the financial impact of the interpretation of
``entitled to benefits under part A'' is not legally relevant to the
substance of CMS's interpretation of that statutory clause in relation
to the treatment of Part C days in the DPP calculation. Whether that
clause is best interpreted to include Part C days has never turned on
the financial impact of that interpretation in comparison with the
impact of treating Part C enrollees as not entitled to benefits under
Part A. That many hospitals would enjoy higher DSH payments if CMS
adopted the interpretation that Part C enrollees are not ``entitled to
benefits under part A'' does not show that Congress would have agreed
with that interpretation.\18\ Information from CMS contractors about
Part C enrollees dually eligible for Medicaid would not resolve the
interpretive question of whether Part C enrollees are or are not
``entitled to benefits under part A.''
---------------------------------------------------------------------------
\18\ See Empire, 142 S. Ct. at 2367 (``[T]he point of the DSH
provisions is not to pay hospitals the most money possible; it is
instead to compensate hospitals for serving a disproportionate share
of low-income patients.'').
---------------------------------------------------------------------------
Comment: A commenter stated that the August 2020 proposed rule
would disproportionately affect rural hospitals because such hospitals
are struggling more than urban hospitals due to the COVID-19 pandemic.
The commenter considers the statement in the August 2020 proposed rule
that there would not be additional costs or benefits for small rural
hospitals to be arbitrary and capricious because, in the commenter's
view, the DSH payments received by these hospitals were improperly
calculated for these and other hospitals under a vacated rule.
Response: In the August 2020 proposed rule the Secretary
acknowledged that Medicare DSH payments generally affect a substantial
number of small rural hospitals, as well as other hospitals, and the
effect of DSH payments on some hospitals is significant (85 FR 47726).
(We note approximately 500 rural hospitals with less than 100 beds are
eligible for Medicare DSH payments.) The August 2020 proposed rule
stated that a regulatory impact analysis under section 1102(b) of the
Act was nonetheless not necessary because the Secretary had determined
that adoption of the August 2020 proposed rule would not impose
``additional costs or benefits'' for small rural hospitals ``relative
to Medicare DSH payments that have already been made'' because the DSH
payments for these hospitals (like others) have generally already been
calculated according to the proposed interpretation. Nonetheless, we
included a discussion with a regulatory impact analysis in the interest
of public transparency.
We do not agree that the DSH payments already calculated for such
hospitals reflect an unreasonable interpretation. In the August 2020
proposed rule, we proposed to adopt an interpretation of the statutory
language ``entitled to benefits under part A'' in section
1886(d)(5)(F)(vi)(I) to include Part C enrollees. We do not agree that
the financial impact of COVID-19 on hospitals generally or on rural
hospitals specifically is relevant to the proper interpretation of that
phrase as the statute long pre-dates the pandemic.
D. Alternative Considered
In the August 2020 proposed rule, we considered as an alternative
to our proposal excluding days associated with patients enrolled in
Medicare Part C from the calculation of the Medicare fraction and
including them in the calculation of the Medicaid fraction for dually
eligible beneficiaries. However, in the August 2020 proposed rule, we
stated that we were not proposing such a policy because we continue to
believe, as we stated in the preamble to the FY 2014 IPPS final rule
(78 FR 50614 and 50615) and have consistently expressed since the
issuance of the FY 2005 IPPS final rule, that individuals enrolled in
MA plans are ``entitled to benefits under part A'' as the phrase is
used in the DSH provisions at section 1886(d)(5)(F)(vi) of the Act.
In the August 2020 proposed rule, we sought comments on our
proposed approach as well as on the alternative approach. After
consideration of those comments, in this final action we are adopting
the same policy of including MA patient days in the Medicare fraction
that was prospectively adopted in the FY 2014 IPPS final rule and
applying this policy retroactively to any cost reports that remain open
for cost reporting periods starting before October 1, 2013. This final
action also provides descriptions of the statutory provisions that are
addressed, identifies the finalized policy, and presents rationales for
our decisions and, where relevant, alternatives that were considered.
E. Accounting Statement
As required by OMB Circular A-4, in the following Table 1 we have
prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this
[[Page 37793]]
final action as they relate to hospitals receiving Medicare DSH
payments. It is not clear what to compare an estimate of DSH payments
under our final policy. Therefore, consistent with the proposed rule,
this table provides our estimate of the change in Medicare DSH payments
to hospitals as a result of the policy finalized in this action based
on a range of potential expenditures. All expenditures are classified
as transfers to Medicare providers.
Table 1--Accounting Statement: Classification of Estimated Medicare DSH
Expenditures Prior to FY 2014
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.... $0-$0.6 billion.
From Whom to Whom................. Federal Government to Hospitals
Receiving Medicare DSH Payments.
------------------------------------------------------------------------
F. Regulatory Flexibility Act (RFA)
The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
governmental jurisdictions. We estimate that most hospitals and most
other providers and suppliers are small entities as that term is used
in the RFA. The great majority of hospitals and most other health care
providers and suppliers are small entities, either because they are
nonprofit organizations or because they meet the Small Business
Administration (SBA) definition of a small business (having revenues of
less than $8.0 million to $41.5 million in any 1 year). (For details on
the latest standards for health care providers, we refer readers to
page 38 of the Table of Small Business Size Standards for NAIC 622
found on the SBA website at <a href="https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf">https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf</a>.)
For purposes of the RFA, all hospitals and other providers and
suppliers are considered to be small entities. We are not preparing an
analysis for the RFA because we have determined, and the Secretary
certifies, that with the adoption of this policy there will not be any
additional costs or benefits relative to Medicare DSH payments that
have already been made. Therefore, this final action will not have a
significant economic impact on a substantial number of small entities.
In addition, section 1102(b) of the Act requires us to prepare an
RIA if a rule may have a significant impact on the operations of a
substantial number of small rural hospitals. This analysis must conform
to the provisions of section 604 of the RFA. For purposes of section
1102(b) of the Act, we define a small rural hospital as a hospital that
is located outside of a Metropolitan Statistical Area and has fewer
than 100 beds. We are not preparing an analysis for section 1102(b) of
the Act because we have determined, and the Secretary certifies, that
with the adoption of this policy there will not be any additional costs
or benefits for small rural hospitals relative to Medicare DSH payments
that have already been made to these hospitals. Therefore, this final
action would not have a significant impact on the operations of a
substantial number of small rural hospitals.
G. Unfunded Mandates Reform Act (UMRA)
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2022, that
threshold is approximately $165 million. This final action will have no
unfunded mandate effect on state, local, or tribal governments or on
the private sector.
H. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on state
and local governments, preempts state law, or otherwise has Federalism
implications. Since this action does not impose any costs on state or
local governments, the requirements of Executive Order 13132 are not
applicable.
I. Executive Order 12866
In accordance with the provisions of Executive Order 12866, this
final action was reviewed by the Office of Management and Budget.
Chiquita Brooks-LaSure, Administrator of the Centers for Medicare &
Medicaid Services, approved this document on May 23, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2023-12308 Filed 6-7-23; 4:15 pm]
BILLING CODE 4120-01-P
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