In August 2020, the Centers for Medicare & Medicaid Services (CMS) issued a Notice of Proposed Rulemaking (NPRM) to address the calculation of the Medicare disproportionate share hospital (DSH) adjustment for certain years as a result of the Supreme Court's decision in Azar v. Allina Health Services.1 The Supreme Court held in Allina that CMS' policy for treating Medicare Part C patient days in the calculation violated the Medicare statute because it was not issued through proper notice and comment rulemaking. 2 The August NPRM, which CMS said is necessary as a result of the Court's landmark Allina ruling, is notable for its proposal of a rule that operates retroactively.
Without delving into the details of the DSH calculation mechanics, the proposed rule would apply the same policy and treatment of Medicare Part C patient days in the DSH adjustment calculations to cost reporting periods prior to fiscal year 2014 that the Supreme Court invalidated in Allina. 3 CMS asserts in the NPRM's preamble that the proposed retroactive operation falls within the Medicare statute's authorization for retroactive rulemaking, Section 1871(e)(1)(A) of the Social Security Act. 4
This article examines Section 1871(e)(1)(A), focusing on its language, legislative history, how CMS has applied this statutory authority, and how it has been interpreted by the courts. We consider the principle that a rule's impact on prior facts is not always retroactive in effect and whether the August NPRM is correct in stating that a retroactive rule is necessary to calculate the DSH payments outstanding after Allina. At bottom, is "going retro" in this instance the proper path and what is necessary to protect the public interest?
Section 1871(e)(1)(A): When Can CMS Go Retro?
The Medicare statute authorizes retroactive rulemaking in narrow circumstances. Specifically, a substantive change in Medicare regulations and guidance may be applied retroactively only if the Secretary determines that retroactive application is "necessary to comply with statutory requirements" or that "failure to apply the change retroactively would be contrary to the public interest." 5 The statute is framed in the negative, specifying that a substantive change "shall not be applied" retroactively "unless" the Secretary makes one of the two specified determinations. 6
The negative phrasing of Section 1871(e)(1)(A) reflects the strong presumption against retroactive rulemaking that the Supreme Court established in Bowen v. Georgetown University Hospital. 7 The presumption is grounded in the principle that "[e]lementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly; settled expectations should not be lightly disrupted." 8 Bowen, a "paradigmatic case of retroactivity," 9 involved a rule that altered the calculation method for Medicare provider reimbursement payments, applied the new method to recalculate payments that had already been made to providers, and permitted the Secretary to make recoupments.10 The Supreme Court invalidated the rule's retroactive operation and articulated the now well-established principle that a statute will not be construed to authorize retroactive rules unless Congress conveys that power "in express terms."11
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Footnotes
1 139 S. Ct. 1804 (2019).
2 Id.
3 CMS, Medicare Program; Treatment of Medicare Part C Days in the Calculation of a Hospital's Medicare Disproportionate Patient Percentage, 85 Fed. Reg. 47723 (Aug. 6, 2020).
4 42 U.S.C. § 1395hh(e)(1)(A).
5 Id.
6 Section 1871(e)(1)(A) provides:
A substantive change in regulations, manual instructions, interpretative rules, statements of policy, or guidelines of general applicability under this subchapter shall not be applied (by extrapolation or otherwise) retroactively to items and services furnished before the effective date of the change, unless the Secretary determines that—
- such retroactive application is necessary to comply with statutory requirements; or
- failure to apply the change retroactively would be contrary to the public interest.
42 U.S.C. § 1395hh(e)(1)(A).
7 488 U.S. 204 (1988).
8 Landgraf v. USI Film Prods., 511 U.S. 244, 265 (1994).
9 Id. at 272.
10 Similar to the NPRM following the Allina Supreme Court ruling, in Bowen the Secretary's prior rule on the method for calculating the "wage index" had been struck down for failure to provide notice and opportunity to comment. The Secretary then issued the same rule through notice and comment and sought to apply it retroactively to an earlier period. The Supreme Court invalidated the rule as unauthorized. Bowen, 488 U.S. at 215.
11 Id. at 208.
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