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New Guidance on Medicare Payment Rule Enforcement

A few days before Thanksgiving, the news media published an internal memo by the Office of General Counsel (OGC) at the US Department of Health and Human Services (Department) to officials at the Centers for Medicare and Medicaid Services (CMS). The memo expressed OGC’s views on the impact of the Supreme Court’s Azar v. Allina Health Services, et. al., No. 17-1484 decision earlier this year on the enforcement of various CMS guidance. Specifically, OGC states that Medicare payment rules that meet the Court’s standard that did not go through notice-and-comment rulemaking cannot form the basis for an enforcement action, including an overpayment finding.

The issue, in this case, was whether the Department’s determination that Medicare Part C patients should be included in the Medicare fraction represented a change in a “substantive legal standard” within the meaning of Section 1871(a)(2) of the Social Security Act (SSA). If the answer was yes, then notice-and-comment procedures were required under the title 18 of the SSA. In a 7-1 decision, the court held that the inclusion of Part C patients in the Medicare fraction was “substantive.” The court explained that the “substantive legal standard” under Section 1871(a)(2) of the SSA means any legal standard or determination that creates rights and obligations, such as the scope of benefits, payment for services, eligibility of individuals to receive benefits, or eligibility of individuals, entities or organizations to furnish services.

OGC concludes that, according to the Supreme Court, Congress imposed a notice-and-comment requirement for substantive Medicare rules in a broader range of circumstances than otherwise would be required under the Administrative Procedure Act. Therefore, CMS guidance documents, such as the Medicare Internet-Only Manuals, setting forth interpretive payment rules, are legally nonbinding and may not be used as the basis of an enforcement action. As an example, if a “broadly worded statute or regulation can be interpreted a variety of ways,” sub-regulatory policy statements may be viewed as creating a new substantive rule, and thus cannot be enforced as binding rules under the Court’s ruling. According to OGC’s memo, CMS guidance documents that are “closely tied to a statutory or regulatory requirement” may provide additional clarity through such guidance and enforcement actions implicating the guidance can still be brought. Further, even if the sub-regulatory guidance is not specifically enforceable as a substantive legal standard, it can be used for other purposes, such as scienter or materiality, as stated in the Department of Justice Brand Memo.

OGC indicates that it does not believe Local Coverage Decisions (LCDs) require notice-and-comment rulemaking because LCDs reflect payment determinations of the local Medicare Administrative Contractor (MAC) and are not binding on the Department. They accordingly do not create any substantive legal standards.  In its memo, OGC concludes, that LCDs cannot be solely used as the basis for a “government enforcement action,” including an overpayment demand. OGC also notes that codifying guidance in a retroactive regulation could create other legal risks for enforceability.

The primary takeaway is that providers should examine carefully the basis for any enforcement action, including an overpayment determination, for whether the decision is based on sub-regulatory guidance that offends the Court’s standard. Providers should also be on the lookout for attempts by CMS to codify sub-regulatory guidance in notice-and-comment rulemaking in order to prospectively avoid this problem.

© 2020 McDermott Will & Emery

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Emily J. Cook, McDermott Will Emery Law Firm, Health Care Attorney
Partner

Emily J. Cook is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Los Angeles office.  She focuses her practice on Medicare provider certification, reimbursement and regulatory compliance.

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Tony Maida Health Care Attorney McDermott WIll Law Firm
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Tony Maida is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  Tony has extensive experience in health care fraud and abuse and compliance issues, including the federal Anti-Kickback and Physician Self-Referral/Stark laws, false claims and overpayments, and government investigations.    He works closely with our health and white collar teams on criminal, civil, and administrative investigations and counseling clients on corporate transactions and compliance programs.

Tony previously served as a senior official in the Office of Counsel to the Inspector General at the United States Department of Health and Human Services, where he worked for nine years.  As Deputy Chief of the Administrative and Civil Remedies Branch, Tony led a team of attorneys representing the agency on False Claims Act and Civil Monetary Penalty Law cases, including conducting investigations and negotiating settlements and Corporate Integrity Agreements in some of the largest settlements obtained by the United States.  He participated in defending the OIG in numerous exclusion appeals, including appeals pursued by high-level corporate executives.  

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Monica Wallace, regulatory counseling lawyer, administrative attorney, McDermott Will Emery, law firm
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Monica A. Wallace is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  She focuses her practice on complex regulatory and transactional counseling to health care organizations such as health systems, hospitals, physician groups, integrated delivery systems, durable medical equipment prosthetics and orthotics suppliers, home health agencies, and other health care providers. Monica’s regulatory practice focuses on the Anti-Kickback and Stark laws; Medicare and Medicaid reimbursement and billing; legal assessments and compliance...

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Michael B Kimberly Litigation Lawyer MWE Law Firm
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Michael B. Kimberly is co-chair of the Firm’s Supreme Court and Appellate Practice Group. He handles complex appeals and trial court motions with a primary focus on antitrust law, administrative law and constitutional law. An accomplished appellate lawyer, Michael has argued appeals in courts throughout the country, including five times in the US Supreme Court, three times before the en banc courts of appeals, and a dozen other times in the federal courts of appeals and state appellate courts. He has briefed more than 200 appellate matters, including 23 Supreme...

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Paul M. Thompson, McDermott Will Emery, White Collar Criminal Defense,
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Paul M. Thompson is a partner in the law firm of McDermott Will & Emery LLP and serves as the Partner-in-Charge of the Firm’s Washington, D.C., office.  Paul focuses his practice on white-collar criminal defense, congressional investigations and appellate matters.  Paul has been repeatedly recognized by the National Law Journal in its Appellate Hot List.  He was named as a “Star” in Benchmark Litigation 2015 for his work on white-collar matters and appeals. 

Paul is a former federal prosecutor.  He has represented clients...

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