On November 21, an internal HHS memorandum addressed to Centers for Medicare & Medicaid Services (CMS) Principal Deputy Administrator Demetrios Kouzoukas entitled “Impact of Allina on Medicare Payment Rules” became publicly available.  The memorandum addresses the HHS Office of the General Counsel’s (OGC) “views on the impact of Azar v. Allina Health Services, 139 S. Ct. 1804 (2019), on Medicare payment rules and compliance actions based on those payment rules” and provides unique and rare insights into the OGC’s current views on enforcement following the Allina decision.

Last June, the U.S. Supreme Court held in Azar v. Allina Health Services that the Medicare statute requires changes to substantive legal standards to undergo formal notice-and-comment rulemaking.  (HL Pulse summary here).  Because CMS regularly utilizes interpretive rules and guidance to provide clarity and implement policies, we noted that the ruling will likely lead to additional challenges to sub-regulatory guidance that negatively impact Medicare reimbursement.

The Memorandum affirms the agency’s limited ability to bring enforcement actions when notice-and-comment rulemaking should have been undertaken:

“If the Center for Medicare intends for a particular guidance document to be used in enforcement actions, then the guidance must comply with Allina.

The Memorandum addresses certain non-regulatory publications often relied on by stakeholders, such as Internet-Only Manuals (“IOM”).  When CMS is relying on statutory or regulatory requirements, the Memorandum affirms their application in enforcement actions: “[t]o the extent that IOMs and other CMS-issued guidance (including preamble text published within final rules) are closely tied to statutory or regulatory requirements, enforcement actions implicating these guidance materials can still be brought.”  In determining whether a guidance document can be utilized in an enforcement action, the “critical question is whether the enforcement action could be brought absent the guidance document.”

In additional to general principles about guidance documents and enforcement, the Memorandum touches on important enforcement principles relevant to all entities regulated by the agency.  CMS will often include substantive requirements in contracts or program participation agreements.  The Memorandum provides that the Allina decision does not interfere with CMS’ ability to enforce these provisions, so long as they are “expressly referenced as an obligation of the party to the contract.”  Therefore, CMS may continue to bind parties to the terms of guidance documents that are expressly agreed to in a contract.  The Memorandum also cites to the Department of Justice’s Brand Memorandum and states that a guidance document may not be “the sole basis for an enforcement action” but when used “in conjunction with the government’s payment history” may shed light on the question of materiality.

Finally, the Memorandum provides that Stark Law Advisory opinions are not affected by the Allina decision because advisory opinions do not “establish or change substantive legal standards governing payment for services.”  Similarly, the fraud and abuse waivers that are critical to implementation of the Medicare Shared Savings Program and CMMI demonstrations do not require notice-and-comment rulemaking because they are statutorily authorized.

Norton Rose Fulbright professionals are available to provide additional information regarding the impact of the Allina decision and advise on its implications on healthcare reimbursement and compliance matters.