The Deputy General Counsel and Chief Legal Officers at the U.S. Department of Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS) recently issued an Internal Memorandum clarifying that a recent Supreme Court ruling may limit HHS’s enforcement practices going forward. Consistent with the Court’s ruling, the Memorandum clarifies that subregulatory guidance issued without notice-and-comment rulemaking may not be used as the sole basis for an enforcement action when such guidance creates or changes a substantive legal    standard.

The Supreme Court issued a ruling earlier this year in Azar v. Allina Health Services, invalidating a CMS payment policy due to the Agency’s failure to provide the public with a notice-and-comment period. The Court reasoned that the policy created a “substantive legal standard,” requiring a notice-and-comment period, and noted that the government cannot evade such notice-and-comment obligations by establishing or changing an “avowedly ‘gap’-filling policy.”

The CMS Memorandum references the Allina ruling and notes that CMS payment rules often form the basis for enforcement actions and would therefore be subject to the rulemaking procedure requirements set forth in Allina. Significantly, the Memorandum points out that guidance and policies promulgated without notice-and-comment rulemaking procedures may not be documents upon which the Agency can predicate enforcement actions. If such guidance documents are to be used as the basis for enforcement actions, the Memorandum clarifies that such documents must comply with Allina.

Specifically, the Memorandum points to Internet-Only Manuals (IOMs) and preamble text published with final rules that are sometimes cited in enforcement actions. To the extent that these texts are closely tied to existing statutory or regularity requirements, they can be implicated in enforcement actions. Because such subregulatory guidance does not substantively establish or change a legal standard, it meets the Allina requirements because it merely aids in demonstrating whether or not parties have failed to meet statutory or regulatory requirements. Where such IOMs and guidance documents issued without notice-and-comment set forth payment rules that are not closely tied to statutory or regularity language, the Memorandum warns that such documents are not validly issued under Allina and therefore cannot be used as the sole basis for enforcement action.

The critical question—according to the Memorandum—is whether the enforcement action can be brought absent the guidance document. Where such actions cannot be brought absent a guidance document, then the guidance document establishes a norm and implicates the notice-and-comment requirements of Allina.

The Memorandum notes that Local Coverage Determinations (LCDs) do not implicate the Allina requirements as they merely reflect payment determinations, are not binding on HHS and therefore do not establish or change substantive legal standards. Under Allina, however, LCDs may not be used as the sole basis for enforcement actions. Similarly, the Memorandum clarifies that neither Stark Law advisory opinion nor statutorily-authorized fraud and abuse waivers would require notice-and-comment rulemaking.

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While CMS has not commented on the Memorandum, the Memorandum ends with an assurance that legal counsel will continue to work with CMS to “identify particular guidance documents that might be appropriate to issue through notice-and comment-rulemaking on a more expedited basis.”

Consequently, there may be an uptick in guidance documents being pushed through the notice-and-comment process so as to stand as the basis of enforcement actions. We will continue to monitor and provide updates accordingly. In the meantime, if you have any concerns with your compliance with federal fraud and abuse law or the contents of this alert, please contact any member of our health care department, including the authors of this alert.