Supreme Court Grants Review in APA Case With Potential Implications for Providers

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By Peyton M. Sturges  

June 16 — The U.S. Supreme Court, in a case attorneys say has the potential to significantly impact the health-care industry, June 16 agreed to review whether an agency violated the Administrative Procedure Act in altering its interpretation of a regulation without providing a public notice and comment opportunity.

The high court said it will review a ruling by the U.S. Court of Appeals for the D.C. Circuit, which said the Department of Labor erred in not giving notice and obtaining comment before issuing a reinterpretation of a 2006 DOL opinion letter. The Supreme Court is expected to rule on the extent to which agencies can revisit and change the guidance they have previously issued without triggering APA requirements—a serious matter for the heavily regulated health-care industry.

Attorneys who spoke to Bloomberg BNA in April said the case is especially important for providers because of the number of agencies and rules that govern health-care organizations and because the D.C. Circuit is the federal forum in which many, if not most, regulatory challenges are brought.

James F. Segroves, a partner with Hooper, Lundy & Bookman PC in Washington, said at the time that the case is one that “members of the health-care industry should be watching closely.”

The court granted a pair of petitions, one filed by the federal government and a second (No. 13-1052) filed by individuals who intervened below, and consolidated review of both petitions. Oral arguments are expected to be held in the fall.

Review Not Unexpected

The high court's decision to review the D.C. Circuit ruling wasn't wholly unexpected because the petition filed by the government, as well as a petition filed by the intervenors, identified a circuit split on the APA issue and argued that the appellate ruling conflicted with the APA's language and high court decisions interpreting it.

The petitions also claimed that, if left undisturbed, the ruling would force agencies to use limited resources to comply with APA requirements when altering or amending interpretive rules or guidance that wasn't subject to the APA when originally issued.

Segroves, who predicted in April that the high court could decide to take the case, said the potential importance for members of the health-care industry was a reflection of the sheer number of regulations affecting providers and the risks associated with the possibility that agencies such as the Centers for Medicare & Medicaid Services could reverse course on definitive interpretations of important regulations upon which providers have relied.

“Needless to say, it would not be a good thing for the health-care industry if an agency such as the CMS could flip-flop on a definitive interpretation of its regulations at the drop of a hat,” he said.

Stephen S. Zashin, a partner with Zashin & Rich in Cleveland, agreed that the case has broad application to health-care organizations. “The issue is whether a federal agency may go back and forth with respect to a definitive regulatory interpretation on which a regulated entity may have relied,” Zashin said in April.

“Health-care employers, like other employers, are put in a difficult situation when they act based on an agency's regulatory interpretation and that interpretation is subsequently changed without a notice and comment opportunity,” he added.

Underlying Dispute

The petitions challenge a D.C. Circuit decision that rejected a 2010 administrator interpretation issued by the Labor Department's Wage and Hour Division regarding provisions of a Fair Labor Standards Act regulation, finding the agency didn't adhere to a public notice-and-comment rulemaking process before issuing the interpretation.

At the crux of the case is a 2006 DOL opinion letter that concluded that mortgage loan officers were exempt from the FLSA's minimum wage and overtime protections. Four years later, in 2010, the agency reversed course and released an administrator's interpretation that “explicitly withdrew” the 2006 letter.

The Mortgage Bankers Association challenged the DOL's 2010 interpretation, alleging that the agency violated the APA by not first providing public notice and a comment period before significantly revising a definitive regulatory interpretation, as required under the D.C. Circuit's rulings in Paralyzed Veterans of Am. v. D.C. Arena, 117 F.3d 579 (D.C. Cir. 1997) and Alaska Professional Hunters Ass'n v. FAA, 177 F.3d 1030 (D.C. Cir. 1999).

In those cases, the appeals court held that “[w]hen an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish [under the APA] without notice and comment.”

The appeals court rejected the Labor Department's argument that the MBA could prevail only if it showed “substantial and justifiable reliance on a well-established agency interpretation.” Instead, the court held that reliance isn't a “separate and independent requirement,” but is “just one part of the definitiveness calculus.”

According to the government's petition, the D.C. Circuit's decision conflicts with decisions by other federal appeals courts, including a decision by the U.S. Court of Appeals for the First Circuit that, in Warder v. Shalala, 149 F.3d 73 (1st Cir. 1998), held CMS's predecessor agency “was entitled to change its interpretation of Medicare regulations without notice-and-comment rulemaking.”

Although the agency's interpretive rule was challenged because it allegedly changed the agency's policy governing Medicare reimbursement for a medical device, the First Circuit found that a change to an interpretive rule wasn't subject to APA requirements.

The Medicare program, with “thousands of pages of interpretative rules that address myriad details,” is just one of many complex government programs that “are heavily dependent upon interpretive rules to inform the public about the agency's understanding of the details of the regulatory regime,” the petition said.

To contact the reporter on this story: Peyton M. Sturges in Washington at psturges@bna.com

To contact the editor responsible for this story: Fabia Mahoney at fmahoney@bna.com

The government's petition is at http://op.bna.com/hl.nsf/r?Open=psts-9h7mhv.

The intervenors' petition is at http://op.bna.com/hl.nsf/r?Open=psts-9h7mhu.

The D.C. Circuit's decision is at http://www.bloomberglaw.com/public/document/Mortgage_Bankers_Association_v_Seth_Harris_et_al_Docket_No_120524.