United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 11, 2017 Decided July 25, 2017

No. 16-5255

ALLINA HEALTH SERVICES, DOING BUSINESS AS UNITED 

HOSPITAL, DOING BUSINESS AS UNITY HOSPITAL, DOING 

BUSINESS AS ABBOTT NORTHWESTERN HOSPITAL, ET AL.,

APPELLANTS

v.

THOMAS E. PRICE, SECRETARY, UNITED STATES DEPARTMENT 

OF HEALTH AND HUMAN SERVICES,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:14-cv-01415)

Stephanie A. Webster argued the cause for appellants. 

With her on the briefs were Pratik A. Shah, Christopher L. 

Keough, James H. Richards, and Hyland Hunt.

Stephanie R. Marcus, Attorney, U.S. Department of 

Justice, argued the cause for appellee. With her on the brief 

was Mark B. Stern, Attorney.

Before: HENDERSON, KAVANAUGH, and MILLETT, Circuit 

Judges.
2

Opinion for the Court filed by Circuit Judge KAVANAUGH.

KAVANAUGH, Circuit Judge: Several hospitals have 

challenged the formula used by the Department of Health and 

Human Services for calculating certain Medicare 

reimbursement adjustments for fiscal year 2012. As relevant 

here, the hospitals argued before the District Court that HHS 

violated the Medicare Act by changing the reimbursement 

adjustment formula without providing the public with notice 

and opportunity for comment. 

The District Court ruled that HHS did not violate the 

Medicare Act’s procedural requirements. The District Court 

reasoned that (i) the Medicare Act incorporates the 

Administrative Procedure Act’s exception to notice-andcomment rulemaking for interpretive rules and (ii) HHS’s 

issuance of the reimbursement adjustment formula here 

constituted an interpretive rule. The District Court granted 

summary judgment to HHS. 

We disagree with the District Court. We conclude that

HHS violated the Medicare Act when it changed its 

reimbursement adjustment formula without providing notice 

and opportunity for comment. We reverse the judgment of the 

District Court and remand for proceedings consistent with this 

opinion.

I

A

Through the Medicare program, the Federal Government 

provides health insurance to Americans who are 65 or older, as 

well as to disabled Americans. See generally Social Security 

Amendments of 1965, Pub. L. No. 89-97, sec. 102, 79 Stat. 
3

286, 291-332 (codified as amended at 42 U.S.C. § 1395 et 

seq.). The Department of Health and Human Services 

administers and oversees Medicare. Patients can obtain 

insurance under different Medicare “parts.” Two of those parts 

are relevant here. Medicare Part A provides Medicare 

enrollees with government-administered health insurance 

through which the Government makes direct payments to 

hospitals for healthcare services provided. See 42 U.S.C. 

§§ 1395c to 1395i–5. Part C provides enrollees with 

government-subsidized enrollment in private insurance plans. 

See id. §§ 1395w–21 to 1395w–29. 

HHS contracts with companies known as fiscal 

intermediaries to reimburse healthcare service providers for 

services rendered to Medicare Part A patients. Fiscal 

intermediaries make initial payments to hospitals for a given 

cost year. Those initial payments are based on estimates of the 

hospitals’ actual costs. The initial payments are later adjusted 

based on providers’ actual cost reports.

A provider who disagrees with a fiscal intermediary’s 

reimbursement or adjustment decision may appeal that 

decision to the Provider Reimbursement Review Board within 

HHS. See 42 U.S.C. § 1395oo. The Board may affirm, 

modify, or reverse the fiscal intermediary’s decision. Id.

§ 1395oo(d). But importantly, the Board does not have the 

authority to declare statutes or regulations invalid. See

Bethesda Hospital Association v. Bowen, 485 U.S. 399, 406

(1988); 42 C.F.R. § 405.1842(f)(2)(ii).

As relevant here, the Medicare Act authorizes 

reimbursement adjustments in order to increase payments to 

hospitals that treat a disproportionately high number of lowincome patients. See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). That

adjustment is known as the “disproportionate share hospital 
4

adjustment.” The adjustment is calculated for each hospital by 

adding two fractions that together approximate the proportion 

of low-income patients treated at that hospital over a certain 

time period. See id. § 1395ww(d)(5)(F)(vi). HHS calculates

and publishes one of those fractions – the Medicare fraction –

for each hospital in the Nation every year. HHS requires the 

fiscal intermediaries to use HHS’s published Medicare 

fractions in calculating each hospital’s final reimbursement 

adjustment. See 42 C.F.R. § 412.106(b)(2), (5). 

Among other things, the Medicare fraction incorporates 

the number of each hospital’s patient days for patients “entitled 

to benefits under part A” of Medicare. 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)(I). The meaning of that phrase has 

been the subject of much debate (and litigation). The dispute 

is over whether the phrase “entitled to benefits under Part A”

should be read to refer not only to Part A enrollees, but also to 

patients enrolled in a Part C plan. 

For reasons that are beyond the scope of this opinion, HHS 

now believes that the phrase “entitled to benefits under Part A” 

should also include patients enrolled in a Part C plan. HHS 

therefore contends that Part C patient days should be included 

in the Medicare fractions. Many hospitals disagree. They 

argue that Part C enrollees are not “entitled to benefits under 

Part A” and that Part C days therefore should not be included 

in Medicare fractions. 

That difference in interpretation makes a huge difference 

in the real world. Part C enrollees tend to be wealthier than 

Part A enrollees. Including Part C days in Medicare fractions 

therefore tends to lead to lower reimbursement rates. 

Ultimately, hundreds of millions of dollars are at stake for the 

Government and the hospitals. See Northeast Hospital Corp. 

v. Sebelius, 657 F.3d 1, 5 (D.C. Cir. 2011).
5

Before 2004, HHS had not treated Part C enrollees as

“entitled to benefits under Part A.” See id. at 15. In 2004, 

however, HHS promulgated a rule announcing that Part C 

enrollees are “entitled to benefits under Part A” and that HHS 

would therefore include Part C days in Medicare fractions. See

Medicare Program; Changes to the Hospital Inpatient 

Prospective Payment Systems and Fiscal Year 2005 Rates, 69 

Fed. Reg. 48,916, 49,099 (Aug. 11, 2004). That 2004 rule 

would have applied HHS’s changed interpretation

prospectively to all Medicare fraction calculations from fiscal 

year 2005 onward. However, this Court vacated the 2004 rule

on the grounds that it was not a logical outgrowth of the 

proposed rule and had therefore been improperly issued 

without notice and opportunity for comment. See Allina Health 

Services v. Sebelius, 746 F.3d 1102, 1107-09 (D.C. Cir. 2014). 

As a result, HHS can no longer rely on the 2004 interpretation.

In 2013, HHS promulgated a new rule again announcing 

that HHS would treat Part C enrollees as “entitled to benefits 

under Part A” and that HHS would therefore include Part C 

days in Medicare fractions. See 78 Fed. Reg. 50,496, 50,614

(Aug. 19, 2013). The 2013 rule is prospective only: It applies 

to Medicare fractions calculated for fiscal year 2014 and 

beyond. Id. at 50,619. It does not address the definition of 

“entitled to benefits under Part A” for any fiscal years before 

2014. In sum, HHS has no promulgated rule governing the 

interpretation of “entitled to benefits under Part A” for the 

fiscal years before 2014.

B

In June 2014, HHS published the Medicare fractions to be 

used in calculating disproportionate share hospital adjustments 

for fiscal year 2012. At the top of the spreadsheet containing 
6

those fractions, HHS noted that it had included Part C days in 

the Medicare fractions. The spreadsheet contained the 2012

Medicare fractions for all hospitals nationwide. 

Plaintiffs in this case are hospitals that provide health care 

to low-income Medicare patients and that are therefore entitled 

to disproportionate share hospital adjustments. Those hospitals 

here challenge HHS’s June 2014 decision to include Part C 

days in the 2012 Medicare fractions. 

As required by statute, the hospitals first sought review by 

the Provider Reimbursement Review Board within HHS. But 

the hospitals believed that the Board did not have the authority 

to resolve the hospitals’ challenges because the hospitals’

challenges related to the validity of several HHS regulations. 

Under HHS’s rules implementing the Medicare statute, the 

Board may not review challenges “either to the 

constitutionality of a provision of a statute, or to the substantive 

or procedural validity of a regulation.” 42 C.F.R. 

§ 405.1842(f)(1). The hospitals therefore sought expedited 

judicial review, which is available under the statute when the 

Board certifies that it does not have authority to resolve a

provider’s challenge. When the Board so certifies, the provider

may bring suit in district court without proceeding through the 

full Board review process. See 42 U.S.C. § 1395oo(f)(1). 

Here, the Board agreed with the hospitals that it did not 

have the authority to resolve the hospitals’ challenge. That noauthority determination allowed the hospitals to promptly bring 

suit in District Court challenging HHS’s decision to include 

Part C days in the Medicare fractions for fiscal year 2012. 

In the District Court, HHS moved to dismiss the hospitals’ 

case on the ground that the case was premature. HHS argued 

that the Board’s no-authority determination was erroneous, and 
7

that the District Court therefore did not have authority to 

consider the challenges to the Medicare fractions until the 

Board ruled on that claim. The hospitals responded that the 

Board’s no-authority determination was not reviewable by the 

District Court and that, in any event, the Board’s no-authority 

determination was correct. The District Court agreed with 

HHS that the District Court could review the Board’s noauthority determination. The District Court agreed with the 

hospitals, however, that the Board’s no-authority 

determination was correct. The District Court therefore denied 

HHS’s motion to dismiss. 

Both sides then moved for summary judgment on the 

merits of the hospitals’ challenges. The hospitals contended

that HHS violated the Administrative Procedure Act and the 

Medicare Act by including Part C days in the fiscal year 2012 

Medicare fractions without first providing the public with

notice and opportunity for comment. They also argued that the 

calculations were arbitrary and capricious. HHS responded 

that its decision was procedurally and substantively proper. 

The District Court granted summary judgment to HHS. 

First, the District Court held that the June 2014 decision to 

include Part C days in the 2012 Medicare fractions was an 

“interpretive rule” under the APA. As a result, the District 

Court concluded that HHS’s publication of the fiscal year 2012 

Medicare fractions was statutorily exempt from the APA’s 

notice-and-comment requirements. Second, the District Court 

held that the Medicare Act incorporated the APA’s notice-andcomment exception for interpretive rules. The District Court

therefore held that HHS had not violated the Medicare Act’s 

procedural requirements. Third, the District Court held that 

HHS’s decision to include Part C days in the 2012 Medicare 

fractions was not arbitrary and capricious. 
8

The hospitals now appeal the District Court’s grant of 

summary judgment to HHS. This Court reviews a district 

court’s grant of summary judgment de novo. See Southeast 

Alabama Medical Center v. Sebelius, 572 F.3d 912, 916 (D.C. 

Cir. 2009). 

II

HHS’s Provider Reimbursement Review Board concluded 

that it lacked authority to decide this dispute. The Board 

therefore certified the case for expedited judicial review in the 

District Court. The District Court concluded that it had 

authority to decide the case. We must first consider whether 

the District Court correctly concluded that it had authority to

decide the case now, or whether the dispute instead should have 

been decided first by HHS’s Provider Reimbursement Review 

Board.

HHS argues that the dispute should have been decided first 

by the Board. The hospitals raise two alternative points in 

response. They contend that the District Court may not review 

the Board’s no-authority determination. The hospitals also 

argue in the alternative that even if the District Court may

review the Board’s no-authority determination, the Board here 

was correct to conclude that it did not have authority to hear 

the hospitals’ challenge. We agree with the hospitals on both 

alternative arguments.

To begin, the hospitals are correct that a district court may 

not review the Board’s no-authority determination at HHS’s 

request. The Medicare Act states that providers – and only 

providers – “shall” have “the right to obtain” expedited judicial 

review “whenever the Board determines . . . that it is without 

authority to decide” a particular question. 42 U.S.C. 
9

§ 1395oo(f)(1) (emphasis added).

1

 In other words, providers 

are guaranteed expedited judicial review when the Board 

makes a no-authority determination, as the Board did here. 

The statute conditions expedited judicial review in the district 

court on the existence of that no-authority determination, not

on whether that determination is correct. 

The statutory structure confirms that reading of the text. A 

provider may bring suit in the district court even when the 

Board fails to make a timely determination of its authority to 

decide a case. See id. (“If the Board fails to render such 

determination within such period, the provider may bring a 

civil action (within sixty days of the end of such period) with 

 

1 As relevant here, the statutory provision for expedited judicial 

review reads: “Providers shall also have the right to obtain judicial 

review of any action of the fiscal intermediary which involves a 

question of law or regulations relevant to the matters in controversy 

whenever the Board determines (on its own motion or at the request 

of a provider of services as described in the following sentence) that 

it is without authority to decide the question, by a civil action 

commenced within sixty days of the date on which notification of 

such determination is received. If a provider of services may obtain 

a hearing under subsection (a) of this section and has filed a request 

for such a hearing, such provider may file a request for a 

determination by the Board of its authority to decide the question of 

law or regulations relevant to the matters in controversy 

(accompanied by such documents and materials as the Board shall 

require for purposes of rendering such determination). The Board 

shall render such determination in writing within thirty days after the 

Board receives the request and such accompanying documents and 

materials, and the determination shall be considered a final decision 

and not subject to review by the Secretary. If the Board fails to 

render such determination within such period, the provider may bring 

a civil action (within sixty days of the end of such period) with 

respect to the matter in controversy contained in such request for a 

hearing.” 42 U.S.C. § 1395oo(f)(1).
10

respect to the matter in controversy contained in such request

for a hearing.”). As the hospitals rightly point out, it would be 

“nonsensical if judicial review could be defeated by 

disagreement with the Board’s no-authority decision, even 

though the Board’s failure to make such a decision 

undisputedly confers federal court jurisdiction.” Allina Reply

Br. 5. 

Put simply, Congress has allowed providers to seek 

immediate judicial review when the Board concludes that an 

extensive and time-consuming administrative process before 

the Board would likely be pointless. Requiring parties in 

district court to fully brief and re-litigate the Board’s 

assessment of its own lack of authority – a question that may

often be inextricably linked to the merits of a provider’s 

challenge – runs entirely counter to that statutory scheme.2

In any event, even if we were wrong about that point, the 

Board here was correct in deciding that it did not have authority 

to resolve the hospitals’ challenge. Under HHS regulations

implementing the statute’s expedited judicial review 

procedure, the Board “must grant” expedited judicial review if 

the legal question raised “is a challenge either to the 

constitutionality of a provision of a statute, or to the substantive 

or procedural validity of a regulation.” 42 C.F.R. 

§ 405.1842(f)(1). The hospitals here pressed two arguments 

before the Board. Both arguments challenged the “substantive 

or procedural validity” of different regulations. Id.

§ 405.1842(f)(1)(ii). First, the hospitals argued that HHS erred 

when it chose to apply the formula from the vacated 2004 rule 

 

2 We recognize that our decision here breaks with other courts 

of appeals that have concluded that the Board’s no-authority 

determinations are reviewable. See, e.g., Providence Yakima 

Medical Center v. Sebelius, 611 F.3d 1181, 1187 n.7 (9th Cir. 2010).
11

in calculating the 2012 fractions. The hospitals’ first argument 

therefore raised the question of the 2004 rule’s continuing legal 

validity. Second, the hospitals argued that HHS violated 

various procedural requirements by promulgating a new 

regulation without notice-and-comment rulemaking. That

argument turned on whether the decision to include Part C days 

in the 2012 Medicare fractions constituted a new regulation, 

and if it did, whether that new regulation was procedurally 

valid. Both of the hospitals’ arguments raise legal questions 

about the “substantive or procedural validity of a regulation.”

Id. The Board’s no-authority determination was correct. The 

District Court correctly concluded that it had authority to 

decide the case now. 

III

A

We turn therefore to the hospitals’ claim that HHS violated 

the Medicare Act by failing to provide for notice and comment

before including Part C days in the 2012 Medicare fractions. 

We agree with the hospitals that HHS unlawfully failed to 

provide for notice and comment. 

The Medicare Act describes in fairly straightforward 

language when notice and comment is necessary. Paragraph 

(2) of Section 1395hh(a) provides: 

No rule, requirement, or other statement of policy (other 

than a national coverage determination) that establishes or 

changes a substantive legal standard governing the scope 

of benefits, the payment for services, or the eligibility of 

individuals, entities, or organizations to furnish or receive 

services or benefits under this subchapter shall take effect 
12

unless it is promulgated by the Secretary by regulation 

under paragraph (1).

42 U.S.C. § 1395hh(a)(2). Paragraph (1), in turn, requires the 

HHS Secretary to “prescribe such regulations as may be 

necessary to carry out the administration of the insurance 

programs” under the Medicare Act. Id. § 1395hh(a)(1). With 

a few exceptions not relevant here, “the Secretary shall provide 

for notice of the proposed regulation” to allow “for public 

comment thereon.” Id. § 1395hh(b)(1). 

In other words, as relevant here, the Medicare Act requires

notice-and-comment rulemaking for any (1) “rule, 

requirement, or other statement of policy” that (2) “establishes 

or changes” (3) a “substantive legal standard” that (4) governs 

“payment for services.” Id. § 1395hh(a)(2). All four 

requirements are readily met here.

First, HHS’s inclusion of Part C days in the fiscal year 

2012 Medicare fractions is, at the very least, a “requirement.” 

Fiscal intermediaries are commanded to use HHS’s Medicare 

fractions in calculating adjustment amounts. See 42 C.F.R. 

§ 412.106(b)(2), (5). Those fractions treat Part C enrollees as 

“entitled to benefits under Part A.” The fiscal intermediaries 

are therefore required to include Part C days in their 

calculations as they determine reimbursement adjustments. In 

short, HHS promulgated a “requirement” when it announced

that the 2012 Medicare fractions would include Part C days. 

Second, HHS’s inclusion of Part C days in the fiscal year 

2012 Medicare fractions represents a change in HHS’s 

standards. Before 2004, HHS’s standard practice was to

exclude Part C days from Medicare fractions. See Northeast 

Hospital Corp. v. Sebelius, 657 F.3d 1, 15 (D.C. Cir. 2011). 

HHS’s 2004 rule attempted to change that standard so that the 
13

Medicare fractions would include Part C days. Id. at 14. But 

that rule was vacated. See Allina Health Services v. Sebelius, 

746 F.3d 1102, 1111 (D.C. Cir. 2014) (Allina I). Although

HHS promulgated a new rule in 2013 that includes Part C days 

in Medicare fractions, that rule applies only prospectively to 

reimbursement adjustments for fiscal years 2014 and beyond.3 

As a result, the pre-2004 standard of excluding Part C days 

from Medicare fractions remains the baseline practice from 

which this Court must evaluate any decisions for 2012. The 

decision to include Part C days in the 2012 Medicare fractions 

is therefore a change from prior practice.

Third, HHS’s inclusion of Part C days in the fiscal year 

2012 Medicare fractions establishes a “substantive legal 

standard.” “Substantive law” is law that “creates, defines, and 

regulates the rights, duties, and powers of parties.” BLACK’S 

LAW DICTIONARY (10th ed. 2014). A “substantive legal 

standard” at a minimum includes a standard that “creates, 

defines, and regulates the rights, duties, and powers of parties.” 

That is precisely what HHS’s 2012 Medicare fractions do. The 

fiscal intermediaries must use HHS’s published Medicare

fractions in determining how much the hospitals will be 

reimbursed. HHS’s fractions therefore define the scope of 

hospitals’ legal rights to payment for treating low-income 

patients. 

Fourth, HHS’s inclusion of Part C days in the fiscal year 

2012 Medicare fractions governs “payment for services.” The 

fractions are used to calculate the payment that providers will 

receive for providing healthcare services to low-income 

patients. The inclusion of Part C days means that the providers 

will now receive lower payments.

 

3 The 2013 rule is the subject of pending litigation in the District 

Court. We express no views on the merits of that case.
14

In sum, HHS’s decision to include Part C days in the 2012 

Medicare fractions is covered by the text of

Section 1395hh(a)(2). The Medicare Act therefore required

HHS to engage in notice-and-comment rulemaking before 

deciding to include Part C days in the 2012 Medicare fractions. 

Because HHS did not undertake notice-and-comment 

rulemaking, the 2012 Medicare fractions are procedurally 

invalid.

B

HHS’s arguments to the contrary are not persuasive. 

First, HHS argues that the fractions are not a “rule, 

requirement, or statement of policy” because the fractions 

apply only to the parties in this particular case for the year 

2012. That argument is factually inaccurate. HHS published 

Medicare fractions for every hospital in the country. All of 

those fractions include Part C days. Indeed, during oral 

argument, HHS forthrightly acknowledged that it would 

“generally” maintain a “consistent interpretation” for all 

hospitals for a given year, meaning that the policy applied to 

the hospitals in this case would apply to all hospitals 

nationwide. Tr. of Oral Arg. at 29:20-21. Moreover, as the 

hospitals point out, the 2012 Medicare fractions will be the 

basis not just for 2012 adjustments, but also for interim 2013 

payments until HHS publishes the 2013 fractions. See 42 

C.F.R. § 413.64(e). In other words, the decision to include Part 

C days in the 2012 Medicare fractions affects more hospitals

than just the parties in this particular case for this particular 

year. 

Second, HHS argues that the Medicare Act incorporates 

the APA’s exceptions to notice-and-comment requirements. 
15

According to HHS, even if the decision to include Part C days 

in the fiscal year 2012 Medicare fractions is a rule, it is at most 

an “interpretive rule” for purposes of the APA. As a result, it 

is exempt from the APA’s – and, by extension, the Medicare 

Act’s – notice-and-comment requirements. 

The problem with that argument is that the Medicare Act 

does not incorporate the APA’s interpretive-rule exception to 

the notice-and-comment requirement. (Therefore, we need not 

decide whether HHS’s decision to include Part C days in the 

2012 Medicare fractions was in fact an interpretive rule.)

Unlike the APA, the text of the Medicare Act does not 

exempt interpretive rules from notice-and-comment 

rulemaking. On the contrary, the text expressly requires

notice-and-comment rulemaking. The Medicare Act states: 

“No rule, requirement, or other statement of policy . . . shall 

take effect unless it is promulgated” through notice-andcomment rulemaking. 42 U.S.C. § 1395hh(a)(2) (emphasis 

added); id. § 1395hh(b)(1). The provision does not include an 

exception for interpretive rules. By contrast, the APA requires 

notice and comment only for “proposed rule making” and 

exempts “interpretative rules, general statements of policy, 

[and] rules of agency organization, procedure, or practice” 

from notice-and-comment requirements. 5 U.S.C. § 553(b). 

We must respect Congress’s use of different language and its 

establishment of different notice-and-comment requirements in

the Medicare Act and the APA. Cf. WILLIAM N. ESKRIDGE JR.,

INTERPRETING LAW: A PRIMER ON HOW TO READ STATUTES 

AND THE CONSTITUTION 109-10 (2016) (“Where a statute 

repeatedly uses one term or phrase, one expects that a 

materially different phraseology demands a different 

reading.”); ANTONIN SCALIA & BRYAN A. GARNER, READING 

LAW: THE INTERPRETATION OF LEGAL TEXTS 170 (2012) (“[A] 

material variation in terms suggests a variation in meaning.”).
16

Moreover, Congress knew how to incorporate the APA’s 

notice-and-comment exceptions into the Medicare Act when it 

wanted to. After all, the Medicare Act expressly incorporates 

other APA notice-and-comment exceptions. Specifically, the 

Medicare Act incorporates the APA’s “good cause” exception. 

See 42 U.S.C. § 1395hh(b)(2) (Notice-and-comment 

rulemaking requirement “shall not apply where— . . . 

subsection (b) of section 553 of title 5 does not apply pursuant 

to subparagraph (B) of such subsection.”). But in the Medicare 

Act, Congress did not incorporate the APA’s interpretive-rule 

exception to notice-and-comment requirements. 

We recognize that we are breaking with several other 

courts of appeals by holding that the Medicare Act does not 

incorporate all of the APA’s exceptions to the notice-andcomment requirement. See, e.g., Via Christi Regional Medical 

Center, Inc. v. Leavitt, 509 F.3d 1259, 1271 n.11 (10th Cir. 

2007); Baptist Health v. Thompson, 458 F.3d 768, 776 n.9 (8th 

Cir. 2006); Omni Manor Nursing Home v. Thompson, 151 Fed. 

App’x 427, 431 (6th Cir. 2005); Warder v. Shalala, 149 F.3d 

73, 79 n.4 (1st Cir. 1998).4 But we respectfully disagree with

those opinions. As discussed, we conclude that the Medicare 

Act does not incorporate the APA’s interpretive-rule exception 

to the notice-and-comment requirement.

 

4 As HHS points out, this Court’s prior decision in Monmouth 

Medical Center v. Thompson, 257 F.3d 807, 814 n.2 (D.C. Cir. 

2001), noted the question of whether the Medicare Act incorporates 

the APA’s interpretive-rule exception. But as HHS recognizes, 

Monmouth did not “expressly decide the question” raised here. HHS 

Br. 44.
17

C

Finally, even if HHS were correct that the Medicare Act

somehow incorporated the APA’s notice-and-comment 

exception for interpretive rules, HHS would still not prevail 

here. That is because another provision of the Medicare Act,

Section 1395hh(a)(4), expressly required notice and comment 

in this case. Section 1395hh(a)(4) reads in full:

If the Secretary publishes a final regulation that includes a 

provision that is not a logical outgrowth of a previously 

published notice of proposed rulemaking or interim final 

rule, such provision shall be treated as a proposed 

regulation and shall not take effect until there is the further 

opportunity for public comment and a publication of the 

provision again as a final regulation.

42 U.S.C. § 1395hh(a)(4). In other words, if a regulation 

includes a “provision that is not a logical outgrowth of a 

previously published notice of proposed rulemaking,” that 

provision may not become legally operative until it has gone 

through notice-and-comment rulemaking. Id.

Section 1395hh(a)(4) applies with full force here. This 

Court vacated HHS’s 2004 rule treating Part C enrollees as 

“entitled to benefits under Part A” because the 2004 rule “was 

not a logical outgrowth of the proposed rule.” Allina I, 746 

F.3d at 1109. HHS therefore had to provide a “further 

opportunity for public comment and a publication of the 

provision again as a final regulation” before HHS could reimpose the rule. 42 U.S.C. § 1395hh(a)(4). HHS did not do 

so. And HHS could not circumvent this requirement by 

claiming that it was acting by way of adjudication rather than 

rulemaking. The statutory text says that the vacated rule may 

not “take effect” at all until there has been notice and comment.
18

* * *

Because we conclude that HHS has failed to provide notice 

and comment as required by the Medicare Act, we need not 

consider whether HHS’s decision was arbitrary and capricious. 

We reverse the judgment of the District Court and remand for 

proceedings consistent with this opinion.

So ordered.