The US Supreme Court held Monday in Azar v. Allina Health Services that the government’s policy that reduced payments to hospitals serving low-income patients must be vacated for failing to identify a lawful excuse for neglecting its statutory notice-and-comment obligations under the Medicare statute.

This case arose out of the government’s policy in counting Part C enrollees of Medicare as “entitled to benefits under” Part A when calculating additional payments to hospitals that serve low-income patients.

A group of hospitals sued, claiming that the government had violated the Medicare Act’s requirement to provide public notice and a 60-day comment period for any “rule, requirement, or other statement of policy … that establishes or changes a substantive legal standard governing … the payment for services.”

The government argues that the policy of counting Part C patients in the Medicare fractions would be treated as interpretive rather than substantive under the Administrative Procedure Act (APA), and it had no statutory obligation to provide notice and comment before adopting the policy. The court rejected this argument, holding Medicare Act and the APA do not use the word “substantive” in the same way.