Policy & Regulation News

Hospital Advocates Speak Out Against Federal Rule Changes

By Ryan Mcaskill

- The Healthcare Financial Management Association (HFMA), the American Hospital Association (AHA), and the Association of American Medical Colleges (AAMC) have joined forces to voice their displeasure at the increasingly common practice of issuing far-reaching federal rule changes without notice. The hospital advocates wrote an amicus brief on October 17, 2014 in a case about similar issues.

The brief was written as part of Perez V. Mortgage Bankers Association. In this case, it is argued that the Department of Labor violated the Administrative Procedure Act by reversing an established interpretation of the Fair Labor Standards Act without complying with notice and comment rulemaking. While the issues the raised by the hospital advocates do not relate directly to the Department of Labor, the ruling could have a larger impact on general regulatory interpretative power of federal agencies.

The brief goes on to say that the associations have a specific interest in the case because their members are subject to a wide array of interpretive rules that are issued by a number of different federal agencies including the IRS. Furthermore, the hospital advocates want to show both the breadth of agency action that may be implicated by this court ruling as well as how agencies vary in their handling of such rules.

An example of the problem

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  • Value-Based Reimbursement May Not Bring Benefits for SNF Care
  • The brief does more than just raise the concern by laying out a specific example. Recently, the IRS revised its longstanding position on how to demonstrate whether nonprofit hospitals qualify for tax-exempt status. Since the 1960s, hospitals have operated under the “community benefit” standard, under which medically related research counted as evidence of community benefit regardless of whether the research was funded by grants that are restricted – given for specific research – or unrestricted.

    That rule was reinterpreted by the IRS in 2013 without notice or comment period. As a result, it is possible that for a reduced and inaccurate portrayal of the actual community benefits provided by hospitals could be seen. This happens because restricted research grants must now be categorized as “direct offsetting revenue” and means they can not added to the “community benefit contribution.”

    The case is currently under review and the IRS contends that its real work is done through legislative rules, which are put into effect through formal notice-and-comment procedures and are binding because they have become law. It argues that rule interpretations are simply to inform the public.

    “Agency action undertaken as an interpretive rule does much more than ‘simply explain to the public’ how the agency understands the law,” the brief reads. “Such action can and does impose real change on regulated entities, change that can be a wholesale reversal of longstanding agency policy, including policy originally adopted through more formal procedures.”

    The court is scheduled to hear the oral argument in the case on December 1, 2014.