The U.S. Supreme Court vacated policy changes from the U.S. Department of Health and Human Services that would have cut billions of dollars in Medicare funding for disproportionate share hospitals, facilities that serve a large number of low-income patients.

The court ruled June 3 that HHS violated requirements outlined in the Medicare Act when it proposed changes to the funding formula for disproportionate share hospitals in 2014. The department is required to notify the public and seek comment when changing a "substantive legal standard," according to the ruling. However, the department failed to do either of these when the changes were made.

Justice Neil Gorsuch, who wrote the decision, said public notice and comment are important for most changes to Medicare because the program "touches the lives of nearly all Americans," adding that "even seemingly modest modifications to the program can affect the lives of millions."

"Because affected members of the public received no advance warning and no chance to comment first, and because the government has not identified a lawful excuse for neglecting its statutory notice-and-comment obligations, we agree with the court of appeals that the new policy cannot stand," Gorsuch wrote.

The court ruled 7-1 against HHS, with Justice Stephen Breyer as the lone dissenter. Justice Brett Kavanaugh did not take part in the decision.

Allina Health Services and other hospital companies brought the lawsuit against HHS.

Medicare is the government-run health insurance program primarily for the disabled and elderly. Because disproportionate share hospitals serve large volumes of low-income and uninsured patients, Medicare provides these facilities with extra funding to balance uncompensated care costs.

Traditionally, HHS only counted Medicare Part A patients in the funding formula for disproportionate share hospitals. However, the agency added Medicare Part C patients into the formula in 2014 when it calculated payments for fiscal year 2012. Medicare Part C patients tend to be wealthier than traditional Medicare patients, and adding them into the formula lowered payments to hospitals "considerably," Gorsuch wrote.

The formula change cut hospital payments by $3 billion to $4 billion over a period of nine years, according to the ruling.

Gorsuch wrote that HHS posted the changes on the internet but explained that this action did not achieve the requirements outlined in the Medicare Act, which requires the department to notify the public and seek public comment when making changes to "substantive legal standards."

Breyer argued that the change was "interpretative" rather than "substantive," which he argues does not require HHS to follow the same notice-and-comment requirements.

Melinda Hatton, general counsel for the American Hospital Association, a national hospital representative, praised the courts ruling June 3, saying in a statement that "HHS failed to consider the real-world impact of its changes, leading to policies that may adversely affect patients as well as providers."