The eight year rule does not really have anything to do with medical retirement or separation pay, it pertains to whether or not a condition that existed prior to service is compensable.
By law, a Soldier with over eight years of active Federal service is eligible for disability compensation even if the condition is EPTS. The eight years of active service do not have to be continuous; however, you must be on active-duty orders of more than 30 days for this rule to apply.
Here are the regulations that I was able to find regarding USPHS medical retirement. On thing it does state is that the statutory authority is Title l0, U.S. Code, Chapter 6l, and Section 22l(a)(2) of the PHS Act