Jewish Hosp., Inc. v. Secretary of Health and Human Services

• Decision Date: 16 May 1994
• Docket Number: No. 92-5688,92-5688
• Citation: 19 F.3d 270
• Parties: , 44 Soc.Sec.Rep.Ser. 33, Medicare&Medicaid Guide P 42,143 JEWISH HOSPITAL, INC., Plaintiff-Appellant, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 270

19 F.3d 270

62 USLW 2589, 44 Soc.Sec.Rep.Ser. 33,

Medicare&Medicaid Guide P 42,143

JEWISH HOSPITAL, INC., Plaintiff-Appellant, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant-Appellee.

No. 92-5688.

United States Court of Appeals, Sixth Circuit.

Argued March 5, 1993.

Decided March 18, 1994.

Rehearing and Suggestion for

Rehearing En Banc Denied May 16, 1994. ^*

R. Thomas Carter (argued and briefed), Edward L. Schoenbaechler, Jan M. West (briefed), Goldberg & Simpson, Louisville, KY, for plaintiff-appellant.

James H. Barr, Asst. U.S. Atty., Office of the U.S. Atty., Louisville, KY, Donald F. Dickey, David V. Peery (argued and briefed), Dept. of Health and Human Services, Baltimore, MD, for defendant-appellee.

Donna J. Haggarty, Sanford E. Pitler (briefed), Carol S. Gown, Bennett & Bigelow, Seattle, WA, for Baptist Hosp. (Nashville, Tennessee), amicus curiae, Baptist Hosp. (Nashville, Tennessee), Baptist Hospital (Tipton), amicus curiae, Blount Memorial Hosp., amicus curiae, Bristol Regional Medical Center, amicus curiae, Erlanger Medical Center, Inc., amicus curiae, Fort Sanders, Fort Sanders Regional Medical Center, amicus curiae, George W. Hubbard Hosp., amicus curiae, Jackson-Madison County Gen. Hosp., amicus curiae, Johnson City Medical Center, amicus curiae, Regional Medical Center at Memphis, amicus curiae, St. Mary's Medical Center, amicus curiae, University of Tennessee Memorial Hosp. at Knoxville, amicus curiae and Vanderbilt Medical Center, amicus curiae.

Before: KEITH and BATCHELDER, Circuit Judges, and TAYLOR, District Judge. ^**

KEITH, Circuit Judge.

Plaintiff, Jewish Hospital, Inc. ("Jewish Hospital"), appeals the adverse summary judgment ruling of the district court involving the interpretation of a Medicare reimbursement provision. Congress requires the Secretary of Health and Human Services (the "Secretary") to adjust Medicare Prospective Payment System ("PPS") payments for hospitals that provide inpatient services to a disproportionate share of low income patients. See 42 U.S.C. Sec. 1395ww(d)(5)(F)(vi)(II). The Secretary's restrictive reading of the disproportionate share adjustment serves as the basis for this appeal. See 42 C.F.R. Sec. 412.106. Because the Secretary's interpretation is contrary to the clear mandate of the statute, we REVERSE the district court ruling and REMAND the case to the Secretary for the proper calculation of the disproportionate share adjustment.

I. THE REGULATORY FRAMEWORK

In 1985, Congress enacted the Consolidated Omnibus Budget Reconciliation Act of 1985 (hereinafter "COBRA"). As a part of COBRA, Congress provided that the PPS system pay hospitals a prospectively determined amount per discharge based on the costs that an efficiently operating hospital should incur to provide quality services to Medicare beneficiaries based on the patient's diagnosis at the time of discharge. See 42 U.S.C. Sec. 1395ww. The statute also provides for the adjustment of these payments for hospitals that provide inpatient services to a disproportionate share of low income patients. Congress sought to adjust the Medicare PPS system to recognize the higher costs incurred by hospitals that serve a large number of low income patients.

A hospital must have a certain "disproportionate patient percentage" to qualify for the Medicare adjustment at issue in the instant case. This percentage is defined as the sum of two fractions expressed as percentages and serves as a "proxy" for all low income patients. The first fraction, termed the "Medicare Low Income Proxy," is based on the number of Medicare patients served by the hospital. The statute defines this proxy as follows:

the numerator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under [Medicare] and who were entitled to supplemental security income benefits (excluding any State supplementation) under [SSI], and the denominator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under [Medicare] ...

(emphasis added). See 42 U.S.C. Sec. 1395ww(d)(5)(F)(vi)(I). The second fraction, termed the "Medicaid Low Income Proxy," is based upon Medicaid-eligible patients. The statute defines this proxy as follows:

the numerator of which is the number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under subchapter XIX [Medicaid], but who were not entitled to benefits under [Medicare], and the denominator of which is the total number of the hospital's patient days for such period.

(emphasis added). See 42 U.S.C. Sec. 1395ww(d)(5)(F)(vi)(II).

The Secretary promulgated the following regulation to implement the language of the Medicaid Low Income Proxy:

Total Medicaid inpatient days will include all covered days attributable to Medicaid patients.... Medicaid covered days will include only those days for which benefits are payable under title XIX. Any day of a Medicaid patient's hospital stay that is not payable by the Medicaid program will not be counted as a Medicaid patient day since the patient is not considered eligible for Medicaid coverage on those days.

(emphasis added). Medicare Program, 51 Fed.Reg. 16,777 (1986). The Secretary purports to interpret Congress' statutory phrase, "eligible for medical assistance under a State plan approved under title XIX [Medicaid]" with its promulgated regulation. The Secretary argues that only those days actually paid by Medicaid can be utilized in the calculation of the proxy. The Secretary's interpretation of the Medicaid Proxy is the subject of this appeal.

II. NATURE OF THE CASE

In the case at bar, Jewish Hospital was reimbursed for its services under the PPS system for the year ending in 1986. Jewish Hospital qualified for a disproportionate share adjustment to its Medicare reimbursement based on the number of low income patients that it serviced in the 1986 fiscal year.

In 1989, Jewish Hospital was notified by its regional Medicare Intermediary, Blue Cross and Blue Shield of Kentucky, Inc., that Jewish Hospital was to receive a limited adjustment for serving a disproportionate share of low-income patients based on the interpretation given the statute by the Secretary. Jewish Hospital disputed the Secretary's interpretation of the statute and appealed the Medicare Intermediary's decision to the Provider Reimbursement Review Board, a statutorily established body that hears appeals of disputes between hospitals and their Intermediaries. See 42 U.S.C. Sec. 1395oo. Because no factual dispute existed, Jewish Hospital requested that the PRRB grant expedited judicial review of the Secretary's interpretation of the disproportionate share adjustment. The PRRB granted the request, and Jewish Hospital filed the instant action in the district court on November 20, 1990.

The parties fully briefed the issues and filed cross motions for summary judgment. The district court granted the motion in favor of the Secretary in its memorandum opinion and order dated March 16, 1992. 791 F.Supp. 168. Specifically, the court stated:

We believe that the statute supports the Secretary's interpretation. However, even if that were not the case, we believe the most that could be said concerning the statute is that it is ambiguous. The parties agree that if the statute is ambiguous, the Secretary can legally choose the interpretation. We also are of the opinion that the statute, as drafted, by including the words, "for such days," means that the hospital may recover only for those days on which Medicaid patients were actually reimbursed. Had Congress intended the result sought by the plaintiff it would have left out "for such days" and made it clear that all patients on Medicaid were to be counted as part of the numerator regardless of whether they were days on which Medicaid were actually paid.

Joint Appendix at 37.

III. ANALYSIS

A. Standard of Review

This Court's review of this case is circumscribed by the Supreme Courts decision of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). In CenTra, Inc. v. United States, 953 F.2d 1051 (6th Cir.1992), we reaffirmed that Chevron was the applicable standard when reviewing an agency's interpretation of a statute it was charged to administer, stating:

In Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), the Supreme Court explained how a court should treat an agency interpretation of statutes within the agency's ambit.

When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.

467 U.S. at 842-43, 104 S.Ct. at 2781-82 (emphasis added). The Court went on to state that in determining whether an agency's answer is based on a permissible construction of a statute, a reviewing "court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction or even the reading the court would have reached if the question...