Washington Hosp. Center v. Bowen, s. 85-5906

Citation795 F.2d 139
Decision Date08 July 1986
Docket Number85-5909 and 85-5910,Nos. 85-5906,85-5908,85-5907,s. 85-5906
Parties, 14 Soc.Sec.Rep.Ser. 172, Medicare&Medicaid Gu 35,481 WASHINGTON HOSPITAL CENTER, et al. v. Otis R. BOWEN, Secretary, Health and Human Services, Appellant. CAPITOL HILL HOSPITAL, et al. v. Otis R. BOWEN, Secretary, Health and Human Services, Appellant. GEORGETOWN UNIVERSITY HOSPITAL, et al. v. Otis R. BOWEN, Secretary, Health and Human Services, Appellant. DISTRICT OF COLUMBIA GENERAL HOSPITAL, et al. v. Otis R. BOWEN, Secretary, Health and Human Services, Appellant. TUCSON MEDICAL CENTER v. Otis R. BOWEN, Secretary, Health and Human Services, Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Appeals from the United States District Court for the District of Columbia (Civil Action No. 84-02437).

Ronald N. Sutter, Washington, D.C., for appellees in Nos. 85-5906 through 85-5910.

Edward R. Cohen, Atty., Dept. of Justice, with whom Richard K. Willard, Asst. Atty. Gen., Dept. of Justice, Joseph E. diGenova, U.S. Atty. and Anthony J. Steinmeyer, Atty., Dept. of Justice, Washington, D.C., were on brief, for appellant in Nos. 85-5906 through 85-5910. Royce C. Lamberth, R. Craig Lawrence, Asst. U.S. Attys., and Alfred Mollin, Atty., Dept. of Justice, Washington, D.C., also entered appearances, for appellant.

Before WALD, Circuit Judge, and WRIGHT and McGOWAN, Senior Circuit judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge:

In 1983 Congress radically altered the Medicare payment scheme to create a Prospective Payment System ("PPS"). At that time, new language was added to 42 U.S.C. Sec. 1395oo (a), the statutory provision creating a Provider Reimbursement Review Board ("PRRB") to resolve disputes over payment amounts. In Health Care Financing Administration Ruling ("HCFAR") 84-1, however, the Secretary of Health and Human Services interpreted that amended provision to continue to require hospitals to await completion of a cost year and subsequent issuance of a Notice of Program Reimbursement ("NPR") before challenging PPS payments before the PRRB. The District Court below reached the same conclusion as thirteen other district courts which have considered the Secretary's interpretation, 1 finding it to be in conflict with the language of Sec. 1395oo (a) and therefore invalid. Tucson Medical Center v. Heckler, 611 F.Supp. 823 (D.D.C.1985). We agree that HCFAR 84-1 is contrary to congressional intent as expressed in the plain language and legislative history of the 1983 amendments.

I. BACKGROUND
A. The Prior Scheme: Retrospective Reimbursement

For cost reporting years beginning before October 1, 1983, hospitals were reimbursed for the "reasonable cost" of inpatient hospital services furnished to Medicare patients. 42 U.S.C. Sec. 1395f(b) (1982). Under the "reasonable cost" system, which continues to apply to a limited class of providers, fiscal intermediaries such as Blue Cross make estimated interim payments to providers during the year and later retroactively adjust them to bring the amount paid into conformity with the actual, reasonable costs incurred by the hospital. 42 C.F.R. Secs. 405.405, 405.454 (1985). At the end of a cost reporting year the hospital submits a cost report to the intermediary, which audits the report to determine which costs are reimbursable. The intermediary's conclusion as to the total amount of reimbursement due the provider is contained in a Notice of Program Reimbursement ("NPR"). Id. Secs. 405.406(b), 405.453(f), 405.1803(a).

Under this retrospective payment system, a final determination of the correct amount of reimbursement cannot be made until after the end of the cost year and the issuance of the NPR. Id. Secs. 405.405(b), 405.454(f)(1). Consequently, the statutory provisions controlling appeals to the Provider Reimbursement Review Board ("PRRB" or "Board") require a hospital to have "filed a required cost report" and to challenge only "a final determination of the organization serving as its fiscal intermediary ... as to the amount of total program reimbursement due the provider." 42 U.S.C. Sec. 1395oo (a) (Supp. II 1984). Under this scheme it is clear that an appeal to the PRRB must await issuance of the NPR, which is the fiscal intermediary's "final determination ... as to the amount of total program reimbursement." See 42 C.F.R. Sec. 405.1803(a)(1).

B. The 1983 Amendments: The Prospective Payment System

The Social Security Amendments of 1983 instituted "a major change in the method of payment under medicare for inpatient hospital services." S.Rep. No. 23, 98th Cong., 1st Sess. 47, reprinted in 1983 U.S.Code Cong. & Ad.News 143, 187. Certain types of hospitals, such as psychiatric hospitals and children's hospitals, and certain types of costs, such as medical education, continue to be reimbursed on a reasonable cost basis. 42 U.S.C. Secs. 1395ww(a)(4), 1395ww(d)(1)(B) (Supp. II 1984). For most hospitals, however, Medicare now pays for inpatient services on the basis of prospectively determined rates. 2

Congress instituted the Prospective Payment System ("PPS") in order "to reform the financial incentives hospitals face, promoting efficiency in the provision of services by rewarding cost/effective hospital practices." H.R.Rep. No. 25, 98th Cong., 1st Sess. 132, reprinted in 1983 U.S.Code Cong. & Ad.News 219, 351. By informing hospitals in advance of the payments they will receive per patient for various types of treatment, Congress hoped to induce the hospitals to lower their costs to levels below the amount of the payments. After PPS has been phased in, hospitals will be paid according to a standard national rate calculated for each of approximately 470 treatment categories or "Diagnosis Related Groups" ("DRGs"). 42 U.S.C. Sec. 1395ww(d); 49 Fed.Reg. 34,728, 34,780-90 (1984).

In enacting PPS, Congress provided for a transition or "phase-in period to minimize disruptions that might otherwise occur because of a sudden change in reimbursement policy." H.R.Rep. No. 25 at 136, reprinted in 1983 U.S.Code Cong. & Ad.News at 355. During this period, initially scheduled to last three years and recently extended to four years, PPS payments will be based on a blend of a "DRG prospective payment rate" and a "hospital's target amount." 42 U.S.C. Sec. 1395ww(d)(1)(A). The hospital's target amount, referred to in the regulations as the "hospital-specific rate," is based on the hospital's actual costs during a designated "base year." 42 C.F.R. Secs. 412.70-.74. Over the course of the transition period, the proportion of the per-discharge payment which is based on the hospital's costs decreases from 75% to 25% while the proportion based on DRG amounts increases accordingly. 3 42 U.S.C. Sec. 1395ww(d)(1), amended by Consolidated Omnibus Budget Reconciliation Act of 1985, Pub.L. No. 99-272, Sec. 9102, 100 Stat. 82, 155 (1986).

The 1983 amendments also altered the statutory provision governing hospitals' appeals of PPS payment amounts to the PRRB. The new language provides for appeals by "any hospital which receives payments in amounts computed under [PPS]" and "is dissatisfied with a final determination of the Secretary as to the amount of payment under [PPS]." 42 U.S.C. Sec. 1395oo (a). The meaning of these amendments to Sec. 1395oo (a) is the central issue in this appeal.

C. HCFAR 84-1 and the Hospitals' Appeals

Relying on the new language in Sec. 1395oo (a), hospitals began appealing intermediaries' final determinations of the hospital-specific portion of their PPS rates. The Board accepted jurisdiction over at least 31 such appeals. Joint Appendix ("J.A.") at 94-155. On May 29, 1984, however, the Secretary issued HCFAR 84-1, reversing the Board's jurisdictional position. The Secretary ruled that

an intermediary's estimation of a hospital's base year costs and modifications thereto, made for purposes of determining the hospital-specific rate under PPS ... is neither a final determination of program reimbursement nor a notice of the amount of program reimbursement as required by the statute and regulations. Accordingly, the PRRB has jurisdiction to review an intermediary's [determination] ... only after an NPR has been issued for the hospital's first cost reporting period under the prospective payment system.

49 Fed.Reg. 22,413, 22,415 (1984). An identical interpretation of Sec. 1395oo (a) is contained in the PPS regulations. 42 C.F.R. Sec. 412.72(b)(1) (1985).

Each of the hospitals in these consolidated cases attempted to appeal some aspect of the calculation of its target amount or hospital-specific rate to the PRRB. J.A. at 200-08. 4 Each had received a "Final Notice of Base Period Cost and Target Amount Per Discharge" before filing the appeal. Id. at 187-99. In each case, the PRRB informed the hospital that under HCFAR 84-1, "since an NPR has not been issued for the applicable PPS cost year, the Board is precluded from conducting a hearing." Id. at 209-16. The hospitals then filed complaints in the District Court seeking declarations that HCFAR 84-1 is invalid and orders requiring the PRRB to process their appeals. Id. at 13-53. The District Court consolidated these cases, granted summary judgment for the hospitals, and ordered the requested relief. 611 F.Supp. at 827.

II. ANALYSIS
A. Standard of Review

The Secretary argues that his interpretation of Sec. 1395oo (a), embodied in HCFAR 84-1 and the PPS regulations, is entitled to substantial deference. The District Court declined to defer to the Secretary's interpretation, finding his position in HCFAR 84-1 to be inconsistent with other regulations and inadequately explained. 611 F.Supp. at 826-27.

A court's first task in reviewing an agency's construction of a statute is to determine "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." Chevron, ...

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