Adirondack Med. Ctr. v. Sebelius

Decision Date24 January 2014
Docket NumberNo. 12–5366.,12–5366.
Citation740 F.3d 692
PartiesADIRONDACK MEDICAL CENTER, et al., Appellants, Corning Hospital, et al., Appellees v. Kathleen SEBELIUS, In Her Official Capacity as Secretary of the United States Department of Health and Human Services, Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

OPINION TEXT STARTS HERE

Appeal from the United States District Court for the District of Columbia (No. 1:11–cv–01671).

M. Miller Baker argued the cause for appellants. With him on the briefs were Ankur J. Goel and Johnny H. Walker.

Abby C. Wright, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Stuart F. Delery, Acting Assistant Attorney General, Ronald C. Machen Jr., U.S. Attorney, and Michael S. Raab, Attorney.

Before: ROGERS and BROWN, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

BROWN, Circuit Judge.

In 2007, the Secretary of Health and Human Services revamped Medicare's Inpatient Prospective Payment System, updating the diagnostic weighting used to calculate reimbursements for hospitals treating the program's beneficiaries. As with most changes to complex systems, there were unintended consequences—namely in the form of overpayments to hospitals—but Congress had proactively attempted to counter unwarranted increases by adjusting the standardized base amount used to calculate reimbursement for the majority of hospitals. The Secretary thought, however, the fiscal pain should be shared and opted to temper Congress' targeted response by mixing it with an adjustment for hospitals not affected by the congressional directive. She invoked her broad-spectrum grant of authority to ensure all hospitals—not just the ones relying on the standardized amount—would share the burden.

A number of hospitals—those serving rural and otherwise underserved communities—objected to being part of the cure. They insist Congress' legislative prescription—to adjust standardized base amounts—was the only course available to the Secretary to offset overpayment. We disagree and affirm the decision of the district court.

I

For our purposes today, the labyrinthine world of Medicare has two types of hospitals that enjoy different reimbursement schemes. The first group is reimbursed under the “federal rate”—a formula that takes a standardized base amount (derived from national data) and multiplies it by a weight associated with a diagnosis-related group (DRG).1See Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1227 (D.C.Cir.1994); see also42 U.S.C. § 1395ww(d)(3)(D). While these hospitals are certainly affected by the Secretary's actions in the case at bar, they are not the focus of this appeal.

The second group of hospitals, which includes Appellants (“the Hospitals”), follows a different formula, the “hospital-specific rate.” Their reimbursement is calculated with a base amount derived not from national data, but from historic operating costs at an individual hospital. See42 U.S.C. §§ 1395ww(d)(5)(D), 1395ww(d)(5)(G). That hospital-specific base is then multiplied by a DRG weight. 42 C.F.R. § 412.73(e). Because these facilities typically serve underserved communities, they have the option of receiving the higher of either the federal rate or the hospital-specific rate.2

Congress eventually directed the Secretary of Health and Human Services to “adjust the classifications and weighting factors” associated with the DRGs “to reflect changes in treatment patterns, technology, ... and other factors which may change the relative use of hospital resources.” 42 U.S.C. § 1395ww(d)(4)(C)(i). But despite longstanding general authority to “provide by regulation for such other exceptions and adjustments to ... payment amounts,” see, e.g.,42 U.S.C. § 1395ww(d)(5)(C)(iii) (1982), the agency demurred because it was unsure how to address the effects of such adjustments. SeeChanges to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1996 Rates, 60 Fed.Reg. 29,202, 29,247 (June 2, 1995). In response, Congress enacted 42 U.S.C. § 1395ww(d)(3)(A)(vi), which reads:

Insofar as the Secretary determines that the adjustments under paragraph (4)(C)(i) for a previous fiscal year (or estimates that such adjustments for a future fiscal year) did (or are likely to) result in a change in aggregate payments under this subsection during the fiscal year that are a result of changes in the coding or classification of discharges that do not reflect real changes in case mix, the Secretary may adjust the average standardized amounts computed under this paragraph for subsequent fiscal years so as to eliminate the effect of such coding or classification changes.

Armed with this new provision, the Secretary announced changes to the DRGs in 2007. See, e.g.,Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates, 72 Fed.Reg. 66,580, 66,886 (Nov. 27, 2007). To combat the possibility of overpayments under the new system, the Secretary adjusted the standardized amount downward by 1.2% and 1.8% for fiscal years 2008 and 2009, respectively. SeeChanges to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 72 Fed.Reg. 47,130, 47,186 (Aug. 22, 2007). But Congress intervened, halving the amount of adjustment by enacting the Transitional Medical Assistance, Abstinence Education, and QI Programs Extension Act of 2007, Pub.L. No. 110–90, § 7(a), 121 Stat. 984, 984 (2007) (“TMA”). A greater adjustment would require a determination by the Secretary that the “changes in coding and classification ... did not reflect real changes in case mix” prior to making prospective adjustments under § 1395ww(d)(3)(A)(vi) and recoupment adjustments under section 7(b)(1)(B) of the TMA.

The Secretary accordingly conducted retrospective analyses and proposed a downward prospective adjustment for hospital-specific rate payments. Citing a need to “avoid what could be widespread, disruptive effects of ... adjustments on hospitals” that would occur by only adjusting the standardized amounts, the Secretary opted to temper the impact of reclassification by splitting the difference between “federal rate” and “ hospital-specific rate” hospitals. Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long–Term Care Hospital Prospective Payment System Changes and FY2011 Rates, 75 Fed.Reg. 50,042, 50,070 (Aug. 16, 2010). The latter group objected, asserting the Secretary's action would “ endanger their ability to provide the type of care that Congress specifically sought to protect by establishing their special Medicare payment systems.” Id. Relying on the once-obscure grant of authority in § 1395ww(d)(5)(I) (i), the Secretary implemented the adjustments anyway. See id.

The Hospitals sought expedited judicial review of the Secretary's decision from the Provider Reimbursement Review Board, which disclaimed jurisdiction but noted it would have otherwise expedited review. Once the Medicare administrator reversed the Board's jurisdictional finding, the Hospitals filed suit in district court, claiming the Secretary's decision was arbitrary, capricious, and exceeded the scope of her statutory authority. The Secretary responded by filing a motion to dismiss. Finding the statutory scheme ambiguous and deferring to the Secretary's reasonable interpretation of the adjustment provisions, the district court granted the motion. See Adirondack Med. Ctr. v. Sebelius, 891 F.Supp.2d 36, 48 (D.D.C.2012).

II

This case rests on Chevron deference. We review a district court's deference decision de novo, “employing traditional tools of statutory construction.” Nat'l Ass'n of Clean Air Agencies v. EPA, 489 F.3d 1221, 1228 (D.C.Cir.2007) (internal quotation marks omitted). The first step of this familiar inquiry is considering “the text, structure, purpose, and history of an agency's authorizing statute to determine whether a provision reveals congressional intent about the precise question at issue. Hearth, Patio & Barbecue Ass'n v. U.S. Dep't of Energy, 706 F.3d 499, 503 (D.C.Cir.2013) (internal quotation marks omitted). If we cannot readily divine Congress' clear intent, we must defer to the agency's interpretation of the statute so long as it is “based on a permissible construction of the statute.” See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 843, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).

A

The Hospitals begin their Chevron challenge relying on the canon of expressio unius est exclusio alterius (the expression of one is the exclusion of others). In their reply brief, the Hospitals assert they “invoke expressio unius only to establish that subsection (d)(3)(A)(vi) on its own terms unambiguously authorizes adjustments solely to the standardized amount.” Reply Br. at 6 n. 3. Had the Secretary attempted to promulgate the changes to the hospital-specific rates by invoking § 1395ww(d)(3)(A)(vi), the canon would have force in isolation. But the Secretary did no such thing.

Instead, the manner in which the Appellants rely on the expressio unius canon suggests they are drawing on the canon's preclusive power. In other words, the very invocation of the canon constitutes a challenge to the Secretary's broad authority. The nature of their argument is in the very name of the canon— exclusio alterius, or the exclusion of the other. As § 1395ww(d)(3)(A)(vi) concerns the grant of authority, the invocation of the canon must naturally involve an attempt to exclude all other potential sources of authority when it comes to remedying a particular malady. And when one possible interpretation of a statutory provision has the potential to render another provision inert, we cannot simply say, as the Appellants suggest we do, that we are reviewing the former in isolation. Rather, the canon's relevance and applicability must be assessed within the context of the entire statutory framework. See Am. Bankers Ass'n v. Nat'l Credit Union Admin., 271 F.3d...

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