Los Angeles Haven Hospice Inc. v. Sebelius

• Decision Date: 15 March 2011
• Docket Number: No. 09–56391.,09–56391.
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: LOS ANGELES HAVEN HOSPICE, INC., a California corporation, Plaintiff–Appellee,v.Kathleen SEBELIUS, Secretary of United States Department of Health and Human Services Substituted for Michael O. Leavitt, Defendant–Appellant.

638 F.3d 644

11 Cal. Daily Op. Serv. 3185

2011 Daily Journal D.A.R. 3818

LOS ANGELES HAVEN HOSPICE, INC., a California corporation, Plaintiff–Appellee,

v.Kathleen SEBELIUS, Secretary of United States Department of Health and Human Services Substituted for Michael O. Leavitt, Defendant–Appellant.

No. 09–56391.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 6, 2010.Filed March 15, 2011.

OPINION TEXT STARTS HEREWest CodenotesHeld Invalid42 C.F.R. § 418.309

Nicholas Bagley and Benjamin M. Shultz, Department of Justice, Civil Division, Washington, D.C., for the defendant-appellant.Brian M. Daucher, Sheppard, Mullin, Richter & Hampton, Costa Mesa, CA, for the plaintiff-appellee.Appeal from the United States District Court for the Central District of California, George H. Wu, District Judge, Presiding. D.C. No. 2:08–cv–04469–GW–R.Before: CYNTHIA HOLCOMB HALL ^*, RAYMOND C. FISHER, and JAY S. BYBEE, Circuit Judges.

OPINION

HALL, Circuit Judge:

The Secretary of Health and Human Services (“the Secretary”) appeals a summary judgment in favor of Los Angeles Haven Hospice, Inc. (“Haven Hospice”), in this action challenging the so-called “hospice cap regulation,” 42 C.F.R. § 418.309, pursuant to which Haven Hospice was ordered to repay more than $2.3 million it received in excess of the annual cap on reimbursement for hospice care it provided to Medicare beneficiaries in fiscal year 2006 (“FY 2006”). The district court declared the hospice cap regulation to be arbitrary, capricious, and contrary to law and, thus, invalid. It then set aside the FY 2006 repayment demand, ordered HHS to return the amounts Haven Hospice had already paid to satisfy that demand, and entered an injunction barring further enforcement of the unlawful regulation against Haven Hospice and all other certified hospice service providers nationwide.

The Secretary contends that Haven Hospice lacks standing to mount a facial challenge to the hospice cap regulation, and that the regulation is, in any event, a reasonable interpretation of the “hospice cap statute,” 42 U.S.C. § 1395f(i)(2). The Secretary further contends that the district court exceeded its jurisdiction and abused its discretion by entering an overly broad injunction.

We conclude that Haven Hospice has Article III standing to challenge the hospice cap regulation, and that the district court had jurisdiction pursuant to 42 U.S.C. § 1395 oo(f)(1) to determine the validity of the hospice cap regulation. We further conclude that the hospice cap regulation is facially invalid under the first prong of the test prescribed by the Supreme Court 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) (“ Chevron ”), and that the district court had the authority to enjoin further enforcement of the regulation. However, because the injunction entered by the district court is more burdensome to the defendant than necessary to provide complete relief to the plaintiff before the court, we vacate the injunction to the extent it bars enforcement of the hospice cap regulation against hospice providers other than Haven Hospice.

I.

A.

Since 1982, Medicare Part A has included a hospice benefit for terminally-ill patients. See Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”), Pub.L. No. 97–248, 96 Stat. 324, 356–63 (1982) (codified as amended at 42 U.S.C. § 1395c, et seq.). A Medicare beneficiary may elect hospice care if at least two physicians certify that he or she is terminally ill, with a life expectancy of six months or less. See 42 U.S.C. §§ 1395f(a)(7)(A), 1395x(dd)(3)(A).

Medicare generally pays certified hospice providers a fixed amount for each day they provide care to an eligible beneficiary. 42 U.S.C. § 1395f(i)(1); see also 42 C.F.R. § 418.302 (establishing rates). When the hospice benefit was established in 1982, beneficiaries were generally limited to six months of hospice care. See TEFRA, § 122, 96 Stat. at 356. However, under an amendment included in the Balanced Budget Act of 1997, Pub.L. No. 105–33, § 4443(a), 111 Stat. 251, 423 (1997), if a beneficiary lives longer than six months, coverage may be extended for an unlimited number of sixty-day periods. See 42 U.S.C. § 1395d(d)(1).

To ensure that payments for hospice care for qualified beneficiaries would not exceed the cost of care in a conventional setting, Congress established a retrospective “cap” on the aggregate amount that Medicare would reimburse hospice providers each year. H.R.Rep. No. 98–333, at 1 (1983), reprinted in 1983 U.S.C.C.A.N. 1043, 1043–44 (Jul. 28, 1983). To calculate the hospice cap for a provider for a particular fiscal year, a “cap amount” is multiplied by “the number of [M]edicare beneficiaries in the hospice program in that year.” 42 U.S.C. § 1395f(i)(2)(A). The cap amount initially set by statute was $6,500 per beneficiary, subject to annual adjustment to reflect any increase or decrease in the Consumer Price Index for medical care expenditures. Pub.L. No. 98–90, 97 Stat. 606 (1983) (codified at 42 U.S.C. § 1395f(i)(2)(B)). Unsurprisingly, the cap amount per beneficiary has steadily increased since 1983: for FY 2005, it was $19,778; for FY 2006, it was $20,585; for FY 2009, it was $23,015; and for FY 2010, it was $23,875.¹

When it enacted the hospice cap statute, Congress defined the term “number of Medicare beneficiaries” as follows:

[T]he “number of [M]edicare beneficiaries” in a hospice program in an accounting year is equal to the number of individuals who have made an election [to enter hospice care] and have been provided hospice care by ... the hospice program under this part in the accounting year, such number reduced to reflect the proportion of hospice care that each such individual was provided in a previous or subsequent accounting year or under a plan of care established by another hospice program.

42 U.S.C. § 1395f(i)(2)(C) (emphasis added).

In 1983, the Department of Health and Human Services (“HHS”) promulgated and adopted the hospice cap regulation challenged in this case, 42 C.F.R. § 418.309, and has used it ever since to calculate each provider's aggregate “cap” for each accounting year. Under the regulation, the cap period runs from November 1 to October 31 of the following year, 42 C.F.R. § 418.309(a), with the relevant “number of Medicare beneficiaries” who received hospice care from a single provider defined as follows:

Those Medicare beneficiaries who have not previously been included in the calculation of any hospice cap and who have filed an election to receive hospice care ... from the hospice during the period beginning on September 28 (35 days before the beginning of the cap period) and ending on September 27 (35 days before the end of the cap period).

42 C.F.R. § 418.309(b)(1). Thus, under the hospice cap regulation, terminally ill beneficiaries who entered hospice between September 28, 2005, and September 27, 2006, were counted in the cap calculation for FY 2006.

The hospice cap regulation provides a different methodology—one more in keeping with the statutory mandate—for counting “the number of Medicare beneficiaries” who elected to receive care from more than one hospice provider, as follows:

In the case in which a beneficiary has elected to receive care from more than one hospice, each hospice includes in its number of Medicare beneficiaries only that fraction which represents the portion of a patient's total stay in all hospices that was spent in that hospice.

42 C.F.R. § 418.309(b)(2) (emphasis added). The regulation specifies that a hospice can obtain information to determine the “fraction” of care it provided to a given beneficiary in a given year by contacting its fiscal intermediary.²Id.

When HHS first proposed rules to implement the hospice cap in 1983, the agency acknowledged the statutory directive to make a proportional allocation of the “number of Medicare patients” across years of service, as follows:

The statute specifies that the number of Medicare patients used in the calculation is to be adjusted to reflect the portion of care provided in a previous or subsequent reporting year or in another hospice.

48 Fed.Reg. 38146, 38158 (Aug. 22, 1983). HHS nevertheless declared that:

With respect to the adjustment necessary to account for situations in which a beneficiary's election overlaps two accounting periods, we are proposing to count each beneficiary only in the reporting year in which the preponderance of the hospice care would be expected to be furnished rather than attempt to perform a proportional adjustment.

Id. (emphasis added). In other words, HHS proposed that the regulation would not provide for the proportional allocation of individual beneficiaries, as Congress directed, but would instead count an individual only in a single year, the one in which he or she first elected the hospice benefit.

HHS appears to have decided to deviate from the statutory directive primarily as a matter of administrative convenience:

Although section 1814(i)(2)(C) of the Act specifies that the cap amount is to be adjusted “to reflect the proportion of the hospice care that each such individual was provided in a previous or subsequent accounting year ...,” such an adjustment would be difficult in that the proportion of the hospice stay occurring in any given year would not be known until the patient dies or exhausted his or her hospice benefits. We believe the proposed alternative of counting the beneficiary in the reporting period where the beneficiary used most of the days of covered hospice care will achieve the intent of the statute without being burdensome.

48 Fed.Reg. at 38158 (emphasis added). However, HHS at least implicitly recognized that its method of limiting cap allocations to the initial year of service would prejudice hospices that provided some care in one fiscal year with the majority of care in the next fiscal year. In an attempt to ameliorate this prejudice, HHS established...