Cabell Huntington Hosp., Inc. v. Shalala, 95-3095

• Decision Date: 27 November 1996
• Docket Number: No. 95-3095,95-3095
• Parties: , Medicare & Medicaid Guide P 44,912 CABELL HUNTINGTON HOSPITAL, INCORPORATED, a Statutory Corporation; Charleston Area Medical Center, Incorporated; Ohio Valley Medical Center, Inc.; West Virginia University Hospital, Plaintiffs-Appellees, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant-Appellant, and Bruce C. Vladeck, Administrator, Health Care Financing Administration; Susan Hereford, Manager, Provider Audit and Reimbursement, Blue Cross and Blue Shield of Virginia, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 984

101 F.3d 984

52 Soc.Sec.Rep.Ser. 257, Medicare & Medicaid Guide

P 44,912

CABELL HUNTINGTON HOSPITAL, INCORPORATED, a Statutory Corporation; Charleston Area Medical Center, Incorporated Ohio Valley Medical Center, Inc.; West Virginia University Hospital, Plaintiffs-Appellees, v. Donna E. SHALALA, Secretary of Health and Human Services Defendant-Appellant and Bruce C. Vladeck, Administrator, Health Care Financing Administration; Susan Hereford, Manager, Provider Audit and Reimbursement, Blue Cross and Blue Shield of Virginia, Defendants.

No. 95-3095.

United States Court of Appeals Fourth Circuit.

Argued Sept. 26, 1996.

Decided Nov. 27, 1996.

COUNSEL: Scott Ramsey McIntosh, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C., for Defendant-Appellant. Terrence J. O'Rourke, Nash & Company, P.C., Pittsburgh, Pennsylvania, for Plaintiffs-Appellees. ON BRIEF: Frank W. Hunger, Assistant Attorney General, Rebecca Aline Betts, United States Attorney, Anthony J. Steinmeyer, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C., for Defendant-Appellant. David W. Thomas, Nash & Company, P.C., Pittsburgh, Pennsylvania, for Plaintiffs-Appellees.

Before WILKINSON, Chief Judge, LUTTIG, Circuit Judge, and SMITH, United Stated District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Chief Judge WILKINSON wrote the majority opinion, in which Judge SMITH joined. Judge LUTTIG wrote a dissenting opinion.

OPINION

WILKINSON, Chief Judge:

Four West Virginia hospitals challenge Medicare reimbursement calculations made by the Secretary of Health and Human Services. The hospitals argue that "disproportionate share" (DSH) payments, which are made to hospitals that serve a disproportionate number of low-income patients, were calculated by the Secretary based on an incorrect reading of the Medicare statute. The district court agreed with the hospitals and granted summary judgment in their favor. We affirm the judgment of the district court.

I.

When Congress enacted an overhaul of the Medicare payment system in 1983, it noted that low-income Medicare patients have generally poorer health and are costlier to treat than high-income Medicare patients. See Rye Psychiatric Hospital Center, Inc. v. Shalala, 52 F.3d 1163, 1164 (2d Cir.1995). To compensate for this disparity, Congress authorized the Secretary to disburse extra Medicare funds--DSH payments--to hospitals that treated a disproportionate share of low-income patients. 42 U.S.C. § 1395ww(d)(5)(F); see Social Security Amendments of 1983, Pub.L. No. 98-21, § 601(e) (codified at 42 U.S.C. § 1395ww(d)(5)(C)(i) (1983)). The Secretary chose not to formulate the DSH adjustment, 48 Fed.Reg. 39,783 (1983), but was then instructed by Congress to do so by December 31, 1984, Deficit Reduction Act of 1984, Pub.L. No. 98-369, § 2315(h). When the Secretary failed to act, several hospitals sought a court order forcing compliance with the congressional mandate. See Samaritan Health Center v. Heckler, 636 F.Supp. 503 (D.D.C.1985). The Secretary finally published criteria for the DSH payments in 1986, 50 Fed.Reg. 53,398-53,400, but Congress replaced them with its own in a 1986 amendment to the Medicare statute. Consolidated Omnibus Budget Reconciliation Act of 1985, Pub.L. No. 99-272, § 9105 (1986); See Samaritan Health Center v. Bowen, 646 F.Supp. 343, 345-47 (D.D.C.1986); 42 U.S.C. § 1395ww(d)(5)(F). The Secretary then promulgated new interpretive regulations to implement the statute. 42 C.F.R. § 412.106.

The four plaintiff hospitals in this case serve a disproportionate number of low-income Medicare recipients, and are therefore entitled to DSH payments. They sought judicial review, under 42 U.S.C. § 1395oo(f)(1), of the Secretary's calculations of their DSH reimbursements for inpatient hospital services. The district court entered summary judgment in favor of the hospitals, ruling that the Secretary's latest regulations were based on an interpretation of the statute that was inconsistent with its language, legislative history, and basic purpose. The district court ordered the Secretary to recalculate the DSH payments to the plaintiff hospitals. The Secretary appeals.

II.

Our task in this appeal is to interpret the statutory formula for Medicare DSH payments to health care providers. The goal of statutory interpretation is to implement congressional intent. Where the statute speaks clearly to the issue at hand, the inquiry ends. Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984). Where the statute is silent or ambiguous with respect to the question, a reasonable agency interpretation warrants deference. Id. at 843, 104 S.Ct. at 2782. We turn, therefore, to the statutory text and structure.

The DSH formula is composed of the sum of two fractions. Both fractions are designed to count the number of low-income patients served by a hospital, but each fraction counts a different group of those patients. The first, called the "Medicare fraction" or the "Medicare proxy" counts Medicare recipients who are entitled to supplemental security income (SSI), a federal low-income supplement.

The second fraction of the calculation is called the "Medicaid fraction" or "Medicaid proxy." It counts patients who are not entitled to Medicare benefits, but who qualify for Medicaid, a joint federal-state program serving indigent persons. This second fraction, the Medicaid proxy, is the one at issue in this case. This fraction reads:

the fraction (expressed as a percentage), 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 [the Medicaid program], but who were not entitled to benefits under part A of [the Medicare program], and the denominator of which is the total number of the hospital's patient days for such period.

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

Because Medicaid is a joint federal-state program, states vary, within the broad federal requirements, on eligibility rules and coverage. Some states, like West Virginia, limit the number of days that patients are covered for inpatient hospital care under Medicaid. 3 Medicare and Medicaid Guide (CCH) p 15,656 at 6615. This court must decide whether the emphasized language in the above Medicaid proxy means DSH payments should take account of only those inpatient hospital days which are actually paid by West Virginia's Medicaid program (as the Secretary maintains), or whether the calculation should include all the days of patients who otherwise qualify for Medicaid but who may have exceeded the number of days covered under the state Medicaid plan (as the hospitals argue).

The question is of some practical importance. If the Secretary's interpretation prevails, hospitals serving large numbers of Medicaid recipients who outstay their state-imposed day limit will receive neither Medicaid reimbursement nor Medicare DSH payments for these additional hospital days. If the hospitals' interpretation prevails, these hospitals will receive significantly greater DSH payments to offset the cost of serving poorer patients. To determine which interpretation is correct, we must carefully examine the phrase "eligible for medical assistance under a State [Medicaid] plan." We first address the choice of the word "eligible" and then analyze how it fits with the rest of the language of the proxy.

A. Eligible

According to federal statute, certain patients must be covered under a state Medicaid plan for certain specified services. These mandatory categorically needy people are both low income and are either aged, blind, disabled, pregnant, or members of families with dependent children. 42 U.S.C. § 1396a(a)(10)(A)(i). They must be provided coverage for the cost of a specific package of services which includes certain kinds of inpatient and outpatient hospital care and physicians' services. Id.; 42 U.S.C. § 1396d(a)(1)-(5), (17), (21). Outside of this category of mandatory patients, states have considerable discretion to set income and status requirements for who will be covered, to declare which medical services will be covered, and to decide the duration of coverage. See 42 U.S.C. § 1396a(a)(10)(A)(ii) (describing persons for whom states have the option of providing medical coverage); 42 C.F.R. § 430.0 (delineating state authority to determine eligibility rules, services covered, and payment levels).

Section 1396d(a) of the Medicaid statute ¹ defines "medical assistance" for patients whom states have the option of covering, listing twenty-five types of services which may be covered. This section refers to potentially eligible patients as those "whose income and resources are insufficient to meet all of such cost [of listed medical services]." The same provision distinguishes between "individuals with respect to whom there is being paid, or who are eligible" for Medicaid. Thus, patients can be "eligible" for Medicaid in a particular state by reason of income and status, while not "being paid" for a particular medical expense because of further state restrictions for that service.

West Virginia's Medicaid plan itself reinforces this distinction. The first section of the plan, entitled "Eligibility," lists the income, status and resource requirements of all the people that the plan covers. 3 Medicare and Medicaid Guide (CCH) p 15,656 at 6613. The second section, entitled "Scope of Medical Care Provided," describes the services covered, including limitations on that coverage. Id. at 6615. This is the section which provides for a maximum of twenty-five paid hospital days under Medicaid in West Virginia.

Thus, there is a clear difference between eligibility for Medicaid payments under state plans and entitlement to them....