Department of Social Services, Div. of Family Services v. Bowen, 84-2483

• Decision Date: 04 November 1986
• Docket Number: No. 84-2483,84-2483
• Citation: 804 F.2d 1035
• Parties: , 15 Soc.Sec.Rep.Ser. 333, Medicare&Medicaid Gu 35,917 DEPARTMENT OF SOCIAL SERVICES, DIVISION OF FAMILY SERVICES, Appellee, v. Otis R. BOWEN, * Secretary of the Department of Health and Human Services, Carolyne K. Davis, Administrator, and the Health Care Financing Administration, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1035

804 F.2d 1035

55 USLW 2343, 15 Soc.Sec.Rep.Ser. 333,

Medicare&Medicaid Gu 35,917

DEPARTMENT OF SOCIAL SERVICES, DIVISION OF FAMILY SERVICES, Appellee, v. Otis R. BOWEN, ^* Secretary of the Department of Health and Human Services, Carolyne K. Davis Administrator, and the Health Care Financing Administration, Appellants.

No. 84-2483.

United States Court of Appeals Eighth Circuit.

Submitted June 13, 1985.

Decided Nov. 4, 1986.

Frances Reddis, Kansas City, Mo., for appellants.

Charles A. Miller, Washington, D.C., for appellee.

Before HEANEY and BOWMAN, Circuit Judges, and WANGELIN, ^** Senior District Judge.

BOWMAN, Circuit Judge.

This appeal focuses on a dispute between the Department of Health and Human Services (HHS) and the Missouri Department of Social Services (DOSS) over the meaning of "overpayment" under Title XIX of the Social Security Act, 42 U.S.C. Sec. 1396b(d)(2). As a result of a Health Care Financing Administration (HCFA) ¹ review of payments made by DOSS before October 1981 to nursing homes participating in the Missouri Medicaid program, HHS identified excessive payments to some of the homes. After notifying DOSS that it considered the excess an "overpayment" under subsection 1396b(d)(2), HHS disallowed federal financial participation to the extent of its share of the "overpayments."

In response, DOSS appealed the decision to the HHS Grant Appeals Board (Board), which upheld the disallowance. The Board concluded that 42 U.S.C. Sec. 1396b(d)(2) empowers HHS to adjust federal funds paid to a state which has made excessive payments to providers of health care services. DOSS then sought judicial review in federal district court, requesting declaratory and injunctive relief. Ruling on cross motions for summary judgment, the District Court held that the disallowances were unlawful and directed HHS to reinstate DOSS's prior funding level. We reverse.

I.

In 1965 Congress established the Medical Assistance Program (Medicaid) to help states pay for medical services for the poor. State participation in Medicaid is voluntary, but state programs must meet certain federal requirements before HHS will contribute federal funding. Once approval is secured, the state receives quarterly federal grants approximating the federal share of projected expenses. At the close of each quarter, the state submits to HHS a report of actual expenditures.

Before October 1981, Missouri used an HHS-approved reimbursement plan to pay nursing homes. The state established an annual per diem payment rate based on each nursing home's report of reimbursable costs for the prior year, and then made provisional monthly payments using the estimated rate. Each quarter, HHS paid DOSS in advance for the federal share of the provisional payments. At the end of its fiscal year, each nursing home submitted a cost report and the state readjusted the payment rate based on the actual, allowable costs incurred that year. If the final rate was higher than the interim rate, the state made a supplemental payment to the nursing home. If the final rate was less than the interim rate, the state initiated recovery procedures.

As DOSS collected refunds, it credited the federal share of the refund to HHS on the quarterly report of actual expenditures. However, DOSS did not collect all refunds immediately after calculating the final payment rate. ² Rather, DOSS gave the nursing homes the option of selecting from among several installment repayment methods. Some nursing homes chose to contest the rate determination, and several obtained administrative or judicial stays preventing DOSS from collecting. Moreover, a few nursing homes went into bankruptcy or went out of business. Consequently, a portion of the identified refunds remains unpaid to the state, and hence to the federal government.

On three separate occasions, HHS notified DOSS that it was disallowing Medicaid funding equal to the outstanding federal share of the "overpayments" to nursing homes, pursuant to section 1396b(d)(2). The disallowances consisted of the amounts that had been pending for two quarters following the quarter in which DOSS identified the amount as an excessive payment. ³ HHS recovered the disallowances through accounting adjustments that effectively reduced the federal funds available for reimbursing Missouri's future Medicaid expenditures.

The District Court reviewed the statutory language and found that the meaning of "overpayment" was ambiguous. The court considered HHS's interpretation of the statutory language, but declined to give its interpretation controlling significance because the court was of the view that HHS had exceeded its statutory authority. Closely adhering to the reasoning of the district court in Massachusetts v. Heckler, 576 F.Supp. 1565 (D.Mass.1984), ⁴ the District Court concluded that placing the burden of unrecoverable payments on the state would be inconsistent with the general scheme of the Medicaid program.

On appeal, HHS contends that the District Court erred in holding that HHS had no statutory authority to recover from the state the federal share of the excessive nursing home payments. HHS argues that had the District Court applied the correct standard of review, it would have deferred to HHS's view that Title XIX treats such excessive payments as unallowable "overpayments" regardless of whether the state has recovered the excess from the nursing homes. Accordingly, HHS contends that DOSS alone must carry the burden of any uncollectible excess payments under the Missouri Medicaid program.

II.

This case revolves around a question of statutory construction, a question of law that we may review de novo, with appropriate deference to HHS's interpretation of "overpayment." Brown v. United States Department of Interior, 679 F.2d 747, 749 (8th Cir.1982). HHS argues that the District Court applied an incorrect standard of review in deciding not to adopt HHS's interpretation of "overpayment." The District Court tested HHS's actions in light of Administrative Procedure Act standards to determine if they were "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right." 5 U.S.C. Sec. 706(2)(C). Rather than concluding that the District Court applied an incorrect standard of review, we conclude that it erred in holding that HHS had exceeded its statutory authority. By so holding, the District Court ended its analysis and did not go on to determine whether HHS's actions were arbitrary or capricious. See Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 842-44, 104 S.Ct. 2778, 2781-83, 81 L.Ed.2d 694 (1984); Schweiker v. Gray Panthers, 453 U.S. 34, 44, 101 S.Ct. 2633, 2640, 69 L.Ed.2d 460 (1981).

Recently the Supreme Court, in reviewing an agency interpretation of a statutory provision, said that if a

"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.... [A] court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency."

Young v. Community Nutrition Institute, --- U.S. ----, 106 S.Ct. 2360, 2364, 90 L.Ed.2d 959 (1986) (quoting Chevron U.S.A., 467 U.S. at 843-44, 104 S.Ct. at 2782). See Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381, 89 S.Ct. 1794, 1801, 23 L.Ed.2d 371 (1969); see also Moore v. Custis, 736 F.2d 1260, 1262 (8th Cir.1984) (administrative action is arbitrary or capricious only when there is no rational basis for the action).

In Young, the Supreme Court noted that the agency's interpretation of a statute the agency is charged with administering is entitled to considerable deference and it need not be the only permissible construction that the agency could have adopted. The agency's view need only be sufficiently rational "to preclude a court from substituting its judgment for that of [the agency]." 106 S.Ct. at 2365 (quoting Chemical Manufacturers Association v. Natural Resources Defense Council, 470 U.S. 116, 105 S.Ct. 1102, 1108, 84 L.Ed.2d 90 (1985)). See Federal Election Commission v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 39, 102 S.Ct. 38, 46, 70 L.Ed.2d 23 (1981); Blue Cross Association v. Harris, 622 F.2d 972, 978-79 (8th Cir.1980). Moreover, in Blue Cross Association, 622 F.2d at 979, we adopted the Seventh Circuit's view as enunciated in Health Care Service Corp. v. Califano, 601 F.2d 934, 935-36 (7th Cir.1979) (per curiam), that "the interpretation of a complex statute such as the Medicare Act by the administrative officer charged with the responsibility of administering it is entitled to considerable deference and, if reasonable, is not to be rejected by a court merely because another interpretation may also be reasonable." See Gray Panthers, 453 U.S. at 43-44, 101 S.Ct. at 2640.

III.

The language of Title XIX is not particularly helpful in determining the meaning of "overpayment" as applied to the present case. Congress used "overpayment" in what are arguably four different contexts within three subsections (42 U.S.C. Sec. 1396b(d)(2), (3), and (5)), but nowhere defined the term. In section 1396b(d), "overpayment" appears twice in subsection (2) and once in subsection (3):

(2) The Secretary shall then pay to the State, in such installments as he may determine, the amount so estimated, reduced or increased to the extent of any overpayment or underpayment which the Secretary determines was made under this section to such State for any prior quarter and with respect to which adjustment has not already been made under this subsection. Expenditures for which payments were made to the State under subsection (a) of this section shall be treated as an overpayment to the extent that the State or local agency administering such plan has been reimbursed for such expenditures by a third party pursuant to the provisions of its plan in...