Georgetown University Hosp. v. Bowen, s. 88-5026

• Decision Date: 15 November 1988
• Docket Number: 88-5040,Nos. 88-5026,s. 88-5026
• Citation: 862 F.2d 323
• Parties: , 57 USLW 2312, 24 Soc.Sec.Rep.Ser. 12, Medicare&Medicaid Gu 37,515 GEORGETOWN UNIVERSITY HOSPITAL, et al. v. Otis R. BOWEN, Secretary of Health and Human Services.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 323

862 F.2d 323

274 U.S.App.D.C. 96, 57 USLW 2312, 24

Soc.Sec.Rep.Ser. 12,

Medicare&Medicaid Gu 37,515

GEORGETOWN UNIVERSITY HOSPITAL, et al. v. Otis R. BOWEN, Secretary of Health and Human Services.

Nos. 88-5026, 88-5040.

United States Court of Appeals, District of Columbia Circuit.

Argued Oct. 17, 1988.

Decided Nov. 15, 1988.

Alfred Mollin, Attorney, Dept. of Justice, with whom John R. Bolton, Asst. Atty. Gen., Jay B. Stephens, U.S. Atty., Anthony J. Steinmeyer, Attorney, Dept. of Justice, and Gerard Keating, Attorney, Health and Human Services, Washington, D.C., were on the brief, for appellant.

Ronald N. Sutter, Washington, D.C., for appellees.

Before WALD, Chief Judge, and MIKVA and SENTELLE, Circuit Judges.

Opinion for the Court filed by Chief Judge WALD.

Concurring opinion filed by Circuit Judge MIKVA.

WALD, Chief Judge:

Appellees are twelve not-for-profit hospitals that successfully challenged the application of various regulations under the Medicare reimbursement scheme. The Secretary of the Department of Health and Human Services ("Secretary") agreed to make retrospective payments for years prior to 1983, the year in which Congress enacted a four-year transition to the Prospective Payment System ("PPS"), and he agreed to make prospective adjustments for years beginning after the final judgments were entered in the various challenges. The Secretary refused, however to make retrospective adjustments to payments that had been made to these hospitals during years of the phase-in period that had already passed by the time the successful challenges had been completed. The district court found that the Medicare statute required such retrospective payments, and ordered the Secretary to recompute the hospitals' reimbursement rates for the relevant years on the basis of the subsequent corrections. Because we conclude that the statute clearly reflects Congress' intent to provide such retrospective adjustments, we affirm the district court's judgment.

I. BACKGROUND

Until 1983, hospitals participating in the Medicare program were reimbursed for the "reasonable cost" incurred in providing inpatient hospital services to Medicare patients. 42 U.S.C. Sec. 1395f(b) (1982). In April 1983, however, Congress enacted a radically new Medicare reimbursement scheme. Rather than reimbursing hospitals for the actual costs of providing services to individual patients, the new payment system establishes prospectively fixed rates that do not vary according to cost in individual cases. Hospitals caring for Medicare patients who fall into a given "diagnosis-related group" ("DRG") receive a standard reimbursement for that patient. In contrast to the old system, under which hospitals had few incentives to control costs, the new system was designed to "reform the financial incentives hospitals face, promoting efficiency in the provision of services by rewarding cost/effective hospital practices." H.R.Rep. No. 98-25, 98th Cong., 1st Sess. 132, reprinted in 1983 U.S.Code Cong. & Ad. News 143, 219, 351.

Congress recognized that implementation of the new PPS threatened severe financial dislocations in the health care delivery system. Thus, "to minimize disruption that might otherwise occur because of sudden changes in reimbursement levels," Congress established a four-year phase-in period. S.Rep. No. 98-23, 98th Cong., 1st Sess. 53, reprinted in U.S.Code Cong. & Ad. News 143, 193. At the end of this phase-in period in 1987, Medicare payments were to be calculated exclusively on the basis of a "federal rate." During the transition, however, Congress directed the Secretary to determine reimbursement levels in part by reference to a "hospital-specific rate," ¹ which would be calculated for each hospital on the basis of its "allowable operating costs of in-patient hospital services" during "the preceding 12-month cost reporting period." 42 U.S.C. Sec. 1395ww(b)(3)(A). It is the nature of this base year figure that stands at the heart of this case.

To calculate the hospitals' base year figures for use during the transition period, the Secretary turned to year-end cost reports that hospitals had already submitted. The Secretary directed his fiscal intermediaries ² to audit these reports to determine the allowable reimbursement for their next to last year under the old payment system. For the purposes of their audits, the intermediaries assumed the validity of the Secretary's then-current regulations regarding the limits of allowable reimbursements, and in some cases the intermediaries disallowed certain costs that were apparently not permitted. The results of these audits became the agency's preliminary judgment of each hospital's base year figure.

Over the protests of several commenters, the Secretary subsequently issued final regulations on January 3, 1984 to implement PPS. In his regulations, the Secretary attempted to shield these preliminary base year estimations from revision, and especially sought to prevent retrospective adjustments to payments for earlier transition years that had been calculated on the basis of the estimations. The Secretary conceded that "[a]n intermediary's estimation of a hospital's base year costs ... is subject to administrative and judicial review," 42 C.F.R. Sec. 405.474(b)(3)(ii) (1984), but ruled that when this review revealed that a revision to the base year figure was in order, such a revision would only have prospective effects under PPS: although under the former "reasonable cost" system the hospitals would have received retrospective adjustments on the basis of such legal judgments, PPS base year adjustments would only become effective in the phase-in year beginning after the final decision on review. 42 C.F.R. Sec. 405.474(b)(3)(i)(C)(2) (1984). The Secretary's regulations were explicit that "[t]he hospital's revised base year costs will not be used to recalculate the hospital-specific portion as determined for fiscal years beginning before the date of the ... review decision." Id. According to the Secretary's new regulations, the only way a hospital could have its payments revised retrospectively was if the intermediary's estimation was found to be "unreasonable and clearly erroneous in light of the data available at the time the estimation was made." 42 C.F.R. Sec. 405.474(b)(3)(ii) (1984). ³

Difficulties arose when the twelve hospitals in this action disputed the validity of some of the regulations upon which the intermediaries' audits were based. The hospitals challenged the application of regulations involving labor/delivery room apportionment, ⁴ special care units, ⁵ malpractice insurance, ⁶ and the retrospective wage index. ⁷ In these cases, it was determined on administrative and/or judicial review that certain costs that had been disallowed in the intermediaries' audits were in fact allowable costs for the base year. The hospitals proceeded to sue for retrospective adjustments to earlier PPS payments that had been improperly based on these invalidated regulations.

The district court concluded that the Secretary's attempt to narrow the scope of judicial review of the base year determinations was not in accordance with the Medicare statute, and ordered the retrospective payments. The issue before this court is the relatively narrow one of what Congress intended by directing the Secretary to calculate transition period payments by reference to costs that were "allowable" under the reasonable cost system. ⁸

II. ANALYSIS

A. Standard of Review

In reviewing an agency's construction of a statute, this court looks first to "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, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694 (1984). If a statute is silent or ambiguous, a court may assume that Congress implicitly delegated the interpretive function to the agency, but no such delegation may be found where Congress' intent is clear. Id. at 842-44, 104 S.Ct. at 2781-83. "The traditional deference courts pay to agency interpretation is not to be applied to alter the clearly expressed intent of Congress." Board of Governors of the Federal Reserve System v. Dimension Financial Corp., 474 U.S. 361, 368, 106 S.Ct. 681, 686, 88 L.Ed.2d 691 (1986).

Our inquiry into congressional intent must encompass both the particular language, as well as the broader design of the statute. K Mart Corp. v. Cartier, Inc., --- U.S. ----, 108 S.Ct. 1811, 1817, 100 L.Ed.2d 313 (1988). We must also search the available legislative history to shed light on the statutory language. "In conducting this inquiry, 'we are not required to grant any particular deference to the agency's parsing of statutory language or its interpretation of legislative history.' " Washington Hospital Center v. Bowen, 795 F.2d 139, 143 (D.C.Cir.1986) (quoting Rettig v. Pension Benefit Guaranty Corp., 744 F.2d 133, 141 (D.C.Cir.1984)).

Having conducted this inquiry, we conclude that the intent of Congress in Sec. 1395ww is clear. ⁹ "[T]hat," then, "is the end of the matter." Chevron, 467 U.S. at 842, 104 S.Ct. at 2781.

B. Statutory Language

The Medicare statute directs the Secretary to calculate the hospital specific portion of reimbursement rates on the basis of "the allowable operating costs of in-patient hospital services ... recognized under this title for such hospital for the preceding 12-month cost reporting period...." 42 U.S.C. Sec. 1395ww(b)(3)(A). In the most direct language, therefore, Congress clearly ordered that costs that were "allowable" under the old system were to remain a component of payment rates during the phase-in period of the new system. "Allowable," in turn, invokes a straightforward concept: if the reasonable cost system would have reimbursed a hospital for a given cost, it was "allowable" and should become a factor in determining a hospital's...