Heino v. Shinseki

• Decision Date: 28 June 2012
• Docket Number: No. 2011–7160.,2011–7160.
• Parties: William H. HEINO, Sr., Claimant–Appellant, v. Eric K. SHINSEKI, Secretary of Veterans Affairs, Respondent–Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

683 F.3d 1372

William H. HEINO, Sr., Claimant–Appellant,

v.Eric K. SHINSEKI, Secretary of Veterans Affairs, Respondent–Appellee.

No. 2011–7160.

United States Court of Appeals, Federal Circuit.

June 28, 2012.

Nathan S. Mammen, Kirkland & Ellis LLP, of Washington, DC, argued for claimant-appellant. With him on the brief was Joseph F. Edell.

Michael P. Goodman, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for respondent-appellee. With him on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and Martin F. Hockey, Jr., Assistant Director. Of counsel on the brief were Susan Blauert, Deputy Assistant General Counsel, and Jennifer A. Gray, Attorney, United States Department of Veterans Affairs, of Washington, DC.

Before RADER, Chief Judge, PLAGER, and WALLACH, Circuit Judges.

Opinion for the court filed by Circuit Judge WALLACH. Opinion concurring filed by Circuit Judge PLAGER.

WALLACH, Circuit Judge.

William H. Heino, Sr. (“Mr. Heino”) appeals from a judgment of the United States Court of Appeals for Veterans Claims (“Veterans Court”) affirming a decision by the Board of Veterans' Appeals (“Board”) denying him a lower copayment for his prescribed medication. Mr. Heino contends that his copayment amount must be reduced because it is more than what the Department of Veterans Affairs (“VA”) pays for his medication and that 38 U.S.C. § 1722A(a)(2) prohibits the VA from charging a copayment in excess of what the VA pays for a veteran's medication. However, because section 1722A(a)(2) is ambiguous, and because the VA's copayment regulation, 38 C.F.R. § 17.110, is reasonable in light of the statute, we affirm.

I.

Mr. Heino, a veteran, is prescribed a daily dose of 12.5 milligrams of Atenolol.¹ The lowest strength available for the prescription is a 25 milligram tablet, so Mr. Heino's physician instructed him to split each tablet in half. At the time this case began, Mr. Heino paid a $7 copayment for a 30–day supply of 15 tablets, which he claimed was excessive in light of the fact that some veterans paid the same copayment for twice the medication. On March 13, 2002, Mr. Heino sent a letter to the VA requesting that it adjust his copayment. The VA responded by stating that the copayment “is being applied as it should be.” In February 2004, Mr. Heino again contested his copayment amount to the VA. In a letter dated February 11, 2005, the VA Office of Regional Counsel determined that the $7 copayment was correct under applicable law and regulation. Mr. Heino filed a Notice of Disagreement with the VA's decision and on December 24, 2008, the Board concluded that the $7 copayment amount was proper.²

Mr. Heino appealed the Board's decision to the Veterans Court, and the Veterans Court affirmed. Heino v. Shinseki, 24 Vet.App. 367 (2011). Mr. Heino argued that the regulation the VA uses to calculate his copayment amount, 38 C.F.R. § 17.110, conflicts with section 1722A(a)(2), which prohibits the VA from charging a copayment “in excess of the cost to the Secretary for medication,” because the actual cost of his Atenolol prescription was well below $7.³ Contrary to Mr. Heino's interpretation of the statute, the Veterans Court held that “the cost” referred to in section 1722A(a)(2) could “be interpreted as including the Secretary's costs in dispensing the medication, i.e., his administrative costs” as well as the VA's actual cost. Id. at 373. Because the term “the cost” was ambiguous, the Veterans Court reviewed the VA's copayment regulation, which did not charge Mr. Heino a copayment in excess of the VA's projected average administrative cost, for reasonableness. Id. The Veterans Court held that given the “regulatory and statutory history, as well as the statutory framework,” the regulation was valid.⁴Id.

Judge Hagel dissented in part and reasoned that the phrase “the cost to the Secretary for medication” in section 1722A(a)(2) is “clear, unambiguous, and cannot be construed as including costs incurred by the Secretary in dispensing the medication.” Id. at 376 (Hagel, J., dissenting). Judge Hagel stated that “[n]owhere in this statutory interplay is there a reference to administrative costs incurred by the Secretary in dispensing the veteran's 30–day supply of medication, costs that are wholly apart from the cost to the Secretary for the medication itself.” Id. at 377.

Mr. Heino filed a timely notice of appeal to this court. We have jurisdiction over this appeal pursuant to 38 U.S.C. § 7292(a).

II.

To determine whether the VA is correctly charging Mr. Heino, we must interpret 38 U.S.C. § 1722A and determine whether 38 C.F.R. § 17.110 comports with the statute. We will first discuss the law and regulations at issue in this case and then will proceed by examining them under the framework provided 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).

A.

What is now section 1722A was initially codified as 38 U.S.C. § 622A by the Omnibus Budget Reconciliation Act of 1990, Pub.L. No. 101–508, § 8012, 104 Stat. 1388 (1990). In 1991 Congress redesignated the law as 38 U.S.C. § 1722A without amending its language. Pub.L. No. 102–83, § 5(a), 105 Stat. 378 (1991). The current section 1722A(a)(1) is substantively the same as the 1990 law, see38 U.S.C. § 1722A(a)(3) (incorporating the language removed from the original section 622A(a)(1)), and the current section 1722A(a)(2) is identical to the original statute. The current law reads:

(a)(1) Subject to paragraph (2), the Secretary shall require a veteran to pay the United States $2 for each 30–day supply of medication furnished such veteran under this chapter on an outpatient basis for the treatment of a non-service-connected disability or condition. If the amount supplied is less than a 30–day supply, the amount of the charge may not be reduced.

(2) The Secretary may not require a veteran to pay an amount in excess of the cost to the Secretary for medication described in paragraph (1).

38 U.S.C. § 1722A(a)(1)-(2) (emphasis added). In 1999, as part of the Veterans Millennium Health Care and Benefits Act, Pub.L. No. 106–117, § 201, 113 Stat. 1545 (1999), Congress added the current subsection (b) to the statute, which reads:

(b) The Secretary, pursuant to regulations which the Secretary shall prescribe, may—

(1) increase the copayment amount in effect under subsection (a); and

(2) establish a maximum monthly and a maximum annual pharmaceutical copaymentamount under subsection (a) for veterans who have multiple outpatient prescriptions.

38 U.S.C. § 1722A(b) (emphasis added). A report from the House Committee on Veterans' Affairs stated that the VA's new authority under section 1722A(b) was intended to bring the VA's benefit program in line with private and other government healthcare providers where individuals carry a larger share of costs. H.R.Rep. No. 106–237, at 41–42 (1999). The report stated that allowing the VA:

to set reasonable copayment increases on prescription drugs is a reasonable policy in the face of VA's mounting pharmaceutical costs-approaching $2 billion annually. Notwithstanding an aggressive pharmacy benefits management policy, VA's pharmacy costs have nearly doubled since copayments were instituted some nine years ago.

Id. at 42. The report mentioned that although Congress was granting the VA “relatively broad discretion” to raise copayments, the VA should exercise “caution that copayments not be set so high as to result in veterans not seeking needed care and services....” Id. at 43.

Pursuant to subsection (b)(1), the VA published a proposed rule in 2001 that would increase the copayment amount to $7 from the $2 listed in section 1722A(a)(1). Copayments for Medications, 66 Fed.Reg. 36,960, 36,960–36,961 (proposed July 16, 2001) (to be codified at 38 C.F.R. pt. 17). Additionally, the proposed rule would enact an escalator provision to increase copayments with inflation as measured by the prescription drug component of the Medical Consumer Price Index. Id. However, the provision would round all increases in inflation down to the nearest whole dollar.⁵Id. In that proposed rulemaking, the VA stated:

[U]nder 38 U.S.C. 1722A, VA may not require a veteran to pay an amount in excess of the actual cost of the medication and the pharmacy administrative costs related to the dispensing of the medication. [The Veterans Health Administration] conducted a study of the pharmacy administrative costs relating to the dispensing of medication on an outpatient basis and found that VA incurred a cost of $7.28 to dispense an outpatient medication even without consideration of the actual cost of the medication. This amount covers the cost of consultation time, filling time, dispensing time, an appropriate share of the direct and indirect personnel costs, physical overhead and materials, and supply costs. Under these circumstances, we believe that a $7 copayment would not exceed VA's costs.

Id. at 36,961 (emphasis added). The VA further stated that “based on commensurate increased costs to VA, we believe that VA's costs would remain higher than the increases made by the escalator provisions.” Id. Following a notice-and-comment period, the VA issued a final rule implementing the proposed rule, which was codified as 38 C.F.R. § 17.110. In finalizing the rule, the VA stated:

Many recent newspaper articles have reported dramatic increases throughout the health care industry for medication copayment amounts which are reflective of increases in medication costs. Accordingly, even with the increase we may have one of the lowest copayment amounts. Under these circumstances, we believe that a $7 copayment amount is reasonable. Further, we believe that increases should be based on the Prescription Drug Component of the Medical Consumer Price Index since it is most relevant to the cost of prescriptions and thereby should...