North Broward Hosp. Dist. v. Shalala

• Decision Date: 27 April 1999
• Docket Number: No. 98-5164,98-5164
• Parties: NORTH BROWARD HOSPITAL DISTRICT, et al., Appellees, v. Donna E. SHALALA, Secretary, U.S. Department of Health and Human Services, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 90

172 F.3d 90

335 U.S.App.D.C. 272

NORTH BROWARD HOSPITAL DISTRICT, et al., Appellees, v. Donna E. SHALALA, Secretary, U.S. Department of Health and Human Services, Appellant.

No. 98-5164.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 8, 1999.

Decided April 27, 1999.

Appeal from the United States District Court for the District of Columbia (No. 96cv00076).

Anne M. Lobell, Attorney, U.S. Department of Justice, argued the cause for appellant. With her on the briefs were Frank W. Hunger, Assistant Attorney General, Wilma A. Lewis, U.S. Attorney, and Anthony J. Steinmeyer, Attorney, U.S. Department of Justice.

Ronald N. Sutter argued the cause and filed the brief for appellees.

Before SILBERMAN, SENTELLE, and RANDOLPH, Circuit Judges.

Opinion for the court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge:

Congress has authorized Medicare reimbursement at a higher than usual rate to certain large urban hospitals that receive significant state and local funding apart from Medicaid and Medicare revenues. The Secretary of Health and Human Services ("HHS") appeals a decision of the district court rejecting her interpretation of the qualifications for eligibility under this provision. See North Broward Hosp. Dist. v. Shalala, 997 F.Supp. 41 (D.D.C.1998). Finding the statute ambiguous and the Secretary's interpretation reasonable, we reverse.

I.

In 1983, Congress began to phase out the existing cost-based Medicare reimbursement system, see 42 U.S.C. § 1395f(b)(1); Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1227 (D.C.Cir.1994), and to phase in a "prospective payment" system providing reimbursement according to pre-determined rates based on diagnosis and geographic location. See Social Security Amendments of 1983, Pub.L. No. 98-21, § 601, 97 Stat. 65, 149 (1983) (codified as amended at 42 U.S.C. § 1395ww). In 1986, recognizing that special adjustments might be needed for hospitals serving an unusually large number of low-income individuals, Congress crafted provisions implementing "disproportionate share" adjustments for such hospitals. See The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), Pub.L. No. 99-272, § 9105, 100 Stat. 82, 158 (1986). These disproportionate share adjustments provide for additional Medicare payments for hospitals that qualify on either of two grounds. Hospitals typically qualify for an adjustment by showing that they serve a disproportionate number of low-income patients based on the proportion of inpatient days attributable to Medicaid patients and to Medicare patients qualifying for Supplemental Security Income benefits. ¹ See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I), (v), (vi). Alternatively, under the provision at issue in this case, large urban hospitals can qualify by demonstrating that they receive state and local funding which exceeds a statutory threshold. Specifically, the statute provides for a disproportionate share adjustment for any hospital that

is located in an urban area, has 100 or more beds, and can demonstrate that its net inpatient care revenues (excluding any of such revenues attributable to [Medicare or Medicaid] ), during the cost reporting period in which the discharges occur, for indigent care from State and local government sources exceed 30 percent of its total of such net inpatient care revenues during the period.

Id. § 1395ww(d)(5)(F)(i)(II). As originally enacted in 1986, this provision read just as it does now, except that the phrase "total of such net inpatient care revenues" read "total of such revenues." See COBRA § 9105(a)(F)(i)(II), 100 Stat. 82, 158. The change to the present wording was made by a 1987 amendment. See The Omnibus Budget Reconciliation Act of 1987 (OBRA), Pub.L. No. 100-203, § 4009(j)(3)(A), 101 Stat. 1330, 1330-59 (1987).

The controversy in this case centers on the proper interpretation of the ratio specified in this provision. The single issue is whether the 30% set forth in the provision is a percentage of all net inpatient care revenues or whether it is a percentage of net inpatient revenues excluding revenues from Medicare and Medicaid. In other words, the question is whether the antecedent of "total of such net inpatient care revenues" is "net inpatient care revenues" or "net inpatient care revenues (excluding any of such revenues attributable to [Medicare or Medicaid] )."

North Broward Hospital District ("North Broward"), doing business as Broward General Medical Center, North Broward Medical Center, and Imperial Point Medical Center, believed that the latter interpretation was correct, and that its facilities therefore qualified for the disproportionate share adjustment for fiscal years 1989-1991. However, the Medicare fiscal intermediary adhered to the former interpretation, and accordingly refused to make the more generous reimbursements to North Broward. North Broward appealed to the Provider Reimbursement Review Board ("PRRB") as specified in 42 U.S.C. § 1395oo(a), (h). The PRRB adopted the latter interpretation of the ratio, reversed the intermediary's decision, and held that the North Broward facilities qualified for the disproportionate share adjustment. Next, at the urging of the intermediary and HHS's Bureau of Policy Development ("BPD"), the Administrator of the Health Care Financing Administration ("HCFA"), acting as the Secretary's delegate, reversed the Board's decision, as permitted by 42 U.S.C. § 1395oo(f)(1) and 42 C.F.R. § 405.1875. The Administrator held that the provision contained "incontrovertible referential ambiguity" and that the former interpretation, adopted by the BPD and the intermediary, was reasonable. Pursuant to 42 U.S.C. § 1395oo(f)(1), the hospitals sought review in the district court, which in turn reversed the Administrator's decision and granted summary judgment for North Broward. The district court held that the language of the provision is clear and unambiguous and that it requires the latter interpretation, urged by North Broward. 997 F.Supp. at 45, 48. The Secretary appeals from this ruling of the district court.

II.

The practical differences between the Secretary's interpretation and that advanced by North Broward and accepted by the district court are significant. As an illustration of the implications of the two interpretations, consider an example of a hospital whose total net inpatient care revenues are $100,000,000, of which $40,000,000 are Medicare and Medicaid revenues. Under North Broward's interpretation, which excludes Medicare and Medicaid revenues from the denominator of the ratio, the hospital would qualify for a disproportionate share adjustment under the provision at issue as long as it received more than $18,000,000 in state and local funding not attributable to Medicaid or Medicare, as illustrated by the following calculations:

North Broward's interpretation

                      Numerator    =  (State and local funding other than Medicare & Medicaid)
                                   =  $18,000,000
                      Denominator  =  (Net inpatient revenues, excluding Medicare & Medicaid)
                                   =  $100,000,000 " $40,000,000
                                   =  $60,000,000
                      The ratio is thus 18/60 , or 30%
                

Under the Secretary's interpretation, which does not exclude Medicare and Medicaid revenues from the denominator, the hospital would need to receive more than $30,000,000 of state and local funding not attributable to Medicaid or Medicare to qualify:

Secretary's interpretation

                   Numerator    =  (State and local funding other than Medicare & Medicaid) =
                                     $30,000,000
                   Denominator  =  (Total net inpatient revenues)
                                =  $100,000,000
                   The ratio is thus 30/100 , or 30%.
                

Given the sizable difference in the amount of state and local funding required to qualify under the two interpretations, adopting North Broward's interpretation would likely increase the number of providers qualifying for the disproportionate share adjustment under the provision. ²

Whether such an increase in the provision's applicability would be appropriate or desirable is a matter of policy, not of statutory construction, and within the bounds of congressional directive, it is primarily a question for HHS, not the courts. Because an agency's policy choices are necessarily constrained by the statute pursuant to which it acts, when an agency has interpreted a statute it administers, we first consider whether Congress has "directly addressed the precise question at issue." Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). If the intent of Congress is clear, it must be given effect. Id. However, if the intent of Congress is not clear, we do not impose our own construction of the statute, but instead examine only whether "the agency's answer is based on a permissible construction of the statute." Id. Thus, absent clear congressional intent to the contrary, we will defer to the Secretary's interpretation " 'if it is reasonable and consistent with the statute's purpose.' " National Med. Enters., Inc. v. Shalala, 43 F.3d 691, 695 (D.C.Cir.1995) (quoting Chemical Mfrs. Ass'n v. EPA, 919 F.2d 158, 162-63 (D.C.Cir.1990)). See also HCA Health Servs. of Oklahoma, Inc. v. Shalala, 27 F.3d 614, 616-17 (D.C.Cir.1994); Marymount Hosp., Inc. v. Shalala, 19 F.3d 658, 661 (D.C.Cir.1994).

North Broward advances two arguments that the usual Chevron analysis is inapplicable, neither of which we find convincing. First, North Broward argues that the Secretary's interpretation of the statute creating the ratio is not entitled to deference because it is not longstanding, noting that even the Administrator's decision characterized the regulations as silent with respect to the issue. We are somewhat puzzled by North Broward's argument, since the statutory interpretations of the agency's adjudicatory decision in this case would be entitled to deference even if the matter had never...