Portland Adventist Medical Center v. Thompson

• Decision Date: 02 March 2005
• Docket Number: No. 03-35612.,03-35612.
• Citation: 399 F.3d 1091
• Parties: PORTLAND ADVENTIST MEDICAL CENTER; Oregon Health Sciences University; Asante dba Rogue Valley Medical Center; Sacred Heart Medical Center; Salem Hospital; Tuality Healthcare dba Tuality Community Hospital; Legacy Mt. Hood Medical Center; Legacy Good Samaritan Hospital & Health Center; McKenzie-Willamette Hospital, Plaintiffs-Appellees, v. Tommy G. THOMPSON, Secretary, Department of Health & Human Services, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

399 F.3d 1091

PORTLAND ADVENTIST MEDICAL CENTER; Oregon Health Sciences University; Asante dba Rogue Valley Medical Center; Sacred Heart Medical Center; Salem Hospital; Tuality Healthcare dba Tuality Community Hospital; Legacy Mt. Hood Medical Center; Legacy Good Samaritan Hospital & Health Center; McKenzie-Willamette Hospital, Plaintiffs-Appellees, v. Tommy G. THOMPSON, Secretary, Department of Health & Human Services, Defendants-Appellants.

No. 03-35612.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 8, 2004.

Filed March 2, 2005.

August E. Flentje, Attorney, Appellate Staff Civil Division, Department of Justice, Washington, D.C., for the appellant.

Lisa Dobson Gould and Sanford E. Pitler, Bennett Bigelow & Leedom, P.S., Seattle, WA, for the appellees.

Appeal from the United States District Court for the District of Oregon; Robert E. Jones, District Judge, Presiding. D.C. No. CV-02-00289-REJ/JJ.

Before T.G. NELSON and RAWLINSON, Circuit Judges, and SCHWARZER,^* Senior District Judge.

SCHWARZER, Senior District Judge.

We must decide whether the Secretary of the Department of Health and Human Services correctly denied reimbursement to plaintiff hospitals for services to certain low-income populations based on his interpretation of the Medicare statute's Disproportionate Share Hospital (DSH) calculation. The district court held that the Secretary's interpretation of the statute governing reimbursement violated the text and intent of the statute and granted plaintiffs' motion for summary judgment. We agree with the district court and affirm for the reasons stated below.

DISCUSSION

I. THE REGULATORY FRAMEWORK

Under the Medicare program, Title XVIII of the Social Security Act, the federal government reimburses hospitals for certain medical services provided to eligible individuals. 42 U.S.C. §§ 1395-1395ggg. Under Title XIX of the Act, the Medicaid program, the federal government provides funds to states to offset some of the expense of furnishing medical services to low-income persons. Id. §§ 1396-1396v; 42 C.F.R. § 430. To receive federal assistance, a state must submit a plan for approval by the Secretary. 42 U.S.C. § 1396a. Only expenditures made under an approved state plan are eligible for matching federal payments. See 42 U.S.C. §§ 1315, 1396, 1396c. While some federal requirements apply to these plans, states have considerable "discretion to determine the type and range of services covered, the rules for eligibility, and the payment levels for services." Legacy Emanuel Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261, 1262 (9th Cir.1996) (citation omitted).

Section 1115 of the Social Security Act authorizes the Secretary to approve experimental or demonstration projects to encourage states to adopt innovative programs that are likely to assist in promoting the objectives of Medicaid, among other social programs. 42 U.S.C. § 1315(a). For these experimental projects, the Secretary is authorized to waive compliance with the general federal requirements for Medicaid state plans set out in § 1396a. Nevertheless, the "costs of such project[s] ... shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State [Medicaid] plan." Id. § 1315(a)(2). Experimental projects may provide medical assistance to individuals who could be eligible for Medicaid even without a waiver as well as to individuals who would not be eligible. See, e.g., Interim Final Rule, Medicare Program; Medicare Inpatient Disproportionate Share Hospital (DSH) Adjustment Calculation, 65 Fed.Reg. 3136, 3136-37 (Jan. 20, 2000). The latter group, who become eligible for services paid for with Medicaid funds by reason of the Secretary's waiver of particular requirements under § 1115, are known as "expansion populations" or "expanded eligibility populations." Id.

Federal reimbursement of hospitals' operating costs under Medicare occurs under the Prospective Payment System (PPS). 42 U.S.C. § 1395ww(d). This system bases reimbursement on a "predetermined amount that an efficiently run hospital should incur for inpatient services." Legacy Emanuel, 97 F.3d at 1262. In 1983, Congress found that providing services to low-income patients may cost medical centers more than is provided for by this scheme and, accordingly, Congress directed the Secretary to make additional payments to hospitals that serve "a significantly disproportionate number of low income patients." 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). A designated fiscal intermediary calculates these disproportionate share payments on the basis of the hospital's "disproportionate share percentage." Id. § 1395ww(d)(5)(F)(vi). In part, this calculation requires a fiscal intermediary to determine the proportion of low-income patient days in the Medicare population the hospital served, a proportion known as the Medicaid fraction or Medicaid proxy. Id. § 1395ww(d)(5)(F)(vi)(II);¹ see also Legacy Emanuel, 97 F.3d at 1263 & n. 2 (explaining the calculation of the disproportionate share percentage).

Under the regulation in effect from 1991 through 1998, 42 U.S.C. § 412.106(b)(4), the Secretary included in the Medicaid fraction all patient days during which an individual was entitled to Medicaid, but interpreted the rule to exclude days of patients who were Medicaid eligible but for which Medicaid payments were not actually made.² See Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems, 63 Fed.Reg. 40,954, 40, 984-85 (July 31, 1998). In 1998, following adverse court rulings, e.g., Legacy Emanuel, 97 F.3d 1261, the Secretary amended this rule to provide for computation of DSH reimbursements on the basis of patients' eligibility for Medicaid assistance, regardless of actual payment. See 42 C.F.R. § 412.106(b)(4)(i).

Despite this clarification, calculation of hospitals' DSH reimbursements continued to lack uniformity. As the Secretary acknowledged in a Program Memorandum issued in December 1999, some fiscal intermediaries' calculations included days attributable to patients in § 1115 expanded eligibility populations but not eligible for Medicaid under the federal statutory guidelines; other fiscal intermediaries' calculations did not include expansion population patient days. The Secretary issued an Interim Final Rule on this subject in January 2000. 65 Fed.Reg. 3136 (Jan. 20, 2000). This rule stated that with respect to the preceding period, the Medicaid fraction had not included patients in expanded eligibility populations. Id. at 3136. It went on to state, however, that after January 20, 2000, the DSH provision would be interpreted to permit hospitals to "include all days attributable to populations eligible for Title XIX matching payments through a waiver approved under section 1115 of the Social Security Act." Id. at 3136, 3139; see also 42 C.F.R. § 412.106(b)(4)(ii) (codifying the interim final rule). The Secretary explained:

[W]e believe allowing hospitals to include the section 1115 expanded waiver population in the Medicare DSH calculation is fully consistent with the Congressional goals of the Medicare DSH adjustment to recognize the higher costs to hospitals of treating low income individuals covered under Medicaid. Therefore, inpatient hospital days for these individuals eligible for Title XIX matching payments under a section 1115 waiver are to be included as Medicaid days for purposes of the Medicare DSH adjustment calculation.

65 Fed.Reg. at 3137.

The Secretary characterized this rule as a change in policy. 65 Fed.Reg. at 3136. However, the rule also acknowledged that because of differences in fiscal intermediaries' approaches to calculation of DSH reimbursement shares, "many hospitals in States with approved section 1115 expansion waivers have [already] been receiving Medicare DSH payments reflecting the inclusion of expansion population patient days." Id. The rule was silent as to whether the Secretary would seek reimbursement from those hospitals that had received DSH payments prior to January 2000. Plaintiffs were among the hospitals that excluded expansion population patients from their pre-January 2000 DSH calculations.

II. STANDARD OF REVIEW

We review de novo a district court's grant of summary judgment. Vasquez v. County of Los Angeles, 349 F.3d 634, 639 (9th Cir.2003). We also review de novo questions of statutory interpretation. Brower v. Evans, 257 F.3d 1058, 1065 (9th Cir.2001).

We are to construe the DSH statute and assess the Secretary's interpretation of it following the standards set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). We ask first "whether Congress has directly spoken to the precise question at issue." Id. at 842, 104 S.Ct. 2778. If it has, our inquiry ends; we "must give effect to the unambiguously expressed intent of Congress." Id. at 842-43, 104 S.Ct. 2778. But if "the 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." Id. at 843, 104 S.Ct. 2778.

III. THE MEDICAID FRACTION

This appeal turns on the interpretation of the Medicaid fraction provision in the DSH statute, which states, in relevant part, that the

"disproportionate patient percentage" [includes] ... [t]he 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 [title] XIX ... but who were not entitled to benefits under part A of this [title] [Medicare], 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). We must decide whether this provision requires the Secretary to regard low-income individuals...