Rhode Island Hosp. v. Leavitt

• Decision Date: 17 November 2008
• Docket Number: No. 07-2673.,07-2673.
• Citation: 548 F.3d 29
• Parties: RHODE ISLAND HOSPITAL, Plaintiff, Appellee, v. Michael O. LEAVITT, in his capacity as Secretary of Health and Human Services; Department of Health and Human Services, Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

548 F.3d 29

RHODE ISLAND HOSPITAL, Plaintiff, Appellee, v. Michael O. LEAVITT, in his capacity as Secretary of Health and Human Services; Department of Health and Human Services, Defendants, Appellants.

No. 07-2673.

United States Court of Appeals, First Circuit.

Heard September 12, 2008.

Decided November 17, 2008.

Robert D. Kamenshine, Appellate Section, Civil Division, United States Department of Justice, with whom Gregory G. Katsas, Acting Assistant Attorney General, Robert Clark Corrente, United States Attorney, Scott R. McIntosh, Appellate Section, Civil Division, United States Department of Justice, James C. Stansell, Acting General Counsel, United States Department of Health and Human Services, Nancy S. Nemon, Chief Counsel, Region I, United States Department of Health and Human Services, and Clifford M. Pierce, Assistant Regional Counsel, Region I, United States Department of Health and Human Services, were on brief, for appellant.

Robert G. Flanders, with whom Mitchell R. Edwards, Hinckley, Allen & Snyder LLP, Lawrence W. Vernaglia, and Foley & Lardner LLP were on brief, for appellee.

Before TORRUELLA, BALDOCK,^* and HOWARD, Circuit Judges.

BALDOCK, Circuit Judge.

Congress established the Medicare program in 1966 to provide health insurance to the elderly and disabled. See 42 U.S.C. § 1395 et seq. Part A of that program covers, inter alia, expenses related to inpatient hospitalization. The amount Medicare pays for these services is generally determined under the prospective payment system (PPS). See Robert Wood Johnson Univ. Hosp. v. Thompson, 297 F.3d 273, 275 (3d Cir.2002). Under that system, Medicare reimburses healthcare providers according to predetermined rates, which correspond primarily to a patient's diagnosis at discharge.¹ See Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163, 168 (2d Cir.2006).

Congress recognized, however, that not all inpatient healthcare costs are created equal. Of particular relevance here, Congress was concerned that teaching hospitals would incur greater costs in treating patients than would non-teaching hospitals. See H.R.Rep. No. 98-25, part 1, at 140 (1983), as reprinted in 1983 U.S.C.C.A.N. 219, 359; S.Rep. No. 98-23, at 52 (1983), as reprinted in 1983 U.S.C.C.A.N. 143, 192. To remedy this inequity, Congress established an indirect medical education (IME) adjustment to increase Medicare payments to acute care teaching hospitals. See 42 U.S.C. § 1395ww(d)(5)(B).²

The formula Medicare uses to calculate a teaching hospital's IME adjustment is fairly complex. See 42 U.S.C. § 1395ww(d)(5)(B). For our purposes, it is sufficient to say that a teaching hospital's annual IME adjustment is calculated by multiplying the hospital's total PPS payments for the fiscal year by its "teaching adjustment factor." See id. An important variable in the calculation of this "teaching adjustment factor" is a hospital's ratio of full-time equivalent (FTE) residents to its total number of beds.³ See id.

A hospital's total number of beds appears to serve as a proxy for the size of its medical staff. See County of Los Angeles v. Leavitt, 521 F.3d 1073, 1076 n. 2 (9th Cir.2008) (citing Little Co. of Mary Hosp. and Health Care Ctrs. v. Shalala, 165 F.3d 1162, 1164 (7th Cir.1999)). The higher a hospital's ratio of FTE residents to staff, the more teaching each individual staff member will be doing. See id. Thus, as this ratio increases, so does a hospital's "teaching adjustment factor" and, ultimately, the IME payment a hospital receives from Medicare. See id. at 1076; see also H.R.Rep. No. 99241, part 1, at 14 (1985), as reprinted in 1986 U.S.C.C.A.N. 579, 592 (noting the increase in a hospital's IME payment "var[ies] directly" with its "ratio of interns and residents to its number of beds").

The issue in this case is whether governing administrative and statutory provisions allow the Secretary of the United States Department of Health and Human Services (the Secretary) to exclude time that residents spend performing research unrelated to patient care from a hospital's FTE count. See 42 C.F.R. § 412.105(g)(1); 42 U.S.C. § 1395ww(d)(5)(B). The district court answered this question in the negative and the Secretary appealed. We have jurisdiction to decide this issue under 12 U.S.C. § 1291. Because we conclude the Secretary's interpretation of the FTE regulation is permissible, we reverse the ruling of the district court and remand for further proceedings not inconsistent with this opinion.

I.

Rhode Island Hospital (RIH or the hospital) is an acute care facility located in Providence, Rhode Island with a large graduate medical education program. For the 1996 fiscal year, RIH requested that its fiscal intermediary — a private insurance company Medicare contracts to pay certain bills — include 290 FTEs in its calculation of the hospital's IME adjustment. Based on its conclusion that governing Medicare regulations precluded counting research time in a hospital's FTE count, the fiscal intermediary reduced RIH's FTE total by 12.06. This exclusion reduced the hospital's IME adjustment by approximately one million dollars.

RIH appealed the fiscal intermediary's decision to the Provider Reimbursement Review Board (PRRB), which is composed of "representative[s] of providers" and other persons "knowledgeable in the field of" provider payments. 42 U.S.C. § 1395oo(h). After a formal hearing, the PRRB reversed the fiscal intermediary's decision. The board concluded the administrative regulation governing a hospital's FTE count (the FTE regulation) was unambiguous and that this regulation did not exclude residents' purely educational research time from a hospital's FTE count. See 42 C.F.R. § 412.105(g)(1).

The Secretary, acting through the Administrator of the Centers for Medicare and Medicaid Services, exercised his right to review the PRRB's decision. See 42 U.S.C. § 1395oo(f)(1). After receiving comments from all interested parties, the Secretary determined that the IME payment made by Medicare was only intended, and had historically only been used, to reimburse teaching hospitals for increased patient care costs. The Secretary also concluded that residents performing educational research were not assigned to an eligible area of the hospital under the governing FTE regulation. Accordingly, the Secretary ruled that the time residents spend performing research unrelated to patient care could not contribute to a teaching hospital's total number of FTEs.

RIH appealed the Secretary's decision to the United States District Court for the District of Rhode Island. See id. Ultimately, both RIH and the Secretary moved for summary judgment. In granting RIH's motion and denying that of the Secretary, the district court concluded the Secretary had misread the plain language of the governing FTE regulation. See 42 C.F.R. § 412.105(g)(1). The district court also made an alternative holding that even if the Secretary's reading of the FTE regulation was reasonable in the abstract, such a reading was unreasonable in light of Congress's purpose in establishing the IME adjustment. On appeal, the Secretary contests both of these conclusions.

II.

Our review of a district court's summary judgment ruling is de novo. See Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Thompson, 447 F.3d 68, 72 (1st Cir.2006). We thus apply the same legal standards that pertain in the district court, affording no particular deference to that court's decision. See id. The strictures of the Administrative Procedure Act (APA) govern judicial review of the Secretary's reimbursement determination. See 42 U.S.C. § 1395oo(f)(1); see also Visiting Nurse Ass'n, 447 F.3d at 72. Accordingly, our review of the Secretary's ruling is conducted through the narrow lens of a colored glass. See Visiting Nurse Ass'n, 447 F.3d at 72; Strickland v. Comm'r, 48 F.3d 12, 16 (1st Cir.1995).

Under the APA, agency action is presumptively valid and we may only overturn an agency decision if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." See Visiting Nurse Ass'n, 447 F.3d at 72 (quoting 5 U.S.C. § 706(2)(A)). This standard precludes a reviewing court from substituting its own judgment for that of the agency. See Carcieri v. Kempthorne, 497 F.3d 15, 43 (1st Cir.2007). Of course, we will not uphold an administrative decision contrary to the "unambiguously expressed intent of Congress." Strickland, 48 F.3d at 16. "If the intent of Congress is clear, that is the end of the matter. ..." Id. But in many cases no "unmistakably clear expression of congressional intent" exists. Id. at 17; see also United States v. Councilman, 418 F.3d 67, 88 (1st Cir.2005) (noting that legislative history is "often murky, ambiguous, and contradictory" (quoting Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005))).

In these circumstances, courts defer to the views of the agency Congress has entrusted with relevant rule-making authority, affording "considerable deference" to the agency's interpretation of regulations promulgated under that authority. Royal Siam Corp. v. Chertoff, 484 F.3d 139, 145 (1st Cir.2007). Judicial deference is further magnified in cases involving "complex and highly technical" administrative programs, such as Medicare. Visiting Nurse Ass'n, 447 F.3d at 76; see also Stowell v. Sec'y of Health & Human Servs., 3 F.3d 539, 544 (1st Cir.1993) ("Courts should not cavalierly discount the value of agency expertise painstakingly garnered in the administration, over time, of [administrative] programs of remarkable intricacy."). To receive this deference, the agency need not "write a rule that serves the statute in the best or most logical manner; it need only write a rule that flows rationally from a permissible construction of the statute." Strickland, 48 F.3d at 17.

Judicial review under the APA thus consists of establishing "parameters of rationality within which the...