Tenn. Hosp. Ass'n v. Azar, Nos. 17-597/6033

CourtU.S. Court of Appeals — Sixth Circuit
Writing for the CourtKAREN NELSON MOORE, Circuit Judge.
Citation908 F.3d 1029
Parties TENNESSEE HOSPITAL ASSOCIATION; Takoma Regional Hospital; Delta Medical Center; Parkwest Hospital, Plaintiffs-Appellees/Cross-Appellants, v. Alex M. AZAR, II, in His Official Capacity as Secretary of Health and Human Services; Seema Verma, Administrator of the Centers for Medicare and Medicaid Services; Centers for Medicare and Medicaid Services, Defendants-Appellants/Cross-Appellees.
Docket NumberNos. 17-597/6033
Decision Date14 November 2018

908 F.3d 1029

TENNESSEE HOSPITAL ASSOCIATION; Takoma Regional Hospital; Delta Medical Center; Parkwest Hospital, Plaintiffs-Appellees/Cross-Appellants,
v.
Alex M. AZAR, II, in His Official Capacity as Secretary of Health and Human Services; Seema Verma, Administrator of the Centers for Medicare and Medicaid Services; Centers for Medicare and Medicaid Services, Defendants-Appellants/Cross-Appellees.

Nos. 17-597/6033

United States Court of Appeals, Sixth Circuit.

Argued: June 14, 2018
Decided and Filed: November 14, 2018


ARGUED: Tara S. Morrissey, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants/Cross-Appellees. William H. West, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, PC, Nashville, Tennessee, for Appellees/Cross-Appellants. ON BRIEF: Tara S. Morrissey, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants/Cross-Appellees. William H. West, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, PC, Nashville, Tennessee, for Appellees/Cross-Appellants.

Before: MOORE, KETHLEDGE, and STRANCH, Circuit Judges.

MOORE, J., delivered the opinion of the court in which STRANCH, J., joined, and KETHLEDGE, J., joined in the result. KETHLEDGE, J. (pp. 1047–50), delivered a separate opinion concurring in the judgment.

KAREN NELSON MOORE, Circuit Judge.

This case marks the latest in a string of lawsuits brought by hospitals across the country challenging efforts by the Centers for Medicare and Medicaid Services ("CMS") to direct states to recoup certain reimbursements made under the Medicaid program. Here, plaintiffs are the Tennessee Hospital Association and three of its member hospitals, Takoma Regional Hospital, Delta Medical Center, and Parkwest Hospital. These hospitals serve a disproportionate share of Medicaid-eligible patients and are thereby entitled to supplemental payments under the Medicaid Act, known as "DSH payments" or "DSH payment adjustments." The Medicaid Act limits the amount of DSH payments each hospital can receive in a given year, and CMS contends that plaintiffs in this case miscalculated their DSH payment-adjustments for fiscal year 2012 and received extra payments as a result. Plaintiffs, in turn, insist that CMS’s approach to calculating DSH payment adjustments is out of step with the Medicaid Act and the regulations that CMS implemented in 2008 pursuant to the Medicaid Act. The district court agreed with plaintiffs and held that

908 F.3d 1033

CMS’s methodology was inconsistent with both the Medicaid Act and CMS’s 2008 regulation. Although we agree that CMS’s policy is inconsistent with its 2008 rule and cannot be enforced against plaintiffs unless it is promulgated pursuant to notice-and-comment rulemaking, we disagree with the district court’s conclusion that CMS’s policy exceeds the agency’s authority under the Medicaid Act. We therefore AFFIRM the final judgment of the district court on the sole ground that CMS may not enforce an invalidly promulgated policy against plaintiffs and REMAND for further proceedings consistent with this opinion.

I. BACKGROUND

Plaintiffs in this case—the Tennessee Hospital Association and three of its member hospitals—are challenging efforts by the Centers for Medicare and Medicaid Services ("CMS") to direct Tennessee to recoup certain reimbursements paid to the hospitals under the Medicaid program. Plaintiffs are "Disproportionate Share Hospitals" ("DSH"), which means that they serve a disproportionate share of Medicaid-eligible and low-income patients. 42 U.S.C. §§ 1396a(a)(13)(A)(iv) ; 1396r-4(b). As DSH hospitals, plaintiffs receive supplemental "DSH payments" under the Medicaid Act to help offset the cost of caring for indigent individuals. See id . § 1396r-4(c). The Medicaid Act limits the amount of funds any given DSH hospital can receive in a given year to its uncompensated cost of care—i.e., the cost of caring for Medicaid-eligible and uninsured patients less certain payments made on behalf of those patients. Id . § 1396r-4(g)(1)(A).

Congress amended the Medicaid Act in 2003 to require states to audit and report the amount of DSH payments distributed to each hospital. Id . § 1396r-4(j). In 2008, CMS issued a final rule pursuant to notice-and-comment rulemaking implementing the 2003 auditing requirements. See Medicaid Program; Disproportionate Share Hospital Payments, 73 Fed. Reg. 77,904 (Dec. 19, 2008). To "permit verification of the appropriateness of [each hospital’s DSH] payments," the rule requires "each DSH hospital to which the State made a DSH payment" to submit certain data to CMS. 42 C.F.R. § 447.299(c) (2016).1 The preamble to the rule refers to the various categories of required data as "data elements," 73 Fed. Reg. at 77,948, and we adopt that terminology here. For the purposes of this case, the most relevant data elements are displayed in the chart below.

908 F.3d 1034
 Provision Data Element Description
                 42 C.F.R. § 447.299(c)(9) Total Medicaid The sum of the "IP/OP Medicaid fee-for-service
                 IP/OP2 Payments (FFS) basic rate
                 payments,"3 the "IP/OP Medicaid
                 managed care organization payments,"4
                 and the "Supplemental/enhanced
                 Medicaid IP/OP payments."5
                 42 C.F.R. § 447.299(c)(10) Total Cost of "The total annual costs incurred by
                 Care for each hospital for furnishing inpatient
                 Medicaid IP/OP hospital and outpatient hospital
                 Services services to Medicaid eligible
                 individuals."
                 42 C.F.R. § 447.299(c)(11) Total Medicaid "The total amount of uncompensated
                 Uncompensated care attributable to Medicaid inpatient
                 Care and outpatient services. The amount
                 should be the result of subtracting the
                 amount identified in § 447.299(c)(9)
                 from the amount identified in
                 § 447.299(c)(10). The uncompensated
                 care costs of providing Medicaid
                 physician services cannot be included
                 in this amount."
                 42 C.F.R. § 447.299(c)(12) Uninsured IP/OP "Total annual payments received by the
                 revenue hospital by or on behalf of individuals
                 with no source of third party coverage
                 for inpatient and outpatient hospital
                 services they receive. This amount
                 does not include payments made by a
                 State or units of local government, for
                 services furnished to indigent patients."
                 42 C.F.R. § 447.299(c)(13) Total Applicable "Federal Section 1011 payments6 for
                 Section 1011 uncompensated inpatient and outpatient
                 Payments hospital services provided to Section
                 1011 eligible aliens with no source of
                 third party coverage for the inpatient
                 and outpatient hospital services they
                 receive."
                 42 C.F.R. § 447.299(c)(14) Total cost of "[T]he total costs incurred for
                 IP/OP care for furnishing inpatient hospital and
                 the uninsured outpatient hospital services to
                 individuals with no source of third
                 party coverage for the hospital services
                 they receive."
                 42 C.F.R. § 447.299(c)(16) Total annual "The total annual uncompensated care
                 uncompensated cost equals the total cost of care for
                 care costs furnishing inpatient hospital and
                 outpatient hospital services to Medicaid
                 eligible individuals and to individuals
                 with no source of third party coverage
                 for the hospital services they receive
                 less the sum of regular Medicaid FFS
                 rate payments, Medicaid managed care
                 organization payments, supplemental/enhanced
                 Medicaid payments,
                 uninsured revenues, and Section 1011
                 payments for inpatient and outpatient
                 hospital services. This should equal the
                 sum of paragraphs (c)(9),(c)(12), and
                 (c)(13) subtracted from the sum of
                 paragraphs (c)(10) and (c)(14) of this
                 section."
                
Editor’s Note : The preceding image contains the reference footnotes2 ,3 ,4 ,5 ,6
908 F.3d 1035

The parties’ dispute turns, in large part, on how to define properly the so-called "Medicaid shortfall" for hospitals that treat Medicaid-eligible patients who have additional sources of insurance coverage. The Medicaid shortfall is represented by the data element in 42 C.F.R. § 447.299(c)(11), and it reflects the "[t]otal annual costs incurred" ( (c)(10) ) in treating Medicaid-eligible patients less the total annual "Medicaid IP/OP payments" received ( (c)(9) ).

The question is not as simple as it may seem. For certain hospitals—and, defendants contend, for the plaintiff-hospitals here—subtracting total annual "Medicaid IP/OP payments" received from "[t]otal annual costs incurred" does not give an accurate picture of how much money a hospital has ultimately lost in caring for indigent patients because Medicaid is not the sole source of insurance coverage for all Medicaid-eligible patients. "[C]hildren with certain disabilities may be eligible for Medicaid and have private insurance coverage through their parents," for instance, and "some elderly individuals are eligible for both Medicare and Medicaid." First Br. at 4–5 (citing 42 U.S.C. § 1396a(a)(10)(A)(i)(II), (ii)(I) ). (The latter group is generally referred to as "dual eligibles." Id. ) For individuals with some form of dual coverage, Medicaid typically serves as the "payer of last resort," which means that it contributes funds only if the private insurance or Medicare payments are less than what Medicaid would have paid. Massachusetts v. Sebelius , 638 F.3d 24, 26 (1st Cir. 2011) (quoting Ark. Dep’t of Health & Human Servs. v. Ahlborn , 547 U.S. 268, 291, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006) ). Thus, if private insurance or Medicare compensates...

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  • Oakbrook Land Holdings, LLC v. Comm'r, 154 T.C. No. 10
    • United States
    • United States Tax Court
    • May 12, 2020
    ...Health Ctr. for Women v. Knoll, 61 F.3d 170, 181 (3d Cir. 1995)), aff'd, 923 F.3d 296 (3d Cir. 2019); see Tenn. Hosp. Ass'n v. Azar, 908 F.3d 1029, 1042 (6th Cir. 2018). A legislative rule, on the other hand, "creates rights, assigns duties, or imposes obligations, the basic tenor of which ......
  • Gun Owners of Am., Inc. v. Garland, No. 19-1298
    • United States
    • United States Courts of Appeals. United States Court of Appeals (6th Circuit)
    • March 25, 2021
    ...218, 232, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001).Legislative rules "have the ‘force and effect of law.’ " Tenn. Hosp. Ass'n v. Azar , 908 F.3d 1029, 1042 (6th Cir. 2018) (quoting Perez v. Mortg. Bankers Ass'n , 575 U.S. 92, 96, 135 S.Ct. 1199, 191 L.Ed.2d 186 (2015) ). "[I]nterpretive rules......
  • Mann Constr., Inc. v. Internal Revenue Serv., Case No. 20-11307
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan)
    • October 20, 2020
    ...agency thinks the statute means, and only reminds affected parties of existing duties’ is interpretive." Tennessee Hosp. Ass'n v. Azar , 908 F.3d 1029, 1042 (6th Cir. 2018) (quoting Michigan v. Thomas , 805 F.2d 176, 182–83 (6th Cir. 1986) ). "If an agency attempts to issue a legislative ru......
  • Skyworks, Ltd. v. Ctrs. for Disease Control & Prevention, Case No. 5:20-cv-2407
    • United States
    • United States District Courts. 6th Circuit. United States District Court of Northern District of Ohio
    • March 10, 2021
    ...construction’ to determine whether ‘Congress had an intention on the precise question at issue.’ " Tennessee Hosp. Ass'n v. Azar , 908 F.3d 1029, 1037 (6th Cir. 2018) (quoting Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc. , 467 U.S. 837, 843 n.9, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1......
  • Request a trial to view additional results
24 cases
  • Oakbrook Land Holdings, LLC v. Comm'r, 154 T.C. No. 10
    • United States
    • United States Tax Court
    • May 12, 2020
    ...Health Ctr. for Women v. Knoll, 61 F.3d 170, 181 (3d Cir. 1995)), aff'd, 923 F.3d 296 (3d Cir. 2019); see Tenn. Hosp. Ass'n v. Azar, 908 F.3d 1029, 1042 (6th Cir. 2018). A legislative rule, on the other hand, "creates rights, assigns duties, or imposes obligations, the basic tenor of which ......
  • Gun Owners of Am., Inc. v. Garland, No. 19-1298
    • United States
    • United States Courts of Appeals. United States Court of Appeals (6th Circuit)
    • March 25, 2021
    ...218, 232, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001).Legislative rules "have the ‘force and effect of law.’ " Tenn. Hosp. Ass'n v. Azar , 908 F.3d 1029, 1042 (6th Cir. 2018) (quoting Perez v. Mortg. Bankers Ass'n , 575 U.S. 92, 96, 135 S.Ct. 1199, 191 L.Ed.2d 186 (2015) ). "[I]nterpretive rules......
  • Mann Constr., Inc. v. Internal Revenue Serv., Case No. 20-11307
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan)
    • October 20, 2020
    ...agency thinks the statute means, and only reminds affected parties of existing duties’ is interpretive." Tennessee Hosp. Ass'n v. Azar , 908 F.3d 1029, 1042 (6th Cir. 2018) (quoting Michigan v. Thomas , 805 F.2d 176, 182–83 (6th Cir. 1986) ). "If an agency attempts to issue a legislative ru......
  • Skyworks, Ltd. v. Ctrs. for Disease Control & Prevention, Case No. 5:20-cv-2407
    • United States
    • United States District Courts. 6th Circuit. United States District Court of Northern District of Ohio
    • March 10, 2021
    ...construction’ to determine whether ‘Congress had an intention on the precise question at issue.’ " Tennessee Hosp. Ass'n v. Azar , 908 F.3d 1029, 1037 (6th Cir. 2018) (quoting Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc. , 467 U.S. 837, 843 n.9, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1......
  • Request a trial to view additional results
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