Tex. Clinical Labs Inc v. Sebelius

• Decision Date: 22 July 2010
• Docket Number: No. 09-10658.,09-10658.
• Parties: TEXAS CLINICAL LABS, INC.; Texas Clinical Labs-Gulf Division, Inc.; Estate of Daniel P. Campbell; Texas Clinical Labs, LLC; Texas Clinical Labs-Gulf Division, LLC, Plaintiffs-Appellants,v.Kathleen SEBELIUS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

612 F.3d 771

TEXAS CLINICAL LABS, INC.; Texas Clinical Labs-Gulf Division, Inc.; Estate of Daniel P. Campbell; Texas Clinical Labs, LLC; Texas Clinical Labs-Gulf Division, LLC, Plaintiffs-Appellants,v.Kathleen SEBELIUS, Defendant-Appellee.

No. 09-10658.

United States Court of Appeals, Fifth Circuit.

July 22, 2010.

COPYRIGHT MATERIAL OMITTED

Richard O. Campbell (argued), William C. Brittan, Campbell Killin Brittan & Ray, L.L.C., Denver, CO, for Plaintiffs-Appellants.

Edmond Dante Anderson, III, Asst. Regional Counsel (argued), Dept. of Health and Human Services, Tami C. Parker, Asst. U.S. Atty., Dallas, TX, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before KING, JOLLY and STEWART, Circuit Judges.

CARL E. STEWART, Circuit Judge:

Texas Clinical Laboratories, Inc. and Texas Clinical Laboratories-Gulf Division, Inc. (collectively, the “TCLs”) appeal the district court's judgment denying them additional interest on the principal of a Medicare reimbursement ruling rendered in their favor against the Department of Health and Human Services (the “DHHS”). For the reasons below, we affirm.

I.

The dispute between the TCLs and the DHHS began around 1986, when the DHHS implemented a new formula for calculating reimbursement for certain health care providers for travel expenses. The TCLs objected to this change and sought administrative review challenging two elements of the agency's travel allowance formula: (1) the thirty-five miles per hour (“35 m.p.h.”) average speed used as the standard speed for delivery of services and (2) the median cost per specimen.

On January 31, 1992, an ALJ found that the median specimen figure was not supported by the record, that the 35 m.p.h. figure was not supported by the record, and that payment should be made by the DHHS for future claims that had not been addressed in an earlier hearing decision. The Office of Health Affairs Appeals Council (the “Appeals Council”) vacated the ALJ's ruling, however, and remanded the action so that the DHHS could present evidence in support of the 35 m.p.h. figure and median cost per specimen. The Appeals Council also limited the scope of the ALJ's decision to consider only claims presently before him. Upon remand, the same ALJ issued another ruling in favor of the TCLs, again finding that the DHHS had failed to produce evidence to support its use of the 35 m.p.h. figure and median cost per specimen. The Appeals Council, though, was persuaded by the DHHS' representation that evidence existed to support the 35 m.p.h. and median cost per specimen figures and again reversed. This time, the Appeals Council remanded the matter to a different ALJ. In June 1995, the successor ALJ rendered the third ruling in favor of the TCLs; however, the Appeals Council reversed yet again, concluding that the DHHS presented sufficient evidence to support its use of the 35 m.p.h. and median cost per specimen figures.

The TCLs then filed an action in the Northern District of Texas seeking judicial review of the Appeals Council ruling. The district court granted summary judgment to the DHHS and dismissed the TCLs' action. On appeal, we affirmed the district court dismissal of the TCLs' median cost per specimen claim, but remanded the 35 m.p.h. claim because the record did not include any objective evidence to support the DHHS' use of the 35 m.p.h. figure. See Texas Clinical Labs, Inc. v. Apfel, No. 00-10099, 2000 WL 34507667, at *1 (5th Cir. Dec. 22, 2000). The district court in turn remanded the case back to the administrative level directing that the record be supplemented with documentation on which the DHHS relied to determine the 35 m.p.h. figure.

After the administrative proceedings were re-opened, the DHHS introduced into evidence an e-mail in which it admitted for the first time that the 35 m.p.h. figure was not based on any objective evidence. In March 2003, the ALJ ruled in favor of the TCLs for the fourth time, awarding them $581,157 plus accrued interest. This time, the DHHS did not appeal. In December 2003, the DHHS issued two checks which included interest of $41,104.75, which the DHHS had calculated only from the March 2003 date of the ALJ's fourth ruling.

The TCLs objected to the DHHS' calculation of interest and, in May 2004, requested that the ALJ rule supplementally that interest began to accrue as of January 1992, the date of the first of the four ALJ rulings rendered in their favor. The ALJ held that he did not have the authority to rule on the issue, and the TCLs appealed. The Appeals Council ruled that the ALJ did have the authority to rule on the matter, and no additional interest was owed to the TCLs.

The TCLs appealed the Appeals Council's ruling to the district court. After a dispute over standing was resolved in favor of the TCLs Texas Clinical Labs, Inc. v. Leavitt, 535 F.3d 397 (5th Cir.2008), both parties filed summary judgment motions. The district court granted DHHS' summary judgment motion, finding in its favor on alternative grounds: (1) that because waivers of sovereign immunity are to be construed narrowly, the Medicare statute cannot be read to waive immunity for interest on judgments subsequently reversed by the Appeals Council, and (2) that the Appeals Council interpretation of the regulation was entitled to Chevron deference.

II.

We review a grant of summary judgment de novo, applying the same standard as the district court. Wilson v. Sec'y, Dept. of Veterans Affairs, 65 F.3d 402, 403 (5th Cir.1995). Under the Administrative Procedures Act (“APA”), “[t]he district court, and this court ... may overturn the Secretary's ruling only if it is arbitrary, capricious, an abuse of discretion, not in accordance with law, or unsupported by substantial evidence on the record taken as a whole.” Sun Towers, Inc. v. Schweiker ( Sun Towers I), 694 F.2d 1036, 1038 (5th Cir.1983). In reviewing an agency's decision under the arbitrary and capricious standard, there is a presumption that the agency's decision is valid, and the plaintiff has the burden to overcome that presumption by showing that the decision was erroneous. Delta Foundation Inc. v. United States, 303 F.3d 551, 564 (5th Cir.2002). As Justice Scalia recently reminded us, the standard of review is thus highly deferential to the administrative agency whose final decision is being reviewed and a court “should not substitute [its] own judgment for the agency's.” F.C.C. v. Fox Television Stations, Inc., --- U.S. ----, 129 S.Ct. 1800, 1810, 173 L.Ed.2d 738 (2009). An agency's decision “need not be ideal or even, perhaps, correct so long as not ‘arbitrary’ or ‘capricious' and so long as the agency gave at least minimal consideration to the relevant facts as contained in the record.” Am. Petroleum Inst. v. E.P.A., 661 F.2d 340, 349 (5th Cir.1999); see also, id. “The [agency's] purely legal questions are reviewed de novo,” giving deference to the agency's interpretation of the statute and regulations as appropriate. Alwan v. Ashcroft, 388 F.3d 507, 510 (5th Cir.2004).

Payment of interest on Medicare debts is required pursuant to 42 U.S.C. § 1395 l (j):

(j) Accrual of interest on balance of excess or deficit not paid

Whenever a final determination is made that the amount of payment made under this part either to a provider of services or to another person pursuant to an assignment under section 1395u(b)(3)(B)(ii) of this title was in excess of or less than the amount of payment that is due, and payment of such excess or deficit is not made (or effected by offset) within 30 days of the date of the determination, interest shall accrue on the balance of such excess or deficit not paid or offset (to the extent that the balance is owed by or owing to the provider) at a rate determined in accordance with the regulations of the Secretary of the Treasury applicable to charges for late payments.

The crux of the problem in this case, however, is which of the four ALJ rulings rendered in the TCLs' favor constituted a “final determination” for the purposes of triggering the accrual of interest.

Our review is governed by the classic two-step framework from Chevron USA v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984): If Congress “has directly spoken to the precise question at issue,” we “must give effect to [its] unambiguously expressed intent”; on the other hand, “if the statute is silent or ambiguous,” we must defer to the agency's interpretation so long as it is “based on a permissible construction of the statute.” Id. at 842-43, 104 S.Ct. 2778. “We accord deference to agencies under Chevron because of a presumption that Congress, when it left ambiguity in a statute meant for implementation by an agency, understood that the ambiguity would be resolved, first and foremost, by the agency, and desired the agency (rather than the courts) to possess whatever degree of discretion the ambiguity allows.” United States v. Mead, 533 U.S. 218, 240, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001) (Scalia, J. dissenting). In this case, while the Medicare statute requires interest to be paid on the unpaid balance of underpayments and overpayments, the statute does not define what type of rulings constitute “final determinations” upon which interest should accrue. Nor is its language so clear as to only permit a single interpretation. Since the statute does not unambiguously speak to the precise question at issue we look to the regulation for guidance.

A similar two-step test applies when interpreting an agency regulation. First, the court must ask whether the regulation is “ambigu[ous] with respect to the specific question considered.” Moore v. Hannon Food Serv., 317 F.3d 489, 495 (5th Cir.2003); Christensen v. Harris County, 529 U.S. 576, 588, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000). Second, if the regulation is ambiguous, the agency's interpretation (as contained in, e.g., opinion letters) is “controlling unless plainly...