Wash. Regional Medicorp v. Burwell, 14–5330.

Decision Date29 December 2015
Docket NumberNo. 14–5330.,14–5330.
Citation813 F.3d 357
Parties WASHINGTON REGIONAL MEDICORP, Doing Business as Fayetteville City Hospital, Appellant v. Sylvia Mathews BURWELL, Secretary, U.S. Department of Health and Human Services, Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

Dan M. Peterson argued the cause and filed the briefs for appellant.

Karen Schoen, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Vincent H. Cohen, Jr., Acting U.S. Attorney General, Michael S. Raab, Attorney, William B. Schultz, General, Counsel, U.S. Department of Health and Human Services, Janice L. Hoffman, Associate General Counsel, Susan Maxson Lyons, Deputy Associate General Counsel for Litigation, and Bridgette Kaiser, Attorney. R. Craig Lawrence and Peter C. Pfaffenroth, Assistant U.S. Attorneys, entered appearances.

Before: GARLAND, Chief Judge, GRIFFITH, Circuit Judge, and SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge SENTELLE

.

SENTELLE

, Senior Circuit Judge:

Appellant Fayetteville City Hospital is an inpatient psychiatric hospital that provides services to Medicare patients. Fayetteville challenges the method used by the Secretary of Health and Human Services (HHS) to calculate the hospital's reimbursement for services it provided during 2003 and 2004—the two years after statutory caps on reimbursements for psychiatric hospitals expired but before psychiatric hospitals were moved to a prospective-payment system. Because we conclude that HHS's interpretation was not only reasonable but also the best interpretation of the controlling statute, 42 U.S.C. § 1395ww

, and regulation, 42 C.F.R. § 413.40, we affirm the decision of the district court denying Fayetteville's motion for summary judgment and granting HHS's cross-motion for summary judgment.

I. BACKGROUND
A. Statutory Background

The Center for Medicare and Medicaid Services (CMS)—the component of HHS that administers the Medicare Program—reimburses hospitals for services provided to Medicare patients. Initially, reimbursement was based on a hospital's reasonable, actual costs. In 1982, concern regarding the rapidly rising costs of Medicare reimbursements prompted Congress to direct the Secretary of HHS to develop a legislative proposal for a prospective-payment system (PPS), whereby hospitals would receive a fixed amount for services rendered. See Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, Pub. L. No. 97–248

, § 101(b)(3), 96 Stat. 324, 335; see S.Rep. No. 97–494, pt. 1, at 24 (1982) ( "Hospital spending has been increasing at double-digit rates for over a decade and much faster than the rates of inflation in the economy as a whole. Hospital spending accounts for over 70 percent of Medicare program expenditures...."). In the interim, Congress established limits on the annual rates of increase of a hospital's reimbursable reasonable costs. See TEFRA, § 101(a)(1), 96 Stat. at 331–35 (codified at 42 U.S.C. § 1395ww(b)

). Pursuant to TEFRA, hospitals were reimbursed for their reasonable costs not exceeding a ceiling based on the hospital's "target amount" for the relevant cost year. 42 U.S.C. § 1395ww(b)(1)(A). For the first year that a hospital reported its costs under TEFRA, the hospital's target amount was equal to "the allowable operating costs of inpatient hospital services ... for such hospital for the preceding 12–month cost reporting period" plus an applicable percentage increase. Id. § 1395ww(b)(3)(A)(i). For all subsequent fiscal years, the target amount was "the target amount for the preceding 12–month cost reporting period" plus an applicable percentage increase. Id. § 1395ww(b)(3)(A)(ii).

A PPS was put in place for most hospitals in 1983. See Social Security Amendments of 1983, Pub L. No. 98–21, § 601, 97 Stat. 65

, 153–62 (codified as amended at 42 U.S.C. § 1395ww(d) ). However, Congress chose to exclude certain types of hospitals, including psychiatric hospitals, from the PPS. See Pub L. No. 98–21, § 601(e), 97 Stat. at 153 (codified as amended at 42 U.S.C. § 1395ww(d)(1)(B) ). Instead, HHS continued to reimburse these hospitals for their reasonable costs as long as those costs did not exceed the limits set by TEFRA. The calculation of TEFRA limits resulted in "significant variation" in the amount of reimbursement across PPS-exempt hospitals. H.R.Rep. No. 105–149, at 1336 (1997). In an effort to reduce this variation, Congress imposed an additional cap on target amounts for PPS-exempt hospitals for fiscal years 19982002. See Balanced Budget Act (BBA) of 1997, Pub. L. No. 105–33, § 4414, 111 Stat. 251, 405 (codified as amended at 42 U.S.C. § 1395ww(b)(3)(H) ). Under the BBA, target amounts for fiscal years 19982002 could not exceed the 75th percentile of target amounts for all hospitals in the same class for cost reporting periods ending during fiscal year 1996, adjusted as applicable for each year of the five year period. See 42 U.S.C. § 1395ww(b)(3)(H).

Finally, in 1999, Congress directed the Secretary to develop a PPS for psychiatric hospitals and move the hospitals to that system beginning on or after October 1, 2002. See Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999, Pub. L. No. 106–113

, Appendix F, § 124, 113 Stat. 1501, 1501A–332.

B. Regulatory Background

After Congress enacted TEFRA in 1982, the Secretary promulgated regulations to implement the act. These regulations mirrored the statutory provisions. Under the regulations, a hospital's target amount for the first cost reporting period after TEFRA's enactment was equal to "the hospital's allowable net inpatient operating costs per case for the hospital's base period increased by the update factor for the subject period." 42 C.F.R. § 405.463(c)(4)(i) (1982). For all subsequent cost reporting periods, a hospital's target amount was equal to "the hospital's target amount for the previous cost reporting period increased by the update factor for the subject cost reporting period." Id. § 405.463(c)(4)(ii); see also 47 Fed. Reg. 43,282, 43,292 (Sept. 30, 1982)

. In 1986, HHS redesignated the relevant sections of 42 C.F.R. Part 405 into new Part 413. See 51 Fed. Reg. 34,790 (Sept. 30, 1986).

Following the passage of the BBA, the Secretary amended 42 C.F.R. Part 413 to reflect the new cap scheme. The Secretary made paragraphs (c)(4)(i) and (c)(4)(ii) subject to newly added paragraph (c)(4)(iii). See 42 C.F.R. § 413.40(c)(4)(i)-(ii) (2003)

. Under paragraph (c)(4)(iii), the hospital's target amount was to be "the lower of the amounts specified in paragraph (c)(4)(iii)(A) or (c)(4)(iii)(B)...." Id. § 413.40(c)(4)(iii). Paragraph (c)(4)(iii)(A) was a "hospital-specific target amount," which equaled "the net allowable costs in a base period increased by the applicable update factors." Id. § 413.40(c)(4)(iii)(A)(I). Paragraph (c)(4)(iii)(B) outlined the BBA cap amount for each year 19982002. Id. § 413.40(c)(4)(iii)(B).

Finally, in 2005, in response to inquiries from provider hospitals, HHS amended § 413.40(c)(4)(iii)

by adding an introductory clause specifying that the paragraph applied only "[f]or cost reporting periods beginning on or after October 1, 1997 through September 30, 2002...." 70 Fed. Reg. 47,278, 47,464 –65, 47,487 (Aug. 12, 2005); see also 42 C.F.R. § 413.40(c)(4)(iii) (2005).

C. Factual and Procedural Background

Although Congress directed HHS to move psychiatric hospitals to a PPS beginning in 2002, HHS was not able to begin the transition until January 1, 2005. See 69 Fed. Reg. 66,922, 66,922

–24 (Nov. 15, 2004) (explaining that developing a PPS for psychiatric hospitals was more complex and time consuming than for other types of hospitals). In the interim, the Secretary calculated psychiatric hospital target amounts under 42 U.S.C. § 1395ww(b)(3)(A)(ii) and 42 C.F.R. § 413.40(c)(4)(ii). See 67 Fed. Reg. 49,982, 50,103 (Aug. 1, 2002). Thus, the 2003 target amount was calculated by adding an applicable percentage increase to the 2002 target amount, which had been subject to the BBA caps, and by extension, the 2004 target amount was calculated by adding an applicable percentage increase to the 2003 target amount. Id.

As a psychiatric hospital that provided inpatient services to Medicare patients in 2003 and 2004, Fayetteville's reimbursement depended on how the Secretary calculated its target amounts for those years. Initially, a fiscal intermediary informed Fayetteville that it would be reimbursed based on its hospital-specific target amount under 42 C.F.R. § 413.40(c)(4)(iii)(A)

. However, the intermediary subsequently revised its calculation and informed Fayetteville that its 2003 and 2004 target amounts would be calculated under 42 C.F.R. § 413.40(c)(4)(ii). The revised calculation resulted in Fayetteville receiving significantly reduced reimbursement for both years. Fayetteville appealed its reimbursements for 2003 and 2004 to the Provider Reimbursement Review Board (PRRB), arguing that the Secretary's method for calculating the 2003 and 2004 target amounts improperly extended the BBA caps past their expiration. The PRRB found that it lacked the authority to decide the appeal because it involved a challenge to the validity of HHS's regulations, but certified the dispute for expedited judicial review in accordance with 42 U.S.C. § 1395oo (f)(1).

Fayetteville subsequently filed this action in the U.S. District Court for the District of Columbia. Both Fayetteville and HHS filed motions for summary judgment with the district court. Fayetteville argued that HHS's decision to calculate the hospital's 2003 and 2004 target amounts under 42 U.S.C. § 1395ww(b)(3)(A)(ii)

—updating its 2002 target amount, which was subject to the BBA cap scheme, by an adjustment factor —impermissibly extended the BBA caps beyond 2002, contrary to the plain language of § 1395ww(b)(3)(H)

. Pl.'s Mot. Summ. J. at 12. According...

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    ...statute, but only that it must be the best construction. Id. at 114 & n.8, 122 S.Ct. 1145. See also Washington Reg'l Medicorp v. Burwell , 813 F.3d 357, 362 (D.C. Cir. 2015) (finding no need to engage in deference analysis where agency's interpretation 45 F.4th 314 is both reasonable and th......
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    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
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    ...of the statute, but only that it must be the best construction. Id. at 114 & n.8. See also Washington Reg'l Medicorp v. Burwell, 813 F.3d 357, 362 (D.C. Cir. 2015) (finding no need to engage in deference analysis where agency's interpretation is both reasonable and the best interpretation o......
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    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • 9 Agosto 2022
    ...of the statute, but only that it must be the best construction. Id. at 114 & n.8. See also Washington Reg'l Medicorp v. Burwell, 813 F.3d 357, 362 (D.C. Cir. 2015) (finding no need to engage in deference analysis where agency's interpretation is both reasonable and the best interpretation o......

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