818 F. Supp. 2d 107
D.D.C.2011Background
- CMS disallowed $4,449,682 of federal matching funds Arkansas paid for outpatient hospital services.
- DAB largely upheld the disallowance, finding CMS reasonably interpreted the outpatient UPL regulation 42 C.F.R. § 447.321.
- Arkansas challenged the DAB decision under the APA as arbitrary and capricious and as improper rulemaking under § 553.
- Arkansas argued CMS’s interpretation conflicted with BIPA, and that Arkansas lacked fair notice of the interpretation.
- Arkansas had used SPA 00-10 to pay 80% of the UPL and then supplement the remainder to UAMS; the Final Rule created separate UPLs for state-owned and private facilities.
- The Final Rule’s transition framework included a short, three-transition regime and a general rule that excess payments must not increase.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| CMS interpretation of must not increase aligns with BIPA? | Arkansas contends CMS interpretation conflicts with BIPA. | CMS maintains interpretation is a permissible construction of BIPA. | CMS interpretation upheld; consistent with BIPA. |
| Fair notice to Arkansas of CMS interpretation? | Arkansas lacked notice of CMS interpretation and relied detrimentally. | CMS did not impose punitive penalties and fair notice does not apply in this civil regulatory context. | Court rejected fair notice as a basis to overturn; no reversal on notice grounds. |
| Chevron step two—reasonable interpretation of statute? | Arkansas argues CMS overstepped or misread BIPA. | CMS's reading is reasonable and fills statutory gap. | Agency interpretation deemed reasonable; Chevron step two pass. |
| Consistency of CMS's disallowance with its own interpretation? | Arkansas argues CMS applied its interpretation inconsistently. | CMS appropriately applied the interpretation in calculating the disallowance after remand. | Court finds CMS's application consistent with its interpretation. |
| APA governing review standard for agency action here? | Arkansas seeks reversal as arbitrary and capricious under 5 U.S.C. § 706(2)(A). | Agency action passes the narrow APA standard with rational explanation. | Summary judgment for CMS; agency action upheld. |
Key Cases Cited
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (U.S. 1994) (court defers to agency's regulation interpretation unless plainly erroneous)
- Auer v. Robbins, 519 U.S. 452 (U.S. 1997) (Auer deference for agency interpretations of its own regulations)
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (U.S. 1984) (two-step framework for reviewing agency statutory interpretations)
- General Electric Co. v. EPA, 53 F.3d 1324 (D.C. Cir. 1995) (fair notice concerns in civil regulatory contexts; due process roots)
- Chrysler Corp. v. United States, 158 F.3d 1350 (D.C. Cir. 1998) (recall as sanction; fair notice applied to grave administrative actions)