Council For Urological Interes v. Sylvia Mathews Burwell
790 F.3d 212
D.C. Cir.2015Background
- Medicare pays higher rates for outpatient procedures performed in hospitals than in other settings, creating incentives for physician referrals to hospitals when physicians have financial interests.
- The Stark Law prohibits physician referrals to entities with which they have a financial relationship, but contains exceptions, including an equipment rental exception that lists specific requirements and authorizes the Secretary to impose “other requirements.”
- CMS promulgated 2008 regulations (challenged here) that (1) prohibit equipment leases with per-use or “per-click” rental charges when the lessor refers Medicare patients to the hospital, and (2) treat entities that perform designated health services (not only those that bill Medicare) as “furnishing” such services, thereby bringing physician-owned groups that perform services under contract within the referral ban.
- The Council for Urological Interests (physician-owned joint ventures) leases laser equipment to hospitals on per-click terms and challenged the 2008 rule as exceeding statutory authority and violating the APA and the Regulatory Flexibility Act (RFA).
- The district court upheld the regulations; on appeal the D.C. Circuit (majority) affirmed the rule redefining “furnishing” to include performers, upheld the RFA certification, but remanded the per-click ban to the Secretary because CMS’s rulemaking rationale was unreasonable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether statute permits per-click equipment leases (Chevron Step One) | Congress’ equipment-rental clause allows per-unit rates set in advance; legislative history confirms per-click rates are permitted | Statute permits Secretary to add “other requirements” to prevent abuse; text is not unambiguous | Statute is ambiguous as to per-click leases (split views); majority finds not unambiguously forbidden and proceeds to deference analysis |
| Whether CMS may ban per-click leases under Chevron Step Two / APA | Even if ambiguous, legislative history (Conference Report) shows Congress intended to permit per-unit rates; ban conflicts with statute | CMS can use its regulatory authority to prohibit per-click leases to prevent circumvention and abuse | Per-click ban fails Chevron Step Two because CMS’s rulemaking explanation (reading of the Conference Report) was unreasonable; regulation remanded for further proceedings |
| Whether definition of an entity “furnishing designated health services” can include entities that perform (not only bill) services | Council: treating performers as furnishing entities exceeds authority, renders group-practice exception superfluous, and is vague | CMS: including performers closes a loophole and furthers Stark Law’s anti-abuse purpose; term "provide/furnish" is used interchangeably in statute | Court unanimously upheld CMS’s expanded definition as a reasonable construction entitled to deference |
| Whether CMS complied with the Regulatory Flexibility Act in certifying no significant economic impact on small entities | Council: CMS failed to do a proper regulatory flexibility analysis and underestimated burdens | CMS: certified no significant impact, provided factual basis and delay of effective date to allow restructuring; preamble suffices | Court held CMS’s certification satisfied RFA’s procedural requirements and affirmed certification |
Key Cases Cited
- Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (deference framework for agency statutory interpretation)
- SEC v. Chenery Corp., 332 U.S. 194 (1947) (agency must defend its action on the grounds articulated at the time of decision)
- Burlington Truck Lines, Inc. v. United States, 371 U.S. 156 (1962) (Chenery principle applied to administrative review)
- Financial Planning Ass’n v. SEC, 482 F.3d 481 (D.C. Cir. 2007) (limits on agency use of catchall “other” language to alter statutory exemptions)