31 F.4th 766
D.C. Cir.2022Background
- Medicare hospice reimbursements are paid as per-patient per-day flat rates and subject to an annual aggregate cap on total reimbursement per hospice.
- The 2013 Budget Control Act sequestration required a 2% reduction in Medicare payments; preliminary per-diem disbursements to hospices were reduced by 2%.
- Contractors initially used a “net payments” approach (compare actual disbursed payments to the cap), which would leave some over-cap hospices effectively unreduced despite sequestration.
- CMS issued a 2015 Technical Direction Letter instructing contractors to (1) add back the 2% sequestration withheld from periodic payments to compute amounts as if no sequestration occurred, (2) apply the aggregate cap to that figure to compute overpayment, then (3) reduce any resulting overpayment by 2% — producing a uniform 2% cut across providers.
- Gentiva’s hospices were reassessed under the sequestration methodology, appealed to the Provider Reimbursement Review Board (PRRB), lost, then lost in district court; Gentiva appealed to the D.C. Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Whether the Medicare hospice-cap statute (42 U.S.C. § 1395f(i)(2)(A)) requires the net-payments methodology for cap reconciliation | Gentiva: “amount of payment made” means the actual periodic payments disbursed; overpayments = disbursed sum minus cap | Secretary: phrase is adjectival; statute merely caps aggregate reimbursement and is silent about reconciliation method; sequestration methodology permissible | Court: statute does not unambiguously mandate net-payments; sequestration methodology is a permissible reading and reasonable under Chevron |
| 2. Whether the Budget Control Act’s sequestration rules require reducing only periodic payments (i.e., forbid CMS’s reconciliation approach) | Gentiva: sequestration applies to “individual payments for services,” so the 2% must apply only to periodic disbursements (net-payments) | Secretary: the Act requires achieving a total uniform reduction in program spending; net-payments could defeat the required 2% overall reduction for over-cap providers | Court: reads statute to demand achieving the total reduction; sequestration methodology is required/allowed to ensure a uniform 2% program-wide cut |
| 3. Whether CMS unlawfully changed policy without notice or rulemaking (notice-and-comment or reasoned explanation) | Gentiva: CMS changed longstanding net-payments practice without procedural protections or fair notice | Secretary: adoption implemented the Budget Control Act, not a reinterpretation of Medicare rules; contractors’ preliminary determinations did not establish agency policy; formal Medicare rulemaking was not required | Court: no unlawful change; sequestration implementation was not a Medicare-based rule change; no notice-and-comment obligation here |
| 4. Whether the PRRB/district court decision interpreting these statutes was arbitrary or capricious | Gentiva: Board erred in statutory interpretation and CMS acted arbitrarily | Secretary: Board reasonably interpreted statutes and harmonized Medicare scheme with sequestration | Court: PRRB’s decision was reasonable and entitled to deference; summary judgment for Secretary affirmed |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (framework for judicial deference to reasonable agency statutory interpretations)
- Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (2017) (past participles often adjectival; context controls temporal reading of words)
- Encino Motorcars, LLC v. Navarro, 579 U.S. 211 (2016) (agency must provide reasoned explanation when changing policy)
- FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009) (requirements for reasoned agency explanation on changed policy)
- Marymount Hosp., Inc. v. Shalala, 19 F.3d 658 (D.C. Cir. 1994) (standard of review for PRRB decisions)
- Nat’l Ass’n of Home Builders v. Defs. of Wildlife, 551 U.S. 644 (2007) (statutory text must be read in context and as part of the statutory scheme)
- Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019) (distinguishing when Medicare-specific rulemaking procedures apply)
- HollyFrontier Cheyenne Refin., LLC v. Renewable Fuels Ass’n, 141 S. Ct. 2172 (2021) (textual/contextual interpretation principles)