Mercy Hospital, Inc. v. Alex M. Azar II
891 F.3d 1062
| D.C. Cir. | 2018Background
- Mercy Hospital operates a Medicare-eligible inpatient rehabilitation facility and challenged its LIP (low-income percentage) adjustment used in calculating Medicare reimbursements for FY 2002–2004.
- CMS uses a two-step process under 42 U.S.C. § 1395ww(j): step one sets standardized (step-one) rates before the fiscal year; step two adjusts those rates after the year ends (step-two or "prospective payment rates").
- CMS invoked a residual clause to create the LIP adjustment in 2001 and changed the LIP variable definition in 2004, which reduced payments for some hospitals.
- Mercy argued (citing Northeast Hospital) that the 2004 LIP formula could not be applied retroactively to FY 2002–2004; the Board initially accepted jurisdiction and ordered recalculation using the pre-2004 formula.
- The CMS Administrator reversed the Board, holding § 1395ww(j)(8)(B)’s bar on review of "prospective payment rates" precludes review of step-two rates and the underlying adjustments (including LIP); the district court dismissed for lack of subject-matter jurisdiction. The D.C. Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Meaning of "prospective payment rates" under § 1395ww(j) | Means the unadjusted, step-one rates (so adjustments may be reviewed) | Means the final, step-two rates (rates after statutory adjustments) | "Prospective payment rates" are step-two (final) rates; plain text supports this reading |
| Whether § 1395ww(j)(8)(B) bars review of the LIP adjustment/formula | The bar covers only final rates; underlying adjustment formulas (like LIP) remain reviewable | A bar on step-two rates necessarily bars review of adjustments inextricably intertwined with those rates | Bar applies to step-two rates and the statutory adjustments; reviewing LIP would effectively review the step-two rate and is therefore precluded |
| Surplusage / expressio unius arguments about which adjustments are listed in (j)(8) | Omission of some adjustments from explicit list implies they are not precluded; overlap indicates Congress meant only to protect specific items | Overlap and some redundancy are expected; plain text and cross-reference to paragraph (3) control | Redundancy or imperfect drafting does not overcome the statute’s plain meaning; negative-implication/surplusage can’t overturn clear text |
| Whether the bar applies to individual determinations or only to establishment of generally applicable standards | "Establishment" limits the bar to general rulemaking, so individual hospital determinations remain reviewable | The agency’s application of a formula in a hospital’s reimbursement is effectively establishment of that formula; informal adoption still precluded absent an ultra vires claim | The distinction does not save Mercy; the agency applied the LIP formula as the rule for reimbursement and Mercy made no ultra vires claim |
Key Cases Cited
- Northeast Hosp. Corp. v. Sebelius, 657 F.3d 1 (D.C. Cir. 2011) (limited retroactive application of a revised Medicare variable)
- Florida Health Sciences Ctr., Inc. v. HHS, 830 F.3d 515 (D.C. Cir. 2016) (bars to review extend to matters inextricably intertwined with precluded decisions)
- Palisades Gen. Hosp., Inc. v. Leavitt, 426 F.3d 400 (D.C. Cir. 2005) (pleading form cannot be used to circumvent a statutory bar to review)
- Lamie v. U.S. Tr., 540 U.S. 526 (2004) (the canon against surplusage does not apply where statutory text is plain)
- Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016) (presumption of judicial review of agency action can be overcome by clear statutory language)