Silverado Hospice, Inc. v. Xavier Becerra, 42 F.4th 1112

Background

Medicare-certified hospices receive periodic per-patient daily reimbursements from MACs during the year, but an aggregate annual statutory cap limits total hospice payments for each fiscal year; excess amounts must be repaid after year-end reconciliation.
The Budget Control Act (sequestration) mandated an across-the-board two percent reduction to certain Medicare Part A “individual payments for services furnished” once sequestration was triggered in 2013; OMB directed agencies to implement the cut.
CMS initially withheld 2% from periodic hospice payments and later issued a technical direction letter (TDL) instructing MACs how to reconcile sequestration with the aggregate cap: (1) add back withheld 2% to get a pre-sequestration total, (2) compare pre-sequestration total to the statutory cap, (3) if over cap, compute overpayment and then reduce that overpayment by 2% to reflect actual amounts received.
Plaintiffs (Silverado and ProCare hospices) exceeded the caps in 2013/2014 and challenged CMS’s method, arguing the cap must be compared to actual net periodic payments (post-sequestration) rather than the agency’s pre-sequestration entitlement calculation.
The PRRB and the district court upheld CMS’s method; the Ninth Circuit affirmed, concluding CMS harmonized the Budget Control Act and Medicare statute, and that plaintiffs’ method would defeat sequestration’s required total reduction.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
1. Scope of sequestration under 2 U.S.C. § 906(d)(1): must it reduce only periodic payments or the total annual payment?	"Individual payments" means periodic reimbursements; sequestration need only reduce those interim payments.	Statute requires achieving the total percentage reduction in Medicare Part A spending; that targets total annual payments (the program amount), not merely interim disbursements.	Held for government: sequestration must reduce total annual payments (post-cap entitlement), not merely periodic payments.
2. Meaning of Medicare's "amount of payment made" in 42 U.S.C. § 1395f(i)(2)(A): does it mean actual payments made during year or the amount a hospice is legally entitled to?	"Amount of payment made" means amounts actually paid to hospices (net of sequestration); overpayment should be computed against historical payments.	Phrase means the payment to which a hospice is legally entitled for the year (a year-end, aggregate measure subject to cap), not just interim disbursements.	Held for government: phrase refers to the legal year-end entitlement (pre-sequestration amount), not merely historic periodic payments.
3. Whether CMS’s TDL impermissibly altered the statutory cap calculation (violating prior circuit decisions).	TDL effectively changes how the cap/overpayment is calculated and thus conflicts with statutory cap requirements and precedent.	TDL does not change the statutory formula for computing the cap; it only interprets which payment amount is reduced by sequestration.	Held for government: TDL harmonizes the two statutes and does not alter the statutory cap computation.
4. Whether CMS had to promulgate the sequestration method via notice-and-comment rulemaking under 42 U.S.C. § 1395hh.	Agency’s sequestration methodology established a substantive payment standard and thus required notice-and-comment (Allina).	Sequestration is a congressionally mandated directive implemented to meet statutory obligations; CMS did not change Medicare substantive standards and was not required to use notice-and-comment.	Held for government: no notice-and-comment required because CMS implemented a statutory sequestration mandate rather than establishing a new substantive Medicare rule.

Key Cases Cited

Gentiva Health Servs., Inc. v. Becerra, 31 F.4th 766 (D.C. Cir. 2022) (upholding CMS sequestration methodology as harmonizing statutes)
L.A. Haven Hospice, Inc. v. Sebelius, 638 F.3d 644 (9th Cir. 2011) (invalidated regulation that altered statutory cap calculation)
Lion Health Servs., Inc. v. Sebelius, 635 F.3d 693 (5th Cir. 2011) (similar holding on cap-regulation conflict)
Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019) (notice-and-comment required for agency changes to substantive Medicare reimbursement policies)
Quarles v. United States, 139 S. Ct. 1872 (2019) (courts avoid reading statutes to produce self-defeating results)
Becerra v. Empire Health Found., 142 S. Ct. 2354 (2022) (text, context, and structure support agency statutory interpretations)
Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018) (interpret statutes harmoniously)
Back v. Sebelius, 684 F.3d 929 (9th Cir. 2012) (describing per-patient/day hospice payment structure)