813 F.3d 357
D.C. Cir.2015Background
- Fayetteville City Hospital, a Medicare-participating inpatient psychiatric hospital, challenged how HHS calculated its reimbursement target amounts for 2003–2004 after statutory BBA caps (1998–2002) expired but before psychiatric hospitals moved to a PPS.
- TEFRA established target-amount-based ceilings for reimbursable costs; the BBA (1997) added a 1998–2002 cap (75th percentile) on those target amounts; BBRA (1999) directed a PPS for psychiatric hospitals beginning on or after Oct. 1, 2002.
- HHS historically computed post-TEFRA target amounts by updating the prior year’s target amount; it added a specific regulatory paragraph implementing the BBA caps for 1998–2002 at 42 C.F.R. § 413.40(c)(4)(iii).
- For 2003–2004 (the gap between cap expiration and PPS implementation), HHS calculated targets by updating the capped 2002 target amount under § 1395ww(b)(3)(A)(ii) and 42 C.F.R. § 413.40(c)(4)(ii), reducing Fayetteville’s reimbursements.
- Fayetteville argued HHS improperly extended the BBA caps by rolling the capped 2002 target forward and insisted § 413.40(c)(4)(iii) (hospital-specific base-year method) still governed 2003–2004; HHS responded that (c)(4)(iii) applied only 1998–2002 and the statute required updating the prior year’s target.
- The PRRB declined authority and the district court granted HHS summary judgment; the D.C. Circuit affirmed, finding HHS’s interpretation reasonable and the 2005 regulatory clarification non-retroactive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper method to calculate target amounts for 2003–2004 | Fayetteville: § 413.40(c)(4)(iii) (hospital-specific base-year method) still applied, so HHS illegally extended BBA caps | HHS: § 1395ww(b)(3)(A)(ii) requires updating prior year’s target (2002), so capped 2002 target properly produces 2003 and 2004 targets | Court: Affirmed HHS — best and reasonable reading applies (update prior year’s capped target) |
| Whether applying capped 2002 target to 2003–2004 unlawfully extends BBA caps | Fayetteville: Rolling forward the capped 2002 figure extends five-year cap beyond its statutory term | HHS: No new cap was imposed on 2003–04; echo effect is lawful because statute ties each year to prior year’s target | Court: Echo effect permissible; statute and policy favor continuity and cost-control; HHS interpretation upheld |
| Whether regulation § 413.40(c)(4)(iii) remained applicable after 2002 | Fayetteville: (c)(4)(iii) did not expire and therefore required hospital-specific base-year calculation for gap years | HHS: (c)(4)(iii) implemented BBA caps and was intended to apply only 1998–2002; (c)(4)(ii) governs thereafter | Court: (c)(4)(iii) best read as limited to 1998–2002; (c)(4)(ii) controlled 2003–2004 |
| Whether 2005 amendment clarifying temporal limit was impermissibly retroactive | Fayetteville: The 2005 clarification substantively changed rule and retroactively harmed providers | HHS: 2005 amendment merely clarified existing temporal scope; agency consistently applied (c)(4)(ii) post-2002 | Court: 2005 amendment was clarifying, not a substantive retroactive change |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (agency interpretation control when statute ambiguous)
- Auer v. Robbins, 519 U.S. 452 (deference to agency’s interpretation of its own regulations)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (heightened deference in complex Medicare context)
- Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225 (same; deference on Medicare regulatory interpretation)
- Univ. of Tex. M.D. Anderson Cancer Ctr. v. Sebelius, 650 F.3d 685 (Congress’s repeated efforts to limit Medicare cost growth)
- Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1 (retroactivity analysis for Medicare rule changes)
- Hardy Wilson Mem'l Hosp. v. Sebelius, 616 F.3d 449 (5th Cir. conclusion that § 413.40 required base-year method in gap period — contrasting authority)