CHILDREN‘S HOSPITAL ASSOCIATION OF TEXAS, ET AL., APPELLEES v. ALEX MICHAEL AZAR, II, IN HIS OFFICIAL CAPACITY, SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES, ET AL., APPELLANTS
No. 18-5135
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 9, 2019 Decided August 13, 2019
Appeal from the United States District Court for the District of Columbia (No. 1:17-cv-00844)
Tara S. Morrissey, Attorney, United States Department of Justice, argued the cause for the appellants. Mark B. Stern and Samantha L. Chaifetz, Attorneys, Robert P. Charrow, General Counsel, United States Department of Health & Human Services, Janice L. Hoffman, Associate General Counsel, Susan M. Lyons, Deputy Associate General Counsel, and David L. Hoskins, Attorney, were with her on brief.
David B. Salmons argued the cause for the appellees. Geraldine E. Edens, Michael E. Kenneally, and Susan Feigin Harris were with him on brief. Christopher H. Marraro entered an appearance.
Daniel G. Jarcho and Michael H. Park were on brief for the amicus curiae Children‘s Hospital Association in support of the appellees and in support of affirmance.
Before: HENDERSON and ROGERS, Circuit Judges, and SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge HENDERSON.
I. Background
“Medicaid is a cooperative federal-state program through which the Federal Government provides financial assistance to States so that they may furnish medical care to needy individuals.” Wilder v. Va. Hosp. Ass‘n, 496 U.S. 498, 502 (1990). States implement their own Medicaid plans, subject to the federal government‘s review and approval. See
[T]he costs incurred during the year of furnishing hospital services (as determined by the Secretary and net of payments under this subchapter, other than under this section, and by uninsured patients) by the hospital to individuals who either are eligible for medical assistance under the State plan or have no health insurance (or other source of third party coverage) for services provided during the year.
In 2003, the Congress enacted legislation requiring states to submit annual reports and indepеndent certified audits regarding their DSH programs. See
In 2008, the Centers for Medicare & Medicaid Services (CMS), using the authority delegated it by the Secretary, promulgated a regulation implementing the reporting and auditing requirements. Medicaid Program; Disproportionate Share Hospital Payments, 73 Fed. Reg. 77,904 (Dec. 19, 2008) (“2008 Rule“). The 2008 Rule provided that each state must rеport to CMS the cost of each DSH hospital‘s “Total Medicaid Uncompensated Care.” Id. at 77,950 (codified at
In 2010, CMS posted a Frequently Asked Questions document on its website clarifying that payments made by Medicare and private insurers should be included. See CMS, Additional Information on the DSH Reporting and Audit Requirements, FAQs 33 and 34 (2010), https://www.medicaid.gov/medicaid/finance/downloads/part-1-additional-info-on-dsh-reporting-and-auditing.pdf. A number of hospitals brought suit, arguing that the FAQs posting was invalid because it represented a substantive pоlicy change without notice and an opportunity for public comment. In response, CMS issued a notice of proposed rulemaking and subsequently promulgated the 2017 Rule. The 2017 Rule establishes that payments by Medicare and private insurers are to be included in calculating a hospital‘s “costs incurred.” 82 Fed. Reg. at 16,122 (codified at
The plaintiffs are four children‘s hospitals in Minnesota, Virginia and Washington and an association representing eight children‘s hospitals in Texas. They claim the 2017 Rule violates the Administrative Procedure Act because it exceeds the Secretary‘s authority under the Medicaid Act and is the product of arbitrary and capricious reasoning. See
II. Analysis
A. Exceeds Statutory Authority
The plaintiffs first challenge the Rule as exceeding the Secretary‘s authority under the Medicaid Act, in violation of
The plaintiffs offer four principal reasons the statute does not grant the Secretary authority to require that payments by Medicare and private insurers be considered in calculating a hospital‘s “costs incurred.” First, the statute exclusively specifies which payments cаn be considered. Second, the Rule renders superfluous the statute‘s specification that certain payments must be considered. Third, the Congress required consideration of third-party payments in a different statutory provision but not in the relevant provision. Fourth, the statute plainly distinguishes costs and payments. We reject all four arguments.1
First, we disagree with the plaintiffs’ argument that the statute exclusively specifies which payments can be considered in calculating “costs incurred.” See Plaintiffs’ Br. at 58; Children‘s Hosp. Ass‘n of Tex., 300 F. Supp. 3d at 207 (“On its face, the statute clearly indicates which payments can be subtracted from the total costs incurred during the year by hospitals: (1) ‘payments under this subchapter,’ i.e., payments made by Medicaid; and (2) payments made by uninsured patients. The statute nowhere mentions subtracting other third-party payments made on behalf of Medicaid-eligible patients from the total costs incurred.“). Although the statute establishes that рayments by Medicaid and the uninsured must be considered, it nowhere states that those are the only payments that may be considered. To conclude otherwise, we would have to rely on the interpretive canon expressio unius est exclusio alterius, which means “expressing one item of [an] associated group or series excludes another left unmentioned.” Chevron U.S.A. Inc. v. Echazabal, 536 U.S. 73, 80 (2002) (alteration in original) (quoting United States v. Vonn, 535 U.S. 55, 65 (2002)). But that canon has been called a “feeble helper in
the term left out must have been meant to be excluded.‘” NLRB v. SW Gen., Inc., 137 S. Ct. 929, 940 (2017) (quoting Echazabal, 536 U.S. at 81); see also Barnhart v. Peabody Coal Co., 537 U.S. 149, 168 (2003) (“[W]e do not read the enumeration of one . . . to exclude the other unless it is fair to suppose that Congrеss considered the unnamed possibility and meant to say no to it.“). There is reason to believe the Congress did not intend to exclude Medicare and private insurance payments from consideration. Indeed, the parties agree that the most common sources of payment for treating Medicaid-eligible and uninsured individuals are Medicaid and the uninsured. The Congress may have wanted to ensure that the most common sources of payment must be сonsidered but at the same time allow the Secretary to decide whether less-common sources of payment should be as well. Especially in light of this plausible alternative explanation, we will not rely on the expressio unius canon to find that the statute exclusively specifies which payments can be considered in calculating “costs incurred.” See Indep. Ins. Agents of Am., Inc. v. Hawke, 211 F.3d 638, 644 (D.C. Cir. 2000) (“[I]f there are other reasonable explanations for an omission in a statute, expressio unius may not be a useful tool.“).
Second, wе disagree with the plaintiffs’ argument that the Rule renders superfluous the statute‘s specification that payments by Medicaid and the uninsured must be considered. See Plaintiffs’ Br. 41-42; Children‘s Hosp. Ass‘n of Tex., 300 F. Supp. 3d at 207 (“To allow the Secretary to redefine ‘costs’ to net out a third category of payments—i.e., ‘third-party payments, including but not limited to, payments by Medicare and private insurance’ . . .—would ‘render the Congressional definition of payments in the very same clause superfluous.‘” (quoting Children‘s Hosp. of the King‘s Daughters, Inc. v. Price, 258 F. Supp. 3d 672, 687 (E.D. Va. 2017))); id. (“[D]efendants’ interpretation of the statute would render portions of the statutory language superfluous.“). The statute‘s specification that two forms of payment must be considered removes the Secretary‘s discretion as to those two forms of payment. But it does nothing to disturb the Secretary‘s discretion as to other forms of payment, which may be considered. See Tenn. Hosp. Ass‘n, 908 F.3d at 1038 (“[T]he fact that certain payments must be deducted from costs does not mean that other payments cannot be.“); N.H. Hosp. Ass‘n, 887 F.3d at 66 (“Congress identified two specific sources of payment that must be offset against total costs, but otherwise simply stated that ‘costs incurred’ are ‘as determined by the Secretary.‘“).
Third, we reject the plaintiffs’ argument that we should infer from the Congress‘s requiring consideration of third party payments under
Fourth, we disagree with the plaintiffs’ argument that the statute plainly distinguishes between costs and payments such that payments can never be considered in calculating “costs incurred.” See Plaintiffs’ Br. at 26, 30, 33, 40, 57. The statute establishes that a hospital‘s DSH payment cannot exceed its “costs incurred during the year of furnishing hospital services (as determined by the Secretary and net of payments under this subchapter, other than under this section, and by uninsured patients).”
Contrary to the plaintiffs’ contention, we believe the 2017 Rule is consistent with the statute‘s context and purpose, both of which suggest DSH payments are meant to assist those hospitals that need them most by covering only those costs for which DSH hospitals are in fact uncompensated. See
uncompensated care costs of providing inpatient hospital and outpatient hospital services to individuals described in [(g)(1)(A)] are included in the calculation of the hospital-specific limits.“); H.R. Rep. No. 103-111, at 211 (in enacting DSH payment limit, Congress noted “some States have made DSH payment[s] . . . to State psychiatric or university hospitals in amounts that exceed the net costs, and in some instances the total costs, of operating the facilities“); Tenn. Hosp. Ass‘n, 908 F.3d at 1040 (“essence” of Congressional concern in enacting statute was “that hospitals were double dipping by collecting DSH payments to covеr costs that had already been reimbursed“). By requiring the inclusion of payments by Medicare and private insurers, the 2017 Rule ensures that DSH payments will go to hospitals that have been compensated least and are thus most in need. Because the 2017 Rule is consistent with the statute, it does not violate
The plaintiffs next challenge the 2017 Rule as the product of arbitrary and capricious reasoning, in violation of
The plaintiffs first contend that “CMS has never acknowledged, let alone justified, its new Rule‘s departure from the 2008 rule.” Plaintiffs’ Br. 27-28. We disagree. “Agencies are free to change their existing policies as long as they provide a reasoned explanation for the chаnge.” Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016). An agency need not provide a more detailed justification for a changed policy than it would for a brand-new policy. Id. But it must provide “a reasoned explanation . . . for disregarding facts and circumstances that underlay or were engendered by the prior policy.” Id. at 2126 (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 516 (2009)). An “unexplained inconsistency” with an earlier position renders a changed policy arbitrary and capricious. Id. (quoting Nat‘l Cable & Telecomm. Ass‘n v. Brand X Internet Servs., 545 U.S. 967, 981 (2005)).
There is no unexplained inconsistency with an еarlier position here. To be clear, we agree with the plaintiffs that the 2017 Rule and the 2008 Rule establish different policies.3 But it makes no difference. CMS explained why the statute‘s purposes are better fulfilled by a policy that requires consideration of payments by Medicare and private insurers (the 2017 Rule) than one that does not (the 2008 Rule, as we interpret it):
In light of the statutory requirement limiting DSH payments on a hospital-specific basis to uncompensated care costs, it is inconsistent with the statute to assist hospitals with costs that have already been compensated by third party payments. [The 2017] rule is designed to reiterate the policy and make explicit within the terms of the regulation that all costs and payments associated with dual eligible and individuals with a source of third party coverage must be included in calculating the hospital-specific DSH limit. This policy is necessary
to ensurе that only actual uncompensated care costs are included in the Medicaid hospital-specific DSH limit. And, because state DSH payments are limited to an annual federal allotment, this policy is also necessary to ensure that limited DSH resources are allocated to hospitals that have a net financial shortfall in serving Medicaid patients.
82 Fed. Reg. at 16,117. This explanation is more than sufficient to survive review under
The plaintiffs also claim that the Secretary has not tied the 2017 Rule to the administrative record. According to their reading, the record shows that CMS reduces DSH payments to the plaintiff hospitals when it considers private insurance payments, notwithstanding “they have among the highest Medicaid inpatient utilization rates in their respective states and the highest net financial shortfalls in serving Medicaid patients.” Plaintiffs’ Br. 65. The plaintiffs claim this outcome is inconsistent with the purpose of the 2017 Rule, which is “to ensure that limited DSH resources are allocated to hospitals that have a net financial shortfall in serving Medicaid patients.” 82 Fed. Reg. at 16,117.
Their argument is doubly flawed. For starters, “Medicaid inpatient utilization rates” are not mentioned in
For the foregoing reasons, we reverse the judgment of the district court, reinstate the 2017 Rule and remand the case for further proceedings consistent with this opinion.
So ordered.