Case Information
*1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA COUNCIL FOR UROLOGICAL INTERESTS,
Plаintiff, v. Civil Action No. 09-cv-0546 (BJR) KATHLEEN G. SEBELIUS, in her official Re Document Nos.: 28, 30 capacity as Secretary of the Department of
Health and Human Services, et al. ,
Defendants. D ENYING P LAINTIFF ’ S M OTION FOR S UMMARY J UDGMENT ; G RANTING D EFENDANT ’ S C ROSS -M OTION FOR S UMMARY J UDGMENT
This case is before the Court on cross-motions for summary judgment filed by Plaintiff, the Council for Urological Interests (“CUI”), and Defendants, the Secretary of the Department of Health and Human Services and the United States. [1] CUI alleges that recent regulations implemented by the agency violate the Administrative Procedure Act (“APA”) and the Regulatory Flexibility Act (“RFA”). Having reviewed the briefs, the Administrative Record, and the relevant statutory provisions and regulations, the Court denies Plaintiff CUI’s motion and grants Defendants’ motion.
I. BACKGROUND
A. Urologist-Owned Joint Ventures and Their Provision of “Under Arrangements” Services
CUI is a not-for-profit corporation comprised of businesses that provide equipment and technical personnel for performing various urological medical services. Compl. ¶ 2. The equipment and technical personnel provided by CUI’s members are used to treat conditions such as non-cancerous prostate enlargement, prostate cancer, and related urological conditions. Pl.’s Statement of Facts (“SOF”) ¶ 1. [2] One of the urological services used to treat such conditions is laser surgery. Id. ¶¶ 3-6.
According to CUI, laser surgery is more effective than open surgery in treating рrostate and urological disease, but the technology is costly and requires frequent updating. [3] Compl. ¶¶ 3-6; 9-11. CUI claims that due to the cost, hospitals have been reluctant to invest in laser surgery equipment. Id. ¶ 11. Instead, urologists have formed joint ventures to purchase the laser surgery equipment. CUI’s members consist largely of these urologist-owned joint ventures.
The joint ventures frequently enter agreements with hospitals by which a joint venture leases to the hospital the equipment and technical personnel that are then used by the urologist- owners of the joint venture to perform outpatient laser surgery. ¶ 18; AR 863. The services provided under such an agreement are commonly referred to as services made “under arrangements.” In an “under arrangement” transaction, the hospital contracts with the urologist- *3 owned joint venture (or any other third party), for the performance of a hospital service, but it is the hospital that is responsible for billing and collecting payments. See 42 U.S.C. § 1395x(w).
As prostate conditions primarily affect older men, approximately 75% of patients who receive laser surgery from these joint ventures have insurance coverage through the Medicare program. Pl.’s SOF ¶¶ 1, 16. Thus, it is common that the hospital bills Medicare for the urological services. Medicare reimburses thе hospital for the use of its equipment, space and non-physician personnel by paying a “technical fee.” [4] The hospital, in turn, will pay the urologist-owned joint venture a previously contracted amount to account for the hospital’s use of the joint venture’s equipment and technical personnel in rendering the urological service. See Compl. ¶¶ 19-20; Def.’s Mot. at 6. This amount, commonly referred to as a “per-click” payment, is paid by the hospital to the joint venture each time that a service is performed “under arrangements.”
As will be elaborated below, recent changes in the law have interrupted the ability of the urologists who own these joint ventures to refer their patients to receive services made “under arrangements.” CUI has thus brought suit against CMS, asserting that these recent changes in the law violate the APA and the RFA. To further appreciate CUI’s claims, however, a more thorough understanding of the relevant legal framework is required.
B. Legal Framework
1. The Stark Law This litigation plays out against the backdrop of the Medicare Act—the vast federal statute that provides federal financial support for disabled persons and persons over the age of 65. 42 U.S.C. § 1395 et seq. Medicare provides a system for paying physicians, hospitals, and *4 prescription drug providers for patient care. Id. Early in the law’s history, it became evident that abuse of the system could occur. One of the key areas of concern was that of “physician self- referrals”—patient referrals by a physician to a facility with which that physician had a financial relationship. Medicare and Medicaid Programs; Physician’s Referrals to Health Care Entities With Which They Have Financial Relationships, 63 Fed. Reg. 1659, 1661 (proposed Jan. 9, 1998). Congress was concerned that a physician’s financial interest could “affect [his or her] decision about what medical care to furnish a patient and who should furnish the care.” Simply put, Congress was worried that a physician who had a financial interest in a facility would refer patients to that facility in order to make money, rather than to provide the best course of treatment.
In 1989, Congress responded to the issue of physician self-referrals by enacting the Stark
Law, named after its sponsor, Congressman Fortney “Pete” Stark and codified at 42 U.S.C. §
1395nn.
Am. Lithotripsy Soc’y v. Thompson
,
In its current form, the Stark Law states that “if a physician . . . has a financial relationship with an entity . . . then the physician may not make a referral to the entity for the furnishing of a [DHS] for which payment otherwise may be made under [the Medicare Act].” 42 U.S.C. § 1395nn(a)(1)(A). Moreover, if a referral is prohibited under § 1395nn(a)(1)(A), “the entity may not present or cause to be presented” a Medicare claim for the DHS that was received. 42 U.S.C. § 1395nn(a)(1)(B).
A “financial relationship” is defined as either (1) a physician’s “ownership or investment interest in the entity” or (2) a “compensation arrangement . . . between the physician and the entity.” 42 U.S.C. § 1395nn(a)(2)(A)-(B). An “ownership or investment interest . . . may be through equity, debt or other means and includes an interest in an entity that holds an ownership or investment interest in any entity providing the designated health service.” § 1395nn(a)(2)(B). “The term ‘compensation arrangement’ means any arrangement involving any remuneration between a physician . . . and an entity.” § 1395nn(h)(1). Thus, the Stark law prohibits a physician who owns an entity or has entered into a payment arrangement with an entity from referring his or her patients to that entity for DHS.
2. Relevant Regulatory Background
a.
2001 Regulations
Congress delegated authority to the Secretary to promulgate regulations implementing the
Stark Law.
See, e.g.,
42 U.S.C. §§ 1395nn(b)(4). In 2001, CMS promulgated regulations that
defined “outpatient hospital services” as “includ[ing] services that a hospital provides for its
patients that are furnished either by the hospital or by others under arrangements with the
hospital.” 42 C.F.R. § 411.351 (2001). In other words, as of the 2001 Regulations, services
performed “under arrangements” with a hospital would qualify as “outpatient hospital services”
for purposes of the Stark Law.
id.
Because “under arrangement” services are “outpatient
*6
hospital services,” and because, as discussed earlier, the Stark Law expressly provides that
“outpatient hospital services” are DHS, it follows that services performed “under arrangements”
are DHS. Accordingly, under the 2001 Regulations, services provided “under arrangements”
(including urological services performed by urologist-owned joint ventures) are subject to the
Stark Law’s prohibition on physician self-referrals.
See
In addition to defining “outpatient hospital services,” the 2001 Regulations also clarify what the term “entity” means under the Stark Law, which is not defined in the statute. “Entity” refers to a physician’s sole practice, grouр of physicians, or other organization (like a corporation, partnership, etc.) that “furnishes DHS.” 42 C.F.R. § 411.351 (2001). Moreover, under the 2001 Regulations, “[a] person or entity is considered to be furnishing DHS if it is the person or entity to which CMS makes payment for the DHS, directly or upon assignment on the patient’s behalf.” In other words, an entity furnishing DHS was limited to only the person or entity that was billing Medicare. This narrow definition was significant to urologists who owned joint ventures because, as the joint venture was not billing Medicare, the urologist-owners remained free to refer Medicare patients to the joint venture for DHS. See 42 U.S.C. § 1395nn(a)(1)(A).
Lastly, in the 2001 Regulations, CMS interpreted the Stark Law’s compensation
arrangement exceptions to allow for “per-click” payment arrangements.
b. 2008 Regulations In 2008, CMS revised the regulations in two ways that created challenges for the urologist-owned joint ventures. First, CMS expanded what it meant to be an entity furnishing DHS. Under this change, the Stark Law would treat as an entity that furnishes DHS, not only the organization that presented a Medicare claim for the DHS ( i.e. , the billing organization), but also the organization that performed the DHS for which Medicare was billed. 42 C.F.R. § 411.351. By expanding the definition of an “entity furnishing DHS,” the 2008 regulations brought physician-owned joint ventures within the ambit of the Stark Law’s prohibitions, because a joint ventures performed DHS. Further, because the joint venture was an “entity” in which the urologist-owner had a financial interest, the 2008 Regulations effectively prohibited a urologist- owner from referring his or her Medicare patients for DHS to the joint venture working “under arrangements” with the hospital.
To understand the next revision that CMS made in the 2008 Regulations, it is important to note that the Stark Law provides exceptions to the general ban on physician self-referrals. 42 U.S.C. § 1395nn(b)-(e). Certain еxceptions apply only where the physicians have an ownership or investment interest in the entity, id . § 1395nn(c)-(d), while other exceptions apply only when a physician and an entity have a compensation arrangement, id . § 1395nn(e). Of particular relevance here, the Stark Act allows a physician to make referrals to an entity with which he has *8 a compensation arrangement if the physician and the entity have entered into a lease agreement for the rental of office space or equipment, and if that lease agreement meets certain conditions. § 1395nn(e)(1). Among these conditions, the “rental charges over the term of the lease . . . [must] not [be] determined in a manner that takes “into account the volume or value of any referrals,” and “the lease must meet other requirements imposed by the Secretary’s regulation as needed to protect against program or patient abuse.” 42 U.S.C. § 1395nn(e)(1)(A)-(B). The Stark Law does not elaborate as to what it means for a rental charge to not take into account the volume or value of referrals.
The 2008 Regulations amended the regulations governing the lease agreement exceptions, prohibiting “per-click” rental charges “to the extent that such charges reflect services provided to patients referred between the parties.” [5] 42 C.F.R. § 411.357(b)(4)(ii)(B). Accordingly, a joint venture providing DHS services “under arrangements” with a hospital would not be allowed to collect a “per-click” payment for each service to a Medicare patient if that patient had been referred to the joint venture by a urologist-owner.
CMS delayed the effective date of the 2008 Regulations by approximately one year to allow physicians and hospital time to restructure existing contracts. 73 Fed. Reg. 48,713; id. at 48,733.
C. Procedural History
In response to the 2008 Regulations, CUI filed this suit on March 23, 2009.
See generally
Compl. Judge Henry Kennedy dismissed the case on jurisdictional grounds,
Council
for Urological Interests v. Sebelius
,
Both parties have filed cross-motions for summary judgment. With those motions ripe for consideration, the Court turns to consider the parties’ arguments and the applicable legal standards.
II. LEGAL STANDARDS
A.
Summary Judgment under Federal Rule of Civil Procedure 56
The parties have cross-moved for summary judgment under Federal Rule of Civil
Procedure 56, which provides for entry of summary judgment if “there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). In a case involving the review of a final agency action under the Administrative
Procedure Act, 5 U.S.C. § 706, the role of the district cоurt is “to determine whether or not as a
matter of law the evidence in the administrative record permitted the agency to make the
decision it did.”
Stuttering Found. of Am. v. Springer
,
*10 B. Administrative Procedure Act
Under the APA, a reviewing court shall “hold unlawful and set aside agency action,
findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law.” 5 U.S.C. § 706(2)(A), (C). “The scope of review under the
‘arbitrary and capricious’ standard is narrow and a court is not to substitute its judgment for that
of the agency.”
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.
,
When reviewing the substance of an agency’s interpretation of a law it administers, the
court must apply the principles of
Chevron U.S.A. Inc. v. Natural Resources Defense Council,
Inc.
,
If the statute is “silent or ambiguous with respect to the specific issue,” then the court
proceeds to the second step of
Chevron
.
Chevron
,
III. ANALYSIS
A. CMS did not violate the APA when it revised what it means for an entity to furnish DHS
1. Chevron Step 1: CMS’ interpretation of when an entity furnishes DHS does not violate Congressional intent
As described above, under the Stark Law, “if a physician . . . has a financial relationship with an entity,” then the physician cannot refer his or her Medicare patients to that entity for the “furnishing” of DHS. 42 U.S.C. § 1395nn(a)(1)(A). Since the 2001 Regulations, the term “entity” has been defined as any physician’s sole practice, group of physicians, or other organization that “furnishes” DHS. 42 C.F.R. § 411.351 (2001). The 2001 Regulations determined, however, that only the billing entity “furnishes” DHS. Thus, as long as the hospital was doing the billing, physician-owners could refer patients to the joint venture that was operating under arrangements with the hospital. This changed in 2008 when CMS expanded what it meant to “furnish” DHS so that both the billing entity and the entity that performed DHS were deemed entities that “furnish” DHS under the Stark Law. See supra Part I.B.2.b.
Plaintiff CUI contends that CMS acted arbitrarily and capriciously by changing what it means to “furnish” DHS.” [7] Pl.’s Mot. at 27. More specifically, Plaintiff asserts that, “an *12 examination of the entire Stark Act shows that CMS’ current interpretation of ‘furnishing’ in the context of services done [by an organization working] ‘under arrangements’ [with a hospital] defies Congressional intent.” Pl.’s Reply at 14. As support for this argument, Plaintiff CUI points to § 1395(e)(7) of the Stark Law and argues that the 2008 regulatory definition of “furnishing” DHS would render that section meaningless. Id. at 15-16.
In response, CMS argues that the 2008 Regulations merely apply the common meaning of the word “furnish,” i.e. , to provide or supply. Def.’s Mot. at 17. CMS insists that “the agency’s interpretation of furnishing fits seamlessly with the plain language of the [Stark Law],” and that the plain language of the statute is the best evidence of Congressional intent. Def.’s Reply at 9. Moreover, CMS argues that the Stark Law’s objectives are advanced by its interpretation of “furnishing” DHS. at 20. Finally, as will be elaborated bеlow, CMS provides specific arguments challenging the relevance of § 1395(e)(7) in deciphering what it means “furnish” DHS. at 10-14.
Under the
Chevron
framework, the Court must first determine whether Congress
unambiguously determined in the statute what it means to “furnish” DHS.
See Natural Res. Def.
Council
,
Second, CUI contends that the term “outpatient hospital services” should not be interpreted to include all procedures done “under arrangements.” Pl.’s Mot . at 23; see also Pl.’s Reply at 21-22. In the 2001 Regulations, CMS defined “outpatient hospital services” to specifically include services provided “under arrangements,” 42 C.F.R. § 411.351 (2001). Because the statute of limitations period has run for an APA claim against agency action which occurred in 2001, the Court also deems this argument untimely. James Madison Ltd. by Hecht ,82 F.3d at 1094 .
word ambiguous.”
Natural Res. Def. Council v. EPA
,
a. Background on subsection (e)(7) Subsection (e)(7) concerns an arrangement whereby a physician group practice and its physician-members receive remuneration from the hospital in exchange for providing services for hospital patients. [8] Put in the language of the Stark Law, this is a compensation arrangement between the hospital and the physician-members of the group practice who are providing “under arrangements” services on behalf of the hospital. See 42 U.S.C. § 1395nn(h)(1) (defining a “compensation arrangement” as “any arrangement involving any remuneration between a physician . . . and an entity”). As previously discussed, a compensation arrangement is a type of *14 financial relationship that triggers the Stark Law’s ban on physician self-referrals. Because the physician-members have a compensation arrangement with the hospital, the Stark Law forbids these physicians from referring their Medicare patients to the hospital for the “furnishing” of DHS—unless, of course, a statutory exemptiоn for the compensation arrangement exists.
Subsection (e)(7) provides a compensation arrangement exemption for group practices. It states that, if certain conditions are met, the arrangements between the physician-members of a group practice and a hospital will not be considered a compensation arrangement triggering Stark Law scrutiny. See 42 U.S.C. § 1395nn(e)(7) (allowing pre-1989 “arrangement[s] between a hospital and a group under which [DHS] are provided by the group but are billed by the hospital,” so long as certain criteria were met).
Subsection (e)(7) does not make any reference to or any exemption for an
ownership
relationship that may exist between the physician-members of the group practice and the entity
that is furnishing DHS. Thus, if a physician-member had an ownership or investment interest in
the hospital, this would have triggered the Stark Law’s ban on physician self-referrals and
required an exemption for an ownership relationship, separate from the exemption for the
compensation arrangement relationship. 42 U.S.C. § 1395nn(a)(2)(A)-(B) (describing two
types of financial interests that trigger the ban on physician self-referrals: (1) a physician’s
ownership or investment interest in the entity providing DHS and (2) a compensation
arrangement between the physiсian and the entity). However, in the preamble to the 2001
Regulations, CMS expressed its view that by enacting subsection (e)(7) and exempting the
compensation arrangement relationship between the physician-members and the hospital from
Stark Law scrutiny, Congress had also implied that that physician-members of a group practice
*15
do not have an ownership or investment interest
in the hospital
.
In [subsection (e)(7)], the Congress created a specific compensation exception for certain hospital services provided by physician groups “under arrangements.” Since, by definition, all services protected under [subsection (e)(7)]—and the resources used to produce them—were “owned” by the physician groups, the Congress would not have created a protected compensation relationship unless it had first determined that these arrangements did not create a prohibited ownership or investment interest in the hospitals . Simply stated, the Congress would not have excepted these relationships from the compensation arrangement restriction, if they were prohibited as an ownership or investment interest. (emphasis added).
In 2008, when CMS proposed revising the term “furnish” to include the provision of
DHS, commenters (including some urologists) took notice that such a change would essentially
treat physicians working “under arrangеments” as having an ownership interest in the entity
providing services,
e.g.
, the group practice or joint venture. Commenters argued that changing
the meaning of “furnish” to include the provision of DHS “was contrary to Congress’s decision,
and/or [CMS’ decision, as noted in the preamble for the 2001 Regulations,] to treat an ‘under
arrangements’ relationship as a compensation arrangement, rather than an ownership interest,
between the parties.”
In response to these comments, CMS explained that it “disagree[d] that, in enacting [subsection (e)(7)], the Congress determined that ownership in the entity performing DHS under *16 arrangements is not ownership in a DHS entity.” Id. CMS maintained that “there is no indication in either the text of [the Stark Law] or its legislative history that the Congress intended to except ownership interests in the entity performing the service on behalf of the hospital.” Id. Instead, CMS asserted, “the language of [subsection (e)(7)] clearly says that a group practicе will not have a prohibited compensation arrangement with a hospital, if certification conditions are met: it does not address whether a referring physician has a prohibited ownership interest in the entity performing the service.” Id.
b. The parties’ arguments & analysis In the instant litigation, Plaintiff CUI reasserts the position advanced by the commenters in 2008. CUI argues that “[i]mplicit in the creation of [subsection (e)(7)] is that Congress viewed entities acting ‘under arrangements’ with hospitals as having a compensation arrangement with the entity furnishing DHS ( i.e ., the hospital), rather than an ownership interest.” Pl.’s Mot. at 16. According to CUI, if Congress intended to ban physician-members of a group practice from referring their Medicare patients to the group practice for DHS (as is the case under the 2008 regulatory definition of “furnishing”), then there would have been very little point in Congress granting a compensation arrangement exception for the relationship between the hospital and the “under arrangements” entity. at 17. Like the commenters in 2008, Plaintiff maintains that Congress must not have intended for the physician’s ownership interest in the “under arrangements” service provider ( i.e. , the group practice or, in Plaintiff’s case, the joint venture) to constitute an ownership interest in an entity furnishing DHS services. at 17. Therefore, Plaintiff concludes, the agency’s 2008 definition of an entity furnishing DHS contravenes the Stark Law.
In response, CMS observes that the statutory text of subsection (e)(7) “expressly refers to [DHS] ‘furnished by the group under the arrangement,’” thereby supporting that Congress considered that the entity providing services under arrangements, and not just the hospital, could “furnish” DHS under the Stark Law. Def.’s Reply at 10. Additionally, CMS echoes its previously articulated position that “subsection (e)(7) only addresses the financial relationship between the group practice and the hospital,” and “does not address the separate financial relationship between the group practice and its [physician-]members.” Id. In sum, CMS argues that referrals from physicians to their group practices were not exempted in subsection (e)(7). Further, CMS contends that subsection (e)(7) is not rendered meaningless by the new definition of “furnishing” because even if a physician-member is not allowed to refer his own patients to the group practice, a compensatory arrangement exemption like the one embodied in subsection (e)(7) might still prove valuable. For instance, the exemption would still be valuable where the physicians are mere employees (and not owners) of a group practice that is owned by the hospital or a non-profit corporation. Id . at 11. Similarly, CMS argues, subsection (e)(7) may exempt a group practice from Stark Law liability in situations where, although the physician-member is considered an owner, he or she qualifies under the Stark Law for a ownership prohibition exemption, as provided elsewhere in the statute. (discussing the ownership prohibition exemption for rural providers codified at 42 U.S.C. § 1395nn(d)(2)).
The Court finds CMS’ arguments are correct and that Plaintiff’s argument tries to force into the subsection (e)(7) exception far more than the language of the exception will bear. As an initial matter, the language of subsection (e)(7) itself supports that the entity furnishing DHS is the group that provides those services. See id . § 1395nn(e)(7)(A)(iii) (indicating that the compensation arrangement exemption requires that “substantially all of [the DHS] furnished to *18 patients of the hospital are furnished by the group under the arrangement”). Moreover, subsection (e)(7) falls under the section of the Stark Law that deals exclusively with compensation arrangement exceptions, see 42 U.S.C. § 1395nn(e), and makes no mention of exempting any ownership relationships, id. § 1395nn(e)(7). Yet Plaintiff argues that the subsection unambiguously means that physician-members of a group practice would not be deemed to have an ownership interest in the group practice—an especially troubling position given that the ownership interest by physician-members in their group practice is precisely the type of financial relationship that concerned Congress when it passed the Stark Law. 42 U.S.C. § 1395nn(a)(2)(A).
What CUI would have this Court do is read an extension into the exception that is simply not there, i.e. that because CMS previously interpreted subsection (e)(7) as providing that physician-members of a group practice do not have an ownership interest in the hospital , this Court should now extend CMS’ statutory interpretation and hold that Congress also implicitly recognized that physician-members of a group do not have an ownership interest in their group practice . The Court declines to do so. CMS never commented in the 2001 preamble as to whether a forbidden ownership relationship exists between the physician-members and the group practice ; instead, CMS limited its comments to the ownership relationship between the physician-members and the hospital . Moreover, CMS’ previous interpretation of subsection (e)(7) is not binding at the Chevron step one stage. Nat’l Ass’n of Mfrs. v. NLRB , 846 F. Supp. 2d 34, 48 (D.D.C. 2012) (rejecting notion that “an agency’s interpretation controls for the purpose of Chevron step one”). In sum, nothing in the Stark Law unambiguously forecloses the agency’s decision to define “furnishing” DHS to include the provider of DHS.
2. Chevron step 2: CMS offers a reasonable interpretation of what it means for an entity to furnish DHS
Having fоund that the Stark Law does not unambiguously foreclose CMS’ definition of
an entity “furnishing” DHS, the Court proceeds to the second step of
Chevron
and asks whether
the agency’s definition is reasonable.
Chevron
,
In response, CMS asserts that its regulatory definition of “furnishing” is not vague, but
rather defines “furnishing” of a service to mean the performance of that service. CMS notes that
when promulgating the 2008 Regulations it explained that a service is considered “to have been
‘performed’ by a physician or physician organization if the physician or physician organization
does the medical work for the service and could bill for the service.”
[10]
Def.’s Reply at 15
(quoting
At
Chevron
step two, the Court must determine whether CMS’ definition of “furnishing”
in the 2008 Regulations is based on a permissible construction of the statute and whether the
agency’s approach is “reasonable in practice”—
i.e.
, whether it does not undermine the statutory
regime.
Apotex v. FDA
,
During the notice and comment period, commenters asked CMS to clarify what it meant
when it proposed that an entity under the Stark Law would include any entity that “performs”
DHS.
Furthermore, this plain language definition for “performing,” as it applies to an entity
furnishing DHS, furthers the goals of the Stark Law. According to the Congressional record, the
Stark Law was passed to deal with the “problems stem[ming] from the fact a physician’s
objectivity in making referrals is threatened by” the physician’s financial interests. 135 Cong.
Rec. 2035 (1989). It targeted “referral schemes [that werе] being disguised as legitimate
business arrangements, most commonly as partnerships involving referring physicians.” CMS, however, found that physician-owners of joint ventures managed to avoid Stark Law
liability because the agency’s regulations treated only the hospital (
i.e
., the billing organization)
to be an “entity” under the law.
Congress has made a policy decision to disallow self-referrals involving an ownership or investment interest, except in a few specified instances. . . . [W]e fail to see why the Congress would have intended that the general prohibition on physician referrals to entities in which they have an ownership or investment interest could be circumvented merely by arranging for the service provider to reassign to another, for a fee, the right to receive Medicare payment.
By changing what it meant to “furnish” DHS to include those physicians and
organizations that were performing DHS, the Stark Law and its implementing regulations would
prohibit physician self-referrals in situations where a joint venture was working “under
arrangements” with a hospital. In other words, physician-owners of joint ventures could no
longer refer their Medicare patients to the joint venture without meeting one of the ownership
exceptions. This result advances the Stark Law’s objective to take a physician’s financial
interest оut of the equation when he or she is referring patients for DHS.
[11]
As such, CMS’
interpretation of what it means to “furnish” DHS is reasonable and consistent with the statutory
purpose.
Northpoint Tech., Ltd. v. FCC
,
*22 B. CMS did not violate the APA when it prohibited per-click payments made in the context of physician self-referrals
The next issue raised by Plaintiff CUI involves CMS’ rule change prohibiting a hospital from paying a joint venture on a “per-click” or per-use basis for the leasing of equipment and use of technical personnel. As discussed above, the Stark Law permits lease agreements between physicians and entities if the lease agreement meets specific requirements. 42 U.S.C. § 1395nn(e)(1). Among other things, the “rental charges over the term of the lease [cannot be] . . . determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties.” 42 U.S.C. § 1395nn(e)(1)(iv) (“Clause IV”). The Housе Conference Report on the 1993 amendments to the Stark Law addressed the exception for lease agreements, explaining:
The conferees intend that charges for space and equipment leases may be based on daily, monthly, or other time-based rates, or rates based on units of service furnished, so long as the amount of the time-based or units of service rates does not fluctuate during the contract period based on the volume or value of referrals between the parties to the lease or agreement.
H. Rep. No. 103-213, at 814 (1993) (“Conf. Rep.”).
Based in part on this language, the 2001 Regulations allowed per-click lease payments
made by the hospital to a physician-owned joint venture, even where the physician-owners were
referring their own Medicare patients for DHS to the joint venture.
See
Plaintiff challenges these regulatory changes, arguing that the 2008 Regulations violate Congress’ intent to allow per-click payments and that CMS acted arbitrarily and capriciously in making these changes.
1. Chevron Step 1: Congress did not unambiguously state its intention to protect per-click payment arrangements
Pointing to the Conference Report, Plaintiff CUI argues that Congress expressly permitted per-click payments as long as the payment rate did not fluctuate based on the volume of referrals. Pl.’s Mot. at 16. CUI contends that CMS did not have “the power to override congressional intent,” notwithstanding that the Stark Law gives CMS the authority to add conditions to compensation arrangement exceptions. at 18.
Defendant CMS counters that when it prohibited per-click payments in the context of physician self-referrals, it was acting under the Secretary’s statutory authority to “impose ‘other requirements’ beyond those established by [C]ongress for a lease to qualify for a compensation exceptiоn.” Def.’s Mot. at 30. CMS argues that neither the Stark Law’s text nor its legislative history restricts the agency’s authority to impose such “other requirements,” and in no way require the allowance of per-click payments. According to CMS, even if Congress did not think that . . . per-click payments ran afoul” of the statutory conditions exempting lease arrangements from the Stark Law, this in no way diminishes the Secretary’s authority to impose further restrictions on per-click lease arrangements if she determines that it is needed to protect *24 against Medicare program or patient abuse. at 35. CMS explains that “[t]he whole point of [the Secretary’s statutory authority] in the leasing exceptions is to give the Secretary the power to impose additional restrictions beyond those expressly [included] by Congress,” assuming the restrictions are warranted to protect against abuse of the Medicare program or patients.
Under
Chevron
step one, the Court must determine whether Congress unambiguously
expressed its intent to allow per-click payments under the Stark Law and limit the Secretary’s
power to impose additional restrictions on lease arrangements.
See Natural Res. Def. Council v.
Envt’l Prot. Agency
,
Here, Plaintiff CUI presents the Conference Report as evidence that Congress intended to allow “per-click” payments, even in the context of physician self-referrals. However, for this piece of legislative history to play an authoritative role in construing the Stark Law, CUI would have to point to some ambiguous statutory language suggesting that “per-click” payments should always bе permitted. In other words, the Conference Report would have to shed light on otherwise ambiguous statutory terms. Yet CUI has not pointed the Court to any statutory language in the Stark Law that remotely suggests that per-click payments must be allowed unconditionally. Indeed, the Stark Law contains no language—not even ambiguous language— permitting lease payments calculated according to units of service.
Plaintiffs would presumably argue that the Conference Report can be said to interpret Clause IV, which requires that lease agreements for space or equipment not be “determined in a manner that takes into account the volume or value of any referrals.” 42 U.S.C. § 1395nn(e)(1)(iv). Arguably, Clause IV is ambiguous because it can be interpreted as prohibiting per-click leases. Thus, the Conference Report might help clarify whether Congress intended that per-click leases be prohibited under Clause IV. However, this Court is not being asked whether Congress intended that per-click leases be prohibited under Clause IV: CMS does not rely on Clause IV to support its prohibition on per-click payments in the context of physician self- referrals, but rather relies on the Secretary’s statutory authority to impose “other requirements” under 42 U.S.C. § 1395nn(e)(1)(vi). By its plain text, Clause IV does not, either ambiguously or *26 unаmbiguously, require that per-click payments always be permitted, and, therefore, does not limit the Secretary’s statutory authority to impose “other requirements.”
In sum, the Conference Report’s utility can “extend no further than the light it sheds on
how the enacting Legislature understood the statutory text.”
Exxon Mobil Corp.
, 545 U.S. at
570. Because the language of the Stark Law makes no comment, ambiguous or not, on whether
“per-click” payments must be permitted, the challenged 2008 Regulations do not fail under
Chevron
step one.
See Petit v. U.S. Dep’t of Ed.
,
2. Chevron Step 2: CMS has reasonably interpreted the Stark Law to allow restrictions on per-click payments in the context of physician self- referrals
At
Chevron
step two, the Court asks “whether the agency has reasonably explained how
the permissible interpretation it chose is ‘rationally related to the goals of the statute.’”
Petit v.
U.S. Dep’t of Ed.
,
Plaintiff CUI claims that CMS violated the APA by not providing a reasoned analysis as to why it changed its position on the permissibility of per-click payments under the Stark Law. Pl.’s Mot. at 17. Furthermore, CUI argues that CMS acted improperly under the Secretary’s statutory authority to impose additional restrictions because there is no empirical evidence that *28 per-click payments for laser surgery or other urological procedures lead to patient abuse or harm to the Medicare system. [13] Id. at 19.
Defendant CMS asserts in response that when “a physician lessor has the opportunity to be paid per-click for referrals that she makes for the use of her own equipment,” this creates an economic incentive to overutilize a certain course of treatment. Def.’s Mot. at 37. According to CMS, it was the existence of such an economic incentive that led the Secretary to promulgate the new regulation banning certain per-click leases. Id. CMS argues that the Secretary was “not required to wait until there [was] extensive evidence of program or patient abuse, but instead [could] act prophylactically to prevent such abuses from occurring where, as here, the Secretary determines based on her expertise and experience that [additional lease arrangement requirements], are ‘needed’ to protect the Medicare program or patients.” at 39.
“‘An agency’s interpretation of a statute is entitled to no less deference simply because it
has changed over time.’ Rather, the question raised by the change is whether the Department has
supported its new reading of [the statute] with a ‘reasoned analysis’ sufficient to command [the
Court’s] deference under
Chevron
.”
Ala. Educ. Ass’n v. Chao
,
The fact that the agency has from time to time changed its interpretation of [the statute at issue] does not . . . lead us to conclude that no deference should be accorded the agency’s interpretation of the statute. An initial agency interpretation is not instantly carved in stone. On the contrary, the agency, to engage in informed rulemaking, must consider varying interpretations and the wisdom of its policy on a continuing basis.
Chevron
,
CMS explained that “upon further analysis of the legislative history, [it] no longer
believe[d] that the interpretation [it had previously] adopted . . . [was] the only reasonable
interpretation of the statute and legislative history.”
[14]
*30 These commenters believed “that some leasing arrangements are abusive and provide incentives to physicians to narrow their choice of treatment options to those for which they will realize a profit.” Id. Moreover, they expressed that
Financial motivation is driving treatment choices (that is, whereas options exist for the treatment of diseases, physician ownership of equipment plays a key role in influencing what the patient ultimately will be prescribed); physicians sometimes steer patients to facilities that are willing to lease equipment from the physicians; overutilization is created by practices that, due to physician ownership, use treatments that yield lower efficacy outcomes and causes the need for re-treatment; and, physicians pressure hospitals to use their leasing company despite not being the low cost provider.
Id. One employee of a laser company claims that he witnessed “gross abuses of the current physician self-referral law, following the proliferation of urologist-owned LLCs.” Id. Such “abuses” included
[p]hysicians threatening hospitals into using the physician’s company; hospitals violating contracts because they believe that the consequences of a broken contract will be less severe than not letting the physician have his or her way; and physicians steering patients to equipment they own, rather than use a third party for which the hospital has contracted, even if it means having the patient travel to a non-convenient hospital.
Id.
at 48,714. Another commenter, an individual who ran a business leasing lasers for urological
procedures, “stated that his company has obtained new technology lasers that offer improved
clinical results and other benefits to patients, but that his company sometimes has difficulties in
persuading physicians to allow the newer technology lasers to be brought into a hospital because
the physicians have no ownership in the equipment.” Finally, CMS noted that past studies
had “consistently found that physicians who had financial relationships with entities to which
they referred ordered more services than physicians without such financial relationships.” at
48, 716 (citing
Moreover, in modifying the lease exception with the 2008 Regulations, CMS highlighted
that the “clear, overarching purpose of the [Stark Law]” was to protect the Medicare system and
its recipients by preventing physician’s financial relationships from affecting “utilization, patient
choice, and competition.”
*32 C. CMS did not violate the Regulatory Flexibility Act Plaintiff CUI argues that CMS failed to provide a regulatory flexibility analysis as required under the RFA. Pl.’s Mot. at 32. Instead, CUI contends that CMS “simply assumed that the Regulations would not have a significant economic impact on a substantial number of small entities.” Id. As relief, CUI urges the Court to invalidate the challenged regulations. Id. at 34.
Defendant CMS responds that the regulatory flexibility analysis for the challenged rеgulations, like the challenged regulations themselves, were part of a much larger rulemaking entitled “Inpatient Prospective Payment System.” Def.’s Mot. at 42. According to CMS, the regulatory flexibility analysis that was provided for the larger rulemaking satisfies the RFA requirement, as it incorporates by reference the agency’s analysis as discussed throughout the preamble to the 2008 Regulations. Id. Additionally, CMS contends that when it enacted the challenged regulations, CMS also certified that it did not anticipate the challenged regulations to have a significant impact on physicians, health care providers and suppliers, or the Medicare or Medicaid programs and their beneficiaries. CMS insists that “[b]ecause of this certification, the agency was not required to prepare a final regulatory flexibility analysis that specifically discussed the impact of its per-click or under arrangements rules on small business.”
“When promulgating a rule, an agency must perform an analysis of the impact of the rule
on small businesses, or certify, with support, that the regulation will not have a significant
economic impact on them.”
Nat’l Mining Ass’n v. MSHA
,
As CMS notes, the 2008 Regulations at issue were promulgated as part of a final rule entitled “Inpatient Prospective Payment System” (“IPPS”). CMS issued a Regulatory Impact Analysis for the final rule, wherein it discussed the “Effects of Policy Changes Relating to Physician Self-Referral Provisions,” and, specifically, the regulatory changes for per-click payments in lease arrangements and services provided “under arrangements.” 73 Fed. Reg. at 49,077. There, CMS stated that it does “not anticipate that these final policies [relating to physician self-referral provisions] will have a significant impact on physicians, other health care providers and suppliers, or the Medicare or Medicaid program and their beneficiaries.” As the factual basis for this certification, CMS points to its preamble for the 2008 Regulations, which it expressly incorporated as part of the impact analysis. According to CMS, the preamble supports that it was unlikely that small entities would be significantly impacted by the challenged regulations because “physician-owned entities would be able to continue existing arrangements based on referrals from non-physician owners and that these entities could potentially restructure existing lease arrangements to comply with the Secretary’s regulations.” Def.’s Mot. at 43. Additionally, CMS contends that the impact would be lessened by the fact that the agency delayed the effective date of the challenged regulations, precisely to give physician-owned entities and hospitals time to restructure their existing contracts.
Plaintiff provides no argument in response.
See generally
Pl.’s Reply. Accordingly, the
Court shall exercise its discretion to treat as conceded CMS’ argument that it adequately
complied with the certification requirements of 5 U.S.C. § 605(b), and that, therefore, the agency
*34
did not have to provide any additional final impact analysis for the challenged regulations.
Hopkins v. Women’s Div.
,
IV. CONCLUSION For the foregoing reasons, the Court denies Plaintiff’s motion for summary judgment and grants Defendant’s cross-motion for summary judgment. May 24, 2013
BARBARA J. ROTHSTEIN UNITED STATES DISTRICT JUDGE
Notes
[1] Secretary Sebelius is sued in her official capacity as the administrator of the Medicare program. The Secretary of Health and Human Services has authority to promulgate regulations implementing the Medicare program. 42 U.S.C. §§ 1395hh(a), 1395nn(b)(4). The Secretary has delegated this authority to Centers for Medicare and Medicaid Services (“CMS”), a division of the Department of Health and Human Services. Pl.’s Mot. at 1; 73 Fed. Reg. 48,434. As the Secretary is sued in her official capacity, this opinion will refer to Defendants in the singular, as “CMS” or “the agency” throughout.
[2] CMS disputes all of the facts asserted by CUI as not properly based on the Administrative Record. Def.’s Response to Pl.’s SOF ¶¶ 1-22. The Court does not rely on any disputed facts in resolving this dispute.
[3] CUI explains that the typical cost of a laser averaged between $120,000 and $130,000, and that technological advances mean that a laser is obsolete in as little as two and a half years. Pl.’s SOF ¶¶ 7-8.
[4] Medicare pays two types of fees in connection with services that are provided in a hospital: (1) a “professional fee” to the physician and (2) a “technical fee” to the hospital for the use of the equipment, space and non-physician staff. 42 U.S.C. § 1395W-4(a)(1); id. § 1395x(s)(2).
[5] The 2008 Regulations also prohibited “per-click” rental charges in the context of other compensation arrangement exceptions. 42 C.F.R. § 411.357(l)(3)(ii) (аmending regulations for the fair market value exception); 42 C.F.R. §411.357(p)(1)(i)(B) (amending regulations for the indirect compensation arrangements exception).
[6] The parties submitted Statements of Material Facts pursuant to Federal Rule of Civil Procedure 56 and Local Civil Rule 7(h). While the parties also submitted responses disputing one another’s statements of facts, they acknowledged that neither believed there to be genuine issues of material fact that would necessitate a trial. Def.’s SOF (Dkt. #30) at 6; Pltf.’s Response to Def.’s SOF (Dkt. #32) at 1. In any event, “where review is based on an administrative record the court is not called upon to determine whether there is a genuine issue of material fact, but rather to test the agency action against the administrative record.” Comment to LCvR 7(h) (2008 Amendment).
[7] CUI advances two tangential arguments. First, CUI argues that the term “entity” should not be
defined as an organization that “furnishes DHS.”
See
Pl.’s Mot. at 28 (asserting that Congress
did not provide any definition for “entity” in the Stark Law, much less a “functional” test). In
2001, CMS defined “entity” as an organization that “furnishes DHS.”
See
[8] A group practice is specifically defined in the Stark Law and is not the same as a joint venture. 42 U.S.C. §1395nn(h)(4) (defining group practice). Plaintiff CUI acknowledges the difference between a group practice and a joint venture and understands that the compensation arrangement exception at subsection (e)(7) does not apply to joint ventures. Pl.’s Reply at 18. As discussed in further detail below, CUI nevertheless maintains that subsection (e)(7) is relevant here because it shows that Congress intended for an “entity” under the Stark Law not to include the entity that performed DHS.
[9] The Court notes that the commenters’ use of the term “under arrangements service provider” represents an expansion of the language of subsection (e)(7), which refers only to “group practices.”
[10] CMS also contends that an agency does not violate the APA merely by promulgating a rule that is vague. Because the Court finds that the agency’s definition is not vague, the Court does not find it necessary to reach this additional argument.
[11] Plaintiff CUI argues that changing the definition of “furnishing” does not advance the Stark Law’s purposes because laser surgery and other urological procedures are not DHS under the Stark Law. Pl.’s Mot. at 29; Pl.’s Reply at 22. This is a reiteration of CUI’s argument that these urological procedures, although conducted “under arrangements” do not constitute “outpatient hospital services,” and should therefore not be considered DHS. As noted above, however, the Court rejects this argument as untimely. See supra n.7.
[12] “As a general matter, ‘it is the statute, and not the Committee Report, which is the authoritative
expression of the law.’”
United States v. Opportunity Fund (In re Any & All Funds Or Other
Assets, in Brown Bros. Harriman & Co.)
,
[13] CUI also contends that CMS acted arbitrarily by allowing per-click payment arrangements for procedures done in an Ambulatory Surgical Center or a physician’s office, while not allowing per-click payments for “procedures done in hospitals by physician-owned entities where the physicians treat their own patients.” Pl.’s Mot. at 22. CMS responds that procedures done in Ambulatory Surgical Centers or a physician’s office are not considered DHS under the Stark Law, and, therefore, are not subject to the Stark Law’s prohibitions on physician self-referrals. Def.’s Mot. at 37-38. Indeed, under the Stark Law, procedures done in hospitals by physician- owned entities are “outpatient” services, and, therefore, are considered DHS. 42 U.S.C. § 1395nn(h)(6) (listing the services considered DHS). Meanwhile, Congress did not prescribe that procedures done at Ambulatory Surgical Center and physician’s office were DHS, and, therefore, these procedures do not trigger Stark Law scrutiny. Accordingly, it makes sense that CMS would allow per-click payment arrangements for procedures done in an Ambulatory Surgical Center or a physician’s office because such procedures are not under the province of the Stark Law. To the extent that CUI is arguing that procedures done in hospitals by physician-owned entities should not be considered “outpatient” services (or, for that matter, that services performed in Ambulatory Surgical Center or in a physician’s office should be considered “outpatient” services), the Court has already rejected this argument as untimely. See supra n.7.
[14] In a
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step two analysis, the Court’s focus is not on whether the agency can successfully
reconcile its past position with its current position. “An agency is not required to establish ‘rules
of conduct to last forever,’ but rather ‘must be given ample latitude to adapt its rules and policies
to the demands of changing circumstances.”
United States Air Tour Ass’n v. FAA
,
[15] CUI suggests that CMS’ evidence is insufficient, either in quality or quantity. However, Congress did not explicitly require, in its grant of statutory authority to the Secretary that she clear a specific evidentiary hurdle prior to imposing additional restrictions for lease exceptions. If Congress had wanted the Secretary to meet a specific evidentiary burden of proof, it would have said so. Because Congress did not include any such burden, it remains within the agency’s discretion to draw conclusions from these comments, especially given that this is precisely the type of issue which rests within the expertise of CMS and “upon which a reviewing court must be most hesitant to intrude.” Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 53 (1983).