MERCY HOSPITAL, INC. Plaintiff, v. SYLVIA M. BURWELL, Secretary, United States Department of Health and Human Services, Defendant.
Civil Action No. 15-1236 (JDB)
July 25, 2016
JOHN D. BATES
MEMORANDUM OPINION
Plaintiff Mercy Hospital operates an inpatient rehabilitation facility that is eligible for reimbursement under Medicare. The Hospital believed that the Medicare contractor responsible for determining the reimbursement amounts applied the wrong formula for the years 2002, 2003, and 2004, so it filed an administrative appeal. The Provider Reimbursement Review Board agreed with the Hospital. But the Administrator of the Centers for Medicare and Medicaid Services reversed the Board‘s decision, concluding that a statutory provision precluded administrative or judicial review of the contractor‘s reimbursement determination. The Hospital now seeks judicial review of that decision. The Hospital argues that the Administrator has read the statutory provision too broadly, and that the type of error alleged here is not shielded from review. The Court concludes, however, that the plain language of the statute precludes review of the contractor‘s determination. The case will therefore be dismissed.
BACKGROUND
Under Medicare, inpatient rehabilitation facilities are reimbursed pursuant to a prospective payment system. In this context, “prospective” does not mean that a facility is paid in advance, but rather that
Subparagraph (3)(A) instructs the Secretary of the Department of Health and Human Services (HHS) to “determine a prospective payment rate for each payment unit for which [a] rehabilitation facility is entitled to receive payment under this subchapter.” A “payment unit” refers to a discharge,
Note a feature of subsection (j) that will later become important: Although the instructions to apply these five adjustments are located within paragraph (3), the details of some of the adjustments are located in other paragraphs. For example, clause (3)(A)(iv) instructs the Secretary to apply the weighting factor adjustment, but it is paragraph (2) that actually tells the Secretary to establish the case mix groups and to assign a weighting factor to each. Similarly, clause (3)(A)(iii) instructs the Secretary to apply the area wage adjustment, but the parameters of that adjustment are explained in paragraph (6). This is not true, however, of the final, “other factors” adjustment in clause (3)(A)(v). Because that clause is an authorization for the Secretary to develop other adjustments through the administrative process, there is no cross-reference to other portions of the statute.
This case concerns one such “other factors” adjustment that the Secretary has authority to develop under clause (v): the Low-Income Percentage (LIP) adjustment. The LIP adjustment is designed to increase the payment rate at facilities that serve a significant number of low-income patients, “because as a facility‘s percentage of low-income patients increases, there is an incremental increase in a facility‘s costs.” Medicare Program; Prospective Payment System for Inpatient Rehabilitation Facilities, 66 Fed. Reg. 41,316, 41,360 (Aug. 7, 2001) (promulgating the LIP adjustment). For present purposes, the formula by which a facility‘s LIP adjustment is calculated need not be explained in full; it is enough to know that it depends in
The determination of the prospective payment rates (including LIP adjustment) that a provider will receive for each of its discharged patients is performed by a contractor serving as the Secretary‘s agent. The contractor makes this determination and issues a notice of total program reimbursement after receiving detailed cost reports and patient information from the provider. See
Plaintiff Mercy Hospital operates an inpatient rehabilitation facility eligible for reimbursement under Medicare. The Hospital was dissatisfied with the notices of reimbursement it received from its Medicare contractor for fiscal years 2002, 2003, and 2004. In particular, the Hospital believed that the contractor had improperly determined its LIP adjustment by taking an erroneous view of which of its patients were entitled to benefits under Part A of Medicare. The Hospital accordingly appealed to the Provider Reimbursement Review Board. After concluding that it had authority to hear the appeal, the Board sided with the Hospital. Mercy Hosp. v. First Coast Serv. Options, Inc., PRRB Dec. No. 2015-D7, 2015 WL 10381780 (Apr. 3, 2015). The Board agreed with the Hospital that Northeast Hospital Corp. v. Sebelius, 657 F.3d 1—which addressed a closely related adjustment applied to acute care hospitals—mandated the Hospital‘s interpretation of the LIP adjustment.
The Administrator of CMS vacated the Board‘s decision. Mercy Hosp. v. First Coast Serv. Options, Inc., Review of PRRB Dec. No. 2015-D7, 2015 WL 3760091 (June 1, 2015). The Administrator concluded that the Board had lacked authority to hear the Hospital‘s appeal in light of
There shall be no administrative or judicial review under section 1395ff of this title, 1395oo of this title, or otherwise of the establishment of—
(A) case mix groups, of the methodology for the classification of patients within such groups, and of the appropriate weighting factors thereof under paragraph (2),
(B) the prospective payment rates under paragraph (3),
(C) outlier and special payments under paragraph (4), and
(D) area wage adjustments under paragraph (6).
In the Administrator‘s view, by attacking the contractor‘s determination of the applicable LIP adjustment, the Hospital was attempting to challenge “the establishment of . . . the prospective payment rates under paragraph (3).” Review by the Board was therefore precluded by subparagraph
The Hospital timely filed this lawsuit, which asks the Court to set aside the Administrator‘s decision precluding review and to declare that the contractor‘s interpretation of the LIP adjustment is invalid. The Secretary has moved to dismiss, noting that
DISCUSSION
Federal courts apply a “strong presumption” that judicial review of administrative action is available. See, e.g., Mach Mining, LLC v. EEOC, 135 S. Ct. 1645, 1651 (2015) (internal quotation marks omitted). Accordingly, when a statute is “reasonably susceptible to divergent interpretation” on the question, a court should adopt the reading that permits review. Kucana v. Holder, 558 U.S. 233, 251 (2010) (internal quotation marks omitted). Like all interpretive presumptions, however, this one can be rebutted. If a statute‘s “language or structure” makes clear that Congress intended to foreclose review, the presumption is overcome. Mach Mining, 135 S. Ct. at 1651. Here, there is no doubt that
The Secretary says yes, and her affirmative case is simple and persuasive. Subparagraph (8)(B) of the statute forbids administrative or judicial review of “the establishment of . . . the prospective payment rates under paragraph (3).” The paragraph (3) process by which a provider‘s prospective payment rates are established includes the LIP adjustment: it is an “other factor” under clause (3)(A)(v). Put another way, the LIP adjustment is a component of a prospective payment rate, much as a first baseman is a component of a baseball lineup. To suggest that a manager should put a different player on first is necessarily to suggest that he should change the lineup. Similarly here, to challenge the calculation of the LIP adjustment is ultimately to challenge the determination of the prospective payment rates. That is precisely what subparagraph (8)(B)‘s limitation on review prohibits. The Court therefore lacks jurisdiction to hear the Hospital‘s challenge.
The heart of the Hospital‘s contrary theory is that the phrase “prospective payment rates” in subparagraph (8)(B) does not refer to the final rates that a provider actually receives; rather, it refers to the base, unadjusted rates that are the starting point of the rate-setting process. In the Hospital‘s view, then, while providers cannot challenge the unadjusted rates, they can challenge whether the contractor properly applied the LIP adjustment in the course of setting the ultimate rates.
But the Hospital‘s various arguments in favor of this theory (which the Court will examine further below) all run into an insurmountable hurdle: paragraph (3) unambiguously uses the phrase “prospective payment rate” to refer to the final, post-adjustment rate. The key statutory text, truncated slightly for easier parsing, is this:
The Secretary shall determine a prospective payment rate for each payment unit for which [a] rehabilitation facility is entitled to receive payment under this subchapter. . . . [S]uch rate for payment units . . . shall be based on the average
payment per payment unit under this subchapter for inpatient operating and capital costs of rehabilitation facilities using the most recent data available . . . adjusted [by the adjustments in clauses (i) through (v)].
So why does the Hospital think that only the pre-adjustment rates are shielded from review? It offers what the Court views as six related arguments.
1. The Hospital‘s foremost argument is that the Secretary‘s interpretation of “the prospective payment rates under paragraph (3)” would render the other items listed in paragraph (8) surplusage. Recall that paragraph (8) blocks review of the establishment of four things:
(A) case mix groups, of the methodology for the classification of patients within such groups, and of the appropriate weighting factors thereof under paragraph (2),
(B) the prospective payment rates under paragraph (3),
(C) outlier and special payments under paragraph (4), and
(D) area wage adjustments under paragraph (6).
If “the prospective payment rates under paragraph (3)” encompasses the adjusted rates, says the Hospital, then why did Congress separately block review of the weighting factors, outlier and special payments, and area wage adjustments? Those are all parts of the adjustment process, the Hospital continues, so if the Secretary‘s reading were correct, review of those items would already be precluded by subparagraph (8)(B). Thus, concludes the Hospital, by rendering subparagraphs (8)(A), (8)(C), and (8)(D) redundant, the Secretary‘s reading violates the interpretive canon that statutory language should not be construed as surplusage.
This surplusage argument fails to persuade. For starters, it has oft been noted that this canon “is not an absolute rule.” King v. Burwell, 135 S. Ct. 2480, 2492 (2015) (internal quotation marks omitted); accord id. at 2498 (Scalia, J., dissenting). Sometimes there is no way to give independent force to every word in a statute, and “[n]o canon of construction justifies construing the actual statutory language beyond what the terms can reasonably bear.” Amoco Prod. Co. v. Watson, 410 F.3d 722, 734 (D.C. Cir. 2005) (Roberts, J.); see also Brett M. Kavanaugh, Fixing Statutory Interpretation, 129 Harv. L. Rev. 2118, 2161–62 (2016). Moreover, statutory redundancy is sometimes logically explained by the legislature‘s desire “simply, in Macbeth‘s words, ‘to make assurance double sure.‘” Shook v. D.C. Fin. Responsibility & Mgmt. Assistance Auth., 132 F.3d 775, 782 (D.C. Cir. 1998). In other words, sometimes Congress uses overlapping or seemingly redundant terms or phrases “to remove any doubt” about an issue. Ali v. Fed. Bureau of Prisons, 552 U.S. 214, 226 (2008).
Here, assuming the Secretary‘s reading does entail some redundancy, Congress had good reason to take a belt-and-suspenders approach in drafting paragraph (8).
Moreover, the Hospital has overstated the degree of redundancy. Consider subparagraph (8)(C), which blocks review of “outlier and special payments under paragraph (4).” The Hospital‘s opposition treats these payments as part of the rate-adjustment process and so argues that this provision would be unnecessary if “prospective payment rates” means what the Secretary says it means. But, as the Hospital acknowledged at the hearing on the Secretary‘s motion, that‘s not quite right. The statute does not treat an outlier payment as a component of a prospective payment rate; an outlier payment is “an additional payment” received on top of a prospective payment rate. See
2. The Hospital next argues that other uses of the term “prospective payment rates” in subsection (j) refer to the unadjusted rates—but its examples are not persuasive. First, the Hospital claims that paragraph (6) says that the Secretary “‘shall adjust . . . the prospective payment rates computed under paragraph (3) for area differences in wage levels.‘” Pl.‘s Opp‘n [ECF No. 11] at 21. If the Secretary is required to “adjust . . . the prospective payment rates,” the Hospital argues, that proves that the term “prospective payment rates” refers to the rates before the adjustments have been applied. But the Hospital has mistaken the grammatical structure of the first sentence of paragraph (6). Omitting only two parenthetical phrases, here is the sentence in full:
The Secretary shall adjust the proportion . . . of rehabilitation facilities’ costs which are attributable to wages and wage-related costs, of the prospective payment rates computed under paragraph (3) for area differences in wage levels by a factor . . . reflecting the relative hospital wage level in the geographic
area of the rehabilitation facility compared to the national average wage level for such facilities.
This is not an elegant sentence. It is perhaps not even a grammatically coherent sentence. But it is clear that the object of the verb “adjust” is not (as the Hospital would have it) “the prospective payment rates“; rather, it is “the proportion.” That is the more natural reading of the sentence, and is also the D.C. Circuit‘s reading of a nearly identical sentence elsewhere in
The Hospital makes a similar argument about clause (3)(A)(ii), which identifies the second adjustment to be applied. It refers to “reducing such rates by a factor” designed to offset the outlier and special payments. The Hospital says that if “such rates” are the “prospective payment rates,” then ”reducing such rates” is possible only if they are the unadjusted rates. Pl.‘s Opp‘n at 23. But it is not clear that “such rates” in clause (ii) means “prospective payment rates.” “[S]uch rates” could just as easily mean the unadjusted rates, or the rates adjusted only for inflation (the subject of clause (i)). The Hospital‘s argument presumes its own conclusion; clause (ii) does not prove that “prospective payment rates” are the unadjusted rates.
Nor is the Hospital‘s position supported by paragraph (5), which instructs the Secretary that each fiscal year she must publish “the classification and weighting factors for case mix groups under paragraph (2) for such fiscal year and a description of the methodology and data used in computing the prospective payment rates under this subsection for that fiscal year.” The Hospital argues that if “prospective payment rates” means the fully adjusted rates, then the weighting factors would necessarily be part of the “methodology . . . used in computing the prospective payment rates“—and there would therefore be no need for Congress to have required publication of both the weighting factors and the methodology. Pl.‘s Opp‘n at 22. This is a remarkably tenuous surplusage argument. As the Secretary notes, while the weighting factors are a direct component of the prospective payment rates mentioned in paragraph (3), the classification scheme is not, so Congress needed to separately require its publication. And given the close connection between the classification scheme and the weighting factors, it was natural for Congress to list them as a pair in paragraph (5). To infer from this that the weighting factors must not be involved “in computing the prospective payment rates” (and hence that “the prospective payment rates” are the unadjusted rates) is to make an interpretive mountain out of what is at most a molehill of redundancy.
At the motions hearing, the Hospital also relied on the use of “prospective payment rates” in paragraph (4), but the Court is again unpersuaded. The term is found in clause (4)(A)(iii), which says that the total amount of outlier payments (across all providers) in a given year “may not exceed 5 percent of the total payments projected or estimated to be made based on prospective payment rates for payment units in that year.” The Court sees nothing here to suggest that “prospective payment rates” must mean the unadjusted rates. On the contrary, it seems far more logical here for “prospective payment rates” to mean the final rates that providers actually receive. Because no one actually receives unadjusted rates, an estimate of “the total payments . . . to be made based on” unadjusted rates is not a meaningful figure. Why would Congress tie the cap on
3. The Hospital next argues that the Secretary herself used to believe that only the unadjusted rates were unreviewable. The Hospital points out that when the Secretary promulgated the initial regulations on the prospective payment system for inpatient rehabilitation facilities in 2001, she described the limitation on review as covering “the establishment of the methodology to classify a patient into the case-mix groups and the associated weighting factors, the unadjusted Federal per discharge payment rates, additional payments for outliers and special payments, and the area wage index.” 66 Fed. Reg. at 41,393 (emphasis added) (codified at
The Court does not find the old regulation persuasive. (But nor, to be clear, is the Court giving deference to the new regulation.) In promulgating the old regulation, the Secretary did not provide any statutory analysis of paragraphs (3) and (8) or any explanation of where the word “unadjusted” came from. See 66 Fed. Reg. at 41,369 (final rule); Medicare Program; Prospective Payment System for Inpatient Rehabilitation Facilities, 65 Fed. Reg. 66,304, 66,363 (Nov. 3, 2000) (proposed rule). Given that, for all the Court can tell, the earlier regulation rested on no statutory analysis whatsoever, the Court does not find the use of “unadjusted” probative. Cf. Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2127 (2016) (denying deference to an agency‘s unreasoned interpretation of a statute). For the reasons already explained, paragraph (3) clearly uses “prospective payment rate” to mean the final, adjusted rate that a provider actually receives.
4. The Hospital also argues that there is good reason to think Congress wanted review of the “other factors” adjustments under clause (v), even if the adjustments specified in clauses (i) through (iv) are unreviewable. “It makes eminent sense that Congress would shield adjustments from review when it had specified the contours of the adjustment, but leave judicial review available as a check on whatever adjustments the Secretary dreams up” pursuant to clause (v). Pl.‘s Opp‘n at 31. The Hospital‘s point is a reasonable one. But the fact that it might make good sense to draw a distinction between clause (v) and the other four is weak evidence that Congress did draw this distinction. The limitation on review refers to “the establishment of . . . the prospective payment rates under paragraph (3).” Clause (v) is just as much a part of paragraph (3), and of the process by which the prospective payment rates are set, as are the other four clauses. Moreover, the Hospital is not arguing that the LIP adjustment—either as the Hospital interprets it or as the contractor did—is an adjustment the Secretary lacks authority to enact under clause (v); the Hospital is merely arguing that it was misapplied. This case thus does
5. The Hospital also contends that if the limitation on review were as broad as the Secretary urges, then there would be nothing for inpatient rehabilitation providers to challenge. Why let inpatient rehabilitation facilities have a theoretical pathway to appeal if everything they would conceivably wish to appeal is placed off limits? Pl.‘s Opp‘n at 20–21. But the Secretary‘s interpretation does not leave inpatient rehabilitation providers with nothing to appeal. Suppose that a contractor failed to account for a number of patients altogether, proposing reimbursement for 475 Medicare beneficiaries instead of the 600 Medicare beneficiaries that the provider believed it had treated. A challenge to the contractor‘s decision to exclude those 125 patients would not be a challenge to the prospective payment rates, and so would not be barred by paragraph (8)‘s limitation on review.
And even if the Secretary‘s interpretation of paragraph (8) leaves inpatient rehabilitation facilities with highly circumscribed appeal rights, that is not absurd or contradictory. The statutory provision that lets inpatient rehabilitation facilities seek judicial review,
6. Finally, the Hospital invokes the canon that statutes should be construed in a way that avoids placing their constitutionality in doubt. The Hospital suggests that it has a property right in the correct reimbursement amount and that if it cannot seek review of the LIP adjustment it will have been deprived of that property without due process of law. Pl.‘s Opp‘n at 27–29. But the constitutional-doubt canon does no work that isn‘t already done by the presumption in favor of judicial review of agency action. Like that presumption, the constitutional-doubt canon is a rule for choosing between “reasonable alternative interpretation[s].” Gomez v. United States, 490 U.S. 858, 864 (1989). If there is only one reasonable interpretation—“if the statute is clear“—then the canon plays no role. Voisine v. United States, 136 S. Ct. 2272, 2282 n.6 (2016). Here, as the reader is by now likely tired of hearing, it is clear that the “prospective payment rate” described in paragraph (3) is the final, fully adjusted rate. It is therefore equally clear that the limitation on review of “the establishment of . . . the prospective payment rates under paragraph (3)” forecloses review of the LIP adjustment.
CONCLUSION
For the foregoing reasons, the Court agrees with the Secretary that
/s/
JOHN D. BATES
United States District Judge
Dated: July 25, 2016