L.F. v. Olszewski , 442 F.3d 456 ( 2006 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 06a0104p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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No. 04-2479
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DOROTHY HARRIS, Legal Guardian of Willie M.
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Washington; SUZANNE K. BALIKCI, Legal Guardian
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Nos. 04-2479; 05-1047
of Jennie Lillian Schankowski; and MARY RUFFIN,
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Legal Guardian of Issac Ruffin, on behalf of >
themselves and all other similarly situated -
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Plaintiffs-Appellees, -
individuals [certified class action],
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v.
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JANET OLSZEWSKI, Director of the Michigan
Defendant-Appellant. -
Department of Community Health,
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No. 05-1047
L.F., Legal Guardian of J.H., individually and on -
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behalf of all other similarly situated individuals
Plaintiffs-Appellees, -
[certified class action],
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v.
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JANET OLSZEWSKI, Director of the Michigan
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Department of Community Health and PAUL
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REINHART, Director of Michigan’s Medical
Defendants-Appellants. -
Services Administration,
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Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
Nos. 04-72386; 04-73248—Patrick J. Duggan, District Judge.
Argued: September 22, 2005
Decided and Filed: March 21, 2006
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Nos. 04-2479; 05-1047 Harris, et al. v. Olszewski, et al. Page 2
Before: SILER and SUTTON, Circuit Judges; SHARP, District Judge.*
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COUNSEL
ARGUED: William R. Morris, MICHIGAN DEPARTMENT OF ATTORNEY GENERAL,
Lansing, Michigan, for Appellants. Stephen M. Ryan, STEPHEN M. RYAN P.L.L.C., Bingham
Farms, Michigan, Michael C. Levine, FRASER, TREBILCOCK, DAVIS & DUNLAP, Lansing,
Michigan, for Appellees. ON BRIEF: William R. Morris, MICHIGAN DEPARTMENT OF
ATTORNEY GENERAL, Lansing, Michigan, for Appellants. Stephen M. Ryan, STEPHEN M.
RYAN P.L.L.C., Bingham Farms, Michigan, Michael C. Levine, FRASER, TREBILCOCK, DAVIS
& DUNLAP, Lansing, Michigan, for Appellees. Joshua Waldman, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus Curiae.
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OPINION
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SUTTON, Circuit Judge. In these consolidated appeals, Michigan’s Department of
Community Health (the “department” or “State”) urges us to reverse the district court’s entry of
summary judgment against it in two cases brought under 42 U.S.C. § 1983 on behalf of a class of
Michigan residents. The district court enjoined the department from enforcing a single-supplier
contract for all incontinence products to Michigan’s Medicaid recipients. On appeal, the department
challenges the district court’s holdings that: (1) Medicaid’s freedom-of-choice provision, 42 U.S.C.
§ 1396a(a)(23)(A), confers a private right on individuals enforceable under § 1983 and (2) the
State’s single-source contract violates the freedom-of-choice provision because incontinence
products are not “medical devices” as that term is used in the relevant statute, § 1396n(a)(1)(B). We
agree that Medicaid’s freedom-of-choice provision creates a private right that may be enforced under
§ 1983. But we disagree that the phrase “medical devices” is unambiguous and that the agency’s
interpretation—that medical devices may include incontinence products—is ineligible for Chevron
deference. We thus reverse the judgment of the district court.
I.
A cooperative federal-state program, Medicaid authorizes the Federal Government to provide
funds to participating States to administer medical assistance to individuals “whose income and
resources are insufficient to meet the costs of necessary medical services.” 42 U.S.C. § 1396. The
State of Michigan participates in Medicaid and administers its program through the department.
At stake in these appeals is Michigan’s method of supplying certain incontinence products
through its Medicaid program. The relevant incontinence products include adult, child, and youth
diapers and briefs as well as disposable incontinence shields, liners and underpads as well as
incontinence catheters, accessories, syringes, skin barriers and enema units.
In 1997, the department and Binsons Home Medical Care signed a contract providing that
Binsons would be the sole provider of incontinence products for some of Michigan’s Medicaid
recipients.
*
The Honorable Allen Sharp, United States District Judge for the Northern District of Indiana, sitting by
designation.
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In 2004, after undergoing a competitive-bidding process, the department entered into a new
contract designating J&B Medical as the single-source provider of incontinence products to all of
Michigan’s Medicaid recipients.
On June 28, 2004, Dorothy Harris filed a complaint in the United States District Court for
the Eastern District of Michigan, seeking certification of a class consisting of all individuals who,
like her, are eligible for Medicaid benefits in Michigan and may require use of incontinence
products. Harris sought declaratory and injunctive relief under § 1983 and claimed that the
department’s single-source-provider contract violated Medicaid’s freedom-of-choice provision. On
July 1, 2004, another beneficiary, L.F., filed a similar complaint, after which the court consolidated
the two cases.
On November 1, 2004, the district court granted summary judgment for the plaintiffs. As
pertinent here, the court held that Medicaid’s freedom-of-choice provision “creates private rights”
enforceable under § 1983. D. Ct. Op. at 9–17. It then held that the freedom-of-choice provision,
42 U.S.C. § 1396a(a)(23)(A), requires States to allow eligible individuals to obtain “medical
assistance” from any qualified provider. Although the Medicaid statute contains an exception to the
freedom-of-choice provision for providers of “medical devices,” 42 U.S.C. § 1396n(a)(1)(B), the
court held that this phrase does not include incontinence products. The department timely appealed.
II.
Section 1983 creates a cause of action against any person who, under color of state law,
deprives “any citizen of the United States . . . of any rights, privileges, or immunities secured by the
Constitution and laws.” 42 U.S.C. § 1983. Although § 1983 authorizes lawsuits to enforce federal
statutory rights, Maine v. Thiboutot, 448 U.S. 1, 4 (1980), it “does not provide an avenue for relief
every time a state actor violates a federal law,” City of Rancho Palos Verdes v. Abrams, 125 S. Ct.
1453, 1458 (2005). Consistent with the terms of § 1983, a claimant must demonstrate that the
underlying statute creates enforceable “rights” because “it is rights” after all, “not the broader or
vaguer ‘benefits’ or ‘interests,’ that may be enforced under” the statute. Gonzaga Univ. v. Doe, 536
U.S. 273, 283 (2002).
In ascertaining “whether Congress intended to create a federal right” in the freedom-of-
choice provision, id., the Court has directed us to look at three factors, see Blessing v. Freestone,
520 U.S. 329, 340–41 (1997); see also Westside Mothers v. Haveman, 289 F.3d 852, 862–63 (6th
Cir. 2002). “First, Congress must have intended that the provision in question benefit the plaintiff.”
Blessing, 520 U.S. at 340. In answering this initial inquiry, courts look for a statutory right or
“individual entitlement,” Gonzaga, 536 U.S. at 287, that is “unambiguously conferred,” id. at 283,
by the use of “rights-creating language,” id. at 284 n.3. An “aggregate focus” unconcerned “with
whether the needs of any particular person have been satisfied,” id. at 288 (internal quotation marks
omitted), is insufficient; the statute must be “phrased in terms of the persons benefited,” id. at 284,
and use “individually focused terminology,” id. at 287. “Second, the plaintiff must demonstrate that
the right assertedly protected by the statute is not so vague and amorphous that its enforcement
would strain judicial competence.” Blessing, 520 U.S. at 340–41 (internal quotation marks omitted).
“Third, the statute must unambiguously impose a binding obligation on the States. In other words,
the provision giving rise to the asserted right must be couched in mandatory, rather than precatory,
terms.” Id. at 341.
These three inquiries do not end the matter, however. “Even after” a plaintiff demonstrates
“that the federal statute creates an individually enforceable right in the class of beneficiaries to
which he belongs[,] . . . there is only a rebuttable presumption that the right is enforceable under
§ 1983.” City of Rancho Palos Verdes, 125 S. Ct. at 1458 (internal quotation marks omitted). “The
defendant may defeat this presumption by demonstrating that Congress did not intend that remedy
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for a newly created right” by pointing to “evidence of such congressional intent [that] may be found
directly in the statute creating the right, or inferred from the statute’s creation of a comprehensive
enforcement scheme that is incompatible with individual enforcement under § 1983.” Id. (internal
quotation marks omitted); see also Wilder v. Va. Hosp. Ass’n, 496 U.S. 498, 508 (1990).
Gauged by this test, Medicaid’s freedom-of-choice provision creates enforceable rights that
a Medicaid beneficiary may vindicate through § 1983. “A State plan for medical assistance,” the
provision says,
must . . . provide that [ ] any individual eligible for medical assistance (including
drugs) may obtain such assistance from any institution, agency, community
pharmacy, or person, qualified to perform the service or services required (including
an organization which provides such services, or arranges for their availability, on
a prepayment basis), who undertakes to provide him such services.
42 U.S.C. § 1396a(a)(23) (emphasis added).
First, in giving “any individual eligible for medical assistance” a free choice over the
provider of that assistance, the statute uses the kind of “individually focused terminology” that
“unambiguously confer[s]” an “individual entitlement” under the law. Gonzaga, 536 U.S. at 283,
287. And by saying that “[a] State plan . . . must . . . provide” this free choice, the statute uses the
kind of “rights-creating,” id., “mandatory language,” see Westside Mothers, 289 F.3d at 863, that
the Supreme Court and our court have held establishes a private right of action. It is also clear that
the right is vested “in the class of beneficiaries to which [plaintiffs] belong[],” City of Rancho Palos
Verdes, 125 S. Ct. at 1458, namely individuals eligible for Medicaid coverage. The freedom-of-
choice provision, in other words, “gives recipients the right to choose among a range of qualified
providers[] without government interference.” O’Bannon v. Town Court Nursing Ctr., 447 U.S. 773,
785 (1980) (emphasis removed); cf. Gonzaga, 536 U.S. at 279, 287 (holding that the Family
Educational Rights and Privacy Act of 1974 (FERPA) does not “confer enforceable rights” under
§ 1983 because “[u]nlike the individually focused terminology of Titles VI and IX (‘no person shall
be subjected to discrimination’), FERPA’s provisions speak only to the Secretary of Education,
directing that ‘no funds shall be made available’ to any ‘educational agency or institution’ which
has a prohibited ‘policy or practice’”); Blessing, 520 U.S. at 333, 343 (holding that Title IV-D of
the Social Security Act “does not give individuals a federal right to force a state agency to
substantially comply with” its terms because “the requirement that a State operate its child support
program in ‘substantial compliance’ with Title IV-D was not intended to benefit individual children
and custodial parents, and therefore it does not constitute a federal right” enforceable under § 1983).
Second, while there may be legitimate debates about the medical care covered by or
exempted from the freedom-of-choice provision, the mandate itself does not contain the kind of
vagueness that would push the limits of judicial enforcement. Whether a state plan provides an
individual with the choice specified in the provision is likely to be readily apparent, and the parties
here do not dispute that the department’s single-source contract fails to provide that choice.
Third, the “must . . . provide” language of the provision confirms that the statute is “couched
in mandatory, rather than precatory, terms.” Blessing, 520 U.S. at 341. The department does not
argue otherwise.
Nor do other provisions of the Medicaid Act explicitly or implicitly foreclose the private
enforcement of this statute through § 1983 actions. The Medicaid Act does not provide other
methods for private enforcement of the Act in federal court. Cf. Smith v. Robinson, 468 U.S. 992,
1011–12 (1984) (recognizing that a § 1983 action “would . . . render superfluous most of the detailed
procedural protections outlined in the statute”); Middlesex County Sewerage Auth. v. Nat’l Sea
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Clammers Ass’n, 453 U.S. 1, 20 (1981) (“[W]hen a state official is alleged to have violated a federal
statute which provides its own comprehensive enforcement scheme, the requirements of that
enforcement procedure may not be bypassed by bringing suit directly under § 1983.”) (internal
quotation marks omitted); see also City of Rancho Palos Verdes, 125 S. Ct. at 1459 (“We have found
§ 1983 unavailable to remedy violations of federal statutory rights in two cases: Sea Clammers and
Smith. Both of those decisions rested upon the existence of more restrictive remedies provided in
the violated statute itself” and “in all of the cases in which we have held that § 1983 is available for
violation of a federal statute, we have emphasized that the statute at issue, in contrast to those in Sea
Clammers and Smith, did not provide a private judicial remedy (or, in most of the cases, even a
private administrative remedy) for the rights violated.”).
That the Federal Government may withhold federal funds to non-complying States is not
inconsistent with private enforcement. See Wilder, 496 U.S. at 521–22 (holding that although the
Medicaid Act “authorizes the Secretary to . . . curtail federal funds to States whose plans are not in
compliance with the Act, . . . [t]his administrative scheme cannot be considered sufficiently
comprehensive to demonstrate a congressional intent to withdraw the private remedy of § 1983”).
Neither is the Act’s requirement that States “grant[] an opportunity for a fair hearing before the State
agency to any individual whose claim for medical assistance under the [State] plan is denied,”
42 U.S.C. § 1396a(a)(3), inconsistent with a private action under § 1983, cf. Wilder, 496 U.S. at520–22.
Our conclusion, moreover, comports with decisions of the Supreme Court, our court and
other courts of appeals that have recognized privately enforceable rights under § 1983 stemming
from similar statutory language in the Medicaid Act. See, e.g., id. at 510, 524 (holding that 42
U.S.C. § 1396a(a)(13)(A)—requiring that a state plan for medical assistance must provide for
“payment . . . of the hospital services, nursing facility services, and services in an intermediate care
facility for the mentally retarded provided under the plan”—confers health-care providers with an
enforceable right under § 1983 because it is expressly “phrased in terms benefitting health care
providers”); Westside Mothers, 289 F.3d at 856 (holding that 42 U.S.C. § 1396d(a)(4)(B)—requiring
States to provide certain periodic services “for individuals who are eligible under the plan”—creates
a cause of action under § 1983 for eligible individuals); Sabree v. Richman, 367 F.3d 180, 190, 192
(3d Cir. 2004) (holding that 42 U.S.C. § 1396a(a)(8)—requiring that a state Medicaid plan must
“provide that all individuals wishing to make application for medical assistance under the plan shall
have opportunity to do so, and that such assistance shall be furnished with reasonable promptness
to all eligible individuals”—creates an enforceable right under § 1983); Bryson v. Shumway, 308
F.3d 79, 88 (1st Cir. 2002) (same); Doe v. Chiles, 136 F.3d 709, 715–16 (11th Cir. 1998) (same).
In arguing to the contrary, the department urges us to follow two district court decisions. In
the first of these decisions, M.A.C. v. Betit, 284 F. Supp. 2d 1298, 1307 (D. Utah 2003), the court
concluded that “the freedom of choice provisions do not contain the unambiguous rights-creating
language of Gonzaga” without explaining why the language discussed above is not “rights-creating.”
Because the district court did not explain why the mandatory “must . . . provide” language, 42
U.S.C. § 1396a(a)(23), and the “individual entitlement” language of the provision, Gonzaga, 536
U.S. at 287, do not satisfy Gonzaga’s requirements for a § 1983 action, we do not find the court’s
reasoning persuasive. Also unpersuasive is the second decision, Watson v. Thorne, No. 03-227-JE,
2004 U.S. Dist. LEXIS 12855 (D. Or. June 24, 2004), which is unpublished and which does not
address the freedom-of-choice provision.
The department next argues that another provision of the Act, § 1396n(a), shows that
Congress did not intend to create privately enforceable rights. “A State,” that provision says, “shall
not be deemed to be out of compliance with the requirements of . . . [the freedom-of-choice
provision] solely” because it has taken various cost-saving measures, including entering into
“arrangements through a competitive bidding process . . . for the purchase of laboratory services . . .
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or medical devices.” 42 U.S.C. § 1396n(a). That § 1396n(a) carves out services and products
otherwise covered by § 1396a(a)(23), however, by no means establishes that the latter section does
not create a right of action. One section (§ 1396a(a)(23)) creates an individual statutory entitlement,
namely freedom of choice; the other (§ 1396n) creates exceptions to that right. Compare Gonzaga,
536 U.S. at 284 & n.3 (holding that Title IX of the Education Amendments of 1972, 20 U.S.C.
§ 1681(a)(1), creates individually enforceable rights) with 20 U.S.C. § 1681(a)(3)–(9) (creating
several statutory exemptions from these rights).
The department next contends that even if a private right of action exists to enforce the
freedom-of-choice provision, that right extends only to services and does “not extend . . . to items
that a health-care entity may use when providing services.” Dep’t Br. at 17 (emphasis added).
“[O]n its face,” the department reasons, § 1396a(a)(23) guarantees the right to choose among
“providers of services” and concludes that because “suppliers of incontinence products are not
providing services per se, Congress did not intend individuals to have free choice among suppliers
of incontinence items.” Dep’t Br. at 17. But as other provisions and regulations show, the
dichotomy proposed by the department does not exist. The “medical assistance” to which freedom
of choice applies does not extend only to services, as § 1396a(a)(23) says the freedom-of-choice
provision applies to and “includ[es] drugs.” And the Act defines “medical assistance” as “payment
of part or all of the cost of . . . home health care services,” 42 U.S.C. § 1396d(a)(7), which the
regulations define as including “medical supplies, equipment and appliances” that are required for
use in the recipient’s home, 42 C.F.R. § 440.70(b)(3). Incontinence products that patients use in
their homes under their physicians’ orders thus are fairly covered by § 1396a(a)(23)’s grant of
freedom of choice over “medical assistance.”
Finally, the department argues that Caswell v. City of Detroit Housing Commission, 418 F.3d
615 (6th Cir. 2005), compels a contrary conclusion. In Caswell, we held that because no “specific
statutory provision” in the relevant Act, as opposed to a regulation implementing the Act, conferred
the individual right the plaintiff sought to enforce, he could not pursue his claim under § 1983. Id.
at 620. Caswell also recognized that recent Supreme Court precedent (particularly Gonzaga and
Sandoval) had “cabined” our prior holding that § 1983 “creates a federal cause of action for the
violation of a federal regulation.” Id. at 618 (emphasis added); see id. (“‘[L]anguage in a regulation
may invoke a private right of action that Congress through statutory text created, but it may not
create a right that Congress has not . . . . Agencies may play the sorcerer’s apprentice but not the
sorcerer himself.’”) (quoting Sandoval, 532 U.S. at 291).
Seizing on this language from Caswell, the department submits that because plaintiffs have
supported their position that the term in the statute (“home health services,” 42 U.S.C.
§ 1396d(a)(7)) includes incontinence products by pointing to a term in a regulation (“medical
supplies,” 42 C.F.R. § 440.70), “only [the] regulation” establishes the necessary “bridge between
‘services’ and ‘supplies,’” Dep’t Resp. to Dep’t of Health and Human Servs. (HHS) Amicus Br. at
4. The analogy is inapt. In Caswell, neither the plaintiff nor the court could identify any statutory
provision that conferred the right at issue. Here, the authoritative regulation merely supplements
the right identified in a specific statutory provision: the freedom-of-choice provision,
§ 1396a(a)(23)(A). A term in that provision, “medical assistance,” is further defined in another
statutory provision, § 1396d(a)(7), which states that “medical assistance” includes “home health care
services.” Plaintiffs’ claim thus is not based on 42 C.F.R. § 440.70 alone; that regulation simply
confirms that these statutory terms include incontinence supplies. The problem at issue in Sandoval,
moreover, was that the regulations the parties sought to enforce did “not simply apply” statutory
rights “since they indeed forb[ade] conduct that [the statute] permit[ted].” 532 U.S. at 285.
Consequently, “the private right of action to enforce” the statute did “not include a private right to
enforce the[] regulations,” id., because “a private plaintiff may not bring a suit based on a regulation
against a defendant for acts not prohibited by the text of the statute,” id. at 286 (internal quotations
marks and brackets omitted).
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Customarily, by contrast, “regulations applying [a statute’s ban on conduct] are covered by
the cause of action to enforce that section” because “[s]uch regulations, if valid and reasonable,
authoritatively construe the statute itself, and it is therefore meaningless to talk about a separate
cause of action to enforce the regulations apart from the statute.” Id. at 284 (citations omitted); see
also Ability Ctr. of Greater Toledo v. City of Sandusky, 385 F.3d 901, 906 (6th Cir. 2004) (“[I]f the
regulation simply effectuates the express mandates of the controlling statute, then the regulation may
be enforced via the private cause of action available under that statute.”) (citing Sandoval, 532 U.S.
at 284). Because “[a] Congress that intends the statute to be enforced through a private cause of
action intends the authoritative interpretation of the statute to be so enforced as well,” Sandoval, 532
U.S. at 284, Sandoval does not undermine § 1983 enforcement here, see id. (citing cases
“involv[ing] regulations of [this] type,” including National Collegiate Athletic Association. v. Smith,
525 U.S. 459, 468 (1999) (regulation defining who is a “recipient” under Title IX) and School Board
of Nassau County. v. Arline, 480 U.S. 273, 279–81 (1987) (regulations defining the terms “physical
impairment” and “major life activities” in § 504 of the Rehabilitation Act of 1973)). Other courts,
including this one, have reached a similar conclusion. See Ability Ctr. of Greater Toledo, 385 F.3d
at 907 (holding that because the regulation at issue “effectuates a mandate” of a statute, it is
“therefore enforceable through the private cause of action available under the statute”); S.D. v.
Hood, 391 F.3d 581, 607 (5th Cir. 2004) (holding that because “the rights-creating language relied
upon by the plaintiff is contained in the statute itself,” because “the regulations implementing the
statute, and defining ‘home health care services’ to include ‘medical supplies,’ [including 42 C.F.R.
§ 440.70] are authoritative interpretations of the statute and are enforceable by § 1983” and because
“[HHS] has interpreted the ‘home health care services’ category as specifically including such
supplies,” “the federal statutory right asserted by the plaintiff is enforceable under § 1983”).
III.
Having resolved the threshold right-of-action question against the State, we turn to the
question whether the State permissibly treated incontinence products as “medical devices” under the
exception to the freedom-of-choice provision, 42 U.S.C. § 1396n(a)(1)(B). “A State,” the exception
says, “shall not be deemed to be out of compliance with the requirements of . . . [the freedom-of-
choice provision] solely by reason of the fact that the State . . . has entered into . . . arrangements
through a competitive bidding process . . . for the purchase of . . . laboratory services . . .or medical
devices if the Secretary has found that . . . adequate . . . devices will be available under such
arrangements.” Id. (emphasis added).
Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), sets
forth a familiar two-part inquiry for assessing an agency’s construction of a statute that it
administers. First: has Congress “directly spoken to the precise question at issue”? Id. at 842. If
it has, “that is the end of the matter; for the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.” Id. at 842–43. Second: is “the agency’s answer []
based on a permissible construction of the statute”? Id. at 843. If so and if Congress has given the
agency authority to interpret the statute, a federal court will defer to the agency’s interpretation. Id.Congress, as an initial answer, has not “directly spoken” to the question at hand: Do
“medical devices” include “incontinence products”? In establishing an exception to Medicaid’s
freedom-of-choice provision for “medical devices,” Congress did not define the phrase and thus did
not use the most natural means for eliminating ambiguity about it. Cf. Nat’l Cable & Telecomms.
Ass’n v. Brand X Internet Servs., 125 S. Ct. 2688, 2699 (2005); Smiley v. Citibank (S.D.), N.A., 517
U.S. 735, 739 (1996).
Far from precluding incontinence products from coming within the exception to the freedom-
of-choice provision, the “ordinary and natural meaning[],” The Limited, Inc. v. Comm’r, 286 F.3d
324, 333 (6th Cir. 2002), of “medical devices” extends to incontinence products. “Medical” means
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“of, relating to, or concerned with physicians or with the practice of medicine often as distinguished
from surgery” or “requiring or devoted to medical treatment.” Webster’s Third New International
Dictionary 1402 (2002). And a “device” means “something that is formed or formulated by design
and usu[ally] with consideration of possible alternatives, experiment, and testing: something
devised or contrived.” Id. at 618. Because incontinence products may fairly be described as
“something devised” for “medical treatment,” they come within the ordinary meaning of the phrase.
An analogous use of “device” in the Federal Food, Drug, and Cosmetic Act (FDCA), 21
U.S.C. § 301 et seq., supports this view. That Act defines “device” as “an instrument, apparatus,
implement, machine, contrivance, implant, in vitro reagent, or other similar or related article,
including any component, part, or accessory.” 21 U.S.C. § 321(h). This broad definition of the term
would itself cover incontinence products. Confirming the point, the Food and Drug Administration
has promulgated regulations establishing that incontinence products like those at issue in this case
are “devices” within the FDCA’s definition. See 21 C.F.R. § 876.5920 (“A protective garment for
incontinence is a device that consists of absorbent padding and a fluid barrier and that is intended
to protect an incontinent patient’s garment from the patient’s excreta.”) (emphasis added). In 1981,
when Congress enacted § 1396n(a)(1)(B), see Pub. L. No. 97-35, 95 Stat. 809–10 (Aug. 13, 1981),
and used the undefined phrase “medical devices,” it seems unlikely that Congress meant to preclude
an interpretation of the term that was consistent with a definition it had provided for “device” just
six years before, when it enacted § 321(h) of the FDCA, see Pub. L. No. 94-295, 90 Stat. 575 (May
28, 1976); see also Bragdon v. Abbott, 524 U.S. 624, 645 (1998) (“When administrative and judicial
interpretations have settled the meaning of an existing statutory provision, repetition of the same
language in a new statute indicates, as a general matter, the intent to incorporate its administrative
and judicial interpretations as well.”).
The Medicare Act points in the same direction. It contains a definition of “medical devices”
that incorporates the definition of “devices” found in the FDCA. See 42 U.S.C. § 1395y(m)(2); 42
C.F.R. § 405.201(b).
Having failed to enact a definition of “medical devices” that precludes the phrase from
covering “incontinence products,” having used a phrase that has a range of meanings, including one
that naturally extends to incontinence products, and having deployed a phrase that it has used in
analogous statutory and regulatory settings to cover incontinence products, Congress cannot be said
to have limited the agency’s authority to include incontinence products within this freedom-of-
choice provision.
As to step two of Chevron, at least one of the natural meanings of “medical devices” includes
incontinence products, and the agency’s interpretation therefore represents a permissible one entitled
to deference. Chevron, 467 U.S. at 843. HHS has implemented its interpretation in three settings.
On May 19, 1997, the agency responded to an inquiry from the department, stating that “a medical
device can be considered something used for a specific purpose in the practice of medicine” and that
“adult diapers, catheters, etc. qualify as medical devices” because those items “would be used to
manage the medical condition of incontinence.” JA 172. See Lukhard v. Reed, 481 U.S. 368, 378
(1987) (plurality) (noting that authoritative expression of agency’s view in memoranda and letters
“is entitled to deference”); id. at 383 (Blackmun, J., concurring) (same).
After HHS expressed this view in its May 1997 letter, the department certified that
Michigan’s single-source contract for incontinence products complied with statutory and regulatory
requirements for an exemption to the freedom-of-choice provision. When HHS accepted the
department’s certification, it was required to find that the amendment satisfied all statutory
requirements, see 42 U.S.C. § 1396a(b), including that the department’s single-source contract for
incontinence products complied with § 1396n(a)(1)(B). In carrying out that responsibility, HHS was
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exercising Congress’s “express delegation of specific interpretive authority,” United States v. Mead
Corp., 533 U.S. 218, 229 (2001), and accordingly the agency’s approval of the state plan amendment
is entitled to Chevron deference, see Pharm. Research & Mfrs. of Am. v. Thompson, 362 F.3d 817,
821 (D.C. Cir. 2004) (holding that when the agency approves a state plan amendment under
Medicaid, “the Secretary’s decisions are entitled to Chevron deference”); S.D. v. Hood, 391 F.3d
at 596 (same); see also, e.g., Rosen v. Goetz, 410 F.3d 919, 927 (6th Cir. 2005) (holding that “we
owe substantial deference” to the federal agency’s approval of a state’s proposed disenrollment
process under Medicaid) (internal quotation marks omitted); Alaska Dep’t of Health & Soc. Servs.
v. Ctrs. for Medicare & Medicaid Servs., 424 F.3d 931, 939 (9th Cir. 2005) (holding that Chevron
deference to the agency’s denial of a state plan amendment to its Medicaid program “is required”
and collecting cases); Georgia, Dep’t of Medical Assistance ex rel. Toal v. Shalala, 8 F.3d 1565,
1572–73 (11th Cir. 1993) (applying Chevron deference to the denial of a state plan amendment).
“[A]t our invitation,” the United States also “filed an amicus curiae brief in this case,
explaining that [the department’s] proposed procedures are consistent with [HHS’s] regulations.”
Rosen, 410 F.3d at 927. In that brief, “HHS [ ] recognized that incontinence products ‘can be
considered as medical devices.’ The agency, however, did not rigidly interpret the statute to require
this approach, but simply acknowledged it as one interpretation within a range of permissible
constructions.” HHS Amicus Br. at 17–18 (quoting JA 172).
HHS’s interpretation, moreover, arises in the context of a federal statute that relies on state
and federal cooperation (and state and federal money) and that HHS has long sought to implement
in a way that permits local innovation. When Congress first enacted § 1396n, HHS issued interim
and final rules to implement the new statutory provision, see 46 Fed. Reg. 48,524; 48,527 (Oct. 1,
1981) (interim rules); 48 Fed. Reg. 23,212; 23,221 (May 24, 1983) (final rules), including a
regulation to implement the process for competitive bidding of “medical devices,” see 42 C.F.R.
§ 431.54(d). In the preamble to the interim rules, HHS stated that it intended to “afford States the
greatest possible flexibility and opportunity for innovation in administering their Medicaid
programs, consistent with the statutory requirements.” 46 Fed. Reg. at 48,524. To do so, the agency
“decided to minimize Federal prescription of definitions and procedures in implementation of these
provisions.” Id. HHS reaffirmed this intent in the preamble to its final rules, noting that it “has
exercised its administrative discretion by determining to regulate less, thereby reducing
administrative burdens on the States to the extent possible” because its “policy is to afford States
maximum flexibility within statutory constraints” and that “this policy is both proper and reasonable
and reflects Congressional intent.” Id. at 23,215.
“[R]eliance on [the] Secretary’s significant expertise [also is] particularly appropriate in the
context of a complex and highly technical regulatory program” like Medicaid. Wis. Dep’t of Health
& Family Servs. v. Blumer, 534 U.S. 473, 497 (2002) (internal quotation marks omitted). “Perhaps
appreciating the complexity of what it had wrought, Congress conferred on the Secretary
exceptionally broad authority to prescribe standards for applying certain sections of the [Medicaid]
Act.” Schweiker v. Gray Panthers, 453 U.S. 34, 43 (1981); see also Thomas Jefferson Univ. v.
Shalala, 512 U.S. 504, 512 (1994) (“[W]e must defer to the Secretary’s interpretation unless an
alternative reading is compelled by the regulation’s plain language or by other indications of the
Secretary’s intent at the time of the regulation’s promulgation. This broad deference is all the more
warranted when, as here, the regulation concerns a complex and highly technical regulatory
program” that “require[s] significant expertise and entail[s] the exercise of judgment grounded in
policy concerns.”) (internal quotation marks and citation omitted).
Because the phrase “medical devices” is at a minimum ambiguous and because the agency’s
construction of it is at a minimum reasonable, the agency’s interpretation is “based on a permissible
construction of the statute.” Chevron, 467 U.S. at 843. We hold that HHS has reasonably construed
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the term to allow participating States the discretion to include incontinence products within its
scope.
In seeking to fend off this conclusion, plaintiffs counter that the dictionary definition of
“device” is “distorted” and that a better definition of the word is “‘a piece of equipment or a
mechanism designed to serve a special purpose or perform a special function.’” Harris Resp. to
HHS Amicus Br. at 2–3 (quoting Webster’s New International Dictionary (Unabridged) 618 (3d ed.
1993)). That one of Webster’s five “subsenses” of “device” might preclude incontinence products,
however, does not establish that the term has a monochromatic meaning that confined the agency
here.
Plaintiffs next claim that other parts of the Medicaid statute support a narrow (or at least
narrower) interpretation of “medical devices.” While the freedom-of-choice provision applies
broadly to “medical assistance,” they point out that Congress identified just two types of medical
assistance to which the exception applies: “medical devices” and “laboratory services.” But it
should come as no surprise that a freedom-of-choice rule and a freedom-of-choice exception will
overlap. The very nature of an exception is to carve out matters otherwise covered by the rule. Nor
does the agency’s implementation of the exception swallow the rule. The agency has never
deployed a definition of “medical devices” that applies to all medical assistance—consider the many
medical services not covered by “medical devices” or “laboratory services”—and as shown the
words of the exception reasonably may be construed to cover incontinence supplies. Keep in mind,
moreover, that the question is not whether “medical devices” must mean incontinence supplies but
whether the phrase may fairly be given that meaning. A definition of “medical devices” that permits
the federal agency (or, as here, permits the States) to extend the freedom-of-choice exception to
incontinence supplies hardly eliminates the many settings covered by “medical assistance” in which
freedom of choice will exist and, most importantly, does not compel, or in some instances even
permit, the agency (or States) to extend the exception to these other settings.
Plaintiffs next claim that Congress’s use of the phrase “medical devices and supplies” in
another part of § 1396n shows that “medical devices” cannot include incontinence products.
Subsection (e) of that section, which concerns waivers for children suffering from AIDS or drug
dependency at birth, says that “the Secretary shall grant a waiver to provide that a state plan
approved under this subchapter shall include as ‘medical assistance’ under such plan payment for
part or all of the cost” of certain expenses, including “medical devices and supplies.” 42 U.S.C.
§ 1396n(e)(1)(A). Even assuming that the phrase “medical devices and supplies” suggests that
Congress envisioned two categories (that of “medical devices” and “medical supplies”) and even
assuming that Congress meant this dichotomy to persist throughout § 1396n, the phrasing raises as
many questions as it answers. Most pertinently, the subsection does not clarify whether these two
categories are mutually exclusive, or whether they overlap, or whether one is to be understood as
a subset of the other—and if so, which one is broader and which one is narrower. And even if we
could determine which one of these options Congress meant to embrace, the undefined phrase does
not specify in which category incontinence products belong. Under these circumstances, we cannot
say that the phrase establishes that Congress “directly” spoke to the issue before us, Chevron,
467 U.S. at 842, or that the agency’s interpretation has rendered meaningless other words in the
section.
Plaintiffs next argue that HHS’s approval of the State’s contract does not deserve deference
because “administrative action with the effect of law should be subjected to the formal
administrative procedure, not simply signed by an associate regional administrator.” Harris Br. at
24. But the Supreme Court has already “rejected [the] argument” that when an “interpretation was
not made after a formal adjudication or notice-and-comment rulemaking, [ ] it does not warrant
Chevron-style deference.” Cleveland Nat’l Air Show, Inc. v. United States DOT, 430 F.3d 757,
763–64 (6th Cir. 2005). Mead itself, the principal case upon which plaintiffs rely in making this
Nos. 04-2479; 05-1047 Harris, et al. v. Olszewski, et al. Page 11
argument, acknowledged that while “the overwhelming number of our cases applying Chevron
deference have reviewed the fruits of notice-and-comment rulemaking or formal adjudication,” the
absence “of that procedure here does not decide the case, for we have sometimes found reasons for
Chevron deference even when no such administrative formality was required and none was
afforded.” 533 U.S. at 230–31 (footnote omitted). In the end, “[w]hile a formal process is one
signal that an agency deserves Chevron deference, it is not the only one.” Cleveland Nat’l Air Show,
Inc., 430 F.3d at 763–64. As noted, our court and other courts of appeals have applied Chevron
deference to HHS’s approval or denial of state Medicaid plans. See Rosen v. Goetz, 410 F.3d 919,
927 (6th Cir. 2005); Pharm. Research & Mfrs. of Am. v. Thompson, 362 F.3d 817, 821 (D.C. Cir.
2004); S.D. v. Hood, 391 F.3d 581, 596 (5th Cir. 2004); Alaska Dep’t of Health & Soc. Servs. v.
Ctrs. for Medicare & Medicaid Servs., 424 F.3d 931, 939 (9th Cir. 2005); Georgia, Dep’t of Med.
Assistance ex rel. Toal v. Shalala, 8 F.3d 1565, 1572–73 (11th Cir. 1993).
Plaintiffs next claim that the agency’s interpretation “is contrary to the HHS’s published
interpretation in the Federal Register,” Harris Br. at 24, pointing to the following preamble in HHS’s
interim regulations: “Medical devices means items such as durable medical equipment, home health
appliances, eyeglasses, hearing aids, or prosthetics that are covered under the State’s Medicaid
program.” 46 Fed. Reg. at 48,524. By its terms, however, this 1981 definition does not purport to
be exhaustive; the phrase “such as” makes that clear. And even if the agency had meant the list to
be exhaustive in 1981, Chevron does not prohibit an agency from altering its definition of an
ambiguous term in carrying out its responsibility to implement a federal statute. See Brand X, 125
S. Ct. at 2700 (“Agency inconsistency is not a basis for declining to analyze the agency’s
interpretation under the Chevron framework” because “‘[a]n initial agency interpretation is not
instantly carved in stone. On the contrary, the agency . . . must consider varying interpretations and
the wisdom of its policy on a continuing basis,’ for example, in response to changed factual
circumstances, or a change in administrations.”) (quoting Chevron, 467 U.S. at 863–64) (internal
citation omitted); id. (“[I]n Chevron itself, this Court deferred to an agency interpretation that was
a recent reversal of agency policy.”); Smiley, 517 U.S. at 742 (“[C]hange is not invalidating, since
the whole point of Chevron is to leave the discretion provided by the ambiguities of a statute with
the implementing agency.”).
Plaintiffs, lastly, assert that HHS’s May 1997 letter is contradicted by an earlier letter that
informs the State that the writer has “requested formal consultation from the Medicaid Bureau” to
determine whether incontinence products are medical devices. JA 169. The author of the letter
expressed doubt that “‘medical devices’ . . . includes the items that are covered in [the department’s]
proposed contract.” Id. The copy of the letter contained in the record is undated, but the request of
formal consultation that the letter mentions resulted in the May 1997 letter in which HHS expressed
its final, authoritative and controlling interpretation. See also HHS Amicus Br. Addendum at 6.
That a single Medicaid program representative, in the course of responding to a state inquiry,
expressed a tentative view contrary to HHS’s ultimate official determination does not undermine
the deference owed to the official agency determination.
IV.
For these reasons, we reverse and remand for further proceedings consistent with this
opinion.