Rush University Medical Center v. Sylvia Mathews Burwell , 763 F.3d 754 ( 2014 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13-3285
RUSH UNIVERSITY MEDICAL CENTER,
Plaintiff-Appellee,
v.
SYLVIA MATHEWS BURWELL,
Secretary of Health and
Human Services,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
Nos. 12 C 4672 & 12 C 4673 — Joan H. Lefkow, Judge.
____________________
ARGUED APRIL 14, 2014 — DECIDED AUGUST 18, 2014
____________________
Before WOOD, Chief Judge, and POSNER and FLAUM, Circuit
Judges.
WOOD, Chief Judge. Teaching hospitals provide a valuable
service to the public by training the next generation of doc-
tors and medical professionals, but that benefit comes at a
price: such hospitals experience significantly higher per-
patient care costs than their non-teaching counterparts. To
2 No. 13-3285
compensate them for taking on this extra financial burden,
the federal Medicare program provides additional reim-
bursement for expenses beyond the immediate costs of pa-
tient care. One such adjustment is for “indirect medical edu-
cation” (IME) costs. It is designed to account for the time
medical interns and residents (collectively “residents”)
spend in ways that enhance their ability to provide patient
care but that are not connected to the treatment of any par-
ticular patient. The question before us is whether residents’
time spent in research activities wholly unrelated to the di-
agnosis or treatment of patients may be counted as part of
this indirect-education time. (We refer to that as “pure re-
search” time.) Rush University Medical Center, the plaintiff
in this case, asserts that the answer is yes, and it seeks Medi-
care reimbursements for these activities between the years
1983 and 2001.
Importantly, we do not write on a blank slate. The Secre-
tary of Health and Human Services (Secretary) has interpret-
ed the Medicare Act consistently since 1983 to exclude pure
research activities from compensable IME costs. Congress
codified this exclusion for Fiscal Years 2001 onward in the
Patient Protection and Affordable Care Act of 2010 (the Af-
fordable Care Act or ACA), but it explicitly declined to lay
down a rule for the years 1983 to 2001. The Secretary has
now promulgated a regulation excluding pure research from
the IME cost calculation for all years since 1983. Before that
regulation was on the books but after the passage of the
ACA, the question whether pure research was compensable
reached our court. We held that the relevant portion of the
statute should be interpreted to include pure research in
compensable IME costs for the 1983 to 2001 period. See Univ.
of Chi. Med. Ctr. v. Sebelius, 618 F.3d 739 (7th Cir. 2010).
No. 13-3285 3
Rush operates a teaching hospital in Chicago. It sought to
include its residents’ pure research time in its IME cost calcu-
lation for Fiscal Years 1993, 1994, and 1996. The fiscal inter-
mediary charged with administering Rush’s Medicare reim-
bursements denied its request because of the regulation, and
that denial was affirmed on administrative appeal. Rush
then filed suit challenging that decision in the district court,
and the court held that our University of Chicago decision
compelled reimbursement of residents’ time spent in pure
research during the years at issue. It thus granted summary
judgment in Rush’s favor. We must now decide whether
University of Chicago continues to control in light of the
changed regulatory landscape.
I
In 1983 the Medicare program shifted from using a reim-
bursement system to a prospective payment system, under
which hospitals are paid for patient care based on specified
rates and formulae for activities and procedures, regardless
of the actual dollars and cents involved in the care. IME costs
are calculated pursuant to a formula, under which one im-
portant input is the number of “full-time equivalent interns
and residents” at the hospital. 42 U.S.C.
§ 1395ww(d)(5)(B)(ii). The latter figure is computed based on
the number of hours residents spend conducting both “pa-
tient care activities” and qualifying “non-patient care activi-
ties.” Id. § 1395ww(d)(5)(B)(iv), (d)(5)(B)(x).
The IME regulation in place when the switch in reim-
bursement methodologies occurred was silent about wheth-
er pure research time was included within the definition of
“non-patient care activities.” Before any statute or regulation
spoke directly to the issue, the Secretary interpreted the stat-
4 No. 13-3285
ute in administrative adjudication to exclude pure research
time from the IME formula. See R.I. Hosp. v. Leavitt, 548 F.3d
29, 34, 38 (1st Cir. 2008) (upholding that interpretation).
In 2001 the Department of Health and Human Services
amended the relevant regulation. In its new form, the regula-
tion provided that “[t]he time spent by a resident in research
that is not associated with the treatment or diagnosis of a
particular patient is not countable.” 42 C.F.R.
§ 412.105(f)(1)(iii)(B) (2001). The regulation was further
amended in 2006 to clarify that “[i]n order to be counted, a
resident must be spending time in patient care activities … .”
42 C.F.R. § 412.105(f)(1)(iii)(C) (2006). A separate regulation
defined “patient care activities” as “the care and treatment of
particular patients, including services for which a physician
or other practitioner may bill.” 42 C.F.R. § 413.75(b) (2006).
In 2010 Congress passed the Affordable Care Act. Part of
that complex statute addressed whether pure research costs
were within the scope of the IME calculation. It provided, in
relevant part:
In determining the hospital’s number of full-time
equivalent residents for purposes of this subpara-
graph, all the time spent by an intern or resident in an
approved medical residency training program in re-
search activities that are not associated with the
treatment or diagnosis of a particular patient, as such
time and activities are defined by the Secretary, shall
not be counted toward the determination of full-time
equivalency.
No. 13-3285 5
42 U.S.C. § 1395ww(d)(5)(B)(x)(III). In contrast, Congress
provided that certain didactic activities (such as conferences
and seminars) would be included:
In determining the hospital’s number of full-time
equivalent residents for purposes of this subpara-
graph, all the time spent by an intern or resident in an
approved medical residency training program in non-
patient care activities, such as didactic conferences
and seminars, as such time and activities are defined
by the Secretary, that occurs in the hospital shall be
counted toward the determination of full-time equiva-
lency … .
Id. § 1395ww(d)(5)(B)(x)(II). The statute also speaks to the
extent to which these provisions are retroactive. On a gen-
eral level, it states that “[e]xcept as otherwise provided, the
Secretary of Health and Human Services shall implement the
amendment made by this section in a manner so as to apply
to cost reporting periods beginning on or after January 1,
1983.” See Patient Protection and Affordable Care Act, Pub.
L. No. 111-148, § 5505(c)(1), 124 Stat. 119, 661 (2010). A more
targeted provision provides that “[the IME amendments]
shall apply to cost reporting periods beginning on or after
October 1, 2001. Such section, as so added, shall not give rise
to any inference as to how the law in effect prior to such date
should be interpreted.” Id. § 5505(c)(3), 124 Stat. 119, 661.
On November 24, 2010, after notice and comment, the
Secretary promulgated a rule amending her previous IME
regulation in light of the Affordable Care Act. The new regu-
lation provides, in relevant part:
6 No. 13-3285
Effective for cost reporting periods beginning on or
after January 1, 1983, except for research activities de-
scribed in paragraph (f)(1)(iii)(B) of this section, the
time a resident is training in an approved medical res-
idency program in a hospital setting … must be spent
in either patient care activities, as defined in
§ 413.75(b) of this subchapter, or in nonpatient care
activities, such as didactic conferences and seminars,
to be counted.
42 C.F.R. § 412.105(f)(1)(iii)(C). The research activities re-
ferred to in the first line are described in the 2001 amend-
ment to the regulation, which said that “[t]he time spent by a
resident in research that is not associated with the treatment
or diagnosis of a particular patient is not countable.” 42
C.F.R. § 412.105(f)(1)(iii)(B).
We decided University of Chicago in the brief period be-
tween the enactment of the Affordable Care Act and the Sec-
retary’s promulgation of the amended regulation. See 618
F.3d 739 (7th Cir. 2010). Without a regulation authoritatively
interpreting the Affordable Care Act’s retroactivity provi-
sions, we held that “[t]he hospital has the stronger position
regarding the effect of the [ACA] on the present appeal be-
cause Congress spoke clearly when it retroactively allowed
reimbursement for non-patient care activities starting in
1983.” Id. at 745. We found the provision of the Affordable
Care Act directing that no inference should be drawn re-
garding the retroactivity for the period between 1983 and
2001 to be “unclear at best” and insufficient to “contradict
the clear meaning of the earlier language allowing reim-
bursement for non-patient care activities during the [rele-
vant] time period.” Id.
No. 13-3285 7
This was our most recent word on the subject when Rush
filed for IME cost reimbursements that included its resi-
dents’ pure research time. If that time was properly includ-
ed, the number of full-time equivalent residents for the pur-
pose of calculating Rush’s non-patient care activities would
increase by 17.05 in Fiscal Year 1993, 19.29 in Fiscal Year
1994, and 18.47 in Fiscal Year 1996. All of the residents’ re-
search took place either on-site at the portion of the hospital
covered by Medicare’s prospective payment system, or in
one of Rush’s outpatient departments. The fiscal intermedi-
ary’s sole reason for denying reimbursement of these costs
was that residents’ time spent in pure research activities
could not be counted. Rush took an administrative appeal to
the Provider Reimbursement Review Board, which affirmed
the intermediary’s decision. The Administrator of the Cen-
ters for Medicare & Medicaid Services, to whom the Secre-
tary has delegated her authority to review the Board’s deci-
sions, affirmed.
Rush filed this suit under 42 U.S.C. § 1395oo(f)(1), which
gives providers the right to obtain judicial review of the
agency’s reimbursement decisions. Though the initial chal-
lenge involved several aspects of the Secretary’s reimburse-
ment decision, this appeal is limited to the denial of reim-
bursement for pure research in the IME cost calculation. On
that question, the district court held that it was bound by our
decision in University of Chicago even though it proved in-
consistent with the Secretary’s later-promulgated regulation,
because it understood our holding to be based on the unam-
biguous terms of the statute—terms that could not be dis-
turbed by a contrary regulation.
8 No. 13-3285
II
The problem of deciding whether a subsequent adminis-
trative regulation should be applied in spite of a contrary
earlier judicial interpretation of a statute is not new. In Na-
tional Cable & Telecommunications Ass’n v. Brand X Internet
Services, the Supreme Court explained that “[a] court’s prior
judicial construction of a statute trumps an agency construc-
tion otherwise entitled to Chevron deference only if the prior
court decision holds that its construction follows from the
unambiguous terms of the statute and thus leaves no room
for agency discretion.” 545 U.S. 967, 982 (2005). This leaves
considerable leeway for the agency: “Only a judicial prece-
dent holding that the statute unambiguously forecloses the
agency’s interpretation, and therefore contains no gap for the
agency to fill, displaces a conflicting agency construction.”
Id. at 982–83 (emphasis added).
Brand X reflects one application of the traditional analysis
used to evaluate agency interpretations of ambiguous stat-
utes under Chevron U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984). As the Supreme Court said
there, “First, always, is the question whether Congress has
directly spoken to the precise question at issue. If the intent
of Congress is clear, that is the end of the matter; for the
court, as well as the agency, must give effect to the unam-
biguously expressed intent of Congress.” Id. at 842–43. Un-
der Brand X, a court must review its earlier interpretation of
the statute at issue to see if its holding was compelled by un-
ambiguous statutory language. If it was, then it would not
have mattered if the agency interpretation were already in
place because that interpretation would not have been enti-
No. 13-3285 9
tled to deference under the first step of Chevron. Presumably,
a court evaluating its earlier opinion under Brand X should
reach the same conclusion as it would if it were conducting a
Chevron step-one analysis in the first instance.
Brand X thus directs us to return to our University of Chi-
cago decision to determine whether it was, in essence, a Chev-
ron step-one decision. In University of Chicago, we held that
the IME cost calculation could include residents’ pure re-
search time based on our interpretation of the Affordable
Care Act. After recognizing that the regulation in place be-
fore the Act’s passage created a “muddle” surrounding the
adjustment, we said that the Act “provided us with a clear,
statutory answer.” 618 F.3d at 744.
We contrasted the 1983 start date for counting “all the
time spent by an intern or resident in an approved medical
residency training program in non-patient care activities”
with the portion of the statute providing that pure research
would not be counted beginning with fiscal year 2001. Id. at
745. We also compared Congress’s treatment of these ex-
penses with its provision governing the teaching-hospital
adjustment for “direct graduate medical expenses.” The Af-
fordable Care Act provides that such expenses are reimburs-
able for residents who engage in “non-patient care activities,
such as didactic conferences and seminars, but not including
research not associated with the treatment or diagnosis of a
particular patient.” Id. at 744 (quoting 42 U.S.C.
§ 1395ww(h)(4)(J)). We reasoned that Congress would have
included the explicit exclusion for pure research without
qualification if it had wanted pure research excluded from
the IME calculation before 2001. We found ambiguous the
statement that the decision to require the exclusion only
10 No. 13-3285
post-2001 “shall not give rise to any inference as to how the
law in effect prior to such date should be interpreted.” Id. at
745. Finally, we explained that “ordinary parlance” would
put research activities within the category of non-patient
care activities, making them reimbursable. Id. We therefore
held that the pure research time must be reimbursed.
Both parties have been able to cull isolated language
from University of Chicago to support their positions on
whether that holding was based on the “unambiguous terms
of the statute,” in the sense Brand X used that term. See 545
U.S. at 982. On the one hand, we used terms such as “clear”
and “dispositive” when describing the statute, and we said
that our holding was based on the “plain language.” On the
other hand, we said that the Hospital had “the stronger posi-
tion” on the statute’s meaning, and that the statutory di-
rective not to draw inferences about retroactivity was “un-
clear at best.” That back-and-forth language, and the ac-
knowledgment that the directive on retroactivity was “un-
clear at best,” does not sound like the type of decision that
Brand X contemplated.
A quote here and a quote there are ultimately less im-
portant than the core holding of the case. While the Universi-
ty of Chicago court took care to consider the statute in reach-
ing its opinion, it did so at a time when it was without the
benefit of a regulation based on the statute that it could
evaluate. A statutory answer was thus required. We explicit-
ly recognized ambiguity in some of the statute’s terms, such
as the no-inferences provision. In light of that analysis, we
cannot say that the University of Chicago opinion held the
statute to be sufficiently unambiguous as to divest the Secre-
No. 13-3285 11
tary of all power to promulgate regulations contrary to its
holding.
Considering the regulation as if we were conducting the
first step of the Chevron inquiry on a blank slate confirms this
conclusion. Foremost in that analysis would be the statute’s
express delegation to the Secretary of the power to define
“research activities” that are not compensable:
[A]ll the time spent by an intern or resident in an ap-
proved medical residency training program in re-
search activities that are not associated with the
treatment or diagnosis of a particular patient, as such
time and activities are defined by the Secretary, shall not
be counted[.]
42 U.S.C. § 1395ww(d)(5)(B)(x)(III) (emphasis added). The
statute also expressly delegates the power to define compen-
sable “non-patient care activities”:
[A]ll the time spent by an intern or resident in an ap-
proved medical residency training program in non-
patient care activities, such as didactic conferences
and seminars, as such time and activities are defined by
the Secretary, that occurs in the hospital shall be
counted toward the determination of full-time equiva-
lency … .
Id. § 1395ww(d)(5)(B)(x)(II) (emphasis added). When a stat-
ute specifically authorizes an agency to define a term, there
is no need to consider whether the term is ambiguous and
thus left to agency delegation. The logical assumption is that
Congress thought there was work for the agency to do—
namely, to define the covered time and activities. See Women
Involved in Farm Econ. v. U.S. Dep’t of Agric., 876 F.2d 994,
12 No. 13-3285
1000–01 (D.C. Cir. 1989); see also Chevron, 467 U.S. at 843–44.
In the face of this explicit delegation of the power to define
the term at the heart of this appeal, we cannot say that the
Secretary’s regulation fails as a matter of Chevron’s first in-
quiry.
We also cannot ignore the ACA’s “no-inferences” provi-
sion. It would be perverse to say that this provision directs
us to draw a clear inference that Congress meant to include
pure research in such costs. It does no such thing. When
Congress said “no inference” it meant exactly that; it did not
need to bold-face and capitalize the word “no” to get the
message across.
Rush insists that the “plain language” of a law still con-
trols the meaning of a term even when Congress expressly
delegates authority to define the supposedly “plain” term to
an agency. We cannot accept this argument. The plain lan-
guage of the statute delegates definitional authority to the
Secretary; to excise that portion would give the statute a new
and unintended meaning. It would also undermine Con-
gress’s ability to delegate the power to define terms and
thrust the courts into a role that Congress meant to reserve
for the agency. As the Supreme Court has said, once there is
a delegation of authority, “a court may not substitute its own
construction of a statutory provision for a reasonable inter-
pretation made by the administrator of an agency.” Chevron,
467 U.S. at 844. This is true even if the court would have
reached a different reading. Id. at 843 n.11.
Rush is essentially taking the position that even if Con-
gress delegated authority to the Secretary, the Secretary’s in-
terpretation fails under the second step of the Chevron in-
quiry: “whether the agency’s answer is based on a permissi-
No. 13-3285 13
ble construction of the statute.” Id. at 843. This is the ques-
tion to which we now turn.
III
Once we determine that Congress intended to delegate
authority to define a statutory term to an agency, we will
give the agency’s definition controlling weight unless it is
based on an “impermissible construction of the statute.” Id.
Rush contends that any definition of “non-patient care activ-
ities” that excludes pure research is impermissible on these
grounds and that the Secretary’s regulation must therefore
yield.
As Rush sees it, the Affordable Care Act divides all
activities into two and only two mutually exclusive
categories: “patient care activities” and “non-patient care
activities.” These categories, it continues, must encompass
all activities a resident undertakes in the hospital. Since both
are compensable in the IME cost formula, it concludes, the
Secretary has exceeded her authority by placing “non-
patient care activities” into a non-existent third category of
hospital-based activities that are non-compensable. We have
a number of problems with this line of reasoning. First, if a
hospital is entitled to be reimbursed for both “patient-care
activities” and “non-patient care activities,” why bother with
the adjectives? The statute would say just “activities.”
Second, it is hard to square Rush’s position with Congress’s
decision to place pure research outside the realm of
compensable activities for the period beginning in 2001,
when § 1395ww(d)(5)(B) goes into effect under § 5505(c)(3)
of the Affordable Care Act. Third, the ACA did not foreclose
the possibility of pure research’s falling outside the
compensable categories of activity between 1983 and 2001.
14 No. 13-3285
To the contrary, it directed that no inference should be
drawn about that period based on its post-2001 directive.
Affordable Care Act § 5505(c)(3), 124 Stat. 119, 661.
In fact, there are good reasons to think that Congress af-
firmatively wanted to grant the Secretary the power to ex-
clude pure research time from the IME costs calculation for
periods before 2001. As the Secretary explained when prom-
ulgating the new regulations, her view on “non-patient care
activities” is that the concept of “care” remains important;
the activities must relate to the treatment of patients. For ex-
ample, she explained, “didactic conferences and seminars”
can include “administrative rotation[s], which would in-
clude resident training in the administrative aspects of med-
ical care such as practice management,” and may also “in-
volve presentations or discussions related to the treatment of
current patients.” 75 Fed. Reg. 71,800, 72,144, 72,146 (Nov.
24, 2010). Moreover, didactic non-patient care activities tend
to take place “when an intern or resident is otherwise as-
signed to a rotation primarily requiring the provision of pa-
tient care,” whereas pure research is usually conducted in
large blocks of time when a resident is not expected to ren-
der care to patients. Id. at 72,145–46. We can assume that this
understanding of “non-patient care activities” is not re-
quired under the statute, but it is rational and consistent
with the distinction Congress drew and the scope of its dele-
gation to the Secretary.
Nor are we convinced that the distinction between the
statutory definitions of Graduate Medical Expenses and IME
costs compels the reading given in University of Chicago. Re-
call that the statute governing Graduate Medical Expenses
explicitly excluded pure research from its definition of “non-
No. 13-3285 15
patient care activities.” See 42 U.S.C. § 1395ww(h)(4)(J) (“…
non-patient care activities, such as didactic conferences and
seminars, but not including research not associated with the
treatment or diagnosis of a particular patient”). In University
of Chicago we found this a meaningful variation from the
IME provision, which did not contain an explicit exclusion of
research from the definition of non-patient care activities.
That observation may have supported a different outcome,
but it does not require one. Congress’s silence on the matter
in the IME provision is not enough to suggest that it was
impermissible for the Secretary, exercising her statutory au-
thority, to interpret the same term—non-patient care activi-
ties—consistently in the two different parts of the statute.
In short, this case is one in which the responsible agen-
cy’s interpretation of a statute should be afforded deference
under Chevron. Confronted with an express delegation of au-
thority to the agency over a question that has long occupied
that agency’s attention, and an explicit disclaimer by Con-
gress that it meant to send any signal about the correct in-
terpretation of the matter, we are not willing to override the
agency’s position. Our colleagues in the Sixth Circuit came to
the same conclusion in Henry Ford Health Systems v. Depart-
ment of Health and Human Services, 654 F.3d 660 (6th Cir.
2011). They distinguished University of Chicago on the
ground that the intervening regulation, 42 C.F.R. § 412.105,
“converted a run-of-the-mine statutory interpretation case
into a Chevron case.” Id. at 666. We agree with them.
IV
Congress delegated authority to the Secretary to deter-
mine whether residents’ pure research activities should be
compensable as part of the IME cost formula for the period
16 No. 13-3285
from 1983-2001. The Secretary’s determination that they
should not is reasonable and entitled to deference. Our deci-
sion in University of Chicago, which at the time represented
our best interpretation of the statute before the regulation
was on the books, is no obstacle to affording the Secretary’s
regulation the deference that it is due. We therefore REVERSE
the judgment of the district court. With no factual issues re-
maining to be decided, we REMAND for the entry of sum-
mary judgment in favor of the Secretary.