Knapp Medical Center v. Eric D. Hargan ( 2017 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 19, 2017 Decided November 21, 2017
No. 16-5234
KNAPP MEDICAL CENTER, ET AL.,
APPELLANTS
v.
ERIC D. HARGAN, IN HIS OFFICIAL CAPACITY AS ACTING
SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN
SERVICES, AND DOCTORS HOSPITAL AT RENAISSANCE,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:15-cv-01663)
Marc James Ayers argued the cause for appellants. With
him on the briefs was Gregory Glen Marshall.
Caroline D. Lopez, Attorney, U.S. Department of Justice,
argued the cause for appellee Eric D. Hargan. With her on the
brief was Alisa B. Klein, Attorney.
Ryan Scarborough argued the cause for appellee Doctors
Hospital at Renaissance. With him on the brief were John K.
Villa, Enu Mainigi, and Richard A. Olderman.
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Before: HENDERSON and GRIFFITH, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
KAREN LECRAFT HENDERSON, Circuit Judge: To prevent
Medicare abuse through self-dealing, the Stark Law prohibits a
physician from referring patients to a hospital or other
healthcare facility in which he has a financial interest. There is
an exception, however, for a physician-owned hospital, as long
as the hospital complies with various reporting requirements.
The Affordable Care Act amended the Stark Law to limit the
ability of a physician-owned hospital to expand but carved out
expansion exceptions for hospitals in medically underserved
areas. As amended, the Stark Law prohibits judicial review of
the procedure used to grant or deny an application for an
expansion exception. The sole issue in this appeal is whether
the district court correctly interpreted the preclusion-of-review
provision to deprive it of subject matter jurisdiction. For the
reasons that follow, we affirm.
I.
Title XVIII of the Social Security Act of 1935, 42 U.S.C.
§§ 1395–1395lll, establishes Medicare, a medical insurance
program for the elderly and disabled. Section 1877 of the Act—
commonly referred to by the surname of its sponsor, former
U.S. Congressman Peter Stark—forbids “self-referrals” by
which a physician could profit from Medicare reimbursements
to healthcare providers with which he has a financial
relationship. 42 U.S.C. § 1395nn(a)(1)–(2). The “hospital
ownership” exception accommodates physician-owned
hospitals by allowing a physician to refer patients to a hospital
in which he has an ownership interest, provided the hospital
complies with reporting and disclosure requirements. 42
U.S.C. § 1395nn(d)(3)(D), (i)(1)(C)–(E), (i)(2).
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Title VI of the Patient Protection and Affordable Care Act
of 2010 (ACA) amends the Stark Law to prohibit physician-
owned hospitals to expand beyond “the number of operating
rooms, procedure rooms and beds for which the hospital is
licensed … on March 23, 2010.” Pub. L. No. 111-148
§ 6001(a), 124 Stat. 119, 684–689, codified as amended at 42
U.S.C. § 1395nn(d)(2)–(3), (i). The expansion restriction
exempts some hospitals in medically underserved
communities—“applicable hospitals” and “high Medicaid
facilities”—subject to approval by the Secretary of the U.S.
Department of Health and Human Services (HHS). See 42
U.S.C. § 1395nn(i)(3). As amended by the ACA, section
1395nn(i)(3) reads, in relevant part:
(A) Process. (i) … The Secretary shall establish
and implement a process under which a hospital
… may apply for an exception from the
[nonexpansion] requirement …. [(ii)] The
process under clause (i) shall provide … the
community … the opportunity to provide input
with respect to the application. (iii) … The
Secretary shall implement the process under
clause (i) on February 1, 2012. (iv) … Not later
than January 1, 2012, the Secretary shall
promulgate regulations to carry out the process
under clause (i).
(B) Frequency—The process described in
subparagraph (A) shall permit an applicable
hospital to apply for an exception up to once
every 2 years.
(C) … [A]n applicable hospital granted an
exception under the process described in
subparagraph (A) may [expand].
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(D) … Any [expansion] may only occur … on
the main campus of the applicable hospital.
(E) … “[A]pplicable hospital” means a
hospital—(i) that is located in a county in which
[population growth has exceeded the state
average by at least 150 per cent for the past five
years] … ; (ii) [that has an] annual percent of
total inpatient [Medicaid] admissions … [that
exceeds the county average]; (iii) that does not
discriminate against beneficiaries of [Medicare
or Medicaid nor] permit physicians practicing at
the hospital to [do so]; (iv) that is located in a
State in which the average bed capacity … is
less than the national average … ; and (v) that
has an average bed occupancy rate that is
greater than the [state] average ….
[(F)–(H) define terms not relevant here and
require publication of expansion decisions.]
(I) Limitation on review—There shall be no
administrative or judicial review under section
1395ff of this title, section 1395oo of this title,
or otherwise of the process under this
paragraph (including the establishment of such
process).
42 U.S.C. § 1395nn(i)(3) (emphasis added).
Doctors Hospital at Renaissance (DHR), a physician-
owned hospital in Hidalgo County, Texas, applied to expand as
an applicable hospital. See 80 Fed. Reg. 26,566, 26,567 (May
8, 2015) (notice of application). Knapp Medical Center,
McAllen Hospitals, L.P. and Cornerstone Regional Hospital,
L.P. (collectively, Knapp), competitors of DHR, filed
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comments opposing DHR’s expansion application. They
argued that HHS—specifically the Center for Medicare and
Medicaid Services (CMS)—had failed to publish and accept
public comments on an earlier version of the expansion
application; that the approved application had been filed less
than two years after the first, unpublished application, in
contravention of HHS rules; and that DHR did not qualify as
an applicable hospital because it failed the statutory
requirements for county population growth, Medicaid
admissions and Medicaid nondiscrimination. Finding the
objections meritless, CMS approved the application. See 80
Fed. Reg. 55,851, 55,852 (Sept. 17, 2015) (decision granting
application).
Less than one month later, Knapp sued to set aside the
decision and block DHR’s expansion. The district court
dismissed Knapp’s complaint for lack of subject matter
jurisdiction, holding that its claims are unreviewable per 42
U.S.C. § 1395nn(i)(3)(I), which, as set forth supra, bars
administrative and judicial review of the expansion-restriction
exception “process.” Knapp Med. Ctr. v. Price, 192 F. Supp.
3d 129, 134–35 (D.D.C. 2016). Knapp appeals.
II.
We review de novo the district court’s dismissal for lack
of subject matter jurisdiction, taking the plaintiffs’ allegations
as true and drawing all reasonable inferences in their favor. Fla.
Health Scis. Ctr., Inc. v. Sec’y of Health & Human Servs., 830
F.3d 515, 518 (D.C. Cir. 2016). In interpreting a provision that
precludes judicial review, we “must determine whether the
challenged agency action is of the sort shielded from review”
and “may not inquire whether a challenged agency decision is
arbitrary, capricious, or procedurally defective” unless we are
certain of our subject matter jurisdiction. Amgen, Inc. v. Smith,
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357 F.3d 103, 113 (D.C. Cir. 2004). The plaintiffs bear the
burden of establishing jurisdiction. Lujan v. Defs. of Wildlife,
504 U.S. 555, 561 (1992). Although we presume the Congress
intends that agency action be judicially reviewable, El Paso
Nat. Gas Co. v. United States, 632 F.3d 1272, 1276 (D.C. Cir.
2011), that presumption, “like all presumptions used in
interpreting statutes, may be overcome by specific language …
that is a reliable indicator of congressional intent,” Tex. All. for
Home Care Servs. v. Sebelius, 681 F.3d 402, 408 (D.C. Cir.
2012) (quoting Block v. Cmty. Nutrition Inst., 467 U.S. 340,
349 (1984)).
“Only Congress may determine a lower federal court’s
subject-matter jurisdiction,” Kontrick v. Ryan, 540 U.S. 443,
452 (2004) (citing U.S. CONST. Art. III, § 1), and what the
Congress gives, the Congress may take away. “[T]he strong
presumption that Congress intends judicial review of
administrative action,” Bowen v. Mich. Acad. of Family
Physicians, 476 U.S. 667, 670 (1986), is therefore rebuttable
by a clear statement of congressional intent to preclude review,
Block, 467 U.S. at 349. Our task is to determine whether the
Secretary’s approval of an expansion application under the
Stark Law is within the preclusive scope of
section 1395nn(i)(3)(I). See Amgen, 357 F.3d at 113.
As noted earlier, the ACA amended the Stark Law to
incorporate the expansion prohibition, the applicable-hospital
exception and the preclusion-of-review provision. 1 Pub. L.
1
The ACA inserted ten other similarly worded preclusion-of-
review provisions in scattered sections of the Medicare Act. See 42
U.S.C. §§ 1395ww(o)(11)(b) (hospital value-based purchasing
program); 1395w-4(n)(9)(G) (physician feedback program); 1395w-
4(p)(10) (value-based payment modifier); 1395ww(p)(7)
(adjustments to payments for hospital-acquired conditions);
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No. 111-148, § 6001(a), 124 Stat. 119, 688. And as further
noted earlier, the preclusion provision forbids “administrative
or judicial review under section 1869 [42 U.S.C. § 1395ff],
section 1878 [42 U.S.C. § 1395oo], or otherwise of the process
under this paragraph (including the establishment of such
process).” Knapp offers four reasons why its claims are not
subject to the jurisdictional bar.
First, in Knapp’s view, “process,” as used in section
1395nn(i)(3)(I), refers only to the HHS regulation
implementing the expansion prohibition and its exceptions, and
“the establishment of the process” is the notice-and-comment
rulemaking by which the regulation was developed and
promulgated. According to Knapp’s interpretation, the
“process” is distinct from the CMS determination flowing from
the process; therefore, according to Knapp, although an APA
attack on the rulemaking and a challenge to specific
requirements of the regulation are unreviewable, its challenge
to an individual exception decision is reviewable. Knapp
attaches great significance to the caption of subparagraph (A),
“Process,” which it equates with “Congress expressly
defin[ing]” “the process.” Subparagraph (A) instructs the HHS
Secretary to “establish and implement a process under which a
hospital … may apply for an exception,” and provides that
“[t]he process … shall provide [the community] the
opportunity to provide input with respect to the application.”
§ 1395nn(i)(3)(A)(i)–(ii) (emphasis added). It also requires
“implement[ation] of the process under clause (i) on February
1315a(d)(2) (Center for Medicare and Medicaid Innovation);
1395jjj(g) (shared savings program); 1395ww(q)(7) (hospital
readmissions reduction program); 1395ww(r)(3) (disproportionate-
share hospital payments); 1395kkk(e)(5) (independent Medicare
advisory board); and 1395l(x)(4) (incentive payment program for
primary care services).
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1, 2012” and the “promulgat[ion of] regulations to carry out the
process under clause (i)” “not later than January 1, 2012.”
§ 1395nn(i)(3)(A)(iii)–(iv) (emphasis added). If subparagraph
(A) encompasses “the process,” as its caption suggests, then
Knapp’s narrow reading of the preclusion-of-review provision
is at least plausible.
Second, Knapp points to the legislative history of the
statute entitled “America’s Affordable Health Choices Act of
2009,” a precursor to the ACA that contained an arguably
broader provision precluding review of “the exception process
under this paragraph, including the establishment of such
process, and any determination made under such process.”
H.R. 3200, 111th Cong. § 1156(a)(5) (as reported Oct. 14,
2009). The provision that the Congress enacted in the ACA
omitted the reference to “any determination made under such
process,” which Knapp takes to mean “Congress specifically
considered and rejected the [Secretary’s] interpretation.”
Third, Knapp reads this Court’s precedent as reinforcing
its view that determinations are reviewable even though “the
process” is not. Looking to our decisions in Florida Health
Sciences Center, Inc. v. Secretary of Health & Human Services,
830 F.3d 515 (D.C. Cir 2016), and Texas Alliance for Home
Care Services v. Sebelius, 681 F.3d 402 (D.C. Cir. 2012),
Knapp argues that we have narrowly construed the ACA’s
jurisdictional bars, finding jurisdiction lacking only where the
“inputs” of an administrative decision are “inextricably
intertwined” with the decision itself. Because it challenges the
Secretary’s determination, and not its “inputs,” and because the
determination is not “inextricably intertwined” with the
unreviewable “process,” Knapp urges that there is jurisdiction
here despite our “correct decisions” in Texas Alliance and
Florida Health.
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Finally, Knapp warns of “absurd results” if we affirm the
jurisdictional dismissal of its complaint. In the future, Knapp
fears, a hospital could submit a one-page letter to the Secretary
stating its desire to expand and the Secretary could—without
fear of judicial review—summarily grant expansion without
applying the statutory criteria. Such blatant lawlessness would
be unreviewable, Knapp argues, if we decline to entertain the
substantive claims Knapp advanced to the Secretary here.
We reject each of Knapp’s contentions. First, as a textual
matter, there is more than one “process” in section
1395nn(i)(3). There is “the process described in subparagraph
(A),” which is the limited “procedure” that Knapp concedes is
unreviewable. But, critically, there is “the process under this
paragraph”—that is, paragraph (3) of section 1395nn(i)—
which sets forth the entire expansion-restriction exception. The
Congress used cross references to clarify what process it
referred to in each part of section 1395nn. In
section 1395nn(i)(3)(B) and (C), “the process” means “the
process described in subparagraph (A),” but in
section 1395nn(i)(3)(I), it means “the process under this
paragraph [(3)],” that is, under paragraph 3(A) through (I). By
precluding review of “the process” in its broadest sense, the
Congress barred jurisdiction over much more than “the process
described in subparagraph (A).” It may be true that “the
process described in subparagraph (A)” is “a defined set of
procedural rules to be followed in applying for an expansion
exception” but that process is far different from—and more
limited than—the process that is off limits to judicial review
per subparagraph (I).
To accept Knapp’s argument that “the process” is “the
process described in subparagraph (A),” then, we would have
to ignore the plain contrary language of the statute. Far from
confirming Knapp’s reading, the statute’s two cross references
10
to “the process described in subparagraph (A)” 2 highlight that
subparagraph (I) refers to a different, broader process. The
structure of section 1395nn(i)(3) and the unambiguous
reference in subparagraph (I) to “the process under this
paragraph” cannot be squared with Knapp’s position that the
unreviewable “process” refers only to subparagraph (A).
Second, Knapp’s legislative history argument adds little,
if anything, to our analysis. We can infer nothing from the
Congress’s consideration and rejection of a differently worded
provision in a separate piece of legislation. Even if the
legislative history of the ACA were probative, the legislative
history of a different healthcare bill that never became law is
not.
Third, Knapp parses our decisions in Florida Health and
Texas Alliance too finely. In Texas Alliance the plaintiffs
challenged the competitive bidding process established under
42 U.S.C. § 1395w-3 for durable medical equipment,
prosthetics, orthotics and supplies. Texas Alliance, 681 F.3d at
404, 408. The statute instructed the HHS Secretary to
determine whether a contractor “meets applicable financial
standards specified by the Secretary” as a prerequisite to
admitting it to the bidding process. § 1395w-3(b)(2)(A)(ii).
Under section 1395w-3, the Secretary conducted an initial
round of competitive bidding before promulgating rules
“specif[ying]” the “applicable financial standards” and rejected
some bidders in that round for “financial ineligibility.” Texas
Alliance, 681 F.3d at 407–08. The plaintiffs challenged the
Secretary’s failure to promulgate the financial standards under
which they were rejected but they had to surmount the statute’s
2
The cross-references to “the process described in subparagraph
(A)” appear in subparagraphs (B) (forbidding more than one
expansion application every two years) and (C) (describing the
“permitted increase” in size for a hospital granted an exception).
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preclusion of review of, inter alia, “the awarding of contracts
under this section” and “the bidding structure and number of
contractors selected.” § 1395w-3(b)(11)(B).
The plaintiffs in Texas Alliance argued that the statute
precluded review only of “individual contracts” awarded
through the competitive bidding process but allowed review of
the process itself. Texas Alliance, 681 F.3d at 410. We held that
“[t]he statutory language … is not so narrow;” instead, it
applies to “‘the awarding of contracts’ generally.” Id.
Accordingly, we declined the plaintiffs’ invitation to
“distinguish between an upfront attack … by suppliers not yet
injured by [the rule] and a challenge brought after-the-fact by
a frustrated bidder.” Id. The financial standards were “integral
to” and “inextricably intertwined with the bidding structure,”
review of which structure was “expressly precluded” by the
statute. Id. at 411.
Florida Health required us to interpret the ACA
preclusion-of-review provision in the Medicare Act’s
compensation scheme for “disproportionate share hospitals”—
that is, those that treat a disproportionate share of Medicare and
Medicaid patients. Florida Health, 830 F.3d at 517. The
plaintiff hospital asserted that its disproportionate-share
payment was too low and challenged the population data the
Secretary used to calculate the payment. Id. at 518. The
plaintiff tried to distinguish between the specific items the
ACA made unreviewable—“estimate[s] of the Secretary” or
“period[s] selected by the Secretary” as inputs of the payment
formula, 42 U.S.C. § 1395ww(r)(3)—and its challenge to the
Secretary’s choice of population data. Florida Health, 830 F.3d
at 518. We declared that this “categorical distinction between
inputs and outputs” elevated form over substance and would
have permitted review of “the data that underlie the Secretary’s
estimate” even though the data were “inextricably intertwined”
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with the unreviewable estimate itself. Id. at 519. We therefore
found the plaintiff’s challenge unreviewable.
Knapp describes this case as “the opposite” of Florida
Health and Texas Alliance. All we have held up to now, Knapp
argues, is that a statute that precludes review of “outputs”
necessarily precludes review of “inputs,” too. Yet in Florida
Health and Texas Alliance we used a functional analysis to
determine whether we could entertain the plaintiffs’ claims
without frustrating the Congress’s desire to place certain
administrative actions beyond review. We have twice rejected
the “categorical distinction between inputs and outputs,”
Florida Health, 830 F.3d at 519, that Knapp now urges us to
accept. And although the preclusion-of-review provisions in
Florida Health and Texas Alliance identified specific
unreviewable actions, Knapp’s attempt to construe this
distinction in its favor fails because the omission of a list like
section 1395ww’s or section 1395w-3’s broadens rather than
narrows the preclusive effect of section 1395nn(i)(3)(I). Unlike
those sections, in which the Congress specified what items
were unreviewable, section 1395nn(i)(3)(I)’s preclusion of
review is unqualified.
Finally, Knapp’s fear of “absurd results” is unfounded.
The Secretary acknowledges that “judicial review may be
available when the actions charged are claimed to be ultra
vires”—which is to say, actions “beyond [HHS’s] statutory
authority.” Knapp has not argued that the approval of DHR’s
expansion application was ultra vires so we need not decide
whether the district court would have jurisdiction of such a
challenge. Moreover, in Florida Health and Texas Alliance we
held that the Congress precluded all review of certain claims
elsewhere in the ACA. It is not apparent why total preclusion
is “correct” in those cases but “absurd” in this one.
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The Congress has undoubted power to restrict the
jurisdiction of the lower federal courts and, when it does so, we
need only determine the scope of the restriction. We conclude
that “the process under this paragraph” encompasses all of
section 1395nn(i)(3), including the granting or denial of
expansion applications. Because 42 U.S.C. § 1395nn(i)(3)(I)
precludes judicial review of Knapp’s claims, the district court
lacked subject matter jurisdiction of the complaint. The district
court’s judgment of dismissal is therefore affirmed.
So ordered.