Visiting Nurses Ass'n of Southwestern Indiana, Inc. v. Shalala

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-3494
VISITING NURSES ASSOCIATION OF
SOUTHWESTERN INDIANA, INC.,
and VISITING NURSES HEALTH CARE, INC.,
Plaintiffs-Appellants,
v.
DONNA E. SHALALA, Secretary, United States
Department of Health & Human Services,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Indiana,
Indianapolis Division.
No. 99 C 1260--David F. Hamilton, Judge.
Argued February 25, 2000--Decided May 17, 2000
Before BAUER, RIPPLE and MANION, Circuit Judges.
RIPPLE, Circuit Judge. The appellants, two
providers of health care services in southern
Indiana, sought an injunction that would halt the
Government’s efforts to recoup overpayments made
to them through the Medicare program. The
district court held that the service providers
had failed to state a claim because the statutory
section under which they sought relief did not
allow providers to seek a waiver of their
liability to the Government. The district court
also determined that, even if a waiver was
permitted by the statute, the service providers
could not obtain relief because they were not
"without fault" within the meaning of the
statute. We agree that the service providers have
failed to state a claim upon which relief can be
granted. Therefore, for the reasons set forth in
the following opinion, we affirm the judgment of
the district court.
I
BACKGROUND
The Visiting Nurses Association of Southwestern
Indiana of Evansville, Indiana ("VNA"), and
Visiting Nurses Health Care, Inc. of Anderson,
Indiana ("VNHC"), collectively "the Providers,"
have both participated in the Medicare program
for about 30 years. As certified providers of
home health services to Medicare beneficiaries,
VNA and VNHC are required to provide services to
homebound patients. The Providers periodically
receive reimbursement from the Government through
interim payments. These interim payments are
based on the provider’s estimated reimbursable
costs. At the end of the year, a calculation is
made of the provider’s actual allowable costs for
the previous year. If the provider was overpaid
or underpaid, adjustments are made to future
payments. Interim payments may also be adjusted
during the fiscal year if the provider and its
fiscal intermediary decide that the payments do
not reflect the provider’s actual costs.
According to the statute, these payments to
providers are made for the benefit of the
ultimate beneficiary. See 42 U.S.C. sec.
1395gg(a).
In 1997, Congress enacted the Balanced Budget
Act. See Pub. L. 105-33, 111 Stat. 251. One of
its provisions altered the reimbursement scheme
for providers such as VNA and VNHC./1 Under the
new reimbursement program, the Providers would
receive the least of: (1) the provider’s actual
cost per visit; (2) a capped amount of cost per
visit; or (3) a cap on payment for services based
on an annual aggregate per-beneficiary limit
("PBL"). The PBL is determined by the Health Care
Financing Administration ("HCFA"), a unit of the
Department of Health and Human Services. The new
PBL capped the amount of annual payments to home
health providers for all services provided to any
beneficiary, regardless of the level of or cost
of services provided. In promulgating the PBL,
the HCFA acknowledged that it would create
hardship for home health care providers.
Nonetheless, the HCFA warned providers not to
discriminate against individual Medicare
beneficiaries based on their status as program
enrollees.
Both VNA and VNHC anticipated a 15% reduction in
Medicare funding in the wake of the Balanced
Budget Act, and undertook significant cost-
cutting measures. On June 1, 1998, VNA was
advised of a PBL for Indiana and Kentucky
patients of $2,663.93, and for Illinois patients
of $2,471.69. That same day, VNHC was advised of
its PBL of $3,895.78. Both providers had
underestimated the severity of the funding cuts.
The Providers’ interim payments had not been
adjusted downward at the beginning of the time
period covered by the benefit reductions, and,
thus, when the benefit reductions were announced,
the Providers were faced with a situation in
which they had been substantially overpaid. The
HCFA informed VNA in early 1999 that its
overpayment liability for the 1998 fiscal year
was $4,094,039. In December 1998, VNHC received
notice of a projected overpayment of $860,593 for
the 1998 fiscal year; it was later assessed an
additional overpayment of $83,350.
The Providers sought relief under 42 U.S.C. sec.
1395gg, a section of the Social Security Act
governing Medicare payments. They claimed that
under that section they were entitled to a waiver
of overpayment liability. This claim for a waiver
was first rejected by the regional Medicare
fiscal intermediary, Palmetto Government Benefits
Administration. Subsequently, the HCFA and the
Secretary of the Department of Health and Human
Services ("the Secretary") declined to grant
relief. The Providers then brought this action in
the district court, seeking an injunction that
would prevent the Secretary from recouping the
overpayments.
The district court held that sec. 1395gg did not
contemplate waivers of overpayments in aggregate
reimbursements to health care providers but,
rather, existed solely to allow waivers for
individual beneficiaries. Therefore, it
explained, the Providers’ action could not
succeed. The court then found that, even if the
Providers could bring an action under sec.
1395gg, it would fail on the merits because that
section requires those seeking its protection to
be without fault. The district court found that
the Providers were not without fault, because
they could have estimated their PBL long before
they were actually informed of the specific
amount, and then could have reduced their
expenditures to achieve compliance with the
limits they ultimately received. Although the
court acknowledged that the Providers had not
committed any waste or fraud, and that requiring
the Providers to repay the overpayments could be
devastating to them, it declined to grant
injunctive relief because the Providers had shown
no likelihood of success on the merits. After
their request for a preliminary injunction was
denied, the Providers offered no further
arguments, and their case was dismissed for
failure to state a claim upon which relief could
be granted.
II
DISCUSSION
We review de novo the district court’s
dismissal. See Massey v. Helman, 196 F.3d 727,
732 (7th Cir. 1999); Grzan v. Charter Hosp., 104
F.3d 116, 119 (7th Cir. 1997). In our review, we
draw all reasonable inferences in the plaintiffs’
favor. See Massey, 196 F.3d at 732; Grzan, 104
F.3d at 119. We shall affirm the dismissal only
if the plaintiffs would not be entitled to relief
under any set of facts that could be proved
consistent with the allegations. See Massey, 196
F.3d at 732.
When a Medicare provider is overpaid, the
Secretary has the authority to attempt to recoup
the overpayment. See 42 C.F.R. sec.
405.371(a)(2). When such an attempt occurs, the
provider from whom money is being recouped is
given an opportunity for rebuttal. See 42 C.F.R.
sec.sec. 405.373(a)(2), 405.374(a). If a provider
is dissatisfied with the ultimate result of the
administrative proceedings, it may file a civil
action in the district court. See 42 U.S.C. sec.
1395oo(f); Homewood Prof’l Care Ctr. v. Heckler,
764 F.2d 1242, 1245 (7th Cir. 1985). The
Secretary had not yet instituted recoupment
proceedings under these regulations against the
Providers when they brought their claim for
injunctive relief. Instead, the Providers, prior
to the institution of any recoupment proceedings,
brought this action, arguing that the text of 42
U.S.C. sec. 1395gg itself allows for a waiver of
overpayment liability./2 The district court
characterized the action as one of pure statutory
interpretation; the Providers were seeking only a
determination of their rights under sec. 1395gg.
Neither party contests that assessment./3
Our sole task is therefore to determine whether
sec. 1395gg may be the basis of the relief sought
by the Providers. "As with all issues of
statutory interpretation, the appropriate place
to begin our analysis is with the text itself,
which is the most reliable indicator of
congressional intent." Bass v. Stolper,
Koritzinsky, Brewster & Neider, 111 F.3d 1322,
1324-25 (7th Cir. 1997) (citations omitted). We
may also look to the agency’s interpretation of
this statutory language because "a reasonable
interpretation of a statute by the agency
responsible for its administration is entitled to
great deference by the judiciary." Martin v. Pav-
Saver Mfg. Co., 933 F.2d 528, 530 (7th Cir.
1991). Finally, we shall consider the role of
this statutory language within the broader
statutory scheme. "It is a ’fundamental canon of
statutory construction that the words of a
statute must be read in their context and with a
view to their place in the statutory scheme.’"
Food & Drug Admin. v. Brown & Williamson Tobacco
Co., 120 S. Ct. 1291, 1301 (2000) (quoting Davis
v. Michigan Dept. of Treasury, 489 U.S. 803, 809
(1989)).
A. Section 1395gg
The Providers argue that the text of sec. 1395gg
allows for the waiver of overpayment liability
for providers. As discussed above, the Providers
receive reimbursements from the Medicare program.
Subsection 1395gg(a) explains that these
reimbursement payments are treated as payments to
the individual Medicare beneficiaries:
Any payment under this subchapter to any
provider of services or other person with respect
to any items or services furnished any individual
shall be regarded as a payment to such
individual.
42 U.S.C. sec. 1395gg(a). Subsection 1395gg(b)
then says that when overpayments are made, the
Secretary may seek to recover those overpayments.
As the statute states:
Where--
(1) more than the correct amount is paid under
this subchapter to a provider of services or
other person for items or services furnished an
individual and the Secretary determines (A) that,
within such period as he may specify, the excess
over the correct amount cannot be recouped from
such provider of services or other person, or (B)
that such provider of services or other person
was without fault with respect to the payment of
such excess over the correct amount . . .
. . . .
proper adjustments shall be made, under
regulations prescribed (after consultation with
the Railroad Retirement Board) by the Secretary,
by decreasing subsequent payments--
(3) to which such individual is entitled under
subchapter II of this chapter or under the
Railroad Retirement Act of 1974, as the case may
be . . . .
42 U.S.C. sec. 1395gg(b) (citation omitted).
Under some circumstances, however, the Secretary
should waive the recoupment of overpayments
discussed in sec. 1395gg(b). Subsection 1395gg(c)
sets forth the situations in which such waiver
should occur:
There shall be no adjustment as provided in
subsection (b) of this section (nor shall there
be recovery) in any case where the incorrect
payment has been made . . . with respect to an
individual who is without fault . . . if such
adjustment (or recovery) would defeat the
purposes of subchapter II or subchapter XVIII of
this chapter or would be against equity or good
conscience.
42 U.S.C. sec. 1395gg(c)./4 The providers argue
that these sections do not apply only to
individuals, but also to providers. Thus, they
claim, these sections may entitle them to a
waiver. However, as further detailed below, sec.
1395gg addresses only the rights of individual
beneficiaries, not those of providers. Therefore,
the Providers cannot be granted the relief they
seek.
1. Subsection 1395gg(a)
The Providers read sec. 1395gg(a) to vest
providers with the same rights as individuals. In
fact, it does quite the contrary. Subsection
1395gg(a) states: "Any payment under this
subchapter to any provider of services or other
person with respect to any items or services
furnished any individual shall be regarded as a
payment to such individual." What this means is
that regardless of who receives the payment in
the first instance--the provider or the
individual--the payment is, in legal effect, a
payment to the individual. Therefore, the rights
created by this section must be the individual’s
rights, whether or not they received their
benefits from a pass-through. Consequently, we
cannot adopt the Providers’ proffered
interpretation.
2. Subsection 1395gg(b)
Subsection 1395gg(b)(3) dovetails with sec.
1395gg(a). Adjustments to payments made under
sec. 1395gg(b) are to payments "to which such
individual is entitled." 42 U.S.C. sec.
1395gg(b)(3) (emphasis added). The entitlement to
payments under sec. 1395gg(b) is the
individual’s, not the provider’s.
The language of sec. 1395gg(b)(1) also indicates
that Congress did not intend to create any rights
for providers. As set out above, sec.
1395gg(b)(1) allows adjustments to be made to
payments where:
more than the correct amount is paid under this
subchapter to a provider of services or other
person for items or services furnished an
individual and the Secretary determines (A) that,
within such period as he may specify, the excess
over the correct amount cannot be recouped from
such provider of services or other person, or (B)
that such provider of services or other person
was without fault with respect to the payment of
such excess over the correct amount . . . .
42 U.S.C. sec. 1395gg(b)(1). The language merely
creates prerequisites for the adjustments in
payments to the individual beneficiaries.
Subsection 1395gg(b)(1)(A) allows the Secretary
to recover money from individuals directly if she
cannot recover it from the provider of
services./5 According to sec. 1395gg(b)(1)(B),
if the provider of services was without fault in
the overpayment, adjustment may be made to the
individual’s payment. These subsections, sec.
1395gg(b)(1)(A) and (B), set forth the conditions
precedent that must be satisfied before recovery
from an individual may be undertaken; they do not
create any entitlement to funds on the part of
the providers.
3. Subsection 1395gg(c)
a.
Because the only adjustment contemplated by sec.
1395 gg(b) is an adjustment of payments to
individuals, no waiver under sec. 1395gg(c) is
possible for these providers. Subsection
1395gg(c) explicitly applies only to the waiver
of "adjustment[s] as provided in subsection (b)
of this section." 42 U.S.C. sec. 1395gg(c). The
adjustments made to the payments is, as we have
stated, an adjustment only to the payments to the
individual, and no rights of the providers are
implicated by that adjustment.
Even if sec. 1395gg(b) could apply to providers,
meaning that sec. 1395gg(c) also could apply to
providers, the language of sec. 1395gg(c)
precludes waiver based on the provider’s lack of
fault. The waiver clause only applies when "an
incorrect payment has been made . . . with
respect to an individual who is without
fault."/6 42 U.S.C. sec. 1395gg(c) (emphasis
added). We cannot accept the Providers’ argument
that "individual," in this context, means
"individual or provider." The language of sec.
1395gg consistently refers to individuals and
providers as separate entities. Indeed, in sec.
1395gg(b), Congress specifically refers to
providers of services who are without fault,
whereas here the reference is to individuals
without fault. Thus, "individual" in sec.
1395gg(c) cannot mean "individual or provider."
b.
The regulations promulgated by the Secretary
support the distinction between "individual" and
"provider" rights. It has long been recognized
that courts should accord considerable weight to
an executive department’s construction of a
statutory scheme it is entrusted to administer.
See Chevron, U.S.A., Inc. v. Natural Resources
Defense Council, 467 U.S. 837, 844 (1984); City
of Chicago v. Federal Communications Comm’n, 199
F.3d 424, 429 (7th Cir. 1999). This is
particularly true when Congress has specifically
delegated authority to the Secretary to construe
the statute. See United States v. Morton, 467
U.S. 822, 834 (1984); Batterton v. Francis, 432
U.S. 416, 425 (1977); Haywood v. North Am. Van
Lines, 121 F.3d 1066, 1069 (7th Cir. 1997). This
statute delegates to the Secretary the authority
to "prescribe such regulations as may be
necessary to carry out the insurance programs"
under the subchapter that includes sec. 1395gg.
See 42 U.S.C. sec. 1395hh(a); St. Francis Hosp.
Ctr. v. Heckler, 714 F.2d 872, 878 (7th Cir.
1983). In this case, the Providers have not
argued that the Secretary’s regulations are
contrary to the statute./7
Two aspects of the recoupment regulations
confirm the distinction between individual and
provider rights outlined above. First, the
Secretary has developed two different regulatory
schemes for determining and recouping
overpayments from individuals and providers.
Compare 42 C.F.R. sec.sec. 405.350-59
(individuals) with id. at sec.sec. 405.370-78
(providers). If the overpayment was to an
individual, the Secretary may seek an adjustment
pursuant to 42 C.F.R. sec. 405.352, which applies
"[w]here an individual is liable for an incorrect
payment." Id. If the Secretary proceeds against
the provider, however, she must act pursuant to
42 C.F.R. sec. 405.371(a), which says that:
Medicare payments to providers and suppliers, as
authorized under this subchapter (excluding
payments to beneficiaries), may be--
. . . .
(2) Offset or recouped, in whole or in part, by
an intermediary or a carrier if the intermediary,
carrier, or HCFA has determined that the provider
or supplier to whom payments are to be made has
been overpaid.
Id. The existence of separate regulatory schemes
for recoupment from individuals and providers
makes it clear that the two acquire separate
rights under the statute.
In addition, the regulations set forth different
"waiver" procedures for individuals and
providers. The provision allowing individuals to
seek waivers of overpayments, 42 C.F.R. sec.
405.355, tracks the language of sec. 1395gg(c):
(a) The provisions of sec. 405.352 may not be
applied and there may be no adjustment or
recovery of an incorrect payment . . . in any
case where such incorrect payment has been made
with respect to an individual who is without
fault, or where such adjustment or recovery would
be made by decreasing payments to which another
person who is without fault is entitled as
provided in section 1870(b) of the Act where such
adjustment or recovery would defeat the purpose
of title II or title XVIII of the Act or would be
against equity and good conscience. . . .
(b) Adjustment or recovery of an incorrect
payment (or only such part of an incorrect
payment as may be determined to be inconsistent
with the purposes of Title XVIII of the Act)
against an individual who is without fault shall
be deemed to be against equity and good
conscience if the determination that such payment
was incorrect was made subsequent to the third
year following the year in which notice of such
payment was sent to such individual.
42 C.F.R. sec. 405.355 (emphasis added). There
can be no question that the issue of "fault"
raised here is fault only on the part of the
individual, not fault on the part of the
provider. See 20 C.F.R. sec. 404.507 ("’Fault’ as
used in ’without fault’ (see [20 C.F.R.] sec.
404.506 and 42 C.F.R. sec. 405.355) applies only
to the individual.").
A different procedure is used for providers who
seek to block the recoupment of overpayments.
When a recoupment from a provider is sought
pursuant to 42 C.F.R. sec. 405.371(a)(2), the
intermediary or carrier seeking recoupment must
"[g]ive the provider or supplier an opportunity
for rebuttal in accordance with sec. 405.374." 42
C.F.R. sec. 405.373. Under sec. 405.374, the
intermediary or supplier must give notice of when
the recoupment will go into effect, and then
"must give the provider or supplier an
opportunity, before the . . . recoupment takes
effect, to submit any statement (to include any
pertinent information) as to why it should not be
put into effect on the date specified in the
notice." 42 C.F.R. sec. 405.374.
When one compares the "waiver" procedures for
individuals to that for providers, the
differences are evident. The procedure for
individuals does, in fact, "waive" rights to
recoupment of overpayments to which the Secretary
is otherwise entitled; 42 C.F.R. sec. 405.355
prohibits the Secretary from seeking an
"adjustment or recovery of an incorrect payment .
. . with respect to an individual who is without
fault." By contrast, the procedure for providers
is more appropriately characterized as a
remonstrance provision. It identifies the process
that the Secretary must follow in seeking
recoupment and that the provider must follow in
contesting that determination. The procedure,
however, does not contain any waiver of the
Secretary’s rights; the regulations do not set
forth circumstances under which the Secretary is
prohibited from seeking recoupment. Noticeably
absent from the procedure for providers is any
discussion of "fault" on the part of the
provider.
The existence of separate regulatory recoupment
schemes for individuals and providers makes it
clear that 42 U.S.C. sec. 1395gg(c)’s waiver
provision for an "individual who is without
fault" applies only to individuals. The statute
and the regulations consistently differentiate
between individuals and providers. As well, the
recoupment schemes for individuals and providers
bear little resemblance to one another.
Therefore, the regulations confirm that waiver of
overpayment liability for providers is not
contemplated by sec. 1395gg(c).
B. The Statutory Structure
A comparison of sec. 1395gg to other provisions
of the Medicare statute also persuades us that,
when Congress intended to give providers a
remedy, it did so explicitly. In 42 U.S.C. sec.
1395oo, Congress established a Provider
Reimbursement Review Board, whose powers include
the authority to hear appeals from providers
dissatisfied with the amount of money they have
received. See 42 U.S.C. sec. 1395oo(a)(1)(A). No
appeals process for providers is discussed in
sec. 1395gg.
In 42 U.S.C. sec. 1395pp, Congress specifically
allows providers to exercise the rights of
individuals under certain sections of the statute
"after the Secretary determines that the
individual will not exercise such rights under
such sections." 42 U.S.C. sec. 1395pp(d). The
list of sections under which providers may
exercise the rights of individuals does not
include sec. 1395gg. Section 1395pp demonstrates
that when Congress intended for providers to
exercise the rights of individuals, it created a
mechanism for them to do so. It also shows that
Congress did not intend for providers to exercise
the rights of individuals under 42 U.S.C. sec.
1395gg because the mechanism allowing for the
exercise of individual rights by providers does
not apply to that section. That this mechanism
does not apply to 42 U.S.C. sec. 1395gg is a
strong indication that Congress did not intend
for providers to exercise the rights granted to
individuals under that section./8
Conclusion
For the foregoing reasons, the judgment of the
district court is affirmed./9
Affirmed
/1 Challenges to the new reimbursement scheme as
unconstitutional have been rejected. See Vermont
Assembly of Home Health Agencies v. Shalala, 18
F. Supp. 2d 355 (D. Vt. 1998); Greater Dallas Home
Care Alliance v. United States, 10 F. Supp. 2d 638
(N.D. Tex. 1998). The Providers have not raised
such an argument here.
/2 The Secretary argued to the district court that
any relief should wait until the Secretary had
been given a chance to pursue regulatory
remedies:
VNA and VNHC have brought this action solely to
avoid repaying overpayments due and to recover
overpayments already returned arising out of
their 1998 Medicare cost reports. The final
settlement of those cost reports has not yet been
completed. Any challenges to those cost reports
should be done in accordance with the
administrative remedies provided by the Medicare
Act.
R.19 at 14.
/3 We thus have no occasion to consider whether the
Providers may be able to obtain waiver of their
overpayment liability through the regulations
promulgated by the Secretary. We also do not
address the central question faced by the Fifth
Circuit in Mount Sinai Hosp. of Greater Miami,
Inc. v. Weinberger, 517 F.2d 329 (5th Cir. 1975),
that sec. 1395gg did not abrogate the Secretary’s
common-law right to recoup overpaid funds from
providers. See id. at 345.
/4 This section is described elsewhere in the
statute as providing a mechanism for a waiver of
recoupment. See 42 U.S.C. sec. 1395 gg(d) ("No
certifying or disbursing officer shall be held
liable for any amount certified or paid by him to
any provider of services or other person where
the adjustment or recovery of such amount is
waived under subsection (c) of this section.")
(emphasis added). See also Zinman v. Shalala, 67
F.3d 841, 853 & n.1 (9th Cir. 1995) (describing
sec. 1395gg(c) as a waiver clause).
/5 Accord Mount Sinai, 517 F.2d at 340 (describing
sec. 1395gg(b) as permitting "a narrow category
of recovery from beneficiaries").
/6 In the alternative, it may apply when the
adjustment would be made by decreasing payments
to which another person who is without fault is
entitled. See 42 U.S.C. sec. 1395gg(c). The
Providers have not argued that this language is
applicable to their claim.
/7 Because this is not a challenge to a regulatory
scheme, 42 U.S.C. sec. 405(h) is not a bar to
federal question jurisdiction, as it was in
Shalala v. Illinois Council on Long Term Care,
Inc., 120 S. Ct. 1084 (2000). See also Chaves
County Home Health Serv., Inc., 931 F.2d 914
(D.C. Cir. 1991) (challenge to Medicare
regulatory scheme).
/8 The Second Circuit has noted the distinction
between the two different kinds of waiver
contemplated by sec. 1395gg and sec. 1395pp:
When there is a denial of coverage, there may be
no recovery or recoupment from an individual who
is "without fault" in accepting benefits later
denied. 42 U.S.C. sec. 1395gg. Providers may also
obtain a waiver of liability for coverage of
individual claims where they neither knew nor had
reason to know that services rendered constituted
noncovered care. 42 U.S.C. sec. 1395pp(a).
Kraemer v. Heckler, 737 F.2d 214, 216 (2d Cir.
1984).
/9 Because we hold that Congress created no rights
for providers under sec. 1395gg, we need not
address the issue of whether there was any
"fault" on the part of the Providers.