Arizona Health Care v. McClellan

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ARIZONA HEALTH CARE COST 
CONTAINMENT SYSTEM; ANTHONY D.
RODGERS, in his official capacity as
Director of the Arizona Health
Care Cost Containment System,
Plaintiffs-Appellees,
v.
MARK B. MCCLELLAN, in his
official capacity as administrator
of the Centers for Medicare and
Medicaid Services; MIKE LEAVITT, No. 05-16386
in his official capacity as
Secretary of the US Department of  D.C. No.
CV-03-02445-PGR
Health and Human Services; THE
CENTERS FOR MEDICARE AND OPINION
MEDICAID SERVICES; THOMAS A.
SCULLY, Administrator, in his
official capacity as administrator
of the Centers for Medicare and
Medicaid Services; DEPARTMENT OF
HEALTH & HUMAN SERVICES;
TOMMY G. THOMPSON, in his
official capacity as Secretary of
the US Department of Health and
Human Services,
Defendants-Appellants.

Appeal from the United States District Court
for the District of Arizona
Paul G. Rosenblatt, District Judge, Presiding
15641
15642 ARIZONA HEALTH CARE v. MCCLELLAN
Argued and Submitted
May 15, 2007—San Francisco, California
Filed December 3, 2007
Before: Diarmuid F. O’Scannlain and Sandra S. Ikuta,
Circuit Judges, and Leonard B. Sand,* Senior Judge.
Opinion by Judge Ikuta
*The Honorable Leonard B. Sand, Senior United States District Judge
for the Southern District of New York, sitting by designation.
ARIZONA HEALTH CARE v. MCCLELLAN 15645
COUNSEL
Jonathan H. Levy, Civil Division, U.S. Department of Justice,
Washington, D.C., for the defendants-appellants.
Charles A. Miller and Donald J. Ridings Jr., Covington &
Burling, Washington, D.C., for the plaintiffs-appellees.
OPINION
IKUTA, Circuit Judge:
This appeal requires us to resolve conflicting statutory
interpretations of § 402(e) of the Indian Health Care Improve-
ment Act, 42 U.S.C. § 1396d(b), which requires the federal
government to pay 100 percent of certain Medicaid costs for
services “which are received through an Indian Health Service
facility.”1 The Arizona Health Care Cost Containment System
1
42 U.S.C. § 1396d(b) states, in pertinent part:
Notwithstanding the first sentence of this section [explaining how
the “Federal medical assistance percentage,” the federal share of
Medicaid expenses, will be calculated for each state], the Federal
medical assistance percentage shall be 100 per centum with
respect to amounts expended as medical assistance for services
which are received through an Indian Health Service facility
whether operated by the Indian Health Service or by an Indian
tribe or tribal organization (as defined in section 1603 of Title
25).
15646 ARIZONA HEALTH CARE v. MCCLELLAN
(“Arizona”), the state entity that administers Arizona’s Med-
icaid program, interprets this language as requiring the federal
government to reimburse states for all health care services
provided to Medicaid-eligible Indians under referral agree-
ments between health care service providers and the Indian
Health Service (“IHS”). By contrast, the Health Care Financ-
ing Administration (“HCFA”),2 the federal entity that admin-
isters Medicaid, interprets this language as requiring the
federal government to reimburse states only for health care
services provided by “an IHS facility which offers, is respon-
sible for and bills Medicaid for the services provided.” The
district court held that Arizona’s interpretation was correct
and granted Arizona’s motion for summary judgment. We
have jurisdiction pursuant to 28 U.S.C. § 1291 and now
reverse.
I
As part of its unique government-to-government relation-
ship with American Indian Tribes and Alaska Native corpora-
tions, the federal government provides health care services to
roughly 1.9 million American Indian and Alaska Native peo-
ple. See 25 U.S.C. § 1601; Lincoln v. Vigil, 508 U.S. 182, 185
(1993); IHS Fact Sheet (2007), http://info.ihs.gov/Files/
IHSFacts-Jan2007.doc (last visited November 7, 2007). Since
1955, IHS, now a federal agency within the Department of
Health and Human Services (“HHS”), has been responsible
for providing these services. From its inception, IHS had
sought to accomplish its objectives primarily by building and
staffing its own facilities on or near Indian communities. Am.
Indian Policy Review Comm’n, Report on Indian Health 94,
105 (Comm. Print 1976). Geographical, logistical, and finan-
cial limitations made it impossible for IHS to provide the full
2
Although the Health Care Financing Administration (“HCFA”) was
renamed the Centers for Medicare & Medicaid Services, 66 Fed. Reg.
35,437 (July 5, 2001), we will use the term HCFA, which was the name
of the federal agency during the time period at issue here.
ARIZONA HEALTH CARE v. MCCLELLAN 15647
range of medical services in this manner, and IHS routinely
entered into different types of agreements with other health
services providers to fill in gaps in IHS services. Id. at 105.
In 1965, the Medicaid program was signed into law. Med-
icaid, a joint federal and state medical welfare program, pro-
vides for state Medicaid agencies to reimburse health care
providers for the cost of covered services delivered to Medic-
aid beneficiaries. 42 U.S.C. §§ 1396, 1396a. The federal gov-
ernment then reimburses the states for all or part of those
expenditures. 42 U.S.C. §§ 1396b, 1396d(b). The rate at
which the federal government reimburses the states for Med-
icaid expenditures, called the “federal medical assistance per-
centage,” or “FMAP,” typically ranges from 50 to 83 percent.
See 42 U.S.C. § 1396d(b). The federal government recalcu-
lates the FMAP reimbursement rate annually based on each
state’s per capita income. See id. §§ 1396d(b), 1301(a)(8)(B).
Although Medicaid-eligible Indians were entitled to use non-
IHS service providers to the same extent as other citizens of
a state, the degree to which Indians actually benefitted from
the newly established Medicaid programs is “unclear.” Report
on Indian Health, supra, at 85.
In 1976, Congress found that many IHS facilities were “in-
adequate, outdated, inefficient, and undermanned,” and
enacted the Indian Health Care Improvement Act (“IHCIA”)
to “implement the Federal responsibility for the care and edu-
cation of the Indian people by improving the services and
facilities of Federal Indian health programs and encouraging
maximum participation of Indians in such programs.” IHCIA,
Pub. L. No. 94-437, 90 Stat. 1400 (1976). Title IV of the
IHCIA contained numerous provisions aimed at upgrading the
overall quality of IHS facilities. See IHCIA §§ 401-03.
Relevant here, § 402(a) of the IHCIA amended the Social
Security Act to permit IHS facilities to obtain Medicaid reim-
bursement for services provided to Medicaid-eligible Indians.
See IHCIA § 402(a), 42 U.S.C. § 1396j. As a result, IHS facil-
15648 ARIZONA HEALTH CARE v. MCCLELLAN
ities could receive reimbursement from Medicaid as well as
funding through direct Congressional appropriations. Because
states previously did not provide Medicaid funding for IHS
health care services, this enactment would have imposed an
additional burden on states’ Medicaid programs. To avoid this
result, Congress amended § 1905(b) of the Social Security
Act, 42 U.S.C. § 1396d(b), by inserting the following lan-
guage:
Notwithstanding the first sentence of this section
[explaining how the “federal medical assistance per-
centage” will be calculated for each state], the Fed-
eral medical assistance percentage shall be 100 per
centum with respect to amounts expended as medical
assistance for services which are received through
an Indian Health Service facility.
IHCIA § 402(e), 42 U.S.C. § 1396d(b) (emphasis added).
Immediately after the enactment of the IHCIA, and for the
next twenty years, HCFA interpreted this language as requir-
ing a FMAP reimbursement rate of 100 percent for health care
services provided by IHS for Medicaid-eligible Indians, when
IHS billed Medicaid directly for those services. HCFA did not
allow a FMAP reimbursement rate of 100 percent for health
care services provided by non-IHS providers, even when IHS
had entered into referral agreements with those providers.
HCFA’s interpretation of § 402(e) corresponded to the dif-
ferent types of agreements IHS had used to supplement its
services. In some cases, an IHS facility would offer a health
care service to its Indian patients, and provide the service by
purchasing it from a contractor (a non-IHS health service pro-
vider). After the enactment of the IHCIA, IHS billed Medic-
aid directly for these services. IHS also entered into referral
agreements with non-IHS providers. Under these agreements,
the non-IHS provider agreed to furnish medical services at a
rate no higher than the prevailing Medicare allowable rates to
ARIZONA HEALTH CARE v. MCCLELLAN 15649
Medicaid-eligible Indians referred by IHS. Reimbursement
Rates for Health Care Services Authorized Under the Indian
Health Service Contract Health Service Regulations, 51 Fed.
Reg. 23,540 (June 30, 1986). IHS did not bill Medicaid for
such services. Before 1997, Arizona neither received nor
claimed a FMAP reimbursement rate of 100 percent for ser-
vices provided to Medicaid-eligible Indians under these refer-
ral agreements.
In 1997, HCFA issued a memorandum to an associate
regional administrator in HCFA Region IX3 in response to
Arizona’s question whether non-emergency transportation
provided to Indians was eligible for a FMAP reimbursement
rate of 100 percent. The HCFA memo stated:
[W]e do not agree that non-emergency transportation
is a service provided “through an IHS facility.” Our
position on this issue is that in order for IHS services
to qualify for 100% FMAP, the service must be: (1)
provided by IHS, or a contractual agent of an IHS or
tribal facility, (2) considered as a “facility service”;
that is, a service that would be within the proper
scope of services which can be claimed by that facil-
ity, and (3) claimed by the IHS facility as a service
of that facility. These services are referred to in regu-
lation at 42 CFR 440.10 (“Inpatient hospital ser-
vices”) and 42 CFR 440.20 (“Outpatient hospital
services and rural health facility services”)[.]
For most facilities, services are furnished within the
physical confines of the facility. Satellite facilities
owned or leased, and operated by IHS or tribal 638
programs, are also considered to be within the physi-
cal confines of an IHS/tribal facility.4 Referred ser-
3
Currently, Region IX includes Arizona, California, Hawaii, Nevada,
and the Territories of American Samoa, Guam and the Commonwealth of
the Northern Mariana Islands.
4
Facilities owned or operated by tribes or tribal organizations under
agreements with IHS are known as “638” facilities after the public law
15650 ARIZONA HEALTH CARE v. MCCLELLAN
vices, provided through a contractual arrangement,
can also be considered provided “through an IHS
facility” and reimbursed at the 100% FMAP rate as
long as these are services that could be provided as
a “facility service”, as referenced by regulation
above. Any other type of services, such as non-
emergency transportation, are not considered to be
“facility services”, and therefore should be reim-
bursed at the normal State/Federal match rate.
Memorandum from the Acting Dir., Medicaid Bureau, to the
Assoc. Reg’l Adm’r, Div. of Medicaid, Region IX (May 15,
1997) (emphasis added).
Arizona interpreted the memorandum’s statement that a
FMAP reimbursement rate of 100 percent applied to
“[r]eferred services, provided through a contractual arrange-
ment” as extending to all health care services provided under
referral agreements between IHS and non-IHS service provid-
ers. As a result of this interpretation, Arizona developed a
procedure for claiming a FMAP reimbursement rate of 100
percent for services that met five criteria: (1) the recipient was
a Medicaid-eligible Indian who had chosen IHS as his or her
health plan as of the date of the service; (2) the service was
provided by a non-IHS provider; (3) the service was furnished
pursuant to an agreement between an IHS facility and the
non-IHS provider at the time the service was provided; (4) the
service was a “facility service,” under 42 C.F.R. § 440.10 or
§ 440.20;5 and (5) the date of the service was on or after May
15, 1997, the date of the non-emergency transportation mem-
orandum.
number of the Indian Self-Determination and Education Assistance Act of
1975, Pub. L. No. 93-638, 88 Stat. 2203.
5
42 C.F.R. § 440.10 (defining “inpatient hospital services”) and 42
C.F.R. § 440.20 (defining “outpatient hospital services and rural health
clinic services”) identify services that are reimbursable through FMAP for
purposes of Medicaid. See 42 U.S.C. § 1396d(a); 42 C.F.R. § 440.1.
ARIZONA HEALTH CARE v. MCCLELLAN 15651
Arizona made its first claim under the new procedure for
the quarter ending March 31, 1999. As a result of its new pro-
cedure, Arizona claimed an additional $1,838 of federal reim-
bursement, which HCFA allowed without deferral or
investigation. However, in late 1999, HCFA began to defer
action on Arizona’s reimbursement claims, and ultimately dis-
allowed Arizona’s subsequent claims to the extent they
exceeded the normal FMAP reimbursement rate.
Arizona appealed HCFA’s disallowance of approximately
$36 million of Arizona’s claims. The Departmental Appeals
Board (“DAB”)6 upheld HCFA’s disallowance in a 2001
administrative decision. In this decision, the DAB held that
the meaning of “received through an Indian Health Service
facility” was ambiguous, because it could mean “by means
of” or “in.” Following its long-standing procedures for resolv-
ing disputes over ambiguous statutory language, the DAB
held:
(1) HCFA’s reasonable and long-standing interpreta-
tion of the costs eligible for 100% FMAP was lim-
ited to those ‘received through’ an IHS facility
which offers, is responsible for and bills Medicaid
for the services provided; (2) Arizona was notified of
and long operated consistently with this interpreta-
tion; (3) HCFA did not change this policy in its
memorandum of May 1997; (4) Arizona did not rea-
sonably rely on an alternative interpretation; and (5)
the costs disallowed here were not eligible for 100%
FMAP rate under HCFA’s interpretation.
6
The DAB is a separate adjudicatory department within HHS that pro-
vides independent review of disputed decisions for many HHS programs.
The DAB generally issues HHS’s final decision, which may then be
appealed to a federal court. Among its many functions, the DAB hears dis-
putes pertaining to HCFA’s (now CMS’s) disallowances of FMAP reim-
bursement. See 42 U.S.C. § 1316(d); 42 C.F.R. § 430.42(b).
15652 ARIZONA HEALTH CARE v. MCCLELLAN
Accordingly, the DAB upheld all the disallowances at issue.7
Arizona brought suit in the District of Arizona to challenge
the DAB’s decision. Ruling on cross-motions for summary
judgment and applying the framework of Chevron U.S.A., Inc.
v. Natural Resources Defense Council, Inc., 467 U.S. 837(1984), the district court ruled in favor of Arizona. Noting its
agreement with the only two federal courts that had then
addressed the issue, North Dakota ex rel. Olson v. Ctrs. for
Medicare & Medicaid Servs., 286 F. Supp. 2d 1080 (D.N.D.
2003), rev’d, 403 F.3d 537 (8th Cir. 2005), and Ellenbecker
v. Ctrs. for Medicare & Medicaid Servs., 335 F. Supp. 2d 999(D.S.D. 2003), rev’d, 403 F.3d 537 (8th Cir. 2005), the dis-
trict court reversed the DAB, concluding that “as a matter of
law . . . the language of [§ 402(e)] at issue is clear and unam-
biguous and . . . the phrase ‘received through’ is properly
interpreted as pertaining [to] services that are provided as a
result of a referral from an IHS facility by private health care
providers who bill the state Medicaid program for those ser-
vices.”8 The district court determined that HCFA’s interpreta-
tion (to which the DAB had deferred) was unreasonable.
Therefore, the district court granted Arizona’s motion for
summary judgment, which HCFA now appeals.
7
The DAB subsequently issued a second decision that incorporated the
first decision and upheld the remaining disallowance.
8
After the district court rendered its decision, the Eighth Circuit
reversed the decisions of the South Dakota and North Dakota district
courts. North Dakota ex rel. Olson v. CMS, 403 F.3d 537, 540 (8th Cir.
2005). The Eighth Circuit ruled that the language of § 402(e) was unclear,
but the legislative history “is clear and consistent” and established that
Congress’s use of “received through” rather than “provided in” did not
cover services provided by non-IHS providers under a referral agreement
such as those at issue in this appeal. Id. Therefore, the Eighth Circuit con-
cluded that a FMAP reimbursement rate of 100 percent did not apply to
services provided by non-IHS health care providers under a referral con-
tract with IHS. Id.
ARIZONA HEALTH CARE v. MCCLELLAN 15653
II
[1] We review the district court’s grant of Arizona’s motion
for summary judgment de novo. Balint v. Carson City, 180
F.3d 1047, 1050 (9th Cir. 1999). There is no dispute that the
DAB’s decision is the product of formal adjudication that
merits Chevron deference. See United States v. Mead Corp.,
533 U.S. 218, 226-27 (2001). Therefore, we follow a two-step
process in reviewing the DAB’s interpretation of federal law.
Chevron, 467 U.S. at 842-43. First, “if a court determines that
Congress has directly spoken to the precise question at issue,
then 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.” United States v. Haggar Apparel Co.,
526 U.S. 380, 392 (1999) (internal citations and quotations
omitted). Second, if “the agency’s statutory interpretation fills
a gap or defines a term in a way that is reasonable in light of
the legislature’s revealed design, we give [that] judgment con-
trolling weight.” Id. (internal citations and quotations omit-
ted).
A
We begin with the plain language of the statute. Gwaltney
of Smithfield, Ltd. v. Chesapeake Bay Found., Inc., 484 U.S.
49, 56 (1987). The district court focused on the meaning of
the word “through” in the phrase “services which are received
through an Indian Health Service facility,” in § 402(e). The
word “through” is not defined elsewhere in the statute or by
regulation. Accordingly, we consider whether there is an
unambiguous common sense meaning of the word that
resolves the question whether this phrase includes services
provided by non-IHS providers via a referral agreement with
IHS, as Arizona would have it, or is limited to services “pro-
vided by a particular IHS facility within its scope of services”
and billed by that facility to Medicaid, as the DAB held. See
Wilderness Soc’y v. U.S. Fish & Wildlife Serv., 353 F.3d
1051, 1061 (9th Cir. 2003) (en banc) (when no statutory or
15654 ARIZONA HEALTH CARE v. MCCLELLAN
regulatory provision defines the meaning of a term, we con-
sider the common sense meaning of the words, including
review of dictionaries), amended by 360 F.3d 1374 (9th Cir.
2004) (en banc).
[2] After referring to dictionaries that were current when
Congress was drafting this legislation, we are unable to
resolve this ambiguity. As noted by the DAB, the phrase
“through” can mean “by means of” and “by the help or
agency of,” Webster’s Third New International Dictionary
2384 (1971), which supports Arizona’s interpretation, as well
as “in” and “within,” which supports HCFA’s interpretation.
Black’s Law Dictionary 1652 (4th ed. 1968).9
In construing specific words in a statute, we must also look
to the “language and design of the statute as a whole,” K Mart
Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988), and read the
specific words “with a view to their place in the overall statu-
tory scheme.” Wilderness Soc’y, 353 F.3d at 1060 (quoting
Davis v. Michigan Dep’t of Treasury, 489 U.S. 803, 809
(1989)). Arizona argues that because Congress used the
phrases “provided in” or “offered by” in various Medicaid
provisions, it intended the phrase “received through” in
§ 402(e) to mean something different. For example, the
IHCIA provides that states must be reimbursed under Medic-
aid for “services provided in [Indian Health] Service facili-
ties,” IHCIA § 402(a), (b). In addition, various subsections
within 42 U.S.C. § 1396d restrict Medicaid coverage to ser-
vices that are provided “by” or “in” a facility. See, e.g., id.
§ 1396d(a)(13) (“medical assistance” includes physician-
recommended medical services “provided in a facility”);
§ 1396d(a)(2) (medical assistance includes ambulatory ser-
vices “offered by a rural health clinic”); § 1396d(t)(4) (cover-
ing laboratory services “customarily provided by or through,
9
Black’s Law Dictionary is one source this court has used to determine
the “common sense meaning” of statutory language. See, e.g., Wilderness
Soc’y, 353 F.3d at 1061.
ARIZONA HEALTH CARE v. MCCLELLAN 15655
a general practitioner, family medicine physician, internal
medicine physician, obstetrician/gynecologist, or pediatri-
cian”). Because a court must presume that Congress intended
a different meaning when it uses different words in connec-
tion with the same subject, see SEC v. McCarthy, 322 F.3d
650, 656 (9th Cir. 2003), Arizona contends it is clear that
Congress did not intend to limit the FMAP reimbursement
rate of 100 percent to services provided in or offered by an
IHS facility.
[3] We agree that Congress has used a variety of expres-
sions to describe the relationship between Medicaid-covered
medical services and the service provider, and has variously
limited Medicaid coverage to services provided in, by, or
through a particular type of provider. However, this conclu-
sion does not explain what Congress meant by the language
in § 402(e), providing a FMAP reimbursement rate of 100
percent for services “received through an IHS facility.” Even
if we agreed that Congress did not intend the FMAP reim-
bursement rate of 100 percent to be limited to services
received by patients within the boundaries of an IHS facility,
we note that HCFA does not interpret § 402(e) as imposing
this limitation. Rather, HCFA interpreted the FMAP reim-
bursement rate of 100 percent as applying to services pro-
vided by certain non-IHS contractors so long as the services
are billed through the IHS facility. Despite Arizona’s efforts
to distinguish “received through” from other similar expres-
sions, Congress’s use of the phrase “received through” does
not answer the question whether the FMAP reimbursement
rate of 100 percent applies to services provided by a non-IHS
health services provider under a referral agreement with an
IHS facility. To this extent, we agree with the Eighth Circuit,
that “even if ‘received through’ has a broader connotation
than ‘provided in,’ the statute does not specify how far
‘received through’ should extend. Thus the statutory language
is susceptible to multiple interpretations and does little to
resolve the present controversy.” North Dakota ex rel. Olson
15656 ARIZONA HEALTH CARE v. MCCLELLAN
v. Ctrs. for Medicare & Medicaid Servs., 403 F.3d 537, 540
(8th Cir. 2005).
[4] Moreover, reading “received through an IHS facility” in
the context of the IHCIA as a whole weighs in favor of
HCFA’s more limited interpretation. HCFA argues that Con-
gress linked the FMAP reimbursement rate of 100 percent to
IHS facilities and their services, rather than to other health
service providers. In other words, the purpose of Title IV of
the IHCIA was to benefit IHS facilities by enabling them to
receive Medicaid reimbursement, which must be placed in a
special fund and used “exclusively for the purpose of making
any improvements in the facilities of such Service which may
be necessary to achieve compliance with the applicable condi-
tions and requirements of [Title XIX of the Social Security
Act].” See IHCIA § 402(c), 25 U.S.C. § 1642(a). Therefore,
the statutory structure better supports interpreting “received
through an IHS facility” to ensure that the FMAP reimburse-
ment benefits the IHS facility. Interpreting § 402(e) as apply-
ing the FMAP reimbursement rate of 100 percent only to
services paid for (and billed to Medicaid by) IHS furthers this
goal better than the more expansive Arizona interpretation.10
B
At the next step in the Chevron analysis, the parties argue
that any ambiguity in § 402(e) is clarified by legislative his-
tory. See United States v. Daas, 198 F.3d 1167, 1174 (9th Cir.
10
HCFA also argues that Alaska Department of Health & Social Ser-
vices v. Centers for Medicare & Medicaid Services, 424 F.3d 931 (9th Cir.
2005), defined the word “through” when it characterized the FMAP reim-
bursement rate of 100 percent as applying to “state expenditures on behalf
of eligible Native Americans at IHS facilities.” Id. at 935 n.1 (emphasis
added). However, this footnote merely provides background about the
funding of IHS facilities, and does not purport to address the scope of
§ 402(e). When “a statement is made casually and without analysis,” it
does not constitute a precedential decision of this court on an undecided
issue. United States v. Johnson, 256 F.3d 895, 915 (9th Cir. 2001).
ARIZONA HEALTH CARE v. MCCLELLAN 15657
1999). We disagree, and part company with the Eighth Circuit
in its conclusion to that effect. HCFA argues, and the Eighth
Circuit held, that Congress intended § 402(e)’s FMAP reim-
bursement rate of 100 percent to apply only to services pro-
vided “in” a facility, because various congressional committee
reports described that rate as being limited to services pro-
vided “in” IHS facilities. See H.R. Rep. No. 94-1026, pt. I, at
108, reprinted in 1976 U.S.C.C.A.N. 2652, 2746 (FMAP
reimbursement rate of 100 percent “for services provided to
any Indian in an IHS facility”); id., pt. III, at 7, reprinted in
1976 U.S.C.C.A.N. 2652, 2782 (“services provided to Indians
in IHS facilities”); id., pt. III, at 21, reprinted in 1976
U.S.C.C.A.N. 2652, 2796 (“Indians receiving services in IHS
facilities”). However, the change in terminology from com-
mittee reports to Congressional enactment equally supports
the opposite conclusion, namely, that in enacting § 402(e),
Congress decided not to use the narrower phrase “provided
in.” Instead, Congress opted for a broader scope of reimburse-
ment when it chose to use the phrase “received through,” the
words that actually appear in the statute.
Arizona relies on legislative history and the structure of the
IHCIA to argue that Congress intended the FMAP reimburse-
ment rate of 100 percent to apply to all referred services. Title
V of the IHCIA specifically addresses the health care needs
of urban Indians, who do not live on reservations and do not
necessarily rely on the IHS system for health care. See IHCIA
§§ 501-08, 25 U.S.C. §§ 1651-58. Arizona points to commit-
tee report language indicating that Congress intended Title IV
of the IHCIA (which includes the statutory language at issue)
to focus on the plight of Indians who do live on or near reser-
vations, and primarily rely on the IHS system for health care.
See, e.g., H.R. Rep. No. 94-1026, pt. I, at 16-18, 107, 114,
reprinted in 1976 U.S.C.C.A.N. 2652, 2655-57, 2745, 2752.
Arizona argues that because improving the health status of
reservation Indians was the principal concern of Title IV,
Congress intended the FMAP reimbursement rate of 100 per-
cent to apply to all services provided in the IHS system,
15658 ARIZONA HEALTH CARE v. MCCLELLAN
including all referred services. By contrast, health services
outside of the IHS system, such as those used by some urban
Indians, would not be subject to the FMAP reimbursement
rate of 100 percent. According to Arizona, “Congress’s deci-
sion . . . thus reflected a well understood distinction between
these two groups of Native Americans at the time the IHCIA
was enacted.”
We are not persuaded. First, the statutory sections within
Title IV do not distinguish between urban Indians and reser-
vation Indians. Also, the legislative history does not establish
that Congress sought to assist reservation Indians by ensuring
a FMAP reimbursement rate of 100 percent for the broadest
possible range of IHS health care services, such as those res-
ervation Indians receive from a non-IHS health care provider
with a referral agreement. Finally, the higher FMAP reim-
bursement rate does not assist Indians, whether living on res-
ervations or in cities; rather, it merely adjusts the financial
responsibility for health care between the state and federal
fiscs. Neither the distinction between reservation and urban
Indians, nor Arizona’s purported principal purpose of Title IV
resolves the ambiguity in § 402(e).
The parties also reach opposite conclusions based on lan-
guage in a House Report indicating that the “Committee [on
Interior and Insular Affairs] took the view that it would be
unfair and inequitable to burden a State Medicaid program
with costs which normally would have been borne by [IHS].”
H.R. Rep. No. 94-1026, pt. I, at 108, reprinted in 1976
U.S.C.C.A.N. 2652, 2746. The House Report suggests that
Congress included § 402(e) in order to eliminate such a bur-
den.
Both parties draw support from this legislative language.
HCFA argues that in light of the payor of last resort rule,
which has been in place since 1956,11 the Medicaid program
11
See 55 Fed. Reg. 4606, 4608 (Feb. 9, 1990). The rule is currently
located at 42 C.F.R. § 136.61. Under the “payor of last resort” rule, IHS
does not pay if there is another source of health care funds available such
as Medicaid. 42 C.F.R. § 136.61.
ARIZONA HEALTH CARE v. MCCLELLAN 15659
would have been responsible for the costs of services pro-
vided by non-IHS providers to any Medicaid-eligible Indians.
Because the standard FMAP reimbursement rate would have
applied to such costs before Congress enacted the IHCIA,
HCFA argues that its interpretation of § 402(e) does not shift
any costs previously borne by IHS to state governments.12
Arizona, on the other hand, argues that as a practical mat-
ter, IHS generally paid for services provided by non-IHS pro-
viders under its various agreements with IHS. The same
House Report mentions the Senate Finance Committee’s
acknowledgment that “with respect to matters relating to Indi-
ans, the Federal Government has traditionally assumed major
responsibility.” H.R. Rep. No. 94-1026, pt. I, at 108, reprinted
in 1976 U.S.C.C.A.N. 2652, 2746; see also id., pt. I, at 14,
reprinted in 1976 U.S.C.C.A.N. 2652, 2653-54. Arizona also
relies on language indicating that many otherwise-eligible
Indians did not enroll or participate in Medicaid because of
geographical constraints and reliance on IHS health care, id.,
pt. I, at 107, reprinted in 1976 U.S.C.C.A.N. 2652, 2745, but
the report states that predicting this number would be “nearly
impossible.” Id., pt. I., at 26, reprinted in 1976 U.S.C.C.A.N.
2652, 2665-66.
[5] Based on our review of the record, neither party has
established whether the state or IHS paid for services pro-
vided by non-IHS service providers under referral agreements
before Congress passed the IHCIA. Nor does the legislative
history suggest that in 1976, Congress knew that IHS had this
burden, and thus intended for a FMAP reimbursement rate of
100 percent to apply to such expenditures. In the absence of
12
Arizona argues that HCFA’s burden-shifting argument is not applica-
ble to Arizona because it was the only state not a member of the Medicaid
program in 1976 when the IHCIA was enacted. However, for purposes of
interpreting the meaning of a generally applicable federal statute, Arizo-
na’s specific status under Medicaid is irrelevant.
15660 ARIZONA HEALTH CARE v. MCCLELLAN
such evidence, the legislative history is of no assistance in
clarifying the meaning of § 402(e).13
C
[6] Because the statutory language is ambiguous, and is not
clarified by the usual interpretive aids, we must turn to the
DAB’s interpretation of § 402(e) and determine whether it is
based on a “permissible construction of the statute.” Chevron,
467 U.S. at 843. If a statute’s language can reasonably be con-
strued in more than one way, a court “may not substitute its
own construction” of the statute “for a reasonable interpreta-
tion made by” the agency that Congress has entrusted to
implement the legislation. United Food & Commercial Work-
ers Union v. NLRB, Local 1036, 307 F.3d 760, 767 (9th Cir.
2002) (en banc) (quoting Chevron, 467 U.S. at 844). An agen-
cy’s interpretation of a statute is permissible unless it is “arbi-
trary, capricious, or manifestly contrary to the statute.”
Chevron, 467 U.S. at 844.
[7] Here, the DAB interpreted “received through” in
§ 402(e) by deferring to HCFA’s long-standing interpretation
that the costs eligible for a FMAP reimbursement rate of 100
percent were “limited to those ‘received through’ an IHS
facility which offers, is responsible for and bills Medicaid for
the services provided.” This interpretation is not “manifestly
13
Arizona also asks us to consider a bill introduced in 1973 but never
enacted, which provided that states were entitled to a FMAP reimburse-
ment rate of 100 percent for medical costs of individuals “who . . . resided
on or adjacent to a Federal Indian reservation.” H.R. 3153, 93d Cong.
§ 174(a), 119 Cong. Rec. 38350, 38367 (1973). Arizona argues that Con-
gress intended the “received through” language in § 402(e) to mean the
same thing as “on or adjacent to.” The Supreme Court has considered pre-
decessor bills when the operative language of the original bill was carried
forward into the enacted legislation and the legislative history of the
enacted legislation referred to the older bill. See United States v. Enmons,
410 U.S. 396, 405 n.14 (1973). In this case, however, the enacted legisla-
tion makes no reference to the 1973 bill, which thus is irrelevant.
ARIZONA HEALTH CARE v. MCCLELLAN 15661
contrary” to § 402(e), Chevron, 467 U.S. at 844, but rather is
consistent with the statutory language. Under the DAB’s
interpretation, the FMAP reimbursement rate of 100 percent
is not limited to costs incurred solely within the boundaries of
an IHS facility, but would cover the costs for some services
received at a non-IHS facility, in those cases where IHS has
taken responsibility for providing that service to its Indian
patient and actually bills Medicaid for that service. This inter-
pretation is consistent with and gives effect to the statutory
language used by Congress. Moreover, HCFA adopted this
interpretation contemporaneously with the enactment of the
IHCIA, and has adhered to it for over 20 years. We should
“normally accord particular deference to an agency interpreta-
tion of ‘longstanding’ duration.” Barnhart v. Walton, 535
U.S. 212, 220 (2002). Because the DAB’s interpretation of
§ 402(e) is not arbitrary, capricious, or manifestly contrary to
the statute, we must defer to it.
Arizona argues that the DAB’s interpretation is unreason-
able both because it conflicts with HCFA’s 1997 memoran-
dum and because it is bad policy. HCFA argues that its 1997
memorandum is consistent with its long-standing interpreta-
tion of § 402(e) and is good policy. We need not resolve this
dispute, because “[i]nterpretations such as those in opinion
letters — like interpretations contained in policy statements,
agency manuals, and enforcement guidelines, all of which
lack the force of law — do not warrant Chevron-style defer-
ence.” Christensen v. Harris County, 529 U.S. 576, 587
(2000); see also City of Los Angeles v. U.S. Dep’t of Com-
merce, 307 F.3d 859, 874 (9th Cir. 2002). Nor should we
make policy decisions for the agency:
When a challenge to an agency construction of a
statutory provision, fairly conceptualized, really cen-
ters on the wisdom of the agency’s policy, rather
than whether it is a reasonable choice within a gap
left open by Congress, the challenge must fail. In
such a case, federal judges — who have no constitu-
15662 ARIZONA HEALTH CARE v. MCCLELLAN
ency — have a duty to respect legitimate policy
choices made by those who do.
Chevron, 467 U.S. at 866.
III
The DAB’s interpretation of § 402(e) is a permissible con-
struction of an ambiguous statute. We therefore defer to the
DAB’s interpretation that the costs eligible for a FMAP reim-
bursement rate of 100 percent are “limited to those ‘received
through’ an IHS facility which offers, is responsible for and
bills Medicaid for the services provided.” The district court
erred in interpreting the phrase “received through” to mean
“pertaining [to] services that are provided as a result of a
referral from an IHS facility by private health care providers
who bill the state Medicaid program for those services.” We
therefore reverse the district court’s grant of Arizona’s motion
for summary judgment, and remand for proceedings consis-
tent with this ruling.
REVERSED and REMANDED.