Mercy Hospital, Inc. v. Alex M. Azar II

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 24, 2017 Decided June 8, 2018
No. 16-5267
MERCY HOSPITAL, INC.,
APPELLANT
v.
ALEX M. AZAR II, SECRETARY, UNITED STATES DEPARTMENT
OF HEALTH AND HUMAN SERVICES,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:15-cv-01236)
Stephanie A. Webster argued the cause for appellant. With
her on the briefs was Christopher L. Keough. James H.
Richards entered an appearance.
Abby C. Wright, Attorney, U.S. Department of Justice,
argued the cause for appellee. With her on the brief was
Michael S. Raab, Attorney.
Before: TATEL, GRIFFITH and MILLETT, Circuit Judges.
Opinion for the Court filed by Circuit Judge GRIFFITH.
2
GRIFFITH, Circuit Judge: The Centers for Medicare and
Medicaid Services (CMS), a division of the Department of
Health and Human Services (HHS), administers Medicare
reimbursements to eligible hospitals that provide inpatient
rehabilitation services. The Administrator of CMS declined to
hear Mercy Hospital’s challenge to its reimbursement rate for
fiscal years 2002 through 2004 because he interpreted a
statutory provision that precluded administrative and judicial
review of the reimbursement rate to also preclude review of the
underlying formula that helped determine that rate. Mercy
Hospital appealed his decision to the district court, which
agreed with the Administrator and dismissed the challenge for
lack of subject-matter jurisdiction. We agree with the district
court.
I
A
In 42 U.S.C. § 1395ww(j), Congress directs CMS to set
rates for Medicare reimbursements for inpatient rehabilitation
services in two steps. The first step takes place before the
beginning of the fiscal year, when CMS generates a
standardized reimbursement rate for each discharged patient,
called a payment unit, based on the average estimated costs of
operating inpatient facilities and treating patients for the
upcoming year. The second step takes place after the fiscal year
ends, when CMS adjusts the standardized rates to reflect the
particular circumstances of each hospital for that year.
Typically, CMS hires independent contractors (the “Medicare
Contractors”) to calculate each hospital’s final payment from
the standardized rates established at step one and subsequent
adjustments made at step two.
3
Paragraph (3) of subsection (j) sets forth five adjustments
(the “statutory adjustments”) that CMS applies in step two to
calculate each hospital’s particular reimbursement. 1 Each of
the first four of these adjustments is described elsewhere in
subsection (j). 2 The last adjustment we call a “residual” clause,
which allows CMS to create any additional adjustments
“necessary to properly reflect variations in necessary costs of
treatment among rehabilitation facilities.”
§ 1395ww(j)(3)(A)(v). Alone among the statutory adjustments,
the meaning of the residual clause is not set forth in the text of
the statute but in rules of CMS’s own making. Id.
CMS invoked the residual clause in 2001 to create a low-
income percentage (LIP) adjustment, which increases hospital
payments based on the number of low-income patients served
during the preceding fiscal year. 42 C.F.R. § 412.624(e)(2);
Prospective Payment System, 66 Fed. Reg. 41,315, 41,360
(Aug. 7, 2001). In 2004, CMS changed how to determine which
patients should be included in a particular variable that is used
in the LIP formula. Changes to the Hospital Inpatient
Prospective Payment Systems, 68 Fed. Reg. 48,916, 49,099
(Aug. 11, 2004). As a result, some hospitals would receive a
1
The adjustments are: (i) the “increase factor” adjustment,
which reflects price increases in the relevant market; (ii) the “outlier”
adjustment, which qualifies a hospital for additional payments for
patients with uncommonly high expenses; (iii) the “area wage”
adjustment, which reflects the cost of labor in the hospital’s area; (iv)
the “case mix” adjustment, which accounts for the types of patients
the hospital treated; and (v) the “residual” clause authorizing CMS
to create additional adjustments. See § 1395ww(j)(3)(A)(i)-(v).
2
For example, § 1395ww(j)(4)(A)(i) defines the outlier
adjustment as a payment “based upon the patient being classified as
an outlier based on an usual length of stay, costs, or other factors.”
Clause (j)(3)(A)(ii) then directs CMS to make that adjustment when
determining the step-two rate.
4
lower LIP payment than before. In Northeast Hospital Corp. v.
Sebelius, 657 F.3d 1 (D.C. Cir. 2011), we reviewed a different
Medicare rate and held that CMS could use the 2004 version of
that variable only for fiscal years 2005 and forward. Id. at 18.
B
Appellant Mercy Hospital operates an inpatient
rehabilitation facility that is eligible for Medicare
reimbursements. For fiscal years 2002 through 2004, the
Medicare Contractor used the amended LIP formula to adjust
Mercy Hospital’s step-one reimbursement rate. Mercy Hospital
appealed this adjustment to the Provider Reimbursement
Review Board (the “Board”), which is the CMS oversight panel
for hospital reimbursements, 42 U.S.C. § 1395oo(a)(1)(A)(i),
arguing that our decision in Northeast Hospital precluded use
of the 2004 formula for years before 2005. Mercy Hosp. v. First
Coast Serv. Options, Inc., P.R.R.B. Dec. No. 2015-D7, 2015
WL 10381780 (Apr. 3, 2015).
The Medicare Contractor argued that the Board had no
jurisdiction to consider the hospital’s challenge because
§ 1395ww(j)(8)(B) bars administrative and judicial review of
“prospective payment rates.” Id. at *2. The Medicare
Contractor explained that “prospective payment rates” means
reimbursement rates calculated at step two, and that by
precluding their review, (8)(B) necessarily bars review of how
the LIP adjustments are calculated. Id. On April 3, 2015, the
Board rejected that challenge to its jurisdiction and ordered that
the Medicare Contractor recalculate Mercy Hospital’s
reimbursement using the original, pre-2004 LIP formula. Id. at
*7.
On June 1, 2015, the Administrator of CMS in his role as
the highest administrative review authority reversed the
5
Board’s finding of jurisdiction and adopted the Medicare
Contractor’s interpretation of “prospective payment rates” that
barred review of step-two rates and the LIP formula. Mercy
Hosp. v. First Coast Serv. Options, Inc., Review of P.R.R.B.
Dec. No. 2015-D7, 2015 WL 3760091, at *11 (June 1, 2015).
Mercy Hospital brought suit in the district court challenging the
Administrator’s decision. The district court agreed with the
Administrator’s interpretation of the statute and dismissed the
suit for lack of subject-matter jurisdiction. Mercy Hosp., Inc. v.
Burwell, 206 F. Supp. 3d 93, 102-03 (D.D.C. 2016). We affirm.
II
The district court had jurisdiction to review the
Administrator’s decision under 42 U.S.C. § 1395oo(f)(1), and
we review the district court’s decision under 28 U.S.C. § 1291.
We review de novo the district court’s dismissal for lack of
subject-matter jurisdiction. Council for Urological Interests v.
Sebelius, 668 F.3d 704, 707 (D.C. Cir. 2011). We presume that
we have the power to review agency action unless there is clear
and convincing evidence that Congress directed otherwise.
Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2140
(2016); see also, e.g., Knapp Med. Ctr. v. Hargan, 875 F.3d
1125, 1128 (D.C. Cir. 2017) (applying the presumption in favor
of review when considering whether a statutory provision
barred the panel from reviewing a hospital’s challenge to a
CMS decision); Tex. Alliance for Home Care Servs. v.
Sebelius, 681 F.3d 402, 408 (D.C. Cir. 2012) (same). But this
presumption, “like all presumptions used in interpreting
statutes, may be overcome by specific [statutory] language.”
Block v. Cmty. Nutrition Inst., 467 U.S. 340, 349 (1984).
6
III
Paragraph (8) expressly shields from administrative and
judicial review “prospective payment rates” and most of the
statutory adjustments used to calculate them. HHS reads
“prospective payment rates” to mean the step-two rates
calculated by adjusting the step-one rates. Mercy Hospital
reads “prospective payment rates” to mean the unadjusted rates
set at step one.
We begin with the text of the preclusion paragraph:
There shall be no administrative or judicial review . . . of
the establishment of—
(A) case mix groups, of the methodology for the
classification of patients within such groups, and of the
appropriate weighting factors thereof under
paragraph (2),
(B) the prospective payment rates under paragraph (3),
(C) outlier and special payments under paragraph (4),
and
(D) area wage adjustments under paragraph (6).
§ 1395ww(j)(8) (emphasis added).
Subparagraph (8)(B) directs us to paragraph (3), which
describes the “prospective payment rate”:
The Secretary shall determine a prospective payment rate
for each payment unit for which such rehabilitation facility
is entitled to receive payment under this subchapter.
Subject to subparagraph [(3)](B), such rate for payment
units occurring during a fiscal year shall be based on the
average payment per payment unit under this subchapter
for inpatient operating and capital costs of rehabilitation
7
facilities using the most recent data available (as estimated
by the Secretary as of the date of establishment of the
system) adjusted [by the statutory adjustments].
§ 1395ww(j)(3)(A).
We think a careful read of the provision makes plain what
“prospective payment rate” means. Paragraph (3) boils down
to the following: “The Secretary shall determine a prospective
payment rate . . . based on the average payment . . . [as]
adjusted . . . .” The prospective payment rate is only based on,
not equal to, the average payment; it is the average payment
that is adjusted to produce the prospective payment rate. As the
district court explained, “there is simply no doubt that Congress
used the term ‘prospective payment rate’ here in paragraph (3)
to mean the ultimate payment rate, after the adjustments are
factored in.” Mercy Hosp., 206 F. Supp. 3d at 98. We conclude
that the statute defines “prospective payment rate” as the step-
two, not the step-one, rate.
If the bar on reviewing the prospective payment rate
protects the rate determined at step two, that bar must also
include the adjustments used to calculate that rate. We
considered how far a bar on review extends in Florida Health
Sciences Center, Inc. v. HHS, 830 F.3d 515 (D.C. Cir. 2016).
In that case, a hospital challenged the data HHS used to
calculate its reimbursement for treating low-income patients
who could not pay their own medical bills. Id. at 518. Although
the hospital agreed that the statute barred review of the
agency’s final estimate of the reimbursement owed, it asserted
that the bar did not extend to the underlying data the agency
used to reach that estimate. Id. at 519. We rejected the
hospital’s argument and found that the estimate was
“inextricably intertwined” with the underlying data because a
court could not find fault with the data without also finding
8
fault with the final estimate, which relied on the data. Id. We
held that bars to review extend far enough to prevent indirect
challenges to agency decisions that Congress expressly
shielded from review. Id. (“[W]e [are] concerned with the close
connection between the element being challenged and the
decision that could not be challenged in court.” (citing Tex.
Alliance, 681 F.3d at 409-11)).
As both a textual and a practical matter, the LIP adjustment
is inextricably intertwined with the step-two rate, and so the
shield that protects the step-two rate from review protects the
LIP adjustment as well. The language of the statute ties
together the prospective payment rate and the statutory
adjustments. Paragraph (8) incorporates the prospective
payment rate by citing paragraph (3), which is also the
paragraph that directs the agency to apply each statutory
adjustment. See § 1395ww(j)(8)(B) (“the prospective payment
rates under paragraph (3)”). By citing paragraph (3), the statute
indicates that the step-two, final rate is integrated with the
statutory adjustments.
And realistically, a court cannot review any of those
adjustments without also reviewing the step-two rate. A flawed
LIP formula would mean that a step-two rate incorporating that
formula must be incorrect because that rate depends in part on
the flawed formula. A hospital that asks for review of the LIP
adjustment used to calculate its reimbursement would be
asking the court to remand the step-two rate to be recalculated
with a different LIP formula. But remanding the step-two rate
would require the court to first find that incorporating a flawed
LIP formula made the step-two rate improper. This is the same
determination that, if a hospital directly challenged its step-two
rate for relying on an improper LIP formula, would be clearly
barred by paragraph (8). Designing a pleading so that it
circumvents a statutory bar to review will not override
9
Congress’s decision to deny jurisdiction. See Palisades Gen.
Hosp. Inc. v. Leavitt, 426 F.3d 400, 405 (D.C. Cir. 2005).
Because reviewing a formula used by the prospective payment
rate would effectively review the rate itself, we cannot review
the former if we cannot review the latter.
Although the plain text of the preclusion and payment rate
provisions define “prospective payment rates” as step-two
rates, Mercy Hospital argues that neighboring provisions not
invoked by the preclusion paragraph suggest a different
meaning. Mercy Hospital’s strongest example describes the
area wage adjustment: “The Secretary shall adjust the
proportion . . . of rehabilitation facilities’ costs which are
attributable to wages and wage-related costs, of the prospective
payment rates computed under paragraph (3) for area
differences . . . .” § 1395ww(j)(6). 3 According to Mercy
Hospital, this is an instruction to adjust the prospective
payment rate by area wage differences. Because the area wage
adjustment is one of the statutory adjustments listed in
paragraph (3), Mercy Hospital thinks the prospective payment
rate must be the step-one rate, which is subject to adjustments,
instead of the step-two rate, which cannot be adjusted further.
3
The first full sentence of § 1395ww(j)(6), without the
omissions we made for clarity, is:
The Secretary shall adjust the proportion (as estimated by the
Secretary from time to time) of rehabilitation facilities’ costs
which are attributable to wages and wage-related costs, of the
prospective payment rates computed under paragraph (3) for
area differences in wage levels by a factor (established by the
Secretary) reflecting the relative hospital wage level in the
geographic area of the rehabilitation facility compared to the
national average wage level for such facilities.
10
Although an instruction to adjust the prospective payment
rate might suggest that the rate is the unadjusted, step-one rate,
it is not the prospective payment rate that is adjusted for area
wages. Instead, the “Secretary shall adjust the proportion.”
§ 1395ww(j)(6) (emphasis added). Despite nonstandard
punctuation obscuring on which side of that proportion the
prospective payment rate belongs, the sentence structure makes
clear that the area wage adjustment applies to only the
proportion and not the variables related by that proportion. By
contrast, Mercy Hospital’s reading that the “Secretary shall
adjust the . . . prospective payment rates” by that proportion
switches the placement of “rates” and “proportion” and inverts
the natural reading of the provision. Id. We are sure that the
area wage does not affect the prospective payment rate, and so
we remain confident in the meaning supplied by paragraph (3).
Mercy Hospital next urges us to apply the canon against
surplusage, which “cautions against interpreting one provision
in a way that renders another redundant.” Fla. Health, 830 F.3d
at 520. We presume that Congress did not “include words that
have no effect,” and so we generally “avoid a reading that
renders some words altogether redundant.” Antonin Scalia &
Bryan A. Garner, Reading Law: The Interpretation of Legal
Texts 176-77 (2012). Although choosing the reading that
reduces redundancies is a helpful rule when interpreting
ambiguous text, it does not apply when the text’s meaning is
plain. See Lamie v. U.S. Tr., 540 U.S. 526, 536 (2004). We find
redundancies that are subtle or pitted against otherwise plain
meanings to be feeble interpretative clues.
Both weaknesses appear in the surplusage that Mercy
Hospital proposes is fatal to our interpretation that prospective
payment rates are step-two rates. Mercy Hospital contends that
Congress carefully selected the adjustments shielded from
review. Paragraph (8) expressly elects certain adjustments for
11
protection, so Mercy Hospital reasons that it would be
redundant to also list the step-two rate that incorporates those
adjustments. See § 1395ww(j)(3)(A). The surplusage canon,
Mercy Hospital concludes, directs us to avoid that
interpretation because it would in practical effect erase the
clauses that shield the three statutory adjustments from review.
See § 1395ww(j)(8)(A), (C)-(D).
We agree that reading “prospective payment rates” to
mean step-two rates means accepting some redundancy, but we
see no cause for alarm. A little overlap, either by accident or
design, is to be expected in any complex statutory scheme with
interdependent provisions. See Adirondack Med. Ctr. v.
Sebelius, 740 F.3d 692, 699 (D.C. Cir. 2014). The overlap may
very well exist to make “double sure” that the statutory
adjustments remain above the fray of litigation. Fla. Health,
830 F.3d at 520 (quoting Shook v. D.C. Fin. Responsibility &
Mgmt. Assistance Auth., 132 F.3d 775, 782 (D.C. Cir. 1998)).
After all, courts apply a high level of scrutiny when
determining whether a statute precludes review of an agency’s
decision. See supra Part II. Judging from the many recent cases
involving challenges to CMS decisions covered by similar bars
to review, Congress had good reason to worry that challengers
might test the strength of provisions that preclude review of
Medicare-related decisions. See, e.g., Knapp Med. Ctr., 875
F.3d 1125; Fla. Health, 830 F.3d 515; Tex. Alliance, 661 F.3d
402.
Mercy Hospital contends the preclusion paragraph’s
incomplete coverage of the statutory adjustments undermines
the “double sure” theory. Three clauses in the preclusion
12
paragraph cite different statutory adjustments, 4 but two
statutory adjustments are absent from the list: the increase
factor and the residual clause. Under the step-two reading of
“prospective payment rates,” the LIP adjustment has only one
layer of protection while the enumerated adjustments like area
wage have two layers. The sloppy edges of the overlapping
provisions suggest to Mercy Hospital that Congress did not
intend them.
That paragraph (8) does not build a redundant bar to
review for each statutory adjustment is inconsequential
because we do not rely on the precision of a “double sure”
design to dismiss Mercy Hospital’s surplusage theory. Even if
the preclusion paragraph expressly covered each statutory
adjustment, still looming would be the inconsistent language
between the preclusion paragraph and the adjustment list.
Compare § 1395ww(j)(3)(A)(iv) (“by the [case mix] weighting
factors established under paragraph (2)(B)”), with
§ 1395ww(j)(8)(A) (“case mix groups, of the methodology for
the classification of patients within such groups, and of the
appropriate weighting factors thereof under paragraph (2)”).
Our point is not that the statute built twin barriers to review for
each adjustment so that the second line of defense could step
up where the first line fell. Instead, we recognize that Congress
may use overlapping language to sweep up technicalities that
more precise provisions may leave behind. Sloppy edges do not
imperil the clear definition of “prospective payment rates” as
step-two rates. See Loving v. IRS, 742 F.3d 1013, 1019 (D.C.
Cir. 2014).
4
For those keeping score, subparagraph (8)(A) precludes
review of case mix groups, which are cited as an adjustment in clause
(3)(A)(iv); subparagraph (8)(C) precludes review of outlier
payments, which are cited as an adjustment in clause (3)(A)(ii); and
subparagraph (8)(D) precludes review of area wage adjustments,
which are cited as an adjustment in clause (3)(A)(iii).
13
Mercy Hospital also invokes the negative-implication
canon to suggest that by expressly including some, but not all,
adjustments in the preclusion paragraph, the statute implies that
the missing adjustments are excluded from review protection.
Sometimes called expressio unius est exclusio alterius, the
canon suggests that “expressing one item of [an] associated
group or series excludes another left unmentioned.” Chevron
U.S.A. Inc. v. Echazabal, 536 U.S. 73, 80 (2002) (alteration in
original) (quoting United States v. Vonn, 535 U.S. 55, 65
(2002)). The Supreme Court recently explained, “If a sign at
the entrance to a zoo says ‘come see the elephant, lion, hippo,
and giraffe,’ and a temporary sign is added saying ‘the giraffe
is sick,’ you would reasonably assume that the others are in
good health.” NLRB v. SW Gen., Inc., 137 S. Ct. 929, 940
(2017). Finding the negative implication of a statute is a
context-specific exercise. Id. It becomes an unnecessary one
when, like with the surplusage canon, the statute’s meaning is
otherwise plain. See Vonn, 535 U.S. at 65.
There is no need for us to rely on what the statute did not
say to infer the scope of its review protection because the scope
is made clear through its plain language. The preclusion
paragraph directs readers to the adjustment paragraph, which
explains that prospective payment rates are the step-two rates.
Moreover, the complexity of the statute and the reasons for
making the scope of the preclusion paragraph comprehensive
instead of spare give us confidence that Congress did not create
the preclusion paragraph with the kind of precision that invites
inferences from what is carefully left unsaid.
Mercy Hospital briefly offers several additional reasons
to read “unadjusted” into “prospective payment rates,” but
none undermines the statute’s plain language. First, Mercy
Hospital notes that before it brought its reimbursement
14
challenge, CMS had previously assumed jurisdiction to review
hospitals’ challenges to LIP adjustments without offering any
explanation for its view. See Prospective Payment System for
Federal Fiscal Year 2014, 78 Fed. Reg. 47,860, 47,900-01
(Aug. 6, 2013). Mercy Hospital suggests that CMS’s historical
practice of reviewing the adjustments implies that the step-one
reading of “prospective payment rates” must be reasonable
because it is the reading that the agency itself had previously
presumed. CMS denies ever reading the statute that way and
chalks up its past practice to a misreading of its own
regulations. 78 Fed. Reg. at 47,900. Even if CMS had at one
point adopted a different reading of the statute, this certainly
would not be the first time an agency found ambiguity where
there was none. See, e.g., Kingdomware Techs., Inc. v. United
States, 136 S. Ct. 1969, 1976-77 (2016). We aren’t persuaded
that the agency’s practice, which it has since disclaimed as
error, reveals anything about the clarity of the text.
Second, Mercy Hospital argues that preventing hospitals
from seeking recourse for arbitrary and capricious adjustments
would be “fundamental[ly] unfair[].” Mercy Hosp. Br. 54.
Even if true, we cannot overlook a statutory provision’s plain
meaning simply because we might disagree with the policy it
creates. See Burrage v. United States, 134 S. Ct. 881, 892
(2014). We can only interpret statutes, not rewrite them.
Because of our limited role, we have consistently upheld broad
bars to review in similar Medicare provisions without
considering whether Congress’s clear choice to preclude
review disadvantaged hospitals. See, e.g., Knapp Med. Ctr.,
875 F.3d at 1130. Moreover, a hospital remains free to make
an ultra vires claim that the agency’s reimbursement decision
was so unreasonable that CMS must have used and applied
criteria and reasoning that Congress did not permit in the
governing statute, see Fla. Health, 830 F.3d at 522, but Mercy
Hospital made no such argument here.
15
Third, Mercy Hospital contends that the preclusion
paragraph does not apply to individual determinations because
it applies only to “the establishment of . . . the prospective
payment rates.” § 1395ww(j)(8)(B) (emphasis added). Mercy
Hospital interprets “establishment” to mean the initial
promulgation of generally applicable standards and not the
individual determinations for hospitals. Even if we accepted
that “establishment” limited the precluded subject matter, the
distinction would not help the hospital here. Though Mercy
Hospital purports to challenge the rate determination, what it
really challenges is the agency’s de facto establishment of a
new LIP adjustment formula. The fact that the agency made
this change informally does not make this any less of an
established formula. As is often true in Medicare, the proof is
in the details. When the agency calculated Mercy Hospital’s
LIP adjustment, it did not make a mistake. It applied the
formula it wanted to apply, the formula it had selected. Absent
an argument that the agency acted outside its statutory
authority in setting that framework, the statute precludes
review.
Finally, Mercy Hospital alleges that a prospective payment
rate can include only components known before the fiscal year
begins. But interpreting “prospective” to exclude any
component that is determined after the fiscal year would be
unfaithful to the statute. “Prospective” is a term of art that often
appears in statutes and regulations to describe a system based
on anticipating events that have yet to pass. Subsection (j) is an
example of a “prospective payment system,”
§ 1395ww(j)(3)(B), which is designed to reimburse hospitals
using formulas that are set before all the costs are known, see
Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1227
(D.C. Cir. 1994) (explaining that a prospective payment system
is a regime that “relies on prospectively fixed rates for each
16
category of treatment rendered”). A rate within a prospective
payment system could easily be called a “prospective payment
rate” despite relying on some variables, like the number of low-
income patients served, that could not be filled in until after the
year ended. Even if “prospective” were not couched in the
well-established context of prospective payment systems,
Mercy Hospital would still be reading too much into a single
word that Congress defined as part of the full phrase
“prospective payment rate” in paragraph (3).
We conclude from the statute’s plain language that
“prospective payment rates” means step-two rates. Because the
preclusion paragraph bars review of step-two rates and the
statutory adjustments, we affirm the district court’s dismissal
of Mercy Hospital’s challenge to the Medicare Contractor’s
LIP adjustments for fiscal years 2002 through 2004 for lack of
subject-matter jurisdiction.
So ordered.