Bowen v. Georgetown University Hospital

488 U.S. 204, 109 S. Ct. 468, 102 L. Ed. 2d 493, 1988 U.S. LEXIS 5554, 57 U.S.L.W. 4057

Opinions

Justice Kennedy

delivered the opinion of the Court.

Under the Medicare program, health care providers are reimbursed by the Government for expenses incurred in providing medical services to Medicare beneficiaries. See Title XVIII of the Social Security Act, 79 Stat. 291, as amended, 42 U. S. C. § 1395 et seq. (the Medicare Act). Congress has authorized the Secretary of Health and Human Services to promulgate regulations setting limits on the levels of Medicare costs that will be reimbursed. The question presented here is whether the Secretary may exercise this rulemaking authority to promulgate cost limits that are retroactive.

I

The Secretary’s authority to adopt cost-limit rules is established by § 223(b) of the Social Security Amendments of 1972, 86 Stat. 1393, amending 42 U. S. C. § 1395x(v)(l)(A). This authority was first implemented in 1974 by promulgation of a cost-limit schedule for hospital services; new cost-limit schedules were issued on an annual basis thereafter.

On June 30, 1981, the Secretary issued a cost-limit schedule that included technical changes in the methods for calculating cost limits. One of these changes affected the method for calculating the “wage index,” a factor used to reflect the salary levels for hospital employees in different parts of the country. Under the prior rule, the wage index for a given geographic area was calculated by using the average salary levels for all hospitals in the area; the 1981 rule provided that wages paid by Federal Government hospitals would be excluded from that computation. 46 Fed. Reg. 33637, 33638-33639 (1981).

Various hospitals in the District of Columbia area brought suit in United States District Court seeking to have the 1981 schedule invalidated. On April 29, 1983, the District Court struck down the 1981 wage-index rule, concluding that the Secretary had violated the Administrative Procedure Act (APA), 5 U. S. C. §551 et seq., by failing to provide notice and an opportunity for public comment before issuing the rule. See District of Columbia Hospital Assn. v. Heckler, No. 82-2520, App. to Pet. for Cert. 49a (hereinafter DCHA). The court did not enjoin enforcement of the rule, however, finding it lacked jurisdiction to do so because the hospitals had not yet exhausted their administrative reimbursement remedies. The court’s order stated:

“If the Secretary wishes to put in place a valid prospective wage index, she should begin proper notice and comment proceedings; any wage index currently in place that has been promulgated without notice and comment is invalid as was the 1981 schedule.” DOHA, App. to Pet. for Cert. 64a.

The Secretary did not pursue an appeal. Instead, after recognizing the invalidity of the rule, see 48 Fed. Reg. 39998 (1983), the Secretary settled the hospitals’ cost reimbursement reports by applying the pre-1981 wage-index method.

In February 1984, the Secretary published a notice seeking public comment on a proposal to reissue the 1981 wage-index rule, retroactive to July 1, 1981. 49 Fed. Reg. 6175 (1984). Because Congress had subsequently amended the Medicare Act to require significantly different cost reimbursement procedures, the readoption of the modified wage-index method was to apply exclusively to a 15-month period commencing July 1, 1981. After considering the comments received, the Secretary reissued the 1981 schedule in final form on November 26, 1984, and proceeded to recoup sums previously paid as a result of the District Court’s ruling in DCHA. 49 Fed. Reg. 46495 (1984). In effect, the Secretary had promulgated a rule retroactively, and the net result was as if the original rule had never been set aside.

Respondents, a group of seven hospitals who had benefited from the invalidation of the 1981 schedule, were required to return over $2 million in reimbursement payments. After exhausting administrative remedies, they sought judicial review under the applicable provisions of the APA, claiming that the retroactive schedule was invalid under both the APA and the Medicare Act.

The United States District Court for the District of Columbia granted summary judgment for respondents. Applying the balancing test enunciated in Retail, Wholesale and Department Store Union, AFL-CIO v. NLRB, 151 U. S. App. D. C. 209, 466 F. 2d 380 (1972), the court held that retroactive application was not justified under the circumstances of the case.

The Secretary appealed to the United States Court of Appeals for the District of Columbia Circuit, which affirmed. 261 U. S. App. D. C. 262, 821 F. 2d 750 (1987). The court based its holding on the alternative grounds that the APA, as a general matter, forbids retroactive rulemaking, and that the Medicare Act, by specific terms, bars retroactive cost-limit rules. We granted certiorari, 485 U. S. 903 (1988), and we now affirm.

II

It is axiomatic that an administrative agency’s power to promulgate legislative regulations is limited to the authority delegated by Congress. In determining the validity of the Secretary’s retroactive cost-limit rule, the threshold question is whether the Medicare Act authorizes retroactive rulemaking.

Retroactivity is not favored in the law. Thus, congressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result. E. g., Greene v. United States, 376 U. S. 149, 160 (1964); Claridge Apartments Co. v. Commissioner, 323 U. S. 141, 164 (1944); Miller v. United States, 294 U. S. 435, 439 (1935); United States v. Magnolia Petroleum Co., 276 U. S. 160, 162-163 (1928). By the same principle, a statutory grant of legislative rulemaking authority will not, as a general matter, be understood to encompass the power to promulgate retroactive rules unless that power is conveyed by Congress in express terms. See Brimstone R. Co. v. United States, 276 U. S. 104, 122 (1928) (“The power to require readjustments for the past is drastic. It. . . ought not to be extended so as to permit unreasonably harsh action without very plain words”). Even where some substantial justification for retroactive rulemaking is presented, courts should be reluctant to find such authority absent an express statutory grant.

The Secretary contends that the Medicare Act provides the necessary authority to promulgate retroactive cost-limit rules in the unusual circumstances of this case. He rests on alternative grounds: first, the specific grant of authority to promulgate regulations to “provide for the making of suitable retroactive corrective adjustments,” 42 U. S. C. § 1395x(v)(l)(A)(ii); and second, the general grant of authority to promulgate cost limit rules, §§ 1395x(v)(l)(A), 1395hh, 1395Ü. We consider these alternatives in turn.

A

The authority to promulgate cost-reimbursement regulations is set forth in § 1395x(v)(l)(A). That subparagraph also provides that:

“Such regulations shall. . . (ii) provide for the making of suitable retroactive corrective adjustments where, for a provider of services for any fiscal period, the aggregate reimbursement produced by the methods of determining costs proves to be either inadequate or excessive. ” Ibid.

This provision on its face permits some form of retroactive action. We cannot accept the Secretary’s argument, however, that it provides authority for the retroactive promulgation of cost-limit rules. To the contrary, we agree with the Court of Appeals that clause (ii) directs the Secretary to establish a procedure for making case-by-case adjustments to reimbursement payments where the regulations prescribing computation methods do not reach the correct result in individual cases. The structure and language of the statute require the conclusion that the retroactivity provision applies only to case-by-case adjudication, not to rulemaking.¹

Section 1395x(v)(l)(A), of which clause (ii) is a part, directs the Secretary to promulgate regulations (including cost-limit rules) establishing the methods to be used in determining reasonable costs for “institutions” and “providers” that participate in the Medicare program. Clause (i) of § 1395x(v)(l)(A) requires these cost-method regulations to take into account both direct and indirect costs incurred by “providers.” Clause (ii) mandates that the cost-method regulations include a mechanism for making retroactive corrective adjustments. These adjustments are required when, for “a provider,” the “aggregate reimbursement produced by the methods of determining costs” is too low or too high. By its terms, then, clause (ii) contemplates a mechanism for adjusting the reimbursement received by a provider, while the remainder of § 1395x(v)(l)(A) speaks exclusively in the plural. The distinction suggests that clause (ii), rather than permitting modifications to the cost-method rules in their general formulation, is intended to authorize case-by-case inquiry into the accuracy of reimbursement determinations for individual providers. Indeed, it is difficult to see how a corrective adjustment could be made to the aggregate reimbursement paid “a provider” without performing an individual examination of the provider’s expenditures in retrospect.

Our conclusion is buttressed by the statute’s use of the term “adjustments.” Clause (ii) states that the cost-method regulations shall “provide for the making of . . . adjustments.” In order to derive from this language the authority to promulgate cost-limit rules, the “adjustments” that the cost-method regulations must “provide for the making of” would themselves be additional cost-method regulations. Had Congress intended the Secretary to promulgate regulations providing for the issuance of further amendatory regulations, we think this intent would have been made explicit.

It is also significant that clause (ii) speaks in terms of adjusting the aggregate reimbursement amount computed by one of the methods of determining costs. As the Secretary concedes, the cost-limit rules are one of the methods of determining costs, and the retroactive 1984 rule was therefore an attempt to change one of those methods. Yet nothing in clause (ii) suggests that it permits changes in the methods used to compute costs; rather, it expressly contemplates corrective adjustments to the aggregate amounts of reimbursement produced pursuant to those methods. We cannot find in the language of clause (ii) an independent grant of authority to promulgate regulations establishing the methods of determining costs.

Our interpretation of clause (ii) is consistent with the Secretary’s past implementation of that provision. The regulations promulgated immediately after enactment of the Medicare Act established a mechanism for making retroactive corrective adjustments that remained essentially unchanged throughout the periods relevant to this case. Compare 20 CFR §§405.451(b)(1), 405.454(a), (f) (1967), with 42 CFR §§405.451(b)(1), 405.454(a), (f) (1983).² These regulations provide for adjusting the amount of interim payments received by a provider, to bring the aggregate reimbursement into line with the provider’s actual reasonable costs.

These are the only regulations that expressly contemplate the making of retroactive corrective adjustments. The 1984 reissuance of the 1981 wage-index rule did not purport to be such a provision; indeed, it is only in the context of this litigation that the Secretary has expressed any intent to characterize the rule as a retroactive corrective adjustment under clause (ii).

Despite the novelty of this interpretation, the Secretary contends that it is entitled to deference under Young v. Community Nutrition Institute, 476 U. S. 974, 980-981 (1986), Chemical Mfrs. Assn. v. Natural Resources Defense Council, Inc., 470 U. S. 116, 125 (1985), and Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 842-844 (1984). We have never applied the principle of those cases to agency litigating positions that are wholly unsupported by regulations, rulings, or administrative practice. To the contrary, we have declined to give deference to an agency counsel’s interpretation of a statute where the agency itself has articulated no position on the question, on the ground that “Congress has delegated to the administrative official and not to appellate counsel the responsibility for elaborating and enforcing statutory commands.” Investment Company Institute v. Camp, 401 U. S. 617, 628 (1971); cf. Burlington Truck Lines, Inc. v. United States, 371 U. S. 156, 168 (1962) (“The courts may not accept appellate counsel’s post hoc rationalizations for agency [orders]”). Even if we were to sanction departure from this principle in some cases, we would not do so here. Far from being a reasoned and consistent view of the scope of clause (ii), the Secretary’s current interpretation of clause (ii) is contrary to the narrow view of that provision advocated in past cases, where the Secretary has argued that clause (ii) “merely contemplates a year-end balancing of the monthly installments received by a provider with the aggregate due it for the year.” Regents of the University of California v. Heckler, 771 F. 2d 1182, 1189 (CA9 1985); see also Whitecliff Inc. v. United States, 210 Ct. Cl. 53, 60, n. 11, 536 F. 2d 347, 352, n. 11 (1976), cert. denied, 430 U. S. 969 (1977). Deference to what appears to be nothing more than an agency’s convenient litigating position would be entirely inappropriate. Accordingly, the retroactive rule cannot be upheld as an exercise of the Secretary’s authority to make retroactive corrective adjustments.

B

The statutory provisions establishing the Secretary’s general rulemaking power contain no express authorization of retroactive rulemaking.³ Any light that might be shed on this matter by suggestions of legislative intent also indicates that no such authority was contemplated. In the first place, where Congress intended to grant the Secretary the authority to act retroactively, it made that intent explicit. As discussed above, § 1395x(v)(l)(A)(ii) directs the Secretary to establish procedures for making retroactive corrective adjustments; in view of this indication that Congress considered the need for retroactive agency action, the absence of any express authorization for retroactive cost-limit rules weighs heavily against the Secretary’s position.

The legislative history of the cost-limit provision directly addresses the issue of retroactivity. In discussing the authority granted by § 223(b) of the 1972 amendments, the House and Senate Committee Reports expressed a desire to forbid retroactive cost-limit rules: “The proposed new authority to set limits on costs . . . would be exercised on a prospective, rather than retrospective, basis so that the provider would know in advance the limits to Government recognition of incurred costs and have the opportunity to act to avoid having costs that are not reimbursable.” H. R. Rep. No. 92-231, p. 83 (1971); see S. Rep. No. 92-1230, p. 188 (1972).

The Secretary’s past administrative practice is consistent with this interpretation of the statute. The first regulations promulgated under § 223(b) provided that “[t]hese limits will be imposed prospectively. . . .” 20 CFR § 405.460(a) (1975). Although the language was dropped from subsection (a) of the regulation when it was revised in 1979, the revised regulation continued to refer to “the prospective periods to which limits are being applied,” and it required that notice of future cost limits be published in the Federal Register “[p]rior to the beginning of a cost period to which limits will be applied ____” 42 CFR §§405.460(b)(2), (3) (1980). Finally, when the regulations were amended again in 1982, the Secretary reinserted the requirement that the limits be applied with prospective effect, noting that the language had been “inadvertently omitted” in the previous amendment but that the reinsertion would “have no effect on the way we develop or apply the limits.” 47 Fed. Reg. 43282, 43286 (1982); see 42 CFR § 405.460(a)(2) (1983).

Other examples of similar statements by the agency abound. Every cost-limit schedule promulgated by the Secretary between 1974 and 1981, for example, included a statement that § 223 permits the Secretary to establish “prospective” limits on the costs that are reimbursed under Medicare.⁴ The Secretary’s administrative rulings have also expressed this understanding of § 223(b). See Beth Israel Hospital v. Blue Cross Assn./Blue Cross/Blue Shield of Massachusetts, CCH Medicare and Medicaid Guide ¶ 31, 645 (Nov. 7, 1981).

The Secretary nonetheless suggests that, whatever the limits on his power to promulgate retroactive regulations in the normal course of events, judicial invalidation of-a prospective rule is a unique occurrence that creates a heightened need, and thus a justification, for retroactive curative rule-making. The Secretary warns that congressional intent and important administrative goals may be frustrated unless an invalidated rule can be cured of its defect and made applicable to past time periods. The argument is further advanced that the countervailing reliance interests are less compelling than in the usual case of retroactive rulemaking, because the original, invalidated rule provided at least some notice to the individuals and entities subject to its provisions.

Whatever weight the Secretary’s contentions might have in other contexts, they need not be addressed here. The case before us is resolved by the particular statutory scheme in question. Our interpretation of the Medicare Act compels the conclusion that the Secretary has no authority to promulgate retroactive cost-limit rules.

The 1984 reinstatement of the 1981 cost-limit rule is invalid. The judgment of the Court of Appeals is

Affirmed.

1 The Courts of Appeals have not spoken in one voice in construing this provision. Some courts have held that clause (ii) permits the Secretary to promulgate retroactive regulations. E. g., Tallahassee Memorial Regional Medical Center v. Bowen, 815 F. 2d 1435, 1453-1454 (CA11 1987), cert. denied, 485 U. S. 1020 (1988); Fairfax Nursing Center, Inc. v. Califano, 590 F. 2d 1297, 1300 (CA4 1979); Springdale Convalescent Center v. Mathews, 545 F. 2d 943, 954-955 (CA5 1977). The Court of Appeals for the Third Circuit has reached the opposite conclusion, construing clause (ii) to provide for nothing more than a year-end balancing of individual providers’ cost-reimbursement accounts. Daughters of Miriam Center for the Aged v. Mathews, 590 F. 2d 1250, 1258, n. 23 (1978). Other courts, without deciding whether clause (ii) permits rulemaking, have held that it requires the Secretary to make case-by-case adjustments to reimbursement determinations. E. g., St. Paul-Ramsey Medical Center v. Bowen, 816 F. 2d 417, 419-420 (CA8 1987); Regents of the University of California v. Heckler, 771 F. 2d 1182, 1188-1189 (CA9 1985).

2 ` It is clear from the language of these provisions that they are intended to implement the Secretary’s authority under clause (ii):

“These regulations also provide for the making of suitable retroactive adjustments after the provider has submitted fiscal and statistical reports. The retroactive adjustment will represent the difference between the amount received by the provider during the year for covered services from both [the Medicare program] and the beneficiaries and the amount determined in accordance with an accepted method of cost apportionment to be the actual cost of services rendered to beneficiaries during the year.” 20 CFR § 405.451(b)(1) (1967); 42 CFR § 405.451(b)(1) (1983).

3 Section 223(b) of the 1972 amendments amended the Medicare Act to state that the Secretary’s regulations for computing reasonable costs may “provide for the establishment of limits on the direct or indirect overall incurred costs or incurred costs of specific items or services or groups of items or services to be recognized as reasonable based on estimates of the costs necessary in the efficient delivery of needed health services to individuals covered by the insurance programs established under this sub-chapter . . . .” 42 U. S. C. § 1395x(v)(l)(A).

Section 1395hh provides that “[t]he Secretary shall prescribe such regulations as may be necessary to carry out the administration of the insurance programs under this subchapter.” Finally, § 1395Ü incorporates 42 U. S. C. § 405(a), which provides that “[t]he Secretary shall have full power and authority to make rules and regulations . . . , not inconsistent with the provisions of this subchapter, which are necessary or appropriate to carry out such provisions . . . .”

4 See 46 Fed. Reg. 48010 (1981); id., at 33637; 45 Fed. Reg. 41868 (1980); 44 Fed. Reg. 31806 (1979); 43 Fed. Reg. 43558 (1978); 42 Fed. Reg. 53675 (1977); 41 Fed. Reg. 26992 (1976); 40 Fed. Reg. 23622 (1975); 39 Fed. Reg. 20168 (1974); see also 48 Fed. Reg. 39998 (1983) (notice of invalidation of 1981 cost-limit schedule). Even the notice of proposed rulemaking concerning reissuance of the 1981 schedule contained the statement that § 223 “authorizes the Secretary to set prospective limits on the costs that are reimbursed under Medicare.” 49 Fed. Reg. 6175, 6176 (1984). Interestingly, this statement does not appear in the final notice announcing the reissuance of the 1981 schedule. Id., at 46495.