Jewish Hospital, Inc. v. Secretary of Health and Human Services

19 F.3d 270, 1994 WL 84160

• Court: Court of Appeals for the Sixth Circuit
• Decided: May 16, 1994
• Docket: 92-5688
• Status: Published

Opinions

KEITH, Circuit Judge.

Plaintiff, Jewish Hospital, Inc. (“Jewish Hospital”), appeals the adverse summary judgment ruling of the district court involving the interpretation of a Medicare reimbursement provision. Congress requires the Secretary of Health and Human Services (the “Secretary”) to adjust Medicare Prospective Payment System (“PPS”) payments for hospitals that provide inpatient services to a disproportionate share of low income patients. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The Secretary’s restrictive reading of the disproportionate share adjustment serves as the basis for this appeal. See 42 C.F.R. § 412.106. Because the Secretary’s interpretation is contrary to the clear mandate of the statute, we REVERSE the district court ruling and REMAND the case to the Secretary for the proper calculation of the disproportionate share adjustment.

I. THE REGULATORY FRAMEWORK

In 1985, Congress enacted the Consolidated Omnibus Budget Reconciliation Act of 1985 (hereinafter “COBRA”). As a part of COBRA, Congress provided that the PPS system pay hospitals a prospectively determined amount per discharge based on the costs that an efficiently operating hospital should incur to provide quality services to Medicare beneficiaries based on the patient’s diagnosis at the time of discharge. See 42 U.S.C. § 1395ww. The statute also provides for the adjustment of these payments for hospitals that provide inpatient services to a disproportionate share of low income patients. Congress sought to adjust the Medicare PPS system to recognize the higher costs incurred by hospitals that serve a large number of low income patients.

A hospital must have a certain “disproportionate patient percentage” to qualify for the Medicare adjustment at issue in the instant case. This percentage is defined as the sum of two fractions expressed as percentages and serves as a “proxy” for all low income patients. The first fraction, termed the “Medicare Low Income Proxy,” is based on the number of Medicare patients served by the hospital. The statute defines this proxy as follows:

the numerator of which is the number of such hospital’s patient days for such period which were made up of patients who (for such days) were entitled to benefits under [Medicare] and who were entitled to supplemental security income benefits (excluding any State supplementation) under [SSI], and the denominator of which is the number of such hospital’s patient days for such period which were made up of patients who (for such days) were entitled to benefits under [Medicare] ...

(emphasis added). See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The second fraction, termed the “Medicaid Low Income Proxy,” is based upon Medicaid-eligible patients. The statute defines this proxy as follows:

the numerator of which is the number of the hospital’s patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under sub-chapter XIX [Medicaid], but who were not entitled to benefits under [Medicare], and the denominator of which is the total number of the hospital’s patient days for such period.

(emphasis added). See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).

The Secretary promulgated the following regulation to implement the language of the Medicaid Low Income Proxy:

Total Medicaid inpatient days will include all covered days attributable to Medicaid patients.... Medicaid covered days will include only those days for which benefits are payable under title XIX. Any day of a Medicaid patient’s hospital stay that is not payable by the Medicaid program will not be counted as a Medicaid patient day since the patient is not considered eligible for Medicaid coverage on those days.

(emphasis added). Medicare Program, 51 Fed.Reg. 16,777 (1986). The Secretary purports to interpret Congress’ statutory phrase, “eligible for medical assistance under a State plan approved under title XIX [Medicaid]” with its promulgated regulation. The Secretary argues that only those days actually paid by Medicaid can be utilized in the calculation of the proxy. The Secretary’s interpretation of the Medicaid Proxy is the subject of this appeal.

II. NATURE OF THE CASE

In the case at bar, Jewish Hospital was reimbursed for its services under the PPS system for the year ending in 1986. Jewish Hospital qualified for a disproportionate share adjustment to its Medicare reimbursement based on the number of low income patients that it serviced in the 1986 fiscal year.

In 1989, Jewish Hospital was notified by its regional Medicare Intermediary, Blue Cross and Blue Shield of Kentucky, Inc., that Jewish Hospital was to receive a limited adjustment for serving a disproportionate share of low-income patients based on the interpretation given the statute by the Secretary. Jewish Hospital disputed the Secretary’s interpretation of the statute and appealed the Medicare Intermediary’s decision to the Provider Reimbursement Review Board, a statutorily established body that hears appeals of disputes between hospitals and their Intermediaries. See 42 U.S.C. § 1395oo. Because no factual dispute existed, Jewish Hospital requested that the PRRB grant expedited judicial review of the Secretary’s interpretation-of the disproportionate share adjustment. The PRRB granted the request, and Jewish Hospital filed the instant action in the district court on November 20, 1990.

The parties fully briefed the issues and filed cross motions for summary judgment. The district court granted the motion in' favor of the Secretary in its memorandum opinion and order dated March 16,1992. 791 F.Supp. 168. Specifically, the court stated:

We believe that the statute supports the Secretary’s interpretation. However, even if that were not the case, we believe the most that could be said concerning the statute is that it is ambiguous. The par- . ties agree that if the statute is ambiguous, the Secretary can legally choose the interpretation. We also are of the opinion that the statute, as drafted, by including the words, “for such days,” means that the hospital may recover only for those days on which Medicaid patients were actually reimbursed. Had Congress intended the result sought by the plaintiff it would have left out “for such days” and made it clear that all patients on Medicaid were to be counted as part of the numerator regardless of whether they were days on which Medicaid were actually paid.

Joint Appendix at 37.

III. ANALYSIS

A. Standard of Review

This Court’s review of this case is circumscribed by the Supreme Courts decision of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). In CenTra, Inc. v. United States, 953 F.2d 1051 (6th Cir.1992), we reaffirmed that Chevron was the applicable standard when reviewing an agency’s interpretation of a statute it was charged to administer, stating:

In Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct, 2778, 81 L.Ed.2d 694 (1984), the Supreme Court explained how a court should treat an agency interpretation of statutes within the agency’s ambit.

When a court reviews an agency’s construction of the statute which it administers, it is confronted -with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, 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. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.

467 U.S. at 842-43, 104 S.Ct. at 2781-82 (emphasis added). The Court went on to state that in determining whether an agency’s answer is based on a permissible construction of a statute, a reviewing “court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construetion, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding.” 467 U.S. at 843 n. 11, 104 S.Ct. at 2782 n. 11.

CenTra, Inc., 953 F.2d at 1055-56. The Chevron Court further stated, however, that “[t]he judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.” Chevron, 467 U.S. at 843 n. 9, 104 S.Ct. at 2782 n. 9.

This Court also finds Judge Batchelder’s discussion of Chevron in Brown v. Rock Creek Mining Co., 996 F.2d 812 (6th Cir.1993) (Batchelder, J. dissenting), instructive. There, Judge Batchelder states:

Where the language of the regulation is clear and plain, not only is there no reason to let the Director offer an interpretation of it, and no reason to consult the legislative history, but there is every reason not to do so. First and foremost, of course, Chevron instructs that unless the statute’s provisions are ambiguous, we are simply to give effect to the-unambiguously expressed intent of Congress. 467 U.S. at 842-43, 104 S.Ct. at 2781-82. The reason for this requirement is obvious: through excursions into legislative history, a writer can find support for virtually any position.

Id. at 818. Accordingly, utilizing the framework of Chevron, we must first determine whether Congress spoke directly to this “specific issue.” For if the intent of Congress is clear and the Secretary’s interpretation of the statute is contrary to that intent, “that is the end of the matter-” Chevron, 467 U.S. at 843, 104 S.Ct. at 2782.

B. The Legislative Mandate is Clear from the Statutory Language

Congress enacted the disproportionate share adjustment to balance the inequities which exist for hospitals that treat a disproportionate number of low income patients. Congress chose to address this problem with the Medicaid proxy and utilized the following phrase in its calculation:

the number of the hospital’s patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under title XIX.

Looking to the plain language of the statute, the word “eligible” refers to whether a patient is capable of receiving federal medical assistance or Medicaid. There is no indication from the text of the statute that Congress intended to impute any special meaning to the term, eligible. Additionally, the phrase, “the number of the hospital’s patient days for such period,” modifies the term eligible. Facially, this phrase speaks to the aggregate number of days for which a hospital provides Medicaid eligible services. Thus, it appears that all days for which an individual is capable of receiving Medicaid should be figured into the proxy calculation.

The Secretary’s regulation limits the calculation to those days for which a state actually renders payment of Medicaid benefits. Specifically, the Secretary extracts the parenthetical phrase “for such days” and argues that the phrase acts as a restrictive qualifier. For such days, according to the Secretary, thus takes on the meaning of - “state paid days” or the actual duration of state rendered Medicaid benefits.

The Secretary’s interpretation runs counter to the language of the statute. First, the parenthetical “for such days” serves only as the antecedent to the initial phrase “the number of the hospital’s patient days for such period.” The parenthetical does not take on new meaning because it is restated in different form or placed immediately prior to the term “eligible”. The aggregate number of a “hospital’s patient days” referred to in the proxy should thus remain unaltered.

Additionally, the notion of “eligibility” refers to the “qualification” for benefits or the capability of receiving those benefits. Congress explicitly refers to a period of eligibility equal to the time for which medical assistance was available. Congress, however, did not refer to the time period for which a given state actually renders Medicaid payment. Absent some affirmative statement to the contrary, this Court will not seek guidance for this crucial federal legislation in a state program that may be readily altered by state legislative fiat. Congress sought to structure a proxy that is definable and accessible, one that would not be subject to yearly budgetary constraints of individual states that may threaten a PPS hospitals ability to continue to provide services to low income persons.

Furthermore, Congress spoke of- “eligibility” in the Medicaid proxy and “entitlement” in the Medicare proxy. See 42 U.S.C. § 1395ww(d)(5)(F). The Secretary would have this Court conflate eligibility with entitlement. Adjacent provisions utilizing different terms, however, must connote different meanings. To be entitled to some benefit means that one possesses the right or title to that benefit. Thus, the Medicare proxy fixes the calculation upon the absolute right to receive an independent and readily defined payment.

By way of contrast, the Medicaid proxy speaks solely of eligibility. While Congress intended to refer to the qualification for Medicaid benefits in the calculation of this proxy, Congress could not have intended to fix its calculation on the actual payment of benefits in the state administered program. Had Congress intended that result, it would have also defined the Medicaid proxy in terms of entitlement, to state Medicaid payments. Rather, Congress defined the Medicaid proxy with respect to eligibility for and not actual payment of benefits.

Finally, the overarching intent of Congress to provide and supplement the resources available to PPS hospitals is somewhat dis-positive of this issue. The operative qualification for this assistance is the servicing of “low income” persons. Congress wanted to ensure the continued operation of these facilities for the benefit of those persons who have no other health care alternative. A Medicaid eligible individual is no less “eligible for medical assistance” on some days simply because his or her state Medicaid program only pays for a fixed number of days. Thus, it is counterintuitive to reason that Congress would exclude from the proxy those days that are not paid for by Medicaid proxy. The Medicaid proxy was intended to supplement and subsidize a PPS hospital’s care for low income individuals, and the Secretary’s promulgated regulation runs counter to this clear intent by unnecessarily restricting the available subsidy, without foundation in the statute.

C. The Secretary’s Interpretation is Impermissible

In this case, the district court stated that “[t]he parties agree that if the statute is ambiguous, the Secretary can legally choose the interpretation.” Joint Appendix at 37. The district court and the parties slightly misstate the law. Note that Chevron instructs:

If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.

(emphasis added). 467 U.S. at 842-43, 104 S.Ct. at 2781-82. Thus, after looking at the legislative history, the Secretary’s interpretation must be permissible.. We hold that, even if the language of the statute can be deemed silent or ambiguous, the Secretary’s construction of the statute is not permissible. The legislative history of the Medicaid proxy clearly shows that the Secretary’s construction is contrary to that intent expressed by Congress.

As a preliminary matter, the Court takes notice of the Secretary’s hostility to the PPS system as documented by the district court in Samaritan Health Center v. Heckler, 636 F.Supp. 503 (D.D.C.1985). The Samaritan Court simply chronologued the Secretary’s unwillingness to promulgate PPS hospital regulations to implement the statutory framework. Prior to PPS, hospitals were paid based on the reasonable cost of providing services to Medicare beneficiaries. The higher costs were incurred by hospitals that serve low income patients because those patients historically require comparatively greater resources in their care. See Samaritan, 636 F.Supp. at 508. The Samaritan court noted that Congress was motivated to adopt the PPS system because of the increased health care expense for these hospitals.

In accord with this concern, Congress instructed the Secretary to promulgate regulations to implement this new system. Because of the Secretary’s failure to promulgate regulations that defined what constituted a disproportionate share facility, the Samaritan suit was brought. While the Samaritan court ordered the Secretary to ■“publish a definition of disproportionate share hospitals and identify [them to Congress],” the court did not require the Secretary to make payment adjustments unless it deemed them appropriate. See id. at 514-17. The failure to publish the required definition of covered facilities was apparently intended to impede the implementation of the PPS framework. Thus, we find Jewish Hospital’s contention that the Secretary was hostile to the concept of disproportionate share adjustment credible and compelling.

In the 1985 COBRA legislation, Congress, however, did mandate that disproportionate share adjustments be made by the Secretary. Both houses of Congress worked to define the provisions of COBRA. In H.R. Report 3128, the legislative body defined “low income patient” as follows:

The term “low-income patient” means, with respect to inpatient hospital services provided to a patient who was, or is determined to have been, entitled to medical assistance under title XIX with respect to some or all.of such services during the hospital stay, and includes such an individual notwithstanding the fact that some or all of such services were actually paid for under this title.

The House thus defined the “proxy” or measure for approximating the disproportionate share as that “percentage of the hospital’s total patient days attributable to medicaid patients (including Medicaid-eligible Medicare beneficiaries — Medicare/Medicaid crossovers).” The legislative history provides that the House of Representatives initially endorsed language that would count all days attributable to the Medicaid beneficiary, which is undoubtedly the best approximation of the presence of low-income patients.

Additionally, the legislative history makes it clear that the Senate, worked primarily to define the low-income patients in terms of Medicare. Senate language described the proxy as “the percentage of a hospital’s total medicare part A patient days attributable to medicare patients who are also enrolled in the Federal Supplemental Security Income (SSI) program.” Note that the present language of the Medicare proxy is substantially the same as that enacted by the Senate. Therefore, the legislative history of the Sen-, ate proceedings for COBRA sheds little light on the interpretation of the Medicaid proxy.

This Court thus finds that the House of Representatives acted to substantially define the Medicaid proxy. Congress intended to include all days attributable to Medicaid beneficiaries in the proxy. Accordingly, an interpretation that is contrary to this intention must be stricken.

The Secretary opined in 42 C.F.R. Part 412.06 that the Medicaid proxy should be calculated using only those hospital patient days which were specifically deemed payable by a state Medicaid program. While the Secretary’s attempted limitation on the Medicaid proxy is consistent with its hostility to the PPS system, it fails to implement the will of Congress. The Secretary’s interpretation is more restrictive than that intended by Congress and thus runs counter to the statutory language. Therefore, we hold that the Secretary’s construction of the Medicaid proxy, as represented by its promulgated regulation is impermissible. Accordingly, we REVERSE the district court determination and REMAND the ease to the Secretary for proceedings consistent with this opinion.