McCreary, Maurice v. Offner, Paul

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 8, 1998 Decided April 13, 1999

No. 98-5155

Maurice McCreary, M.D., et al.,

Appellants

v.

Paul Offner, Commissioner of Health Care Finance

of the District of Columbia Department of Human Services,

and United States of America,

Appellees

Appeal from the United States District Court

for the District of Columbia

(No. 97cv01524)

James A. Barker, Jr. argued the cause for appellants.

With him on the briefs was Allen V. Farber.

Alisa B. Klein, Attorney, U.S. Department of Justice,

argued the cause for appellees. With her on the brief were

Frank W. Hunger, Assistant Attorney General, Wilma A.

Lewis, U.S. Attorney, and Barbara C. Biddle, Attorney, U.S.

Department of Justice.

John M. Ferren, Corporation Counsel, Charles L. Reischel,

Deputy Corporation Counsel, and Lutz Alexander Prager,

Assistant Deputy Corporation Counsel, were on the brief for

appellee Paul Offner.

Before: Wald, Tatel and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: Under Medicaid's "buy-in" program,

states must use Medicaid funds to enroll certain needy,

Medicare-eligible individuals in Medicare's Part B supplemen-

tal insurance program. In this case, we must determine

whether the buy-in program requires states to reimburse

Medicare providers the entire twenty percent copayment that

patients normally pay for a particular service under Part B,

or whether, as the United States Department of Health and

Human Services has long permitted, states may limit reim-

bursement to the almost always lower Medicaid rate for the

same service. Relying on HHS policy, the District of Colum-

bia began capping copayment reimbursement at Medicaid

rates in 1990. Appellants, a group of District of Columbia

doctors, challenge the District's policy, arguing that until

Congress amended the buy-in statutes in 1997, the law re-

quired the District to reimburse them at Medicare rates.

Finding the pre-1997 statutes ambiguous as to state copay-

ment reimbursement obligations, and finding HHS's interpre-

tation reasonable, we affirm the district court's grant of

summary judgment for the District.

I

Enacted in 1965, Medicare finances medical procedures for

people over 65 and people with disabilities. See 42 U.S.C.

ss 1395-1395ccc (1994). Medicare has two parts, Part A and

Part B. Part A provides reimbursement for inpatient hospi-

tal care and related post-hospital, home health, and hospice

care. See id. ss 1395c to 1395i-4. Enrollment in Part A is

automatic. Part B is voluntary. It provides supplemental

insurance for hospital out-patient services, physician services,

and other medical services not covered under Part A. See id.

ss 1395j to 1395w-4. Part B imposes cost-sharing obli-

gations on people who choose to participate. These include

an annual deductible, monthly premiums, and--of particular

relevance to this case--copayments. Copayments consist of

twenty percent of the "reasonable charge" for the service

rendered, an amount determined annually by HHS. See id.

s 1395l(a). Medicare directly reimburses Part B providers

for the remaining eighty percent. See id.

Also enacted in 1965, Medicaid, a cooperative federal-state

program, finances medical care for the poor, regardless of

age. See 42 U.S.C. ss 1396-1396v (1994). Participating

states must establish financial eligibility criteria, identify

covered medical services, develop rate schedules, and submit

their plans to HHS for approval. See id. ss 1396a(a),

1396a(b). HHS approval entitles a state to substantial feder-

al funding, ranging from fifty percent to eighty-three percent

of the cost of medical services provided under the plan. See

id. s 1396d(b). Doctors and other health care providers are

not required to service Medicaid patients, but if they do they

must accept reimbursement from the state at its Medicaid

rate as payment in full; they may not demand additional

payment from patients. See id. ss 1320a-7b(d), 1396o.

State Medicaid rates for any given service are almost always

lower than the "reasonable charge" for the same service

under Medicare Part B. Indeed, Medicaid rates are often

even lower than the eighty percent of the reasonable charge

that the federal government reimburses Medicare providers.

Medicare and Medicaid intersect with respect to the elderly

poor--so-called "dual eligibles." While these people are eligi-

ble to purchase supplemental medical insurance through

Medicare Part B, many cannot afford Part B's premiums,

deductibles, and copayments. Medicaid has therefore long

allowed states to use Medicaid dollars to enroll dual eligibles

in Medicare Part B by paying their cost-sharing obligations.

See Pub. L. No. 89-97, s 121(a), 79 Stat. 286, 346 (1965)

(codified at 42 U.S.C. s 1396a(a)(15)) (repealed 1988). Be-

cause the federal government heavily subsidizes Medicaid,

this "buy-in" program enables states to shift a large portion

of the cost of caring for the elderly poor to the federal

treasury.

In 1986, Congress expanded the buy-in program beyond

dual eligibles to include a newly created category of "qualified

medicare beneficiaries" ("QMBs"): elderly people not quite

poor enough to qualify for Medicaid but who nonetheless met

certain neediness criteria. See Pub. L. No. 99-509, s 9403,

100 Stat. 1874, 2053-55 (1986) (codified at 42 U.S.C.

ss 1396a(a)(10)(E), 1396d(p)(1) (1994)). Initially optional, the

QMB buy-in program became mandatory in 1988. See Pub.

L. No. 100-360, s 301, 102 Stat. 683, 748 (1988) (deleting "at

the option of a State" from 42 U.S.C. s 1396a(a)(10)(E)).

Also in 1988, Congress redefined the term "QMB" to include

dual eligibles. See Pub. L. No. 100-485, s 608(d), 102 Stat.

2343, 2416 (1988).

This appeal presents the following issue: Are Medicare

providers performing Part B services to QMBs entitled to

state reimbursement for the entire twenty percent copayment

that a non-QMB Medicare patient would normally pay, or

may states limit reimbursement such that providers receive

no more than the state's Medicaid rate for the same service?

For example, suppose that the reasonable charge for a given

Part B service is $100, but a state's Medicaid rate for the

same service is only $90. If a Medicare doctor performs that

service, the federal government reimburses the doctor $80,

whether or not the patient is a QMB. If the patient is a

QMB, does the buy-in scheme require the state to reimburse

the doctor for the patient's entire $20 Medicare Part B

copayment? Or may the state give the doctor only $10 so

that total reimbursement, including the federal government's

$80, equals $90, the Medicaid rate? If the Medicaid rate for

the particular service is $70, may the state refuse to reim-

burse the doctor at all because the $80 provided by the

federal government already exceeds the Medicaid rate? See

Paramount Health Sys., Inc. v. Wright, 138 F.3d 706, 708

(7th Cir. 1998) (using this example).

Four statutory provisions added to the buy-in scheme in

1986 frame this issue. Read alone, two suggest that states

must use Medicaid funds to reimburse Medicare providers

performing Part B services to QMBs for the full twenty

percent copayment ($20 in the above example) for which non-

QMB Medicare patients would be responsible. Under 42

U.S.C. s 1396a(a)(10)(E)(i), a state Medicaid plan "must"

provide for "making medical assistance available for medicare

cost-sharing ... for qualified medicare beneficiaries." Sec-

tion 1396d(p)(3)(D) in turn defines "medicare cost-sharing" to

include Medicare premiums, deductibles, and "[t]he difference

between the [80 percent of the reasonable charge that the

federal government reimburses providers under Part B] and

the amount that would be paid ... if any reference to '80

percent' ... were deemed a reference to '100 percent.' "

Section 1396a(a)(10)(E)(i)'s mandatory language coupled with

section 1396d(p)(3)(D)'s reference to specific percentages sug-

gests that states must use buy-in funds to reimburse provid-

ers for the entire twenty percent Part B copayment.

The other two provisions enacted in 1986 suggest a differ-

ent interpretation. Section 1396a(a)(VIII) provides that

"medical assistance made available to [QMBs] ... shall be

limited to medical assistance for medicare cost-sharing ...,

subject to the provisions of [section 1396a(n)]." Before its

amendment in 1997, section 1396a(n), entitled "Payment

amounts," in turn provided:

In the case of [Medicaid funds provided] for medicare

cost-sharing respecting the furnishing of a service or

item to a qualified medicare beneficiary, the State plan

may provide payment in an amount ... that results in a

sum of such payment amount and any amount of pay-

ment made [by the federal government under Medicare

Part B for] the service or item exceeding the amount

that is otherwise payable under the State [Medicaid] plan

for the item or service for eligible individuals who are not

qualified medicare beneficiaries.

Id. s 1396a(n) (amended 1997) (emphasis added). Section

1396a(n)'s use of the word "may" rather than "shall" suggests

that states are permitted, not obligated, to reimburse Part B

providers above the Medicaid rate--$10 if as in the above

example the Medicaid rate were $90, or zero if the Medicaid

rate were $80 or less.

Even before the 1986 enactment of these four QMB provi-

sions, HHS had long taken the position that the buy-in

scheme required states to reimburse providers for Part B

copayments only in an amount equal to the difference, if any,

between the Medicaid payment and the eighty percent of the

Medicare Part B charge that the federal government pays.

See Policy Information Memorandum from Director, Bureau

of Program Policy, Department of Health and Human Ser-

vices, to Associate Regional Administrators (Sept. 29, 1981)

("California's payment of amounts only up to its standard

maximum allowable rate under its [Medicaid] program is

acceptable."); Policy Information Memorandum No. 6 from

Associate Commissioner for Program Coordination, Depart-

ment of Health, Education and Welfare, to Health Services

Administration Regional Staff (Mar. 4, 1971) ("[T]he [state]

agency is not necessarily obligated to pay the full amount of

the deductibles and co-insurance costs according to the rates

established under [Medicare], but only that amount which will

satisfy the requirement for payment in full according to the

[Medicaid] method of payment."). HHS reiterated this policy

following the 1986 amendments to the buy-in scheme. See

Dep't of Health & Human Svcs., State Medicaid Manual

s 3490.14 (1991).

In 1990, the District of Columbia (a state for Medicaid

purposes) amended its Medicaid program to limit reimburse-

ment for QMB Part B copayments to the Medicaid rate. See

37 D.C. Reg. 5593 (1990). HHS approved the District's plan

in 1991. The District implemented its plan for more than six

years without challenge.

In 1997, a coalition of D.C. doctors and the Medical Society

of the District of Columbia sued the city in the Superior

Court for the District of Columbia, claiming that the buy-in

statutes required states to pay QMB Part B copayments in

full. Alleging breach of contract, unjust enrichment, and

promissory estoppel, the doctors sought retroactive reim-

bursement. The doctors also sued the District for injunctive

relief in the United States District Court for the District of

Columbia. The city removed the first suit to federal court,

where the two cases were consolidated.

One month later, Congress enacted the Balanced Budget

Act of 1997, Pub. L. No. 105-33, 111 Stat. 251 ("Budget Act").

Section 4714(a) of the Budget Act, entitled "Clarification

Regarding State Liability for Medicare Cost-Sharing," ex-

pressly authorized states to limit Medicare cost-sharing pay-

ments for QMBs based on Medicaid rates. See id. s 4714(a),

111 Stat. at 509-10. Section 4714(c) applied this putative

"clarification" retroactively to any pending lawsuit seeking

reimbursement from states under the buy-in program. See

id. s 4714(c), 111 Stat. at 510. Recognizing the prospective

validity of section 4714(a), the doctors abandoned their re-

quest for injunctive relief. Instead, they amended their

complaint to challenge the constitutionality of section

4714(c)'s retroactivity provision, claiming that it violates the

Takings and Due Process Clauses of the Fifth Amendment as

well as principles of separation of powers. The United States

intervened to defend the constitutionality of the retroactivity

provision.

The district court upheld section 4714(c), concluding:

[O]ne thing is clear: the law regarding state liability to

pay for the health services provided to QMBs has never

been crystal clear. Section 4714 has certainly provided

clarification where it was needed. For this reason, the

Court concludes that applying section 4714 retroactively,

as Congress directed, is not impermissible under the

Constitution.

McCreary v. Offner, 1 F. Supp. 2d 32, 37 (D.D.C. 1998).

Because section 4714's clarification of the buy-in scheme

undermined the theory of the doctors' breach of contract

action--that pre-1997 law required reimbursement at Medi-

care rates--the district court granted summary judgment for

the District. See id. The doctors appeal. Our review is de

novo. See Heller v. Fortis Benefits Ins. Co., 142 F.3d 487,

491-92 (D.C. Cir. 1998).

II

According to the doctors, pre-1997 law clearly required

states to reimburse them for all Part B cost-sharing obli-

gations incurred by QMBs. The Budget Act, they argue,

could not constitutionally change that requirement retroac-

tively. The United States (supported by the District) re-

sponds that: (1) pre-1997 law was ambiguous regarding state

cost-sharing obligations, and under Chevron U.S.A. Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837 (1984),

we must defer to HHS's reasonable interpretation of that

scheme; (2) even if Chevron deference to HHS's interpreta-

tion of the pre-1997 scheme is inappropriate, under Loving v.

United States, 517 U.S. 748, 770 (1996) ("subsequent legisla-

tion declaring the intent of an earlier statute is entitled to

great weight in statutory construction") (internal quotation

omitted), we should give deference to Congress's 1997 inter-

pretation of the prior scheme, as did the district court; and

(3) if the Budget Act did change the buy-in scheme retroac-

tively, then the doctors' constitutional arguments fail on the

merits. Mindful of our obligation to avoid constitutional

questions when possible, see Ashwander v. TVA, 297 U.S. 288,

341 (1936) (Brandeis, J., concurring), we begin by addressing

the government's Chevron argument. After all, if Chevron

deference to HHS's interpretation of pre-1997 law is appro-

priate, we must sustain the District's reimbursement cap

without regard to the Budget Act.

The doctors insist--as they must to avoid Chevron defer-

ence--that before 1997 sections 1396a(a)(10)(e) and

1396d(p)(3)(D) unambiguously required states to reimburse

providers in full for copayments for Part B services per-

formed on QMBs. They argue that the permissive "may"

language in section 1396a(n) comports with this reading,

interpreting that section simply to authorize states to deviate

from their otherwise rigid Medicaid payment schedules. Ac-

cording to the doctors, section 1396a(n) did nothing more than

provide an exception to the general rule that states must

never reimburse Medicaid providers in excess of HHS-

approved schedules. Section 1396a(n) used the permissive

"may" instead of the mandatory "shall," the doctors contend,

because state Medicaid rates occasionally exceed the Medi-

care rates for the same service.

The doctors' interpretation of the buy-in statutes is certain-

ly plausible. But as we read the pre-1997 statutes and their

legislative history, we think Congress has not so "unambigu-

ously expressed" its intent as to make the doctors' interpreta-

tion mandatory. Chevron, 467 U.S. at 843; see also Air

Transp. Ass'n of America v. FAA, 1999 WL 110689, at *3

(D.C. Cir. Mar. 5 1999) ("Although the inference petitioner

would draw as to the statute's meaning is not by any means

unreasonable, it is also not inevitable.").

To begin with, if the buy-in statutes really spoke as clearly

as the doctors contend, section 1396a(n) would have had no

need to provide separately that states could deviate from

their otherwise mandatory Medicaid schedules. Addressing

the same issue, the Seventh Circuit put it this way: "[I]f ...

[sections 1396a(a)(10)(e) and 1396d(p)(3)(D) of] the statute

clearly entitle[ ] [providers] to reimbursement at Medicare

rates (if it is not clear, Chevron is back in play), the state

could hardly be penalized for such reimbursement. That

would be penalizing it for complying with the statute." Para-

mount, Inc., 138 F.3d at 709; see also Rehabilitation Ass'n v.

Kozlowski, 42 F.3d 1444, 1469 (4th Cir. 1994) (Niemeyer, J.,

dissenting) ("It is utterly implausible, I submit, to believe that

Congress would create a new section in the [Medicaid] Act

solely to acknowledge that it is permissible for states to do

what Congress requires them to do in other sections."). The

United States makes this argument, but the doctors nowhere

respond.

The government also points out that the very provision

from which the doctors derive a state obligation to pay cost-

sharing in full--section 1396a(a)(10)(E)(i)--requires that state

plans make cost-sharing available for QMBs. Because states

must detail their QMB cost-sharing policies in their Medicaid

regulations before submitting those regulations to HHS for

approval, the argument goes, states' cost-sharing obligations

could never cause them to run afoul of their own regulations.

This argument makes sense. Again, the doctors nowhere

respond.

The doctors' interpretation of section 1396a(n) suffers from

another problem. During the almost twenty years prior to its

enactment, states often reimbursed providers for Medicare

cost-sharing in excess of Medicaid rates. Why then did Con-

gress need to enact section 1396a(n) to authorize such reim-

bursement? See Paramount, 138 F.3d at 709 (making this

point). The doctors point out that during the twenty years

prior to the enactment of section 1396a(n) states had not used

Medicaid funds to pay cost-sharing for "pure QMBs" (QMBs

not otherwise eligible for Medicaid) because the QMB pro-

gram did not even exist during that period. True as that may

be, the doctors cannot dispute that by 1986 states had often

exceeded their own Medicaid rates with respect to dual

eligibles.

The doctors claim to find support for their position in the

House Report accompanying the 1986 enactment of the QMB

program, which stated that "the Medicaid program would pay

the Part B deductible and the beneficiary's 20 percent coin-

surance." H.R. Rep. No. 99-727, at 106 (1986), reprinted in

1986 U.S.C.C.A.N. 3607, 3696. But because this language did

not speak to whether states must make the entire copayment

even in excess of Medicaid rates, it helps the doctors little.

Moreover, subsequent legislative history squarely conflicts

with the doctors' interpretation of the buy-in program. The

House Report accompanying the 1988 amendments said:

It is the understanding of the Committee that, with

respect to dual Medicaid-Medicare eligibles, some States

pay the coinsurance even if the amount that Medicare

pays for the service is higher than the State Medicaid

payment rate, while others do not. Under the Commit-

tee bill, States would not be required to pay the Medi-

care coinsurance in the case of a bill where the amount

reimbursed by Medicare--i.e., 80 percent of the reason-

able charge--exceeds the amount Medicaid would pay for

the same item or service.

H.R. Rep. No. 100-105(II), at 61 (1987), reprinted in 1988

U.S.C.C.A.N. 857, 884; see also H.R. Rep. No. 101-247, at 364

(1989), reprinted in 1989 U.S.C.C.A.N. 1906, 2090 ("The

Medicaid programs typically pay the Medicare coinsurance

only to the extent that their payment, plus the Medicare

payment, does not exceed what the Medicaid program would

pay for the service in question.... The Committee bill ...

does not change the current policy regarding the amount

which a Medicaid program must reimburse on such claims.").

Although post-enactment legislative history may or may not

be a valid tool for ascertaining congressional intent, see

United States v. Carlton, 512 U.S. 26, 39 (1994) (Scalia, J.,

concurring) (referring to "post-legislation legislative history"

as an "oxymoron"), our task here is not to divine conclusively

the meaning of section 1396a(n), but rather to determine

whether it is reasonably susceptible to more than one mean-

ing. With respect to this question, post-enactment legislative

commentary offering a plausible interpretation is certainly

relevant, much like plausible interpretations from litigants,

other courts, law review articles, or any other source would

be. The fact that the 1988 and 1989 House Reports inter-

preted section 1396a(n) differently from the interpretation

favored by the doctors suggests that the statute is far from

unambiguous.

We have a similar reaction to four pre-Budget Act circuit

court decisions that found the buy-in scheme unambiguous.

See Haynes Ambulance Serv., Inc. v. Alabama, 36 F.3d 1074,

1077 (11th Cir. 1994) (per curiam); Pennsylvania Med. Soc'y

v. Snider, 29 F.3d 886, 891-902 (3d Cir. 1994); Rehabilitation

Ass'n, 42 F.3d at 1451-58; New York City Health & Hospi-

tals Corp. v. Perales, 954 F.2d 854, 858-59 (2d Cir. 1992).

Although all four circuits found the statutes sufficiently clear

to preclude Chevron deference, they were not unanimous

about the meaning of the supposedly unambiguous scheme.

The Second, Third, and Eleventh Circuits essentially adopted

the interpretation the doctors urge in this case. The Fourth

Circuit expressly rejected this reading, as well as the position

HHS took there (and takes here). Instead, it held that

section 1396a(n) allowed states to pay more cost-sharing for

pure QMBs than for dual eligibles. See Rehabilitation Ass'n,

42 F.3d at 1454-55. The plausibility of these competing

interpretations simply confirms our view that the buy-in

scheme is ambiguous. See Smiley v. Citibank, 517 U.S. 735,

739 (1996) ("In light of the two dissents from the opinion of

the Supreme Court of California, and in light of the opinion of

the Supreme Court of New Jersey creating the conflict that

has prompted us to take this case, it would be difficult indeed

to contend that the [statute] is unambiguous with regard to

the point at issue here.") (citation and footnote omitted).

III

Proceeding to the second step of the Chevron inquiry, we

ask whether HHS has reasonably interpreted the buy-in

statutes. The United States's position is simple: Because the

word "may" in section 1396a(n) is permissive, not mandatory,

states are allowed to but need not exceed their Medicaid

rates. To us, this seems eminently reasonable--"may" means

may.

The doctors make only one argument challenging the rea-

sonableness of HHS's interpretation. Relying on INS v.

Cardoza-Fonseca, 480 U.S. 421, 446 n.30 (1987), which stated

that "[a]n agency interpretation of a relevant provision which

conflicts with the agency's earlier interpretation is entitled to

considerably less deference than a consistently held agency

view," the doctors claim that HHS has not consistently inter-

preted the buy-in statutes. In support, they cite the follow-

ing commentary from a 1983 HHS rulemaking:

Since 1971, HHS policy has been to require State

agencies that have a "buy-in" agreement to pay, in

addition to the Part B premium, the Part B coinsurance

and deductible amount for services provided to beneficia-

ries under Part B, even if the services are not routinely

provided under the Medicaid State Plan.

48 Fed. Reg. 10,378, 10,379 (1983) (notice of proposed rule-

making). That rulemaking has no relevance to the question

presented here, however, because there HHS merely conclud-

ed that the buy-in program does not require states to pay

Part B cost-sharing for services not covered by their Medic-

aid plans; the rulemaking did not address whether a state

must pay QMBs' full copayments for services that are cov-

ered under its Medicaid plan. The most relevant commen-

tary in the rulemaking, moreover, actually comports with the

position HHS takes in this case: "[I]f a State limits the

amount, duration or scope of Medicaid services covered in the

State plan, then the State may similarly limit payment of

Medicare Part B cost sharing amounts on those same services

in accordance with its Medicaid service limitations." 52 Fed.

Reg. 47,926, 47,928 (1987) (final rule). Not only does this

rulemaking suggest no agency inconsistency, but the doctors

have failed to cite any other instances of alleged agency

inconsistency in the twenty-eight years since HHS first artic-

ulated its copayment reimbursement policy. Indeed, HHS

appears to have approved the Medicaid plans of every state

that has chosen to limit total copayment reimbursement to

Medicaid rates.

Because we conclude that HHS's interpretation of the buy-

in statutes is reasonable, we have no need to reach the

doctors' constitutional challenge to the Budget Act. The

district court's grant of summary judgment for the District is

affirmed.

So ordered.