DC Hosp Assn v. DC

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 4, 2000 Decided July 21, 2000

No. 99-7239

The District of Columbia Hospital Association, et al.,

Appellees

v.

District of Columbia and

Herbert Weldon, Deputy Director for Health Care Finance

of Medical Assistance Administration,

Appellants

Appeal from the United States District Court

for the District of Columbia

(No. 98cv02575)

---------

Donna M. Murasky, Senior Assistant Corporation Counsel,

with whom Robert R. Rigsby, Corporation Counsel, and

Charles L. Reischel, Deputy Corporation Counsel, were on

the briefs, argued the cause for appellants.

Christopher L. Keough, with whom Ronald N. Sutter and

Kimberly N. Brown were on the brief, argued the cause for

appellees.

Before Silberman and Sentelle, Circuit Judges, and

Buckley, Senior Circuit Judge.

Opinion for the court filed by Senior Judge Buckley.

Buckley, Senior Judge: The District of Columbia appeals

the district court's ruling that its method of computing certain

payments to hospitals violated the federal Medicaid statute.

Because we agree that the District of Columbia's interpreta-

tion of the law is contrary to its plain meaning, we affirm the

district court's grant of summary judgment to the District of

Columbia Hospital Association.

I. Background

A. Regulatory Framework

The Medicaid statute, Subchapter XIX of the Social Securi-

ty Act, establishes a cooperative plan between the federal

government and the States to provide medical services to low-

income individuals. 42 U.S.C. ss 1396-1396v (1994 & Supp.

III 1997). The program is jointly funded by the Federal and

State governments and is administered by the States pursu-

ant to federal guidelines. See generally id. ss 1396a, 1396b;

42 C.F.R. s 430.0-.25 (1999). The statute treats the District

of Columbia ("District") as a State. 42 U.S.C. s 1396d(b)

(Supp. III 1997). To qualify for federal funding, a State must

have its own Medicaid plan approved by the Health Care

Financing Administration ("HCFA") of the United States

Department of Health and Human Services. Id. s 1396; 42

C.F.R. s 430.10.

All State plans are required to provide Medicaid beneficia-

ries with inpatient hospital services. 42 U.S.C.

ss 1396a(a)(10)(A), 1396d(a)(1). Because of the greater costs

it found to be associated with the treatment of indigent

patients, Congress has directed that hospitals providing inpa-

tient care must be compensated under the Medicaid program

at rates that "take into account ... the situation of hospitals

which serve a disproportionate number of low-income patients

with special needs." Id. s 1396a(a)(13)(A)(iv); see also H.R.

Rep. No. 100-391(1), at 524, reprinted in 1987 U.S.C.C.A.N.

2313-1, 2313-344 (discussing adjustments in payments to

"disproportionate share hospitals" ("DSH")). The adjust-

ments mandated by Congress ("DSH adjustments" or "DSH

payments") are achieved through increases in the "rate or

amount of payment for such services." 42 U.S.C.

s 1396r-4(a)(1)(B).

States may select one of three complex formulae for calcu-

lating the DSH payments. Id. s 1396r-4(c)(1), (2), (3). Un-

der the formula selected by the District ("(c)(1) formula"), see

D.C. Mun. Regs. tit. 29, s 908.4(b) (1999), the DSH adjust-

ment must equal "at least the product of [ ] the amount paid

under the State plan to the hospital for operating costs for

inpatient hospital services" ("base amount"), multiplied by the

hospital's "disproportionate share adjustment percentage."

42 U.S.C. s 1396r-4(c)(1). Because this case hinges on the

calculation of the base amount, we will spare the reader the

labyrinthine process by which the disproportionate share

adjustment percentage is derived. We simply observe that it

alone would justify the Supreme Court's description of the

Medicaid statute as "an aggravated assault on the English

language, resistant to attempts to understand it." Schweiker

v. Gray Panthers, 453 U.S. 34, 43 n.14 (1981) (quoting Fried-

man v. Berger, 409 F. Supp. 1225, 1226 (S.D.N.Y. 1976)).

B. The District of Columbia's Plan

The District's Medicaid plan is administered by an agency

within the Department of Human Services that was called the

Commission on Health Care Finance ("CHCF") at the time

this controversy originated. Although it has since been re-

named the Medical Assistance Administration, the parties

have continued to refer to the agency as the CHCF, as will

we.

District of Columbia residents who qualify for Medicaid on

the basis of their eligibility for assistance under the Tempo-

rary Assistance for Needy Families program (formerly Aid to

Families with Dependent Children) are required by the Dis-

trict's Medicaid Managed Care Amendment Act of 1992 to

enroll in managed care plans. D.C. Code Ann. s 1-359(d)(2)

(1999 Repl. & Supp. 2000). Other Medicaid beneficiaries

continue to receive services on a fee-for-service basis. The

District pays the managed care organizations ("MCOs") that

administer the managed care plans a fixed pre-paid amount

per Medicaid enrollee. The MCOs, in turn, are responsible

for providing these enrollees with all the health care services

to which they are entitled under the statute, including inpa-

tient hospital services provided under contract between the

MCOs and participating hospitals. Id. s 1-359(d)(2), (3).

C. The Litigation

Without delving too deeply into the tortuous history of this

litigation, it suffices to say that the District and the District of

Columbia Hospital Association ("Association") have been en-

gaged for the better part of the past decade in an argument

over the District's calculation of DSH payments. In 1994, the

Association filed a suit in which it claimed, among other

things, that the District's method of computing DSH adjust-

ments violated the Medicaid statute by failing to take into

account the services provided managed care patients through

the MCOs. While the suit was pending, a newly appointed

Commissioner of the CHCF agreed to revise the District's

methodology. Because the parties believed this would re-

solve their dispute, the district court dismissed the suit as

moot. Subsequent to the dismissal of the case, it became

apparent that the parties were not in fact in accord as to how

DSH adjustments should be computed. The bone remaining

in contention was the District's failure to include, in the (c)(1)

formula's base amount, the operating costs incurred by hospi-

tals in providing inpatient services to Medicaid managed care

patients.

In 1998, the Association initiated the present action seeking

a declaratory judgment that the District's exclusion of Medic-

aid managed care patients from the base amount violated the

Medicaid statute. The Association subsequently filed a mo-

tion requesting the district court to compel the District to

comply with representations the Association claims the Dis-

trict made in settling the earlier litigation. The court grant-

ed the Association's motion for summary judgment based on

its holding that the District's method of calculating DSH

payments was contrary to law, and it granted the Associa-

tion's motion to compel compliance with its version of the

earlier understanding. District of Columbia Hosp. Ass'n v.

District of Columbia, 73 F. Supp. 2d 8 (D.D.C. 1999). The

District filed a timely appeal, and we have jurisdiction to

review the district court's final order pursuant to 28 U.S.C.

s 1291.

II. Analysis

We review a grant of summary judgment de novo, applying

the same standard as the district court. See, e.g., Everett v.

United States, 158 F.3d 1364, 1367 (D.C. Cir. 1998), cert.

denied, 526 U.S. 1132 (1999). Summary judgment is appro-

priate where there is no genuine issue as to any material fact

and the moving party is entitled to judgment as a matter of

law. Fed. R. Civ. P. 56(c).

The dispositive question in this case is one of statutory

interpretation. Specifically, we are concerned here with the

proper application of the formula selected by the District for

the computation of the DSH adjustment. That formula pro-

vides that the adjustment must

be in an amount equal to at least the product of (A) the

amount paid under the State plan to the hospital for

operating costs for inpatient hospital services (of the kind

described in section 1395ww(a)(4) of this title), and (B)

the hospital's disproportionate share adjustment percent-

age (established under section 1395ww(d)(5)(F)(iv) of this

title)[.]

42 U.S.C. s 1396r-4(c)(1) (emphasis added).

The controversy in this case centers on the meaning to be

given the word "under" in the quoted text. The District

contends that it is not required to include the cost of provid-

ing inpatient services to Medicaid managed care patients in

the base amount because the hospitals receive payments for

those services from MCOs rather than from the District.

Because the payments are not made directly by the District,

it reasons that they are not made "under the State plan."

It is axiomatic that "[t]he starting point in statutory inter-

pretation is the language of the statute itself." Ardestani v.

INS, 502 U.S. 129, 135 (1991) (internal quotation marks and

brackets omitted). The Supreme Court has observed that

"[t]he word 'under' has many dictionary definitions and must

draw its meaning from its context." Id. We see nothing in

the context of the Medicaid statute, however, that would

require us to give the word other than its ordinary meaning.

"Under" is defined as "required by[,] in accordance with[, or]

bound by." Webster's Third New International Dictionary

2487 (1981); see also Ardestani, 502 U.S. at 135 (finding "the

most natural reading" of "under" in context of Equal Access

to Justice Act to mean " 'subject [or pursuant] to' or 'by

reason of the authority of' ") (quoting St. Louis Fuel and

Supply Co. v. FERC, 890 F.2d 446, 450 (D.C. Cir. 1989)).

Although payments from MCOs to hospitals for the care of

Medicaid patients are not made directly by the District, they

are clearly made pursuant to, and under the authority of, the

District's Medicaid plan. MCOs may not receive payment for

services to Medicaid patients unless they have completed a

Medicaid managed care provider agreement with the District.

D.C. Mun. Regs. tit. 29, s 5308.1. The contracts between the

MCOs and the hospitals that serve their Medicaid enrollees

are closely regulated by the District. For example, District

regulations require MCOs to submit their contracts with

hospitals to the District for prior approval, id. s 5313.1; to

notify the District before effecting any changes in such

agreements, id. s 5304.2-.3; to contract only with hospitals

located in the District, id. s 5313.9; and to assure that

financial and programmatic information maintained by the

hospital regarding Medicaid managed care patients will be

available for inspection by the MCO or the District. Id.

s 5313.10(d).

Moreover, we can find nothing in the statute that would

require us to confine "the amount paid under [a] State plan to

[a] hospital" to that paid by the State itself. To the contrary,

if Congress had so intended, it could have specified that only

a State's "direct" payments were to be taken into account, as

it did in the preceding subsection of the statute. See 42

U.S.C. s 1396r-4(b)(3)(A)(i)(II) (referring to "the amount of

the cash subsidies for patient services received directly from

State and local governments") (emphasis added). That it did

not do so here is compelling evidence that Congress did not

intend to limit the computation of payments to those made

directly by the District. See Russello v. United States, 464

U.S. 16, 23 (1983) ("[W]here Congress includes particular

language in one section of a statute but omits it in another

section of the same Act, it is generally presumed that Con-

gress acts intentionally and purposely in the disparate inclu-

sion or exclusion.") (internal quotation marks and citation

omitted).

If more were required, our construction of the statutory

language is wholly consistent with Congress's purpose in

creating the DSH adjustment. See Holloway v. United

States, 526 U.S. 1, 6 (1999) ("In interpreting the statute at

issue, we consider not only the bare meaning of the critical

word or phrase but also its ... purpose in the statutory

scheme.") (internal quotation marks and brackets omitted).

"Congress's 'overarching intent' in passing the disproportion-

ate share provision was to supplement the ... payments of

hospitals serving 'low income' persons." Legacy Emanuel

Hosp. and Health Ctr. v. Shalala, 97 F.3d 1261, 1265 (9th Cir.

1996) (quoting Jewish Hosp. v. Secretary of Health & Human

Serv., 19 F.3d 270, 275 (6th Cir. 1994)). As the Ninth Circuit

has noted, "[p]atients meeting the statutory requirements for

Medicaid do not cease to be low-income patients on days that

the state does not pay Medicaid inpatient hospital benefits."

Id. at 1266. Similarly, patients who must be enrolled in

MCOs pursuant to the District's Medicaid plan do not cease

to impose higher costs on the hospitals that serve them.

Finally, we are unpersuaded by the District's offer of a

letter from the General Accounting Office asserting that

States have the discretion to exclude Medicaid managed care

patients from their calculation of the maximum DSH adjust-

ment a given hospital may receive under another section of

the Medicaid statute. As the Supreme Court has recently

made clear, "[i]nterpretations such as those in opinion let-

ters--like interpretations contained in policy statements,

agency manuals, and enforcement guidelines, all of which lack

the force of law--do not warrant Chevron-style deference."

Christensen v. Harris County, 120 S. Ct. 1655, 1662 (2000).

This is a reference to Chevron U.S.A. Inc. v. Natural Re-

sources Defense Council, Inc., 467 U.S. 837 (1984), which

holds that courts must defer to an agency's permissible

construction of a statute it is charged with administering

when "the statute is silent or ambiguous with respect to the

specific issue" before the court. Id. at 843. Because the

provision at issue here is unambiguous, we owe no deference

to a contrary construction even if formally adopted by the

Secretary of Health and Human Services.

III. Conclusion

Because the District's interpretation is contrary to the

plain meaning and purpose of the Medicaid statute, we hold

that the District may not exclude the operating costs incurred

by hospitals in their service of Medicaid managed care pa-

tients in calculating DSH payments pursuant to the (c)(1)

formula. We have no need, therefore, to reach the district

court's alternative holding based on the Association's motion

to compel. The district court's grant of summary judgment

to the Association is therefore

Affirmed.