Adirondack Medical Center v. Kathleen Sebelius

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 3, 2013 Decided January 24, 2014

No. 12-5366

ADIRONDACK MEDICAL CENTER, ET AL.,

APPELLANTS

CORNING HOSPITAL, ET AL.,

APPELLEES

v.

KATHLEEN SEBELIUS, IN HER OFFICIAL CAPACITY AS

SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH

AND HUMAN SERVICES,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:11-cv-01671)

M. Miller Baker argued the cause for appellants. With

him on the briefs were Ankur J. Goel and Johnny H. Walker.

Abby C. Wright, Attorney, U.S. Department of Justice,

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

Stuart F. Delery, Acting Assistant Attorney General, Ronald

C. Machen Jr., U.S. Attorney, and Michael S. Raab, Attorney.

2

Before: ROGERS and BROWN, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge. In 2007, the Secretary of Health

and Human Services revamped Medicare’s Inpatient

Prospective Payment System, updating the diagnostic

weighting used to calculate reimbursements for hospitals

treating the program’s beneficiaries. As with most changes to

complex systems, there were unintended consequences—

namely in the form of overpayments to hospitals—but

Congress had proactively attempted to counter unwarranted

increases by adjusting the standardized base amount used to

calculate reimbursement for the majority of hospitals. The

Secretary thought, however, the fiscal pain should be shared

and opted to temper Congress’ targeted response by mixing it

with an adjustment for hospitals not affected by the

congressional directive. She invoked her broad-spectrum

grant of authority to ensure all hospitals—not just the ones

relying on the standardized amount—would share the burden.

A number of hospitals—those serving rural and otherwise

underserved communities—objected to being part of the cure.

They insist Congress’ legislative prescription—to adjust

standardized base amounts—was the only course available to

the Secretary to offset overpayment. We disagree and affirm

the decision of the district court.

I

For our purposes today, the labyrinthine world of

Medicare has two types of hospitals that enjoy different

reimbursement schemes. The first group is reimbursed under

the “federal rate”—a formula that takes a standardized base

3

amount (derived from national data) and multiplies it by a

weight associated with a diagnosis-related group (DRG).1 See

Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225,

1227 (D.C. Cir. 1994); see also 42 U.S.C.

§ 1395ww(d)(3)(D). While these hospitals are certainly

affected by the Secretary’s actions in the case at bar, they are

not the focus of this appeal.

The second group of hospitals, which includes Appellants

(“the Hospitals”), follows a different formula, the “hospital-

specific rate.” Their reimbursement is calculated with a base

amount derived not from national data, but from historic

operating costs at an individual hospital. See 42 U.S.C.

§§ 1395ww(d)(5)(D), 1395ww(d)(5)(G). That hospital-

specific base is then multiplied by a DRG weight. 42 C.F.R.

§ 412.73(e). Because these facilities typically serve

underserved communities, they have the option of receiving

the higher of either the federal rate or the hospital-specific

rate.2

1

In somewhat more relatable parlance, a DRG is a category of

inpatient treatment. Each DRG weight reflects “the relative

hospital resources used with respect to discharges classified within

that group compared to discharges classified within other groups.”

42 U.S.C. § 1395ww(d)(4)(B).

2

Reimbursements for “sole community hospitals” are fairly

straightforward—such hospitals are paid the higher of either the

federal rate or the hospital-specific rate. See 42 U.S.C.

§ 1395ww(d)(5)(D)(i). The payout for Medicare dependent

hospitals, however, differs slightly—that number is calculated by

taking the federal rate and adding 75% of the difference between

the federal rate payment and the hospital-specific rate payment.

See id. § 1395ww(d)(5)(G)(ii)(II).

4

Congress eventually directed the Secretary of Health and

Human Services to “adjust the classifications and weighting

factors” associated with the DRGs “to reflect changes in

treatment patterns, technology, . . . and other factors which

may change the relative use of hospital resources.” 42 U.S.C.

§ 1395ww(d)(4)(C)(i). But despite longstanding general

authority to “provide by regulation for such other exceptions

and adjustments to . . . payment amounts,” see, e.g., 42 U.S.C.

§ 1395ww(d)(5)(C)(iii) (1982), the agency demurred because

it was unsure how to address the effects of such adjustments.

See Changes to the Hospital Inpatient Prospective Payment

Systems and Fiscal Year 1996 Rates, 60 Fed. Reg. 29,202,

29,247 (June 2, 1995). In response, Congress enacted 42

U.S.C. § 1395ww(d)(3)(A)(vi), which reads:

Insofar as the Secretary determines that the adjustments

under paragraph (4)(C)(i) for a previous fiscal year (or

estimates that such adjustments for a future fiscal year)

did (or are likely to) result in a change in aggregate

payments under this subsection during the fiscal year that

are a result of changes in the coding or classification of

discharges that do not reflect real changes in case mix,

the Secretary may adjust the average standardized

amounts computed under this paragraph for subsequent

fiscal years so as to eliminate the effect of such coding or

classification changes.

Armed with this new provision, the Secretary announced

changes to the DRGs in 2007. See, e.g., Changes to the

Hospital Outpatient Prospective Payment System and CY

2008 Payment Rates, 72 Fed. Reg. 66,580, 66,886 (Nov. 27,

2007). To combat the possibility of overpayments under the

new system, the Secretary adjusted the standardized amount

downward by 1.2% and 1.8% for fiscal years 2008 and 2009,

respectively. See Changes to the Hospital Inpatient

5

Prospective Payment Systems and Fiscal Year 2008 Rates, 72

Fed. Reg. 47,130, 47,186 (Aug. 22, 2007). But Congress

intervened, halving the amount of adjustment by enacting the

Transitional Medical Assistance, Abstinence Education, and

QI Programs Extension Act of 2007, Pub. L. No. 110-90,

§ 7(a), 121 Stat. 984, 984 (2007) (“TMA”). A greater

adjustment would require a determination by the Secretary

that the “changes in coding and classification . . . did not

reflect real changes in case mix” prior to making prospective

adjustments under § 1395ww(d)(3)(A)(vi) and recoupment

adjustments under section 7(b)(1)(B) of the TMA.

The Secretary accordingly conducted retrospective

analyses and proposed a downward prospective adjustment

for hospital-specific rate payments. Citing a need to “avoid

what could be widespread, disruptive effects of . . .

adjustments on hospitals” that would occur by only adjusting

the standardized amounts, the Secretary opted to temper the

impact of reclassification by splitting the difference between

“federal rate” and “hospital-specific rate” hospitals. Hospital

Inpatient Prospective Payment Systems for Acute Care

Hospitals and the Long-Term Care Hospital Prospective

Payment System Changes and FY2011 Rates, 75 Fed. Reg.

50,042, 50,070 (Aug. 16, 2010). The latter group objected,

asserting the Secretary’s action would “endanger their ability

to provide the type of care that Congress specifically sought

to protect by establishing their special Medicare payment

systems.” Id. Relying on the once-obscure grant of authority

in § 1395ww(d)(5)(I)(i), the Secretary implemented the

adjustments anyway. See id.

The Hospitals sought expedited judicial review of the

Secretary’s decision from the Provider Reimbursement

Review Board, which disclaimed jurisdiction but noted it

would have otherwise expedited review. Once the Medicare

6

administrator reversed the Board’s jurisdictional finding, the

Hospitals filed suit in district court, claiming the Secretary’s

decision was arbitrary, capricious, and exceeded the scope of

her statutory authority. The Secretary responded by filing a

motion to dismiss. Finding the statutory scheme ambiguous

and deferring to the Secretary’s reasonable interpretation of

the adjustment provisions, the district court granted the

motion. See Adirondack Med. Ctr. v. Sebelius, 891 F. Supp.

2d 36, 48 (D.D.C. 2012).

II

This case rests on Chevron deference. We review a

district court’s deference decision de novo, “employing

traditional tools of statutory construction.” Nat’l Ass’n of

Clean Air Agencies v. EPA, 489 F.3d 1221, 1228 (D.C. Cir.

2007) (internal quotation marks omitted). The first step of

this familiar inquiry is considering “the text, structure,

purpose, and history of an agency’s authorizing statute” to

determine whether a provision reveals congressional intent

about the precise question at issue. Hearth, Patio & Barbecue

Ass’n v. U.S. Dep’t of Energy, 706 F.3d 499, 503 (D.C. Cir.

2013) (internal quotation marks omitted). If we cannot

readily divine Congress’ clear intent, we must defer to the

agency’s interpretation of the statute so long as it is “based on

a permissible construction of the statute.” See Chevron,

U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 843

(1984).

A

The Hospitals begin their Chevron challenge relying on

the canon of expressio unius est exclusio alterius (the

expression of one is the exclusion of others). In their reply

brief, the Hospitals assert they “invoke expressio unius only

7

to establish that subsection (d)(3)(A)(vi) on its own terms

unambiguously authorizes adjustments solely to the

standardized amount.” Reply Br. at 6 n.3. Had the Secretary

attempted to promulgate the changes to the hospital-specific

rates by invoking § 1395ww(d)(3)(A)(vi), the canon would

have force in isolation. But the Secretary did no such thing.

Instead, the manner in which the Appellants rely on the

expressio unius canon suggests they are drawing on the

canon’s preclusive power. In other words, the very

invocation of the canon constitutes a challenge to the

Secretary’s broad authority. The nature of their argument is

in the very name of the canon—exclusio alterius, or the

exclusion of the other. As § 1395ww(d)(3)(A)(vi) concerns

the grant of authority, the invocation of the canon must

naturally involve an attempt to exclude all other potential

sources of authority when it comes to remedying a particular

malady. And when one possible interpretation of a statutory

provision has the potential to render another provision inert,

we cannot simply say, as the Appellants suggest we do, that

we are reviewing the former in isolation. Rather, the canon’s

relevance and applicability must be assessed within the

context of the entire statutory framework. See Am. Bankers

Ass’n v. Nat’l Credit Union Admin., 271 F.3d 262, 267 (D.C.

Cir. 2001) (“[W]e must not ‘confine [ourselves] to examining

a particular statutory provision in isolation. The meaning—or

ambiguity—of certain words or phrases may only become

evident when placed in context.’” (quoting FDA v. Brown &

Williamson Tobacco Corp., 529 U.S. 120, 132 (2000))).

With that in mind, we turn to the Hospitals’ argument.

They read the grant of authority in § 1395ww(d)(3)(A)(vi) as

impliedly precluding the Secretary from modifying hospital-

specific rates to offset increased payments resulting from the

2008 and 2009 coding practice changes. It is clear, they say,

8

Congress intended to shield such rates from modification by

directing the Secretary to adjust only the standardized

amounts in an effort to compensate for the deleterious or

unwanted effects of such changes.

This may be a reasonable reading of the statute, but our

inquiry at Chevron step one is not satisfied by reasonableness

alone. See Chevron, 467 U.S. at 842–43. The expressio unius

canon is a “feeble helper in an administrative setting, where

Congress is presumed to have left to reasonable agency

discretion questions that it has not directly resolved.” Cheney

R.R. Co. v. I.C.C., 902 F.2d 66, 68–69 (D.C. Cir. 1990) (citing

Chevron, 467 U.S. at 843–44). It offers “too thin a reed to

support the conclusion that Congress has clearly resolved an

issue.” Mobile Commc’ns Corp. of Am. v. FCC, 77 F.3d

1399, 1405 (D.C. Cir. 1996) (quoting Tex. Rural Legal Aid,

Inc. v. Legal Servs. Corp., 940 F.2d 685, 694 (D.C. Cir. 1991)

(internal brackets and quotation mark omitted). And when

countervailed by a broad grant of authority contained within

the same statutory scheme, the canon is a poor indicator of

Congress’ intent. See Creekstone Farms Premium Beef,

L.L.C. v. Dep’t of Agric., 539 F.3d 492, 500 (D.C. Cir. 2008);

see also Cnty. of L.A. v. Shalala, 192 F.3d 1005, 1014 (D.C.

Cir. 1999) (“Under Chevron step one we consider not only the

language of the particular statutory provision under scrutiny,

but also the structure and context of the statutory scheme of

which it is a part.” (quoting Ill. Pub. Telecomms. Ass’n v.

FCC, 117 F.3d 555, 568 (D.C. Cir. 1997) (internal quotation

marks omitted))).

Even if the canon has some force here, nothing

unambiguously suggests Congress intended to strip the

Secretary of her broad grant of authority under

§ 1395ww(d)(5)(I)(i). Consider, for example, the language of

§ 1395ww(d)(3)(A)(vi): “the Secretary may adjust the

9

average standardized amounts.” The Hospitals understand

this to mean the Secretary may only adjust the standardized

amounts. See Reply Br. at 3. Momentarily setting aside our

understanding that Congress generally knows how to use the

word “only” when drafting laws, see Pub. Citizen, Inc. v.

Rubber Mfrs. Ass’n, 533 F.3d 810, 817 (D.C. Cir. 2008), it

seems more likely that § 1395ww(d)(3)(A)(vi) was Congress’

attempt “to clarify what might be doubtful.” See Shook v.

D.C. Fin. Responsibility & Mgmt. Assistance Auth., 132 F.3d

775, 782 (D.C. Cir. 1998).

Prior to the enactment of § 1395ww(d)(3)(A)(vi), the

Department expressed doubts about its ability to correct the

potential for anomalously-high payments resulting from

changes to how hospital cases were classified. See Changes

to the Hospital Inpatient Prospective Payment Systems, 66

Fed. Reg. 39,828, 39,862 (Aug. 1, 2001) (“We have stated

that, prior to implementing severity-adjusted DRGs, we

would need specific legislative authority to offset any

significant anticipated increase in payments attributable to

changes in coding practices caused by significant changes to

the DRG classification system.”). Congress responded by

enacting § 1395ww(d)(3)(A)(vi). See Consolidated

Appropriations Act, 2001, Pub. L. No. 106-554, app. F, tit.

III, § 301(e)(1), 114 Stat. 2763, 2763A493; see also Changes

to the Hospital Inpatient Prospective Payment Systems, 66

Fed. Reg. at 39,862. This sequence of events gives support to

the idea that Congress intended to clarify and complement the

Secretary’s existing authority—i.e., to “make assurance

double sure,” see Shook, 132 F.3d at 782 (internal quotation

marks omitted)—not to extinguish or eliminate it. Confronted

by two plausible readings of the statute, we cannot declare

Congress’ intent unambiguous. See Am. Petroleum Inst. v.

U.S. EPA, 906 F.2d 729, 740 (D.C. Cir. 1990) (per curiam).

10

Section 7(b)(1) of the TMA gives us little pause. As the

Hospitals point out, the provision employs more forceful

language than what we see in § 1395ww(d)(3)(A)(vi): “the

Secretary shall . . . make an appropriate adjustment.” In their

view, the use of such mandatory language—paired with the

non obstante clause prefacing it—demonstrates Congress’

unambiguous intent to direct the Secretary to adjust only the

standardized amount. These textual aids, however, do not

sufficiently dispel the provision’s ambiguity. We cannot say

the use of the word “shall” makes much of a difference, for

the broad grant of authority enshrined in § 1395ww(d)(5)(I)(i)

also employs the same word. As with

§ 1395ww(d)(3)(A)(vi), we are thus left with two equally

plausible explanations: (1) a conflictive one, rendering the

provisions mutually exclusive congressional directives; and

(2) a harmonious one, reading the statutory authorizations as

overlapping. The dizzying array of other canons that could

shift the analysis one way or another—e.g., the treatment of

the non obstante clause, see Cisneros v. Alpine Ridge Grp.,

508 U.S. 10, 18 (1993), or the presumption against implied

repeals, see Branch v. Smith, 538 U.S. 254, 273 (2003),

militates against finding unambiguous congressional intent

here.

B

The hospitals next turn to the “basic principle of statutory

construction that a specific statute . . . controls over a general

provision . . . particularly when the two are interrelated and

closely positioned.” HCSC-Laundry v. United States, 450

U.S. 1, 6 (1981) (citing Bulova Watch Co. v. United States,

365 U.S. 753, 761 (1961)). The canon is impotent, however,

unless the compared statutes are “irreconcilably conflicting.”

See Detweiler v. Pena, 38 F.3d 591, 596 (D.C. Cir. 1994)

(citing Watt v. Alaska, 451 U.S. 259, 266 (1981)). Absent

11

clearly expressed congressional intent to the contrary, it is our

duty to harmonize the provisions and render each effective.

See Morton v. Mancari, 417 U.S. 535, 551 (1974).

As explained above, § 1395ww(d)(3)(A)(vi) and section

7(b)(1) of the TMA can be reasonably construed as grants of

authority that complement and overlap with

§ 1395ww(d)(5)(I)(i). Put differently, it is not unreasonable

to say § 1395ww(d)(5)(I)(i) operates to the extent that

§ 1395ww(d)(3)(A)(vi) and section 7(b)(1) of the TMA are

silent. The two provisions say nothing about adjusting the

hospital-specific rate; therefore, the broad grant of authority

(and the Secretary’s use thereof) fills a space that the specific

provisions do not occupy. Such an arrangement does not run

afoul of the general/specific canon. See United States v.

Chase, 135 U.S. 255, 260 (1890) (“It is an old and familiar

rule that where there is, in the same statute, a particular

enactment, and also a general one, which, in its most

comprehensive sense, would include what is embraced in the

former, the particular enactment must be operative, and the

general enactment must be taken to affect only such cases

within its general language as are not within the provisions of

the particular enactment.” (citations and internal quotation

marks omitted)).

Perhaps the Hospitals’ argument is better characterized as

one concerning superfluity. See Amoco Prod. Co. v. Watson,

410 F.3d 722, 733 (D.C. Cir. 2005) (“It is a familiar canon of

statutory construction that, ‘if possible,’ we are to construe a

statute so as to give effect to ‘every clause and word.’”

(quoting United States v. Menasche, 348 U.S. 528, 538–39

(1955))). Their reliance on the Supreme Court’s decision in

RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S.

Ct. 2065 (2012), confirms this. See id. at 2071 (“[T]he canon

has full application . . . [when] a general authorization and a

12

more limited, specific authorization exist side-by-side. There

the canon avoids not contradiction but the superfluity of a

specific provision that is swallowed by the general one,

‘violat[ing] the cardinal rule that, if possible, effect shall be

given to every clause and part of the statute.’” (quoting D.

Ginsberg & Sons, Inc. v. Popkin, 285 U.S. 204, 208 (1932)

(alteration in original))). If § 1395ww(d)(5)(I)(i)’s

prescription of authority is as broad as the Secretary says it is,

they argue, parts of the statutory scheme will become

meaningless excess and congressional directives will either be

ignored or fulfilled by unintended means.

The surplusage canon is neither inviolable nor

insurmountable. See Lamie v. U.S. Tr., 540 U.S. 526, 536

(2004). This is particularly true when agency authority is at

stake. See DeNaples v. Office of Comptroller of Currency,

706 F.3d 481, 487 (D.C. Cir. 2013) (“That there is overlap

among the various enforcement provisions is not surprising. . .

. Congress could reasonably hand the agencies a palette

sufficiently sophisticated to capture the full spectrum of

enforcement possibility.” (citing RadLAX, 132 S. Ct. at

2072)).

The canon is particularly unhelpful when both

interpretive outcomes lead to some sort of surplusage—either

§ 1395ww(d)(3)(vi)(A) and section 7(b)(1) of the TMA must

give way to the broad grant of authority in

§ 1395ww(d)(5)(I)(i), or the last must be declared a nullity.

While it is possible to give the first two provisions full effect

without gutting § 1395ww(d)(5)(I)(i) in its entirety, we would

need to engage in a statutory rewrite to do so—e.g., insert the

word “only” here and there, insert a limiting clause to the

Secretary’s otherwise broad grant of authority, etc. This is

not our role, see Pub. Citizen, 533 F.3d at 816–17 (declining

to “add[] words that are not in the statute that the legislature

13

enacted” (citing United States v. Monsanto, 491 U.S. 600, 611

(1989))), and we note the need for such manipulation creates

strong doubts about whether the Hospitals’ interpretation is

correct, let alone unambiguously clear.

We cannot divine the precise reasons for the manner of

Congress’ enactments. Perhaps, to build on the Bard’s turn of

phrase, the legislature sought “to make assurance triple sure.”

Despite the potential for statutory redundancy, Congress may

have decided to clarify—not once, but twice—what the

Secretary was permitted to do, thereby handing her “a palette

sufficiently sophisticated to capture the full spectrum of . . .

possibility.” See DeNaples, 706 F.3d at 487. At the very

least, we remain unconvinced the statutory scheme is

unambiguous in evincing Congress’ intent.

C

Finally, the Hospitals point to the American Taxpayer

Relief Act of 2012, which states “the Secretary of Health and

Human Services shall not have authority to fully recoup past

overpayments related to documentation and coding changes

from fiscal years 2008 and 2009.” Pub. L. No. 112-240,

§ 631(a)(2), 126 Stat. 2313, 2353 (2013). Acknowledging

that their argument with respect to the Act is legally futile, the

Hospitals instead cite it in an appeal to sound policy and

judicial prudence. It would make “little sense,” they argue,

for Congress to constrain the Secretary’s authority with

respect to recoupment adjustments, while leaving untouched

her authority to make prospective adjustments. See Reply Br.

at 17–18.

We need not dwell on this point too long, as “[s]uch

policy arguments are more properly addressed to legislators or

administrators, not to judges.” See Chevron, 467 U.S. at 864.

14

And in any event, the Secretary offers a plausible explanation:

as there was nothing left to recoup with respect to FY 2008

and FY 2009, Congress decided to close that particular tap.

See Hospital Inpatient Prospective Payment Systems for

Acute Care Hospitals and the Long-Term Care Hospital

Prospective Payment System and Fiscal Year 2013 Rates, 77

Fed. Reg. 53,258, 53,276 (Aug. 31, 2012) (“Because these

adjustments, in effect, balanced out, there was no year-to-year

change in the standardized amount due to this recoupment

adjustment for FY 2012. . . . [A]ll overpayments made in FY

2008 and FY 2009 have been fully recaptured with

appropriate interest, and the standardized amount has been

returned to the appropriate baseline.”).

D

The only certainty that we can discern from the statutory

scheme is that it is unclear. We must therefore turn to step

two of the Chevron inquiry: the reasonableness of the

Secretary’s interpretation. The Secretary determined there

was an artificial increase unrelated to any actual change in the

severity of illnesses treated. She therefore made a downward

adjustment to the rate paid to rural and sole community

hospitals in order to ameliorate the increasing rate paid to all

hospitals due to the revamping of the diagnosis coding

system. In so doing, the Secretary reasonably exercised her

authority under § 1395ww(d)(5)(I)(i) to provide “for such

other exceptions and adjustments to [IPPS] payment amounts

. . . as the Secretary deems appropriate.”

This case ultimately concerns the Secretary’s ability to

combat artificial increases in payment amounts, i.e., to

minimize the hospitals’ receipt of funds for expenses they

have not incurred. See Changes to the Hospital Outpatient

Prospective Payment System and CY 2008 Payment Rates, 72

15

Fed. Reg. at 47,178. In attempting to preserve this financial

windfall, the Appellants argue for a statutory interpretation

that severely cabins the Secretary’s ability to rectify a difficult

and legitimate problem. We do not think this is a reasonable

approach, particularly as the Appellants’ gain comes at every

other participating hospital’s loss. However much Congress

sought to protect hospitals serving underserved

communities—hospitals that are already protected under

special formulae—we cannot say such a cumulative benefit

was unquestionably intended by the legislature.

III

The Hospitals contend our inquiry ends at the first

Chevron step. Our analysis suggests otherwise. We agree

with the district court’s conclusion that the statutory scheme

was ambiguous and unclear. Its decision, therefore, is

Affirmed.