Council For Urological Interes v. Sylvia Mathews Burwell

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 24, 2014 Decided June 12, 2015

No. 13-5235

COUNCIL FOR UROLOGICAL INTERESTS,

APPELLANT

v.

SYLVIA MATHEWS BURWELL, IN HER OFFICIAL CAPACITY AS

SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN

SERVICES AND UNITED STATES OF AMERICA,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:09-cv-00546)

Gordon A. Coffee argued the cause for appellant. With

him on the briefs were Thomas L. Mills, Steffen N. Johnson,

and Erica E. Stauffer.

Jeffrey E. Sandberg, Attorney, U.S. Department of

Justice, argued the cause for appellees. With him on the brief

were Stuart F. Delery, Assistant Attorney General, Ronald C.

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

Christine N. Kohl, Attorney, entered an appearance.

2

Before: HENDERSON, ROGERS, and GRIFFITH, Circuit

Judges.

Opinion for the Court on Parts I, II.A, III, IV, and V filed

by Circuit Judge GRIFFITH.

Opinion for the Court on Part II.B filed by Circuit Judge

HENDERSON.

Opinion dissenting from Part II.A filed by Circuit Judge

HENDERSON.

Opinion dissenting from Part II.B filed by Circuit Judge

GRIFFITH.

I

The Secretary of Health and Human Services issued

regulations that effectively prohibit physicians who lease

medical equipment to hospitals from referring their Medicare

patients to these same hospitals for outpatient care involving

that equipment. The regulations accomplish this through two

separate provisions. The first prohibits physicians from

charging hospitals for leased equipment on a per-use basis

when the physicians also refer patients to the hospital for

procedures using that equipment. The second interprets the

relevant statute to apply to physician-groups that perform

procedures rather than only the entities that bill Medicare.

Challenging the regulations here is an association of

physicians who participate in leasing agreements with

hospitals, under which they charge hospitals for equipment on

a per-use basis and perform the procedures using the

equipment. The association argues that the regulations exceed

the Secretary’s statutory authority and violate both the

Administrative Procedure Act and the Regulatory Flexibility

Act. The district court granted the Secretary’s motion for

summary judgment. Although one majority agrees with the

3

district court that the statute is ambiguous as to the regulation

of leases that charge on a per-use basis (Part II.A), a different

majority concludes that the Secretary’s explanation for

prohibiting these leases is unreasonable (Part II.B). The court

unanimously concludes that the Secretary’s interpretation of

the statute to apply to the physician-groups performing the

procedures is reasonable (Part III), and that the Secretary

complied with the Regulatory Flexibility Act (Part IV). We

therefore affirm in part, reverse in part, and remand to the

district court with instructions to remand the regulation

relating to leases charging by use to the Secretary for further

proceedings.

A

This case involves the interplay between complicated

statutory provisions and regulations. Resolving the questions

before us requires that we undertake a sometimes arduous

journey through the tangled regime. We begin our slog with a

look at the Medicare program.

Medicare provides federally funded health insurance to

disabled persons and those aged 65 or older for various

services, including the outpatient hospital procedures at issue

here. 42 U.S.C. §§ 1395 et seq. In addition to paying the

performing physician a fee that covers her services for the

outpatient care, see generally 42 U.S.C. §§ 1395w-4,

1395x(s)(1); 42 C.F.R. §§ 410.20, 414.32, Medicare also pays

the hospital a fee that covers charges for space, equipment,

supplies, diagnostic testing, and the services of any

non-physician personnel, 42 U.S.C. § 1395l(t); 42 C.F.R.

pt. 419. Typically a hospital will have an employee perform

the outpatient procedures using its own equipment, but

Medicare also permits hospitals to contract with third parties

4

to provide such outpatient services. See 42 U.S.C.

§ 1395x(w)(1); 42 C.F.R. § 410.42(a). Under these

agreements, the third party provides equipment and

technicians for a procedure while the hospital provides space

and support services, pays for the lease of the equipment, and

bills Medicare.

The members of the association challenging the

regulations here have just this kind of relationship with

hospitals. These arrangements are attractive to them because

Medicare reimburses outpatient procedures that take place in

hospitals at higher rates than if they were performed

elsewhere. 1 Compare 42 C.F.R. § 419.2(b) (listing eighteen

categories of costs Medicare covers for outpatient hospital

procedures), with 42 C.F.R. § 416.61(a) (listing eight

1

For example, in 2010, the base Medicare reimbursement rate

for outpatient hospital prostate laser surgery was $3,138.81, 75 Fed.

Reg. 45,988 (Aug. 3, 2010), whereas the same procedure in an

ambulatory surgical center was reimbursed at $1,720.77, id. at

45,843. According to the hospitals, the higher rates are necessary to

subsidize their less profitable but necessary services, such as

emergency departments and trauma care. See Keeping the Promise:

Site-of-Service Medicare Payment Reforms: Hearing before the

Subcomm. on Health of the H. Comm. on Energy and Commerce,

113th Cong. 146-47 (2014) (statement of Reginald W. Coopwood,

Chief Executive Officer, Regional One Health, on Behalf of the

American Hospital Association). Even so, last year the Office of the

Inspector General released a report recommending that Medicare

eliminate this disparity by reducing outpatient payment rates. See

DEP’T OF HEALTH & HUMAN SERVS., OFFICE OF INSPECTOR GEN.,

MEDICARE AND BENEFICIARIES COULD SAVE BILLIONS IF CMS

REDUCES HOSPITAL OUTPATIENT DEPARTMENT PAYMENT RATES

FOR AMBULATORY SURGICAL CENTER-APPROVED PROCEDURES

TO AMBULATORY SURGICAL CENTER PAYMENT RATES 5, 7-8

(2014), http://oig.hhs.gov/oas/reports/region5/51200020.pdf.

5

categories of costs Medicare covers in ambulatory surgical

centers).

This disparity creates a financial incentive for physicians

to make referrals based more on maximizing their income

than on maximizing the Medicare patient’s well-being. For

example, suppose a physician has an ownership interest in a

hospital laboratory that diagnoses various illnesses. The

physician profits by sending his Medicare patient to that

hospital to undergo the diagnostic tests. The patient, by

contrast, has little financial incentive to limit the cost of the

tests, as Medicare covers most of the costs. This imbalance in

interests can lead to a physician ordering a battery of

unnecessary tests. In fact, a 1991 study showed this very

outcome where Florida physicians had ownership interests in

diagnostic clinics. See Joint Ventures Among Health Care

Providers in Florida: Hearing Before the H. Subcomm. on

Health of the H. Comm. on Ways and Means, 102d Cong.

(1991). To address this problem, Congress enacted the Stark

Law (named for former Representative Pete Stark of

California). See generally 42 U.S.C. § 1395nn; see also

Medicare and Medicaid Programs; Physician’s Referrals to

Health Care Entities With Which They Have Financial

Relationships, 63 Fed. Reg. 1659, 1718 (proposed Jan. 9,

1998). The Stark Law places restrictions on both the referring

physicians and the hospitals. It prohibits a physician who has

a “financial relationship” with a hospital from referring

Medicare patients to that hospital. 2 It also bars hospitals from

2

The Law lists twelve specific “designated health services”

for which referrals are prohibited. These include clinical laboratory

services, physical therapy services, occupational therapy services,

radiology services, radiation therapy, durable medical equipment

and supplies, parenteral and enteral nutrients, prosthetic devices and

supplies, home health services, outpatient prescription drugs,

6

receiving Medicare payments based on these prohibited

referrals. See 42 U.S.C. § 1395nn(a)(1)(A), (a)(1)(B),

(h)(6)(K). For the Stark Law’s purposes, a physician has a

“financial relationship” with a hospital if she owns or invests

in it, or if she has a compensation agreement with the hospital

covering services, equipment, and the like. Id.

§ 1395nn(a)(2)(A)-(B), (h)(1).

Despite the general prohibition on potentially

self-interested referrals, the Stark Law permits referrals by

physicians to entities in which they have a financial interest in

certain limited circumstances. It does so by excluding some

forms of compensation agreements and ownership interests

from the definition of “financial relationship,” thus allowing

both the relationships and the referrals. See 42 U.S.C.

§ 1395nn(b)-(e). The provision at issue here is the equipment

rental exception, under which physicians may both lease

equipment to a hospital and refer their Medicare patients to

that hospital for procedures using the equipment so long as

the leasing agreement meets certain conditions. The lease

must (1) be in writing; (2) assign use of the equipment

exclusively to the hospital; (3) last for a term of at least one

year; (4) set rental charges in advance that are consistent with

fair market value and “not determined in a manner that takes

into account the volume or value of any referrals or other

business generated between the parties”; (5) satisfy the

standard of commercial reasonableness even absent any

referrals; and (6) meet “such other requirements as the

Secretary may impose by regulation as needed to protect

against program or patient abuse.” 42 U.S.C.

§ 1395(e)(1)(B)(i)-(vi).

inpatient and outpatient hospital services, and outpatient

speech-language pathology services. 42 U.S.C. § 1395nn(h)(6).

7

In 1998, the Secretary proposed a rule that would prevent

a physician with an ownership interest in a group that leased

equipment and performed procedures under contract with a

hospital from referring Medicare patients to the hospital for

those procedures. The proposed rule accomplished this by

adopting a broader interpretation of the statutory language

that prevents physicians from referring Medicare patients to

an entity “for the furnishing of designated health services”

when the physician and the entity have a financial

relationship. 42 U.S.C. § 1395nn(a)(1)(A). Specifically, the

proposed rule expanded the definition of an entity

“furnishing” such services. The previous definition included

only the party billing Medicare, usually the hospital where the

procedures were performed. The new rule would extend to the

party performing the procedures, including the third parties

that contracted to perform outpatient procedures in hospital

facilities. 63 Fed. Reg. at 1706. The proposed rule also altered

the equipment rental exception by banning leases that charged

the hospital for each use of the equipment—also referred to as

leases with “per-click” payments—for patients referred by the

physician-lessor. Id. at 1714.

To give an example of the regulatory scheme at work,

prior to the proposed regulations, a single doctor could own

laser equipment that she leased to a hospital, refer patients to

that hospital for laser procedures, and profit each time the

laser equipment was used. Because Medicare gives greater

reimbursements for procedures performed at hospitals than

for those same procedures performed in physicians’ offices, it

would be more profitable for a doctor to enter into such

arrangements with a hospital than it would be for the doctor to

purchase the laser for use in her own office. The Secretary’s

proposal forbade this practice. While a doctor could still own

8

laser equipment and lease it to the hospital to which she

referred her patients, she would only be permitted to receive

time-based payments from the hospital, such as yearly or

monthly charges. The frequency of laser usage would have no

bearing on the doctor’s profit, so she would no longer have a

financial incentive to refer patients to the hospital for laser

procedures. By the same token, a physician with an ownership

interest in a group that leased laser equipment and performed

laser procedures under contract with a hospital could no

longer refer patients to the hospital for such procedures. 3

After considering comments, the Secretary decided

against including either of these proposed alterations in the

rule promulgated in 2001. Instead, the final rule provided that

an entity is “furnishing designated health services” only if it is

the entity that actually bills Medicare for the services. See

Medicare and Medicaid Programs; Physicians’ Referrals to

Health Care Entities With Which They Have Relationships,

66 Fed. Reg. 856, 943 (Jan. 4, 2001). Physicians with an

ownership interest in a group that contracted with a hospital

could continue to refer patients to the hospital because any

such groups performing the procedures and supplying the

equipment were not billing Medicare. The 2001 rule also

continued to allow leases with per-click payment terms. Id. at

876. Even so, the preamble to the regulation explained that

the Secretary continued to be concerned that contractual

arrangements between physician-owned groups and hospitals

“could be used to circumvent” the Stark Law, id. at 942, and

also recognized the “obvious potential for abuse” in per-click

payments, id. at 878. In both cases, the Secretary advised that

3

That is, unless an ownership exception applies. See 42

U.S.C. § 1395nn(d).

9

she would monitor the arrangements and reconsider the

decision if necessary. Id. at 942, 860.

That reconsideration came in 2007 with another notice of

proposed rulemaking. The Secretary again proposed banning

per-click leases and forbidding physicians from making

referrals to hospitals for procedures to be performed by a

group practice in which the physician has an ownership

interest. See Medicare Program; Proposed Revisions to

Payment Policies, 72 Fed. Reg. 38,122 (proposed July 12,

2007). This time, the Secretary adopted both proposed

regulations with minimal changes in 2008. See Medicare

Program; Changes to Disclosure of Physician Ownership in

Hospitals and Physician Self-Referral Rules, 73 Fed. Reg.

48,434 (Aug. 19, 2008). According to the new rule, an entity

that either performs or bills for designated health services is

considered to be “furnishing” such services, meaning that

physicians with ownership interests in groups that perform

outpatient services in hospitals cannot refer patients for the

procedures. See 42 C.F.R. § 411.351. With respect to the

equipment rental exception, the rule states that the lease may

not use per-click rates. 42 C.F.R. § 411.357(b)(4)(ii)(B).

Thus, under the regulations challenged here, a

physician-owned group that contracts to lease equipment to a

hospital cannot do so on a per-click basis while referring

patients to that hospital for procedures using the equipment.

Nor can a physician with an ownership interest in the group

refer patients for outpatient procedures in a hospital where the

group performs the procedures, unless she qualifies for one of

the narrow ownership exceptions. See, e.g., 42 U.S.C.

§ 1395nn(d)(2) (exempting rural providers).

10

B

The Council for Urological Interests is made up of a

group of joint ventures principally owned by urologists. These

joint ventures lease laser technology to hospitals. Urologists

generally prefer to furnish their services in a hospital because

of the higher reimbursement rate available there. The Council

contends that the lower rate paid for its members’ services

outside a hospital is insufficient to cover the cost of the

equipment. Thus, to make the purchase of laser equipment

economically viable, the urologists enter into agreements with

a hospital, where the hospital pays the joint venture for the

equipment on a per-click basis. The new regulation the

Council challenges prohibits these arrangements.

C

The Council filed this action in March 2009, alleging that

the 2008 rule exceeded the Secretary’s authority under the

Administrative Procedure Act (APA) and violated the

procedural requirements of the Regulatory Flexibility Act

(RFA). The Secretary moved to dismiss the complaint for lack

of subject-matter jurisdiction, arguing that challenges to the

regulation must be raised through the agency’s administrative

procedures before they can be raised in court. The district

court granted the motion, but this court reversed. Because the

statute only permits Medicare “providers” who bill Medicare

to seek administrative review, the Council and other affected

parties who provided services but did not bill Medicare lacked

access to administrative review. Under these circumstances,

we held that requiring the use of administrative procedures

would result in the “complete preclusion of judicial review.”

See Council for Urological Interests v. Sebelius, 668 F.3d

704, 713-14 (D.C. Cir. 2011) (quoting Shalala v. Ill. Council

11

on Long Term Care, Inc., 529 U.S. 1, 22-23 (2000)). On

remand, the parties filed cross-motions for summary

judgment. The district court granted the government’s motion,

concluding that the agency regulations were entitled to

Chevron deference and that the agency’s construction of the

statute was a reasonable one. See Council for Urological

Interests v. Sebelius, 946 F. Supp. 2d 91, 112 (D.D.C. 2013).

The district court also rejected the Council’s claims under the

RFA, finding that the Council had conceded a crucial portion

of the Secretary’s argument by failing to provide a response.

See id. The Council timely appealed both the APA and RFA

claims. On appeal, the Council argues that the text and

legislative history of the Stark Law preclude the Secretary

from banning physicians who refer patients to a hospital from

leasing equipment to that hospital on a per-click basis. The

Council also argues that the Secretary unreasonably

interpreted the statute to forbid physicians from referring

patients to a hospital for procedures performed by a group in

which the physician has an ownership interest. Finally, the

Council argues that the Secretary failed to complete the

requisite regulatory flexibility analysis called for by the RFA.

We have jurisdiction under 28 U.S.C. § 1291.

“We review a grant of summary judgment de novo

applying the same standards as those that govern the district

court’s determination.” Troy Corp. v. Browner, 120 F.3d 277,

281 (D.C. Cir. 1997).

II

When Congress gives an agency authority to interpret a

statute, we review the agency’s interpretation under the

deferential two-step test set forth in Chevron U.S.A. Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837

12

(1984). See Troy Corp., 120 F.3d at 283. At step one, to

determine whether Congress has directly spoken to the precise

question at issue, we use “the traditional tools of statutory

interpretation.” Consumer Elecs. Ass’n v. FCC, 347 F.3d 291,

297 (D.C. Cir. 2003) (internal quotation marks omitted). If it

is clear that Congress has addressed the issue, we give effect

to congressional intent. If the statute is silent or ambiguous on

the matter, we move to a second step that asks whether the

agency’s interpretation is “based on a permissible

construction of the statute.” Chevron, 467 U.S. at 843. An

interpretation is permissible if it is a “reasonable explanation

of how an agency’s interpretation serves the statute’s

objectives.” Northpoint Tech., Ltd. v. FCC, 412 F.3d 145, 151

(D.C. Cir. 2005). If the agency’s construction is reasonable,

we defer. See Chevron, 467 U.S. at 842-43.

A

“We begin, as always, with the plain language of the

statute in question.” Citizens Coal Council v. Norton, 330

F.3d 478, 482 (D.C. Cir. 2003). The Council argues that the

Stark Law expressly permits per-click rates for equipment

rentals and that the Secretary thus lacked authority to ban

per-click leases. The Council points to language in a clause of

the equipment rental exception that permits equipment lease

arrangements when “rental charges over the term of the lease

are set in advance, are consistent with fair market value, and

are not determined in a manner that takes into account the

volume or value of any referrals or other business generated

between the parties.” 42 U.S.C. § 1395nn(e)(1)(B)(iv). This

rental-charge clause, the Council argues, means that per-click

rates are necessarily permissible so long as they meet these

requirements. Per-click charges pass muster, according to the

Council, because a charge based on use can be set in advance

13

and be consistent with fair market value, and the charge

would not take into account volume or value of referrals when

the per-use charge is stable across the leasing period, rather

than increasing after a certain number of uses. The Council is

wrong. Its argument ignores the remaining requirements of

the equipment rental exception. Importantly, the final clause

states that the lease must also “meet[] such other requirements

as the Secretary may impose by regulation as needed to

protect against program or patient abuse.” 42 U.S.C.

§ 1395nn(e)(1)(B)(vi). The Secretary explicitly relied on this

authority in promulgating the regulation forbidding per-click

payments. See 42 C.F.R. § 411.357(b)(4)(ii)(B). Because any

lease must comply with the listed rental charge requirements

and any further requirements the Secretary adds, the fact that

per-click leases comply with the rental charge requirements

alone is insufficient. The text of the statute does not

unambiguously preclude the Secretary from using her

authority to add a requirement that bans per-click leases. See

42 U.S.C. § 1395nn(e)(1)(B). To the contrary, the statutory

text of the exception clearly provides the Secretary with the

discretion to impose any additional requirements that she

deems necessary “to protect against program or patient

abuse.” See id. § 1395nn(e)(1)(B)(vi).

Nevertheless, the Council argues that because the

statute’s text already lists specific requirements for rental

charges, the Secretary cannot add further requirements related

to rental charges because these cannot properly qualify as

“other” requirements under the final clause of the exception.

The Council relies on Financial Planning Ass’n v. SEC, 482

F.3d 481 (D.C. Cir. 2007), which involved a statute regulating

investment advisers. The statute defined the category of

regulated investment advisers broadly to include any person

who is paid to advise others regarding securities. 15 U.S.C.

14

§ 80b-2(a)(11). The statute then exempted several categories

of persons from regulation and gave the SEC authority to

exclude “such other persons not within the intent of this

paragraph, as the Commission may designate.” Id.

§ 80b-2(a)(11)(H). 4 One of the statutory exemptions applied

to broker-dealers who gave investment advice incidental to

their normal business activities and “receive[d] no special

compensation therefor.” Id. § 80b-2(a)(11)(C). The SEC

issued a final rule that broadened the exemption for

broker-dealers to apply even when they did receive special

compensation. We held that this rule violated both limitations

on the SEC’s rulemaking authority: The rule was outside the

intent of the statute because the text already provided an

exemption for broker-dealers and there was no intent that the

exemption’s reach should be broadened. Moreover, because

broker-dealers were already specifically addressed in the

statutory text, they did not constitute “other persons.” See

Financial Planning, 482 F.3d at 488. The Council argues that

the outcome should be the same here. We disagree. The

Secretary does not face the same limitations on her

rulemaking authority as did the SEC in Financial Planning.

The Stark Law gives the Secretary power to add requirements

“as needed to protect against program or patient abuse,” even

if Congress did not anticipate such abuses at the time of

enactment. While Congress may not have originally intended

the ban of per-click leases, it empowered the Secretary to

make her own assessment of the needs of the Medicare

program and regulate accordingly. And, as distinct from the

statute in Financial Planning, the text of the Stark Law makes

no reference to per-click rates. In other words, the statute

4

At the time we decided Financial Planning, this portion of

the statute appeared at 15 U.S.C. § 80b-2(a)(11)(F). It has since

been amended.

15

explicitly permits the Secretary to impose additional

conditions on equipment rental agreements and nowhere

expressly states that per-click rates are permitted. Thus, the

Secretary’s regulation can properly be classified as an “other”

requirement.

The Secretary’s freedom to ban per-click leases is all the

more clear when the equipment rental exception is compared

to other provisions within the Stark Law. For example, the

statute elsewhere expressly permits charging per-click fees in

other contexts, showing that Congress knew how to authorize

such payment terms when it wanted to. In 42 U.S.C.

§ 1395nn(e)(7)(A) Congress created an exception to the Stark

Law that allows the continuation of certain group practice

arrangements with a hospital. Under the Law, a group practice

is defined to include a group of physicians who join together

to perform the full range of medical services in one office,

billing Medicare under one provider number. See 42 U.S.C.

§ 1395nn(h)(4). 5 The provision states that “[a]n arrangement

between a hospital and a group under which designated health

services are provided by the group but are billed by the

hospital” is excepted from the ban on referrals if, among other

things, “the compensation paid over the term of the agreement

is consistent with fair market value and the compensation per

unit of services is fixed in advance and is not determined in a

manner that takes into account the volume or value of any

referrals or other business generated between the parties.” Id.

5

As the Council acknowledges, the kinds of joint ventures its

members form do not qualify as group practices. These joint

ventures are formed solely to purchase and lease equipment and

cannot bill Medicare on their own. Physicians forming group

practices actually perform substantially all of their medical services

within that group and have their own provider number. 42 U.S.C.

§ 1395nn(h)(4).

16

§ 1395nn(e)(7)(A)(v) (emphasis added). Comparing this

provision to the equipment rental exception shows that

Congress knew how to permit per-click payments explicitly,

suggesting that the omission in this particular context was

deliberate. Cf. Central Bank of Denver v. First Interstate

Bank, N.A., 511 U.S. 164, 176-77 (1994). In other words,

Congress’s decision not to include similar language in the

equipment rental exception supports our conclusion that the

statute is silent regarding the permissibility of per-click leases

for equipment rentals.

Yet another provision of the Stark Law shows that

Congress knew how to limit the Secretary’s authority to

impose additional requirements to the various exceptions. In

42 U.S.C. § 1395nn(e)(2), Congress excludes bona fide

employment relationships from the definition of

compensation arrangements. This provision states that the

employment relationship must comply with various

requirements, including that the pay not be determined “in a

manner that takes into account (directly or indirectly) the

volume or value of any referrals by the referring physician.”

This employment exception also allows the Secretary to

impose “other requirements,” just as the equipment rental

exception. Id. But the statute then goes on to say that the

listed requirements “shall not prohibit the payment of

remuneration in the form of a productivity bonus based on

services performed personally by the physician.” Id. This

language shows that Congress knew how to cabin the

Secretary’s authority to impose “other” requirements and that

it knew how to further clarify what it meant by compensation

that does not take into account the volume of business

generated between parties. That Congress employed neither of

these tools with reference to the equipment rental exception

17

again supports reading the statute as giving the Secretary

broad discretion as she regulates in this area.

The Council next argues that even if the text is

ambiguous, the legislative history makes plain that the

Secretary must allow per-click leases. The Council points to a

portion of the House Conference Report which explains, in

reference to the rental-charge clause of the equipment rental

exception, that “[t]he conferees intend that charges for space

and equipment leases may be based on . . . time-based rates or

rates based on units of service furnished, so long as the

amount of time-based or units of service rates does not

fluctuate during the contract period.” H.R. REP. NO. 103-213,

at 814 (1993). This expression of congressional intent should,

the Council thinks, bind the Secretary’s hands here and forbid

the new regulation.

In Catawba County, N.C. v. EPA, we stated that “a statute

may foreclose an agency’s preferred interpretation despite

such textual ambiguities if its structure, legislative history, or

purpose makes clear what its text leaves opaque.” 571 F.3d

20, 35 (D.C. Cir. 2009). But we then went on to hold that the

legislative history at issue there did not even come close to

providing the clarity necessary to decide the case at step one.

See id. So too here. The conference report the Council points

to states only that rental charges “may” be based on units of

service. The language is not obligatory. 6 Instead, it simply

6

Judge Henderson argues that Congress is not required to use

obligatory language to limit an agency’s discretion. It is true that

courts should not presume a delegation of power anytime such

power is not withheld. But we make no such presumption here.

Congress has expressly delegated to the Secretary the authority to

promulgate additional requirements, as she has done here, and the

18

indicates that, as written, the rental-charge clause does not

preclude per-click leases. But, as we have already explained,

there is more to the statute than this clause, and to qualify for

the exception, a rental agreement must comply with all six

clauses, not merely the rental-charge clause alone. The final

clause gives the Secretary the authority to add further

requirements. Nothing in the legislative history suggests a

limit on this authority. We conclude that the statute does not

unambiguously forbid the Secretary from banning per-click

leases as she evaluates the needs of the Medicare system and

its patients. 7

B

The per-click ban falters, however, at Chevron step two.

Although Chevron’s second step largely “overlaps” with

arbitrary-and-capricious review under the APA, Nat’l Ass’n of

Reg. Util. Comm’rs v. ICC, 41 F.3d 721, 726 (D.C. Cir. 1994),

the overlap is not complete. We primarily assess the agency’s

legislative history does not clearly impose a constraint on that

power.

7

Judge Henderson likewise errs in equating Congress’s intent

for the original rental-charge clause to allow per-click leases with

an intent to preclude the Secretary from creating an additional

requirement banning them. But the rental-charge clause, read with

the legislative history, states only that rental charges for equipment

leases must not be “determined in a manner that takes into account

the volume or value of any referrals” and that per-click leases do

not “take[] into account the volume” of patient referrals. See 42

U.S.C. § 1395nn(e)(1)(B)(iv); H.R. REP. NO. 103-213, at 814. A

statement that per-click charges are not precluded by the statutory

clause as it is written is not equivalent to a statement that the

Secretary must continue to permit such charges as she reevaluates,

in light of experience, the operation of the statute.

19

statutory interpretation to determine whether it is a

“permissible” and “reasonable” view of the Congress’s intent.

Chevron, 467 U.S. at 843–44; see also Cont’l Air Lines, Inc. v.

DOT, 843 F.2d 1444, 1449 (D.C. Cir. 1988) (Chevron step two

is determined “by reference both to the agency’s textual

analysis (broadly defined, including where appropriate resort

to legislative history) and to the compatibility of that

interpretation with the Congressional purposes informing the

measure”); Nat’l Ass’n of Reg. Util. Comm’rs, 41 F.3d at 727

(“although Chevron’s second step sounds closely akin to plain

vanilla arbitrary-and-capricious style review, interpreting a

statute is quite a different enterprise than policy-making”

(quotation marks and ellipsis omitted)). In making this

assessment, we look to what the agency said at the time of the

rulemaking—not to its lawyers’ post-hoc rationalizations.

See SEC v. Chenery Corp., 332 U.S. 194, 196 (1947) (“[A]

reviewing court . . . must judge the propriety of [agency] action

solely by the grounds invoked by the agency. If those grounds

are inadequate or improper, the court is powerless to affirm the

administrative action by substituting what it considers to be a

more adequate or proper basis.”); see also Bus. Roundtable v.

SEC, 905 F.2d 406, 417 (D.C. Cir. 1990) (Chenery principle

applies to Chevron statutory analysis).

In the preamble to the per-click ban, the Secretary

identified the 1993 Conference Report as an important locus of

statutory interpretation. See 73 Fed. Reg. at 48,715. This is

unsurprising as the Secretary felt completely bound by the

Conference Report in 2001. See 66 Fed. Reg. at 878 (“given

the clearly expressed congressional intent in the legislative

history, we are permitting ‘per use’ payments”). The

Secretary now believes the Conference Report is ambiguous

but her explanation in the 2008 rulemaking borders on the

incomprehensible. According to the Secretary:

20

Where the total amount of rent (that is, the rental charges)

over the term of the lease is directly affected by the

number of patients referred by one party to the other, those

rental charges can arguably be said to . . . “fluctuate during

the contract period based on” the volume or value of

referrals between the parties. Thus, . . . the Conference

Report can reasonably be interpreted to exclude from the

space and lease exceptions leases that include per-click

payments for services provided to patients referred from

one party to the other.

73 Fed. Reg. at 48,716 (emphasis added) (quoting H.R. REP.

NO. 103-213, at 814). This jargon is plainly not a reasonable

attempt to grapple with the Conference Report; it belongs

instead to the cross-your-fingers-and-hope-it-goes-away

school of statutory interpretation. The Conference Report

makes clear that the “units of service rates” are what cannot

“fluctuate during the contract period,” not the lessor’s total

rental income. H.R. REP. NO. 103-213, at 814 (emphasis

added). The Secretary’s interpretation reads the word “rates”

out of the Conference Report entirely. If a “reasonable”

explanation is “the stuff of which a ‘permissible’ construction

is made,” Northpoint, 412 F.3d at 151, the Secretary’s tortured

reading of the Conference Report is the stuff of caprice.

On appeal, counsel for the Secretary minimizes the

Conference Report, noting that its language does not appear in

the statutory text and does not limit the Secretary’s “other

requirements” authority. See Appellee’s Br. 28–29. We

cannot consider this argument, however, because the Secretary

did not articulate it during the 2008 rulemaking and, in fact,

contradicted it by treating the Conference Report as a key

interpretive roadblock. See 73 Fed. Reg. at 48,715. What is

21

left is the Secretary’s bewildering statutory exegesis—one we

cannot affirm even under Chevron’s deferential standard of

review. See Burlington Truck Lines, Inc. v. United States, 371

U.S. 156, 168–69 (1962) (“Chenery requires that an agency’s

discretionary order be upheld, if at all, on the same basis

articulated in the order by the agency itself . . . . For the courts

to substitute their or counsel’s discretion for that of the

[agency] is incompatible with the orderly functioning of the

process of judicial review.”); Inv. Co. Inst. v. Camp, 401 U.S.

617, 628 (1971) (“Congress has delegated to the administrative

official and not to appellate counsel the responsibility for

elaborating and enforcing statutory commands.”). 8

On this record, the per-click ban fails at Chevron step two.

We remand 42 C.F.R. § 411.357(b)(4)(ii)(B) to the district

court with instructions to remand to the Secretary for further

proceedings consistent with this opinion. On remand, the

Secretary should consider—with more care than she exercised

here—whether a per-click ban on equipment leases is

consistent with the 1993 Conference Report.

8

Judge Griffith believes the Council failed to make a Chenery

challenge to the per-click ban. The Council’s reply brief,

however, argues that “the government makes no effort to defend

HHS’s position [articulated during the rulemaking process] on

appeal.” Appellant’s Reply Br. 10. This assertion “implicitly

raise[s] the Chenery issue,” Mitchell v. Christopher, 996 F.2d 375,

378 n.2 (D.C. Cir. 1993), and is sufficient for us to consider it.

See id. at 379; accord Utah Envtl. Cong. v. Troyer, 479 F.3d 1269,

1287–88 (10th Cir. 2007) (majority op.). Plainly, the Council did

not need to raise a Chenery argument preemptively in its opening

brief, before it knew whether the Secretary’s litigation strategy

would deviate from the reasoning she used during the rulemaking.

22

III

The Council also challenges the Secretary’s new

definition of an “entity furnishing designated health services,”

which expands the regulation to apply to joint ventures, like

those the Council members participate in, that lease

equipment and perform outpatient procedures under contract

with hospitals. Under the 2008 regulations, physicians cannot

have an ownership interest in a joint venture that leases

equipment to a hospital and simultaneously refer patients to

the hospital for procedures the physician performs using the

leased equipment. 9 The Council concedes that there is

sufficient ambiguity in this part of the statute to move to

Chevron step two. The Council argues that the Secretary’s

definition nonetheless violates the APA because her definition

renders another provision of the Stark Law superfluous, is not

necessary to protect against abuse, and is impermissibly

vague. We disagree.

As before, our deferential analysis under Chevron step

two is limited to determining whether the regulation is

rationally related to the goals of the Stark Law. See

Northpoint, 412 F.3d at 151. Here, defining the “entity

furnishing designated health services” to include the entity

providing the services is a permissible construction of the

statute. This is apparent from a simple reading of the statute

9

There is an ownership exception. As explained previously,

the statute provides exceptions applicable to compensation

agreements, ownership interests, or both. The equipment rental

exception is an exception for a compensation agreement created by

an equipment lease. A physician with an ownership interest in a

joint venture that contracts to perform services in a hospital would

need to qualify for an ownership exception, like the one exempting

rural providers. See 42 U.S.C. § 1395nn(d)(2).

23

itself: the terms “provide” and “furnish” are used

interchangeably. Compare 42 U.S.C. § 1395nn(a)(2) (stating

that an ownership or investment interest subject to the referral

prohibition includes “an interest in an entity that holds an

ownership or investment interest in any entity providing the

designated health service”), with id. § 1395nn(b)(3) (referring

to “services furnished by an organization” under a prepaid

plan); see also id. § 1395nn(e)(7)(A) (using “provided” and

“furnished” to describe services rendered by a physician

group practice operating under contract with a hospital).

Moreover, this definition furthers the purpose of the statute by

closing a loophole otherwise available to physician-owned

entities that would allow circumvention of the purpose of the

Stark Law merely by having the hospital bill Medicare for the

services. See 73 Fed. Reg. at 48,724.

Despite the apparent reasonableness of defining a term by

use of its synonym, the Council advances several arguments

in an attempt to show that the regulation is arbitrary and

capricious and therefore fails at Chevron step two. See

Northpoint, 412 F.3d at 151. None is persuasive.

First, the Council argues that the Secretary’s new

definition of an “entity furnishing designated health services”

is contrary to legislative intent because it deprives the

exception for group practices of all effect. The Stark Law

defines group practices to include groups of physicians who

provide a full range of medical services “through the joint use

of shared office space, facilities, equipment and personnel.”

42 U.S.C. § 1395nn(h)(4)(A)(i). The statute permits certain

group practices that operated under contract with hospitals

prior to the passage of the Law to continue to do so if specific

conditions are met. Id. § 1395nn(e)(7). However, this special

consideration extended to group practices only excludes the

24

financial arrangement from being considered a compensation

agreement. Under the new rule, a group practice will now be

considered an entity “furnishing” the services it performs

under contract with the hospital. This means that physicians

with ownership interests in the group practice will not be

permitted to refer patients to hospitals for these procedures

unless an ownership exception also applies.

The Council argues that requiring group practices to meet

an ownership exception would render the original

compensation exception meaningless. Not so. It is true that

the new definition of “furnishes” significantly narrows the

exception for group practices, but it hardly renders the group

practice provision meaningless. For example, a group practice

that qualifies as a rural provider can continue operating under

contract with hospitals. See 42 U.S.C. § 1395nn(d)(2).

Although this will not apply to all group practices, nothing in

the statute suggests that the Secretary may not require a group

to meet both an ownership exception and a compensation

agreement exception. And even without an ownership

exception, the group practice exception still allows employees

with no ownership interest in the group practice to refer

patients to a hospital where the group performs the

procedures. Employees of a group practice are still involved

in a compensation arrangement with a hospital, albeit an

indirect one. See 42 U.S.C. § 1395nn(h)(1)(A) (defining a

compensation arrangement as including “any arrangement

involving any remuneration between a physician . . . and an

entity”); 42 C.F.R. § 411.354(a)(2) (defining a financial

relationship to include direct or indirect relationships).

Because of this, absent an exception, the Stark Law would

preclude the employees of a group practice from referring

patients to the hospital. The group practice exception permits

such employees to refer patients, rendering the exception

25

meaningful. The Council claims that there are already

regulations providing exceptions for indirect compensation

arrangements, resulting in a redundancy. See 42 C.F.R.

§ 411.357(p). But the principle of statutory interpretation

advising courts to avoid surplusage only speaks to statutory

language, not the content of regulations. Cf. United States v.

Menasche, 348 U.S. 528, 538-39 (1955) (“It is our duty to

give effect, if possible, to every clause and word of a statute.”

(internal quotation marks omitted)).

Next, the Council argues that the new definition is not

needed to prevent urologists from evading the Stark Law. The

Council claims that the regulation of urological procedures is

not within the purpose of the Stark Law because they are

regulated only when they are performed as outpatient

procedures in hospitals. The Council argues that this shows

that Congress did not consider urological procedures

susceptible to abuse. However, this argument misapprehends

the purpose of the statute. The Stark Law is intended to

prevent physicians’ financial interests from affecting whether

they refer patients for outpatient procedures and where the

patient is referred. See 144 Cong. Rec. E4-03 (daily ed. Jan.

27, 1998) (statement of Rep. Stark) (noting that the Stark Law

was “designed to reduce or eliminate the incentives for

doctors to over-refer patients to services in which the doctor

has a financial relationship”). That purpose is fulfilled by

regulating third-party relationships with hospitals regardless

of whether the underlying procedure itself would be

categorized as a designated health service if performed

elsewhere. Urologists who participate in joint ventures receive

a greater financial benefit from Medicare when they perform

the procedure in a hospital and they are therefore given an

incentive to refer patients there. The extra compensation

might deter the urologists from treating the patients elsewhere

26

or prescribing different treatments altogether. This incentive

brings the procedures within the scope of the purpose of the

Stark Law. The Secretary determined that defining

“furnishes” to include only the entity billing Medicare would

allow abusive practices to evade regulation. We find this

determination reasonable.

Finally, the Council argues that defining “furnishes” to

include an entity that “performs” the services is impermissibly

vague. We disagree. The Secretary provided guidance on the

meaning of the regulation within the preamble and gave

examples as to where it would apply. See 73 Fed. Reg. at

48,726 (explaining that a physician performs a service “if the

physician or physician organization does the medical work for

the service and could bill for the service,” but not where an

entity merely “leases or sells space or equipment used for the

performance of the service”); see also Howmet Corp. v. EPA,

614 F.3d 553-54 (D.C. Cir. 2010) (recognizing that an agency

may provide “fair notice” of its interpretation through

“published agency guidance”). Moreover, even if the precise

contours of the definition are not clear, the Secretary “has

authority to flesh out its rules through adjudications and

advisory opinions.” Shays v. Fed. Election Comm’n, 528 F.3d

914, 930 (D.C. Cir. 2008).

We therefore conclude that the Secretary’s regulation

redefining an “entity furnishing designated health services” is

a reasonable construction of the statute that is entitled to

deference.

IV

The Council argues that the promulgation of the 2008

rule violated the Regulatory Flexibility Act. Congress enacted

27

the Act in response to concerns with the burdens of federal

regulation, especially on small businesses. See Paul R.

Verkuil, A Critical Guide to the Regulatory Flexibility Act,

1982 DUKE L.J. 213. Although the Act does not require rules

that are less burdensome for small businesses, agencies must

explain why any such alternatives were rejected. 5 U.S.C.

§ 604(a)(6). This process is aimed at “assur[ing] that such

proposals are given serious consideration.” 5 U.S.C. § 601

app. at 124 (Supp. IV 1980). An agency implementing policy

changes through rulemaking must complete an

analysis—referred to as a regulatory flexibility analysis—of

the rule’s impact and publish it in the Federal Register along

with the final rule. See 5 U.S.C. § 604(a). The analysis must

contain several components, including a statement of the need

for the rule, the agency’s response to any significant

comments, an estimate of the number of small entities to

which the rule will apply, a description of the rule’s

compliance requirements, and a description of the steps the

agency has taken to minimize the economic impact on small

entities. Id. § 604(a)(1)-(6). Alternatively, an agency can

forego this analysis “if the head of the agency certifies that

the rule will not, if promulgated, have a significant economic

impact on a substantial number of small entities.” Id.

§ 605(b). The Secretary must publish the certification and its

factual basis in the Federal Register. Id. The Secretary

acknowledges that HHS did not perform a regulatory

flexibility analysis of the 2008 rule; however, she argues that

she properly certified that it will not have a significant impact

on small businesses.

28

We agree that the Secretary’s certification satisfied the

RFA. 10 In the appendix to the larger rule that included the

changes at issue here, the Secretary discussed each portion of

the rule and stated that “the analysis discussed throughout the

preamble of this final rule constitutes our final regulatory

flexibility analysis.” 73 Fed. Reg. at 49,063. In explaining the

changes in regulating per-click charges and physicians’

agreements to operate within hospitals, the Secretary stated

that “[w]e do not anticipate these final policies will have a

significant impact on physicians, other health care providers

and suppliers, or the Medicare or Medicaid programs and

their beneficiaries.” Id. at 49,077. Although this statement

nowhere uses the word “certify,” that omission alone does not

constitute a violation of the RFA. See Motor & Equip. Mfrs.

Ass’n v. Nichols, 142 F.3d 449, 467 (D.C. Cir. 1998)

(upholding a certification as sufficient where the EPA stated

only that the rule would “not have a significant adverse

economic impact on a substantial number of small

businesses”). And the preamble to the rule, which the

Secretary incorporated as part of the analysis, fulfills the

RFA’s requirement that the Secretary include a statement

providing a factual basis for her certification. The Secretary

stated her belief that existing arrangements “can be

restructured” to comply with new requirements. See 73 Fed.

Reg. at 48,717, 48,733. Indeed, the Secretary delayed the

effective date of the regulations “to afford parties adequate

time to restructure arrangements.” Id. at 48,714; see also id. at

48,721, 48,729. The Secretary’s belief that entities could

10

The district court held that the Council conceded the

adequacy of the certification by failing to challenge the Secretary’s

argument at summary judgment. See Council for Urological

Interests, 946 F. Supp. 2d at 112. We need not consider whether

this treatment was appropriate because we hold that the certification

was adequate in any event.

29

restructure and the provision of additional time to allow them

to do so provides a factual basis for the certification.

The Council argues that the Secretary was incorrect in

believing that existing arrangements could be “easily

restructured.” So long as the procedural requirements of the

certification are met, however, this court’s review is “highly

deferential” as to the substance of the analysis, particularly

where an agency is predicting the likely economic effects of a

rule. See Helicopter Ass’n Int’l, Inc. v. FAA, 722 F.3d 430,

438 (D.C. Cir. 2013). Because we find that the Secretary

demonstrated a “reasonable, good-faith effort” to comply with

the RFA’s “[p]urely procedural” requirements, we uphold the

certification as satisfactory. U.S. Cellular Corp. v. FCC, 254

F.3d 78, 88 (D.C. Cir. 2001) (internal quotation marks

omitted).

V

The district court’s order granting summary judgment to

the Secretary is affirmed in part and reversed in part. We

remand the per-click regulation to the district court with

instructions to remand to the Secretary.

1

KAREN LECRAFT HENDERSON, Circuit Judge, dissenting

in part: In my view, the Congress unambiguously intended

to authorize per-click equipment leases. I therefore do not

believe the per-click ban, 42 C.F.R. § 411.357(b)(4)(ii)(B),

satisfies the first step of Chevron and respectfully dissent

from Part II.A of the majority opinion.

The Stark Law broadly prohibits self-referrals: if a doctor

has a financial interest in an entity, he cannot refer patients to

that entity for designated health services. 42 U.S.C.

§ 1395nn(a). Nevertheless, the Stark Law contains multiple

exceptions. Id. § 1395nn(b)–(e). This case involves the

equipment exception. Id. § 1395nn(e)(1)(B). A physician

can lease equipment to an entity—and refer patients to it—if:

(i) the lease is set out in writing, signed by the

parties, and specifies the equipment covered by

the lease,

(ii) the equipment rented or leased does not exceed

that which is reasonable and necessary for the

legitimate business purposes of the lease or

rental and is used exclusively by the lessee when

being used by the lessee,

(iii) the lease provides for a term of rental or lease of

at least 1 year,

(iv) the rental charges over the term of the lease are

set in advance, are consistent with fair market

value, and are not determined in a manner that

takes into account the volume or value of any

referrals or other business generated between

the parties,

(v) the lease would be commercially reasonable

even if no referrals were made between the

parties, and

2

(vi) the lease meets such other requirements as the

Secretary may impose by regulation as needed

to protect against program or patient abuse.

Id. (emphases added). The Centers for Medicare and

Medicaid Services (CMS or Agency) relied on subsection (vi)

to enact the per-click ban, which ban specifies that an

equipment lease can no longer utilize “[p]er-unit of service

rental charges.” 42 C.F.R. § 411.357(b)(4)(ii)(B) (emphasis

added). The question is whether the CMS can use its “other

requirements” authority to ban per-click leases. I think not.

An agency cannot use its delegated authority in a way

that contradicts the Congress’s unambiguous intent. See

Maislin Indus., U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116,

134–35 (1990) (“Although the [agency] has both the authority

and expertise generally to adopt new policies when faced with

new developments in the industry, it does not have the power

to adopt a policy that directly conflicts with its governing

statute.” (citation omitted)); cf. AFL-CIO v. Chao, 409 F.3d

377, 384 (D.C. Cir. 2005) (“Even when Congress has stated

that the agency may do what is ‘necessary,’ ” the agency

“cannot render nugatory restrictions that Congress has

imposed.” (citation omitted)). As a matter of first principles,

an agency is not entitled to Chevron deference unless the

Congress “has left a gap for the agency to fill.” Am. Bar

Ass’n v. FTC, 430 F.3d 457, 468 (D.C. Cir. 2005). If the

Congress has “directly spoken” to the issue in question, there

is no such gap. Ry. Labor Execs.’ Ass’n v. Nat’l Mediation

Bd., 29 F.3d 655, 671 (D.C. Cir. 1994) (en banc) (quoting

Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837, 842 (1984));

see also Util. Air Reg. Grp. v. EPA, 134 S. Ct. 2427, 2445

(2014) (“Agencies exercise discretion only in the interstices

created by statutory silence or ambiguity; they must always

give effect to the unambiguously expressed intent of

3

Congress.” (quotation marks omitted)). An agency crosses

an impermissible line when it moves from interpreting a

statute to rewriting it. See La. Pub. Serv. Comm’n v. FCC,

476 U.S. 355, 376 (1986) (“As we so often admonish, only

Congress can rewrite [a] statute.”); NRDC v. Adm’r, EPA, 902

F.2d 962, 977 (D.C. Cir. 1990) (“It hardly bears noting that

[the agency’s] discretion cannot include the power to rewrite

a statute and reshape a policy judgment Congress itself has

made.”), vacated in other part, 921 F.2d 326 (D.C. Cir. 1991).

Even if the Congress wanted to authorize agency rewrites, the

Constitution would stand in its way. See Util. Air Reg. Grp.,

134 S. Ct. at 2446 (“Under our system of government,

Congress makes laws and the President, acting at times

through agencies . . ., faithfully executes them.” If agencies

could “modify unambiguous requirements imposed by a

federal statute,” it “would deal a severe blow to the

Constitution’s separation of powers.” (quotation marks and

alteration omitted)); see also id. at n.8 (“[W]e shudder to

contemplate the effect that such a principle would have on

democratic governance.”).

The CMS contends that it can always use its “other

requirements” authority to narrow the scope of the equipment

exception, prohibit more conduct and remain consistent with

the Stark Law. But the Agency takes an overly simplistic

view of congressional intent. Legislation is often the

product of “compromise between groups with . . . divergent

interests,” reflecting a “careful balance” between two

extremes. Ragsdale v. Wolverine World Wide, Inc., 535 U.S.

81, 93–94 (2002). “[A]gencies must respect and give effect

to these sorts of compromises.” Id. at 94. The Stark Law,

for example, begins with a broad prohibition on physician

self-referrals. See 42 U.S.C. § 1395nn(a). The bulk of the

provision, however, consists of exceptions to that general ban.

See id. § 1395nn(b)–(e); see also Steven D. Wales, The Stark

4

Law: Boon or Boondoggle? An Analysis of the Prohibition on

Physician Self-Referrals, 27 LAW & PSYCHOL. REV. 1, 11

(2003) (“What cannot be done [under the Stark Law] is

explained in one sentence. . . . Exceptions, however, fill

nearly nine pages of the statute.”). The exceptions reflect

the Congress’s judgment that certain arrangements are net

beneficial to patients, regardless of the risks associated with

self-referrals. See United States ex rel. Kosenske v. Carlisle

HMA, Inc., 554 F.3d 88, 96 (3d Cir. 2009). Thus, when the

CMS circumscribes a statutory exception to the Stark Law, it

can do as much violence to the Congress’s intent as when it

broadens one. See Am. Bankers Ass’n v. SEC, 804 F.2d 739,

754 (D.C. Cir. 1986) (agency cannot “change basic decisions

made by Congress” (emphasis added)); Guardians Ass’n v.

Civil Serv. Comm’n of N.Y., 463 U.S. 582, 615 (1983)

(O’Connor, J., concurring in the judgment) (“[W]e would

expand considerably the discretion and power of agencies

were we . . . to permit [them] to proscribe conduct that

Congress did not intend to prohibit.”).

Moreover, the text of subsection (vi)—authorizing the

CMS to promulgate “other requirements”—contains its own

limitation. The word “other” means “existing besides, or

distinct from, that already mentioned or implied.” Fin.

Planning Ass’n v. SEC, 482 F.3d 481, 489 (D.C. Cir. 2007)

(quoting II THE SHORTER OXFORD ENGLISH DICTIONARY 1391

(2d ed. 1936, republished 1939)). The CMS cannot use its

“other requirements” authority to “redefine” or “override” the

statutory conditions set out in the equipment exception. Id.

For example, subsection (iii) requires equipment leases to be

“at least 1 year” long. 42 U.S.C. § 1395nn(e)(1)(B)(iii).

The CMS plainly could not change “1 year” to “6 months”

because such a regulation would redefine a statutory

requirement, instead of adding a new one. See Fin. Planning

Ass’n, 482 F.3d at 489 (“[C]ourts have hesitated to allow

5

[agencies] to use language structurally similar to the ‘other

[requirements]’ clause . . . to redefine . . . specific

requirements in existing statutory exceptions.” (citing

Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847,

863 n.11 (1988)).

Applying these principles here, we first determine

whether another provision of the equipment exception already

addresses the propriety of per-click leases. Subsection (iv),

which discusses rent, is the most natural candidate. Under

subsection (iv), “the rental charges over the term of the lease”

must not be “determined in a manner that takes into account

the volume or value of any referrals or other business

generated between the parties.” 42 U.S.C.

§ 1395nn(e)(1)(B)(iv) (emphases added). The key inquiry,

then, is whether the “rental charges” in a per-click lease

“take[] into account the volume” of patient referrals. The

per-click ban cannot stand unless the answer is “Yes” or “It’s

ambiguous.”

Mathematically, a per-click lease can be expressed as Y =

R∙X, with Y as the physician’s total rental income, R as the

charge per patient and X as the number of patients served.

The term “rental charges” in subsection (iv) can have two

meanings. On the one hand, “rental charges” may refer to

the variable Y. If “rental charges” means “rental income,”

then per-click leases do not qualify for the equipment

exception. A per-click lease would “take[] into account the

volume” of referrals because the physician’s rental income

would depend directly on the number of patients he refers.

On the other hand, “rental charges” may refer to the variable

R in the equation above (i.e., the per-patient rate). If a

per-click lease charges a flat per-patient rate over the term of

the lease, it does not “take into account the volume” of

referrals and is therefore eligible for the equipment exception.

6

But if a per-click lease adopts a tiered system—e.g., $1,000

for the first 20 patients, $2,000 for the next 20 patients,

$3,000 for the next 20 patients, and so on—it would not

qualify. Because the text of the equipment exception is

“reasonably susceptible” to either of these interpretations, it is

ambiguous. McCreary v. Offner, 172 F.3d 76, 82 (D.C. Cir.

1999). 1

If the text is ambiguous, we do not automatically move to

Chevron Step Two. Instead, “a statute may foreclose an

agency’s preferred interpretation . . . if its structure,

legislative history, or purpose makes clear what its text leaves

opaque.” Catawba Cnty., NC v. EPA, 571 F.3d 20, 35 (D.C.

Cir. 2009) (emphasis added); see also Sierra Club v. EPA,

551 F.3d 1019, 1027 (D.C. Cir. 2008) (“Although Chevron

step one analysis begins with the statute’s text, the court must

. . . exhaust the traditional tools of statutory construction,

including examining the statute’s legislative history . . . .”

(emphasis added) (quotation marks omitted)); Am. Bankers

Ass’n v. NCUA, 271 F.3d 262, 268, 271 (D.C. Cir. 2001)

(finding text ambiguous but resolving case at Chevron Step

One due to “pellucid” legislative history). In Chevron itself,

the Supreme Court did not stop once it found the text

ambiguous; it marched on to consider the legislative history

as well. See 467 U.S. at 862; see also FDA v. Brown &

Williamson Tobacco Corp., 529 U.S. 120, 147 (2000)

(legislative history is “certainly relevant” at Chevron Step

1

Nevertheless, the latter interpretation is plainly the stronger one.

The word “charge” means “expense,” “cost,” or the “price required or

demanded for service rendered.” Charge, III OXFORD ENGLISH

DICTIONARY 36 (2d ed. 1989); see also MCGRAW–HILL ESSENTIAL

DICTIONARY OF HEALTH CARE 159 (1988) (“charge” means the “price

assigned to a unit of medical service”). It more naturally refers to the

rental rate charged to the lessee, not the rental income earned by the

lessor.

7

One); PBGC v. LTV Corp., 496 U.S. 633, 649 (1990)

(“legislative history” is one of the “traditional tools of

statutory construction” at Chevron Step One).

Much ink has been spilled on the propriety of using

legislative history to cloud a clear text under Chevron. See,

e.g., Zuni Pub. Sch. Dist. No. 89 v. Dep’t of Educ., 550 U.S.

81, 90 (2007); id. at 105–06 & n.2 (Stevens, J., concurring);

id. at 108 (Scalia, J., dissenting); see also Halbig v. Burwell,

758 F.3d 390, 406 (D.C. Cir. 2014) (identifying “a fork in our

precedent” on this issue), reh’g en banc granted, judgment

vacated, No. 14-5018, 2014 WL 4627181 (D.C. Cir. Sept. 4,

2014). But the converse—consulting legislative history to

clarify an ambiguous text—ought to be uncontroversial. The

chief objection to legislative history is that it can be

undemocratic: the Congress qua Congress approves only the

text of a statute and the legislative history might reflect a

distinctly minority view. See Exxon Mobil Corp. v.

Allapattah Servs., Inc., 545 U.S. 546, 568 (2005). In the

Chevron context, however, a failure to consult legislative

history would leave the text ambiguous and thereby transfer

authority to an administrative agency, whose democratic

accountability is nil. See Free Enter. Fund v. PCAOB, 561

U.S. 477, 499 (2010) (“The growth of the Executive Branch

. . . heightens the concern that it may slip from the

Executive’s control, and thus from that of the people.”).

And at least some types of legislative history “shed a reliable

light on” the views of a majority of the enacting Congress.

Allapattah Servs., 545 U.S. at 568; see also Simpson v. United

States, 435 U.S. 6, 17 (1978) (Rehnquist, J., dissenting)

(“[S]ome types of legislative history are substantially more

reliable than others. The report of a joint conference

committee of both Houses of Congress, for example, . . . is

accorded a good deal more weight than the remarks . . . on the

floor of the chamber.”). Legislative history is also criticized

8

for being “murky, ambiguous, and contradictory,” an exercise

of “looking over a crowd and picking out your friends.”

Allapattah Servs., 545 U.S. at 568. But again, this criticism

loses force under Chevron. If legislative history is

“ambiguous”—i.e., if both the petitioner and the agency have

“friends” they can pick out—then, by definition, the agency

prevails under Chevron Step One. See, e.g., Catawba Cnty.,

571 F.3d at 38. Sometimes, however, the legislative history

is clear, reliable and uncontroverted; if it is, we would be

wrong to ignore it.

This is one such case. The Conference Report on the

1993 amendments to the Stark Law resolves the textual

ambiguity in the equipment exception. According to the

Conference Report:

The conferees intend that charges for . . . equipment

leases may be based on daily, monthly, or other

time-based rates, or rates based on units of service

furnished, so long as the amount of the time-based or

units of service rates does not fluctuate during the

contract period based on the volume or value of

referrals between the parties to the lease or

arrangement.

H.R. REP. NO. 103-213, at 814 (1993) (Conf. Rep.) (emphases

added). This legislative history makes clear that the term

“rental charges” in subsection (iv) refers to rental “rates,” not

total rental income. Thus, so long as the per-patient rate is

fixed over the course of the lease, a per-click lease qualifies

for the equipment exception. The Conference Report could

not have been clearer on this point and the CMS has identified

nothing to controvert it. Conference reports, moreover, are

the gold standard when it comes to legislative history. See

Moore v. Dist. of Columbia, 907 F.2d 165, 175 (D.C. Cir.

9

1990) (en banc) (unanimous) (“conference committee report

is the most persuasive evidence of congressional intent after

statutory text” (quotation marks omitted)); Planned

Parenthood Fed’n of Am., Inc. v. Heckler, 712 F.2d 650, 657

n.36 (D.C. Cir. 1983) (statements in conference reports are

“particularly weighty indicators of congressional intent”

because they “represent[] the final word on the final version

of a statute” and “must be signed by a majority of both

delegations from the House and Senate who have resolved the

differences between the two chambers” (quotation marks

omitted)).

In short, the Conference Report demonstrates that the

“rental charges” in a per-click equipment lease do not “take[]

into account the volume . . . of any referrals . . . between the

parties.” 42 U.S.C. § 1395nn(e)(1)(B)(iv). Per-click leases

are therefore eligible for the equipment exception and the

CMS lacks the authority to say otherwise.

Contrary to my colleagues, I do not believe the physician

group–practice exception reintroduces any ambiguity. That

exception requires that a group’s “compensation per unit of

services” not be “determined in a manner that takes into

account the volume or value of any referrals or other business

generated between the parties.” Id. § 1395nn(e)(7)(A)(v)

(emphasis added). My colleagues contend that the

emphasized language shows the Congress “knew how to

permit per-click payments explicitly, suggesting that the

omission in [the equipment exception] was deliberate.” Maj.

Op. 15–16. But the group-practice exception speaks only to

“compensation” and, thus, does nothing to illuminate the term

“rental charges” in the equipment exception. The

interpretative value of this wholly separate exception is

therefore minimal. See Weaver v. U.S. Info. Agency, 87 F.3d

1429, 1437 (D.C. Cir. 1996) (discounting this canon of

10

statutory construction when “the subject-matter to which the

words refer is not the same” (quoting Atl. Cleaners & Dyers

v. United States, 286 U.S. 427, 433 (1932))); see also United

States v. Wells Fargo Bank, 485 U.S. 351, 357 (1988) (“We

cannot attribute to Congress an intent . . . by comparing two

unrelated provisions of the [statute].”). More importantly,

the Conference Report speaks directly to the equipment

exception and uses the exact language my colleagues believe

is missing: “unit[] of service[s].” H.R. REP. NO. 103-213, at

814. In my view, this crystalline legislative history

supersedes whatever oblique inference is attempted to be

teased out of a distinct exception in the Stark Law. See

United States v. Stauffer Chem. Co., 684 F.2d 1174, 1184 (6th

Cir. 1982) (“conference report” can rebut “presumption” that

“a difference in language reflects a difference in meaning”

(citing Moore v. Harris, 623 F.2d 908, 914 (4th Cir. 1980));

see also Neuberger v. CIR, 311 U.S. 83, 88 (1940) (“The

maxim ‘expressio unius est exclusio alterius’ . . . can never

override clear and contrary evidences of Congressional

intent.”). As this Court has explained before, the argument

that the “Congress knows how to say thus and so, and would

have written thus and so if that is what it really intended” is

“weak.” Doris Day Animal League v. Veneman, 315 F.3d

297, 299 (D.C. Cir. 2003). “It may be countered by arguing

that if Congress wanted to exclude [per-click leases] from the

[equipment exception] it easily could have said as much.”

Id. (emphasis added). The text’s “failure to speak with

clarity signifies only that there is room for disagreement,”

id.—disagreement that, here, the legislative history resolves.

My colleagues minimize the Conference Report because

it “states only that rental charges ‘may’ be based on units of

service.” Maj. Op. 17 (emphasis added). This Court has

repeatedly held, however, that the Congress need not speak in

obligatory terms to constrain an agency’s discretion. See Ry.

11

Labor Execs.’ Ass’n, 29 F.3d at 671 (“To suggest . . . that

Chevron step two is implicated any time a statute does not

expressly negate the existence of a claimed administrative

power (i.e. when the statute is not written in ‘thou shalt not’

terms), is both flatly unfaithful to the principles of

administrative law . . . and refuted by precedent.” (emphasis

in original)); Ethyl Corp. v. EPA, 51 F.3d 1053, 1059–60

(D.C. Cir. 1995) (rejecting argument that “Congress’s use of

the word ‘may’ ” gives agency unbridled discretion and

noting that “[w]e refuse . . . to presume a delegation of power

merely because Congress has not expressly withheld such

power”). Otherwise, “agencies would enjoy virtually

limitless hegemony, a result plainly out of keeping with

Chevron and quite likely with the Constitution as well.”

Michigan v. EPA, 268 F.3d 1075, 1082 (D.C. Cir. 2001).

Here, the Congress said that an equipment lease “may” charge

a per-click rate; the CMS is therefore not free to say it “may

not.”

My colleagues also note that “the text of the Stark Law

makes no reference to per-click rates.” Maj. Op. 14

(emphasis added). But this is just another way of saying that

legislative history is irrelevant at Chevron Step One. It

assumes that legislative history cannot disambiguate the

meaning of the text itself—an assumption that runs contrary

to precedent. See supra pp. 6–7; see also, e.g., Cohen v.

United States, 650 F.3d 717, 730 (D.C. Cir. 2011) (en banc)

(consulting “single paragraph” of “surprisingly

straightforward” legislative history to determine meaning of

“intrinsically ambiguous” text); Elec. Indus. Ass’n Consumer

Elecs. Grp. v. FCC, 636 F.2d 689, 696 (D.C. Cir. 1980)

(finding legislative history that “limited the [agency’s]

power”). It also blinks reality. The Congress often uses

legislative history, rather than the text, to restrain agencies in

the exercise of their delegated authority. See Abbe R. Gluck

12

& Lisa Schultz Bressman, Statutory Interpretation from the

Inside—An Empirical Study of Congressional Drafting,

Delegation, and the Canons: Part I, 65 STAN. L. REV. 901,

965–78 (2013). Here, for example, the CMS felt completely

bound by the Conference Report in 2001, see Maj. Op. 19–20,

and viewed the Conference Report as a substantial hurdle to

be overcome in 2008, see 73 Fed. Reg. at 48,715 (“we agree

that Congress specifically intended to permit certain per-click

leases”). This Court likewise consulted legislative history in

Financial Planning Association, 482 F.3d at 488–90 &

n.6—the case my colleagues cite for their text-only

proposition. See Maj. Op. 14.

In sum, the Conference Report demonstrates that the

Congress addressed per-click leases with a “level of

specificity” that “effectively close[d] any gap the Agency

s[ought] to find and fill.” Ethyl Corp., 51 F.3d at 1060.

Because subsection (iv) sanctions per-click leases, the

per-click ban is not an “other” requirement the CMS can

promulgate under subsection (vi). “[A]gencies whose

jurisdictional boundaries are defined in the statute [cannot]

alter by administrative regulation those very jurisdictional

boundaries. To suggest otherwise is to sanction

administrative autonomy beyond the control of either

Congress or the courts.” Am. Bankers Ass’n, 804 F.2d at

754. The CMS’s ban on per-click equipment leases

therefore fails at Chevron Step One. Because my colleagues

hold otherwise, I respectfully dissent on this issue.

1

GRIFFITH, Circuit Judge, dissenting in part: The majority

holds that the per-click rule fails at Chevron step two because

the Secretary’s discussion of the legislative history is

unreasonable. The Conference Report states that “[t]he

conferees intend that charges for space and equipment leases

may be based on . . . rates based on units-of-service furnished,

so long as the amount of the . . . units-of-service rates does

not fluctuate during the contract period based on the volume

or value of referrals between the parties to the lease or

arrangement.” H.R. REP. NO. 103-213 at 814. In the

rulemaking, the Secretary responded to comments that

pointed to this legislative history and agreed that it showed

that “Congress specifically intended to permit certain

per-click leases,” however, she “disagree[d] that Congress

intended an unqualified exception for per-click leases.” 73

Fed. Reg. at 48,715. The Secretary reached this conclusion by

adopting a reading of the legislative history that did not

prohibit her from banning per-click leases:

Where the total amount of rent (that is, the rental charges)

over the term of the lease is directly affected by the

number of patients referred by one party to the others,

those rental charges can arguably be said to “take into

account” or “fluctuate during the contract period based

on” the volume or value of referrals between the parties.

Id. at 48,716. Thus, under the Secretary’s reading during

rulemaking, the legislative history could be read to preclude

per-click leases because the total amount paid to the lessor

depends on the number of uses of the equipment, even if the

per-click rate itself does not. On appeal, however, the

Secretary has pressed a different view of the legislative

history. Here, she has argued that “the legislative history

invoked by the Council does not speak at all to the scope of

the Secretary’s . . . power to add ‘other requirements’ to the

equipment rental exception. . . . It is thus beside the point

2

whatever light the legislative history might shed on [the

rental-charge clause].” Appellee’s Br. 28.

The majority insists that the Secretary cannot rely on the

reasoning she has put forth on appeal because it was not set

out in the rulemaking and Chenery therefore bars us from

considering it now. Although the Council raised the Chenery

argument before the district court, see Pl.’s Rep. in Supp. of

Mot. for Sum. J. (Dkt. 32) at 2-4, it has not pursued the point

on appeal. The majority cites an excerpt from the Council’s

reply brief that it argues “implicitly” raises the issue.

Generally, we do not consider arguments raised for the first

time in a reply brief. See Russell v. Harman Int’l Indus., Inc.,

773 F.3d 253, 255 n.1 (D.C. Cir. 2014). The majority

contends that looking to the reply brief here is not problematic

because the Council did not need to raise Chenery in its

opening brief before it knew the Secretary’s litigation

strategy. But the majority ignores the fact that this appeal

comes to us from the district court, where the Secretary relied

on the same rationale she does here and the Council disputed

her reasoning based on Chenery. The Council was therefore

well aware of the Secretary’s litigating position and should

have raised Chenery as a basis for overturning the district

court in its opening brief. See Corson & Gruman Co. v.

NLRB, 899 F.2d 47, 50 n.4 (D.C. Cir. 1990) (“We require

petitioners and appellants to raise all of their arguments in the

opening brief to prevent ‘sandbagging’ of appellees and

respondents and to provide opposing counsel the chance to

respond.”).

In any event, the excerpted language does not raise a

Chenery argument, implicitly or otherwise. It states only that

the Secretary has not defended the interpretation of the

legislative history that was set forth in the rulemaking. See

Appellant’s Reply Br. 10. This is entirely different from an

3

argument that the Secretary’s current analysis was not raised

in the rulemaking—the argument that “implicitly raised the

Chenery issue” in the case on which the majority relies.

Mitchell v. Christopher, 996 F.2d 375, 378 n.2 (D.C. Cir.

1993). The majority’s strained reading of the brief is

especially suspect given the clarity with which the Council

raised the Chenery argument before the district court. See

Pl.’s Rep. in Supp. of Mot. for Sum. J. (Dkt. 32) at 2-4. By

sua sponte considering an argument the Council has elected to

omit from either its opening or reply brief, the majority

remands a federal regulation based on an argument not before

this court—an action at odds with our precedent. See, e.g.,

Doe by Fein v. District of Columbia, 93 F.3d 861, 875 n.14

(D.C. Cir. 1996) (holding that the appellant waived an

argument not raised on appeal). Cf. Byers v. C.I.R., 740 F.3d

668, 681 (D.C. Cir. 2014) (refusing to consider a Chenery

argument where the appellant failed to pursue the claim in the

court below); see also Utah Envtl. Cong. v. Troyer, 479 F.3d

1269, 1288-92 (10th Cir. 2007) (McConnell, J. concurring in

part and dissenting in part) (arguing that the majority’s

consideration of Chenery claims not raised on appeal

“violates well-established principles of appellate review”).

The Council is a sophisticated litigant, represented by

attorneys familiar with the appellate process. We cannot know

why it chose not to bring this particular challenge on appeal,

and we should not address what is not before us.

If the argument were properly before us, I would be

inclined to agree that the Secretary’s interpretation of the

legislative history in the rulemaking was unreasonable. But

that approach is foreclosed because the Council has declined

to raise the Chenery argument on appeal. I find the arguments

the Council actually briefed at Chevron step two

unpersuasive, and would thus uphold the per-click rule based

4

on the Secretary’s reasoning on appeal. On those grounds, I

respectfully dissent.