Gentiva Health Services, Inc. v. Becerra

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 7, 2022 Decided April 15, 2022

No. 21-5091

GENTIVA HEALTH SERVICES, INC.,

APPELLANT

v.

XAVIER BECERRA, IN HIS OFFICIAL CAPACITY AS SECRETARY

OF THE U.S DEPARTMENT OF HEALTH AND HUMAN SERVICES,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:19-cv-02271)

W. Jerad Rissler argued the cause for appellant. With him

on the briefs was Adriaen M. Morse, Jr.

William A. Dombi was on the brief for amicus curiae

National Association for Home Care & Hospice in support of

appellant.

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McKaye L. Neumeister, Attorney, U.S. Department of

Justice, argued the cause for appellee. With her on the brief

was Brian M. Boynton, Acting Assistant Attorney General at

the time the brief was filed, Michael S. Raab, Attorney, Janice

L. Hoffman, Associate General Counsel, U.S. Department of

Health & Human Services, Susan Maxson Lyons, Deputy

Associate General Counsel for Litigation, and W. Charles

Bailey, Jr., Attorney. Alisa B. Klein, Attorney, U.S.

Department of Justice, entered an appearance.

Before: ROGERS, MILLETT and PILLARD, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Every year, millions of

Americans — most of them Medicare beneficiaries — receive

hospice care. Br. for Nat’l Ass’n for Home Care & Hospice as

Amicus Curiae at 5–6 (citing Nat’l Hospice & Palliative Care

Org., NHCPO Facts and Figures 6–11, 22 (2020),

https://bit.ly/3gTXpmx). For eligible Medicare beneficiaries,

the Medicare program reimburses hospice providers for

services at per-diem rates in periodic disbursements throughout

the fiscal year. That reimbursement is subject to certain fiscal-

year-end adjustments, including a cap on the total

reimbursement a provider may receive for inpatient hospice

care (“inpatient cap”) and a cap on the total reimbursement a

provider may receive for all hospice services (“aggregate

cap”).

In 2013, budget sequestration under the Budget Control

Act of 2011 forced spending reductions in nearly all federal

programs, including Medicare, requiring a 2% reduction in all

Medicare spending. Periodic disbursements to hospice

providers were accordingly reduced by 2%. Because

calculation of the aggregate cap was unaffected, the

methodology initially used by Medicare’s hospice

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reimbursement contractors meant a hospice that exceeded its

aggregate cap would receive the same total annual

reimbursement — the cap amount — as in a non-sequestration

year, while a hospice that came in under its aggregate cap for

the year would receive the full 2% cut. To remedy this

problem, the Centers for Medicare and Medicaid Services

(“CMS”) adopted a methodology for end-of-year

reconciliation whereby overpayments were to be calculated as

if sequestration had not been in effect, and any resulting

overpayment was to be reduced by 2% to account for the

already reduced preliminary disbursements.

Gentiva Health Services, Inc., a hospice provider,

challenges CMS’s methodology, contending that it violates

both the Medicare statute and the Budget Control Act, and that

CMS did not follow the required administrative procedures for

adopting it. For the following reasons, we affirm the district

court’s grant of summary judgment because the Secretary

correctly interpreted the Medicare statute and the Budget

Control Act in devising the sequestration methodology, and

because adoption of the methodology did not deprive hospice

providers of adequate notice or procedural protections.

I.

This case arises out of the interaction of two statutory

schemes: the Medicare statute (specifically, the provision

governing reimbursements to hospice care providers) and the

Budget Control Act.

A.

CMS, a division of the Department of Health and Human

Services, administers the Medicare program, including hospice

benefits for terminally ill patients under Medicare Part A. See

42 U.S.C. § 1395c. Hospice coverage under Medicare takes

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the form of a per-patient, per-day, per-category-of-care

reimbursement to the hospice care provider — that is, a flat

daily rate — determined by Congress and the Secretary. Id.

§ 1395f(i)(1); see also 42 C.F.R. §§ 418.302, .306. The total

amount of reimbursement a hospice provider may receive from

Medicare in a year is subject to two caps: a cap on

reimbursements for inpatient services, 42 U.S.C.

§ 1395x(dd)(2)(A)(iii); see 42 C.F.R. § 418.302(f), and, as

relevant here, an “aggregate cap” on total reimbursements for

all hospice services, 42 U.S.C. § 1395f(i)(2); see 42 C.F.R.

§§ 418.301(b), .308(a).

With respect to the aggregate cap, the Medicare statute

provides that reimbursements for hospice services are capped

annually: “The amount of payment made under this part for

hospice care provided by (or under arrangements made by) a

hospice program for an accounting year may not exceed the

‘cap amount’ for the year . . . multiplied by the number of

[M]edicare beneficiaries in the hospice program in that year.”

42 U.S.C. § 1395f(i)(2)(A); see 42 C.F.R. § 418.309. “The

intent of the [aggregate] cap was to ensure that payments for

hospice care would not exceed what would have been

expended by [M]edicare if the patient had been treated in a

conventional setting.” H.R. REP. NO. 98-333, at 1 (1983).

Medicare reimbursements for hospice services follow a

two-step process. The Medicare Administrative Contractors

that process reimbursements to providers make regular

disbursements throughout the cap year (November 1 to October

31) based on the per-diem reimbursement rates. See 42 C.F.R.

§ 418.302(d)–(e). Then, at the end of the cap year, the hospice

provider works with the contractor on a reconciliation process

to determine, among other things, whether those periodic

disbursements exceeded the aggregate cap (which can only be

determined after the end of the cap year). See 42 C.F.R.

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§ 418.308(c)–(d); 79 Fed. Reg. 50,452, 50,472–73 (Aug. 22,

2014). Hospices must repay any overpayments. 42 C.F.R.

§ 418.308(d). If a hospice concludes a contractor’s

determination of its overpayment obligation (if any) is

mistaken, it can administratively challenge that determination

before the Provider Reimbursement Review Board. See 42

U.S.C. § 1395oo(a); 42 C.F.R. § 418.311.

The Budget Control Act of 2011, Pub. L. No. 112-25, 125

Stat. 240, aimed to reduce federal government spending via

certain budgetary devices. The Act provides that, should

Congress fail to enact legislation that reduces the deficit by a

specified amount, sequestration is triggered, meaning that

federal government spending must be reduced by a certain

percentage across the board (with certain programs exempted).

See 2 U.S.C. § 901a. The Office of Management and Budget

(“OMB”) calculates, and the President implements, the

percentage reduction based on statutory guidelines. Id.

Medicare spending is subject to sequestration, but enjoys

certain special rules, including that the maximum percentage

reduction that may be applied to Medicare spending is 2%.

2 U.S.C. § 901a(6)(A). With respect to Medicare Parts A and

B, the Budget Control Act provides that “[t]o achieve the total

percentage reduction in those programs required by section 902

or 903 of this title . . . OMB shall determine, and the applicable

Presidential order . . . shall implement, the percentage

reduction that shall apply . . . to individual payments for

services furnished during the one-year period beginning on the

first day of the first month beginning after the date the order is

issued . . . such that the reduction made in payments under that

order shall achieve the required total percentage reduction in

those payments for that period.” Id. § 906(d)(1).

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B.

On March 1, 2013, the conditions for sequestration were

triggered and OMB determined that the maximum 2%

reduction to Medicare spending was required. See Office of

Management & Budget, OMB Report to Congress on the Joint

Comm. Sequestration for Fiscal Year 2013, at 1, 5 (2013),

https://go.usa.gov/xVMJb (“OMB 2013 Sequestration

Report”). CMS soon announced how this would impact

Medicare providers, explaining that claims “with dates-of-

service or dates-of-discharge on or after April 1, 2013, will

incur a 2 percent reduction in Medicare payment.” Provider

Reimbursement Review Board Decision, Case No. 15-

3457GC, at 5 n.32 (May 31, 2019). But at the time, CMS did

not specifically address how the reduction would interact with

the hospice care reimbursement process.

On March 3, 2015, CMS issued to its contractors a

Technical Direction Letter providing additional guidance on

the sequestration methodology for hospice reimbursement

calculations while sequestration was in effect. The contractors

would first determine the amount by which a given provider’s

periodic reimbursements were reduced by sequestration and

add that figure to the net payments actually disbursed to the

provider during the year, arriving at the amount that would

have been disbursed in the absence of sequestration (infra

“Figure A”). Then the contractors were to determine the

provider’s aggregate cap and apply the aggregate cap to Figure

A, resulting in the amount of overpayment the provider would

owe were sequestration not in effect (infra “Figure B”).

Finally, to account for the sequestration reduction that had

already been applied to the periodic disbursements, the

contractors were to reduce Figure B by 2%, arriving at the

amount of overpayment actually owed under sequestration

(infra “Figure C”). As the district court illustrated by a

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simplified example, that process resulted in uniform 2%

reductions in Medicare reimbursements to hospice providers,

whether or not the providers had received excess disbursements

during the year and thus exceeded their aggregate cap:

Sequestration Methodology

Hospice A Hospice B

Aggregate Cap $1,000 $1,000

Net

$980 $1,176

Disbursements

Amount

Withheld for $20 $24

Sequestration

Reimbursement

Without

$1,000 $1,200

Sequestration

(“Figure A”)

Overpayment

Without

$0 $200

Sequestration

(“Figure B”)

2% Reduced

Overpayment $0 $196

(“Figure C”)

Final Amount

Paid by $980 $980

Medicare

Gentiva Health Servs., Inc. v. Cochran, 523 F. Supp. 3d 81, 88

(D.D.C. 2021).

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Gentiva Health Services operates hospices nationwide,

including the six Gentiva-affiliated hospices here. After the

2013 cap year, the hospices initially received cap

determinations prior to the issuance of the Technical Direction

Letter that accordingly did not use the sequestration

methodology. Once the Technical Direction Letter was shared

with the contractors, the cap determinations were reopened and

revised determinations were issued using the sequestration

methodology. The six Gentiva-affiliated hospices were

determined to owe overpayments under the sequestration

methodology.

Gentiva appealed those determinations to the Provider

Reimbursement Review Board. Before the Board, Gentiva

argued that the Medicare statute, 42 U.S.C. § 1395f(i)(2), and

the implementing regulation, 42 C.F.R. § 418.308, precluded

CMS from calculating overpayments using the sequestration

methodology. Instead, Gentiva argued, CMS and its

contractors were required to calculate overpayments by

looking only at the difference between the aggregate cap and

the sum of the preliminary disbursements throughout the

year — that is, by how much the preliminary payments actually

received exceeded the aggregate cap (“net payments

methodology”). Under this methodology the contractors

would not have added back the sequestration reduction

withheld from the preliminary disbursements, nor reduced the

final overpayment amount by 2%, instead considering only the

funds actually disbursed as compared to the aggregate cap:

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Net Payments Methodology

Hospice A Hospice B

Aggregate

$1,000 $1,000

Cap

Net

$980 $1,176

Disbursements

Overpayment

$0 $176

Amount

Final Amount

Paid by $980 $1,000

Medicare

Gentiva, 523 F. Supp. 3d at 89. As this example demonstrates,

Gentiva’s net payments methodology produces different

results than the sequestration methodology for a hospice that

exceeds its aggregate cap, resulting in a lower amount of

overpayment due. Under the sequestration methodology, the

most any hospice can retain is 98% of its aggregate cap,

because the methodology looks to the amount of allowable

reimbursement in the absence of sequestration and then reduces

that amount — which is, at most, equal to the aggregate cap —

by 2%. But under the net payments methodology, a hospice

can retain up to 100% of its aggregate cap.

According to Gentiva, the sequestration methodology

violated the statute and the regulation by adding back the

sequestration reduction withheld from the preliminary

disbursements into the equation, such that — for overpayment

purposes — funds the providers did not actually receive were

being counted against them. As a result, the providers asserted,

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they were required to repay as overpayments money they had

never actually received.

The Board upheld the 2013 cap determinations,

concluding that nothing in the statute or the regulation required

CMS to use the net payments methodology and that the

sequestration methodology was permissible. Board Decision

at 9. The Board explained that the periodic disbursements are

merely preliminary; they are “a proxy for costs subject to an

annual cap.” Id. at 4. Because the aggregate cap, among other

possible adjustments, can only be determined and applied at the

end of each fiscal year, the Board concluded, “the aggregate

cap then becomes the Medicare allowable payment for the . . .

cap year and, therefore, sequestration must be applied to the

resulting Medicare allowable payment.” Id. at 9. Contrary to

the providers’ position, the Board ruled that the sequestration

methodology did not “‘double dip’ from any hospices” because

it “reverses and adds back any sequestration amounts already

deducted during the year . . . to ensure that the aggregate cap is

applied separately from sequestration . . . .” Id. at 13.

The Board noted that the simplest way to apply the

sequestration reduction would have been to issue the

preliminary disbursements as usual, without any reduction, and

then apply the 2% reduction “to a full cap year . . . [after] the

cap year has ended.” Id. at 11. That calculation would be

straightforward: apply the aggregate cap, then apply the 2%

sequestration reduction to the resulting amount. Id. But the

problem with this method, the Board recognized, was that it

required CMS “to knowingly overpay providers” by making

full preliminary disbursements and waiting to reduce them at

cap-year end, leading to “assessing and collecting

overpayments on all Medicare-participating hospices[,] which

would not be administratively practical.” Id. at 12. CMS’s

solution — the sequestration methodology — permissibly

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achieved the same result without the substantial administrative

burden, the Board concluded. Id. at 13.

The Board not only found the sequestration methodology

permissible, but also explained why the net payments

methodology would not effectuate the sequestration mandate

of the Budget Control Act. While “the sequestration order

requires that all Medicare payments, without exception, be

reduced,” id. at 17, under the net payments methodology “no

portion of the aggregate cap payments would be sequestered,”

which the Board found “would violate the President’s

sequestration order, ” id. The same example illustrates how the

net payments methodology would operate in the absence of

sequestration and under sequestration:

Without Sequestration

Hospice A Hospice B

Aggregate

$1,000 $1,000

Cap

Net

$1,000 $1,200

Disbursements

Overpayment

$0 $200

Amount

Final Amount

Paid by $1,000 $1,000

Medicare

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With 2% Sequestration

Hospice A Hospice B

Aggregate

$1,000 $1,000

Cap

Net

$980 $1,176

Disbursements

Overpayment

$0 $176

Amount

Final Amount

Paid by $980 $1,000

Medicare

Gentiva, 523 F. Supp. 3d at 89.

Using Gentiva’s net payments methodology under

sequestration, hospices that do not exceed their aggregate cap

— e.g., Hospice A — experience a 2% reduction in their total

annual reimbursement. But hospices that do exceed their

aggregate cap — e.g., Hospice B — experience no reduction in

total annual reimbursement compared with a non-sequestration

year. Even with the 2% reduction in periodic disbursements,

Hospice B’s total preliminary payments still exceed its

aggregate cap, so its total annual reimbursement is $1,000 —

the same as it would have been in the absence of sequestration.

As a result, the net payments methodology fails to reduce

Medicare spending as to Hospice B, whereas the sequestration

methodology reduces Medicare spending for both Hospice A

and Hospice B.

The CMS administrator declined to review the Board’s

decision, which therefore became the Secretary’s final

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determination, 42 U.S.C. § 1395oo(f)(1). Gentiva timely

sought review of the Board’s decision in the district court,

moving for summary judgment, and the Secretary cross-moved

for summary judgment. Gentiva, 523 F. Supp. 3d at 90. The

district court granted summary judgment to the Secretary and

denied summary judgment to Gentiva, ruling that the

sequestration methodology did not violate either the Medicare

statute or the Budget Control Act and that the providers had not

shown they were deprived of adequate notice of a change in

agency policy. Id. at 91. The district court concluded that “the

Board’s decision was not only reasonable, but . . . it reflect[ed]

the best reading of the Medicare statute, as well as the Budget

Control Act.” Id. at 92. Gentiva appeals.

II.

On appeal, Gentiva contends that CMS was required to use

the net payments methodology instead of the sequestration

methodology for three reasons: First, the plain meaning of the

Medicare statute required the net payments methodology.

Second, the plain meaning of the Budget Control Act — the

source of the sequestration mandate — independently required

the net payments methodology. And third, even if none of the

relevant statutes compelled one methodology over another,

CMS changed its interpretation of the hospice cap provision

when it directed the sequestration methodology and failed to

adhere to the required administrative procedures for giving

notice of the change.

This court reviews the district court’s grant of summary

judgment de novo, Grossmont Hosp. Corp. v. Burwell, 797

F.3d 1079, 1082–83 (D.C. Cir. 2015), and the underlying

decision of the Board pursuant to the “considerable deference”

standard of the Administrative Procedure Act, Marymount

Hosp., Inc. v. Shalala, 19 F.3d 658, 661 (D.C. Cir. 1994). To

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the extent the Board’s decision is based “on the [text] of the

Medicare Act itself, [the court] owe[s] deference [to the Board]

under Chevron U.S.A. Inc. v. Natural Resources Defense

Council, 467 U.S. 837, 843–45 [(1984)].” Id. Under Chevron,

the court considers two questions: first, whether Congress

“directly addressed” the issue in dispute, id. (quoting Chevron,

467 U.S. at 843), and second, if “the statute is silent or

ambiguous with respect to the specific issue,” id., whether “the

agency’s answer is based on a permissible construction of the

statute,” id. (quoting Chevron, 467 U.S. at 843).

A.

“In addressing a question of statutory interpretation, we

begin with the text.” Eagle Pharms., Inc. v. Azar, 952 F.3d

323, 330 (D.C. Cir. 2020) (quoting City of Clarksville v. FERC,

888 F.3d 477, 482 (D.C. Cir. 2018)); see Engine Mfrs. Ass’n v.

S. Coast Air Quality Mgmt. Dist., 541 U.S. 246, 252 (2004).

The Medicare statute provides that reimbursements for hospice

care are subject to a cap:

The amount of payment made under [Medicare Part A]

for hospice care provided by (or under arrangements

by) a hospice program for an accounting year may not

exceed the “cap amount” for the year (computed under

subparagraph (B)) multiplied by the number of

[M]edicare beneficiaries in the hospice program in that

year (determined under subparagraph (C)).

42 U.S.C. § 1395f(i)(2)(A). The parties agree that this

provision establishes a figure known as the “aggregate cap” —

the total reimbursement a hospice care provider is entitled to

receive from Medicare in any given fiscal year. The provision

also sets out a formula for calculating a hospice’s aggregate

cap: the fixed annual cap amount in § 1395f(i)(2)(B), which is

tied to the Consumer Price Index, multiplied by the number of

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eligible patients the hospice cared for in the relevant year as

defined in § 1395f(i)(2)(C). According to the Secretary, that is

all the provision does. According to Gentiva, it does more —

it also sets out a formula for calculating overpayments.

Gentiva maintains that the plain meaning of the hospice

cap statute mandates that fiscal-year-end reconciliation use the

net payments methodology instead of the sequestration

methodology. On Gentiva’s reading, the statute’s requirement

that the “amount of payment made . . . may not exceed the ‘cap

amount’ for the year,” § 1395f(i)(2)(A), serves to define

overpayments as the difference between the net periodic

payments actually disbursed over the fiscal year (the “amount

of payment made”) and the aggregate cap. To calculate the

amount of overpayment that a hospice must return, Gentiva

reasons, CMS and its contractors must therefore compare the

hospice’s net disbursements to its aggregate cap without regard

to any other factor.

Critical to Gentiva’s interpretation is the view that the

phrase “amount of payment made” refers to the total periodic

payments actually disbursed during the relevant year. That is

not, however, the most natural way to read the text. Cf., e.g.,

HollyFrontier Cheyenne Refin., LLC v. Renewable Fuels

Ass’n, 141 S. Ct. 2172, 2176 (2021). In the hospice cap

provision, the word “made” functions not as a past-tense verb,

as Gentiva asserts, but rather as an adjectival past participle

modifying “amount of payment.” See The Chicago Manual of

Style Online § 5.90 (17th ed. 2017). The phrase “amount of

payment made” thus should not be read as referring to a

discrete historical amount, as Gentiva suggests; rather, it refers

to “the amount of payment that is made,” not “the amount of

payment that was made.” Indeed, reading the phrase in the past

tense, as Gentiva does, renders the rest of the provision

ungrammatical and incoherent; the statute goes on to provide

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that hospice reimbursement “may not exceed” the aggregate

cap — a present-tense prohibition. The plain meaning of the

statute is simply that hospice reimbursements are capped; while

the statute teaches how to calculate the aggregate cap, no

particular formula is given for applying the aggregate cap.

Gentiva’s view that the plain meaning of the statute requires

the net payments methodology is therefore incorrect.

The Supreme Court considered similar statutory language

in Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718

(2017), and reached the same conclusion. At issue there was

the Fair Debt Collection Practices Act’s definition of “debt

collector” as “anyone who ‘regularly collects or attempts to

collect . . . debts owed or due . . . another.’” Id. at 1721

(quoting 15 U.S.C. § 1692a(6)). The consumer-plaintiffs

maintained that this definition covered not only third parties

who collect debts belonging to another creditor, but also those

who purchase debts from the originating creditor and seek to

collect them on their own behalf. Id. at 1721–22. This

followed from the text, they argued, because the use of the past-

tense “owed” meant that “the statute’s definition of debt

collector captures anyone who regularly seeks to collect debts

previously ‘owed . . . another.’” Id. at 1722 (quoting 15 U.S.C.

§ 1692a(6)). The Court rejected that reading, explaining that

“[p]ast participles like ‘owed’ are routinely used as adjectives

to describe the present state of a thing — so, for example, burnt

toast is inedible, a fallen branch blocks the path, and (equally)

a debt owed to a current owner may be collected by him or her.”

Id. Further, the Court pointed out, reading “owed” in the past

tense did not fit with the statutory context: “due” was plainly

in the present tense, and it was not plausible that “Congress set

two words cheek by jowl in the same phrase but meant them to

speak to entirely different periods of time.” Id. Just so here —

“made” simply “describe[s] the present state,” id., of the

“amount of payment” in question. And reading “made” as

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past-tense puts it out of step with the present-tense “may not

exceed.”

Gentiva’s attempts to bolster its plain meaning argument

fare no better. It points to the Medicare regulations, which

provide that “[p]ayments made to a hospice during a cap period

that exceed the cap amount are overpayments and must be

refunded.” 42 C.F.R. § 418.308(d). As with the hospice cap

statute, however, Gentiva reads too much into the regulation,

which announces that payment in excess of the aggregate cap

must be refunded without providing any formula for

calculating overpayments. Nor does the relevant Department

guidance support Gentiva’s reading: it states that “[t]he total

actual Medicare payments made for services furnished to

Medicare beneficiaries during the cap year . . . are compared to

the aggregate cap for this period.” Medicare Benefit Policy

Manual, ch. 9, § 90.2. But the following section explains that

“‘[t]otal actual Medicare payments made for services furnished

to Medicare beneficiaries during the cap year’ refers to

Medicare payments for services rendered beginning November

1 and ending October 31, regardless of when payment is

actually made.” Id. § 90.2.1 (emphasis added). That

undermines Gentiva’s position that overpayments must be

calculated strictly by comparing the sum of checks actually cut

during the cap year to the aggregate cap; in fact, the policy

manual recognizes that the amount of reimbursement that is

subject to the cap may embrace other “amount[s] of payment”

as well.

Ultimately, the regulations and guidance do not support

Gentiva’s contention that the statute unambiguously requires

the net payments methodology. Section 1395f(i)(2)(A) does

not mandate any one methodology for applying the aggregate

cap. Gentiva also maintains that those regulations and policy

statements are entitled to deference. But because these

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provisions cannot bear the meaning Gentiva ascribes to them,

any deference to them would not help Gentiva.

Because the plain meaning of the statute gives no

instruction as to how overpayments should be calculated, the

court concludes the statute is “silent . . . with respect to the

specific issue” of what methodology CMS must use in applying

the aggregate cap. Marymount Hosp., 19 F.3d at 661 (quoting

Chevron, 467 U.S. at 843). Further, Gentiva offers no reason

to doubt that “the [Secretary’s] answer is based on a

permissible construction of the statute,” id. (quoting Chevron,

467 U.S. at 843). Nothing in the text of § 1395f(i)(2)(A)

suggests the sequestration methodology may not be used; in a

non-sequestration year, it achieves the same result as the net

payments methodology. And the sequestration methodology

harmonizes the Medicare statute with the requirements of the

Budget Control Act. See infra Part II.B. Furthermore, the

court concludes that the Board’s decision represents a

reasonable understanding of the statute.

B.

In 2011, Congress passed the Budget Control Act, Pub. L.

No. 112-25, 125 Stat. 240, amending the Balanced Budget and

Emergency Deficit Control Act of 1985, Pub. L. No. 99-177,

99 Stat. 1038. The amended statute provided a mechanism of

“budget enforcement,” 2 U.S.C. § 900(b), known as

sequestration, that would automatically be triggered if

Congress failed to achieve certain deficit-reduction thresholds,

see id. § 901a.

Under the Budget Control Act, when sequestration is

triggered, federal spending must be reduced by a certain

percentage across the board (with certain kinds of spending

exempted from sequestration altogether). See id.; id. §§ 905,

906(d)(7). Medicare is in a special category: It is subject to

19

sequestration, but only up to a point. If the Act requires an

overall reduction in spending greater than 2%, Medicare will

experience only a 2% reduction, id. § 901a(6)(A), and all other

non-exempt federal programs can be subject to a greater

reduction to compensate for the lesser reduction in Medicare

spending, id. § 901a(7).

When sequestration is triggered under the Act, OMB

calculates the reduction in Medicare payment amounts needed

to meet the overall percentage reduction required:

To achieve the total percentage reduction in those

programs required by section 902 or 903 of this

title . . . , OMB shall determine, and the applicable

Presidential order under section 904 of this title shall

implement, the percentage reduction that shall

apply . . . to individual payments for services furnished

during the one-year period beginning on the first day

of the first month beginning after the date the order is

issued . . . such that the reduction made in payments

under that order shall achieve the required total

percentage reduction in those payments for that period.

2 U.S.C. § 906(d)(1) (hereinafter, the “total reduction

provision”).

According to Gentiva, independent of the Medicare

statute, the total reduction provision mandates the net payments

methodology because it provides that the percentage reduction

required for sequestration applies “to individual payments for

services,” id. Gentiva maintains that CMS should have applied

the 2% reduction to each periodic payment disbursed and

stopped there, as those are the only “individual payments” in

the hospice reimbursement process. By using the sequestration

methodology, CMS instead applied the 2% reduction to a

figure other than the “individual payments for services” in

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violation of the Budget Control Act, Gentiva maintains. Again,

Gentiva’s focus is too narrow.

“It is a ‘fundamental canon of statutory construction that

the words of a statute must be read in their context and with a

view to their place in the overall statutory scheme.’” Nat’l

Ass’n of Home Builders v. Defs. of Wildlife, 551 U.S. 644, 666

(2007) (quoting FDA v. Brown & Williamson Tobacco Corp.,

529 U.S. 120, 132–33 (2000)). Viewing the phrase “individual

payments” in isolation ignores key statutory indications of the

meaning of the total reduction provision as a whole. Indeed,

“individual payments” lies between two other phrases that

contradict Gentiva’s interpretation. The provision opens by

explaining that “[t]o achieve the total percentage reduction in

[the affected programs],” OMB is to calculate the percentage

reduction required. 2 U.S.C. § 906(d)(1) (emphasis added).

And it closes by explaining that OMB is to calculate that

percentage reduction “such that the reduction made in

payments under that order shall achieve the required total

percentage reduction in those payments for that period.” Id.

(emphasis added). Read in its full context, the provision makes

clear that whatever reductions are made, they must achieve the

“total percentage reduction” demanded to effectuate the

sequestration. Here, OMB determined that a 2% reduction in

Medicare spending was required. OMB 2013 Sequestration

Report at 1, app. Any methodology of calculating

overpayments that resulted in a less than 2% reduction of

Medicare spending as a whole would have been impermissible

under the total reduction provision.

Using the net payments methodology that Gentiva

advocates would have brought the total reduction of Medicare

spending below 2%, violating the clear mandate of the total

reduction provision. As the district court ably illustrated, see

Gentiva, 523 F. Supp. 3d at 88–89, and as explained above by

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reference to Hospice B, hospices that exceeded their aggregate

cap for the year during which sequestration was in effect would

see no reduction in their total reimbursement under Gentiva’s

net payments methodology, and in turn the Medicare program

would see no reduction in spending as to those hospices under

sequestration. To achieve an overall 2% reduction program-

wide, Medicare must reduce reimbursements to each and every

hospice (and each and every non-hospice Medicare provider)

by the full 2%. If, for example, 90 below-cap hospices

experience a 2% cut and 10 above-cap hospices experience no

cut, the “total percentage reduction” across those 100 hospices

would amount to only 1.8%. Not only would that result fail to

achieve the “total percentage reduction” required, it would

violate the mandate of § 906(d)(2) that “[r]eductions in

payments . . . pursuant to a sequestration order . . . shall be at a

uniform rate . . . across [Medicare] programs and activities.”

Read as a whole, the statute permits the sequestration

methodology, which “achieve[s] the total percentage

reduction” required, 2 U.S.C. § 906(d)(1). Considering the

sequestration process in light of the Medicare scheme confirms

this interpretation. As the Secretary points out, the Medicare

statute governing hospice reimbursements “deals with such

payments on an aggregate, annual basis with respect to

individual providers.” Appellee’s Br. 23. Final, binding

determinations as to the amount of the reimbursement a

provider is owed are made on an annual basis. See 42 U.S.C.

§ 1395f(i)(1)(A), (2)(A). In the context of hospice

reimbursements, therefore, “individual payments” is best

understood to refer to the final Medicare allowable payment for

an individual hospice after cap-year-end reconciliation, rather

than to the periodic disbursements, which are merely

preliminary. Even as to the narrow question of the meaning of

“individual payments,” therefore, the court does not agree that

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the plain meaning of the statute requires the net payments

methodology.

Gentiva takes issue with the view that the periodic

disbursements are preliminary and that any reconciliation takes

place under the hospice reimbursement scheme, as hospices are

paid at a flat per diem rate, as opposed to a fee-for-service or

cost-based model under which a year-end review might deem

certain costs unallowable and adjust reimbursement

accordingly. But, as the Secretary explains, there are a number

of adjustments that might take place at cap-year end even under

the flat-rate hospice system — a beneficiary might be

retroactively determined ineligible for hospice benefits, see

42 C.F.R. § 418.302(e)(1), or another source of hospice care

coverage might be discovered for some beneficiaries, see

42 U.S.C. § 1395y(b)(2), or the application of the inpatient cap

might reduce the hospice’s total reimbursement even before

application of the aggregate cap, see 42 C.F.R. § 418.302(f)(5).

Thus, while the periodic reimbursements issued throughout the

year are something more than mere estimates of the amount

owed to the hospice providers, they are also something less

than “payments,” as the issuance of any given disbursement is

not an agreement by CMS that the provider will actually be

entitled to that amount in the final analysis.

Because the Secretary’s chosen methodology comports

with the statutory text, purpose, and operation, Gentiva has not

shown that the Board’s decision was “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law.”

Marymount Hosp., 19 F.3d at 661 (quoting 5 U.S.C.

§ 706(2)(A)).

C.

Finally, Gentiva maintains that CMS changed its existing

policy — the net payments methodology — when it adopted

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the sequestration methodology, and failed to provide a

reasoned explanation for such a change. Specifically, Gentiva

asserts that the process behind the adoption of the sequestration

methodology deprived Gentiva of fair notice of how

sequestration would affect its reimbursements. Even assuming

that Gentiva was entitled to fair notice before application of the

sequestration methodology, Gentiva’s position is without

merit.

When an agency changes its “existing polic[y],” it must

“provide a reasoned explanation for the change.” Encino

Motorcars, LLC v. Navarro, 579 U.S. 211, 221 (2016). This

requires “at least ‘display[ing] awareness that it is changing

position’ and ‘show[ing] that there are good reasons for the

new policy.’” Id. (quoting FCC v. Fox Television Stations,

Inc., 556 U.S. 502, 515 (2009)).

This, however, was no “‘[u]nexplained inconsistency’ in

agency policy,” Encino Motorcars, 579 U.S. at 222 (quoting

Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs.,

545 U.S. 967, 981 (2005)). Gentiva’s objection rests on the

unstated assumption that the adoption of the sequestration

methodology represented a reinterpretation of the Medicare

statute when, in fact, it represented a blank-slate

implementation of the Budget Control Act. The sequestration

methodology therefore was not a change in agency policy at

all.

Nor has Gentiva demonstrated that the net payments

methodology was the agency’s policy prior to sequestration.

For much the same reasons, the statutes, regulations, and policy

statements governing hospice care reimbursements do not

mandate the net payments methodology, so Gentiva’s reliance

on those provisions as evidence of the agency’s pre-

sequestration policy is misplaced. Similarly, the few individual

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aggregate-cap determination notices Gentiva offers as

examples of the net payments methodology do not establish a

“longstanding practice” of using that methodology,

Appellant’s Br. 29. Gentiva points to the hospices’ original cap

determinations from 2013 — before the issuance of the

Technical Direction Letter adopting the sequestration

methodology — as evidence that the net payments

methodology was CMS policy before sequestration. As the

district court correctly observed, those cap determinations

issued by the contractors were subject to revision (even in a

non-sequestration year) and the contractors’ initial, erroneous

approach did not represent agency policy. See Gentiva, 523 F.

Supp. 3d at 99. Similarly, the single cap determination Gentiva

has identified from before 2013 — the year sequestration was

in effect — could not by itself establish any longstanding

practice. That revised determination, moreover, does not

appear to use the net payments methodology, contrary to

Gentiva’s characterization; in fact, it appears to use the

sequestration methodology, albeit with zeros for every

sequestration-related line item, as sequestration was not in

effect that year.

To the extent Gentiva maintains that the Secretary was

required to act by notice-and-comment rulemaking, Gentiva

misperceives the interplay between the Medicare statute and

the Budget Control Act. Gentiva invokes the Medicare

statute’s requirement that “[n]o rule, requirement, or other

statement of policy (other than a national coverage

determination) that establishes or changes a substantive legal

standard governing . . . the payment for services . . . under this

subchapter shall take effect unless it is promulgated by the

Secretary by regulation under paragraph (1),” 42 U.S.C.

§ 1395hh(a)(2); see also id. §§ 1395hh(c)(1), (e)(1). But as the

Secretary points out, the statute makes those requirements

applicable to changes promulgated “under this subchapter,”

25

that is, the Medicare statute. Id. § 1395hh(a)(2). When CMS

adopted the sequestration methodology, it did not act pursuant

to its authority to effectuate the Medicare statute, but rather

pursuant to the mandate of the Budget Control Act. The formal

procedures that accompany rulemaking under the Medicare

statute were therefore inapplicable. Cf. Azar v. Allina Health

Servs., 139 S. Ct. 1804, 1816–17 (2019).

Accordingly, the court affirms the district court’s grant of

summary judgment to the Secretary and denial of summary

judgment to Gentiva.