Children's Hospital and Health Center, a Washington Corporation v. S. Kimberly Belshe, Director, California Department of Health Services

SNEED, Circuit Judge,

dissenting:

I respectfully dissent.

In this case, we are asked to decide whether the Boren Amendment, 42 U.S.C. § 1396a(a)(13)(A) (1997), applies to out-of-State providers, including appellees Children’s Hospital and Medical Center, et al. (“appellees”). I conclude that it does not.

Although I agree with the majority that appellees present a live controversy in this case that we can properly review, I disagree with the majority’s statutory analysis of the Boren Amendment and its decision to disregard HCFA’s interpretation of it. The majority improperly concludes that the Boren Amendment is unambiguous. In so doing, it ignores the reasonable interpretation of a statute proposed by the administrative agency charged by Congress to implement it. This, of course, ignores the teaching of Chevron, U.S.A, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 , 104 S.Ct. 2778, 2782 , 81 L.Ed.2d 694 (1984).

The Boren Amendment is ambiguous and HCFA’s interpretation of the statute is permissible. Therefore, I would reverse the decision of the district court.

I.

This case involves a complex administrative and statutory scheme. Consequently, an overview of the process by which states reimburse providers of medical services rendered to people who qualify for Medicaid assistance is necessary.

Medicaid is a joint federal-state program that provides “federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons.” Harris v. McRae, 448 U.S. 297, 301 , 100 S.Ct. 2671, 2677-78 , 65 L.Ed.2d 784 (1980). Although the federal government provides guidelines that the partici *1100 pating states must follow before they are eligible for reimbursement, each of those states enjoys great flexibility in carrying out the Medicaid program. See Wilder v. Virginia Hosp. Ass’n, 496 U.S. 498, 502 , 110 S.Ct. 2510, 2513-14 , 110 L.Ed.2d 455 (1990), rev’d Suter v. Artist M., 503 U.S. 347 , 112 S.Ct. 1360 , 118 L.Ed.2d 1 (1992). A participating state must, for example, provide the federal government with a plan to provide medical assistance to qualified individuals and a methodology to reimburse providers of such services. Spe 42 U.S.C. § 1396a (1997). The state, however, is free to develop its program in the way it sees fit; in other words, it must only follow general federal guidelines. One such guideline-the Boren Amendment-is the subject of this appeal.

Congress enacted 42 U.S.C. § 1396a(a)(13)(A), commonly known as the Boren Amendment, in 1980. See Folden v. Washington State Dep’t of Social and Health Serv., 981 F.2d 1054, 1056 (9th Cir.1992). The Boren Amendment provided, in pertinent part, that a state plan for medical assistance must:

provide ... for payment ... of the hospital services ... provided under the plan through the use of rates (determined in accordance with the methods and standards developed by the State ... and which, in the case of hospitals, take into account the situation of hospitals which serve a disproportionate number of low income patients with special needs ... ) which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and federal laws, regulations, and quality and safety standards and to assure that individuals eligible for medical assistance have reasonable access (taking into account geographic location and reasonable travel time) to inpatient hospital services of adequate quality; and such State makes further assurances, satisfactory to the Secretary, for the filing of uniform cost reports by each hospital ... and periodic audits by the State of such reports....

42 U.S.C. § 1396a(a)(13)(A) (emphasis added).

The majority quite correctly points out that Congress’ purpose in enacting the Boren Amendment was “to give states greater flexibility in calculating reasonable costs and in containing the continuing escalation of those costs.” Maj. Op. at 1093 (quoting Folden, 981 F.2d at 1056 ). Prior to its enactment, the Boren Amendment required the states to submit more detailed schemes describing methods for reimbursement which the federal government had to approve as “reasonable.” See Folden, 981 F.2d at 1056 (citing 42 U.S.C. § 1396a(a)(13)(E) (1976)). In an attempt to provide participating states with greater flexibility, the Boren Amendment “authorize[d] states to develop their own medicaid reimbursement standards and methodologies for payment of hospital services.” West Virginia Univ. Hosp., Inc. v. Casey, 885 F.2d 11 , 22 (3rd Cir.1989), aff'd on other grounds 499 U.S. 83 , 111 S.Ct. 1138 , 113 L.Ed.2d 68 (1991). Under the Code of Federal Regulations, these standards and methodologies only needed to follow three general guidelines: (1) to specially consider those hospitals serving a disproportionate share of low income individuals, 42 C.F.R. § 447.298 ; (2) to make findings that their rates were reasonable and adequate, 42 C.F.R. § 447.252 (b); and (3) to assure reasonable access to inpatient hospital care, 42 C.F.R. § 447.256 . By enacting the Boren Amendment, Congress intended to require only “the minimum level [of oversight] necessary to assure proper accountability, and not to burden States and facilities with unnecessary paperwork requirements.” 48 Fed.Reg. 56,047.

HCFA, in its attempt to carry out this congressional intent (i.e., to allow states to develop their own programs to meet the needs of Medicaid patients), did not provide specific criteria for states to follow when determining “reasonable and ade *1101 quate” rates under 42 U.S.C. § 1396 . Nor did HCFA verify the proposed “findings” provided by the States under the statute; instead, HCFA examined only the assurances submitted to determine if they were “adequate.” See, e.g., 42 C.F.R. §§ 447.298 , 447.252(b), 447.256. In other words, the federal government, under the Boren Amendment, left to the states the bulk of the decisions relating to Medicaid disbursements. According to HCFA, at the time appellees brought suit in 1995, in the decade-and-a-half that the Boren Amendment existed, no state plan, including those plans that did not provide for out-of-state reimbursement, was ever rejected for failure to comply with the Amendment’s strictures.

The Boren Amendment, however, did impose some requirements on state Medicaid programs. For example, the Amendment required each state to make “findings” that such payments as they did make to each hospital for all services rendered to Medicaid-eligible patients were no more than what would have been charged by an “efficiently” and “economically” operated institution. See, e.g., 42 C.F.R. 447.252(b). According to HCFA, this was a provider-specific determination. Thus, even if an out-of-state facility only provided services to one California Medicaid patient, California, upon receiving a bill for services rendered, was required to audit that institution to determine whether the rate charged by the facility was reasonable.

Congress in 1997 apparently decided that the Boren Amendment had become too cumbersome for states to follow. See Exeter Memorial Hosp. Ass’n v. Belshe, 145 F.3d 1106, 1108 (9th Cir.1998). As of October 1, 1997, the Boren Amendment was repealed and replaced with a “public process” statute to determine rates for Medicaid reimbursement and eliminated the “findings” and “assurances” provision contained within the Boren Amendment. See 42 U.S.C. § 1396a(a)(13)(A) (1998). Notwithstanding the Boren Amendment’s repeal, HCFA distributed a letter to state Medicaid agencies, informing them that, until such time that they switched to the “public process” method of reimbursement, they could continue to operate under the Boren rubric. California has not yet implemented a Medicaid program to comply with the new “public process” method and continues to make payments to Medicaid patients pursuant to the guidelines set forth in the Boren Amendment.

II.

This case raises only one issue: Does the Boren Amendment apply to out-of-state providers? We first look to the language of the Boren Amendment for the answer to this question. See Queen of Angels/Hollywood Presbyterian Med. Ctr. v. Shalala, 65 F.3d 1472 , 1477 (9th Cir.1995). It states, in pertinent part, that a state plan for medical assistance must:

provide ... for payment ... of the hospital services ... provided under the plan through the use of rates (determined in accordance with the methods and standards developed by the State ... and which, in the case of hospitals, take into account the situation of hospitals which serve a disproportionate number of low income patients with special needs ... ) which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and federal laws, regulations, and quality and safety standards and to assure that individuals eligible for medical assistance have reasonable access (taking into account geographic location and reasonable travel time) to inpatient hospital services of adequate quality; and such State makes further assurances, satisfactory to the Secretary, for the filing of uniform cost reports by each hospital ... and periodic audits by the State of such reports....

42 U.S.C. § 1396a(a)(13)(A).

Specifically, the issue before us is the scope of the phrase “hospital services.” *1102 Appellees contend that “hospital services” refers to both in-state and out-of-state providers, whereas appellants argue that “hospital services” refers only to in-state providers. The majority concludes that “[bjecause the statute does not distinguish between in-state and out-of-state hospitals, the plain meaning of the statute is that Congress did not intend to differentiate between the two.” Maj. Op. at 1096. In essence, the majority’s position rests on a negative inference. It argues that because Congress did not specifically state that Boren applies to only in-state hospitals, it must have intended that the statute applies to both in-state and out-of-state hospitals. I disagree.

Admittedly, neither party presents strong evidence to support its respective “plain language” interpretation of the Boren Amendment. Appellant, for example, relies on another provision of the Medicaid statute, 42 U.S.C. § 1396r-4(b)(l)(A), which sets forth the requirements that a hospital must meet to be considered a disproportionate share hospital for purposes of the Boren Amendment. The statute states that a hospital will qualify as a disproportionate share hospital only if it compares favorably to the mean of “hospitals receiving medicaid payments in the State.” 42 U.S.C. § 1396r-4(b)(l)(A) (1998) (emphasis added). This language, appellant contends, demonstrates that the Boren Amendment applies only to in-state hospitals.

This argument overlooks the fact that § 1396r-4(b)(l)(A) does not refer to the scope of the Boren Amendment. Its purpose is to determine whether an “in-state” hospital qualifies as a disproportionate share hospital. That is, it requires a state ‘to calculate whether a hospital has a certain percentage of Medicaid patients relative to other hospitals “in the State.” It does not refer to reimbursement procedures; instead, it sets forth the method by which a state is to determine if a hospital within the state cares for a sufficient number of Medicaid patients to qualify for status as a disproportionate share hospital.

Appellees, on the other hand, contend that, because the statute does not distinguish between in-state and out-of-state hospitals, it is clear that Congress did not intend to differentiate between the two. The majority accepts this contention. Thus, the failure of Congress to delineate the boundaries of the Boren Amendment is said to warrant the conclusion that the Boren Amendment applies to all hospitals in the United States. I disagree.

The statute is ambiguous. It follows that to determine the scope of the phrase “hospital services” we must consider both the legislative intent behind the enactment of the statute and any “reasonable interpretation” proffered by HCFA, the implementing agency.

III.

Because the “plain language” fails to provide sufficient guidance as to the scope of the term “hospital services,” we are required to take the second step of the Chevron inquiry: “[Tjhe question for the court is whether the agency’s answer is based on a permissible construction of the statute.” 467 U.S. at 843 , 104 S.Ct. at 2782 , 81 L.Ed.2d 694 . The majority improperly avoided this question by concluding that the statute is unambiguous. The district court, however, did reach this issue and erred. Instead of deferring to the reasonable interpretation of the Boren Amendment enunciated by HCFA, the district court adopted what it considered a “more reasonable” interpretation of the statute. To do so was clearly inappropriate under Chevron. As we have stated in the past, we need not conclude that HCFA’s interpretation of the Boren Amendment is “the only reasonable one, or even the ‘best’ one.” Queen of Angels, 65 F.3d at 1477. We need only conclude that it is a “permissible” one. See Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 414 , 113 S.Ct. 2151, 2159 , 124 L.Ed.2d 368 (1993). We should so conclude.

It is true, as pointed out by the court below, that HCFA had not issued adminis *1103 trative regulations that resolved the interpretation of the Boren Amendment at the time appellees brought suit. As a consequence, the district court properly invited the United States, on behalf of HCFA and the Secretary of Health and Human Services, to submit a brief outlining its interpretation of the Amendment. In response, the United States submitted a detailed brief opining that the Boren Amendment did not apply to out-of-state hospitals. The district court subsequently rejected that interpretation in favor of its own interpretation of the amendment. It declined to adopt HCFA’s interpretation because, in the words of the district court, such an interpretation was “inconsistent” with the agency’s prior interpretations of the Amendment.

I disagree with that conclusion for two reasons: (1) HCFA’s proposed interpretation of the Boren Amendment is reasonable, and (2) even if HCFA’s interpretation was inconsistent with its prior interpretations of the Amendment, that is of no consequence. The position HCFA has taken is a reasonable one. It should be the controlling one.

A. HCFA’s Interpretation of the Boren Amendment

HCFA, in concluding that the Amendment does not apply to out-of-state hospitals, based its position upon the tenet that the Boren Amendment was enacted to provide “greater flexibility” to the participating states and that applying the Amendment to out-of-state hospitals would have created an administrative morass that Congress could not have intended. The Boren Amendment, to repeat, required a state to audit every provider of health care services to Medicaid patients to determine whether the provider charges reasonable rates. In its brief to the district court, HCFA noted that if it required states to apply this rubric to out-of-state providers, states such as California would have to analyze data for each out-of-state facility even if that facility ultimately cares for only one of its residents. Moreover, HCFA noted that if it required states to apply the Boren Amendment to out-of-state hospitals, states would need to employ experts to learn licensure laws of other states to determine whether facilities in other states have adequate staff and are running “efficiently” and “economically.” In short, according to HCFA, the costs would be overwhelming and would defeat the purpose of the Boren Amendment.

The legislative history of the Boren Amendment also influenced HCFA in formulating its interpretation of the statute. It pointed out that the stated intent of the Amendment was to provide states with the maximum amount of flexibility in setting payment rates. HCFA noted that it would make little sense under this framework to require states to obtain information regarding every out-of-state provider that provides services to even one Medicaid eligible resident.

Instead, HCFA concluded that another provision, known as the “equal-access” provision, governs the reimbursement of out-of-state providers. It relied on 42 U.S.C. § 1396a(a)(30)(A), and argued to the district court that this statute, not the Boren Amendment, regulates state payments to out-of-state providers. That provision, requires, in pertinent part that a state plan

provide for methods and procedures relating to ... the payment for[ ] care and services available under the plan ... to assure that payments are consistent with efficiency, economy and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.

42 U.S.C. § 1396a(a)(30)(A) (1998).

HCFA concluded that this “equal access” provision is better tailored to ensure that states are providing adequate reimbursement to out-of-state providers of medical services to Medicaid patients because it is less burdensome than applying the Boren Amendment. In short, in the *1104 view of HCFA, this provision requires a state to ensure that its payments to out-of-state providers are reasonable without requiring the state to engage in a facility-specific analysis for every provider in every state where a patient may receive services.

This interpretation of the Medicaid statutory scheme is reasonable. Whether it is the best interpretation or the most fair interpretation is not controlling. It is a reasonable one. Therefore, in obedience to the Supreme Court’s dictates in Chevron, I would hold that it is a permissible interpretation of an ambiguous statute. Because HCFA, not the courts, is entrusted with carrying out the provisions of Medicaid, I would defer to its interpretation of this ambiguous statutory provision.

B. The District Court’s Inconsistency Argument.

The district court erred when it disregarded HCFA’s interpretation because it found it “inconsistent.” In the Chevron decision itself, the administrative agency charged with implementing the relevant statute had changed its interpretation of the challenged statute multiple times. The respondents in Chevron contended that because the agency changed its interpretation of the statute so often, the Court should have afforded it no deference. The Supreme Court disagreed and noted that: “The fact that the agency has from time to time changed its interpretation of the” relevant statute “does not ... lead us to conclude that no deference should be accorded the agency’s interpretation of the statute.... [T]he agency, to engage in informed rulemaking, must consider varying interpretations and the wisdom of its policy on a continuing basis.” Chevron, 467 U.S. at 863-64 , 104 S.Ct. at 2792 , 81 L.Ed.2d 694 .

In ignoring HGFA’s interpretation, the district court offered no reason other than the fact that HCFA supposedly changed its position regarding the interpretation of the Boren Amendment over time. 1 This is not determinative. Had HCFA, for example, changed its position because it somehow was in its advantage to do so, one should be inclined to reject its interpretation of the statute. That did not happen in this case, however. Therefore, we should defer to HCFA’s good faith attempt to interpret a complex statute with which it was charged to implement.

For the foregoing reasons, I respectfully dissent.

. Moreover, I do not believe that HCFA's position on this issue was at all inconsistent. The district court noted that HCFA, before the filing of this lawsuit, had never officially announced its position on the interpretation of the Boren Amendment. The court below instead relied on a district court decision, Multicare Medical Center v. Washington, 768 F.Supp. 1349, 1401 (W.D.Wash.1991), to reach its conclusion that HCFA has been inconsistent in its position on the applicability of the Boren Amendment to out-of-state hospitals. In Multicare, the district court concluded that the Boren Amendment required Washington to make payments to out-of-state providers. In reaching its conclusion, the district court relied on correspondence between a HCFA regional office and the State of Washington. HCFA's Central Office, however, had never announced a policy that embraced the view of its regional office. According to HCFA, only its Central Office actually has the authority to announce such policies. It was of no consequence, therefore, that a regional office concluded otherwise.

The district court relied on similar correspondence between a HCFA regional office and California to support its position. HCFA offered two plausible explanations for this correspondence as well. First, HCFA notes that the correspondence never expressly states that the Boren Amendment applies to out-of-state hospitals. Second, HCFA notes that even if we were to construe this correspondence as declaring that the Boren Amendment applies to out-of-state hospitals, this view represents only the views of a regional office not empowered to make centralized HCFA policies.

I find HCFA's explanations sufficient and would find no inconsistency.