Petition for Writ of Certiorari — American Hospital Association, et al., Petitioners v. Xavier Becerra, Secretary of Health and Human Services

Supreme Court briefFeb 10, 2021

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APPENDIX

APPENDIX A

_________

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

_________

No. 19-5352

_________

AMERICAN HOSPITAL ASSOCIATION, ET AL.,

Appellees

ALEX M. AZAR, II, IN HIS OFFICIAL CAPACITY AS

SECRETARY OF HEALTH AND HUMAN SERVICES,

Appellant

_________

Consolidated with 19-5353, 19-5354

_________

Appeals from the United States District Court

for the District of Columbia

(No. 1:18-cv-02841)

(No. 1:19-cv-00132)

(No. 1:19-cv-01745)

_________

Argued April 17, 2020

Decided July 17, 2020

_________

Alisa B. Klein, Attorney, U.S. Department of

Justice, argued the cause for appellant. With her on

the briefs were Mark B. Stern, Attorney, Robert P.

Charrow, General Counsel, U.S. Department of

Health & Human Services, Janice L. Hoffman,

Associate General Counsel, Susan Maxson Lyons,

Deputy Associate General Counsel for Litigation, and

Robert W. Balderston, Attorney.

Howard R. Rubin and Robert T. Smith were on the

brief for amici curiae Digestive Health Physicians

Association, et al. in support of appellant.

Catherine E. Stetson argued the cause for appellees.

With her on the brief were Susan M. Cook, Katherine

B. Wellington, Mark D. Polston, Joel McElvain,

Christopher P. Kenny, and Michael LaBattaglia. Kyle

Druding entered an appearance.

Before: SRINIVASAN, Chief Judge, GARLAND and

MILLETT, Circuit Judges.

Opinion for the Court filed by Chief Judge

SRINIVASAN.

SRINIVASAN, Chief Judge: Many hospitals provide

outpatient care at off-site facilities known as “offcampus provider-based departments,” or PBDs.

Certain services offered by hospitals at off-campus

PBDs, such as routine clinic visits, can also be

provided by independent physician practices

unaffiliated with a hospital. Although off-campus

PBDs and independent physician practices can offer

the same service, Medicare until recently reimbursed

those providers at different rates: because off-campus

PBDs are considered hospitals for regulatory

purposes, they were paid a higher rate applicable to

hospitals instead of a lower rate applicable to

physician practices. The result was that, for the same

outpatient service, off-campus PBDs obtained up to

twice as much per patient in Medicare

reimbursements as did physician practices.

The Department of Health and Human Services

determined that the payment differential gave rise to

an economic incentive that induced unnecessary

growth in the volume of outpatient care provided at

off-campus PBDs. HHS thus reduced the rate it paid

hospitals for the most common off-campus PBD

service, “patient evaluation and management,” to

equal the rate paid to physician practices for that

service. HHS justified that reimbursement cut as an

exercise of its statutory authority to adopt “method[s]

for controlling unnecessary increases in the volume”

of covered outpatient services.

42 U.S.C.

§ 1395l(t)(2)(F).

A group of hospitals brought these consolidated

actions, claiming that HHS’s rate reduction for offcampus PBDs falls outside of the agency’s statutory

authority. The district court agreed and set aside the

regulation implementing the rate reduction. Because

we conclude that the regulation rests on a reasonable

interpretation of HHS’s statutory authority to adopt

volume-control methods, we now reverse.

Medicare Part B health insurance covers outpatient

hospital care, including same-day surgery, preventive

and screening services, and physician visits. See 42

U.S.C. §§ 1395j, 1395k. The Department of Health

and Human Services (HHS) sets the rates at which

Medicare will reimburse hospitals for providing such

services according to an intricate statutory system

known as the Outpatient Prospective Payment

System (OPPS). See 42 U.S.C. § 1395l(t).

Under the OPPS, hospitals are not reimbursed for

the actual costs incurred in providing care. Instead,

to help control Medicare expenditures, the statute

calls for HHS to set predetermined payment amounts

for each covered outpatient service. See H.R. Rep. No.

106-436, at 33 (1999). Hospitals then receive that

amount for every instance in which they provide the

service. OPPS rates are revised each year via noticeand-comment rulemaking and are published before

they go into effect. See Amgen, Inc. v. Smith, 357 F.3d

103, 106 (D.C. Cir. 2004).

HHS generally sets the rates using a complex

statutory formula. First, each covered outpatient

service (or group of related services) is assigned an

Ambulatory Payment Classification (APC). 42 U.S.C.

§ 1395l(t)(2)(B).

HHS then establishes “relative

payment weights” for each APC based on the median

cost of providing the relevant services.

Id.

§ 1395l(t)(2)(C). In that relative weighting process,

HHS may decide, for instance, that given the cost to

the hospital, a certain service should be reimbursed at

twice the rate of a different service. Next, each APC’s

relative weight is multiplied by a number known as

the “conversion factor.” Id. § 1395l(t)(3)(D). The same

conversion factor applies to all APCs. Id. Multiplying

an APC’s relative payment weight by the conversion

factor produces a dollar amount, which is the base “fee

schedule amount” for that APC. Id. § 1395l(t)(4)(A).

That amount is subject to a variety of possible further

adjustments, such as adjustments reflecting regional

wage differences, id. § 1395l(t)(4)(A), or “outlier

adjustments” for hospitals facing unusually high

operating costs, id. § 1395l(t)(5).

When setting rates each year, HHS is required to

reassess its choices: what services or groups of

services should make up each APC, what an APC’s

relative payment weight should be, and what

statutory adjustments (such as for labor cost

differences) should be applied. Id. § 1395l(t)(9)(A).

Changes to any of those inputs will alter the payment

rate for a particular service. Any change HHS makes

in those respects, however, must not cause overall

projected expenditures for the next year to increase or

decrease. Id. § 1395l(t)(9)(B). Under this “budgetneutrality” requirement, an increase or decrease in

projected spending must be offset by other changes.

HHS must also update the conversion factor each

year in order to keep up with inflation in general

health care costs. Id. § 1395l(t)(3)(C)(ii), (t)(3)(C)(iv).

Increases to the conversion factor, of course,

proportionately increase overall OPPS outlays. But

adjustments to the conversion factor need not be

implemented in a budget-neutral manner—indeed, it

would make little sense to do so in light of the

objective of keeping pace with inflation.

The OPPS is designed to advance Congress’s goal of

controlling Medicare Part B costs in two ways. First,

the OPPS encourages hospital efficiency by setting

payment rates prospectively and basing the amount

on median cost. Second, because of the budgetneutrality requirement, overall OPPS expenditure

growth should closely track annual increases to the

conversion factor. Those increases are modest and

their amount is prescribed by statute.

Although HHS has significant control over the rate

it will pay hospitals for a specific service under the

OPPS system, the agency has little control over how

frequently hospitals will provide that service.

Consequently, even if payment rates remain constant,

an increase in the amount of services provided will

cause an increase in overall Medicare expenditures.

Congress

addressed

that

possibility

subparagraph (2)(F) of the OPPS statute, the

provision centrally in issue in this case.

Subparagraph (2)(F) directs HHS to “develop a

method for controlling unnecessary increases in the

volume of covered [outpatient] services.” Id.

§ 1395l(t)(2)(F). Relatedly, Congress also authorized

HHS to reduce the conversion factor, thereby

shrinking projected overall expenditures, if it

“determines under methodologies described in

[sub]paragraph (2)(F) that the volume of services paid

for . . . increased beyond amounts established through

those methodologies.” Id. § 1395l(t)(9)(C).

Some hospitals provide outpatient care at facilities

known as off-campus provider-based departments

(PBDs), which are located away from the physical site

of the hospital. Off-campus PBDs are considered part

of the hospital for regulatory purposes. See 42 C.F.R.

§ 413.65. For that reason, services provided at offcampus PBDs are reimbursed through the OPPS

system. HHS thus has generally paid hospitals the

same amount for outpatient care provided at an offcampus PBD as for outpatient care provided in the

main hospital.

At least some services provided at off-campus PBDs

can also be provided by freestanding physician offices,

i.e., medical practices unaffiliated with a hospital.

Physician offices are generally reimbursed at a lower

rate for a given service than hospitals, because

hospitals receive a separate “facility” rate inapplicable

to freestanding physician practices. See Medicare

Program: Proposed Changes to Hospital Outpatient

Prospective Payment and Ambulatory Surgical

Center Payment Systems and Quality Reporting

Programs, 83 Fed. Reg. 37,046, 37,142 (July 31, 2018).

Consider the amounts Medicare paid for a service

commonly provided by off-campus PBDs: “evaluation

and management of a patient,” or E&M. In 2017, the

E&M reimbursement rate for off-campus PBDs under

the OPPS was $184.44 for new patients and $158.24

for established patients. By contrast, the 2017 E&M

rate for freestanding physician offices—paid under a

separate system known as the Physician Fee

Schedule—was $109.46 for new patients and $73.93

for established patients. See id. Hospital-affiliated

outpatient departments thus received between 68%

and 114% more in reimbursements per patient for the

same service.

According to the Medicare Payment Advisory

Commission (MedPAC), which was established by

Congress to advise HHS, see Pub. L. No. 105-33

§ 4022, 111 Stat. 251, 350, hospitals reacted to the

incentive created by the payment differential between

off-campus PBDs and independent physician

practices. Almost a decade ago, hospitals began

buying freestanding physician practices and

converting them into off-campus PBDs, without much

change in the facility or the patients served. MedPAC,

Report to the Congress: Medicare Payment Policy 53,

59–61, 75–76 (Mar. 2014), https://go.usa.gov/xdCzV.

MedPAC documented substantial increases in the

provision of E&M services at hospital outpatient

departments and little to no growth in the provision

of the same services at physician offices. See id. at 42.

From 2011 to 2016, the provision of E&M services at

off-campus PBDs grew by 43.8%. MedPAC, Report to

the Congress: Medicare Payment Policy 73 (2018),

https://go.usa.gov/xdCzu.

By comparison, the

provision of E&M services at freestanding physician

practices grew by only 0.4%. Id.

In 2015, Congress attempted to address the

substantial growth in services provided at off-campus

PBDs by enacting section 603 of the Bipartisan

Budget Act of 2015, Pub. L. No. 114-74, 129 Stat. 584,

597–98 (codified at 42 U.S.C. § 1395l(t)(21)). Section

603 adopted something of a compromise approach. On

one hand, it did not touch the reimbursement rates for

existing off-campus PBDs. On the other hand, it

established that off-campus PBDs coming into

existence after the statute’s enactment would no

longer be paid under the OPPS, but instead would be

paid under the “applicable payment system under this

part,” which HHS interpreted to be a rate equivalent

to the Physician Fee Schedule.

42 U.S.C. §

1395l(t)(21)(C).

That change applied to every

service—not just E&M services—provided at new offcampus PBDs.

After section 603’s enactment, though, HHS still

continued to observe steady growth in the volume of

hospital outpatient services. 83 Fed. Reg. at 37,139.

For the years 2016 through 2018, the volume and

intensity of services grew annually by 6.5%, 5.8%, and

5.4%, respectively. Id. And in its proposed OPPS rule

setting rates for 2019, the agency projected that,

without changes, volume would again increase by

5.3% in that year, leading to $75.3 billion in overall

OPPS expenditures. Id. Outlays had been nearly $20

billion less only a few years earlier. Id.

HHS determined that, despite the 2015 enactment

of section 603, “the differences in payment for . . .

services” continued to be “a significant factor in the

shift in services from the physician’s office to the

hospital outpatient department, . . . unnecessarily

increasing hospital outpatient department volume.”

Id. at 37,142. HHS believed that the “higher payment

that is made under the OPPS, as compared to

payment under the [Physician Fee Schedule], [was]

likely to be incentivizing providers to furnish care in

the hospital outpatient setting.” Id. at 37,141. Thus,

although section 603 had removed the incentive for

hospitals to purchase physician practices and convert

them into off-campus PBDs on a going-forward basis,

the statute did not remove the incentive to provide

care in off-campus PBDs already in existence.

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In its rule proposing 2019 OPPS rates, HHS

announced that it “consider[ed] the shift of services” it

had observed to be “unnecessary if the beneficiary can

safely receive the same services in a lower cost setting

but is instead receiving services in the higher paid

setting due to payment incentives.” Id. at 37,142. The

agency concluded that E&M services, which are

routine clinic visits, fit the bill, and thus that “the

growth in clinic visits paid under the OPPS is

unnecessary.” Id.

Having found an “unnecessary increase[] in the

volume of covered [outpatient] services,” HHS

proposed to exercise its subparagraph (2)(F) authority

to “develop a method for controlling” the increase. 42

U.S.C. § 1395l(t)(2)(F); 83 Fed. Reg. at 37,142.

Specifically, the agency proposed to cut E&M

reimbursement rates to off-campus PBDs to the

amount HHS pays to freestanding physician offices

for providing the same service. “[C]apping the OPPS

payment at the [Physician Fee Schedule]-equivalent

rate,” the agency explained, “would be an effective

method to control the volume of these unnecessary

services because the payment differential that is

driving the site-of-service decision [would] be

removed.” 83 Fed. Reg. at 37,142.

Notably, HHS proposed to implement the E&M

reimbursement cut in a non-budget-neutral manner.

In other words, the agency would reduce payments

without offsetting increases in reimbursements for

other covered outpatient services. Id. at 37,142–43.

Although the OPPS statute generally requires annual

rate adjustments to be budget-neutral, see 42 U.S.C.

§ 1395l(t)(9)(B), the agency did not believe that

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requirement applied to methods for controlling

volume under subparagraph (2)(F). 83 Fed. Reg. at

37,142–43.

HHS chose not to apply the

reimbursement cut in a budget-neutral manner

because doing so “would not appropriately reduce the

overall unnecessary volume of covered [outpatient]

services, and instead would simply shift the

movement of the volume within the OPPS system in

the aggregate.” Id. at 37,143. HHS estimated that the

proposed rule would reduce Medicare’s expenditures

by approximately $610 million in 2019 alone, with an

additional $150 million saved by Medicare

beneficiaries in the form of reduced coinsurance

payments. Id.

After receiving comments, the agency adopted its

proposal as a final rule, with the only change that the

E&M reimbursement cut would be phased in over two

years. See Medicare Program: Changes to Hospital

Outpatient Prospective Payment and Ambulatory

Surgical Center Payment Systems and Quality

Reporting Programs, 83 Fed. Reg. 58,818, 59,004–15

(Nov. 21, 2018).

The American Hospital Association and various

hospitals (whom we will refer to collectively as the

Hospitals) challenged the 2019 rule in these actions,

which were consolidated in the district court for

purposes of addressing the parties’ cross-motions for

summary judgment. See Am. Hosp. Ass’n v. Azar, 410

F. Supp. 3d 142, 146 (D.D.C. 2019). The Hospitals

first argued that HHS’s reduction in reimbursement

for E&M services exceeded the agency’s statutory

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authority because the reduction does not qualify as a

“method for controlling unnecessary increases in . . .

volume” under subparagraph (2)(F) of the OPPS

statute. See id. at 150–51. The Hospitals also argued

that HHS’s decision to cut reimbursement to

preexisting off-campus PBDs contravened Congress’s

decision to leave preexisting facilities unaddressed in

section 603 of the Bipartisan Budget Act of 2015. See

id.

The district court agreed with the Hospitals’ first

argument. Id. at 161. The court accordingly vacated

as ultra vires the part of the challenged rule that

reduced E&M reimbursement rates. Id. This appeal

followed.

II.

We must first consider whether we have jurisdiction

to review the Hospitals’ claim. Subparagraph (12)(A)

of the OPPS statute provides that “[t]here shall be no

administrative or judicial review of” certain specified

actions HHS takes in implementing the OPPS,

including “the establishment of . . . methods described

in paragraph (2)(F).” 42 U.S.C. § 1395l(t)(12)(A). The

government contends that HHS’s cut to E&M

reimbursement qualifies as such a “method.” Thus,

the government argues, judicial review of that

reimbursement cut is precluded by statute, and we

should dispose of the case on that basis at the

threshold without examining HHS’s authority to

implement the rate reduction.

We are unpersuaded.

Although subparagraph

(12)(A) forecloses judicial review of the agency’s

“establishment of methods described in paragraph

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(2)(F),” the Hospitals’ claim is that the payment

reduction at issue is not a “method[] described in

paragraph (2)(F)” within the meaning of the statute.

As a result, to determine whether the judicial-review

bar applies in this case, we must decide whether the

challenged agency action counts as a “method for

controlling unnecessary increases in the volume of

covered [outpatient] services.” Id. § 1395l(t)(2)(F).

And that latter question is the merits issue presented

here.

Subparagraph (12)(A) therefore is a preclusion-ofreview provision that “merges consideration of the

legality of [agency] action with consideration of the

court’s jurisdiction in cases in which the challenge to

the [agency’s] action raises the question of the

[agency’s statutory] authority.” Amgen, 357 F.3d at

113–14 (quoting COMSAT Corp. v. FCC, 114 F.3d

223, 226–27 (D.C. Cir. 1997)). In such cases, if the

court “find[s] that [the agency] has acted outside the

scope of its statutory mandate, we also find that we

have jurisdiction.” COMSAT, 114 F.3d at 227. Put

differently, “the jurisdiction-stripping provision does

not apply” if the agency’s action fails to qualify as the

kind of action for which review is barred. Southwest

Airlines Co. v. TSA, 554 F.3d 1065, 1071 (D.C. Cir.

2009). As a practical matter, then, the court can

simply skip to the merits question in its analysis. See,

e.g., id.; Amgen, 357 F.3d at 114; COMSAT, 114 F.3d

at 227.

This court has already construed the provision at

issue here as “merging” the preclusion and merits

analysis in that way. In Amgen, we stated that

subparagraph (12)(A)’s preclusion on review of “other

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adjustments” to rates by HHS “extends no further

than the Secretary’s statutory authority to make”

such adjustments. 357 F.3d at 112. Accordingly, we

concluded that subparagraph (12)(A) “precludes

judicial review of any adjustment made by the

Secretary pursuant to [his statutory] authority . . . but

not of those for which such authority is lacking.” Id.

at 113. We then proceeded to the merits question,

ultimately holding that the challenged adjustment

was within the agency’s statutory authority and that

we thus lacked jurisdiction. Id. at 114, 118. The

government contends that Amgen’s treatment of

subparagraph (12)(A) was dicta, but regardless, we

fully agree with Amgen’s approach, under which we

analyze the merits to decide whether we have

jurisdiction.

The government attempts to sidestep that result by

pressing us to analyze the Hospitals’ claim under the

‘ultra vires review’ doctrine often attributed to Leedom

v. Kyne, 358 U.S. 184, 79 S.Ct. 180, 3 L.Ed.2d 210

(1958). That doctrine, which we have likened to a

“Hail Mary pass,” “permits, in certain limited

circumstances, judicial review of agency action for

alleged statutory violations even when a statute

precludes review.” Nyunt v. Chairman, Broad. Bd. of

Governors, 589 F.3d 445, 449 (D.C. Cir. 2009). The

government submits that the Hospitals’ challenge

presents such a circumstance and thus must satisfy

the stringent requirements set out in DCH Regional

Medical Center v. Azar, 925 F.3d 503, 509 (D.C. Cir.

2019)—among them, that the agency plainly acted in

excess of its delegated powers and contrary to a

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specific, clear, and mandatory prohibition in the

statute. Id.

The Hospitals’ challenge does not implicate the Kyne

framework. We are not asked to remedy a “statutory

violation[] even when a statute precludes review.”

Nyunt, 589 F.3d at 449. Instead, the Hospitals argue

that the “same agency error . . . simultaneously

ma[kes] the jurisdictional bar inapplicable and

compel[s] setting aside the challenged agency action.”

DCH Regional, 925 F.3d at 510 (quotation marks

omitted). Put differently, the Hospitals’ claim is that

subparagraph (12)(A)’s bar on judicial review does not

apply if their merits argument is correct, not that

their merits argument is so obviously correct that we

should consider it despite an applicable bar on our

review.

DCH Regional itself recognized the

distinction between cases involving a “Kyne exception”

and cases such as this one in which “the relevant

statutory bar . . . [is] effectively coextensive with the

merits.” Id. at 509–10.

In sum, subparagraph (12)(A)’s bar on judicial

review is inapplicable unless HHS’s challenged action

qualifies as a “method for controlling unnecessary

increases in . . . volume” under subparagraph (2)(F).

Subparagraph (12)(A) then ultimately does not

preclude judicial scrutiny of HHS’s action for

consistency with subparagraph (2)(F). To be sure,

subparagraph (12)(A) still forecloses inquiry into

“whether [the] challenged agency decision is

arbitrary, capricious, or procedurally defective.”

Amgen, 357 F.3d at 113. But such claims are not

before us here. As to the claim the Hospitals do raise,

the question whether the Hospitals are correct and

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the question whether the preclusion provision bars

review of their claim are one and the same. We thus

turn to assessing whether HHS had statutory

authority to implement the challenged E&M

reimbursement reduction.

III.

We examine that question under the traditional

Chevron framework, under which we defer to the

agency’s reasonable interpretation of an ambiguous

statute. See Chevron, U.S.A., Inc. v. Nat. Res. Def.

Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d

694 (1984). HHS is generally entitled to Chevron

deference on judicial review of its interpretations of

the Medicare statute. See Good Samaritan Hosp. v.

Shalala, 508 U.S. 402, 414, 113 S.Ct. 2151, 124

L.Ed.2d 368 (1993); Baystate Franklin Med. Ctr. v.

Azar, 950 F.3d 84, 92 (D.C. Cir. 2020). The Hospitals

urge us not to apply Chevron in this case for several

reasons, none of which is persuasive.

First, we disagree that HHS forfeited any right to

Chevron deference. To the contrary, HHS explained

in the district court why its interpretation was

entitled to Chevron treatment, invoked the doctrine

twice in its opening brief in our court, and argued for

it again in its reply brief. And in any event, our

decisions hold that Chevron deference is not subject to

forfeiture based on an agency’s litigation conduct if

the agency’s challenged action “interpret[ed] a statute

it is charged with administering in a manner (and

through a process) evincing an exercise of its

lawmaking authority.” SoundExchange, Inc. v.

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2018). That is the case here. See 83 Fed. Reg. at

59,009, 59,011.

Second, the Hospitals contend that HHS’s

interpretation of subparagraph (2)(F) in the

challenged rule is inconsistent with earlier agency

pronouncements, such that the rule is arbitrary and

unworthy of Chevron deference.

See Encino

Motorcars, LLC v. Navarro, ––– U.S. ––––, 136 S. Ct.

2117, 2126, 195 L.Ed.2d 382 (2016). But HHS has

never taken a definitive position on the scope of

subparagraph (2)(F). The Hospitals point to one

sentence in the agency’s first OPPS rulemaking

cautioning that “[a]dditional study, analysis, and

possible legislative modification would be necessary

before [the agency] could consider implementing” a

volume-control method involving direct changes to

reimbursement.

Medicare Program; Prospective

Payment System for Hospital Outpatient Services, 63

Fed. Reg. 47,552, 47,586 (Sept. 8, 1998). Even

assuming that statement amounted to an

announcement of agency policy, which is far from

clear, its meaning is ambiguous. As the district court

concluded in its decision, the agency might well have

thought that a “possible legislative modification

would be necessary” because its proposed volumecontrol method would have required amending a

separate statutory formula pertaining to its proposal,

not because it believed that direct rate changes could

never qualify as a “method for controlling” volume

under (2)(F). See Am. Hosp. Ass’n, 410 F. Supp. 3d at

157 n.8.

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Nor, contrary to the Hospitals’ contention, has HHS

long viewed subparagraph (2)(F) to require volumecontrol methods to be budget-neutral. It is true that

the agency previously implemented a volume-control

method called “packaging,” which bundles related

services together into a single payment group, in a

budget-neutral manner.

See Medicare Program:

Changes to the Hospital Outpatient Prospective

Payment System and CY 2008 Payment Rates, 72

Fed. Reg. 66,580, 66,615 (Nov. 27, 2007). That

example, though, does not establish that HHS viewed

(2)(F) as requiring budget-neutrality. The agency

implemented “packaging” via other statutory

authorities, including its power to alter the

composition of APC groups and their scaled weights.

See id. at 66,611, 66,615; 42 U.S.C. § 1395l(t)(2)(B)–

(C), (t)(9)(A). Those adjustment authorities require

budget-neutrality. See 42 U.S.C. § 1395l(t)(9)(B).

HHS implemented packaging in a budget-neutral way

not because it was a (2)(F) method, but because it

involved other statutory adjustments that call for

budget-neutrality. See 72 Fed. Reg. at 66,615 (budgetneutrality implicated because of “changes in APC

weights and codes” and resulting “shifts in median

costs” of those APCs).

Finally, we reject the Hospitals’ argument that

Chevron does not apply when, as here, our

consideration of the agency’s statutory authority

merges with our consideration of the applicability of a

preclusion provision. See Part II, supra. That result

would mean that Congress’s decision to enact a

preclusion provision operated to enhance judicial

scrutiny and restrict the agency’s leeway.

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precluding judicial review of certain HHS actions,

though, Congress necessarily intended the opposite

outcome. See Amgen, 357 F.3d at 112 (noting “havoc

that piecemeal [judicial] review of OPPS payments

could bring about”).

Having rejected the Hospitals’ arguments against

applying Chevron, we proceed to review HHS’s

interpretation of subparagraph 1395l(t)(2)(F) under

Chevron’s two-step framework. We first ask whether

“Congress has directly spoken to the precise question

at issue.” Chevron, 467 U.S. at 842, 104 S.Ct. 2778. If

so, our work is done, for we “must give effect to the

unambiguously expressed intent of Congress.” Id. at

843, 104 S.Ct. 2778. But if the statute is “silent or

ambiguous with respect to th[at] specific issue,” id.,

we assume “Congress has empowered the agency to

resolve the ambiguity,” and we defer to the agency’s

interpretation as long as it is reasonable. Util. Air

Reg. Grp. v. EPA, 573 U.S. 302, 315, 134 S.Ct. 2427,

189 L.Ed.2d 372 (2014).

The question at issue is whether HHS may reduce

the OPPS reimbursement for a specific service, and

may implement that cut in a non-budget-neutral

manner, as a “method for controlling unnecessary

increases in the volume of” the service. 42 U.S.C.

§ 1395l(t)(2)(F).

In our view, Congress did not

“unambiguously forbid” the agency from doing so.

Barnhart v. Walton, 535 U.S. 212, 218, 122 S.Ct. 1265,

152 L.Ed.2d 330 (2002); Nat’l Ass’n of Clean Water

Agencies v. EPA, 734 F.3d 1115, 1125 (D.C. Cir. 2013).

We further conclude that the agency reasonably read

20a

subparagraph (2)(F) to allow a service-specific, nonbudget-neutral

reimbursement

cut

the

circumstances we consider here. We therefore hold

that the agency acted within its statutory authority.

At step one of Chevron, “the court begins with the

text, and employs ‘traditional tools of statutory

construction’ to determine whether Congress has

spoken directly to the issue.” Prime Time Intern. Co v.

Vilsack, 599 F.3d 678, 683 (D.C. Cir. 2010) (quoting

Chevron, 467 U.S. at 842–43 & n.9, 104 S.Ct. 2778).

Applying those tools, we conclude that the OPPS

statute does not directly foreclose HHS’s challenged

rate reduction.

To begin with, a service-specific, non-budget-neutral

rate reduction falls comfortably within the plain text

of subparagraph (2)(F). Reducing the payment rate

for a particular OPPS service readily qualifies, in

common parlance, as a “method for controlling

unnecessary increases in the volume” of that service.

The lower the reimbursement rate for a service, the

less the incentive to provide it, all else being equal.

Reducing the reimbursement rate thus is naturally

suited to addressing unnecessary increases in the

overall volume of a service provided by hospitals. As

for whether a rate reduction under subparagraph

(2)(F) can be non-budget-neutral, the provision simply

says nothing about budget-neutrality. The text

Congress enacted thus lends considerable support to

the agency’s reading of the statute at Chevron step

one. See Air Transp. Ass’n of Am. v. FAA, 169 F.3d 1,

4 (D.C. Cir. 1999) (because operative “language d[id]

21a

not preclude the [agency’s] interpretation,” the

contrary “inference petitioner would draw as to the

statute’s meaning [was] not inevitable”).

The broader statutory context bolsters the agency’s

view that subparagraph (2)(F) authorizes servicespecific rate cuts. Under our decision in Amgen, the

agency can alter the reimbursement rate for a

particular service under its subparagraph (2)(E)

authority to make “adjustments [it] determine[s] to be

necessary to ensure equitable payments,” 42 U.S.C.

§ 1395l(t)(2)(E); see 357 F.3d at 117 (upholding use of

equitable-adjustment authority to change “payment

amount for a single drug”). If the agency can adjust

payment rates in furtherance of the expansive

purpose of achieving equitable payments, it stands to

reason that the agency can also adjust rates to

accomplish the more focused goal of controlling

unnecessary volume growth. Indeed, as the Amgen

court saw it, HHS’s robust “discretion” to adjust

payment rates is a central feature of the statutory

scheme. 357 F.3d at 114 (quoting H.R. Rep. No. 105149, at 1323 (1997) and H.R. Conf. Rep. No. 105-217,

at 785 (1997)).

The statutory context also supports construing

subparagraph (2)(F) to allow non-budget-neutral

adjustments. If the statute otherwise permits the

agency to make a discretionary rate reduction as a

method of volume control, it would be anomalous for

the law to require the rate cut to be implemented

budget-neutrally.

That would require HHS to

redistribute the costs traceable to the provision of

unnecessary services throughout the OPPS, resulting

in no net savings to Medicare and largely negating the

22a

point of reducing reimbursement in the first place.

See 83 Fed. Reg. at 37,142–43.

The Hospitals warn that, on that reading, nothing

“prevents [HHS] from engaging in cost-control

measures that will disproportionately affect only some

service providers and beneficiaries.” Hospitals Br. 7.

But budget-neutrality offers little protection against

such outcomes. If HHS reduces reimbursements for

cardiac catheterizations and then redistributes the

savings across the OPPS, that still hurts cardiologists

much more than orthopedists even if cardiologists

would get some money back in the form of slightly

elevated reimbursements for other services they

provide. The agency’s ability to advance Congress’s

apparent goals in both budget-neutrality and

subparagraph (2)(F)—namely, keeping growth in

overall OPPS expenditures modest and predictable

year to year, see generally supra pp. 5–6—would be

undermined, not advanced, by requiring the savings

from (2)(F) volume-control methods to be

redistributed across the OPPS.

The Hospitals also contend that, budget-neutrality

aside, subparagraph (2)(F) unambiguously does not

encompass service-specific rate adjustments. The

Hospitals argue in that regard that subparagraph

(2)(F) does no more than enable the agency to develop

an “analytical mechanism for determining whether

there is an unnecessary increase in volume.”

Hospitals Br. 31 (formatting modified).

That

argument rests on reading subparagraph (2)(F) in

conjunction with subparagraph (9)(C), which provides

that:

23a

the

Secretary

determines

under

methodologies described in paragraph (2)(F)

that the volume of services paid for under this

subsection

increased

beyond

amounts

established through those methodologies, the

Secretary may appropriately adjust the update

to the conversion factor otherwise applicable in

a subsequent year.

42 U.S.C. § 1395l(t)(9)(C).

According to the Hospitals, subparagraph (9)(C) is

the exclusive way for HHS to implement

subparagraph (2)(F). On that understanding, (2)(F)

empowers the agency to “develop a method” for

diagnosing whether there has been too much growth

in outpatient service volume, and if the agency decides

there has, then it can respond by—and only by—using

its (9)(C) authority to reduce the across-the-board

conversion factor. (Recall that the conversion factor is

the number by which relative payment weights for

services are translated into actual reimbursement

amounts. See supra pp. 4–5.) Subparagraph (2)(F),

under the Hospitals’ argument, does not itself

authorize the agency to act on an unnecessary

increase in volume upon finding that one exists, much

less to do so on a service-specific basis. Rather, the

agency can act only by reducing the overall conversion

factor under (9)(C).

That interpretation of subparagraph (2)(F) is

difficult to square with the provision’s language.

Subparagraph (2)(F) directs the agency to develop “a

method for controlling unnecessary increases” in

volume, not just a method for assessing whether

24a

unnecessary increases exist. And we think it unlikely

that Congress would have confined the agency’s

volume-control arsenal to the very blunt instrument

of reducing the across-the-board conversion factor.

The Hospitals identify no reason to suppose that

Congress would have been concerned only about

overall OPPS volume growth, which the conversion

factor can suitably address, but not about

unwarranted growth in the volume of a single service,

which the conversion factor cannot. Cutting the

conversion factor would reduce reimbursement

equally for every OPPS service, a poorly tailored,

ineffectual “method” of controlling undesirable

volume growth in a specific service.

The Hospitals respond that HHS’s reading of (2)(F)

renders subparagraph (9)(C) redundant, because

cutting the conversion factor fits textually as a

“method for controlling” unnecessary volume. We do

not see the redundancy. Subparagraph (9)(C) appears

to come into play only after the agency first attempts

to address unnecessary volume increases through

methodologies implemented under subparagraph

(2)(F):

“If the Secretary determines under

methodologies described in paragraph (2)(F) that”

volume has “increased beyond amounts established

through those methodologies, the Secretary may

appropriately adjust the update to the conversion

factor applicable in a subsequent year.” 42 U.S.C.

§ 1395l(t)(9)(C) (emphases added). Because the (9)(C)

authority thus kicks in only after the (2)(F) authority

has been attempted and found inadequate, the former

necessarily is not redundant of the latter.

25a

At any rate, even if subparagraph (9)(C) did amount

to surplusage under HHS’s reading of (2)(F), that

would not necessarily compel rejecting the agency’s

interpretation of (2)(F) at Chevron step one. “[A]t

times Congress drafts provisions that appear

duplicative of others—simply, in Macbeth’s words, ‘to

make assurance double sure.’” Fla. Health Scis. Ctr.,

Inc. v. Sec’y of Health & Human Servs., 830 F.3d 515,

520 (D.C. Cir. 2016) (citation omitted)). There may

have been particular reason for Congress to do so

here. In specifying how HHS is to calculate the

conversion factor, the statute envisions that the

conversion factor will generally be “increased” each

year, 42 U.S.C. § 1395l(t)(3)(C), (t)(3)(C)(ii). In that

light, Congress could have thought it desirable to

confirm the agency’s power to reduce the conversion

factor in response to volume growth, as subparagraph

(9)(C) does.

Next, the Hospitals argue that subparagraph

(2)(F)’s silence on budget-neutrality is itself evidence

that Congress could not have intended the provision

to allow direct rate adjustments.

As noted,

subparagraph (2)(F) does not address whether

volume-control “method[s]” under that provision must

be implemented in a budget-neutral fashion. Yet the

OPPS statute nearly always specifies, one way or the

other, whether a rate-adjustment authority must be

exercised budget-neutrally. See Am. Hosp. Ass’n, 410

F. Supp. 3d at 159 (citing provisions). To the

Hospitals, subparagraph (2)(F)’s comparative silence

indicates that Congress did not intend the provision

to authorize changes to payment rates.

26a

But subparagraph (2)(F) undisputedly authorizes

actions other than direct rate adjustments, and for at

least some of those actions, a budget-neutrality

requirement would make no sense. For example, the

Hospitals do not dispute that subparagraph (2)(F)

would allow HHS, as a volume-control method, to

require additional paperwork from hospitals seeking

reimbursement for certain outpatient procedures.

That kind of volume-control method, of course, is

insusceptible to a budget-neutrality mandate. Thus,

(2)(F)’s silence on budget-neutrality tells us little

about whether (2)(F) includes the authority to reduce

a particular OPPS rate.

Lastly, the Hospitals make a similar argument

based on paragraph 1395l(t)(4), which sets out how

“[t]he amount of payment made from the Trust Fund

under this part for a covered [outpatient] service . . .

furnished in a year is determined.” 42 U.S.C.

§ 1395l(t)(4). Paragraph (4) makes no mention of

subparagraph (2)(F). But it expressly allows payment

amounts to be “adjusted” under other provisions, such

as subparagraphs (2)(D) and (2)(E), which authorize

various adjustments including labor-cost adjustments

and equitable adjustments. That, the Hospitals

contend, is strong evidence that Congress did not

intend direct modification of OPPS payment rates via

subparagraph (2)(F).

Text and precedent, however, indicate that not all

changes to OPPS rates must flow through paragraph

(4). A number of provisions in the OPPS statute

authorize HHS to set or adjust reimbursement rates

for specific outpatient services but are unaddressed by

paragraph (4). See 42 U.S.C. § 1395l(t)(14) (providing

27a

separate formula for calculating “amount of payment

under this subsection for a specified covered

outpatient drug”); id. § 1395l(t)(15) (prescribing

“amount [to be] provided for payment for [an

ungrouped] drug or biological under this part”); id.

§ 1395l(t)(16)(D) (requiring payment reduction for a

certain surgical procedure performed by certain

hospitals); id. § 1395l(t)(16)(F)(i)–(ii) (requiring

payment reductions for various imaging services); id.

§ 1395l(t)(22) (authorizing Secretary to make

“revisions to payments” “made under this subsection

for covered [outpatient] services” in order to decrease

opioid prescriptions). Consequently, paragraph (4) is

best understood to set out only the general

mechanism—not the exclusive mechanism—by which

specific OPPS rates for covered services are

“determined.”

Our decision in Amgen supports that understanding

of paragraph (4). In that case, HHS used its equitableadjustment authority under subparagraph (2)(E) to

reduce a “transitional pass-through” payment for a

drug to zero dollars. 357 F.3d at 107. The drug’s

manufacturer complained that HHS could not make

that sort of equitable adjustment because paragraph

(t)(6) lays out a specific formula for determining the

“amount of the [transitional pass-through] payment.”

See 42 U.S.C. § 1395l(t)(6)(A), 1395l(t)(6)(D). Amgen

rejected that argument, holding that (t)(6)’s seemingly

“mandatory” provisions establish only “default OPPS

rate calculations subject to later adjustment.” 357

F.3d at 115. Under Amgen, then, although (t)(6)

specifies in detail how pass-through payments must

be calculated without mentioning subparagraph

28a

(2)(E), the agency can nonetheless adjust the results

of the (t)(6) formula using its (2)(E) authority. The

same, we think, is true—or at least, not

unambiguously untrue—of (t)(4) and (2)(F),

respectively.

We thus conclude that the OPPS statute does not

unambiguously foreclose HHS’s adoption of a servicespecific, non-budget-neutral rate cut as a “method for

controlling unnecessary increases in” volume. 42

U.S.C. § 1395l(t)(2)(F). The statute is at least

ambiguous as to whether that sort of rate adjustment

lies within the agency’s (2)(F) authority.

At Chevron step two, we ask whether the agency’s

interpretation “is based on a permissible construction

of the statute.” Nat’l Ass’n of Clean Water Agencies v.

EPA, 734 F.3d 1115, 1128 (D.C. Cir. 2013) (quoting

Chevron, 467 U.S. at 843, 104 S.Ct. 2778). “A

‘reasonable’ explanation of how an agency’s

interpretation serves the statute’s objectives is the

stuff of which a ‘permissible’ construction is made.”

Northpoint Tech., Ltd. v. FCC, 412 F.3d 145, 151 (D.C.

Cir. 2005) (citation omitted).

The challenged rule meets that standard. The

agency explained that recent growth in the volume of

E&M services provided at off-campus PBDs was

“unnecessary because it appears to have been

incentivized by the difference in payment for each

setting rather than patient acuity.” 83 Fed. Reg. at

59,007. The agency further concluded that reducing

payments in order to eliminate that incentive “would

be an effective method to control the volume of these

29a

unnecessary

services

because

the

payment

differential that is driving the site-of-service decision

will be removed.” Id. at 59,009.

That interpretation of subparagraph (2)(F) is both

“textually defensible” and “fits ‘the design of the

statute as a whole and . . . its object and policy.’” Good

Samaritan Hosp., 508 U.S. at 418, 419, 113 S.Ct. 2151

(quoting Crandon v. United States, 494 U.S. 152, 158,

110 S.Ct. 997, 108 L.Ed.2d 132 (1990)).

It is

reasonable to think that Congress, which cared

enough about unnecessary volume to instruct the

agency to “develop a method for controlling” it, would

have wanted the agency to avoid causing unnecessary

volume growth with its own reimbursement practices.

We thus defer to the agency’s conclusion that (2)(F)

allowed it to address that problem by reducing a

specific rate.

Sustaining HHS’s challenged reduction in this case

would not necessarily leave the agency free “to set any

payment rate for any service, without regard to the

fine-grained statutory scheme enacted by Congress.”

Hospitals Br. 45. It is one thing for HHS to use its

subparagraph (2)(F) authority to eliminate a volumegrowth incentive created, in the agency’s view, by a

differential in its own payment rates. It may be

another thing for the agency to reduce payment for a

service under (2)(F) merely because doing so would

decrease volume that HHS decides is “unnecessary.”

We have no occasion to decide whether an action of

that kind would rest on a reasonable interpretation of

the OPPS statute. Cf. Nat. Res. Def. Council v. EPA.,

777 F.3d 456, 469 (D.C. Cir. 2014) (agency’s

interpretation cannot be “untethered to Congress’s

30a

approach” at Chevron step two); Amgen, 357 F.3d at

117 (equitable adjustments may not “work basic and

fundamental changes in the scheme Congress created

in the Medicare Act” (quotation omitted)).

In short, we conclude under Chevron that HHS’s

reduction in reimbursement for E&M services

provided by off-campus PBDs qualifies as a “method

for controlling unnecessary increases in the volume of

covered

[outpatient]

services.”

U.S.C.

§ 1395l(t)(2)(F). Because the challenged rate cut is

thus a “method[] described in paragraph (2)(F),”

judicial review of that action is precluded by the

statute. See id. § 1395l(t)(12)(A). Consequently,

neither we nor the district court has jurisdiction over

the Hospitals’ challenge.

IV.

The Hospitals argue in the alternative that HHS’s

decision to reduce E&M reimbursement to off-campus

PBDs contravenes section 603 of the Bipartisan

Budget Act of 2015. As explained, Congress enacted

that provision in response to reports that the payment

differential

between

off-campus

PBDs

and

freestanding physician practices had induced

hospitals to purchase those practices. Section 603

established that services performed at off-campus

PBDs would no longer be paid under the OPPS but

instead would be paid under a scheme approximating

the Physician Fee Schedule.

See 42 U.S.C.

§ 1395l(t)(1)(B)(v), 1395l(t)(21)(C).

But the law

exempted “department[s] of a provider . . . that

[furnished covered outpatient services] prior to

November 2, 2015.” Id. § 1395l(t)(21)(B)(ii). In the

31a

Hospitals’ view, Congress’s decision to leave the rates

paid to preexisting off-campus PBDs unaddressed in

section 603 means that the statute should be read to

bar HHS from cutting reimbursement rates for those

facilities.

Because the Hospitals’ section 603 argument targets

agency action we have already determined qualifies as

a “method[] described in paragraph (2)(F),” we are

doubtful we have jurisdiction to consider it. See id.

§ 1395l(t)(12)(A).

In any event, we reject the

argument on the merits. (The law of our circuit allows

a court to assume hypothetical statutory jurisdiction

even if we cannot assume Article III jurisdiction. See

Kramer v. Gates, 481 F.3d 788, 791 (D.C. Cir. 2007).)

Nothing in the text of section 603 indicates that

preexisting off-campus PBDs are forever exempt from

adjustments to their reimbursement. Rather, the text

of the law exempts those providers from the change

mandated by section 603 itself, leaving the exempted

providers subject to all the provisions of the OPPS

statute, including subparagraph (2)(F). It bears

noting, moreover, that section 603’s exemption of

preexisting off-campus PBDs from the reimbursement

reductions effected by that statute retains practical

effect for all OPPS services except the one type of

service (E&M services) addressed by the challenged

rule.

Trying a different approach, the Hospitals contend

that section 603 demonstrates Congress’s judgment

that increases in volume at preexisting off-campus

PBDs are not “unnecessary” in the sense

contemplated by subparagraph (2)(F). But even

assuming that were true for increases in volume

32a

occurring by 2015, when section 603 was enacted, it

would not mean that Congress considered acceptable

the continued volume increases later taking place in

2016, 2017, or 2018, on which HHS relied in adopting

the challenged rule. See 83 Fed. Reg. at 37,139;

MedPAC, Report to the Congress: Medicare Payment

Policy 73 (Mar. 2018), https://go.usa.gov/xdCzu.

Section 603 thus does not stand in the way of the

agency’s challenged rate reduction under (2)(F).

*****

For the foregoing reasons, we reverse the judgment

of the district court.

So ordered.

33a

APPENDIX B

_________

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

_________

AMERICAN HOSPITAL ASSOCIATION, ET AL.,

Plaintiffs,

ALEX M. AZAR II, SECRETARY OF THE DEPARTMENT OF

HEALTH AND HUMAN SERVICES,

Defendant.

_________

Civil Action No. 18-2841 (RMC)

_________

Signed 09/17/2019

_________

MEMORANDUM OPINION

ROSEMARY M. COLLYER, United States District

Judge

Under Medicare Part B, the Centers for Medicare &

Medicaid Services (CMS) pays hospital outpatient

departments at predetermined rates for patient

services, and Congress has established the Outpatient

Prospective Payment System by which CMS is to set

and pay those rates. CMS came to believe that the rate

for certain clinic-visit services at a specific subset of

these outpatient departments—familiarly, off-campus

provider-based departments—was too high and that

patients could receive similar services from freestanding physician offices at lower cost to the

government and to taxpayers. Accordingly, CMS

34a

promulgated a rule in 2018 lowering the payment rate

for clinic-visit services at off-campus provider-based

departments to match the rate for similar services at

physician offices, in order to shift patients towards the

latter.

Plaintiffs are hospital organizations which have

seen their payment rates cut. They argue that the

method by which CMS has cut their rates has no place

in the statutory scheme established by Congress, and

further that Congress has already decided as a matter

of policy and practicality that off-campus providerbased departments should be paid at higher rates

than physician offices for similar services. In short,

Plaintiffs argue that CMS’ 2018 rule is ultra vires.

CMS opposes. Both parties move for summary

judgment.

The Court has given close attention to the parties’

arguments and the statutory scheme, which, as

relevant, is both simple and detailed. For the reasons

below, the Court finds that CMS exceeded its

statutory authority when it cut the payment rate for

clinic services at off-campus provider-based clinics.

The Court will grant Plaintiffs’ motion, deny CMS’

cross-motion, vacate the rule, and remand.

I. BACKGROUND

The Medicare program, established by Title XVIII of

the Social Security Act, 42 U.S.C. § 1395 et seq.,

provides federally funded medical insurance to the

elderly and disabled. Medicare Part A addresses

insurance coverage for inpatient hospital care, home

health care, and hospice services. Id. § 1395c.

Medicare Part B addresses supplemental coverage for

35a

other types of care, including outpatient hospital care.

Id. §§ 1395j, 1395k.

The Outpatient

System

Prospective

Payment

Under Medicare Part B, CMS directly reimburses

hospital outpatient departments for providing

outpatient department (OPD) services to Medicare

beneficiaries, which payments are made through the

elaborate Outpatient Prospective Payment System

(occasionally, OPPS). See generally 42 U.S.C.

§ 1395l(t). Implemented as part of the Balanced

Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 251,

the Outpatient Prospective Payment System does not

reimburse hospitals for their actual costs of providing

OPD services. Rather, as with Medicare generally and

in an effort to control costs, the Outpatient

Prospective Payment System pays for OPD services at

pre-determined rates. See Amgen, Inc. v. Smith, 357

F.3d 103, 106 (D.C. Cir. 2004). Those payment rates

are determined as follows: OPD services which are

clinically comparable or which require similar

resource usage are grouped together and assigned an

Ambulatory Payment Classification (occasionally,

APC). 42 U.S.C. § 1395l(t)(2)(B). A formula is used to

calculate the relative payment weight of each

Ambulatory Payment Classification against other

APCs, based on the average cost of providing OPD

services in previous years. See id. § 1395l(t)(2)(C).

Each Ambulatory Payment Classification’s relative

payment weight is then multiplied by an Outpatient

Prospective Payment System “conversion factor”—

which is the same for, and applies uniformly to, all

APCs—to reach the fee schedule amount for each

36a

APC. Id. § 1395l(t)(3)(D). Ultimately, the actual

amount paid to the hospital is the calculated fee

schedule amount adjusted for regional wages,

transitional pass-through payments, outlier costs,

“and other adjustments as determined to be necessary

to ensure equitable payments, such as adjustments

for certain classes of hospitals,” id. § 1395l(t)(2)(D)(E), less an applicable deductible and modified by a

“payment proportion.” See id. § 1395l(t)(4).

Every year, CMS must review the groups, relative

payment weights, and wage and other adjustments for

each Ambulatory Payment Classification to account

for changes in medical practice or technology, new

services, new cost data, and other relevant

information and factors. Id. § 1395l(t)(9)(A). This

annual review is conducted with an important caveat:

any adjustment to the groups, relative payment

weights, or adjustments must be budget neutral,

meaning that it cannot cause a change in CMS’

estimated expenditures for OPD services for the year.

See id. § 1395l(t)(9)(B); cf. id. § 1395l(t)(9)(D)-(E)

(requiring initial wage, outlier, and other adjustments

also be budget neutral). Thus, decreases or increases

in spending caused by one adjustment must be offset

with increases or decreases in spending by another.

CMS must also update annually the Outpatient

Prospective Payment System conversion factor,

generally to account for the inflation rate for the cost

of medical services, see id. § 1395l(t)(3)(C)(iv), but

sometimes for other reasons, as discussed below.

Unlike adjustments to Ambulatory Payment

Classifications

under

paragraph

(t)(9)(A),

adjustments to the conversion factor do not need to be

budget neutral. See generally id. § 1395l(t)(3)(C)

37a

(describing conversion factor inputs). However,

because the same conversion factor applies equally to

all Ambulatory Payment Classifications, adjustments

to the conversion factor cannot be used to change the

fee schedule for specific APCs. In other words,

changes to the conversion factor affect total spending

and not spending on specific services.

The Outpatient Prospective Payment System

controls overall costs by incentivizing hospital

outpatient departments to provide OPD services at or

below the average cost for such services. That said,

while the Outpatient Prospective Payment System

limits the amount Medicare will pay for each service,

it does not limit the volume or mix of services provided

to a patient. Concerned that fee schedule limits would

not

adequately

limit

increases

overall

expenditures, Congress included as part of the

Outpatient Prospective Payment System two

provisions at issue here. Under paragraph (t)(2)(F),

“the Secretary shall develop a method for controlling

unnecessary increases in the volume of covered OPD

services.” Id. § 1395l(t)(2)(F). Further, under

paragraph (t)(9)(C), “[i]f the Secretary determines

under methodologies described in paragraph (2)(F)

that the volume of services paid for under this

subsection increased beyond amounts established

through those methodologies, the Secretary may

appropriately adjust the update to the conversion

factor otherwise applicable in a subsequent year.” Id.

§ 1395l(t)(9)(C).

38a

B. Off-Campus Provider-Based Departments,

Physician Offices, and the Bipartisan

Budget Act of 2015

Many medical services that were once only offered

in an inpatient hospital setting can now be provided

by hospital outpatient departments whereby the

patient does not spend the night. Medicare

traditionally welcomed these cheaper alternatives to

inpatient care and, to meet the growing demand for

these services, some hospitals have established offcampus provider-based departments (occasionally,

PBDs), which are outpatient departments at facilities

separated by a specific distance (or more) from the

physical campus of the hospital with which they are

affiliated. See 42 C.F.R. § 413.65(e). Although not

physically proximate to their affiliated hospital’s main

campus,1 off-campus provider-based departments are

so closely integrated into the same system that they

are considered part of the hospital itself. This allows

off-campus provider-based departments to offer more

comprehensive services to their patients but also

subjects off-campus provider-based departments to

the same regulatory requirements as the main

hospital. See 42 C.F.R. § 413.65 (describing regulatory

requirements

for

off-campus

provider-based

departments). Because they are part of the same

system and face the same regulatory requirements

and regulatory costs as hospitals, off-campus

For example, an off-campus provider-based department may

be located away from the main hospital because of space

constraints at the main campus, or because the hospital wants

to have an affiliated facility in a different (oftentimes

underserved) neighborhood.

39a

provider-based departments have generally been paid

at the same rates hospitals are paid for OPD services.2

That said, some comparable outpatient medical

services can also be provided by free-standing

physician offices, which are medical practices not

integrated with, or part of, a hospital. See 42 C.F.R.

§ 413.65(a)(2). While physician offices do not provide

the same array of services as off-campus providerbased departments, they also do not bear the same

regulatory requirements and costs as hospitals.

Accordingly, CMS pays physician offices for

outpatient medical services according to the lowerpaying Medicare Physician Fee Schedule instead of

the Outpatient Prospective Payment System. As

relevant to this case, in 2017 the Outpatient

Prospective Payment System rate for the most

voluminous OPD service provided by off-campus

provider-based

departments,

“evaluation

and

management of a patient” (E&M), 3 was $184.44 for

new patients and $109.46 for established patients

while the Physician Fee Schedule rate for the

comparable service at a physician office was $109.46

for a new patient and $73.93 for an established

patient. See 83 Fed. Reg. 37,046, 37,142 (July 31,

2018) (Proposed Rule).

Until 2015, all off-campus provider-based

departments were paid according to the Outpatient

Not all are paid the same amounts, for reasons described

below.

Technically, E&M services fall under Healthcare Common

Procedure Coding System (HCPCS) code G0463, billed under

APC 5012 (Clinic Visits and Related Services).

40a

Prospective Payment System. At that time, the

volume of OPD services had increased by 47 percent

over the decade ending in calendar year 2015 and, in

the five years from 2011 to 2016, combined program

spending and beneficiary cost-sharing (i.e., copayments) rose by 51 percent, from $39.8 billion to

$60.0 billion. See Proposed Rule at 37,140. There are

many possible explanations for this increase. For one,

the Medicare-eligible population grew substantially

during the same time period. See Medicare Board of

Trustees, 2018 Annual Report of the Board of

Trustees of the Federal Hospital Insurance and

Federal Supplementary Medical Insurance Trust

Funds

181

(2018),

available

https://go.cms.gov/2m5ZCok. For another, advances in

medical technology shifted services from inpatient

settings to outpatient settings. See Ken Abrams,

Andreea Balan-Cohen & Priyanshi Durbha, Growth

in Outpatient Care, Deloitte (Aug. 15, 2018), available

at https://bit.ly/2nOkG05.

However, the Medicare Payment Advisory

Commission

(MedPAC),

independent

congressional agency which advises Congress on

issues related to Medicare, long believed that another

major reason for this increase was the financial

incentive created by the Outpatient Prospective

Payment System compared to the Physician Fee

Schedule. See MedPAC, Report to the Congress:

Medicare Payment Policy 69-70 (Mar. 2017). That is,

because off-campus provider-based departments are

paid at higher rates than physician offices, MedPAC

advised that hospitals were buying existing physician

offices and converting them into off-campus providerbased departments, sometimes without a change of

41a

location or patients, unnecessarily causing CMS to

incur higher costs. See id. To combat this trend,

MedPAC repeatedly recommended that Congress

authorize CMS to equalize payment rates under both

the Outpatient Prospective Payment System and

Physician Fee Schedule for certain services, including

E&M services, at all off-campus provider-based

departments. See id. at 70-71; see also id. at 69 (“Onethird of the growth in outpatient volume from 2014 to

2015 was due to an increase in the number of

evaluation and management (E&M) visits billed as

outpatient services.”). Hospitals responded by

advising Congress that MedPAC’s recommendation

ignored the higher costs required to operate a hospital

and would force some existing off-campus providerbased departments, which relied on the rates set by

the Outpatient Prospective Payment System, to

reduce their services or close completely. See, e.g.,

Letter from Atul Grover, Chief Pub. Policy Officer,

Ass’n of Am. Med. Colls., to The Hon. John Barrasso,

al.

(Jan.

13,

2012),

available

http://bit.ly/2LVEXOT.

Congress ended the debate, at least momentarily,

when it adopted Section 603 of the Bipartisan Budget

Act of 2015, Pub. L. No. 114-74, § 603, 129 Stat. 584,

597 (2015). That 2015 statute neither equalized

payment rates for physicians offices and off-campus

provider-based departments, as MedPAC had

recommended, nor left the Outpatient Prospective

Payment System untouched, as the hospitals

requested. Instead, Congress chose a middle path:

Off-campus provider-based departments that were

billing under the Outpatient Prospective Payment

System as of November 2, 2015 (now “excepted off-

42a

campus PBDs”) were permitted to continue that

practice. See 42 U.S.C. § 1395l(t)(21)(B)(ii). However,

off-campus provider-based departments which were

not billing under the Outpatient Prospective Payment

System as of November 2, 2015, i.e., new off-campus

provider-based departments (or “nonexcepted offcampus PBDs”), would be paid according to a different

rate system to be selected by CMS. See id.

§ 1395l(t)(21)(C). In practice, CMS continues to pay

nonexcepted off-campus PBDs under the Outpatient

Prospective Payment System but applies a

“[Physician Fee Schedule] Relativity Adjustor” which

approximates the rate the operative Physician Fee

Schedule would have paid. See 81 Fed. Reg. 79,562,

79,726 (Nov. 14, 2016).

C. The Final Rule and Plaintiffs’ Challenge

Despite these changes, the volume of OPD services

provided by excepted off-campus provider-based

departments grew. When Congress passed the

Bipartisan Budget Act of 2015, expenditures by the

Outpatient Prospective Payment System were

approximately $56 billion and increasing at an annual

rate of about 7.3 percent, with the volume and

intensity of outpatient services increasing by 3.5

percent. See Proposed Rule at 37,139. In 2018, CMS

estimated that, without intervention, expenditures in

2019 would rise to $75 billion (an increase of 8.1

percent over 2018), with the volume and intensity

increasing by 5.3 percent. See id. at 37,139. CMS thus

proposed to implement a “method for controlling

unnecessary increases in the volume of covered OPD

services.” See generally id. at 37,138-143; cf. 42 U.S.C.

§ 1395l(t)(2)(F). Specifically, CMS determined that

many of the E&M services provided by off-campus

43a

provider-based departments were “unnecessary

increases in the volume of outpatient department

services.” Such services were not deemed medically

“unnecessary” but financially “unnecessary” because

“these services could likely be safely provided in a

lower cost setting,” i.e., at physician offices.4 Proposed

Rule at 37,142. More specifically, CMS determined

that the growth of E&M services provided by offcampus provider-based departments was due to the

higher payment rate available to excepted off-campus

provider-based departments under the Outpatient

Prospective Payment System. Id. CMS proposed to

solve its financial problem by applying the

corresponding Physician Fee Schedule rate for E&M

services to excepted off-campus PBDs, thereby

equalizing the payment rate for E&M services

provided by excepted off-campus PBDs, nonexcepted

off-campus PBDs, and physician offices alike. Id. at

37,142.

CMS also determined that it could not control the

volume of financially “unnecessary” OPD services in a

budget-neutral fashion, since this would “simply shift

the movement of the volume within the OPPS system

As a general matter, CMS uses expenditures over targeted

levels to measure “unnecessary” increases in the volume of OPD

services, albeit not without criticism. See, e.g., 63 Fed. Reg.

47,552, 47,586 (Sept. 8, 1998) (“[W]e are examining a number of

mechanisms to control unnecessary increases, as reflected by

expenditure levels, in the volume of covered outpatient

department services.”); 65 Fed. Reg. 18,434, 18,503 (Apr. 7, 2000)

(“Others argued that an expenditure target is not a reliable way

to distinguish the growth of necessary versus unnecessary

services.”); 66 Fed. Reg. 44,672, 44,707 (Aug. 24, 2001) (noting

MedPAC’s recommendation that CMS “not use an expenditure

target to update the conversion factor”).

44a

in the aggregate.” Id. at 37,143. Therefore, CMS

proposed to implement its new approach in a nonbudget-neutral manner, asserting that the budget

neutrality requirements of paragraphs (t)(2)(D)-(E)

and (t)(9)(B) do not apply to “methods” developed

under paragraph (t)(2)(F) and that its new approach

constituted such a method. Id. CMS estimated that

this approach would save approximately $610 million

in 2019 alone. Id.

CMS received almost 3,000 comments on the

Proposed Rule, many of which argued that CMS

lacked statutory authority to implement the proposed

method. Nonetheless, on November 21, 2018, CMS

issued a Final Rule implementing the proposed

method effective January 1, 2019. See generally

Medicare Program: Changes to Hospital Outpatient

Prospective Payment and Ambulatory Surgical Center

Payment Systems and Quality Reporting Programs,

83 Fed. Reg. 58,818, 59,004-15 (Nov. 21, 2018) (Final

Rule). The only substantive change between the

Proposed Rule and the Final Rule was that

implementation of the full E&M rate cut was

staggered over two years, saving an estimated $300

million in 2019, with additional savings subsequent.

Id. at 59,004.

Plaintiffs are hospital organizations and related

trade groups that have provided services with

payment rates affected by the Final Rule, have

submitted claims for payment by Medicare, and have

appealed determinations on those claims to CMS. The

Defendant is Alex M. Azar, in his official capacity as

the Secretary of the Department of Health and

Human Services. Plaintiffs argue that the Final Rule

is contrary to both the Medicare statutory scheme and

45a

the policy decision reached by Congress under Section

603 of the Bipartisan Budget Act of 2015 and is

therefore ultra vires. Both parties have moved for

summary judgment; the matter is now ripe.5

II. LEGAL STANDARD

Under Rule 56 of the Federal Rules of Civil

Procedure, summary judgment shall be granted “if the

movant shows that there is no genuine dispute as to

any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a);

accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). “In a case

involving review of a final agency action under the

Administrative Procedure Act, however, the standard

set forth in Rule 56[ ] does not apply because of the

limited role of a court in reviewing the administrative

record.” Sierra Club v. Mainella, 459 F. Supp. 2d 76,

89 (D.D.C. 2006) (internal citation omitted); see also

Charter Operators of Alaska v. Blank, 844 F. Supp. 2d

122, 126-27 (D.D.C. 2012). Under the APA, the

agency’s role is to resolve factual issues to reach a

decision supported by the administrative record,

while “ ‘the function of the district court is to

determine whether or not as a matter of law the

evidence in the administrative record permitted the

On August 26, 2019, the Court consolidated two cases

challenging the same Final Rule: Am. Hosp. Ass’n v. Azar, No.

18-2841 (RMC), and Univ. of Kansas Hosp. Auth. v. Azar, No. 19132 (RMC). See 8/26/2019 Minute Order. Although each set of

plaintiffs asserts a different legal vehicle to bring their claim—

non-statutory review and APA review, respectively—both

challenge the same Final Rule on purely legal grounds with

largely overlapping, and not inconsistent, legal arguments. Both

legal theories are addressed herein.

46a

agency to make the decision it did.’ ” Sierra Club, 459

F. Supp. 2d at 90 (quoting Occidental Eng’g Co. v.

INS, 753 F.2d 766, 769-70 (9th Cir. 1985)). “Summary

judgment thus serves as the mechanism for deciding,

as a matter of law, whether the agency action is

supported by the administrative record and otherwise

consistent with the APA standard of review.” Id.

(citing Richards v. INS, 554 F.2d 1173, 1177 & n.28

(D.C. Cir. 1977)).

Plaintiffs’ argument that the Secretary acted ultra

vires is premised on three basic tenets of

administrative law. First, “an agency’s power is no

greater than that delegated to it by Congress.” Lyng

v. Payne, 476 U.S. 926, 937, 106 S.Ct. 2333, 90

L.Ed.2d 921 (1986); see also Transohio Sav. Bank v.

Dir., Office of Thrift Supervision, 967 F.2d 598, 621

(D.C. Cir. 1992). Second, agency actions beyond

delegated authority are ultra vires and should be

invalidated. Transohio, 967 F.2d at 621. Third, courts

look to an agency’s enabling statute and subsequent

legislation to determine whether the agency has acted

within the bounds of its authority. Univ. of D.C.

Faculty Ass’n/NEA v. D.C. Fin. Responsibility &

Mgmt. Assistance Auth., 163 F.3d 616, 620-21 (D.C.

Cir. 1998) (explaining that ultra vires claims require

courts to review the relevant statutory materials to

determine whether “Congress intended the [agency]

to have the power that it exercised when it [acted]”).

When reviewing an agency’s interpretation of its

enabling statute and the laws it administers, courts

are guided by “the principles of Chevron, U.S.A., Inc.

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

837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).” Mount

Royal Joint Venture v. Kempthorne, 477 F.3d 745, 754

47a

(D.C. Cir. 2007) (internal citations omitted). Chevron

sets forth a two-step inquiry. The initial question is

whether “Congress has directly spoken to the precise

question at issue.” Chevron, 467 U.S. at 843, 104 S.Ct.

2778. If so, then “that is the end of the matter” because

both courts and agencies “must give effect to the

unambiguously expressed intent of Congress.” Id. at

842-43, 104 S.Ct. 2778. To decide whether Congress

has addressed the precise question at issue, a

reviewing court applies “ ‘the traditional tools of

statutory construction.’ ” Fin. Planning Ass’n v. SEC,

482 F.3d 481, 487 (D.C. Cir. 2007) (quoting Chevron,

467 U.S. at 843 n.9, 104 S.Ct. 2778). It analyzes “the

text, structure, and the overall statutory scheme, as

well as the problem Congress sought to solve.” Id.

(citing PDK Labs. Inc. v. DEA, 362 F.3d 786, 796 (D.C.

Cir. 2004); Sierra Club v. EPA, 294 F.3d 155, 161

(D.C. Cir. 2002)). When the statute is clear, the text

controls and no deference is extended to an agency’s

interpretation in conflict with the text. Chase Bank

USA, N.A. v. McCoy, 562 U.S. 195, 131 S.Ct. 871, 178

L.Ed.2d 716 (2011).

If the statute is ambiguous or silent on an issue, a

court proceeds to the second step of the Chevron

analysis and determines whether the agency’s

interpretation is based on a permissible construction

of the statute. Chevron, 467 U.S. at 843, 104 S.Ct.

2778; Sherley v. Sebelius, 644 F.3d 388, 393-94 (D.C.

Cir. 2011). Under Chevron Step Two, a court

determines the level of deference due to the agency’s

interpretation of the law it administers. See Mount

Royal Joint Venture, 477 F.3d at 754. Where, as here,

“an agency enunciates its interpretation through

notice-and-comment

rule-making

formal

48a

adjudication, [courts] give the agency’s interpretation

Chevron deference.” Id. at 754 (citing United States v.

Mead Corp., 533 U.S. 218, 230-31, 121 S.Ct. 2164, 150

L.Ed.2d 292 (2001)). That is, an agency’s

interpretation that is permissible and reasonable

receives controlling weight,6 id., “even if the agency’s

reading differs from what the court believes is the best

statutory interpretation,” see Nat’l Cable &

Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S.

967, 980, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005). Such

broad deference is particularly warranted when the

regulations at issue “concern[ ] a complex and highly

technical regulatory program.” Thomas Jefferson

Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381,

129 L.Ed.2d 405 (1994) (internal quotation marks and

citation omitted).

III. ANALYSIS

A. Reviewability

The government contends that this Court lacks

jurisdiction to review the Final Rule under the APA

because Congress has precluded judicial review of the

development of the Outpatient Prospective Payment

System, including its methods and adjustments, and

because Plaintiffs have failed to exhaust their

administrative remedies under the Medicare statute.

An interpretation is permissible and reasonable if it is not

arbitrary, capricious, or manifestly contrary to the statute.

Mount Royal Joint Venture, 477 F.3d at 754.

49a

1. Preclusion of Judicial Review

Agency action is subject to judicial review under the

APA unless the statute precludes review, or the

agency action is committed to agency discretion by

law. See COMSAT Corp. v. FCC, 114 F.3d 223, 226

(D.C. Cir. 1997) (citing 5 U.S.C. § 701(a)). The statute

specifies one such limitation:

There shall be no administrative or judicial

review under section 1395ff of this title, 1395oo

of this title, or otherwise of—

(A) the development of the classification system

under

paragraph

(2),

including

the

establishment of groups and relative payment

weights for covered OPD services, of wage

adjustment factors, other adjustments, and

methods described in paragraph (2)(F).

42 U.S.C. § 1395l(t)(12)(A) (emphasis added). The

government argues here that the Final Rule imposed

a rate cut as a “method” developed under paragraph

(t)(2)(F) and so court review is barred. Cf. id.

§ 1395l(t)(2)(F) (“[T]he Secretary shall develop a

method for controlling unnecessary increases in the

volume of covered OPD services.”).

Despite the bar against Medicare review in some

contexts, “[t]here is a strong presumption that

Congress intends judicial review of administrative

action, and it can only be overcome by a clear and

convincing evidence that Congress intended to

preclude the suit.” Amgen, 357 F.3d at 111 (internal

citations and quotations omitted). “The presumption

is particularly strong that Congress intends judicial

review of agency action taken in excess of delegated

50a

authority.” Id. “Such review is favored . . . ‘if the

wording of a preclusion clause is less than absolute.’ ”

Id. (quoting Dart v. United States, 848 F.2d 217, 221

(D.C. Cir. 1988)). “Whether and to what extent a

particular statute precludes judicial review is

determined not only from its express language, but

also from the structure of the statutory scheme, its

objectives, its legislative history, and the nature of the

administrative action involved.” Block v. Cmty.

Nutrition Inst., 467 U.S. 340, 346, 104 S.Ct. 2450, 81

L.Ed.2d 270 (1984).

Applied to this case, paragraph (t)(12)(A) plainly

shields a “method” to control volume in outpatient

departments from judicial review. To determine

whether that shield applies, though, the Court must

ascertain, consistent with Plaintiffs’ ultra vires

claims, whether what CMS calls a “method” satisfies

the statute. That is, CMS cannot shield any action

from judicial review merely by calling it a “method,”

even if it is not that. Accordingly, “the determination

of whether the court has jurisdiction is intertwined

with the question of whether the agency has authority

for the challenged action, and the court must address

the merits to the extent necessary to determine

whether the challenged agency action falls within the

scope of the preclusion on judicial review.” Id. at 113;

see also COMSAT, 114 F.3d at 227 (“The no-review

provision . . . merges consideration of the legality of

the [agency’s] action with consideration of this court’s

jurisdiction in cases in which the challenge to the

[agency’s] action raises the question of the [agency’s]

authority to enact a particular amendment.”).

Because, as explained below, the Court finds that

CMS’ action here does not constitute a “method”

51a

within the meaning of the statute, the Court also finds

that paragraph (t)(12)(A) does not preclude judicial

review of Plaintiffs’ claims.7

2. Exhaustion

As argued by the government, Section 405(g) of the

Medicare statute requires a plaintiff to obtain

administrative review of its claims before filing suit in

court. See 42 U.S.C. § 405(g); see also Am. Hosp. Ass’n

v. Azar, 895 F.3d 822, 825 (D.C. Cir. 2018) (describing

the Medicare statute channeling provisions).

Specifically, Section 405(g) has two requirements: (1)

“presentment” of the claim; and (2) exhaustion of

administrative remedies. See Am. Hosp. Ass’n, 895

F.3d at 825-26. The government does not

substantially argue that Plaintiffs have failed to

present their claim. But the government does argue

that Plaintiffs have not fully availed themselves of the

administrative review process. Plaintiffs concede that

they have not exhausted their administrative

remedies fully but argue that the requirement of

Certain plaintiffs argue that they may bring a non-statutory

ultra vires claim, even if review under the APA is precluded. See

Reply in Supp. of Pls.’ Mot. for Summ. J. [Dkt. 25] at 11-14. True,

“the case law in this circuit is clear that judicial review is

available when an agency acts ultra vires.” Aid Ass’n for

Lutherans v. U.S. Postal Serv., 321 F.3d 1166, 1173 (D.C. Cir.

2003). But non-statutory claims may also be precluded and the

standard for determining whether non-statutory review is

limited is the same as under the APA. See Dart, 848 F.2d at 221

(“If the wording of a preclusion clause is less than absolute, the

presumption of judicial review . . . is favored when an agency is

charged with acting beyond its authority.”). Thus, the analysis

and outcome are the same.

52a

exhaustion should be waived because

administrative review would be futile.

further

“Futility may serve as a ground for excusing

exhaustion, either on its own or in conjunction with

other factors.” Nat’l Ass’n for Home Care & Hospice,

Inc. v. Burwell, 77 F. Supp. 3d 103, 110 (D.D.C. 2015)

(citing Tataranowicz v. Sullivan, 959 F.2d 268, 274

(D.C. Cir. 1992)). Futility applies where exhaustion

would be “clearly useless,” such as where the agency

“has indicated that it does not have jurisdiction over

the dispute, or because it has evidenced a strong stand

on the issue in question and an unwillingness to

reconsider the issue.” Randolph-Sheppard Vendors v.

Weinberger, 795 F.2d 90, 106 (D.C. Cir. 1986). That

said, the ordinary standard for futility in

administrative law cases is inapplicable in Medicare

cases. See Weinberger v. Salfi, 422 U.S. 749, 766, 95

S.Ct. 2457, 45 L.Ed.2d 522 (1975) (stating that

§ 405(g) is “more than simply a codification of the

judicially developed doctrine of exhaustion, and may

not be dispensed with merely by a judicial conclusion

of futility”). In the context of Medicare, courts also

look to whether “judicial resolution of the issue will

interfere with the agency’s efficient functioning, deny

the agency the ability to self-correct, or deprive the

Court of the benefits of the agency’s expertise and an

adequate factual record.” Nat’l Ass’n for Home Care &

Hospice, 77 F. Supp. 3d at 111 (citing Tataranowicz,

959 F.2d at 275); see also Am. Hosp. Ass’n v. Azar, 348

F. Supp. 3d 62, 75 (D.D.C. 2018), appeal docketed, No.

19-5048 (D.C. Cir. Feb. 28 2019).

Consideration of these factors makes clear that

requiring Plaintiffs to exhaust their administrative

remedies here would be a “wholly formalistic” exercise

53a

in futility. Tataranowicz, 959 F.2d at 274. The

government

does

not

argue

that

further

administrative review is necessary for the agency’s

efficient functioning. Nor does the government argue

that administrative review will give the agency the

opportunity to self-correct. To the contrary, CMS’

interpretation here is “even more embedded” since it

was promulgated through notice-and-comment

rulemaking whereby CMS has already considered and

rejected Plaintiffs’ specific arguments. Nat’l Ass’n for

Home Care & Hospice, 77 F. Supp. 3d at 112; Final

Rule at 59,011-13. Finally, additional administrative

review would do nothing to develop the factual record

or provide the Court with further benefits of agency

expertise, since this case concerns a purely legal

challenge to the scope of the Secretary’s statutory

authority. See Hall v. Sebelius, 689 F. Supp. 2d 10, 2324 (D.D.C. 2009) (“[E]xhaustion may be excused

where an agency has adopted a policy or pursued a

practice of general applicability that is contrary to the

law.” (internal quotations omitted)). Indeed, it does

not appear that further expertise can be brought to

bear since no administrative review body has the

authority to override CMS’ binding regulations. See

42 C.F.R. § 405.1063(a) (“All laws and regulations

pertaining to the Medicare and Medicaid programs

. . . are binding on ALJs and attorney adjudicators,

and the [Medicare Appeals] Council.”); see, e.g.,

Noridian Healthcare Solutions, G0463 Has No Appeal

Rights

(Mar.

22,

2019),

available

http://bit.ly/2K2Yw4W (“CMS has provided direction

to the Medicare Administrative Contractors (MACs)

to dismiss requests appealing the reimbursement of

HCPCS G0463. No further appeal rights will be

granted at subsequent levels due to the statutory

54a

guidance supporting the pricing of this HCPCS

code.”). In short, the government “gives no reason to

believe that the agency machinery might accede to

plaintiffs’ claims,” even as it recites the formal steps

involved in administrative review. Tataranowicz, 959

F.2d at 274.

The Outpatient Prospective

System Statutory Scheme

Payment

Plaintiffs argue that if CMS wants to reduce the

payment rate for a particular OPD service, it must

change the relative payment weights and adjustments

through the annual review process, see 42 U.S.C.

§ 1395l(t)(9)(A), in a budget neutral manner, see id.

§ 1395l(t)(9)(B). Alternatively, if CMS wants to reduce

Medicare costs by addressing “unnecessary increases

in the volume of services,” it must first develop a

method to do so, id. § 1395l(t)(2)(F), which it may then

implement across-the-board by adjusting the

conversion factor, see id. § 1395l(t)(9)(C). This

statutory scheme, Plaintiffs argue, is intended to

prevent exactly what happened here: a selective cut to

Medicare funding which targets only certain services

and providers.

The government responds that CMS has authority

to “develop a method for controlling unnecessary

increases” in volume under paragraph (t)(2)(F) and

that this authority is independent of its authority

under paragraph (t)(9)(C) to adjust the conversion

factor. It argues that these two actions are different

and independent cost-control tools in its regulatory

belt. Further, the government argues that CMS may

develop a “method” to set payment rates for a

particular service which is causing an “unnecessary”

55a

increase in cost (and volume) without regard to budget

neutrality, because there is no logical reason Congress

would want CMS to penalize all outpatient

departments—by reducing rates for all OPD

services—for the spike in volume (as measured by

total expenditures) if only one such service caused the

spike.

The government emphasizes that “method” is not

explicitly defined in the statute and argues that its

approach satisfies generic definitions of the term. See,

e.g., Method, Black’s Law Dictionary (11th ed. 2019)

(“A mode of organizing, operating, or performing

something, esp. to achieve a goal.”). But “reasonable

statutory interpretation must account for both ‘the

specific context in which . . . language is used’ and ‘the

broader context of the statute as a whole.’ ” Util. Air

Regulatory Grp. v. EPA, 573 U.S. 302, 321, 134 S.Ct.

2427, 189 L.Ed.2d 372 (2014) (quoting Robinson v.

Shell Oil Co., 519 U.S. 337, 341, 117 S.Ct. 843, 136

L.Ed.2d 808 (1997)). “A statutory ‘provision that may

seem ambiguous in isolation is often clarified by the

remainder of the statutory scheme . . . because only

one of the permissible meanings produces a

substantive effect that is compatible with the rest of

the law.’ ” Id. (quoting United Sav. Ass’n of Tex. v.

Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365,

371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988)); see also

King v. Burwell, ––– U.S. ––––, 135 S. Ct. 2480, 2483,

192 L.Ed.2d 483 (2015) (“[O]ftentimes the meaning—

or ambiguity—of certain words or phrases may only

become evident when placed in context.”). As such, the

Court must “read the words ‘in their context and with

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

King, 135 S. Ct. at 2483 (quoting FDA v. Brown &

56a

Williamson Tobacco Corp., 529 U.S. 120, 133, 120

S.Ct. 1291, 146 L.Ed.2d 121 (2000)); see also Util. Air

Regulatory Grp., 573 U.S. at 320, 134 S.Ct. 2427. That

context does not make clear what a “method” is, but it

does make clear what a “method” is not: it is not a

price-setting tool, and the government’s effort to wield

it in such a manner is manifestly inconsistent with the

statutory scheme. There are two reasons.

First, Congress established an elaborate statutory

scheme which spelled out each step for determining

the amount of payment for OPD services under the

Outpatient Prospective Payment System. As detailed

in 42 U.S.C. § 1395l(t)(4), titled “Medicare payment

amount,” the amount paid “is determined” by: the fee

schedule amount “computed under paragraph (3)(D)”

for the OPD service’s Ambulatory Payment

Classification, adjusted for wages and other factors

“as computed under paragraphs (2)(D) and (2)(E),” see

42 U.S.C. § 1395l(t)(4)(A); less applicable deductibles

under § 1395l(b), see id. § 1395l(t)(4)(B); and modified

by a “payment proportion,” see id. § 1395l(t)(4)(C). The

applicable deductible and “payment proportion” are

fixed by statute and are not relevant to this case, but

the Ambulatory Payment Classification fee schedule

amount is. That amount is the product of the

conversion factor “computed under subparagraph

[(3)(C)]” and the relative payment weight for the

Ambulatory Payment Classification “determined

under paragraph (2)(C).” See id. § 1395l(t)(3)(D). The

base ingredients of an Outpatient Prospective

Payment System payment over which CMS has

discretion are, therefore, the Ambulatory Payment

Classification groups and relative payment weights;

57a

the conversion factor; and the wage adjustment and

other adjustments.

The Court recounts these cross-referencing

provisions—even the irrelevant ones—to make one

thing clear: nowhere is a “method” developed under

paragraph (t)(2)(F) referenced. CMS cannot shoehorn

a “method” into the multi-faceted congressional

payment scheme when Congress’s clear directions

lack any such reference. See Util. Air Regulatory Grp.,

573 U.S. at 328, 134 S.Ct. 2427. (“We reaffirm the core

administrative-law principle that an agency may not

rewrite clear statutory terms to suit its own sense of

how the statute should operate.”). As such, if CMS

wishes to reduce Outpatient Prospective Payment

System payments for E&M services, it must make

budget-neutral adjustments to either that service’s

relative payment weight or to other adjustments

under paragraph (t)(9)(A). Alternatively, CMS may

update the conversion factor to apply across-the-board

cuts under paragraph (t)(9)(C). But nothing in the

adjustment or payment scheme permits servicespecific, non-budget-neutral cuts.

CMS apparently understood this limitation when it

considered other “methods” in the past. For example,

when the Outpatient Prospective Payment System

was first being developed in 1998, CMS evaluated

three possible methods of volume control, all based on

the Sustainable Growth Rate formula which was

enacted by Congress to control the growth of

“physician services” under, ironically, the Physician

Fee Schedule, which is itself also a prospective

payment system. See 63 Fed. Reg. at 47,586. Much

like payment rates for OPD services under the

Outpatient Prospective Payment System, payment

58a

rates for physician services are prospectively set

through a combination of relative resource use,

regional adjustments, and an across-the-board

Physician Fee Schedule conversion factor. The

Sustainable Growth Rate formula set overall target

expenditure levels for physician services based on

changes in enrollment, changes in physician fees,

changes in the legal and regulatory landscape, and

total economic growth, and then manipulated the

Physician Fee Schedule conversion factor to achieve

that targeted level. Two of CMS’ proposals in 1998

would have modified the Sustainable Growth Rate

formula to also account for a measure of OPD service

efficiency as well, while the third proposal would have

developed a similar, independent formula for the

Outpatient Prospective Payment System. All three

proposals would have operated through updates to the

relevant conversion factors under paragraph

(t)(9)(C). 8 Id. at 47,586-87. None of these methods,

based upon a conversion factor calculated using a

Sustainable Growth Rate formula, was implemented.

See Final Rule at 59,005.

Plaintiffs argue that here CMS acknowledged “possible

legislative modification” would be necessary to implement any

method other than adjustment to the conversion factor. See Mem.

of P. & A. in Supp. of Pls.’ Mot. for Summ. J. [Dkt. 14-1] at 15;

see also 63 Fed. Reg. at 47,586. As noted in the text, all three

“methods” proposed in 1998 would have adjusted the conversion

factor. Possible legislative modification was discussed because,

for two of the proposed methods, CMS did not itself have the

authority to modify the Sustainable Growth Rate, which

Congress implemented by statute. See 42 U.S.C. 1395w-4(f)

(1999).

59a

Instead, CMS considered and implemented a

different method of volume control known as

“packaging,” whereby “ancillary services associated

with a significant procedure” are “packaged into a

single payment for the procedure.” 72 Fed. Reg.

66,580, 66,610 (Nov. 27, 2007); see also Final Rule at

58,854 (“Because packaging encourages efficiency and

is an essential component of a prospective payment

system, packaging . . . has been a fundamental part of

OPPS since its implementation in August 2000.”).

Packaging incentivizes providers “to furnish services

in the most efficient way by enabling hospitals to

manage their resources with maximum flexibility,

thereby encouraging long-term cost containment.” 72

Fed. Reg. at 66,611; see also 63 Fed. Reg. at 47,586

(“We believe that greater packaging of these services

might provide volume control.”); 79 Fed. Reg. 66,770,

66,798-99 (Nov. 10, 2014) (introducing conceptually

similar “comprehensive APCs”). Unlike the proposed

methods based on a Sustainable Growth Rate formula

that were considered in 1998, packaging does not

control volume by changing the conversion factor and

thereby obviates the need to rely on paragraph (t)(9)

(C), and packaging is implemented in a budget neutral

manner. See, e.g., 72 Fed. Reg. at 66,615 (“Because the

OPPS is a budget neutral payment system[,] . . . the

effects of the packaging changes we proposed resulted

in changes to scaled weights and . . . to the proposed

payments rates for all separately paid procedures.”);

cf. 42 U.S.C. § 1395l(t)(9)(A)-(B).

This history makes it clear that CMS can adopt

volume-control methods under paragraph (t)(2)(F)

which affect payment rates indirectly, even if those

methods cannot affect them directly. Moreover, it

60a

demonstrates that the Court’s interpretation does not

render paragraph (t)(2)(F) mere surplusage, since

some methods do not depend on manipulation of the

conversion factor.

Second, Congress provided great detail in directing

how CMS should develop and adjust relative payment

weights. For example, Congress required that the

initial relative payment weights for OPD services be

rooted in verifiable data and cost reports. Id.

§ 1395l(t)(2)(C). Congress also required CMS to

develop a wage adjustment attributable to geographic

labor and labor-related costs, id. § 1395l(t)(2)(D); an

outlier adjustment to reimburse hospitals for

particularly expensive patients, id. § 1395l(t)(2)(E)

and (t)(5) (detailing further the outlier adjustment); a

transitional pass-through payment scheme for

innovative medical devices, drugs, and biologicals, id.

§ 1395l(t)(2)(E) and (t)(6) (detailing further the passthrough

adjustment);

and

catch-all

“other

adjustments as determined to be necessary to ensure

equitable payments,” id. § 1395l(t)(2)(E). This

extraordinarily detailed scheme results in a relative

payment system which ensures that payments for one

service are rationally connected to the payments for

another and satisfies specific policies considered by

Congress. And so that this system retains its

integrity, CMS is required to review annually the

relative payment weights of OPD services and their

adjustments based on changes in cost data, medical

practices and technology, and other relevant

information. See id. § 1395l(t)(9)(A). Further, CMS is

required to consult with “an expert outside advisory

panel” to ensure the “clinical integrity of the groups

and weights.” Id.

61a

Congress also required that adjustments to the

Outpatient Prospective Payment System be made in a

budget-neutral fashion (with specified exceptions).

Congress itself set the first conversion factor so that

the estimated expenditures for the first year of

payments under the Outpatient Prospective Payment

System would match estimated expenditures for the

same year under the previous system. Id.

§ 1395l(t)(3)(C)(i). Congress further specified that the

wage adjustment, outlier adjustment, pass-through

adjustment, and the “other adjustments” all be budget

neutral. Id. § 1395l(t)(2)(D)-(E). And Congress

directed CMS to make any changes to the groups,

their relative payment weights, or the adjustments

resulting from its mandatory annual review in a

budget-neutral fashion. Id. § 1395l(t)(9)(B).

Notwithstanding this granularity in the statute,

CMS posits that in a single sentence Congress granted

it parallel authority to set payment rates in its

discretion that are neither relative nor budget

neutral. Cf.id. § 1395l(t)(2)(F). But “Congress . . . does

not alter the fundamental details of a regulatory

scheme in vague terms or ancillary provisions—it

does not, one might say, hide elephants in

mouseholes.” Whitman v. Am. Trucking Ass’ns, 531

U.S. 457, 468, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001); cf.

Air Alliance Houston v. EPA, 906 F.3d 1049, 1061

(D.C. Cir. 2018) (“[I]t is well established that an

agency may not circumvent specific statutory limits

on its actions by relying on separate, general

rulemaking authority.”). If CMS reads the statute

correctly, its new-found authority would supersede

Congress’ carefully crafted relative payment system

by severing the connection between a service’s

62a

payment rate and its relative resource use. In the

context of the similarly-designed Physician Fee

Schedule system, Congress expressly denounced this

disconnect. See H.R. Rep. No. 105-149, at 1347-48

(1997) (“As a result, relative value units have become

seriously distorted. This distortion violates the basic

principle underlying the resource-based relative value

scale (RBRVS), namely that each services [sic] should

be paid the same amount regardless of the patient or

service to which it is attached.”). Further, the

structure of the Outpatient Prospective Payment

System makes clear that Congress intended to

preserve “the clinical integrity of the groups and

weights.” 42 U.S.C. § 1395l(t)(9)(A). There is no

reason to think that Congress with one hand granted

CMS the authority to upend such a “basic principle”

of the Outpatient Prospective Payment System while

working with the other to preserve it.9

The government also argues that Congress knew

how to require budget neutrality when it wanted to,

and that its silence in the context of paragraph

(t)(2)(F) is telling. Not only does this argument fail to

address damage to the integrity of the relative

payment system, but in the context of the Outpatient

Prospective Payment System, the reverse is also true:

for decisions within CMS’ discretion that might affect

overall expenditures, Congress made clear when

budget neutrality was not required. See id.

CMS’ interpretation would also swallow paragraph (t)(9)(C)

in its entirety: why would the agency go through the annual

hassle of updating the conversion factor if it could use paragraph

(t)(2)(F) to decrease or increase payment rates for disfavored or

favored services whenever desired?

63a

§ 1395l(t)(7)(I) (exempting transitional payments

from budget neutrality); id. § 1395l(t)(16)(D)(iii)

(exempting special payments from budget neutrality);

id. § 1395l(t)(20) (exempting the effects of certain

incentives from budget neutrality); cf. id.

§ 1395l(t)(3)(C) (permitting negative conversion

factors); id. § 1395l(t)(14)(H) (exempting specific

expenditure increases from consideration under

paragraph (t)(9)). As CMS has said, “the OPPS is a

budget neutral payment system.” 72 Fed. Reg. at

66,615. Given how pervasively the statute requires

budget neutrality in the Outpatient Prospective

Payment System, Congress clearly considered effects

on total expenditures critical to that system. Yet

Congress did not mention the budgetary impact of

paragraph (t)(2)(F) at all. The Court concludes that no

such reference was made because Congress did not

intend CMS to use an untethered “method” to directly

alter expenditures independent of other processes. To

the contrary, Congress directed that any “methods”

developed under paragraph (t)(2)(F) be implemented

through other provisions of the statute.10

Finally, the government argues that there is no

reason Congress would have wanted CMS to penalize

all outpatient departments in order to control

Paragraph (t)(9)(C) explicitly provides that methods

developed under paragraph (t)(2)(F) may result in adjustments

to the conversion factor because subsection (t)(3), governing the

conversion factor, does not already provide CMS such authority.

Cf. 42 U.S.C. § 1395l(t)(9)(A) (requiring CMS to review and

adjust groups and relative payments weights and adjustments

for OPD services). Put another way, the provision is permissive,

not mandatory, because CMS may choose to implement its

methods through other means.

64a

unnecessary increases in the volume of a single type

of service. Of course, that is exactly what Congress did

when it applied the Sustainable Growth Rate formula

to the Physician Fee Schedule under the Balanced

Budget Act of 1997—the same Act which created the

Outpatient

Prospective

Payment

System—to

disastrous results. See Jim Hahn & Janemarie

Mulvey, Congressional Research Service, Medicare

Physician Payment Updates and the Sustainable

Growth Rate (SGR) System 8 (2012) (“There is a

growing consensus among observers that the SGR

system is fundamentally flawed and is creating

instability in the Medicare program for providers and

beneficiaries.”); id. (“One commonly asserted criticism

is that the SGR system treats all services and

physicians equally . . . to the detriment of physicians

who are ‘unduly’ penalized.”). Congress recognized its

error and repealed the Sustainable Growth Rate

formula,

see

Medicare

Access

and

CHIP

Reauthorization Act of 2015, Pub. L. No. 114-10, 129

Stat. 87, and it has demonstrated that it retains for

itself the authority to make these and similarly

selective funding decisions in this highly complicated

intersection of patient needs, medical care, and

government funding through the relative payment

weight system. See, e.g., Bipartisan Budget Act § 603

(establishing different payment schemes for excepted

and non-excepted PBDs). Here, Congress has

developed a multi-factored, complicated annual

process whereby CMS is to preset relative payments

for OPD services. This annual process would be totally

ignored and circumvented if CMS could unilaterally

set OPD service-specific rates without regard to their

relative position or budget neutrality.

65a

For these reasons, the Court finds that the “method”

developed by CMS to cut costs is impermissible and

violates its obligations under the statute. While the

intention of CMS is clear, it would acquire unilateral

authority to pick and choose what to pay for OPD

services, which clearly was not Congress’ intention.

The Court find that the Final Rule is ultra vires.11

C. Remedies

A brief note on remedies. Plaintiffs not only ask for

vacatur of the Final Rule, but also for a court order

requiring CMS to issue payments improperly

withheld due to the Final Rule. Plaintiffs’ request will

denied.

“ ‘Under

settled

principles

administrative law, when a court reviewing agency

action determines that an agency made an error of

law, the court’s inquiry is at an end: the case must be

remanded to the agency for further action consistent

with the correct legal standards.’ ” Palisades Gen.

Hosp. Inc. v. Leavitt, 426 F.3d 400 (D.C. Cir. 2005)

(quoting Cnty. of L.A. v. Shalala, 192 F.3d 1005, 1011

(D.C. Cir. 1999)). That said, Outpatient Prospective

Payment System reimbursements are complex and a

third set of plaintiffs in another case challenging the

same rule has raised the spectre of complications

resulting from an order to vacate. See Opposition to

Defendant’s Motion to Stay Proceedings, Sisters of

Charity Hospital of Buffalo, New York v. Azar, No. 191446 (RMC) (July 25, 2019) Dkt. 13. Other courts in

this district have wrestled with the ripple effects of

Because the Court concludes that service-specific unilateral

price setting by CMS is not a “method” within the meaning of

the statute, the Court does not reach Plaintiffs’ other

arguments.

66a

vacatur caused by Medicare budget neutrality

provisions and interest payments. See Am. Hosp.

Ass’n, 348 F. Supp. 3d at 85-86 (requiring further

briefing on remedies related to OPPS adjustments);

Shands Jacksonville Med. Ctr., Inc. v. Azar, 2019 WL

1228061, at *2 (D.D.C. Mar. 15, 2019) (addressing

plaintiff-specific interest payments on improper

reimbursement determinations); see also Amgen, 357

F.3d at 112 (“Other circuits have noted the havoc

piecemeal review of OPPS payments could bring

about.”). The Final Rule is less than one year old and

did not apply budget neutrality principles. These

factors should lessen the burden on reconsideration.

Nonetheless, the Court will require a joint status

report to determine if additional briefing is

appropriate.

IV. CONCLUSION

CMS believes it is paying millions of taxpayer

dollars for patient services in hospital outpatient

departments that could be provided at less expense in

physician offices. CMS may be correct. But CMS was

not authorized to ignore the statutory process for

setting payment rates in the Outpatient Prospective

Payment System and to lower payments only for

certain services performed by certain providers.

Plaintiffs’ Motion for Summary Judgment, Dkt. 14,

will be granted. The government’s Cross-Motion for

Summary Judgment, Dkt. 20, will be denied. The

Court will vacate the applicable portions of the Final

Rule and remand the matter for further proceedings

consistent with this Memorandum Opinion. The

parties will be required to submit a joint status report

by October 1, 2019, to determine if additional briefing

on remedies is required, along with the CMS estimate

67a

as to the duration of further proceedings. A

memorializing Order accompanies this Memorandum

Opinion.

68a

APPENDIX C

_________

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

_________

No. 19-5352

_________

AMERICAN HOSPITAL ASSOCIATION, ET AL.,

Appellees

ALEX M. AZAR, II, IN HIS OFFICIAL CAPACITY AS

SECRETARY OF HEALTH AND HUMAN SERVICES,

Appellant

_________

Consolidated with 19-5353, 19-5354

_________

September Term, 2020

_________

1:18-cv-02841-RMC

_________

Filed On: October 16, 2020

_________

BEFORE: Srinivasan, Chief Judge; and Henderson,

Rogers, Tatel, Garland, Millett, Pillard, Wilkins,

Katsas, Rao*, and Walker, Circuit Judges.

Circuit Judge Rao did not participate in this matter.

69a

ORDER

Upon consideration of appellees’ petition for

rehearing en banc, and the absence of a request by any

member of the court for a vote, it is

ORDERED that the petition be denied.

Per Curiam

FOR THE COURT:

Mark J. Langer, Clerk

BY:

/s/

Michael C. McGrail

Deputy Clerk

70a

APPENDIX D

_________

STATUTORY PROVISIONS INVOLVED

_________

42 U.S.C. § 1395l provides in pertinent

part:

(t) Prospective payment system for hospital

outpatient department services

(2) System requirements

Under the payment system—

(A) the Secretary shall develop a classification

system for covered OPD services;

(B) the Secretary may establish groups of

covered OPD services, within the classification

system described in subparagraph (A), so that

services classified within each group are

comparable clinically and with respect to the

use of resources and so that an implantable

item is classified to the group that includes the

service to which the item relates;

from 1996 and using data from the most recent

available cost reports, establish relative

payment weights for covered OPD services (and

any groups of such services described in

subparagraph (B)) based on median (or, at the

election of the Secretary, mean) hospital costs

and shall determine projections of the

frequency of utilization of each such service (or

group of services) in 1999;

71a

(D) subject to paragraph (19), the Secretary

shall determine a wage adjustment factor to

adjust the portion of payment and coinsurance

attributable to labor-related costs for relative

differences in labor and labor-related costs

across geographic regions in a budget neutral

manner;

(E) the Secretary shall establish, in a budget

neutral manner, outlier adjustments under

paragraph (5) and transitional passthrough

payments under paragraph (6) and other

adjustments as determined to be necessary to

ensure

equitable

payments,

such

adjustments for certain classes of hospitals;

(F) the Secretary shall develop a method for

controlling unnecessary increases in the

volume of covered OPD services;

(G) the Secretary shall create additional

groups of covered OPD services that classify

separately those procedures that utilize

contrast agents from those that do not; and

(H) with respect to devices of brachytherapy

consisting of a seed or seeds (or radioactive

source), the Secretary shall create additional

groups of covered OPD services that classify

such devices separately from the other services

(or group of services) paid for under this

subsection in a manner reflecting the number,

isotope, and radioactive intensity of such

devices furnished, including separate groups

for palladium-103 and iodine-125 devices and

for stranded and non-stranded devices

furnished on or after July 1, 2007.

72a

(12) Limitation on review

There shall be no administrative or judicial

review under section 1395ff of this title, 1395oo

of this title, or otherwise of—

(A) the development of the classification

system under paragraph (2), including the

establishment of groups and relative payment

weights for covered OPD services, of wage

adjustment factors, other adjustments, and

methods described in paragraph (2)(F);

(B) the calculation of base amounts under

paragraph (3);

paragraph (6);

adjustments

made

under

(D) the establishment of a separate

conversion factor under paragraph (8)(B); and

(E) the determination of the fixed multiple, or

a fixed dollar cutoff amount, the marginal cost

of care, or applicable percentage under

paragraph (5) or the determination of

insignificance of cost, the duration of the

additional payments, the determination and

deletion of initial and new categories

(consistent with subparagraphs (B) and (C) of

paragraph (6)), the portion of the medicare

OPD fee schedule amount associated with

particular devices, drugs, or biologicals, and the

application of any pro rata reduction under

paragraph (6).

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