Respondents Brief — Xavier Becerra, Secretary of Health and Human Services, Petitioner v. Empire Health Foundation, for Valley Hospital Medical Center

Supreme Court briefOct 18, 2021

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NO. 20-1312

In the

Supreme Court of the United States

________________

XAVIER BECERRA, SECRETARY OF

HEALTH AND HUMAN SERVICES,

Petitioner,

EMPIRE HEALTH FOUNDATION,

for VALLEY HOSPITAL MEDICAL CENTER,

________________

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

________________

BRIEF FOR RESPONDENT

________________

Anne M. Voigts

Matthew V.H. Noller

KING & SPALDING LLP

601 S. California Ave.

Suite 100

Palo Alto, CA 94304

(650) 422-6700

Daniel J. Hettich

Counsel of Record

Ashley C. Parrish

Jeffrey S. Bucholtz

Alek Pivec

KING & SPALDING LLP

1700 Pennsylvania Ave. NW

Washington, DC 20006

(202) 626-9128

dhettich@kslaw.com

Counsel for Respondent

October 18, 2021

RULE 29.6 STATEMENT

Empire Health Foundation Medical Center is not

a publicly traded company. It has no parent company

and no company owns 10% or more its stock.

TABLE OF CONTENTS

RULE 29.6 STATEMENT ........................................... i

TABLE OF AUTHORITIES ...................................... iii

INTRODUCTION ....................................................... 1

STATEMENT ............................................................. 6

A. Statutory and Regulatory Background ....... 6

B. The 2005 Rule ............................................. 13

C. The Proceedings Below .............................. 19

SUMMARY OF ARGUMENT .................................. 20

ARGUMENT ............................................................. 23

The 2005 Rule Is Not a Legitimate Exercise

of Agency Expertise That Could Trigger

Deference ........................................................... 23

II. The Statutory Text Precludes the 2005 Rule ... 28

A. HHS’s Interpretation Defies Statutory

Text, Context, and Purpose........................ 29

B. HHS’s Arguments Conflict with the

Statute’s Text and Purposes ...................... 35

III. The 2005 Rule Is Not a Reasonable

Interpretation of the DSH Provision ................ 46

CONCLUSION ......................................................... 52

iii

TABLE OF AUTHORITIES

Cases

Adena Reg’l Med. Ctr. v. Leavitt,

527 F.3d 176 (D.C. Cir. 2008) .................................. 7

Alhambra Hosp. v. Thompson,

259 F.3d 1071 (9th Cir. 2001)................................ 11

Azar v. Allina Health Servs.,

139 S. Ct. 1804 (2019).......................... 27, 29, 44, 50

BP Am. Prod. Co. v. Burton,

549 U.S. 84 (2006).................................................. 29

Cabell Huntington Hosp., Inc. v. Shalala,

101 F.3d 984 (4th Cir. 1996).......................... passim

Caring Hearts Pers. Home Servs., Inc.

v. Burwell,

824 F.3d 968 (10th Cir. 2016)................................ 27

Catholic Health Initiatives Iowa Corp.

v. Sebelius,

718 F.3d 914 (D.C. Cir. 2013) ................................ 20

City of Arlington v. FCC,

569 U.S. 290 (2013)................................................ 24

Cnty. of Maui v. Haw. Wildlife Fund,

140 S. Ct. 1462 (2020)............................................ 51

Deaconess Health Servs. Corp. v. Shalala,

83 F.3d 1041 (8th Cir. 1996)............................ 12, 36

Empire Health Found.

for Valley Hosp. Med. Ctr. v. Price,

334 F. Supp. 3d 1134 (E.D. Wash. 2018) .............. 19

Encino Motorcars, LLC v. Navarro,

136 S. Ct. 2117 (2016).................................... passim

Epic Sys. Corp. v. Lewis,

138 S. Ct. 1612 (2018)...................................... 24, 26

FDA v. Brown & Williamson Tobacco Corp.,

529 U.S. 120 (2000)................................................ 24

Gundy v. United States,

139 S. Ct. 2116 (2019)............................................ 24

Heckler v. Redbud Hosp. Dist.,

473 U.S. 1308 (1985)................................................ 7

INS v. Cardoza-Fonseca,

480 U.S. 421 (1987)................................................ 48

Int’l Harvester Co. v. Missouri,

234 U.S. 199 (1914)................................................ 25

Jewish Hosp., Inc.

v. Sec’y of Health & Human Servs.,

19 F.3d 270 (6th Cir. 1994)............................ passim

Judulang v. Holder,

565 U.S. 42 (2011).................................................. 47

Kisor v. Wilkie,

139 S. Ct. 2400 (2019)...................................... 23, 25

Legacy Emanuel Hosp.

& Health Ctr. v. Shalala,

97 F.3d 1261 (9th Cir. 1996).......................... passim

Methodist Hosp. of Sacramento v. Shalala,

38 F.3d 1225 (D.C. Cir. 1994) .................................. 6

Metro. Hosp. v. HHS,

712 F.3d 248 (6th Cir. 2013).................................. 20

Michigan v. EPA,

576 U.S. 743 (2015).................................... 35, 36, 48

Motor Vehicle Mfrs. Ass’n of U.S., Inc.

v. State Farm Mut. Auto. Ins. Co.,

463 U.S. 29 (1983).................................................. 47

Ne. Hosp. Corp. v. Sebelius,

657 F.3d 1 (D.C. Cir. 2011) ............................ passim

Portland Adventist Med. Ctr. v. Thompson,

399 F.3d 1091 (9th Cir. 2005).......................... 11, 33

Redbud Hosp. Dist. v. Heckler,

No. C-84-4382-MHP,

1984 WL 2857 (N.D. Cal. July 30, 1984),

modified (June 14, 1985) ......................................... 7

Saint Francis Med. Ctr. v. Azar,

894 F.3d 290 (D.C. Cir. 2018) .................................. 6

Samaritan Health Ctr. v. Heckler,

636 F. Supp. 503 (D.D.C. 1985) ............................... 8

Samaritan Health Ctr. v. Bowen,

646 F. Supp. 343 (D.D.C. 1986) ............................... 8

SAS Inst., Inc. v. Iancu,

138 S. Ct. 1348 (2018)............................................ 28

SEC v. Chenery Corp.,

318 U.S. 80 (1943)...................................... 36, 44, 50

Sosa v. Alvarez-Machain,

542 U.S. 692 (2004)................................................ 29

TRW Inc. v. Andrews,

534 U.S. 19 (2001)............................................ 32, 38

United States v. Cartwright,

411 U.S. 546 (1973)................................................ 46

United States v. Mead Corp.,

533 U.S. 218 (2001).............................. 23, 24, 26, 47

United States v. Vogel Fertilizer Co.,

455 U.S. 16 (1982).................................................. 46

Univ. of Wash. Med. Ctr. v. Sebelius,

634 F.3d 1029 (9th Cir. 2011).................................. 7

Verizon Commc’ns Inc. v. FCC,

535 U.S. 467 (2002)................................................ 50

Walter O. Boswell Mem’l Hosp. v. Heckler,

749 F.2d 788 (D.C. Cir. 1984) ................................ 47

Statutes

42 U.S.C. § 426 ............................................. 32, 37, 38

42 U.S.C. § 1381a ..................................................... 40

42 U.S.C. § 1382 ........................................... 15, 40, 41

42 U.S.C. § 1382a(b) ................................................. 40

42 U.S.C. § 1382b ..................................................... 40

42 U.S.C. § 1382c ...................................................... 40

42 U.S.C. § 1382e...................................................... 40

42 U.S.C. § 1382h ..................................................... 40

42 U.S.C. § 1382j ...................................................... 40

42 U.S.C. § 1383 ....................................................... 40

42 U.S.C. § 1383c ...................................................... 40

42 U.S.C. § 1383d ..................................................... 40

42 U.S.C. § 1395b-2(a) ........................................ 42, 43

42 U.S.C. § 1395d(a) ......................................... passim

42 U.S.C. § 1395l ...................................................... 41

42 U.S.C. § 1395o(a)(1) ....................................... 42, 43

vii

42 U.S.C. § 1395w-21(a)(3) ................................. 42, 43

42 U.S.C. § 1395w-101(a)(3)(A) .......................... 42, 43

42 U.S.C. § 1395ww(d)(5)(F) ............................ passim

42 U.S.C. § 1396d(a) ................................................. 39

Consolidated Budget Reconciliation

Act of 1985, Pub. L. No. 99-272,

100 Stat. 82 (1986) ................................................... 8

Pub. L. No. 98-369,

98 Stat. 494 (1984) ................................................... 8

Social Security Amendments of 1983,

Pub. L. No. 98-21, 97 Stat. 65 ................................. 7

Tax Equity and

Fiscal Responsibility Act of 1982,

Pub. L. No. 97-248, 96 Stat. 324 ............................. 7

Regulations

20 C.F.R. § 416.414................................................... 15

42 C.F.R. § 400.202................................................... 43

42 C.F.R. § 412.106(a)(1)(ii) (1994) .......................... 31

42 C.F.R. § 412.106(b) ........................................ 39, 41

42 C.F.R. § 412.106(b)(2)(i) (2003) ........................... 17

42 C.F.R. § 412.106(b)(4)(i) ................................ 40, 42

42 C.F.R. § 423.773(c)(1)(ii) ...................................... 41

49 Fed. Reg. 234 (Jan. 3, 1984) .................................. 7

51 Fed. Reg. 31,454 (Sept. 3, 1986) .................... 12, 49

68 Fed. Reg. 27,154 (May 19, 2003) ......................... 16

68 Fed. Reg. 45,346 (Aug. 1, 2003) .......................... 17

viii

69 Fed. Reg. 28,196 (May 18, 2004) ......................... 17

69 Fed. Reg. 48,916 (Aug. 11, 2004)................. passim

75 Fed. Reg. 50,042 (Aug. 16, 2010)............. 15, 39, 40

Other Authorities

1 K. Hickman & R. Pierce,

Administrative Law (6th ed. 2019) ....................... 27

131 Cong. Rec. S10,928

(daily ed. Aug. 1, 1985) .......................................... 45

Black’s Law Dictionary (6th ed. 1979) ..................... 30

CMS, April 2021 Medicaid and CHIP

Enrollment Trends Snapshot,

https://biturl.top/miaemu ...................................... 14

CMS, MDCR Enroll AB 9, Original Medicare

Enrollment: Calendar Years 2014–2019,

https://biturl.top/7BRFBn ..................................... 14

Collins Dictionary of the English Language

(1985 ed.) ................................................................ 30

Economic Problems Facing Hospitals

Serving the Poor and Elderly: Hearing

Before the Subcomm. on Health of the

S. Comm. on Fin., S. Hrg. 99-342 (1985)

(opening statement of Sen. Durenberger)............... 9

Funk & Wagnalls Standard Desk Dictionary

(1983 ed.) ................................................................ 30

H.R. Rep. No. 89-213 (1965) ..................................... 33

H.R. Rep. No. 98-25 (1983),

reprinted in 1983 U.S.C.C.A.N. 219 ........................ 7

H.R. Rep. No. 99-241, Pt. 1 (1985),

reprinted in 1986 U.S.C.C.A.N. 579 .................. 8, 25

H.R. Rep. No. 99-453 (1985) ..................................... 45

HCFA Ruling 97-2 (Feb. 27, 1997),

https://go.usa.gov/xsn8W ................................. 13, 38

Kalman Rupp & Gerald F. Riley,

State Medicaid Eligibility and

Enrollment Policies and Rates of

Medicaid Participation Among Disabled

Supplemental Security Income Recipients,

76 Soc. Sec. Bull. 3 (2016)...................................... 14

Pl.’s Opp. to Def.’s Mot. to Clarify,

Empire Health Found. v. Becerra,

No. 16-00209-RMP

(E.D. Wash. Oct. 12, 2021), ECF No. 87 ............... 16

Pls.’ Opp. to Def’s. Cross-Motion for S.J.,

Catholic Health Initiatives Iowa, Corp. v.

Sebelius, 841 F. Supp. 2d 270 (D.D.C. 2012)

(No. 10-0411), 2010 WL 11685305 ........................ 33

S. Rep. No. 89-404 (1965),

reprinted in 1965 U.S.C.C.A.N. 1943 .................... 33

S. Rep. No. 98-23 (1983),

reprinted in 1983 U.S.C.C.A.N. 143 ........................ 7

SSA, Monthly Statistical Snapshot,

August 2021, https://biturl.top/VJRbe2 ................ 14

U.S. Census Bureau, 2020 Census:

U.S. Population as of April 1, 2020,

https://biturl.top/EFFJVj ....................................... 14

Webster’s Third New International

Dictionary (1981) ................................................... 30

INTRODUCTION

Indigent patients tend to be sicker and need more

medical care for many reasons, including lack of access

to primary care. Hospitals provide a vital safety net

for those patients by treating them regardless of

ability to pay. Hospitals that serve more indigent

patients therefore bear a bigger financial burden.

Congress thus instructed the Department of

Health and Human Services to make additional

payments to hospitals that serve a disproportionate

share of indigent patients. HHS repeatedly refused to

implement Congress’s commands. So Congress

intervened, amending the Medicare statute in 1986 to

cabin HHS’s discretion by ordering HHS to adjust

payments based on two complementary measures of

indigency that, when combined, estimate how much

indigent care a hospital provides: the Medicare and

the Medicaid fractions.

The Medicare fraction’s measure of indigency is

stricter than the Medicaid fraction’s. The Medicare

fraction measures indigency within the Medicare

population by asking whether Medicare-entitled

patients are also “entitled” to supplemental-securityincome (“SSI”) benefits. 42 U.S.C. § 1395ww(d)(5)

(F)(vi)(I). The Medicaid fraction measures indigency

among a hospital’s non-Medicare population by asking

whether patients are “eligible” for Medicaid. Because

the Medicare fraction requires “entitlement” to SSI—

rather than mere “eligibility”—many indigent

patients do not meet that standard. In fact, some

common categories of SSI-eligible patients do not have

a right to receive SSI benefits while hospitalized and

are therefore not considered “entitled to” SSI under

the Medicare fraction.

To ensure that hospitals nonetheless receive

appropriate reimbursement for indigent care,

Congress narrowly defined the universe of patients

encompassed by the Medicare fraction and thereby

subject to the stricter SSI “entitlement” standard. The

Medicare fraction does not encompass patients who

were merely “eligible” for Medicare. Instead, Congress

included only patients “entitled to” Medicare Part A

benefits (i.e., inpatient hospital benefits) on the

specific days of their inpatient stay. Patients who were

not “entitled” to Part A benefits because, for example,

they had exhausted the number of inpatient days for

which Medicare would pay, would be included in the

Medicaid fraction’s broader definition of indigency.

HHS’s behavior has been at cross-purposes with

the statute’s core purpose from the outset. HHS first

refused to implement the statute at all. Then HHS

attempted to constrict the Medicaid fraction’s

measure of indigency (Medicaid “eligibility”),

asserting that only patients for whom Medicaid

actually made payment were “eligible.” Since many

state Medicaid programs limit the number of hospital

days for which Medicaid will pay, patients who had

exhausted their right to Medicaid payment were not

considered Medicaid-“eligible” under HHS’s standard

and thus fell outside of the Medicaid fraction.

The courts saw through HHS’s effort. Four

circuits held that HHS’s rule improperly equated

“eligible,” which means capable of receiving, with

“entitled,” which means an actual right to receive, and

excluded clearly indigent patients, contrary to

congressional intent. HHS then threw in the towel and

recognized that patients are Medicaid-“eligible” if they

were qualified for Medicaid on the day at issue,

regardless of whether Medicaid actually paid for that

care.

Having failed to reduce payments by treating

Medicaid eligibility as if it meant entitlement to

payment, HHS turned its attention to Medicare

entitlement—and decided to treat it as if it meant mere

eligibility. Through flawed rulemaking—where HHS

didn’t justify its actions under the statute’s purpose,

mischaracterized its current policy and its proposal,

and provided no economic analysis of the rule’s

impact—HHS abandoned a policy it had held for

decades. HHS simply changed its mind, “decid[ing]”

that now even patients with no right to Medicare

payment would be considered “entitled” to Medicare

benefits.

By expanding the universe of patients deemed

“entitled to benefits under [Medicare] Part A,” HHS

shrank the Medicaid fraction: the more patients

“entitled to benefits under [Medicare] Part A,” the

fewer “not entitled to” Medicare—and thus the more

patients excluded from the Medicaid fraction, even if

they were “eligible for” Medicaid. At the same time,

HHS retained its narrow interpretation of “entitled to

[SSI]” as requiring actual receipt of SSI payments.

Few of the patients now excluded from the Medicaid

fraction qualify under the Medicare fraction’s stricter

standard of indigency.

The net result was that disproportionate share

hospitals (“DSH”) across the country suddenly saw

both their Medicare and Medicaid fractions decrease

even if they treated the same number of indigent

patients as they did before.

HHS’s approach cannot be reconciled with the

statute’s text. The term “entitled” refers only to those

with a right to certain benefits, not more broadly to

anyone merely qualified (i.e., “eligible”) to seek those

benefits. The basic distinction between entitlement

and eligibility is commonly understood: while every

U.S.-born citizen of a certain age is eligible to be

President, only the individual elected is entitled to

serve.

Conflating different words with different

definitions is not the only problem with HHS’s

position. HHS also interprets two instances of

“entitled” differently in the same sentence. The

Medicare fraction’s numerator includes patients who

are both “entitled to benefits under [Medicare] part A”

and “entitled to [SSI] benefits.” 42 U.S.C.

§ 1395ww(d)(5)(F)(vi). HHS argues that a patient is

“entitled to” Medicare benefits even if the patient had

no right to payment. But HHS interprets “entitled to

[SSI] benefits” as requiring not only the right to

payment, but also receipt of that payment. HHS thus

interprets “entitled” more narrowly for SSI than for

Medicare, even though Congress used the same word

in both contexts.

There is yet another problem. By requiring HHS

to include “patients who (for such days) were entitled

to [Medicare],” 42 U.S.C. § 1395ww(d)(5)(F)(vi)

(emphasis added), the statute contemplates day-today variability: a patient may be entitled to Medicare

Part A benefits for some days of her stay, but not

others. The statute’s recognition of day-to-day

variability in patient entitlement is entirely at odds

with HHS’s position that Part A entitlement must be

generally static throughout a patient’s hospital stay.

HHS offered virtually no justification for adopting

these strained interpretations in the single-paragraph

explanation accompanying its final rule. J.A. 169-73

(69 Fed. Reg. 48,916, 49,098 (Aug. 11, 2004)). HHS did

not claim the statute compelled its interpretation. Nor

did HHS disclose any assessment of its decision’s

financial consequences for hospitals, even though the

statute’s whole point is to provide hospitals additional

compensation. HHS’s silence on this critical issue is

surely no accident: by broadly defining which patients

belong within the Medicare fraction’s denominator,

while narrowly defining which patients are indigent

(i.e., “entitled to [SSI] benefits”) for purposes of the

Medicare fraction’s numerator, HHS’s approach

systematically reduces DSH payments.

This Court should affirm the Ninth Circuit’s

judgment vacating HHS’s rule, for at least three

reasons.

First, the Court should reject HHS’s request for

deference. Far from intending HHS to exercise

discretion, Congress enacted a specific calculation

method because HHS had shown it could not be

trusted to carry out Congress’s commands. Moreover,

HHS failed to comply with proper procedures, justify

its position by reference to the statute’s purpose, or

provide any meaningful analysis of the rule’s financial

impact. There is thus no proper exercise of agency

discretion to defer to. Encino Motorcars, LLC v.

Navarro, 136 S. Ct. 2117, 2125 (2016).

Second, even if HHS had not forfeited any claim

to deference, its rule conflicts with the statute’s plain

text. The DSH provision unambiguously prohibits

HHS from treating patients with no right to Medicare

Part A benefits as being “entitled to” them. That is not

just the best reading of the statute, but the only

reasonable one. HHS’s contrary approach cannot be

squared with the statutory text, structure, or purpose.

Third, HHS’s interpretation is unreasonable

because it systematically reduces payments to DSH

hospitals by imputing the same meaning to two

different words (and two different meanings to the

same word) in the same statutory sentence. HHS’s

attempts to defend its rule rely on post hoc rationales

that this Court should not consider and that fail on

their merits.

STATEMENT

A. Statutory and Regulatory Background

1. At its inception, Medicare Part A reimbursed

hospitals for “reasonable costs” incurred providing

covered services to Medicare beneficiaries. Methodist

Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1227

(D.C. Cir. 1994). That changed in 1983, when

Congress established the Inpatient Prospective

Payment System, under which “hospitals are paid a

fixed amount for each beneficiary treated, regardless

of their actual costs.” Saint Francis Med. Ctr. v. Azar,

894 F.3d 290, 291 (D.C. Cir. 2018).

Medicare payments to hospitals are subject to

adjustments “to account for hospital-specific factors

that may make a provider’s costs higher than

average.” Univ. of Wash. Med. Ctr. v. Sebelius, 634

F.3d 1029, 1030 (9th Cir. 2011). One such adjustment

is the “disproportionate share hospital” (“DSH”)

adjustment for hospitals that serve a “significantly

disproportionate number of low-income patients.” 42

U.S.C. § 1395ww(d)(5)(F)(i)(I). That adjustment is

based on Congress’s recognition that the more lowincome patients a hospital treats, the higher its costs.

Adena Reg’l Med. Ctr. v. Leavitt, 527 F.3d 176, 177-78

(D.C. Cir. 2008). Congress emphasized that “such

patients may be more severely ill than average” and

that the “payment system may not adequately take

into account such factors.” S. Rep. No. 98-23, at 54

(1983), reprinted in 1983 U.S.C.C.A.N. 143, 194; H.R.

Rep. No. 98-25, at 141-42 (1983), reprinted in 1983

U.S.C.C.A.N. 219, 360-61.

Congress first ordered HHS to create a payment

adjustment for “hospitals that serve a significantly

disproportionate number of patients who have low

income or are entitled to benefits under part A” in

1982 and again in 1983. Tax Equity and Fiscal

Responsibility Act of 1982, Pub. L. No. 97-248,

§ 101(a)(1), 96 Stat. 324, 332; Social Security

Amendments of 1983, Pub. L. No. 98-21, § 601(e), 97

Stat. 65, 157. HHS refused, announcing that “[no]

adjustment [was] warranted.” J.A. 39 (49 Fed. Reg.

234, 276 (Jan. 3, 1984)). A court ordered HHS to

implement a DSH adjustment, finding that Congress

had not granted HHS discretion to ignore its mandate.

Redbud Hosp. Dist. v. Heckler, No. C-84-4382-MHP,

1984 WL 2857 (N.D. Cal. July 30, 1984). This Court

stayed the order pending HHS’s appeal. Heckler v.

Redbud Hosp. Dist., 473 U.S. 1308 (1985).

While that litigation was pending, Congress

responded to HHS’s intransigence in the Deficit

Reduction Act of 1984 by commanding HHS to

“develop and publish a definition of ‘hospitals that

serve a significantly disproportionate number of

patients who have low income.’” Pub. L. No. 98-369,

§ 2315(h), 98 Stat. 494, 1080 (1984). HHS again

refused, and a court again ordered HHS to comply.

Samaritan Health Ctr. v. Heckler, 636 F. Supp. 503,

517-19 (D.D.C. 1985). Nonetheless, HHS continued to

insist no DSH adjustment was warranted, forcing the

court “to remind” HHS of its “continuing obligation to

carry out congressional mandates and court orders.”

Samaritan Health Ctr. v. Bowen, 646 F. Supp. 343,

347 (D.D.C. 1986).

Because HHS had repeatedly refused to

implement the DSH provision, Congress was forced to

fill in the blanks itself by establishing specific

statutory

calculations.

Consolidated

Budget

Reconciliation Act of 1985, Pub. L. No. 99-272, § 9105,

100 Stat. 82, 158-60 (1986) (codified at 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)). The House Ways and Means

Committee chastised HHS for its “total lack of

responsiveness” to “implement a disproportionate

share adjustment in any meaningful way,” “[d]espite

several mandates in the law.” H.R. Rep. No. 99-241,

Pt. 1, at 16 (1985), reprinted in 1986 U.S.C.C.A.N. 579,

594. The Committee explained that HHS had “forced

the Committee to go to the considerable length of

mandating a specific adjustment . . . to provide

additional payments to disproportionate share

hospitals.” Id. Members of the Senate expressed

similar frustration with HHS “wast[ing] the better

part of 3 years in formulating the answers they are

much better staffed to research and decide.” Economic

Problems Facing Hospitals Serving the Poor and

Elderly: Hearing Before the Subcomm. on Health of the

S. Comm. on Fin., S. Hrg. 99-342, at 44 (1985)

(opening statement of Sen. Durenberger)).

2. The core of Congress’s mandated DSH

payment formula is the “disproportionate patient

percentage.” 42 U.S.C. § 1395ww(d)(5)(F)(v)-(vi). That

percentage is the “sum of” two fractions: the “Medicare

fraction” and the “Medicaid fraction,” which capture

the percentage of a hospital’s patient days attributable

to two different groups of low-income patients. Id.

§ 1395ww(d)(5)(F)(vi). To qualify for a DSH

adjustment, a hospital must have a disproportionate

patient percentage of at least 15 percent. 42 U.S.C.

§ 1395ww(d)(5)(F)(v). Once qualified, a hospital’s DSH

payment increases consistent with that percentage.

Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 3 (D.C. Cir.

2011).

The Medicare Fraction. The Medicare fraction

focuses on a hospital’s patient days attributable to

patients who, “for such days,” were “entitled to”

Medicare Part A benefits and asks what percentage of

those days were for individuals who were also

“entitled

to”

SSI

benefits.

U.S.C.

§ 1395ww(d)(5)(F)(vi)(I). The fraction is designed to

capture the percentage of a hospital’s Medicare

patient days attributable to indigent patients, with

indigency measured by SSI entitlement. If a patient is

“entitled to benefits under Part A,” those inpatient

days will be included in the Medicare fraction’s

denominator. If that patient is also “entitled to [SSI]

benefits,” those inpatient days will also be included in

the Medicare fraction’s numerator.

The calculation can be depicted as follows:

Patient days for patients

“entitled to” Medicare and

“entitled to” SSI

Medicare Fraction =

Patient days for patients

“entitled to” Medicare

The Medicaid Fraction. The Medicaid fraction

captures the percentage of all patient days

attributable to individuals “eligible for” Medicaid

coverage but not “entitled to” Medicare Part A

benefits. Id. § 1395ww(d)(5)(F)(vi)(II). The Medicaid

fraction thus treats “eligibility for Medicaid as the

indicator of low income.” Legacy Emanuel Hosp. &

Health Ctr. v. Shalala, 97 F.3d 1261, 1266 (9th Cir.

1996). By excluding patients “entitled to” Medicare

Part A benefits, the statute “prevent[s] Medicaideligible patients from being counted” in both fractions.

Id.

The Medicaid fraction’s “numerator” is “the

number of the hospital’s patient days for [a cost

reporting] period which consist of patients who (for

such days) were eligible for medical assistance under

a State [Medicaid] plan,” but “not entitled to benefits

under

[Medicare]

Part

A.”

U.S.C.

§ 1395ww(d)(5)(F)(vi)(II) (emphasis added). Its

“denominator” is “the total number of the hospital’s

patient days for such period.” Id.

The calculation can be depicted as follows:

Patient days for patients

“eligible for” Medicaid but not

“entitled to” Medicare

Medicaid Fraction =

Total number of patient days

Congress used two different words, “entitled” and

“eligible,” to define the patients included in the

Medicare and Medicaid fractions. To be included in the

Medicare fraction’s numerator, patients must be

“entitled to” Medicare and SSI benefits. To be included

in the Medicaid fraction’s numerator, patients must be

“eligible for” Medicaid but not “entitled to” Medicare.

The difference between “entitled to” and “eligible for”

has significant real-world consequences. Whether a

patient is “entitled to” Medicare Part A benefits,

“entitled to” SSI benefits, or “eligible for” Medicaid

benefits determines how many indigent patients the

DSH calculation captures.

3. Over the years, both Congress and the courts

have denounced HHS’s “hostility” to the DSH

adjustment Congress mandated. Jewish Hosp., Inc. v.

Sec’y of Health & Human Servs., 19 F.3d 270, 276 (6th

Cir. 1994); Alhambra Hosp. v. Thompson, 259 F.3d

1071, 1076 n.4 (9th Cir. 2001); Portland Adventist

Med. Ctr. v. Thompson, 399 F.3d 1091, 1099 (9th Cir.

2005).

HHS’s miserly approach, driven by an “apparent

policy of paying out as little money as possible,” Ne.

Hosp., 657 F.3d at 20 n.1 (Kavanaugh, J., concurring),

has led HHS to adopt varying interpretations of what

it means to be “entitled to” Medicare Part A, “entitled

to” SSI, and “eligible for” Medicaid. Although HHS’s

interpretations have changed (and are internally

inconsistent), they have consistently decreased the

overall DSH adjustments paid to hospitals by

undercounting the indigent patients served.

HHS initially undercounted indigent patients by

interpreting “eligible for [Medicaid]” narrowly,

thereby reducing the Medicaid fraction’s numerator.

When HHS first implemented the DSH adjustment, it

interpreted “eligible for [Medicaid]” as referring only

to patients with an absolute right to have Medicaid

pay for their services. 51 Fed. Reg. 31,454, 31,460-61

(Sept. 3, 1986). Under that approach, patients who

were eligible for Medicaid but had, for example,

exhausted their benefits, were excluded from the

Medicaid fraction’s numerator. That reduced both the

number of hospitals qualifying for DSH and their

payments.

Every appellate court to consider HHS’s

interpretation rejected it. Legacy Emanuel, 97 F.3d at

1266; Cabell Huntington Hosp., Inc. v. Shalala, 101

F.3d 984, 987-88 (4th Cir. 1996); Deaconess Health

Servs. Corp. v. Shalala, 83 F.3d 1041 (8th Cir. 1996)

(per curiam); Jewish Hosp., 19 F.3d at 275. The courts

contrasted Congress’s use of “entitled” in the Medicare

context with “eligible” in the Medicaid context and

held that HHS could not treat different words in the

same statutory provision as if they were the same. To

the contrary, “the use of the broader word ‘eligible’

indicates a meaning different from ‘entitlement,’

which means ‘the absolute right to . . . payment.’”

Legacy Emanuel, 97 F.3d at 1265 (quoting Jewish

Hosp., 19 F.3d at 275). Following these decisions, HHS

revised its interpretation of “eligible for” in the

Medicaid fraction to match that language’s plain

meaning—namely, that all patients who meet

Medicaid’s eligibility criteria are “eligible for”

Medicaid, whether or not they have an absolute right

to payment. HCFA Ruling 97-2 (Feb. 27, 1997),

https://go.usa.gov/xsn8W.

B. The 2005 Rule

1. Having lost its bid to dilute the Medicaid

fraction, HHS tried another way to reduce DSH

payments. This time, in the “2005 rule” at issue, HHS

turned its attention to the meaning of “entitled to

benefits under part A” in the Medicare fraction.

Previously, HHS had interpreted that language to

denote an absolute right to payment, meaning the

individual not only was eligible for Part A benefits but

had a right to receive them for the inpatient days at

issue. Beginning in 2005, however, HHS tried to

reduce DSH adjustments by interpreting “entitled” as

functionally identical to “eligible” for purposes of the

Medicare fraction. J.A. 169-73 (69 Fed. Reg. at

49,098). That is, HHS adopted the same definition of

“entitled to [Medicare Part A]” benefits as it did for

“eligible for [Medicaid]” in the same statutory

provision: counting patients even if they have no right

to receive benefits on the days they receive inpatient

services.

That approach dilutes the Medicaid fraction by

expanding the population of patients who are excluded

from it as “entitled to” benefits under Medicare Part

A. Although patients excluded from the Medicaid

fraction may instead be included in the Medicare

fraction’s numerator, they often are not. That is

because to count in the Medicare fraction’s numerator,

a patient must also be “entitled to” SSI benefits. And

as Congress understood when it adopted the stricter

requirement of SSI entitlement, a patient is much

more likely to be “eligible for” Medicaid than “entitled

to” SSI. Only 2.3 million SSI recipients are 65 years or

older—just 6 percent of the Medicare Part A

population. SSA, Monthly Statistical Snapshot,

August 2021, https://biturl.top/VJRbe2; CMS, Original

Medicare Enrollment: Calendar Years 2014-2019,

https://biturl.top/7BRFBn. In contrast, 75 million

Americans—22 percent

the

entire

U.S.

population—are enrolled in Medicaid. CMS, April

2021 Medicaid and CHIP Enrollment Trends

Snapshot, https://biturl.top/miaemu; U.S. Census

Bureau, 2020 Census: U.S. Population as of April 1,

2020, https://biturl.top/EFFJVj.

There are several reasons why many more

patients are eligible for Medicaid than entitled to SSI.

First, in most states, any individual enrolled in

SSI is categorically “eligible for” Medicaid. Kalman

Rupp & Gerald F. Riley, State Medicaid Eligibility

and Enrollment Policies and Rates of Medicaid

Participation Among Disabled Supplemental Security

Income Recipients, 76 Soc. Sec. Bull. 3, 18 (2016). No

reciprocal rule grants automatic SSI entitlement to

Medicaid-eligible individuals.

Second, Medicaid’s financial benefits far outstrip

SSI’s. Because of the high cost of medical services

(particularly inpatient services), the incentive to

enroll in Medicaid is powerful. In contrast, SSI

benefits consist primarily of a modest monthly stipend

offset by the patient’s income. 42 U.S.C. § 1382(b).

Third, because SSI entitlement requires the right

to be paid benefits, two common categories of patients

are excluded from the Medicare fraction’s numerator.

Specifically, patients who were nursing-home

residents in the month preceding their hospital

admission and patients who have long-term hospital

stays are not entitled to receive SSI benefits if

Medicaid pays for their care and they earn more than

$30 a month. Id. § 1382(e)(1)(B); 20 C.F.R. § 416.414;

J.A. 176-83 (75 Fed. Reg. 50,042, 50,281 (Aug. 16,

2010)). This rule excludes many Medicaid-eligible

patients from the SSI numerator simply by virtue of

their Medicaid eligibility.

Fourth, HHS construes “entitled to [SSI]” as

requiring not just the right to SSI payments, but

actual receipt of those payments. (That is, of course, a

vastly different definition of “entitled” than HHS

adopted for Medicare Part A benefits in the same

fraction.) HHS therefore excludes patients who qualify

for SSI benefits if they did not receive their benefits

for reasons unrelated to indigency or their right to

payment, such as patients whose SSI checks are

returned as undeliverable, whose SSI benefits were

used to offset outstanding debts, or who refuse direct

deposit. J.A. 176-83 (75 Fed. Reg. at 50,280-81).

Because a patient is far less likely to be counted

as indigent in the Medicare fraction than the Medicaid

fraction, HHS’s rule decreases the Medicaid fraction’s

numerator far more than it increases the Medicare

fraction’s numerator. And even if HHS’s rule adds a

few SSI patient days to the Medicare fraction’s

numerator, the net result is almost always a decrease

to the Medicare fraction overall. That is because

HHS’s rule tends to add far more patients to the

Medicare fraction’s denominator as “entitled to

[Medicare] part A benefits” than it adds to the

numerator, which is limited to patients who are

“entitled to” both Medicare and SSI benefits.

In short, HHS’s rule necessarily reduces hospitals’

Medicaid fractions and nearly always reduces their

Medicare fractions too. (That is what happened here,

where respondent’s Medicare and Medicaid fractions

both decreased. Pl.’s Opp. to Def.’s Mot. to Clarify,

Empire Health Found. v. Becerra, No. 16-00209-RMP

(E.D. Wash. Oct. 12, 2021), ECF No. 87). That

systematic exclusion of indigent patients from both

fractions reduces DSH payments to hospitals, despite

Congress’s desire to increase them.

2. Given the tension between the 2005 rule’s

effect and the statute’s purpose, it is perhaps no

accident that the rule resulted from flawed

rulemaking proceedings. In those proceedings, HHS

repeatedly and mistakenly claimed that its thencurrent policy was to include patients who had

exhausted their Part A benefits in the Medicare

fraction and announced that it proposed to exclude

those patients from the Medicare fraction going

forward. J.A. 45-50 (68 Fed. Reg. 27,154, 27,207-08

(May 19, 2003)).

HHS claimed its proposed change would

“facilitate consistent handling of these days across all

hospitals.” J.A. 47. But HHS did not explain how.

While HHS acknowledged that it was “decid[ing]”

between policies, it did not evaluate the economic

impact of its proposed change or any alternatives.

Instead, citing “the administrative difficulty [of]

separately identifying these days,” it claimed it did

“not have data available to allow us to quantify the

impact of this proposed change precisely.” J.A. 52-53

(68 Fed. Reg. at 27,416).

HHS misstated both its then-current policy and

its proposed change. Before 2005, HHS’s codified

policy was that “only covered patient days”—meaning

days for which Medicare Part A made payment—“are

included in the Medicare fraction.” J.A. 170 (69 Fed.

Reg. at 49,098); 42 C.F.R. § 412.106(b)(2)(i) (2003). Its

proposal to “begin” excluding patients who had

exhausted their Part A benefits from the Medicare

fraction was actually a proposal to maintain its

existing policy.

Nearly all commenters took HHS’s misstatement

at face value. Only two detected HHS’s mistake.

J.A. 61-63, 83-85. One of those commenters urged

HHS to correct its misstatement or risk

“squander[ing] its credibility with the courts.” J.A. 63.

Nevertheless, when HHS issued information about its

rulemaking on two subsequent occasions, it did not

correct its misstatement. J.A. 86 (68 Fed. Reg. 45,346,

45,421 (Aug. 1, 2003)); J.A. 87-88 (69 Fed. Reg. 28,196,

28,286 (May 18, 2004)). Instead, HHS waited until

July 7, 2004—over a year after being notified of its

error and less than a week before the close of the final

comment period—to post a website notice admitting

that its policy was the opposite of what it had said.

J.A. 93-94.

Not surprisingly, even after HHS’s website

posting, the vast majority of comments still labored

under the false premise that current DSH payments

included exhausted days in the Medicare fraction.

J.A. 55, 68, 71, 77, 90-91, 98-99, 102-03, 106-07, 10910, 113, 121-22, 125, 128-29, 132, 134, 137-38, 141-42,

145, 148, 159-60; Excerpts of Record (“C.A. E.R.”) 92,

106. It was not until the final rule’s publication that

HHS acknowledged for the first time in the Federal

J.A. 169-70 (69 Fed. Reg. at 49,098). HHS admitted

that its “policy has been that only covered patient days

are included in the Medicare fraction.” Id.

HHS acknowledged that “numerous” commenters

“were disturbed and confused” and had asked for the

“opportunity for providers to comment.” Id.

Nonetheless, HHS did not extend the time for

comments. J.A. 153-56, 113-19; J.A. 171 (69 Fed. Reg.

at 49,098). Instead, HHS issued a final rule that was

the opposite of what it had proposed and that reversed

its decades-old rule. J.A. 171 (69 Fed. Reg. at 49,098).

To add insult to injury, HHS cited comments based on

the false factual premise caused by its misstatement

as its only reason for adopting the opposite of its

original proposal. Id.

In the final rule, HHS changed the regulatory

definition of the statutory phrase “entitled to benefits

under [Medicare]” from having the right to payment

under Part A to merely meeting the statutory criteria

to qualify as a Part A beneficiary, regardless of

whether the patient has a right to payment. Under

that rule, patients who were not entitled to Part A

payments for the days at issue—because, for example,

they had exhausted their Part A benefits or had

another insurer primary to Medicare—were

categorically excluded from the Medicaid fraction’s

numerator and only potentially included in the

Medicare fraction’s numerator. HHS did not, however,

relax its interpretation of “entitled to [SSI] benefits.”

Instead, HHS still maintains that only patients who

actually receive SSI benefits are “entitled to [SSI]

benefits.”

C. The Proceedings Below

As part of the DSH reimbursement process, the

Medicare contractor auditing Valley Hospital Medical

Center’s cost report applied the amended policy from

HHS’s 2005 final rule to the hospital’s cost reporting

period for the 2008 fiscal year. ECF No. 34 at 14-15.

After the Provider Reimbursement Review Board

granted the hospital’s request for expedited judicial

review, ECF No. 11-2, the district court vacated the

2005 rule because HHS’s rulemaking process was

procedurally unreasonable. Empire Health Found. for

Valley Hosp. Med. Ctr. v. Price, 334 F. Supp. 3d 1134,

1161-62 (E.D. Wash. 2018). The court concluded that

HHS’s numerous procedural failures deprived the

public of appropriate notice and HHS of useful

comments. Id.

While acknowledging that HHS’s notice-andcomment process was “certainly not perfect,” the

Ninth Circuit found it sufficient under the

Administrative Procedure Act. App.14a. The Circuit

nevertheless upheld vacatur of the 2005 rule because

it “violated the unambiguous text of 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)” and the Ninth Circuit’s earlier

“ruling in Legacy Emanuel.” App.22a. Because Legacy

Emanuel held that “eligible” could not mean

“entitled,” the Court held, HHS could not treat

“entitled” as meaning “eligible” in the same statutory

provision. App.18a-21a.

In so doing, the Ninth Circuit declined to follow

two previous decisions upholding the rule. In Catholic

Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d

914, 920 (D.C. Cir. 2013), the D.C. Circuit had found

the statute ambiguous and deferred to HHS’s

interpretation, although it acknowledged that the

contrary interpretation of “entitled” was also

“permissible.” But it assumed deference was

obligatory and did not consider the underlying

procedural flaws, the conflict between the rule and the

statutory purpose, or HHS’s long history of refusing to

follow Congress’s directions. The court also did not

discuss how to square HHS’s internally inconsistent

readings of “eligible” and “entitled” or how to reconcile

the language “for such days” with HHS’s theory of

static entitlement. The split decision in Metropolitan

Hospital v. HHS, 712 F.3d 248 (6th Cir. 2013), had

also concluded that HHS’s rule reflected a permissible

construction of the DSH provision, although it found

HHS’s position was not compelled by the statute. But

that court did not realize that HHS excludes from SSI

entitlement even patients who qualify and apply for

SSI benefits if they do not receive their payments. See

id. at 269. Nor did the court consider (or seem to know

about) the flaws in HHS’s rulemaking process. See id.

at 268.

SUMMARY OF ARGUMENT

Congress enacted the DSH adjustment because it

recognized that hospitals with an unusually high

percentage of low-income patients generally have

higher per-patient costs and therefore deserve

increased payment. Courts and Congress have

repeatedly called HHS on the carpet for subverting

Congress’s purpose and ignoring Congress’s clear

instructions. This case is simply more of the same. The

Court should set aside the 2005 rule.

1. The only consistency to HHS’s fundamentally

inconsistent approaches has been its intransigence in

the face of Congress’s clear directions. Although

HHS’s brief omits that problematic history, that

intransigence is well-documented, with both Congress

and the courts repeatedly directing HHS to provide a

DSH adjustment consistent with the statutory

commands and HHS repeatedly refusing. The reason

the original DSH adjustment mandated by Congress

did “not come to fruition,” as HHS delicately puts it,

HHS Br. 5, was that HHS took an axe to its roots.

HHS does not claim the statutory interpretation

it decided to adopt is the only permissible one. Instead,

HHS’s brief argues that the issue here is complicated

and the Court should just trust it. But no deference is

warranted when Congress did not intend it or when

an agency has a history of deviating from statutory

requirements or has violated the procedural

requirements of reasoned decisionmaking. HHS’s

recalcitrance forced Congress to specify detailed

calculations in the statute precisely because Congress

could not rely on HHS’s discretion. It is for good reason

that HHS’s brief does not claim HHS was exercising

any particular expertise in adopting this rule: HHS

cast aside its previous interpretation in a single

paragraph that offered literally no analysis of the

impact the change would have on payments to

hospitals. Rather than defer to HHS under these

unusual circumstances, the Court should interpret the

statute with no bias in favor of either side and

determine the statute’s best meaning in light of its

text, structure, and purpose.

2. Whether the Court’s task is to give the statute

its best meaning or its unambiguous meaning is

ultimately beside the point, because HHS’s position

conflicts with the plain statutory text. This case

involves applying the principles that the same words

in a single statutory provision mean the same thing—

and different words different things. HHS’s rule

accomplishes the remarkable feat of violating both

principles by ignoring the plain-meaning distinction

between “eligible” and “entitled.”

HHS contends that entitlement to SSI benefits

requires actual receipt of payment, but entitlement to

Medicare benefits does not even require the right to

receive payment. Instead, according to HHS,

satisfying Medicare’s statutory eligibility criteria

makes a patient “entitled to benefits under part A”

even if Part A will not pay a dime for the inpatient

days at issue because, for example, the patient has

exhausted her Part A inpatient benefit. The proof that

HHS has misinterpreted “entitled” to mean “eligible”

is that it applies the same interpretation to the

statutory phrase “eligible for [Medicaid],” thus

including patients who meet statutory requirements

regardless of whether they have a right to payment.

Moreover, HHS’s interpretation renders the day-byday analysis required by the statutory phrase “for

such days” meaningless in all but the rarest of cases.

3. Even if the statute were ambiguous, HHS’s

interpretation is unreasonable. It assigns different

statutory words the same meaning and the same

statutory word different meanings, all in a single

provision. It renders the statutory phrase “for such

days” superfluous; ignores other statutory provisions

equating entitlement to a right to payment; reverses

HHS’s decades-long policy treating “entitled to

benefits under part A” as requiring Medicare

payment; and was adopted without reasoned

explanation, any real analysis of its economic impact,

or the benefit of meaningful public comments.

ARGUMENT

The 2005 Rule Is Not a Legitimate Exercise

of Agency Expertise That Could Trigger

Deference.

HHS does not contend that the statute compels its

interpretation. Instead, HHS’s defense of the 2005

rule relies on a full-throated plea for deference. But

agencies receive deference only when they exercise

their expertise to resolve questions Congress assigned

them discretion to answer. That is not what happened

here.

1. Although courts often defer to an agency’s

interpretation of a statutory provision, deference is

neither automatic nor absolute. United States v. Mead

Corp., 533 U.S. 218, 236-37 (2001); see Kisor v. Wilkie,

139 S. Ct. 2400, 2416 (2019) (citing Mead). When

interpreting a statute, courts must “make an

independent inquiry into whether the character and

context of the agency interpretation entitles it to

controlling weight.” Kisor, 139 S. Ct. at 2416. That

context-specific inquiry depends on the statute’s

purposes and “the degree of the agency’s care, its

consistency, formality, and relative expertness, and

[on] the persuasiveness of the agency’s position.”

Mead, 533 U.S. at 228; see City of Arlington v. FCC,

569 U.S. 290, 309-10 (2013) (Breyer, J., concurring).

In this case, the “essential premises” for deference

are “simply missing” because the DSH provision

reflects no “‘implicit’ delegation to [the] agency to

interpret” it. Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612,

1629 (2018). As explained above, Congress repeatedly

amended the DSH provision in response to HHS’s

recurring attempts to sabotage it. Each time, Congress

specified more and more precisely what HHS had to

do, and each time it allowed the agency less and less

discretion in carrying out its mandates. The current

Medicare and Medicaid fractions were designed to

displace HHS’s discretion, not enable it. That history

renders unreasonable any assumption that Congress

wanted “the agency to fill in the statutory gaps.” FDA

v. Brown & Williamson Tobacco Corp., 529 U.S. 120,

159 (2000). As a result, this Court must exercise its

own “independent interpretive judgment,” with no

thumb on the scale in HHS’s favor. Epic Sys., 138 S.

Ct. at 1629.

The need for independent interpretive judgment

is particularly important where, as here, the statute

establishes an entitlements regime conferring

government benefits on a carefully defined set of

beneficiaries. While Congress may grant an agency

discretion to administer such a statutory regime, see

Gundy v. United States, 139 S. Ct. 2116 (2019), the

initial status determination—that is, which subset of

citizens may receive benefits in the first place—entails

a quintessential legislative judgment that agencies

must respect, lest they rewrite the law by creating

different status distinctions than Congress did.

Cf. Kisor, 139 S. Ct. at 2421-22 (deference to agencies

does not violate separation of powers as long as agency

“execute[s] a statutory plan” and “courts retain a firm

grip on the interpretive function”); Int’l Harvester Co.

v. Missouri, 234 U.S. 199, 215 (1914) (“determin[ing]

upon what differences a distinction may be made for

the purpose of statutory classification” is “a matter for

legislative judgment”).

Congress exercised its legislative judgment in the

DSH provision by setting forth the precise equation for

determining which hospitals should receive DSH

payments and how much they should be paid.

Congress explicitly did so because HHS’s “total lack of

responsiveness” to earlier commands had forced

legislators “to go to the considerable length of

mandating a specific adjustment . . . to provide

additional payments to disproportionate share

hospitals.” H.R. Rep. No. 99-241, Pt. 1, at 16. The

purpose of that “specific” DSH provision was to

“require” HHS to do what it had “fail[ed]” to:

“implement a disproportionate share adjustment in a[]

meaningful way.” Id.

Congress thus intended HHS to apply the DSH

calculation that Congress set forth in the Medicare

statute, not to “interpret” its way around it. It is

unreasonable to assume that Congress would have

expected or intended courts to defer to HHS’s

interpretation. See Cabell Huntington, 101 F.3d at 990

(“We cannot . . . allow an agency, hostile from the start

to the very idea of making the [DSH] payments at

issue, to rewrite the will of Congress.”); accord Jewish

Hosp., 129 F.3d at 275-76. The only reasonable

conclusion is that Congress wanted courts to “exercise

independent interpretive judgment,” Epic Sys., 138 S.

Ct. at 1629, to ensure HHS would finally follow the

statute as written.

2. HHS’s rulemaking process here proves

Congress was right to doubt HHS’s ability to follow its

instructions. That process, which played out like a

parody of inept bureaucracy, further confirms the

2005 rule was not a legitimate exercise of agency

expertise to which courts should defer.

Although this Court denied respondent’s

conditional cross-petition challenging the 2005 rule’s

procedural reasonableness, those procedural flaws

also undercut the deference that otherwise might be

due when assessing the rule’s substantive

reasonableness. This Court need not and should not

defer to an agency when the regulation setting forth

its interpretation “is ‘procedurally defective’—that is,

where the agency errs by failing to follow the correct

procedures in issuing the regulation.” Encino

Motorcars, 136 S. Ct. at 2125 (quoting Mead, 533 U.S.

at 227).

HHS’s process started unraveling on day one,

when it misstated both its current and its proposed

policies. Despite knowing about that misstatement,

HHS took no steps to correct it until days before the

comment period closed, and it did so only in the agency

equivalent of a blog post. Then it cited comments

supporting the policy it claimed it was considering as

support for the diametrically opposed policy it was

actually considering. Cf. Caring Hearts Pers. Home

Servs., Inc. v. Burwell, 824 F.3d 968, 976 (10th Cir.

2016) (Gorsuch, J.) (“This case has taken us to a

strange world where the government itself—the very

‘expert’ agency responsible for promulgating the ‘law’

no less—seems unable to keep pace with its own

frenetic lawmaking.”).

That is “notice and comment” in name only. HHS’s

process deprived “affected parties [of] fair warning of

potential changes in the law” and “an opportunity to

be heard on those [potential] changes,” and robbed

HHS of “a chance to avoid errors and make a more

informed decision.” Azar v. Allina Health Servs., 139

S. Ct. 1804, 1816 (2019) (citing 1 K. Hickman & R.

Pierce, Administrative Law § 4.8 (6th ed. 2019)). In

the context of the DSH program, “where even minor

changes to the agency’s approach can impact millions

of people and billions of dollars in ways that are not

always easy for regulators to anticipate,” those harms

are especially severe. Id.

HHS exacerbated the arbitrariness by barely

bothering to defend its chosen policy on the merits. It

did not engage with the history of the DSH provision.

It did not claim its policy reflected the best reading of

the provision’s text (to the contrary, it acknowledged

its interpretation was at best one of a range of

plausible ones). It did not contend its policy served the

DSH provision’s purposes better than other

alternatives. And perhaps most remarkably, it

provided no economic analysis of how its reading of the

provision—the whole point of which, HHS concedes, is

to increase compensation for disproportionate-share

hospitals—would affect that compensation. Far from

employing any expertise in assessing the impact its

rule would have on safety-net hospitals and the

indigent patients they serve, HHS punted, claiming

that such an analysis was too “difficult[].” J.A. 52 (68

Fed. Reg. at 27,416). This lack of explanation is

particularly unjustifiable given that the 2005 rule

represents a complete about-face from HHS’s pre-2005

policy of excluding from the Medicare fraction patients

who were not entitled to part A payment. Encino

Motorcars, 136 S. Ct. at 2126 (holding an agency must

provide “good reasons” for “changing position”

(cleaned up)).

HHS’s fundamentally flawed rulemaking process

sends a clear message: it has not taken its obligations

under the DSH provision seriously, and it does not

care about the hospitals Congress ordered it to

compensate. That was true when Congress first

created the DSH program, and it remains true today.

By abdicating its responsibility to carry out Congress’s

directives, HHS has relinquished any claim to

deference.

II. The Statutory Text Precludes the 2005 Rule.

Even when an agency properly exercises its

expertise to interpret a statute, a reviewing court’s

first task is to independently use “traditional tools of

construction” to decide what the statute means. SAS

Inst., Inc. v. Iancu, 138 S. Ct. 1348, 1358 (2018). Only

if the court “find[s] [itself] unable to discern Congress’s

meaning” will it defer to the agency’s reading. Id.

Here, the “traditional tools of construction” leave

“no uncertainty that could warrant deference.” Id.

Under all the relevant canons of interpretation, the

DSH provision unambiguously prohibits HHS from

treating patients with no right to Medicare Part A

benefits as being “entitled to” those benefits. Ne.

Hosp., 657 F.3d at 19-20 (Kavanaugh, J., concurring).

A. HHS’s Interpretation Defies Statutory

Text, Context, and Purpose.

1. When Congress uses different words in the

same provision, those words should carry different

meanings. Sosa v. Alvarez-Machain, 542 U.S. 692, 711

n.9 (2004). The corollary is that when Congress uses

the same “term in multiple places within a single

statute, the term bears a consistent meaning

throughout.” Allina, 139 S. Ct. at 1812. And all

statutory terms, same or different, should be

“interpreted in accordance with their ordinary

meaning.” BP Am. Prod. Co. v. Burton, 549 U.S. 84, 91

(2006). The 2005 rule’s interpretation of “entitled to

[Medicare]” manages to violate each of these

principles.

First, HHS gives the phrase “entitled to benefits

under [Medicare] part A” the same effective meaning

as the quite different phrase “eligible for [Medicaid].”

HHS interprets “entitled to benefits under [Medicare]

part A” to encompass all patients who satisfy the

baseline statutory criteria for Medicare benefits, even

if they have no right to actually receive those benefits

for the hospital stay at issue. But that is also how HHS

interprets “eligible for [Medicaid]”—as requiring only

satisfaction of Medicaid’s eligibility requirements. So,

under HHS’s reading, the different words “entitled”

and “eligible” carry the same meaning: satisfying the

statutory eligibility criteria is sufficient, regardless of

whether a patient has a right to be paid those benefits.

Second, HHS interprets the word “entitled”

differently twice in a single sentence. The Medicare

fraction’s numerator covers patients who are “entitled

to benefits under part A” and “entitled to [SSI].” 42

U.S.C. § 1395ww(d)(5)(F)(vi)(I). HHS interprets

“entitled to benefits under part A” to include patients

“regardless of whether Medicare makes payment,” but

“entitled to [SSI]” to exclude patients without an

absolute right to payment (indeed, to exclude patients

who have a right to payment but do not receive it).

HHS cannot justify that disparity.

Third, HHS’s interpretation of “entitled” departs

from the word’s “common meaning[].” Cabell

Huntington, 101 F.3d at 988. The ordinary meaning of

“entitlement” is an “absolute right to . . . payment.”

Jewish Hosp., 19 F.3d at 275; Legacy Emanuel, 97

F.3d at 1265; Ne. Hosp., 657 F.3d at 20 (Kavanaugh,

J., concurring); see Collins Dictionary of the English

Language 488 (1985 ed.) (defining “entitle” as “to give

(a person) the right to do or have something”); Funk &

Wagnalls Standard Desk Dictionary 212 (1983 ed.)

(defining “entitle” as “[t]o give (a person or thing) the

right to receive . . . something”); Webster’s Third New

International Dictionary 758 (1981) (defining “entitle”

as “to give a right or legal title to” and “entitlement”

as “the right to benefits”); Black’s Law Dictionary 477

(6th ed. 1979) (defining “entitlement” as “[r]ight to

benefits, income or property which may not be

abridged without due process”).

Before the 2005 rule, HHS followed that ordinary

meaning by holding that only patients who had a right

to payment under Medicare Part A were “entitled to

benefits under [Medicare] part A.” J.A. 169-73 (69 Fed.

Reg. at 49,098). Indeed, when HHS tried to impose a

right to payment within the Medicaid fraction, HHS

used the word “entitled.” 42 C.F.R. § 412.106(a)(1)(ii)

(1994).

But now, HHS interprets “entitled to [Medicare]”

contrary to its ordinary meaning, as requiring far less

than an “absolute right to . . . payment.” Jewish Hosp.,

19 F.3d at 275. Instead, the rule provides that patients

are “entitled to benefits under [Medicare] part A” if

they merely satisfy Medicare’s eligibility criteria, even

if they have no right to payment. But it is obvious from

common usage that a person can satisfy the eligibility

criteria for a benefit without being “entitled to”—that

is, having an absolute right to receive—it. Cabell

Huntington, 101 F.3d at 988; Jewish Hosp., 19 F.3d at

275; Legacy Emanuel, 97 F.3d at 1265. Not every U.S.born 35-year-old is “entitled” to be President of the

United States. Not every batter is “entitled” to hit a

home run. And not everyone who buys a lottery ticket

is “entitled” to a jackpot.

Fourth, HHS’s position is at odds with the plain

meaning of the statutory phrase “for such days.” The

Medicare fraction’s numerator and denominator both

include the “patient days . . . which were made up of

patients who (for such days) were entitled to

[Medicare].” 42 U.S.C. § 1395ww(d)(5)(F)(vi) (emphasis

added). The phrase “for such days” makes clear that a

patient’s entitlement to Medicare can change on a dayto-day basis. Ne. Hosp., 657 F.3d at 19 (Kavanaugh, J.,

concurring). HHS’s contrary interpretation treats

entitlement to Medicare as a permanent, largely

unchanging status. But if “Medicare beneficiaries are

always ‘entitled to benefits under [Medicare] part A,’”

as HHS has claimed, J.A. 221 (emphasis added), a

patient will be “entitled to [Medicare]” either for every

day of her hospital stay or for none of them, making

the statutory phrase “for such days” surplusage. E.g.,

TRW Inc. v. Andrews, 534 U.S. 19, 29-31 (2001)

(rejecting interpretation that would render statutory

language “superfluous in all but the most unusual

circumstances”).

2. What the plain text says, context and

legislative

history

confirm:

Congress

used

“entitlement” to refer “not just [to] an abstract ability

to sign up for [Medicare]” but to an “entitlement to

have payment made.” Ne. Hosp., 657 F.3d at 20

(Kavanaugh, J., concurring).

Other statutory provisions make clear that

entitlement does not mean the same thing as mere

eligibility. For instance, section 1395d(a) of the

Medicare statute specifies that “[t]he benefits

provided to an individual . . . under [Part A] shall

consist of entitlement to have payment made on his

behalf.” 42 U.S.C. § 1395d(a) (emphasis added).

Sections 426(a) and 426(b) of the Social Security

statute provide that individuals who satisfy certain

criteria are “entitled to hospital insurance benefits

under part A.” Id. § 426(a)-(b). Section 426(c) then

explains that entitlement “consist[s] of” “entitlement to

have payment made.” Id. § 426(c)(1) (emphasis added).

The Medicare statute’s legislative history further

supports the link between entitlement to benefits and

the right to payment. The House and Senate reports

for the legislation originally enacting the Medicare

statute both defined “entitlement to hospital

insurance benefits” as “entitlement to have payment of

benefits made under part A.” H.R. Rep. No. 89-213, at

140 (1965) (emphasis added); S. Rep. No. 89-404, at

157 (1965), reprinted in 1965 U.S.C.C.A.N. 1943,

2096-97.

3. HHS’s rule also conflicts with the statutory

purpose—compensating hospitals that care for the

indigent. As HHS admits, HHS Br. 4, the DSH

provision exists to increase “payments [for] hospitals

serving ‘low income’ persons,” Legacy Emanuel, 97

F.3d at 1265. Relentlessly “restricting the available

subsidy,” as HHS has done, “runs counter to this clear

intent.” Jewish Hosp., 19 F.3d at 275; see Portland

Adventist, 399 F.3d at 1099 (bemoaning the “series of

cases in which [HHS] has refused to implement the

DSH provision in conformity with the intent behind

the statute”).

As noted above, the DSH fractions’ structure

guarantees that treating patients with no right to Part

A payment, such as patients who have exhausted their

benefits, as nonetheless “entitled to benefits under

Part A” will decrease DSH payments overall. And sure

enough, HHS’s interpretation has done so in over 90%

of cases by an average of almost $150,000 per hospital

per year. See Pls.’ Opp. to Def’s. Cross-Motion for S.J.

41-42, Catholic Health Initiatives Iowa, Corp. v.

Sebelius, 841 F. Supp. 2d 270 (D.D.C. 2012) (No. 100411), 2010 WL 11685305.

HHS has never asserted otherwise or advanced

any evidence that the 2005 rule furthers the statute’s

purpose. Indeed, HHS apparently has never even tried

to figure out how its reading will affect

reimbursements—because it thought doing so would

be too hard. In its first notice of proposed rulemaking,

HHS provided detailed economic analyses of other

proposed changes. But when it came to this one, HHS

threw up its hands, citing “the administrative

difficulty [of] separately identifying these days” and

concluding that it did “not have data available to allow

[it] to quantify the impact of this proposed change

precisely.” J.A. 52-53 (68 Fed. Reg. at 27,416).

Unwilling to do the work of actual analysis, HHS

resorted to speculation. In the final 2005 rule, HHS

asserted that, had it chosen to interpret “entitled to”

as requiring a right to payment—that is, had it

adopted the policy it proposed—it would not have

necessarily reduced DSH payments. J.A. 173 (69 Fed.

Reg. 49,098) (disagreeing “that including days in the

Medicaid fraction instead of the Medicare fraction

always results in a reduction in DSH payments”). That

pushes the art of understatement to its limits, since

interpreting “entitled to” that way would almost

universally increase payments. As explained above,

the structure of the DSH fractions and the categories

of patients at issue ensure that a reversal of HHS’s

policy would increase DSH payments in the

overwhelming majority of instances. HHS has never

presented any countervailing evidence.

Even HHS’s new claims regarding the economic

effect of its policy are remarkably tepid. HHS asserts

that it “did not adopt the 200[5] rule with a view to

decreasing or increasing hospitals’ payments across

the board.” HHS Br. 44. Notably, HHS does not deny

that its policy in fact “decreas[es] . . . payments across

the board,” only that doing so was not HHS’s goal.

Indeed, HHS does not even say that it did not adopt

the rule with a view to decreasing payments on

balance even if not quite “across the board.” Given the

complete disregard HHS exhibited for its policy’s

effect on DSH payments when adopting the 2005 rule,

even this half-hearted statement is an improper post

hoc rationalization. Encino Motorcars, 136 S. Ct. at

2127; Michigan v. EPA, 576 U.S. 743, 758 (2015).

Moreover, even taking HHS’s statement at face value,

it just underscores HHS’s failure to do any analysis of

how its reversal of position would affect the statute’s

core goal—ensuring that hospitals aren’t effectively

penalized for caring for the poor. HHS’s disregard for

the economic effect of its policy is consistent with its

hostility to the DSH program, but not the statute’s

purpose.

B. HHS’s Arguments Conflict with the

Statute’s Text and Purposes.

1. HHS’s brief in this Court marks the first time

it has tried to reconcile its interpretation of “entitled

to [Medicare] part A benefits” with the rest of the

statute’s text. In its initial notice of proposed

rulemaking, HHS merely asserted that there are

multiple “plausible interpretations” of the text, J.A. 46

(68 Fed. Reg. at 27,208), and when HHS issued the

final 2005 rule, it offered little textual defense for its

new interpretation of “entitled to [Medicare] part A

benefits.” J.A. 169-75 (69 Fed. Reg. at 49,098-99). HHS

did not explain why its interpretation was consistent

with the full statutory text, let alone “more consistent

. . . than alternative policies,” or “analyze or explain

why the statute should be interpreted” that way.

Encino Motorcars, 136 S. Ct. at 2127 (cleaned up).

HHS cannot do now what it should have done

then. It cannot belatedly fill the gaps in its rulemaking

in its brief to this Court. A “foundational principle of

administrative law [is] that a court may uphold

agency action only on the grounds that the agency

invoked when it took the action.” Michigan, 576 U.S.

at 758 (citing SEC v. Chenery Corp., 318 U.S. 80, 87

(1943)). Because HHS did not “invoke[]” any of the

textual arguments it makes to this Court when it

adopted the 2005 rule, those arguments cannot be

raised for the first time now. Id.; see Encino Motorcars,

136 S. Ct. at 2127.

2. Even if HHS could raise its new textual

arguments, they are hopeless. HHS has argued that it

can interpret “entitled” and “eligible” as having the

same effective meaning, claiming the canon that

different words have different meanings “has little

weight” in “this particular context.” HHS Cert. Pet. 30

(cleaned up). But four different appellate courts held

otherwise with respect to the Medicaid fraction in the

same statutory provision. Cabell Huntington, 101 F.3d

987-88; Legacy Emanuel, 97 F.3d at 1265-66;

Deaconess Health, 83 F.3d at 1041; Jewish Hosp., 19

F.3d at 274-75. There is no reason to reach a different

conclusion for the Medicare fraction. The reasons HHS

gives for disregarding such a longstanding canon of

interpretation and reaching a different result cannot

withstand scrutiny.

a. HHS’s primary argument is that when

Congress used the terms “entitled” and “eligible” in

the DSH provision, it deliberately borrowed them from

other statutes, where they are used differently, and

that those different meanings should be imported into

this provision. HHS Br. 47. HHS’s statutory

references do not support its point.

HHS first cites sections 426(a) and 426(b) of the

Social Security statute and section 1395d(a) of the

Medicare statute, HHS Br. 27-30, but all of those

define entitlement as “entitlement to have payment

made,” 42 U.S.C. §§ 426(c)(1), 1395d(a).

HHS then tries to distinguish “the principal

consequence of being ‘entitled to’ Part A benefits—a

right to have the Medicare program make payment”—

from “the category of ‘patients who . . . [a]re entitled

to’ such benefits.” HHS Br. 47. Few hairs have ever

been split more finely. And it is unclear where HHS

derived its empty distinction between the

consequences of an entitlement and the entitlement

itself, but it is certainly not from the statute. Nothing

in the DSH provision (or the English language)

suggests that patients could somehow be “entitled to”

benefits and yet have no right to the “principal

consequence” of that entitlement. Id. An entitlement

to benefits can mean nothing other than an

entitlement to what the benefits “consist of”—namely,

a right “to have payment made.” 42 U.S.C.

§§ 426(c)(1), 1395d(a).

HHS’s contention that entitlement to Part A

benefits must be “binary” and “stable,” HHS Br. 23, is

belied by the statutory text. Contrary to HHS’s

suggestion, the DSH provision does not ask whether a

patient is entitled to Medicare Part A benefits “at all,”

HHS Br. 17—it asks whether a patient was entitled to

Part A benefits on individual “hospital[] patient days,”

42 U.S.C. § 1395ww(d)(5)(F)(vi). By asking whether a

patient was entitled to Part A benefits “for such days,”

id., the statute unambiguously requires a day-by-day

analysis under which entitlement can vary from day

to day. Ne. Hosp., 657 F.3d at 20 n.1 (Kavanaugh, J.,

concurring).

HHS’s interpretation, on the other hand, robs “for

such days” of nearly all meaning because it ensures

Medicare beneficiaries will almost “always [be]

‘entitled to benefits under [Medicare] part A.’”

J.A. 221. Only in exceedingly rare cases—when a

patient turns sixty-five and becomes entitled to

Medicare in the middle of his hospital stay, 42 U.S.C.

§ 426(a), or reaches his twenty-fifth month of

entitlement to disability benefits, id. § 426(b)—will a

patient’s entitlement to Medicare differ on any two

days. HHS Br. 34. By arguing that its interpretation

gives meaning to “for such days” only in these

situations, HHS tacitly admits its interpretation

renders the phrase superfluous 99 times out of 100.

Congress did not intend the phrase “for such days” to

do so little work. TRW, 534 U.S. at 29-31 (rejecting

interpretation that would render statutory language

“superfluous in all but the most unusual

circumstances”).

Indeed, when it comes to the Medicaid fraction,

HHS recognizes that “for such days” requires a dayby-day review. In calculating the number “of patients

who (for such days) were eligible for Medicaid,” HHS

appropriately demands that hospitals prove “that a

patient was eligible for Medicaid (for some covered

services) during each day of the patient’s inpatient

hospital stay.” HCFA Ruling No. 97-2, at 4 (emphasis

added). Likewise, in interpreting the phrase “for such

days” in the context of assessing “entitlement to [SSI]

benefits,” HHS also performs a day-by-day analysis

under which a patient may be deemed entitled to SSI

benefits on September 30 but not October 1. 75 Fed.

Reg. at 50,276-78. Because the Medicare fraction uses

the same “for such days” language, it requires the

same day-by-day analysis.

HHS’s treatment of the Medicaid fraction likewise

rebuts its argument that patients who have exhausted

their Medicare benefits for inpatient hospital services

can still be “entitled to” Part A benefits for purposes of

the DSH provision. HHS Br. 31. It is true Part A

covers more than just inpatient hospital services. 42

U.S.C. § 1395d(a)(2)-(5). But those outpatient services

are irrelevant to the DSH provision, which cares only

whether a patient is entitled to inpatient hospital

services.

When HHS interpreted “eligible for [Medicaid]” as

requiring an absolute right to Medicaid payment, it

believed that only coverage for inpatient hospital

services mattered. Cabell Huntington, 101 F.3d at 989

(“The Secretary reasons that . . . an otherwise

Medicaid-eligible patient who has exhausted his

coverage for inpatient hospital care is no longer

‘eligible for medical assistance’ because he can no

longer receive payment for inpatient services”

(emphasis added)). To this day, HHS’s own DSH

regulation says that “eligible for [Medicaid]” in the

Medicaid fraction means “eligible for inpatient

hospital services under an approved State Medicaid

plan.” 42 C.F.R. § 412.106(b)(4)(i) (emphasis added).

Even though Medicaid includes benefits other than

inpatient benefits, such as outpatient hospital

services, nursing facility services, and dental services,

42 U.S.C. § 1396d(a), HHS treats those other benefits

as irrelevant to the Medicaid fraction. Likewise, the

outpatient benefits available after a patient with

exhausted Part A benefits leaves the hospital are

irrelevant to whether a patient is “entitled to” the

inpatient benefits covered by the Medicare fraction.

b. As for SSI benefits, HHS is just plain wrong

to suggest that Congress borrowed “entitled” from the

SSI statute. The SSI statute overwhelmingly refers to

eligibility for benefits, not entitlement. E.g., 42 U.S.C.

§§ 1381a, 1382, 1382a(b)(2), 1382a(b)(10), 1382b(b)-(d),

1382c(a)(3)(G)-(H), 1382c(f), 1382e(a)-(d), 1382h(a)-(b),

1382j(a), 1383(e)-(k), 1383(p), 1383c(a)-(d), 1383d(a).

But the DSH provision refers to entitlement to SSI

benefits. Id. § 1395ww(d)(5)(F)(vi)(I). That is not what

Congress would have done if it was deliberately

borrowing words from other statutes.

And HHS cannot offer any remotely plausible

explanation for its decision to interpret “entitled to

[SSI]” differently than “entitled to [Medicare]” in the

same statutory sentence. In the past, HHS has tried

to justify its disparate definitions by claiming that

(1) patients must apply for SSI benefits but are

automatically entitled to Medicare benefits, and

(2) Part A benefits encompass more than inpatient

benefits, while SSI entitlement consists solely of a

cash payment. J.A. 176-80 (75 Fed. Reg. at 50,280).

Neither makes sense. The fact that SSI benefits

require an application just means that only patients

who have filed an application (and satisfy the other

requirements) are “entitled to SSI benefits.” It does

not justify interpreting “entitled to” more narrowly in

the SSI context than in the Medicare context. Neither

does any difference in the kinds of benefits available

under Medicare Part A and SSI. Nor is it true that SSI

benefits consist solely of cash benefits. SSI also

provides ancillary benefits, such as automatic

qualification for Part D drug discounts and, in most

states, Medicaid. 42 C.F.R. § 423.773(c)(1)(ii); 42

U.S.C. § 1382.

c. So HHS moves on to a series of other

provisions in the Medicare statute, none of which

helps it either. HHS’s “bank shot approach” to

statutory interpretation should be rejected. Ne. Hosp.,

657 F.3d at 21 (Kavanaugh, J., concurring).

HHS first tries one provision defining outpatient

services as including inpatient services furnished to

an individual who is “entitled to benefits under part A

but has exhausted benefits for inpatient hospital

services,” 42 U.S.C. § 1395l(t)(1)(B)(ii) (emphasis

added), and another saying Medicare will pay for

certain therapy services for a person “who is entitled

to benefits under part A but has exhausted benefits for

inpatient hospital services,” id. § 1395l(a)(8)(B)(i)

(emphasis added). These provisions, HHS contends,

“confirm[] that entitlement to and exhaustion of

benefits can coexist.” HHS Br. 35.

HHS draws the wrong conclusion. While patients

who have exhausted their benefits for inpatient

hospital services may be entitled to other, outpatient

benefits under Part A after they leave the hospital, see

42 U.S.C. § 1395d(a)(2)-(5), the DSH provision is

concerned only with days in which a patient was

entitled to inpatient hospital services. This is shown by

the statute’s use of “for such days,” and it is how HHS

has consistently interpreted the provision. 42 C.F.R.

§ 412.106(b)(4)(i); Cabell Huntington, 101 F.3d at 989.

HHS then turns to provisions requiring it to mail

benefit information to “individuals entitled to benefits

under Part A or Part B,” 42 U.S.C. § 1395b-2(a), and

tying an individual’s eligibility to enroll in Medicare

Parts B, C and D to the individual being “entitled” to

part A benefits, id. §§ 1395o(a)(1), 1395w-21(a)(3),

1395w-101(a)(3)(A). These provisions, HHS says,

cannot be followed unless “entitle[ment] to” Part A

benefits only means mere eligibility for those benefits.

HHS Br. 36-37.

None of these other provisions helps HHS because

they are all missing an important qualifier: they do

not specify when an individual must be entitled to Part

A benefits. Section 1395b-2(a)(2) does not say an

individual must be entitled to Part A benefits on the

day the Secretary mails him benefit information. And

sections 1395o(a)(1), 1395w-21(a)(3), and 1395w101(a)(3)(A) do not provide that an individual must be

entitled to Part A benefits on the day she enrolls in

Parts B, C, or D. In contrast, the DSH provision

requires that a patient be entitled to Part A benefits

“for such days” when the patient is at the hospital

receiving inpatient services. 42 U.S.C. § 1395ww(d)(5)

(F)(vi). The “words ‘for such days’ in the statute make

clear that HHS must count specific hospital days for

patients who, on those specific days, were entitled to

Part A benefits.” Ne. Hosp., 657 F.3d at 19

(Kavanaugh, J., concurring).

Furthermore, HHS’s concerns about incongruity

ignore that before the 2005 rule, HHS correctly

interpreted “entitled to benefits under [Medicare] part

A” in the DSH provision as requiring an absolute right

to payment but managed to implement sections

1395b-2(a)(2), 1395o(a)(1), 1395w-21(a)(3), and

1395w-101(a)(3)(A) without apparent problem. This

historical record demonstrates that HHS’s predictions

that the sky will fall are unfounded. Ne. Hosp., 657

F.3d at 24 (Kavanaugh, J., concurring).

d. Abandoning the statute, HHS next cites a

regulation that it contends supports its reading. HHS

Br. 32 (citing 42 C.F.R. § 400.202). Of course, no

regulation can override a statute; regulations must be

consistent with statutes, not the other way around.

And all the regulation says is that “[e]ntitled means

that an individual meets all the requirements for

Medicare benefits.” 42 C.F.R. § 400.202. It thus does

not answer the question whether a patient continues

to “meet[] all the requirements for Medicare benefits,”

id., after exhausting them.

But the statute does answer that question, and the

answer is no. The Medicare statute provides that

“benefits . . . under [Part A] . . . consist of entitlement

to have payment made . . . for up to 150 days.” 42

U.S.C. § 1395d(a). Once those 150 days are up, an

individual can no longer “meet[] all the requirements

for Medicare benefits.” 42 C.F.R. § 400.202. Perhaps

that is why HHS never before thought 42 C.F.R.

§ 400.202 required interpreting “entitled to benefits

under [Medicare] part A” as meaning mere eligibility

for Medicare. That regulation was adopted in 1983,

but until 2005 HHS treated only patients with an

absolute right to Medicare payments as “entitled to

[Medicare].” J.A. 169-75 (69 Fed. Reg. at 49,098). The

regulation thus provides no support for HHS’s new

position.

3. With no foothold in the text, HHS “invit[es]”

this Court “to follow it into the legislative history

lurking behind the Medicare Act.” Allina, 139 S. Ct. at

1814. As with its textual arguments, HHS’s

legislative-history argument appeared nowhere in its

contemporaneous justification for the 2005 rule. J.A.

169-75 (69 Fed. Reg. 49,098–99). HHS cannot raise

that argument for the first time now. Chenery, 318

U.S. at 87.

Setting that aside, HHS’s argument fails on its

own terms. HHS claims the legislative history shows

that Congress intended the Medicare and Medicaid

fractions to be entirely distinct and that patients

should not move from the Medicare fraction to the

Medicaid fraction merely because they cease to qualify

for Medicare Part A payments. HHS Br. 40. The

statute unambiguously provides otherwise.

As this Court concluded in Allina, “murky

legislative history . . . can’t overcome a statute’s clear

text and structure.” 139 S. Ct. at 1815. Here, the

statute’s use of “for such days” unambiguously

contemplates that a patient’s status may change from

one day to the next. HHS may think that is “an

unusual choice,” HHS Br. 40, but it is the choice

Congress made and that HHS must honor. And even

HHS’s position does not stop patients from moving

from one fraction to the other. Under HHS’s

interpretation, patients with exhausted Part A

benefits are always included in both the Medicaid

fraction’s denominator (which covers all patients) and

the Medicare fraction. And a Medicaid patient who

becomes eligible for Medicare while in the hospital (for

example, by turning 65 during the patient’s stay)

would move from the Medicaid fraction’s numerator to

the Medicare fraction.

Regardless, that legislative history establishes

two things, neither of which helps HHS: (1) Congress’s

intent that hospitals be compensated for serving a

disproportionate share of indigent patients, and

(2) Congress’s frustration with HHS’s repeated

refusals to honor that intent. The purported

legislative compromise on which HHS relies does not

support its suggestion that the Senate was focused

solely on Medicare patients (to the exclusion of

Medicaid patients) and the House solely on Medicaid

patients (to the exclusion of Medicare patients). HHS

Br. 38-40. At different points in the legislative process,

the Senate contemplated including non-elderly

Medicaid patients in the DSH provision, and the

House contemplated including Medicare patients who

were also Medicaid-eligible. 131 Cong. Rec. S10,92830 (daily ed. Aug. 1, 1985) (requiring a DSH

calculation based on both a Medicare fraction and a

Medicaid fraction); H.R. Rep. No. 99-453, at 459 (1985)

(defining the low-income proxy as “a hospital’s total

inpatient days attributable to [M]edicaid patients

(including [M]edicaid-eligible [M]edicare beneficiaries—

[M]edicare/[M]edicaid crossovers)”). That history

belies HHS’s claim that Congress combined each

Chamber’s preferred fraction but kept them

hermetically sealed to ensure no indigent patient

would ever move from one fraction to the other.

In any event, far more important than whether an

indigent patient may move from one fraction to the

other is whether the indigent patient is counted at all

in the DSH adjustment’s measure of indigency. HHS’s

interpretation categorically excludes many poor

patients from the DSH provision’s measure of

indigency, as proven by the fact that HHS’s policy

often results in reductions to both a hospital’s

Medicare fraction and its Medicaid fraction. The true

anomaly, therefore, is not that low-income patients

may move from one fraction to another, but that

HHS’s rule excludes many low-income patients from

both fractions.

III. The 2005 Rule Is Not a Reasonable

Interpretation of the DSH Provision.

Even if the DSH provision did not unambiguously

foreclose the 2005 rule, the rule remains

unreasonable.

1. HHS’s rule is unreasonable for the same

reasons it violates the statutory text. An agency

interpretation that conflicts with the statutory text

cannot be reasonable. United States v. Vogel Fertilizer

Co., 455 U.S. 16, 26 (1982); United States v.

Cartwright, 411 U.S. 546, 557 (1973). And even if the

DSH provision were ambiguous, that ambiguity

cannot reasonably be resolved by interpreting the

different statutory terms “eligible” and “entitled” to

mean the same thing, reading “entitled” to mean two

different things, and construing the phrase “for such

days” right out of the statute.

“The only thing that unifies the government’s

inconsistent definitions . . . is its apparent policy of

paying out as little money as possible.” Ne. Hosp., 657

F.3d at 20 n.1 (Kavanaugh, J., concurring).

Rulemaking is not a game of three-card monte where

the house always wins and never has to show its cards,

and the “statute does not permit HHS to pursue fiscal

balance on the backs of Medicare providers and

beneficiaries in this way.” Id. at 21; see Walter O.

Boswell Mem’l Hosp. v. Heckler, 749 F.2d 788, 799

(D.C. Cir. 1984) (“It would be arbitrary and capricious

for HHS to bring varying interpretations of the statute

to bear, depending upon whether the result helps or

hurts Medicare’s balance sheets . . . .”).

2. An agency’s interpretation of an ambiguous

statute is unreasonable if “procedurally defective.”

Mead, 533 U.S. at 227. The procedural flaws

underlying the 2005 rule render it unreasonable even

apart from the textual conflicts discussed above.

So does HHS’s failure to provide any meaningful

substantive justification for the 2005 rule. This Court

rejects agency interpretations that are “arbitrary and

capricious in substance.” Id.; Judulang v. Holder, 565

U.S. 42, 52 n.7 (2011). A regulation is arbitrary and

capricious “if the agency has relied on factors which

Congress has not intended it to consider, entirely

failed to consider an important aspect of the problem,

offered an explanation for its decision that runs

counter to the evidence before the agency, or is so

implausible that it could not be ascribed to a difference

in view or the product of agency expertise.” Motor

Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 43 (1983).

The 2005 rule fails these fundamental

requirements for reasoned decisionmaking. The entire

purpose of the DSH provision is to provide additional

payments to hospitals treating a disproportionate

number of indigent patients. For that reason, the most

obvious consideration in interpreting the provision

should be how it affects DSH payments. Even if the

economic impact was not the reason for the proposed

change, assessing that impact is nonetheless essential

to reasoned and reasonable rulemaking. That is

particularly true where, as here, the rule itself is

specifically and only about payment and was

promulgated under a statute intended to increase

those payments. Despite that, HHS provided no

economic analysis of how including patients with

exhausted Part A benefits in the Medicare fraction

would affect DSH payments. By not “paying attention”

to the economic “advantages and the disadvantages”

of its chosen policy, HHS violated one of the most basic

requirements of “reasonable regulation.” Michigan,

576 U.S. at 753.

HHS’s failure to “articulate a satisfactory

explanation for its action” is especially troubling given

that the 2005 rule reversed HHS’s previous

interpretation. Courts grant “considerably less

deference” when an agency’s interpretation “conflicts

with the agency’s earlier interpretation.” INS v.

Cardoza-Fonseca, 480 U.S. 421, 446 n.30 (1987)

(cleaned up). So “[w]hen an agency changes its

existing position,” it “must at least display awareness

that it is changing position and show that there are

good reasons for the new policy.” Encino Motorcars,

136 S. Ct. at 2125-26 (cleaned up). HHS did not do that

in the 2005 rule, and the procedural history behind the

rule suggests HHS couldn’t even correctly explain its

own position, let alone show good reasons for changing

it.

Before adopting the 2005 rule, HHS interpreted

“entitled to [Medicare]” to require payment of benefits,

so it excluded patients with exhausted benefits from

the Medicare fraction. 51 Fed. Reg. at 31,461. But

HHS did not acknowledge that to be its policy until a

few days before closing the final comment period. And

then it adopted the opposite position, electing to

include patients with exhausted benefits in the

Medicare fraction. But it gave no “good reasons for the

new policy.” Encino Motorcars, 136 S. Ct. at 2126

(cleaned up). Indeed, it “gave almost no reasons at all.”

Id. at 2127. It provided no “reasoned explanation . . .

for disregarding facts and circumstances that

underlay or were engendered by the prior policy.” Id.

at 2126 (cleaned up). And it never explained why its

new policy was “more consistent with [the] statutory

language.” Id. at 2127 (cleaned up). This “unexplained

inconsistency in agency policy” renders the 2005 rule

unreasonable. Id. at 2126 (cleaned up).

In an attempt to justify the 2005 rule, HHS now

cites twenty-five comment letters it claims supported

a significant change to its prior policy. HHS Br. 15.

But twenty-two of those commenters explicitly urged

HHS not to change its existing policy. E.g., J.A. 55, 68,

71, 77, 90, 98-99, 102, 106, 109, 113, 121, 125, 128,

132, 134, 137, 141, 145, 148-49, 159; C.A. E.R. 92, 106.

Fifteen of those concluded their discussion by urging

that the DSH calculation “not be changed,” J.A. 69

(emphasis added), or some similar plea to maintain

the status quo, J.A. 92, 99, 104, 107, 110, 119, 122,

126, 130, 135, 138-39, 143, 146, 160. Another nineteen

urged HHS not to adopt a policy that would decrease

DSH payments. J.A. 55, 69, 77, 91, 99, 103, 107, 110,

122, 126, 129, 134-35, 138, 142, 145, 150, 160;

C.A. E.R. 94, 107.

Far from supporting HHS’s about-face, therefore,

these

comments

proved that

its

interpretation of “entitled to [Medicare]” had

“engendered serious reliance interests that must be

taken into account.” Encino Motorcars, 136 S. Ct. at

2126 (cleaned up). HHS not only ignored those

reliance interests, it used comments strongly urging

no change in policy and no reduction in DSH payments

to defend a radical change in policy that significantly

reduced DSH payments. “This lack of reasoned

explication for a regulation that is inconsistent with

the [agency’s] longstanding earlier position results in

a rule that cannot carry the force of law.” Id. at 2127.

3. Finally, when HHS adopted the 2005 rule, it

made no attempt to “show a ‘rational connection’

between the regulations and the statute’s purposes.”

Verizon Commc’ns Inc. v. FCC, 535 U.S. 467, 542

(2002) (Breyer, J., concurring in part). HHS’s brief

newly argues that the rule is consistent with

Congress’s intent to keep the Medicare and Medicaid

fractions unbreachably separate, but it did not make

that argument during the rulemaking process and

may not do so now. Chenery, 318 U.S. at 87. And, as

already explained, those arguments are wrong.

The 2005 rule undermines the statute’s purposes

by systematically reducing the number of indigent

patients included in the DSH adjustment. This Court

has recognized (and HHS concedes, HHS Br. 24) that

the DSH provision’s purpose is “[t]o ensure hospitals

have the resources and incentive to serve low-income

patients” by “offer[ing] additional payments to

institutions that serve a ‘disproportionate number’ of

such persons.” Allina, 139 S. Ct. at 1809. But HHS’s

unduly broad interpretation of “entitled to benefits

under Part A” as encompassing even patients with no

right to Part A payments and its crabbed view of

“entitled to [SSI] benefits” as requiring physical

receipt of payment unreasonably reduce the “lowincome patients” captured by the provision and thus

the “additional payments” Congress deemed necessary

to encourage hospitals to do the essential but

expensive work of treating indigent patients. Id.; see

Jewish Hosp., 19 F.3d at 275-76. An interpretation

that so guts the “statutory provision’s basic purposes

is neither persuasive nor reasonable.” Cnty. of Maui v.

Haw. Wildlife Fund, 140 S. Ct. 1462, 1474 (2020).

The 2005 rule upsets Congress’s plan by entirely

excluding many low-income patients from the DSH

calculation’s measure of indigency. In particular,

HHS’s interpretation of “entitled to [Medicare] part A

benefits” removes all indigent Medicaid patients with

exhausted Medicare benefits from the numerator of

the Medicaid fraction, but adds only a small portion of

those indigent patients back to the numerator of the

Medicare fraction. Even worse, any indigent patients

who are added to the Medicare numerator tend to be

offset by the many more patients added to the

Medicare denominator. Having all but assured a

reduction to both DSH fractions, HHS went a step

further and entirely excluded the poorest of the poor—

low-income patients who are both eligible for Medicaid

and entitled to SSI—from the DSH calculation’s

measure of indigency if, for any reason, those patients

did not receive the SSI benefits to which they were

entitled. No rule that systematically reduces both

proxies of indigency by excluding clearly indigent

patients can be reasonable in light of the statute’s

clear contrary purpose.

CONCLUSION

The Court should affirm the judgment of the court

of appeals.

Respectfully submitted,

Anne M. Voigts

Daniel J. Hettich

Matthew V.H. Noller

Counsel of Record

KING & SPALDING LLP Ashley C. Parrish

601 S. California Ave.

Jeffrey S. Bucholtz

Suite 100

Alek Pivec

Palo Alto, CA 94304

KING & SPALDING LLP

(650) 422-6700

1700 Pennsylvania Ave. NW

Washington, DC 20006

(202) 626-9128

dhettich@kslaw.com

Counsel for Respondent

October 18, 2021

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.