Petition for Writ of Certiorari — Cookeville Medical Center v. Johnson, (2008) (No. 564)

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Supreme Court, U.S.

FILED

08-564 OCT 27 2008

| CD or OFFICE OF THE CLERK

JN ThE

Supreme Court of the Gnited States

COOKEVILLE REGIONAL MEDICAL CENTER, ET AL.

Petitioners,

¥.

MICHAEL O. LEAVITT, SECRETARY, DEPARTMENT OF

HEALTH & HUMAN SERVICES

Respondent.

On Petition For A Writ Of Certiorari

To The United States Court of Appeals

for the District of Columbia Circuit

PETITION FOR A WRIT OF CERTIORARI

SANFORD E. PITLER MURRAY J. KLEIN

CAROL SUE JANES Counsel of Record

BENNETT BIGELOW & JAMES C. MARTIN

LEEDOM, P.S. KIM M. WATTERSON

1700 7th Avenue REED SMITH LLP

Suite 1900 Princeton Forrestal Village

Seattle, WA 98101 136 Main Street, Suite 250

(206) 622-5111 Princeton, NJ 08540

(609) 520-6022

Counsel for Petitioners

QUESTION PRESENTED

This petition presents two questions on which

there is a recognized conflict in the decisions of

the Courts of Appeals:

1. Whether a court may avoid the

presumption against retroactivity and the due

process analysis set forth in Landgraf v. USI

Film Products, 511 U.S. 244 (1994), based on its

own view that a statutory amendment is a

“clarification” of an existing law?

2. Whether reliance on a _ pre-amendment

statute is a necessary element of a challenge to

the retroactive application of the amended statute

under Landgraf v. USI Film Products, 511 U.S.

244 (1994)?

PARTIES TO THE PROCEEDING

AND RULE 29.6 STATEMENT

The petitioners are Cookeville Regional

Medical Center, Gateway Health System, Blount

Memorial Hospital, University of Tennessee

Memorial Hospital, Sycamore Shoals Hospital,

Middle Tennessee Medical Center, St. Mary’s

Health System, Fort Sanders Regional Medical

Center, Fort Sanders Loudon Medical Center,

Fort Sanders Parkwest Hospital, Methodist

Medical Center of Oak Ridge, Johnson City

Hospital Medical Center, Jackson-Madison

County General Hospital, Vanderbilt University

Medical Center, St. Thomas Hospital, Baptist

Memorial Hospital, Inc., Baptist Memorial

Hospital — Tipton, Baptist Memorial Hospital —

Union City, and Baptist Memorial Hospital —

Desoto. The respondent is the Secretary of the

United States Department of Health and Human

Services.

Pursuant to this Courts Rule 29.6,

undersigned counsel state that Petitioners

Cookeville Regional Medical Center, ct al., and

Baptist Memorial Hospital Inc., et al., are not-for-

profit corporate entities. There is no parent

company, subsidiary, or affiliate of any Petitioner

that has outstanding securities in the hands of

the public, and there is no publicly held

corporation that owns 10 percent or more of the

stock of any Petitioner.

Page

COULFESST HONG PRR ED osc cn ccncccncicessnvnsavacspneddaancces i

PARTIES TO THE PROCEEDING AND

RULE 20.6 STATEMENT ...........<0.0c0.0.000cccccecceccccsosees il

TABLE CO BUST ee ooseccdcscsceunascacescseseconsaxsens v1

COE Ete te HERI sickischescccdevvuseeadaceotbamenvrsnancuntens 1

Pr ee ET ei ccs iden ne 1

CONSTITUTIONAL AND STATUTORY

PR VI TIVO BD ovens cesiscnccosvesesssissesunsvscescont l

BoE ae REE © otitis aa ee 2

I. The Medicare Statute’s Treatment Of

Expansion Waiver Days Prior To 2008.............. 3

II. The District Court Rules That The Medicare

Statute Unambiguously Requires Inclusion

Of Expansion Waiver Days In Petitioners’

EOE CIE saris ic oaninvrncrers eee 5

Ill. After Passage Of The Deficit Reduction Act

Of 2005, The District Court Reopens Its

Judgment And Finds That The DRA

Changed The Treatment Of Expansion

Waiver Days Retroactivelly ..............cccccsssssesseeeees 6

IV. The Court Of Appeals Affirms Finding That

The DRA Can Be Applied Retroactively ............ 8

TABLE OF CONTENTS

REASONS FOR GRANTING THE PETITION ......... 9

I. The Decision Below Conflicts With This

Court’s Precedents And Deepens A

Recognized Conflict In The Circuits On

Whether And When Statutory Amendments

Can Be Characterized As A “Clarification”

And Not Subject To The Presumption

PRAT TURE oo sscscssincessensisoessessescrsivnenss 13

if. The Decision Below Conflicts With This

Court’s Precedents And Deepens Recognized

Conflict In The Circuits On The

Role Reliance Plays In The Retroactivity

PI i sivisincacctecevsctnlsectcccdesenardcrn tate 26

$$) RE). Le). PP PR eer rr 37

APPENDIX

Cookeville Regional

Medical Center v. Leavitt,

SSi P.O OEE CE; Ge. DOF) once cece cvvecnsscsescccsss la

Baptist Memorial

Hospital, Inc. v. Leavitt,

No. 06-00437 (D.D.C. Jun. 27, 2007).............. 12a

Cookeville Regional

Medical Center v. Leavitt,

No. 04-1053, 2006 WL 2787831

CEP Ee Bee SE, Tete EE sve ovcavernoipnceinscensaeeun 13a

Cookeville Regional

Medical Center v. Thompson,

No. 04-1053, 2005 WL 3276219

CEP BP cs I ey IE sors ch carve tudes une sceievesases ue 30a

Social Security Act,

42 U.S.C. § 13895ww(d)(5)\(Hiw)d)

(prior to the enactment of the Deficit

Reduction Act Of 2005, Pub.L.

BO. PEP E'T L, © GOD vss svctsvccsessiccccscsessvcvens 48a

Social Security Act,

rir Fe vinvin vi vssten ve cceesvevaccenenesanousivecs 49a

Deficit Reduction Act Of 2005,

ig Oe i OS ee ee | iy rene 5la

Medicare Inpatient Disproportionate

Share Hospital (DSH) Adjustment

Calculation: Change In The Treatment

Of Certain Meaicaid Patient Days

In States With 1115 Expansion Waivers,

65 Fed. Reg. 3136-01 (Jan. 20, 2000) ............. 53a

TABLE OF AUTHORITIES

Page(s)

CASES

ABKCO Music, Inc. v. LaVere,

217 F.2G GES (OCB Cir. ZOOG)...........05s.ccccccescsseses 14, 17

Appalachian States Low-Level Radioactive Waste

Commission v. O'Leary,

93 F.3d 103 (3d Cir. 1996)........ ONSEN AD cede Aa ah oh es 15

Atkinson v. United States,

479 F.3d 222 (3d Cir. 2007) .............. 28, 32, 33, 34

Barnes v. Cohen,

749 F.2d 1009 (Sd Cir. 1984) ................... 14, F7, 18

Beverly Community Hospital v. Belshe,

132 F.3d 1259 (9th Cir. 997)........... SiR ey eee 14, 18

Bowen v. Georgetown University Hospital,

I ON oo cass crncnscinesincssurccacs Tele aoe 9, 24

Brown v. Thompson,

$74 F.3d 253 (4th Cir. 2004).............. 14, 18, 19, 23

Camins v. Gonzales,

OE © 0 Bro COU GP, BOOT) oe sevcsesccccsevessecsecs 29, 30

Carranza-de Salinas v. Gonzales,

QT? F.o@ 200 (6th Cir. 2O0B)...........c60.c...00060005 29, 30

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

Council, Inc.,

Re i Me 0 ois uivnas sive ccrdcnnvnssnnsveinncedvaieccens 23

Cruz v. American Airlines, Inc..,

195 F.3a 526 @).C. Cir. 1998)................0....... 22, 23

Dias v. INS,

Be ee Oe 0G COE. BOIS) svi ssnccsnieisssvesnvscsavecses 29

EEOC v. CBS, Inc.,

po 8 ge Be Bee eS . . > er 24

Vll

Groccia v. Reno,

B34 F.3d TES (iat Cir. ZOO) «20... .cccsececccsssescsccicesss 30

Health Ins. Association of Am., Inc. v. Shalala,

Ba ee ee Ce Re BI vivnnicccninscnsnonaccevennccnvans 15

Hem v. Maurer,

458 F.3d 1185 (10th Cir. 2006)................ 27, 28, 31

Hernandez v. Gonzales,

43a FBG SEE CSR Cir. DOCG) onnncncesscncccses....c0s: 28, 35

Hernandez de Anderson v. United States,

497 F.3d 927 (9th Cir. 2007).................... Zi, 20, al

Hughes Aircraft Company v. United States,

ee OY ccc seis rucioses decpndneduaaeebwartes 34, 35

iNS v. St. Cyr,

ee ivvcnsnctnccenweneseihucucduemendewans passim

Landgraf v. USI Film Products,

Se Bs Se AD cx andcnkedeeasdpiioceincesvussssacxden passim

Levy v. Sterling Holding Co. LLC,

____ F.3d , 2008 WL 4415135

rE ge ke | Ree ere 14,15

Lindh v. Murphy,

at Ne © 8 EE Boi icpsentcetevanuisnscnusewarsacsauntiaaenions i0

Martinez v. INS,

G23! F.da 965 (26 Cir. 2008) ...........ccee0s.s0000s passim

Olatunji v. Ashcroft,

387 F.3d 383 (4th Cir. 2004).............. 28, 31, 33, 34

Paramount Health Systems, Inc. v. Wright,

138 F.3d 706 (7th Cir. 1998) ......................0.. 16, 20

Pennsylvania Department of Corrections v.

Yeskey,

524 U.S. 206 (1998)......cccccccccecceceeeeeee: RMN SE: 22

Piamba Cortes v. American Atrlines, Inc.,

177 F.36 1272 (1 ith Cir. 1909).................... 14,19

V1ll

Plaut v. Spendthrift Farm, Inc.,

BRS GIB, BEE Cities stceensecesserccanceemineeneee 16

Ponnapula v. Ashcroft,

373 F.3d 480 (38d Cir. 2004)............... 28, 30, 31, 32

Porter v. Commissioner,

856 F.2d 1205 (8th Cir. 1988)....................000 14, 17

Portland Adventist Medical Center v. Thompson,

399 F.3d 1081 (Sth Cir. 2008)..............c0scscesssecseeeess 5

Princess Cruises, Inc. v. United States,

397 F.3d 1358 (Fed. Cir. 2005)..................ccseceeees 15

Rivers v. Roadway Express, Inc.,

SEE SEB. Be Ce vveikivinccisciniteescnuaenes 7

South Dakota v. Yankton Sioux Tribe,

BES Ry ee Uh i ivikckee recssiesemminnttesee 16

Swayne & Hoyt v. United States,

ne BP ee CR Ponti ccecsnnncntemanens anna 25

Thaqi v. Jenifer,

377 F.3d SOQKG6th Cir. 2004)...........cccessevesveccvessrens 31

United States v. De Horta Garcia,

519 F.3d 658 (7th Cir. 2008)..................0. 27, 29, 30

United States v. Marmolejos,

140 F339 468 (36 Cab. BOGE) cncsvsnssvinisisesssereeee 22

United States v. Montgomery County, Md.,

TEL F.2E OOS. CEG Caw. LGB) oc cen cescvessesecocscvcessusavess 7

United States v. Philadelphia National Bank,

B74 UES FE) Cesc nine 16

CONSTITUTION

t5 Ge ae eee err ne i,2

STATUTES

TB UA. S 2 iiichicdasesanccnterceeee eee 1

42 U.S.C § 1315a(1)-(2) ....ccccccccccesceseeccoceccecescescesceseaees 4

Pub.L. No. 105-33, §4403(b)(3)(B) ..........00c000-.

Deficit Reduction Act of 2005,

Neen ress lsedssasnvesseesesenssscseees

RULES

is scascesessnscnesesesescsoceces

REGULATIONS

Medicare Inpatient Disproportionate

Share Hospital (DSH) Adjustment

Calculation: Change In The Treatment

Of Certain Medicaid Patient Days

In States With 1115 Expansion Waivers,

65 Fed. Reg. 3136-01 (Jan. 20, 2000)........

OTHER AUTHORITIES

149 Cong. Rec. S15584-85

Fi.R. Rep. No. 105-325 (1995) .................0ccece0

eagebinits 21

passim

PETITION FOR A WRIT OF CERTIORARI

Petitioners respectfully submit this petition

for a writ of certiorari to review the judgment of

the United States Court of Appeals for the

District of Columbia Circuit.

OPINIONS BELOW

The opinion of the United States Court of

Appeals for the District of Columbia Circuit is

published at 531 F.3d 844 (D.C. Cir. 2008). App.

ta-lla. The Orders of the United States District

Court of the District of Columbia, which were the

subject of appeals to the D.C. Circuit, have not

been published in the official reporters, but one

can be found at 2006 WL 2787831. App. 12a-29a.

The district court’s prior related order has not

been published in the official reporters, but can be

found at 2005 WL 3276219. App. 30a-47a.

JURISDICTION

The United States Court of Appeals for the

District of Columbia Circuit entered judgment on

June 27, 2008. The time for filing this petition

was extended to October 27, 2008 by the Chief

Justice’s Order. No. 08A226 (Sept. 15, 2008).

The jurisdiction of this Court is invoked under 28

U.S.C. § 1254().

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Fifth Amendment to the US.

Constitution provides, in relevant part:

No person shall be ... deprived of life,

liberty or property, without due

process of law ...

U.S. Const. amend. V, § 1.

The statutory provisions and regulations

involved in this appeal are set forth in the

Appendix.

STATEMENT

Prior to 2005, the Medicare statute provided

that the days spent in a hospital by patients

eligible for Medicaid because of am expansion

waiver granted under Section 1115 of the Social

Security Act were included in calculating the

Medicare reimbursement for hospitals that serve

a disproportionate share of low income patients.

Congress, the Secretary of Health and Human

Services, and the courts had issued statements

and rulings confirming this inclusion. The fiscal

intermediaries responsible for Petitioners’

Medicare reimbursement nevertheless refused to

include expansion waiver days in the relevant

calculation. Petitioners sued and the district

court agreed that the controlling § statutory

scheme unambiguously required that those days

be included.

While the Secretary’s appeal was pending,

Congress passed the Deficit Reduction Act of 2005

(DRA), which changed the legal status of

expansion waiver populations, making the

inclusion of expansion waiver days optional at the

Secretary's discretion. The United States Court

of Appeals for the District of Columbia Circuit

held that the DRA, which contained no

congressional authorization for’ retroactive

application, could be applied retroactively. Thac

ruling cose the Petitioners more than $54 million

for treatment delivered, plus statutory interest.!

The DRA’s retroactive application implicates

important issues of constitutional significance—

most fundamentally the application and scope of

the presumption against retroactivity set forth in

Landgraf v. USI Fiim Products, 511 U.S. 244

(1994), and _ reinforced in Mughes_ Aircraft

Company v. United States, 520 U.S. 939 (1997),

and JINS uv. St. Cyr, 533 U.S. 289 (2001). The

Courts of Appeals have not applied the reasoning

in these decisions consistently and there are

multiple appellate opinions noting’ the

disagreements. This Covurt’s intervention is

needed to restore uniformity on when and how

Landgraf’s retrostivity analysis should be

invoked.

1. The Medicare Statute’s Treatment Of

Expansion Waiver Days Prior To 2005.

The Medicare’ statute authorizes an

adjustment in reimbursement to hospitals that

provide in-patient treatment to a disproportionate

share of low-income patients. See 42 U.S.C

§1395ww(d)(5)F)G)(D. Before 2005, the statute

unambiguously stated that this “disproportionate

share hospital” (DSH) adjustment was to be based

in part on the total number of days the hospital

spent providing treatment to low-income patients

eligible for medical assistance under ‘Title XIX

' Hospitals all over the country are eligible for Medicare

reimbursement when they treat chose who are poor and

elderly, and some are still litigating in various judicial]

districts over the inclusion of expansion waiver days for

periods prior to the effective date of the DRA.

(Medicaid). Jd. §1395ww/(d)(5)(M(vi)(IT). Despite

the statutory directive, fiscal intermediaries

nevertheless treated Medicaid-eligible “patient

days” in different ways. App. 33a-34a

(Cookeville 1). Some routinely included patient

days attributable to so-called “expansion waiver

populations ’—1i.e., patients who were eligible for

Medicaid because they were involved in a

“demonstration project” approved by the

Secretary under Section 1115 of the Social

Security Act, 42 U.S.C. §1315a(1)-(2). Id. Others,

including those responsible for Petitioners’

Medicare claims, did not. Jd.

On January 20, 2000, the Secretary issued an

interim final rule addressing the fiscal

intermediaries’ differing approaches. App. 53a-

67a. In the rule, the Secretary purported to

(1) state his policy regarding DSH calcuiations for

periods prior to January 20, 2000 and

(2) announce a “change” in policy for DSH

calculations in the future. Jd. Although the

Secretary stated that expansion waiver days

should have been excluded from DSH calculations

prior to January 20, 2000, he also indicated that

he would not seek to recover payments made to

hospitals where those days had been included in

DSH calculations for that period.

The Secretary also announced a change in

policy that would require fiscal intermediaries to

include expansion waiver days in DSH

calculations after January 20, 2000. The

Secretary acknowledged that “[o]ne of the

purposes of a section 1115 expansion waiver is to

extend Title XIX matching payments to services

furnished to populations that otherwise could not

)

have been made eligible for Medicaid.” Jd. The

Secretary stated that the inclusion of persons

made “eligible for [Medicaid] matching payments

under a_ section 1115 waiver” was “fully

consistent” with the goals of the DSH adjustment.

Id.

II. The District Court Rules That The

Medicare Statute Unambiguously

Requires Inclusion Of Expansion

Waiver Days In Petitioners’ DSH

Calculations.

Petitioners filed an action against the

Secretary to recover more than $54 million, plus

statutory interest, attributable to the exclusion of

expansion waiver days for fiscal years 1994

through 2000. The district court entered

summary judgment in Petitioners’ favor, finding

that (1) the Medicare statute unambiguously

required inclusion of expansion waiver days when

calculating Petitioners’ Medicare DSH

adjustments and (2) the relevant statutes did not

provide the Secretary with any authority to

exclude expansion waiver days from’ those

adjustments. App. 30a-47a. The district court

was not the first court to so hold. In Portland

Adventist Medical Center v. Thompson, 399 F.3d

1091 (9th Cir. 2005), a panel of the Ninth Circuit

unanimously affirmed a judgment requiring the

Secretary and fiscal intermediaries to include

expansion waiver days when calculating Medicare

DSH adjustments.

Ill. Afier Passage Of The Deficit

Reduction Act of 2005, The District

Court Reopens Its Judgment And

Finds That The DRA Changed The

Treatment Of Expansion Waiver Days

Retroactively.

The Secretary appealed the adverse

judgment, but while the appeal was pending,

Congress passed the DRA, Pub.L. 109-171.

Section 5002(a) of the new law amended the

statutory formula governing Medicare DSH

calculations, making inclusion of expansion

waiver days optional at the Secretary’s discretion.

App. 51a-52a. Section 5002(b) did not amend any

part of the Medicare statute; instead, it purported

to “ratif[y]” the Secretary's 2000 rule. Id.

§5002(b).

While his appeal was still pending, the

Secretary moved the district court, pursuant to

Rule 59(e), to alter or amend the judgment based

on the DRA. The district court opined that the

Secretary's motion would be granted if the

appellate court remanded. App. l3a. Ina

memorandum opinion, the district court

reconsidered its original ruling in light of §5002.

The court rejected the Secretary’s argument that

the DRA simply clarified the original text of the

statute governing DSH calculations.

I remain of the view that the DSH

formula, as it existed at the time of the

cost reports at issue, expressly included

expansion populations. That formula

referred to all patients eligible for Title

XIX medical assistance, and expansion

populations’ medical expenses are

reimbursed from funds allocated under

Title XIX. The DRA’s insertion of the

phrase “not so eligible” into the formula

did not “clarify” this simple equation—

it simply changed it. See U.S. uv.

Montgomery County, Md., 761 F.2d

998, 1003 (4th Cir. 1985) (“[A] statute

which has all along unambiguously

proclaimed WHITE cannot

retrospectively be made to _ assert

BLACK just because the legislature, at

the later date, says so.”).

App. 23a. The court further noted that the DRA’s

purported “clarification” was contradicted not

only by the unambiguous language of the pre-

DRA statute, but also by laws enacted in the

103rd and 105th Congresses, which expressly

read the pre-DRA Medicare statute as requiring

inclusion of expansion waiver days in DSH

calculations. App. 24a-25a (citations omitted).

Having found that the DRA made a

“substantive change to the statutory DSH

formula,” the court next analyzed whether this

substantive change could be applied retroactively.

Id. The court was “mindful of the heavy

presumption in the law against the retroactive

application of statutes and the rule that courts

will only apply a law retroactively if there is a

clear statement in the statute requiring that

result.” App. 25a-26a (citing Rivers v. Roadway

Express, 511 U.S. 298, 307-310 (1994)). The court

concluded, however, that the DRA embodied a

“clear statement” of Congress’s intent to have the

change apply retroactively because (1) Congress

used the term “clarification” in the title of Section

5002 of the DRA; and (2) Congress purported to

ratify the Secretary’s 2000 final interim rule.

App. 26a-28a. Then, after remand from the Court

of Appeals, the district court entered a new

judgment in the Secretary’s favor. 2

IV. The Court Of Appeals Affirms Finding

That The DRA Can Be Applied

Retroactively.

Petitioners appealed that revised judgment,

arguing that the pre-DRA statutory scheme

unambiguously required the Secretary to include

expansion waiver days in Petitioners’ DSH

calculations; that the DRA, therefore, did not

clarify the DSH formula,’ but instead

substantively changed it; and that such a

substantive change could not be applied

retroactively under Landgraf and its progeny

because Congress had not clearly mandated such

a retroactive application.

Unlike the district court, the D.C. Circuit did

not begin its analysis by asking whether Congress

had clearly expressed its intent that the DRA

apply retroactively. Instead, the panel began by

asking whether Petitioners had relied on the

language of the pre-DRA statutes when they

provided care to expansion waiver populations.

App. 7a-8a. Without focusing on the text of the

2 The four Baptist hospital petitioners were litigants in a

separate action that, on appeal, was argued and decided

together with the Cookeville hospital petitioners’ appeal.

The district court had entered its decision in the Baptist

hospitals’ action based upon its entry of judgment in the

Cookeville action. App. la-2a, 12a.

pre-DRA statute itself, the panel declared that

the statute was “unclear.” App. 7a-lla. Then,

having made that declaration, the panel found

that the DRA must have been a clarification of

the pre-DRA statute without analyzing whether

the DRA, in fact, effected a substantive change in

the law. App. 8a-lla Finally, based on its

findings that Petitioners could not reasonably

have relied on the pre-DRA statute and that the

DRA merely clarified the prior statute, the D.C.

Circuit held that the DRA could be applied

without concern for its retroactive effect. Jd.

REASONS FOR GRANTING THE PETITION

This Court should grant certiorari to clearly

delineate the circumstances, if any, in which a

court may bypass the rigorous analysis that must

be employed before the presumption against

retroactive application of new legislation can be

overcome. The decisions of the Courts of Appeals

are 1n considerable conflict on this issue—-and the

D.C. Circuit now has joined several circuits in

employing an approach that circumvents the

required analysis, resulting in a weakening of a

presumption “deeply rooted in our jurisprudence.”

Landgraf, 511 U.S. at 265.

This Court has long-held that “congressional

enactments and administrative rules will not be

construed to have retroactive effect unless their

language requires this result.” Landgraf, 511

U.S. at 264 (quoting Bowen v. Georgetown

University Hospital, 488 U.S. 204, 208 (1988)).

This presumption against retroactivity buttresses

specific constitutional guarantees, including the

right to due process of law, and_ reflects

“leJlementary considerations of fairness,” which

“dictate” that “individuals have an opportunity to

know what the law is and to conform their

conduct accordingly.” Id. at 265 (citations

omitted). The presumption thus “accords with

widely held intuitions about how statutes

ordinarily operate” and “generally coincide[s]

with legislative and public expectations” that a

newly-enacted statute will only apply to post-

enactment conduct. Id. at 272.

In accordance with this constitutionally-based

presumption, this Court has made clear that only

Congress can authorize the _ retroactive

application of new legislation and likewise has

held that Congress must make clear its intent

when making that authorization. Thus, “the first

step in {the retroactivity analysis] is to ascertain

whether Congress has directed with requisite

clarity that the law be applied retrospectively.”

St. Cyr, 533 U.S. at 316. Indeed, “[c]ases where

this Court has found truly retroactive effect

adequately authorized by statute have involved

statutory language that was so clear that it could

sustain only one _ interpretation.” Lindh ov.

Murphy, 521 U.S. 320, 328 n.4 (1997). Requiring

such clarity “assures that Congress itself has

affirmatively considered the potential unfairness

of retroactive application and determined that it

is an acceptable price to pay for’ the

countervailing benefits [and] allocates to

Congress responsibility for fundamental policy

judgments concerning the proper temporal reach

of statutes ...°. Landgraf, 511 U.S. at 272-73

Further, this Court also has made clear that,

absent an unmistakable congressional directive

for retroactive application, a new statute that

would have a “retroactive effect” can be applied

on a prospective basis only. St. Cyr, 533 U.S. at

315-16 (“retroactive statutes raise special

concerns,” and therefore “a statute may not be

applied retroactively ... absent a clear indication

from Congress that it intended such a result.”). A

statute has an impermissible retroactive effect if

it “attaches new legal consequences to events

completed before its enactment.” St. Cyr, 533

U.S. at 321 (citation and internal quotations

omitted).

Here, however, the D.C. Circuit determined

that the DRA could be applied retroactively even

though Congress did not expressly authorize the

statute’s retroactive application and even though

the DRA altered the legal consequences of acts

completed before its effective date. The decision

is a marked departure from this Court’s

precedents establishing high hurdles that must

be cleared before the presumption against

retroactivity can be overcome. The decision,

moreover, directly implicates and heightens

existing controversies in the circuits concerning

two pivotal and outcome determinative issues

relating to the retroactivity analysis.

First, the D.C. Circuit concluded that the

presumption against retroactivity did not apply

because the DRA was merely a “clarification,” not

a change in the law. This Court has not directly

spoken to the question of where this clarification

construct fits in the retroactivity analysis; and

the circuits have taken different approaches when

considering the issue. Since the “clarification”

label has become a proxy to avoid any analysis of

the overarching presumption against

retroactivity, there is a need for consistency in

resolving whether or when a purported statutory

“clarification” can circumvent Landgra/'s

retroactivity principles. Perhaps more

importantly, since the circuits already are in

disagreement on this issue, onlv this Court can

supply the much-needed uniformity.

Second, the D.C. Circuit’s view that the

presumption against retroactivity is not

implicated absent proven reliance on the pre-

existing law also dangerously weakens the

presumption and deepens the considerable

conflict among the circuits over (1) the role

reliance plays in the retroactivity analysis and (2)

whether this Court’s decision in St Cyr altered

the foundational retroactivity principles

established in Landgraf. Here again, because

the conflict has ripened, only this Court can settle

the matter.

Nor is the need for this Court’s intervention a

matter of surmise or hypothesis. As shown more

fully below, application of these various legal

standards yields inconsistent results, with the

constitutionally-grounded presumption

intervening to prevent retroactive application in

some circuits but not in others.

This case affords this Court the ideal

opportunity to resolve the substantial

disagreement among the circuits on whether and

when the presumption against retroactivity can

be overcome and thereby help to reduce or avoid

the inconsistencies that presently exist.

Guidance from this Court also will provide the

added benefit “of giving legislators ... predictable

background rule[s] against which to legislate.”

Landgraf, 511 U.S. at 273. Review likewise is

warranted to restore the efficacy of the principle

embodied in a well-entrenched and pervasive

presumption—that is, “the principle that the legal

effect of conduct should ordinarily be assessed

under the law that existed when the conduct took

place[,] ... a rule of law that gives people

confidence about the legal consequences of their

actions.” St. Cyr, 533 U.S. at 316 (citations

omitted).

Be The Decision Below Conflicts With

This Court’s Precedents And Deepens

A Recognized Conflict In The Circuits

On Whether And When Statutory

Amendments Can Be Characterized As

A “Clarification” And Not Subject To

The Presumption Against

Retroactivity.

Despite the reasoning in this Court’s

precedents, the D.C. Circuit did not begin by

asking the core threshold question in the

retroactivity analysis, t.e., whether Congress

expressed a clear intent that the DRA be applied

retroactively. The court only turned to the

question of whether Congress intended the DRA

to apply retroactively at the end of its opinion,

perfunctorily concluding that because “it was

unclear prior to the Deficit Reduction Act,

whether the Secretary had discretion to exclude

the expansion waiver population from. the

disproportionate share hospital adjustment],] ...

fijt follows that there is no problem of

retroactivity. The Deficit Reduction Act did not

retroactively alter settled law; it simply clarified

an ambiguity in the existing legislation.” App.

10a-11a.

This Court has not spoken directly to the

question of how, if at all, the D.C. Circuit's

clarification construct fits in the retroactivity

analysis. In the absence of this Court’s guidance,

the circuits have taken different approaches to

whether a conclusion that legislation is a

“clarification” avoids Landgraf’s_ retroactivity

analysis and, if it does, what is required to

establish that legislation is a clarification that

can be applied retroactively without such

analysis. Levy v. Sterling Holding Co. LLC, ___

F.3d ____, 2008 WL 4415135, at *12 (3d Cir. Oct.

1, 2008) (recognizing divergent views on whether

a clarification raises retroactivity concerns

requiring evaluation under the Landgraf

analysis) (citing cases including the D.C. Circuit’s

opinion below).

Some circuits begin their analysis’ by

assuming that if new legislation is a clarification

of existing law, the presumption against

retroactivity is not implicated and the new law

can be applied to any controversy without a full

analysis under Landgraf or its progeny. See

Porter v. Commissioner, 856 F.2d 1205, 1209-10

(8th Cir. 1988); ABKCO Music, Inc. v. LaVere,

217 F.3d 684, 689 (9th Cir. 2000); Barnes uv.

Cohen, 749 F.2d 1009, 1015-16 (38d Cir. 1984);

Brown v. Thompson, 374 F.3d 253, 259 (4th Cir.

2004); Beverly Community Hospital Association v.

Belshe, 132 F.3d 1259, 1264 (9th Cir. 1997):

Piamba Cortes v. American Atrlines, Inc., 177

F.3d 1272, 1283-84 (11th Cir. 1999): see also Levy,

2008 WL 4415135, at *12 (addressing agency

retroactive rule-making and explaining that a law

does not implicate retroactivity concerns “if it

‘d{oes] not alter existing rights or obligations [but]

merely clarifie[s] what those existing rights and

obligations halve] always been”) (alterations in

original) (quoting Appalachian States Low-Level

Radioactive Waste Commission uv. O'Leary,

93 F.3d 103, 113 (3d Cir. 1996)).

That view is not, however, universally

accepted. For example, the Federal Circuit has

explained that “[mjerely categorizing rules or

applications of rules as ‘clarifications’ or ‘changes’

provides little insight into whether a retroactive

effect would result in a particular case[,]” as “a

clarification, in fact, ‘changes the legal land

scape,’ because ‘a precise interpretation is not the

same as a range of possible interpretations.”

Princess Cruises, Inc. v. United States, 397 F.3d

1358, 1363 (Fed. Cir. 2005) (quoting Health

Insurance Association of America, Inc. v. Shalala,

23 F.3d 412, 423-24 (D.C. Cir. 1994)). For this

reason, the Federal Circuit concluded that “the

binary analysis—change or clarification”’—which

short-circuits the Landgraf analysis—‘“conflicts

with the court’s obligation to weigh the various

factors described in Landgraf|,] [as] Landgraf

explicitly requires the court to consider ‘the

nature and extent of the change in the law,’ not

merely whether a change has occurred.” Princess

Cruises, 397 F.3d at 1363 (emphasis in criginal)

(quoting Landgraf, 511 U.S. at 270).

Other circuit decisions express similar

concerns over attempts to divine what is a mere

“clarification,” as opposed to a substantive change

in the law. As Judge Posner observed, “Congress

is not an interpretive body .... “lhe views of a

subsequent Congress form a hazardous basis for

inferring the intent of an _ earlier one.”

Paramount Health Systems, Inc. v. Wright, 138

F.3d 706, 710 (7th Cir. 1998) (quoting United

States v. Philadelphia National Bank, 374 U.S.

321, 348-49 (1963) and citing South Dakota uv.

Yankton Sioux Tribe, 522 U.S. 329, 354-55

(1998)). More fundamentally, authorizing

circumvention of Landgraj’s more robust analvsis

by characterizing a statutory amendment as a

mere “clarification” can lead to mischief or

manipulation: “a disappointed litigant in a

statutory case in a federal district court could

scurry to Congress while the case wes on appeal

and request a ‘clarifying’ amendment that would

reverse the interpretation that the district judge

had given to the statute, even if that meaning

was crystal clear ..... Paramount Health, 138 F.3d

at 710.3

Beyond this threshold disagreement on

whether a clarification can be relied on to bypass

Landgraf'’s retroactivity analysis, the circuits

likewise are not in agreement on the approach

that should be applied in determining whether

3’ Judge Posner took this concern a step further when he

also observed that applying a “clarification” retroactively in

the absence of a clear congressional statement expressly

authorizing retroactive application colldes with the

“principle that Congress cannot direct the outcome of a

pending case without changing the law applicable to that

case.” Paramount Health, 138 F.3d at 710 (citing Plaut v.

Spendthrift Farm, Inc., 514 U.S. 211, 218 (1995)) (other

citations omitted).

Congress has clarified rather than changed the

law.

The Eighth Circuit, for instance, has

concluded that new legislation amounts to a

clarification, rather than a change in the law,

where the record “unmistakabl[{y]” demonstrated

that “Congress intended to take dead aim at a

case that runs afoul of Congress’ original intent”

by “identif[ying] the objectionable holding ... and

indicat[ing] [its] intention to overturn that

holding.” Porter, 856 F.2d at 1210; see also id. at

1209 (noting a House Conference report expressly

stating that a recent court decision was incorrect

and that “[u]nder the House bill, the decision is

overturned ...”). The Ninth Circuit has employed

this approach as well. See ABKCO Music, 217

F.3d at 690-91 (observing that the Conference

Committee stated that the amendment “restores

the law to what it was before [a] decision of the

Ninth Circuit ... and reverses [the Ninth

Circuit’s] decision ...”) (quoting H.R. Rep. No.

105-325 at 5 (1995)).

Still other circuit decisions have held that

new legislation can be characterized as a

clarification where Congress finds a split in

judicial authority and clearly expresses its intent

to resolve that controversy. The Third Circuit

thus found that statements made by the

Chairman of the Conference Committee and

another member of Congress “explicitly stat[ing]

that the purpose of the amendment ... was to

clarify the original statute in light of conflicting

court decisions” “tip[ped] the scales in favor of

finding the amendment to be a ‘clarification’

rather than a ‘change.” Barnes, 749 F.2d at

1015-16. Likewise, the Fourth Circuit found that

an amendment was a clarification when Congress

acted where “courts were divided[,]” noting

Senator Grassley’s express statement that the

amendments “do not change existing law ... but,

in fact, clarify the intent of Congress ....” Brown,

374 F.3d at 257-60 (quoting 149 Cong. Rec.

S15584-85 (daily ed. Nov. 22, 2003)). The Ninth

Circuit similarly concluded that Congress had

clarified existing law where it indicated that it

was “deliberately targeting what were known to

be existing disputes on the subject.” Beverly, 132

F.3d at 1266.

Attempts to reconcile these _ differing

approaches are difficult, if not futile. While each

of these decisions involves a threshold inquiry

aimed at determining whether Congress has

acted to “overrule” a judicial decision or address a

split in judicial authority, there nonetheless is

disagreement on how explicit Congress must be in

indicating that legislation is a clarification of

existing law. On one end of the spectrum, courts

have found legislation to be a clarification, not

just because Congress took direct aim at a judicial

decision or circuit split, but also because Congress

expressly authorized some type of “retroactive

application” in the text of statute itself. See

Beverly, 132 F.3d at 1264 (noting that “cffective

date” provision of statute directed that “[t}he

amendments ... shall also apply to payments by a

State for items and services furnished before [the

effective date] if such payment is the subject of a

lawsuit that is based on [the prior law]”); Brown,

374 F.3d at 259 (explaining that Congress

“expressly provided in [the statute] that these

technical and clarifying amendments be made

effective ‘as if included in the enactment’ of the

fearlier] legislation preceding the 1989

amendments”). At the other end of the spectrum,

decisions have suggested that the existence of a

controversy in the courts might be sufficient to

find that Congress had clarified rather than

changed the law even in the absence of any

express indication that Congress’ acted

specifically to resolve the controversy in the

courts. See Brown, 374 F.3d at 259 n.2 (“[E]ven if

Congress had given no direct indication that it

intended [the new legislation] to be clarifying,

courts regularly view a conflict in the courts with

regard to the proper interpretation of a statute—

as existed [here]-—as an indication that Congress

passed a subsequent amendment to clarify rather

than change existing law”); Piamba Cortes, 177

F.3d at 1283-84 (holding that a significant factor

in determining whether an amendment clarifies

or substantively changes the law is whether a

substantial split in authority exists).

The differences in the circuits’ approaches,

moreover, are consequential. They can and do

lead to different results on the retroactivity

question even when the same statute is involved.

This case ulustrates the profound incongruities

resulting from the divergent approaches.

Here, for example, the D.C. Circuit weighed

in on the side of the circuits “finding retroactivity

to be a non-issue with respect to new laws that

clarify existing law.” Levy, 2008 WL 4415135, at

*12 (citing D.C. Circuit’s opinion together with

Barnes, Piamba Cortes and other cases). Yet, if

this case had been decided in the Federal Circuit,

Landgraf’s much more rigorous analysis would

have been employed—leading to a finding that

the DRA could not be applied retroactively

because there is no express indication of an intent

to clarify existing law, much less for the

retroactive application in the first instance.4

The divergence, however, does not end with

these two circuits. The outcome would have been

different even in those circuits sharing the D.C.

Circuit’s view that clarifying amendments fall

outside Landgraf’s presumption. In contrast to

the analysis employed in several other circuits,

the D.C. Circuit did not focus on whether the text

of the DRA or its legislative history indicated that

Congress intended §5002 to be a clarification of

what Congress intended all along in the Medicare

4 Section 5002 of the DRA includes no express retroactivity

provision and the language of §5002(a), which allows the

Secretary to exclude expansion waiver days from the DSH

calculation, looks only to the present and the future,

providing that the Secretary “may ... include” certain

inpatient days in the DSH calculation. Since there is no

indication that Congress was acting retroactively when it

enacted the DRA, it is much more plausible that it was

concerned about prospectively reducing the cost of the

Medicare and Medicaid programs. See Paramount Health

System, 138 F.3d at 710 (“The location of the 1997

amendments in a statute labeled the ‘Balanced Budget Act’

and concerned primarily with cutting the federal deficit

hardly creates confidence that Congress was, court-like,

interpreting the 1986 statute. It is far more realistic to

regard the ... provisions as designed to change the original

statute in order to reduce the cost of Medicaid to the federal

government. Nothing in the provisions themselves suggests

a process of interpretation; they merely declare that the

states are not required to reimburse [qualified Medicare

beneficiary] providers at the Medicare rate.”).

statute. The Fourth and Ninth Circuits, by

comparison, would have searched the text of the

DRA for an indication of intent for retroactive

application and would have reached a different

conclusion on whether the DRA could be applied

retroactively because nothing in the language of

the DRA suggests that Congress authorized

retroactive application of the new legislation.

Still other circuits, as noted, would have

looked for clear indications that Congress was

targeting a judicial decision not in accord with the

intent of the pre-DRA Medicare statute or judicial

decisions interpreting the statute in different

ways. This analysis would have yielded a

different outcome here as well. Nothing in the

text of the DRA or other legislative materials

indicates that Congress was responding to either

a judicial decision it believed had incorrectly

construed the Medicare statute or divergent

judicial interpretations of the statute. In fact,

there was no such controversy. Prior to the

DRA’s enactment, every court that had

considered the issue had ruled that the pre-DRA

Medicare statute unambiguously required

expansion waiver days to be included in the DSH

calculation.®

6 Congressional statements would indicate that Congress

did not disagree with those decisions. In 1997, when

directing the Secretary to provide a report on certain

information relating to the Medicare DSH calculation,

Congress expressly stated that pre-DRA Medicare DSH

calculation includes not only traditional Medicaid days, but

also “individuals who receive medical assistance under

[Title X1X] pursuant to a waiver approved by the Secretary

under section 1115 ....” See Pub.L.No. 105-33,

§4403(b)(3)(B).

Consequently, although it joined the ranks of

those circuits holding that clarifications do not

raise retroactivity concerns, the D.C. Circuit

adopted yet another distinct approach _ to

assessing whether a_ statute is merely a

clarification of existing law and thereby serves to

avoid Landgraf’s retroactivity analysis. The court

concluded that the DRA must have been a

clarification because, in the court’s own view, the

pre-DRA statute was ambiguous. The unstated

premise underlying this approach—that

whenever Congress amends what a court believes

to be an ambiguous statute then Congress must

be “clarifying” the law—creates further

opportunities for mischief in this already

unsettled area of law.

Of course, Congress might amend an

ambiguous statute because it wants to clarify it.

But it also could take that step because it wants

to charge the law—and a court’s own views on

statutory ambiguity perforce say nothing about

Congress’ intent in enacting the new legislation.®

6 Here, for example, even Congress’s use of the word

“clarification” in the title of §5002 does not necessarily

resolve the question of whether the DRA constitutes a

change in the law. See St. Cyr, 553 U.S. at 208-09 (“[A] title

alone is not controlling.”) (citing Pennsylvania Department

of Corrections v. Yeskey, 524 U.S. 206, 202 (1998) (“[T]he

title of a statute ... cannot limit the plain meaning of the

text.”); United States v. Marmolejos, 140 F.3d 488, 492-93

(3d Cir. 1998) (“‘[T]he mere fact that an amendment is

referred to as a clarification or a revision is ordinarily of

slight import to [the] analysis.”); Cruz v. American Atrlines,

Inc., 193 F.3d 526, 530 (D.C. Cir. 1999) (Statutory

“[p]rovisions [that] clearly amend prior law ... cannot

possibly be ziven retroactive effect by being labeled a

See Brown, 374 F.3d at 259 (“In determining

whether an amendment clarifies or changes an

existing law, a court, of course, looks’ to

statements of intent made by the legislature that

enacted the amendment.”). Therefore, a proper

analysis of whether the DRA was a clarification

should have started with an examination of

congressional intent in enacting the pre-DRA

statute, without reference to subsequent

enactments or agency statements on the prior

law. See Chevron U.S.A. Inc. v. Natural

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

342-43 (1984) (“If the intent of Congress is clear,

that is the end of the matter; for the court, as well

as the agency, must give effect to the

unambiguously expressed intent of Congress ....”).

But the D.C. Circuit bypassed that analysis and

determined that the pre-DRA_ statute was

“unclear” by relying on its own view of the import

of enacting the DRA and of agency statements

regarding the pre-DRA statute. App. 10a-lla

(evaluating whether the pre-DRA statute was

“unclear” by asking which reading of that statute

“finds some support in the [DRA]”). Here again,

however, an analysis of the pre-DRA statute

under settled rules of statutory construction

would have yielded a different result—i.e., that

the statute was unambiguous and there was no

need to look elsewhere to ascertain the intent of

Congress. That, in turn, would have revealed

that Congress had changed the law in enacting

the DRA.

‘clarification.”’). In fact, as the district court in Cookeville II

concluded, “what {Congress} called a “clarification” was

actually a substantive change in the law. App. 25a-26a.

The D.C. Circuit added another novel twist by

concluding that, through the DRA’s very lmited

ratification provision, Congress was

“emphasiz[ing] that the Secretary always had

[the] discretionary authority [to exclude

expansion waiver days from the DSH

calculation].” App. 10a-lla (citing DRA

§5002(b)).’ That ratification provision does not

provide a basis to find that the DRA was merely a

clarification of the pre-DRA Medicare statute, as

it too says nothing about what Congress meant in

that earlier legislation. What's more, although

“ratification” can be used to cure defects in agency

authority, it cannot be relied upon to authorize

retroactive application of new legislation that

changes the law unless Congress states that it is

changing the law to comport with the agency’s

construction of the statute (which was at odds

with prior law) and expressly states that it

intends the legislation to apply retroactively. See

EEOC uv. CBS, Inc., 743 F.2d 969, 974 (2d Cir.

1984) (“ratifying legislation must recognize that

the actions involved were unauthorized when

taken and must also expressly ratify those actions

7 The limited ratification provision in §5002(b) cuntains a

January 20, 2000 effective date, which means that, by its

express terms, it does not cover the patient discharges at

issue in this case, all of which predate January 20, 2000.

See DRA §5002(b)(1).

® Any approach that relies on the ratification construct to

circumvent the required retroactivity analysis also would

conflict with the settled rule that an agency has no

retroactive rule-making power unless given that power by

Congress, and, even then, its “rules will not be construed to

have retroactive effect unless their language requires this

result.” Bowen, 488 U.S. at 208.

in clear and unequivocal language”). Indeed,

interpreting §5002(b) as effectuating a retroactive

change in the law violates the prohibition against

using ratification to retroactively create new

legislative policy. See Swayne & Hoyt v. United

States, 300 U.S. 297, 300-02 (1937) (“distinction

must be taken between a bare attempt of the

Legislature retroactively to create habilities for

transactions ... fully consummated in the past ...

and the case of a curative statute aptly designed

to remedy mistakes and defects in the

administration of government ....”).

In the end, the D.C. Circuit’s approach to the

clarification issue is a deeply troubling variation

on an equally troubling theme. This Court’s

precedents emphasize that only Congress can say

that new legislation should be _ applied

retroactively. Yet, under. the D.C. Circuit's

approach, a court’s own conclusion that new

legislation is a clarification, untethered to a

searching analysis of Congress’s intent to clarify,

becomes a means to avoid the constitutionally-

grounded presumption against retroactivity. See

St. Cyr, 533 U.S. at 320 n.45 (“a statute that is

ambiguous with respect to retroactive application

is construed under our precedents to be

unambiguously prospective’) (citing Landgraf,

511 U.S. at 264). Even if a finding that a statute

is a clarification can be sufficient reason to end

the retroactivity analysis, the question should

remain whether Congress intended the

amendment to be a clarification—and one that

should be applied retroactively at that. Landgraf,

511 U.S. at 272-73 (“Requiring clear intent

assures that Congress itself has affirmatively

considered the potential unfairness of retroactive

application ...and has the additional virtue of

giving legislators a predictable background rule

against which to legislate.”).

This Court’s guidance thus is needed to settle

the law on whether anc.’ when a _ purported

“legislative clarification” of existing law can be

applied retroactively. Without that guidance, the

constitutional principles embodied in_ the

presumption against retroactivity will continue to

be applied inconsistently, with disparate and

irreconcilable results.

II. The Decision Below Conflicts With

This Court’s Precedents And Deepens

Recognized Conflict In The Circuits

On The Role Reliance Plays In The

Retroactivity Analysis.

Because Congress did not expressly authorize

retroactive application of the DRA, prospective

application of the statute is required unless it

lacks a retroactive effect. Landgraf, 511 U.S. at

280. The D.C. Circuit, however, short-circuited

the assessment of whether application of the DRA

to Petitioners’ claims would have-= an

impermissible retroactive cffect. The court held

that the DRA could be applied retroactively

because the Hospitals could not reasonably have

relied on the pre-DRA Medicare statute as a

result of the Secretary’s and certain fiscal

intermediaries’ position that expansion waiver

days should not be included in the Medicare DSH

calculation. App. 7a-8a. Under the D.C. Circuit’s

reasoning, therefore, the presumption against

retroactivity cannot be invoked in the absence of

actual subjective reliance by the party resisting

retroactive application.

In adopting that approach, the D.C. Circuit’s

holding once again deepens an existing circuit

split. As with the “clarification” question, the

split among the circuits goes beyond mere

academic concern. The outcome of a retroactivity

analysis involving the same federal statute and

same set of circumstances varies greatly from

circuit to circuit and with those variations comes

different declarations of what due _ process

purportedly requires.

First, there is an avowed conflict over

whether reliance on prior law is a prerequisite for

application oof the presumption against

retroactivity—a conflict expressly acknowledged

by the lower courts. See Martinez v. INS, 523

F.3d 365, 384 (2d Cir. 2008) ‘Straub, J.,

concurring) (noting disagreement on whether

“reliance should be a requirement at all”);

Hernandez de Anderson v United States, 497 F.3d

927, 938 (9th Cir. 2007) (noting “considerable

disagreement among the courts of appeal

considering whether ‘reasonable reliance’ ... is a

required element of a Landgraf claim”); Hem uv.

Maurer, 458 F.3d 1185, 1191 (10th Cir. 2006)

(“lower courts have split over ... whether reliance

must be established objectively, subjectively, or

even at all”); United States v. De Horta Garcia,

519 F.3d 658, 666 (7th Cir. 2008) (Rovner, J.,

concurring) (noting disagreement among circuits

and concluding that, although Seventh Circuit

precedent requires proof of reliance, “[p]ersuasive

authority from our sister circuits suggests ... that

... the precedents ... may be incorrect and should

be revisited”).

The Third, Fourth and Tenth Circuits have

held that reliance is not a_ prerequisite for

invocation oof the presumption against

retroactivity—and, indeed, that any _ such

requirement would be inconsistent with this

Court’s precedents.2 The D.C. Circuit now joins

the First, Second, Fifth, Seventh and Ninth

Circuits in holding that that, unless reliance on

the prior law is established, there is no

prohibition against applying a new statute

retroactively.

® Atkinson v. United States, 479 F.3d 222, 227-28, (3d Cir.

2007) (“[t]he Court has never held that reliance on the prior

law is an element required to make the determination that

a statute may not be applied retroactively”); Hernandez v.

Gonzales, 437 F.3d 341 (3d Cir. 2006) (‘In sum, ‘[t]he

Landgraf line ... establishes that a change in law can be

found impermissibly retroactive without establishing that

some (or all) members of the group affected by the change in

law relied on the prior state of the law.”) (quoting

Ponnapula v. Ashcroft, 373 F.3d 480, 490 (3d Cir. 2004);

Olatunji v. Ashcroft, 387 F.3d 383, 391 (4th Cir. 2004)

(“(T]he consideration of reliance is irrelevant to statutory

retroactivity analysis”); Hem, 458 F.3d at 1198-99

(“Consistent with ... the Landgraf cases, [the Supreme]

Court never converts ‘detrimental reliance’ on prior law into

a prerequisite for sustaining a retroactivity claim. Rather,

the retroactivity inquiry remains the two part inquiry

established in JLandgraf, together with a_ strong

presumption against retroactive application, with no

discussion of reliance even appearing until the Court

summarizes the pertinent facts of St. Cyr.”) (citation

omitted).

10 Martinez, 523 F.3d at 379 (Straub, J., concurring)

(explaining that, in the Second Circuit, if reliance is not

Second, there is considerable disagreement in

the circuits over what type of reliance—

objectively reasonable reliance or individualized

subjective reliance—must be established in

undertaking the retroactivity analysis.

Hernandez de Anderson, 497 F.3d at 938 (noting

“considerable disagreement among the courts of

appeal considering whether ... if some form of

reliance is required, what form it must take”);

Martinez, 523 F.3d at 382 (Straub, J., concurring)

(noting that whether “petitioners arguing

impermissible retroactivity show individualized,

detrimental reliance on the prior law is the

subject of a considerable amount of controversy

among, within, and surrounding the courts of

appeals and may be ripe for re-examination or

review ).

shown there is no need to “examine ‘whether the new

provision attaches new legal consequences to events

completed before the enactment,’ Landgraf, 511 U.S. at 269-

70,” and that “in order to successfully argue that the rule is

impermissible retroactive as applied to [the] case, [party]

must show that he detrimentally relied on the prior rule”):

De Horta Garcia, 519 F.3d at 666 (Rovner, J., concurring)

(explaining that Seventh Circuit requires proof of reliance);

Camins v. Gonzales, 500 F.3d 872, 884 (9th Cir. 2007) (“We

have formulated this rule in the negative: Aliens making a

Landgraf retroactivity argument cannot prevail if they

cannot plausibly claim that they would have acted

differently if they had known about the elimination of [the]

relief.”) (quoting Hernandez de Anderson, 497 F.3d at 939;

Dias v. INS, 311 F.3d 456, 458 (ist Cir. 2002) (absent proof

of reliance, “Jonc}] mav not argue that the statute has

impermissible retroactive effect as to him.”); Carranza-de

Salinas v. Gonzales, 477 F.3d 200, 206 (Sth Cir. 2005)

(‘[T]his circuit requires [one] ... to demonstrate actual,

subjective reliance on the [prior] state of the law to be

eligible for relief from its retroactive application.”).

The circuits again are closely divided on this

issue. Five circuits—counting the D.C. Circuit—

require proof of actual subjective reliance by the

party resisting retroactive application.'!! Five

circuits have held that when reliance is

involved—either as a prerequisite for application

of the presumption against retroactivity or as a

factor sufficient to conclude that the presumption

is not overcome—reliance need be only objectively

reasonable. !2

11 Groccia v. Reno, 234 F.3d 758, 763 (1st Cir. 2003)

(requiring a showing of “actual and reasonable reliance’);

Martinez, 523 F.3d at 379 (2d Cir.) (Straub, J., concurring)

(“[I]n [the Second] Circuit, petitioners seeking to show that

the new law was impermissibly applied to their case

retroactively must show that they detrimentally relied on

the privr law.”); Carranza-de Salinas, 477 F.3d at 206

(“[The Fifth] circuit requires ... actual, subjective reliance”);

De Horta Garcia, 519 F.3d at 661 (“|The Seventh Circuit]

require[s} a showing of specific facts demonstrating actual

reliance.”); but see De Horta Garcia, 519 F.3d at 665

(Rovner, J., concurring) (“[NJo Supreme Court decision

requires or turns on proof that the party contesting

retroactive application of new legislation actually relied to

his detriment on prior law in setting his own course of

conduct ... To the extent that reliance ought to plav a role

in the retroactivity analysis, it is objective rather than

subjective reliance that should be considered[.}”).

2 ~6Although the Ninth Circuit has held that reliance is

required, it has concluded that only objectively reasonable

reliance must be shown. Camins, 500 F.3d at 884 (“[Wje

require that reliance on the prior law would have been

objectively reasonable under the party's circumstances’).

The Third, Fourth and Tenth Circuits do not require

reliance, but have held that when reliance is considered as

a factor showing impermissible retroactive effect, that

reliance need be only objectively reasonable. Ponnapula,

373 F.3d at 493 (“The likelihood that the party before the

Third, this Court’s later decision in St. Cyr

has produced another level of disagreement

among the circuits on the role reliance plays in

the retroactivity analysis. See, e.g., Hernandez de

Anderson, 497 F.3d at 938 (“St. Cyr has produced

considerable disagreement among the courts of

appeal considering whether “reasonable reliance”

. is a required element of a Landgraf claim to

that relief, and, if some form of reliance is

required, what form it must take”) (cataloging

circuit split); Hem, 458 F.3d at 1191 (“Since St.

Cyr, lower courts have split over ... whether

reliance must be established objectively,

subjectively, or even at all’).

Several circuits have concluded that St. Cyr

fundamentally altered the retroactivity analysis

such that the presumption against retroactivity

does not apply unless there was reliance on prior

law.'3 See, e.g., Martinez, 523 F.3d at 379-80

court did or did not in fact rely on the prior state of the law

is not germane to the question of retroactivity. Rather,

courts are to concentrate on the group to whose conduct the

statute is addressed ....”); Olatunji, 387 F.3d at 396; Hem,

458 F.3d at 1187, 1195 (“St. Cyr leaves little doubt that the

Supreme Court has never insisted upon actual] reliance ...

and “[w]le conclude that an objective showing of reliance is

the appropriate rule.”). The Sixth Circuit has not clearly

weighed in on the question of whether reliance is a

prerequisite, but have held that when réiiance is involved,

it need be only be objectively reasonable. Thaqi v. Jenifer,

377 F.3d 500, 504 n.2 (6th Cir. 2004) (“The petitioner need

not demonstrate actual] reliance ... in order to demonstrate

an impermissible retroactive effect”).

‘8 Although these post-St. Cyr decisions arose in the

immigration context, the circuit’s conclusions on reliance

are stated as general] propositions that would be applicable

whenever the retroactivity question arises.

(Straub, J., concurring) (explaining that Second

Circuit’s view that reliance is a requirement

resulted from St. Cyr (citations and internal

quotations omitted); Atkinson, 479 F.3d at 227

(noting that “since the Court’s decision in St. Cyr,

courts of appeals in other circuits have

understood the Court’s discussion of reliance and

quid pro quo as requiring that there be reliance

on the prior state of the law”) (citations omitted).

The Third and Fourth Circuits, however,

disagree that St. Cyr altered the foundational

retroactivity analysis. As the Third Circuit

explained, “reading ... St. Cyr las requiring

reliance} runs contrary to our understanding of

prior Supreme Court law ... Landgraf teaches

that, in determining if a= statute applies

retroactively, a court must begin with the statute.

If the statute is ambiguous as to its temporal

reach, the question is whether it attaches new

legal consequences to past events. If the court

determines that the statute has retroactive effect

because of such consequences, that determination

is applied across the board.” Atkinson, 479 F.3d

at 227 (citations omitted). The Third Circuit

further observed that, in St. Cyr, this Court did

not “consider whether, beyond the reliance factor,

there were other indicia that [the statute]

attached new legal consequences to completed

events,” Atkinson, 479 F.3d at 227, because it did

not need to, as “[the] Court regarded St. Cyr as a

clear and straightforward result flowing from

Landgraf .... St. Cyr was an easy case on the

retroactivity issue.” Ponnapula, 373 F.3d at 492-

93. Likewise, the Fourth Circuit has concluded

that “St. Cyr did not alter the requirements for

establishing retroactivity [and] did not purport to

add a subjective reliance requirement; rather, it

applied Landgraf to a set of facts [where

petitioner’s reliance] indicated ‘an obvious and

severe retroactive effect.” Olatunji, 387 F.3d at

393 (quoting St. Cyr, 533 U.S. at 325).

By concluding that reliance is a prerequisite

for invocation of the presumption against

retroactivity, the D.C. Circuit and several others

have fundamentally altered the retroactivity

analysis. In those circuits, the retroactivity

determination does not turn on whether the new

statute has an impermissible effect—by, say,

“attaching a new legal consequence to events

[already] completed]” or “tak[ing] away or

impair[ing] vested rights acquired under existing

law”’14_but instead turns only on whether there

was reliance on the prior law. What’s more, most

of these circuits have erected an even higher

hurdle for application of the presumption against

retroactivity by requiring proof of actual

subjective reliance.

This Court has never held that’ the

presumption against retroactivity applies only if

reliance much less the individualized subjective

reliance required by some circults—is

established.'® Instead, this Court's retroactivity

14 St. Cyr, 511 U.S. at 321; Landgraf, 511 U.S. at 269 n.23.

15 See Atkinson, 479 F.3d at 229 (In Hughes, “there is no

consideration ... of whether Hughes Aircraft, in particular,

or any defendant, in general, in an FCA action might have

relied on the former law in conducting business with the

government. [Rather,] it was the new legal burden imposed

on events past, rather than reliance on the former law by

the person affected, which was the basis for holding that

jurisprudence provides illustrations of the types

of statutes that have impermissible retroactive

effect—e.g.. a law that “attaches new legal

consequences to events completed before its

enactment[,]” Cyr, 533 U.S. at 321, or “takes away

or impairs vested rights acquired under existing

laws, or creates a new obligation, imposes a new

duty, or attaches a new disability, in respect to

transactions or considerations already past ....”

Landgraf, 511 U.S. at 269 n.3; see Hughes, 520

U.S. 947 (“[T]he Court has used _ various

formulations to describe the ‘functional

conceptio[n] of legislative “retroactivity,” and

made no suggestion that [this] formulation was

the exclusive definition of presumptively

impermissible retroactive legislation.”) (quoting

Landgraf, 511 U.S. at 269). None of the

illustrations of impermissible retroactive effects

provided in this Court’s precedents “purport to

define the outer limit on _ impermissible

retroactivity[,] [but] rather merely described that

any such effect constitute a sufficient, rather than

a necessary, condition for invoking’ the

presumption against retroactivity.” Hughes, 520

U.S. at 947 (emphasis in original).

As a result, elevation of reliance to a

requirement effects a sea change in retroactivity

jurisprudence and, like the approach _ to

“clarification,” significantly limits the

circumstances in_ which the deeply-rooted

presumption against retroactivity can be invoked.

the ... amendment would not be applied retroactively”); see

also Olatunji, 387 F.3d at 391 (“That the Supreme Court in

Landgraf did not intend to impose a requirement of reliance

is confirmed by Hughes Aircraft.”).

These circuits’ effectively approach the

retroactivity analysis as if there is a presumption

in favor of retroactive application, which must be

rebutted before any prospective application will

take hold. But any rule that “[has] the effect of

treating Landgraf as establishing a presumption

in favor of retroactive application” would be in

“considerable tension with the presumption

against retroactivity” and “would be wrong, as the

Supreme Court has held explicitly that a federal

court of appeals erred by concluding that

Landgraf contained a ‘strong presumption in

favor of retroactivity.” Hernandez, 437 F.3d at

349 (quoting Hughes, 520 U.S. at 950) (emphasis

in original).!§

In this case, Petitioners provided treatment to

expansion waiver populations pursuant to a

Medicare statute that unambiguously provided

that expansion waiver days should be counted in

the DSH adjustment. Without looking at what

16 The D.C. Circuit did not evaluate Petitioners’

expectations through the lens of the pre-DRA Medicare

statute. Instead, its reliance analysis begins and ends with

a focus on administrative statements on the pre-DRA

Medicare statute—without ever concluding that these

statements in fact correctly reflected what Congress

intended. Under this reasoning, therefore, whenever an

agency announces loudly or often a view contrary to a

statute that is ultimately amended, there will be advance

notice that the prior law could not be relied upon. App. 7a-

Sa. In this way, elevating reliance to the essential

prerequisite for application of the presumption will allow an

administrative agency to dictate the outcome of the

retroactivity analysis. That approach is contrary to a

foundation of retroactivity analysis—“shared expectations

about the usual operation of legislation.” Landgraf, 511

U.S. at 272-273, 286.

Congress intended by the passage of the DRA, the

D.C. Circuit used a purported lack of reliance on

the pre-DRA statutory scheme to. cut-off

Petitioners’ right to reimbuisement. And it did so

even though there is no express congressional

intent for the DRA’s retroactive application and

even though the DRA’s retroactive application

changes the legal consequences of acts completed

before its effective date. Had Petitioners’ appeal

been resolved in one of the circuits that takes a

more robust approach to retroactivity analysis,

the outcome would have been different and

Petitioners would have been entitled to more than

$54 million in DSH payments plus interest.

In the face of such inconsistencies, there once

again is a need for guidance on this aspect of the

retroactivity analysis as well. If this Court

intended for the reliance inquiry to trump the

considerations it identified in Landgraf to

reinforce the constitutionally-based presumption

against retroactivity then it should say so to bring

the circuits that apply a more rigorous analysis in

line. If it did not, then it should grant this

petition to avoid the injustice that occurred in

this case and that will occur in many other

contexts where a less searching retroactivity

analysis is employed.

CONCLUSION

There are multiple levels of demonstrable

conflicts in the circuits’ approaches to dealing

with the presumption against retroactivity. This

case provides a means to lay the most significant

of those conflicts to rest. The constitutionally-

based retroactivity analysis should not produce

differing outcomes in the same circumstances

from circuit to circuit. Yet, that is the current

state of the law. ‘This Court’s intervention is

needed and respectfully urged.

Respectfully submitted.

SANFORD E. PITLER MURRAY J. KLEIN

CAROL SUE JANES Counsel of Record

BENNETT BIGELOW & JAMES C. MARTIN

LEEDOM, P.S. KIM M. WATTERSON

1700 7th Avenue REED SMITH LLP

Suite 1900 Princeton Forrestal Village

Seattle, WA 98101 136 Main Street, Suite 250

(206) 622-5111 Princeton, NJ 08540

(609) 520-6022

Counsel for Petitioners

October 27, 2008

United States Court of Appeals,

District of Columbia Circuit.

COOKEVILLE REGIONAL MEDICAL CENTER,

et al., Appellants,

Vv.

Michael O. LEAVITT, Secretary of the United States

Department of Health and Human Services,

Appellee.

Baptist Memorial Hospital, Inc., et al., Appellants

Vv.

Michael O. Leavitt, Secretary, United States

Department of Health and Human Services,

Appellee.

Nos. 07-5252, 07-5269.

Argued May 12, 2008.

Decided June 27, 2008.

Appeal from the United States District Court for the

District of Columbia (Nos. 04cv01053, 06cv00437).

Murray J. Klein argued the cause and filed the briefs

for appellants Cookeville Regional Medical Center,

et al.

Sanford E. Pitler argued the cause for appellants

Baptist Memorial Hospzial, Inc., et al. With him on

the briefs were Carol Sue Janes, Julie Quagliano

Westeineier, and Michael C. Zisa.

August E. Flentje, Attorney, U.S. Department of

Justice, argued the cause for appellee. With him on

the brief were Jeffrey S. Bucholtz, Acting Assistant.

Attorney General, Jeffrey A. Taylor, U.S. Attorney,

and Anthony J. Steinmeyer, Assistant Director.

Before: HENDERSON, RANDOLPH and ROGERS,

Circuit Judges.

Opinion for the Court filed by Circuit Judge

RANDOLPH.

RANDOLPH, Circuit Judge:

These appeals from judgments of the district

court raise common issues regarding application of

the Deficit Reduction Act of 2005, Pub.L. 109-171

(2006). The cases were brought by two groups of

Tennessee hospitals serving patients who participate

in the state’s Medicaid plan, TennCare. A Medicaid

plan provides medical assistance to qualifying low-

income individuals. 42 C.F.R. § 430.0; 42 U.S.C.

§ 1396h et seq. The federal government shares the

cost of providing assistance if the state Medicaid

plan meets the regulations set out in subchapter XIX

of the Social Security Act. See 42 U.S.C. § 1396a.

TennCare is a non-standard Medicaid: plan

known as a demonstration project. A demonstration

project is a plan for which some of the regulations

imposed on Medicaid plans under subchapter XIX

are waived in order to “enable the states to try new

or different approaches to the efficient and cost-

effective delivery of health care services, or to adapt

their programs to the special needs of particular

areas or groups of recipients.” 42 C.F.R. § 430.25; see

also 42 U.S.C. § 1315. Despite not meeting the

requirements of subchapter XIX, the costs of

providing care under a demonstration project are

treated as federally reimbursable expenditures made

under subchapter XIX “to the extent and for the

period prescribed by the Secretary [of Health and

Human Services].”"" 42 U.S.C. § 1315(a)(2)(A).

' “In the case of any experimental, pilot, or demonstration

project which, in the judgment of the Secretary, is likely to

Continued on following page

TennCare provides medical assistance to Medicaid-

eligible low-income individuals and select uninsured

or uninsurable individuals who would not otherwise

qualify for Medicaid.” This latter group of

individuals who receive federally reimbursable care

under TennCare despite not meeting the norma!

Medicaid requirements is known as the “expansion

waiver population.”®

The central issue in these cases is whether the

expansion waiver population should be counted in

determining a hospital's Medicaid reimbursement.

At the end of each year, hospitals prepare cost

Continued from previous page

assist in promoting the objectives of subchapter I, X, XVI, or

XIX of this chapter, or part A or D of subchapter IV of this

chapter, in a State or States —

costs of such project which would not otherwise be

included as expenditures under section 303, 655, 1203,

1353, 1383, or 1396b of this title, as the case may be, and

which are not included as part of the costs of projects

under section 1310 of this title, shall, to the extent and

for the period prescribed by the Secretary, be regarded as

expenditures under the State plan or plans approved

under such subchapter, or for administration of such

State plan or plans, as may be appropriate.” 42 U.S.C.

§ 1315(a)(2)(A).

2 See Bureau of TennCare, Overview, available at http:// www.

state. tn. us/ tenncare/ news- about. html (misited May 13,

2008).

* See also Medicare Inpatient Disproportionate Share Hospital

Adjustment Calculation: Change tn the Treatment of Certain

Medicaid Days in States with 1115 Expansion Watvers, 65

Fed.Reg. 3136, 3136 (Jan. 20, 2000) (noting that demonstration

projects can expand coveragc to otherwise Medicaid ineligible

individuals).

reports seeking reimbursement for the treatment of

Medicaid patients. 42 C.F.R. § 413.24(f. The cost

reports are submitted to financial intermediaries,

who report in a “notice of amount of program

reimbursement” how much each hospital is owed

from a state’s Medicaid plan. 42 C.F.R. § 405.1803.

The bulk of the reimbursement stems from the

prospective payment system, under which a flat fee

is paid for each day spent treating a Medicaid

patient, based on the diagnosis or category of service

provided. 42 U.S.C. § 13895ww; see also Fed. Trade

Comm’n, Jmproving Health Care: A Dose of

Competition, 31 J. HEALTH POL. POL’Y & L.. 437,

447 (2006). A_ hospital can supplement its

reimbursement if it is eligible for one of several

adjustments. One available adjustment is the

disproportionate share hospital adjustment, which is

given to hospitals serving a high percentage of low-

income patients.

A statutory formula determines whether the

percentage of low-income patients a hospital treats

qualifies it for a disproportionate share hospital

adjustment and how much that adjustment should

be. See 42 U.S.C. § 13895ww(d)(5)(F)(v). The

disproportionate share percentage consists of the

sum of two fractions. Id. § 1395ww/(d)(5)(F)(vi). The

second fraction-known as the Medicaid fraction-is

the most pertinent to this case. The Medicaid

fraction is derived by dividing “the number of the

hospital’s patient days for such period which consist

of patients who (for such days) were eligible for

medical assistance under a State plan approved

under subchapter XIX [of the Social Security Act]” by

the “total number of a hospital’s patient days for

such period.” Jd.

Before January 2000, the Secretary’s policy was

not to include expansion waiver patients in the

Medicaid fraction. Dep’t of Health & Human Servs.,

Program Memorandum Intermediaries, Trans. No.

A-99-62 (Dec. 1999). Despite this policy, some

financial intermediaries included the expansion

waiver population in the disproportionate share

hospital adjustment. /d. The Secretary recognized

this as a violation of the stated policy but did not

attempt to recover the payments. Jd. In January

2000, the Secretary revised the policy and permitted

hospitals to include the expansion waiver population

in the Medicaid fraction. 65 Fed. Reg. 3136, 3139.

Three years later the Secretary issued another

revision, excluding the expansion waiver populations

associated with certain demonstration projects likely

to deal with higher income individuals. Proposed

Changes to the Hospital Inpatient Prospective

Payment Systems and Fiscal Year 2004 Rates, 68

Fed. Reg. 27,154, 27,702 (May 19, 2003).

The plaintiff hospitals based their claims on cost

reports submitted before the Secretary's policy

change in January 2000. The hospitals filed their

cost reports with financial intermediaries and

received notices of program reimbursement that did

not take TennCare’s expansion waiver population

into account in calculating the disproportionate

share hospital adjustment. Each hospital appealed

to the Provider Reimbursement Review Board, and

lost. See 42 U.S.C. § 139500(a). The hospitals then

filed these suits, claiming that the Secretary had

unlawfully refused to count TennCare’s expaasion

waiver population in the disproportionate share

hospital adjustment.

The district court granted the hospitals’ motion

for summary judgment, finding that the

demonstration project provision and the

disproportionate share hospital adjustment provision

unambiguously required the Secretary to include the

expansion waiver population in the Medicaid

fraction. Cookeville Reg. Med. Ctr. v. Thompson,

2005 WL 3276219 (D.D.C. Oct. 28, 2005) (Cookeville

I ). While this case was pending appeal, Congress

passed the Deficit Reduction Act of 2005.4 The Act

included a provision explicitly giving the Secretary

discretion to determine whether to include a

demonstration project’s expansion waiver population

in the disproportionate share calculation. Deficit

Reduction Act § 5002(a). The Act also purported to

ratify the Secretary’s prior policies regarding the

inclusion or exclusion of the expansion waiver

population. /d. § 5002(b)(3)(A), (B).

In light of these provisions, the Secretary moved

to alter the judgment. We remanded the case and

the district court granted the Secretary’s motion.

Cookeville Reg. Med. Ctr. v. Leavitt, 2006 WL

2787831 (D.D.C. Sept. 26, 2006) (Cookeville LI ). The

district court held that despite its view of the law

before the Deficit Reduction Act, the Act constituted

a valid retroactive change in the law. Jd. at *6-8. On

that basis the court granted summary judgment in

favor of the Secretary. Our review is de novo. Taylor

v. Rice, 451 F.3d 898, 904 (D.C. Cir. 2006).

The hospitals make three points. ‘lhe first is that

the pre-Act law unambiguously required the

' Baptist Memorial's case was stayed pending the resolution

of the Cookeville action.

inclusion of the expansion waiver patients in the

disproportionate share hospital adjustment, leaving

the Secretary with no discretion. The second is that

the Act, which acknowledges the Secretary’s

discretion and ratifies the Secretary’s earlier

policies, was therefore a substantive change in the

law. The third is that the Act cannot be applied

retroactively consistent with Landgraf v. USI Film

Products, 511 U.S. 244, 265, 114 S.Ct. 1483, 128

L.Ed.2d 229 (1994), because Congress did not clearly

indicate its intention to this effect.

Even if we agreed with the first two propositions,

which we do not, we doubt the last. What is and

what is not a retroactive application of the law is not

always easy to discern. The Court’s opinion in

Landgraf indicates that a law has a retroactive effect

if it “‘mpairs [a] right[ ] a party possessed when he

acted.” Jd. at 280, 114 S.Ct. 1483. While that

formulation seems simple enough, the Court

discusses a host of exceptions that weaken the anti-

retroactivity principle. See, e.g., id. at 273, 114 S.Ct.

1483 (anti-retroactivity weakened in prospective

relief cases), 275, 114 S.Ct. 1483 (anti-retroactivity

weakened in regard to procedural rules), 277, 114

S.Ct. 1483 (anti-retroactivity does not apply when

the ultimate outcome is foreseeable, explaining

Bradley v. Sch. Bd. of the City of Richmond, 416 U.S.

696, 94 S.Ct. 2006, 40 L.Ed.2d 476 (1974)). These

exceptions, especially Bradley, tend to show that the

presumption against retroactivity exists to protect

settled expectations. See also id. at 265, 114 S.Ct.

1483 (“Elementary considerations of fairness dictate

that individuals should have an opportunity to know

what the law is and to conform their conduct

accordingly; settled expectations should not be

hghtly disrupted.”).

Here the hospitals could not have been certain of

being reimbursed. The Secretary’s policy during the

relevant period was not to include the expansion

waiver population in the disproportionate share

hospital adjustment. 65 Fed. Reg. at 3136. Although

some financial intermediaries were including the

expansion waiver population, many (including those

in Tennessee) were not. The hospitals were thus on

notice that the expansion population might not be

included.

In any event, we disagree with the hospitals’

first proposition that the pre-Act law clearly

required inclusion of the expansion waiver patients

in the disproportionate share hospital adjustment.

For this point, the hospitals draw most of their

support from a Ninth Circuit opinion analyzing the

relevant pre-Act statutes and determining that

expansion waiver patients had to be included.

Portland Adventist Med. Ctr. v. Thompson, 399 F.3d

1091 (9th Cir. 2005).° We believe the pre-Act law

was not as clear as the Ninth Circuit thought it to

be.

The Medicaid fraction incorporates patients who

“were eligible for medical assistance ... under a state

plan approved under subchapter XIX.” 42 U.S.C.

§ 1395ww (d)(5)(F)(vi)UD. The Social Security Act

° The hospitals could hardly claim that their actions were

taken in reliance on Portiand Adventist. They were operating

outside the jurisdiction of the Ninth Circuit and the Portland

Adventist opinion was published several vears after the last of

the fiscal years involved in this case.

sets out the requirements for a patient to be eligible

for medical assistance. 42 U.S.C. § 1396d(a). The

expansion waiver population does not meet these

criteria-generally because their incomes are too high.

Likewise, demonstration projects are state plans

approved under subchapter XI, not subchapter XIX.

The hospitals say that expansion waiver patients

must be treated as eligible for medical assistance

because they receive a Medicaid benefit when the

hospitals are reimbursed by Medicaid for their care.

This argument stems from the language providing

that the costs of a demonstration project “shall” be

regarded as expenditures under subchapter XIX. See

42 U.S.C. § 1315(a)(2)(A). The statute, however,

modifies the “shall” by indicating that the costs are

only treated as Medicaid expenditures “to the extent

and for the period prescribed by the Secretary.” Jd.

While this clearly gives the Secretary control over

the duration of the demonstration project, the

language may do more. Plausibly, the “to the extent”

language is a grant of discretion to the Secretary to

determine which costs or how much of the costs are

to be treated as expenditures.® Under this reading,

the Secretary would have discretion to limit a

hospital’s reimbursement for the expansion waiver

population, rather than permitting the hospital to

support to this reading. Both stated that the costs of

demonstration projects “could be included, for purposes of such

participation, as expenditures under ... the State plan approved

under any of such titles, but only for the period and to tne

extent prescribed by the Secretary.” S. Rep. 87-1589, at 31

(1962), U.S.Code Cong. & Admin.News 1962, pp. 1943, 1973;

H.R. Rep. 87-1414, at 35 (1962).

10a

seek the disproportionate share hospital adjustment.

This interpretation finds some support in the Deficit

Reduction Act. No one contests that § 5002(a) of the

Act gives the Secretary discretion (at least

prospectively) to exclude the expansion waiver

population. In conferring this discretion, Congress

relied on the “to the extent and for the period”

language used in §1315 regarding ' the

demonstration projects, albeit in a different context.

Deficit Reduction Act § 5002(a). Additionally, the

Secretary acted as though the statute granted

discretion to decide how to treat the expansion

waiver population. The Secretary chose to issue

policies rather than regulations and to base them on

practical concerns instead of statutory constraints.

See, e.g., Program Memorandum Intermediaries,

Trans. No. A-99-62; 65 Fed. Reg. at 3136.

These considerations lead us to conclude that it

was unclear, prior to the Deficit Reduction Act,

whether the Secretary had discretion to exclude the

expansion waiver population from the

disproportionate share hospital adjustment. It

follows that there is no problem of retroactivity. The

Deficit Reduction Act did not retroactively alter

settled law; it simply clarified an ambiguity in the

existing legislation. See Deficit Reduction Act

§ 5002(a).‘ In doing so, Congress ratified the

Secretary's earlier policies, “including the policy ...

See Brown v. Thompson, 374 F.3d 253, 257-60 (4th Cir.

2004); Piamba Cortes v. Am. Airlines, Inc., 177 F.3d 1272,

1283-84 (11th Cir.1999); Beverly Comm. Hosp. Ass'n v. Belshe,

132 F.3d 1259, 1265 (9th Cir. 1997); Liquilux Gas Corp. v.

Marlin Gas Sales, 979 F.2d 887, 890 (1st Cir. 1992).

lla

regarding discharges occurring prior to January 20,

2000,” to emphasize that the Secretary always had

this discretionary authority. Jd. § 5002(b)(3)(A).®

Affirmed.

‘ Lae ;

Because the Act resolves an ambiguity in the law, there is

nothing to the hospitals’ claim that the Act violates the Due

Process Clause. See Beverly Comm., 132 F.3d at 1267.

12a

United States District Court, District of Columbia.

BAPTIST MEMORIAL HOSPITAL, et al., Plaintiffs,

Vv.

Michael O. LEAVITT, Secretary, Department of

Health and Human Services, Defendant.

Civil Action No. 06-00437 (JR).

June 27, 2007.

ORDER

UPON CONSIDERATION OF Plaintiffs’

response to the Order to Show Cause, and it

appearing to the Court that there is good cause for

the relief requested, it is this 27th day of June, 2007

ORDERED, that this Court finds the decision in

Cookeville Regional Medical Center v. Leavitt,

No. 04-1053 (JR), to be controlling in this action and

accordingly final judgment is entered in favor of

defendant and against the plaintiffs.

s/ James Robertson

James Robertson

United States District Judge

13a

United States District Court, District of Columbia.

COOKEVILLE REGIONAL MEDICAL CENTER, et

al., Plaintiffs,

Michael O. LEAVITT, Secretary, Department of

Health and Human Services, Defendant.

Civil Action No. 04-1053 (JR).

Sept. 26, 2006.

MEMORANDUM

JAMES ROBERTSON, District Judge.

Pending before the court is Defendants’ Motion

to Alter the Judgment [28]. For the reasons set forth

below, that motion would be granted if the case were

remanded to this court.

Background

Plaintiffs, fifteen Tennessee hospitals, brought

an action against the Secretary of Health and

Human Services (“the Secretary”) seeking a

declaration that the Secretarys method of

calculating reimbursements under the Medicare

statute’s disproportionate share hospital (DSH)

formula, 42 U.S.C. § 13895ww/(d)(5)(D(vi), was

unlawful. They also sought reimbursement they

would be entitled to receive under their

interpretation of the DSH formula, for services they

provided to low-income patients prior to January 20,

2000 (the date the Secretary began applying the

interpretation they secck). Both sides moved for

summary judgment.

On September 30, 2005, I granted plaintiffs’

motion for summary judgment, denied defendants’

motion for summary judgment, and stated that the

l4a

reasons for the ruling, along with a remedial order,

would follow. On October 28, 2005, I issued a

memorandum explaining my conclusion that “the

Secretary’s exclusionary method of calculating the

DSH adjustment that was in effect before January

20, 2005 contravenes clear and unambiguous

statutes.” Mem. Order at 20 [dkt. # 22]. I ordered the

Secretary to instruct his fiscal intermediaries to

correct plaintiffs’ cost reports for the fiscal years at

issue within 90 days of their receipt of the relevant

documentation from the plaintiffs. Defendants

appealed that ruling on December 27, 2005.

Notwithstanding that he had already appealed,

the Secretary moved for the entry of final judgment

on January 18, 2006, citing Rule 58 of the Federal

Rules of Civil Procedure, which states that “Every

judgment ... must be set forth on a _ separate

document.” Fed. R. Civ. P. 58(a)(1). On January 28,

2006, I granted the motion, stating:

The order of September 30, 2005, granting the

motion for summary judgment, would ordinarily

have sufficed as and for a final, appealable order, but

in this case the memorandum explaining that order

was not issued for another 28 days, and the later

memorandum was accompanied by a remedial order.

The sequencing of the court’s orders was not

calculated to “avoid dispute and promote certainty,”

and the government’s confusion is understandable.

The Clerk is accordingly directed to enter final

judgment in favor of the plaintiff and against the

government.

Order of Jan. 24, 2006 (Dk. 25). Pursuant to that

order, the Clerk entered final judgment for the

plaintiffs on February 2, 2906.

15a

The February 2, 2005 judgment, which at the

time seemed to be a simple matter of bookkeeping,

had the convenient effect (for the government) of

reopening the 10-day window for motions to alter or

amend under Rule 59(e). The Secretary took

advantage of this, and, on February 13, 2006, filed

his motion to alter or amend the judgment based on

a new statutory provision enacted five days earlier

as part of the Deficit Reduction Omnibus Act of 2005

(“DRA”). Pub. L. 109-171. Section 5002 of that act,

entitled “Clarification of Determination of Medicaid

Patient Days for DSH Computation,” amended the

Medicaid provision at issue in this litigation to

reflect the Secretary’s position, and purported to

ratify his regulations of January 20, 2000, including

“the policy in such regulations regarding discharges

occurring prior to January 20, 2000.”

After the Secretary’s Rule 59(e) motion was filed,

the Court of Appeals stayed the Secretary’s appeal

pending resolution of the motion that is now before

me. Ordinarily I would be hesitant to rule on a

motion to alter a judgment while an appeal is

pending. The Court of Appeals has made it clear that

I am to do something with the motion, however, and

accordingly, under Smith v. Pollin, 194 F.2d 349, 350

(D.C. Cir. 1952), I will consider the Rule 59(e) motion

and indicate whether I would grant it, so that the

Secretary may then ask the Court of Appeals for a

remand for entry of the order.

Analysis

An extended discussion of the = statutory

framework governing the DSH formula appears in

the October 2005 memorandum and wil] not be

repeated here. Stated simply, the issue 1s whether

16a

“expansion populations” are necessarily “eligible for

medical assistance under a State plan approved

under subchapter XIX.” 42 U.S.C. § 13895ww

(d)(f)(vi) 1D. The recently enacted Section 5002 of the

DRA amends the DSH formula to state explicitly

that such populations are not so eligible:

In determining ... the number of the

hospital’s patient days for such period which

consist of patients who (for such days) were

eligible for medical assistance under a State

plan approved under title XIX, the Secretary

may, to the extent and for the period the

Secretary determines appropriate, include

patient days of patients not so eligible but

who are regarded as such because they

receive benefits under a demonstration

project approved under title XI.

DRA, Section 5002(a), Pub. L. 109-171 (emphasis

added). The Secretary argues that this amendment

is a “clarification” of the DSH formula, rather than a

substantive change, and thus, that I should revisit

my conclusion about the meaning of the DSH

formula in light of this Congressional input.

Alternatively, according to the Secretary, even if this

amendment does reflect a substantive change of the

DSH formula, in Section 5002(b) Congress has now

approved and ratified the Secretary’s pre-2000

exclusionary pelicy toward expansion populations.

' Le., patients who would not otherwise be eligible for Medicaid

but who become eligible solely because of the Secretary’s

waiver of certain Medicaid program requirements as part of a

demonstration project under 42 U.S.C. § 1315a.

17a

That section, entitled “Ratification and Prospective

Application of Previous Regulations,” states:

(1) IN GENERAL-[R]egulations described in

paragraph (3), insofar as such regulations

provide for the treatment of individuals

eligible for medical assistance under a

demonstration project approved under title

XI of the Social Security Act under section

1886(d)(5)(F)(vi) of such Act, are hereby

ratified, effective as of the date of their

respective promulgations.

(3) REGULATIONS DESCRIBED-For

purposes of paragraph (1), the regulations

described in this paragraph are as follows:

- 2000 REGULATION-Regulations

promulgated on January 20, 2000, at 65

Federal Register 3136 et seq., including the

policy in such” regulations regarding

discharges occurring prior to January 20,

2000 .

DRA, Section 5002(a), Pub. L. 109-171 (emphasis

added).

Plaintiffs raise a number of challenges to this

motion. First, they argue that the Secretary’s motion

was untimely. Second, they argue that the DRA was

unconstitutionally approved without passing both

houses of Congress, and thus is not law. Third, they

argue that the DRA changes rather than “clarifies”

the Medicare statute, and that the change either

does not apply retroactively to the cost reports at

issue or violates their due process rights if it does.

Finally, they argue that the Secretary’s decision,

even if lawful, was nevertheless arbitrary and

18a

capricious. Each of those challenges is discussed

below. None is successful.

Timeliness of the Secretary’s motion

The hospitals argue that the ten-day period of

limitations on Rule 59(e) motions began to run, at

the very jiatest, with the entry of the memorandum

order of October 28, 2005, setting forth the reasons

for the September 30 order and remanding the

matter to the Secretary, because that order fixed the

rights and obligations of the parties with regard to

the current dispute, “end[ing] the litigation on the

merits and leav[ing] nothing for the court to do but

execute the judgment.” Gulfstream Aerospace Corp.

v. Mayacamas Corp., 485 U.S. 271, 275 (1988). The

Secretary, in his memorandum to the Court of

Appeals supporting the appeal of that order, stated

that “the October 28 order constituted a judgment

pursuant to Rule 54(a) because it is a final ‘order

from which an appeal hes.” Secretary’s Opposition to

Plaintiffs Motion to Dismiss Appeal, at 7 (quoting

Fed. R. Civ. P. 54(a)). Plaintiffs make much of this

apparent admission by the Secretary of the finality

of the October 28 order.

Entertaining the instant motion, filed 97 days

after the “final” order of October 28, 2005, does

offend the spirit of Rule 59(e)’s ten-day limit, but it

does not violate the letter of that rule. Judgment

must be entered on a separate document under Rule

58 before time for an appeal can run out, but the

separate document rule is not such a categorical

imperative that it cannot be waived, Bankers Trust

Co. v. Mallis, 435 U.S. 381, 384 (1978), as, perhaps,

by an appellee’s acquiescence in an appeal taken

before a judgment becomes final. It seems intuitively

correct that taking an appeal would cut off an

19a

appellant’s right to seek amendment of the judgment

appealed from, but plaintiffs have not supported that

intuitive argument with case law. My conclusion,

accordingly, is that the Secretary's appeal of the

October 28 order did not preclude his insisting that

judgment on a separate document was required

before time began to run on his other post-judgment

options, including his option to move under Rule

59(e). Moreover, of course, if the October 28 order is

deemed not to have been a final order after all,

because it was supplanted by the later judgment

issued on February 2, 2006, then the status of the

appeal may be in question, but the Rule 59(e) motion

is certainly timely.

The constitutionality of the DRA

Plaintiffs next challenge the constitutionality of

the DRA based on Congress’s failure to pass

identical versions of the bill in both houses. The

predecessor to the DRA, 8.1932, was passed by the

Senate in a slightly different form than the version

passed by the House of Representatives. Despite this

discrepancy, the leaders of both houses attested that

their respective chambers had passed the Senate

version of S.1932, which the president signed into

law as the DRA. Because the version of S.1932

signed by the president was not in fact the version

passed by the House, plaintiffs argue, enforcement of

the DRA violates the bicameral requirement of Art. I

§ 7 of the Constitution.

This argument fails in light of Marshall Field &

Co. v. Clark, 143 U.S. 649 (1892). In that case, the

Supreme Court established the rule that courts may

not second-guess Congress's attestation as to what

bills it has passed:

20a

The signing by the speaker of the house of

representatives, and by the president of the

senate, in open session, of an enrolled bill, is

an official attestation by the two houses of

such bill as one that has passed congress....

And when a bill, thus attested, receives his

approval, and is deposited in the public

archives, its authentication as a bill that has

passed congress should be deemed complete

and unimpeachable....The respect due to

coequal and independent departments

requires the judicial department to act upon

that assurance, and to accept, as having

passed congress, all bills authenticated in

the manner stated; leaving the courts to

determine, when the question properly

arises, whether the act so authenticated, is

in conformity with the constitution.

Id. at 672 (emphasis added).

Plaintiffs and amicus curiae point to U.S. uv.

Munoz-Flores, 495 U.S. 385 (1990), in which the

Supreme Court struck down a law that had

originated in the Senate in violation of the

origination clause requiring bills for raising revenue

to originate in the House. In that case, the Court

looked beyond Congress’s designation of the relevant

bill as “H.J. Res. 648,” indicating the bill’s origin in

the House,” and made its own determination that

the bill actually originated in the Senate. However,

the Court explicitly stated that its analysis was

“ The designation “H.J. Res.” is a standard abbreviation for

“House Joint Resolution.” See Muroz-Flores, 495 U.S. at 409

(Scalia, J. dissenting).

2la

different from the analysis in Marshall Field, which

concerned the “nature of the evidence” a court should

consider in deciding whether a bill had actually

passed Congress. 495 U.S. at 391 n. 4. In Mufnoz-

Flores, unlike Marshall Field, a “constitutional

requirement binding Congress” was at stake. Jd.

Plaintiffs urge that the bicameral clause is just

such a “constitutional requirement binding on

Congress,” and that a statute passed in violation of

this requirement may be struck down under the

Munoz-Flores framework. The argument is a sound

one, as far as it can go-a bill that does not pass both

houses in the same form is not good law, no matter

what the president does-but, under Marshall Field,

it comes to an abrupt stop with the attestation of the

leadership of both houses of Congress that they did

pass the bill in question.

The effect of the DRA

In the memorandum explaining my original

judgment, I stated that “the DSH formula

unambiguously includes all patients eligible for

medical assistance under Title XIX, regardless of the

mechanism by which they become eligible.” Mem. of

October 28, 2005 at 20. Moreover, I found that the

statutory scheme clearly and expressly included

expansion populations among those made eligible for

medical assistance under Title XIX. The 109th

Congress, disagreeing, issued what it called a

“clarification” now explicitly stating that expansion

populations are “not so eligible.” DRA, Section

5002(a). The Secretary argues that this was the true

meaning of the DSH formula all along, and that my

understanding of the statutory language was

incorrect. Alternatively, the Secretary argues that

22a

the DRA must be applied retroactively to overrule

my ruling.

Before reaching the question of whether the DRA

was a “clarification” of or a substantive change to the

DSH formula, I should note plaintiffs’ argument that

the law of the case doctrine prevents this court, at

this stage, from accepting the DRA as a clarification.

The law of the case doctrine is the prudent

observation that “the same issue presented a second

time in the same case in the same court should lead

to the same result.” Kimberlin v. Quinlan, 199 F.3d

496, 500 (D.C. Cir. 1999). Plaintiffs cite McCreary v.

Ofer, 1 F. Supp. 2d 32, 36 (D.D.C. 1998), for the

proposition that the first step in analyzing whether a

statutory amendment is a “clarification” is whether

‘he existing law is ambiguous. Pl.’s Opp. at 14.

Because that question was answered by my first

opinion, which described the DSH formula as

unambiguously including expansion populations,

plaintiffs argue that I am now constrained to find

the DRA to be a substantive change in the law.

The Secretary’s multiple filings never offered a

cogent response to this argument or, indeed, even

appeared to grasp it, as evidenced by his statement

that the law of the case doctrine “would not only

preclude this Court from considering the new

statute, but would also preclude the Court of

Appeals from passing on the question.” Def.’s Reply

Mem. at 5. The doctrine applies to the same court,

and the Court of Appeals is, of course, not bound by

my conclusior that the original DSH formula was

unambiguous.

Nevertheless, it is not clear to me that the

question of whether pre-amendment law is “settled,”

McCreary, 1 F. Supp. 2d at 36, is identical to the

23a

question of whether it is “unambiguous[ ]” under

Chevron USA, Inc. v. Natural Resources Defense

Council, 467 U.S. 837, 842 (1984). In Beverly

Community Hosp. Ass’n v. Belshe, 132 F.3d 1259,

1266 (9th Cir. 1997), for example, the court noted

that although four different circuits had pronounced

the Medicare provision at issue to be unambiguous

under Chevron, none of them expressed the same

construction of the statute. With so many

interpretations endorsed by different courts, the

Ninth Circuit did not feel the need even to look to

the statute before accepting Congress’s statement

that its subsequent amendment was a clarification.

Id. This suggests some play in the joints between

Chevron’s ambiguity analysis and McCreary’s and

Beverly’s approach to pre-amendment law.

Accordingly, I will decline plaintiffs’ invitation to

rely upon law of the case. It matters little, however,

because I remain of the view that the DSH formula,

as it existed at the time of the cost reports at issue,

expressly included expansion populations. That

formula referred to all patients eligible for Title XIX

medical assistance, and expansion populations’

medical expenses are reimbursed from funds

allocated under Title XIX. The DRA’s insertion of the

phrase “not so eligible” into the formula did not

“clarify” this simple equation-it simply changed it.

See U.S. v. Montgomery County, Md., 761 F.2d 998,

1003 (4th Cir. 1985) (“[A] statute which has all along

unambiguously proclaimed WHITE cannot

retrospectively be made to assert BLACK just

because the legislature, at the later date, says so.”)

The Secretary’s arguments to the contrary rely

not on exegesis of the original language of the DSH

formula as now illuminated by the DRA, but solely

24a

on deference to Congress’s later statement on the

matter. The Secretary points to Supreme Court and

other appellate decisions teaching that “[s]ubsequent

legislation declaring the intent of an earlier statute

is entitled to great weight in statutory construction.”

Loving v. United States, 517 U.S. 748, 769-70 (1996).

See also Brown v. Thompson, 374 F.3d 253, 259 (4th

Cir. 2004) (“In determining whether an amendment

clarifies or changes existing law, a court, of course,

looks to statements of intent made by the legislature

that enacted the amendment.”); Piama Cortes uv.

American Airlines, Jnc., 177 F.3d 1272, 1284 (11th

Cir. 1999) (“{Cjourts may rely upon a declaration by

the enacting body that its intent is to clarify [a] prior

enactment.”); United States v. Sepulveda, 115 F.3d

882, 885 n. 5 (11th Cir. 1997); Liquilux Gas Corp. v.

Martin Gas Sales, Inc., 979 F.2d 887, 890 (1st Cir.

1992) (using “legislature’s expression of what it

understood itself to be doing” to determine whether

new legislation is a clarification.).

There is considerable irony in the Secretary’s

reliance on the Loving line of cases and his

exhortation that I assign “significant” and “great

weight” to the DRA. His reply to plaintiffs’

opposition to his original motion for summary

judgment included an entire section entitled “The

Language ... of Subsequent Statutes Cited by

Plaintiffs is Irrelevant.” Defs.’ Reply at 11. That

section was a response to plaintiffs’ citation of two~=

subsequent enactments in which Congress, contrary

to the Secretary’s current view, interpreted the DSH

formula to include expansion populations. See

Omnibus Budget Reconciliation Act of 1993, Pub. L.

No. 103-66, § 13581 (defining “Medicaid beneficiary”

as “an individual entitled to benefits under a State

25a

plan for medical assistance under title XIX

(including a State plan operating under a Statewide

waiver under section 1115.).”) (emphasis added);

Balanced Budget Act of 1997, Pub.L. No. 105-33

§ 4403(b)(8) (defining the DSH calculation as

“including ... individuals who receive medical

assistance under such title pursuant to a waiver by

the Secretary under section 1115.”). The Secretary

dismissed these statues as the “irrelevant

understanding of the 103d [and, presumably, 105th]

Congress,” Defs.’ Reply at 13 n. 8, and cited the

“canons of statutory construction,” id. at 11, that

“[Llater-enacted laws ... do not declare the meaning

of earlier law,” Almendarez-Torres v. United States,

523 U.S. 224, 237 (1998), and “the view of a later

Congress cannot control the interpretation of an

earlier enacted statute.” O’Gilvie v. United States,

519 U.S. 79, 90 (1996). Why the view of the 103rd

and 105th Congresses should be irrelevant for

purposes of statutory construction, while that of the

109th should be of “great weight,” is a mystery the

Secretary has. failed to explain. Whatever

significance should be given to later legislation

declaring the meaning of an earlier statute, at the

very least, conflicting Congressional enactments

purporting to interpret the same statute ought to

cancel each other out, particularly when the statute

at issue is as clear and unambiguous as the original

DSH formula.

Although it is clear to me that the DRA makes a

substantive change to the DSH formula and is not a

“clarification,” it is equally clear that Congress did

intend this change to apply retroactively. In

reaching this conclusion, I am mindful of the heavy

presumption in the law against the retroactive

26a

application of statutes and the rule that courts will

only apply a law retroactively if there is a clear

statement in the statute requiring that result. See

Rivers v. Roadway Express, 511 U.S. 298, 307-310

(1994). I find such clarity for two reasons. First,

Congress’s titling of Section 5002 as a “clarification”

is strong evidence of its retroactive effect. A

clarification is a statement “of what [Congress]

believed the law already was, and thus to be

applicable to all cases, past, present and future.”

Means v. Northern Cheyenne Tribal Court, 154 F.3d

941, 951 (9th Cir. 1998) (J. Reinhardt, concurring);

see also Beverly, 132 F.3d at 1264 (“Congress’

characterization [of a new act as a clarification]

plainly reflects its intention to resolve every still-live

dispute in the manner specified by the new

legislation.”); Department of Toxic Substances

Control v. Interstate Non-Ferrous Corp., 99 F. Supp.

2d 1123, 1133 (E.D. Cal. 2000) (“Repeated use of the

word ‘clarification’... is clear, unambiguous, and

commanding evidence in favor of retrospectivity.”).

Second, Congress included an express ratification of

the Secretary’s conduct in § 5002(b) of the DRA.

That section ratifies “|r]Jegulations promulgated on

January 20, 2000 ... including the policy in such

regulations regarding discharges occurring prior to

January 20, 2000.”

Regarding the ratification provision, plaintiffs

argue that there is no mention of any policy

regarding pre-January 20, 2000 discharges in the

text of the regulations. But it is evident that

Congress was referring to the pre-2000 exclusionary

policy described in the Secretary’s commentary to

the January 20, 2000 regulations. The plaintiffs also

assert, relying on Thomas v. Network Solutions, Inc.,

27a

1998 WL 1738180, *3 (D.D.C. 1998), affd, 176 F.3d

500 (D.C. Cir. 1999), that in order for a ratification

to be effective, Congress must “express its clear

recognition of the illegal nature of the [agency

action], and its explicit intent to ratify that [action].”

That may be true in the tax context of the Thomas

case, but it makes little sense here to require

Congress to recognize agency action as illegal if

Congress does not agree that it was. Insisting on

such a requirement would hamstring a Congress

that genuinely disagreed with a court’s view of an

earlier statute: Congress would be unable to “clarify”

what the statute meant, because the court would call

that a substantive change; and it would be unable to

ratify the actions at issue, because it would have to

deem them illegal, something it does not believe. The

DRA’s double-barreled approach to this conundrum-

“clarifying” the DSH formula while “ratifying”

agency action that, if Congress were right, would not

need to be ratified-resolves this prublem by giving

the court two paths to the same result. Whether as a

clarification or a ratification, the DRA’s expression of

the DSH formula must be retroactively applied to

still-pending cases.

The path to that result chosen by this court-

retroactive ratification-raises what plaintiffs, in a

footnote, perceive as a constitutional question. It is

not the case, however, that “retroactivity would

violate the due process clause of the _ Fifth

Amendment to the United States Constitution.” Pls.’

Opp. at 20 n. 16. See Association of Bituminous

Contractors, Inc. v. Apfel, 156 F.3d 1246, 1255 (D.C.

Cir. 1998) (economic legislation is accorded a

“presumption of constitutionality’ that can be

overcome only if the challenges establishes that the

28a

legislature acted in an arbitrary and irrational

way.’); Adams v. Hinchman, 154 F.3d 420, 424 (D.C.

Cir. 1998) (even assuming statute had given federal

employees a property interest in earning overtime

for services already rendered, “any such property

interest could be extinguished so long as the

retroactive economic legislation met the guarantees

of due process’). Those who operate in regulated

fields like Medicare and Medicaid “cannot object if

the legislative scheme is buttressed by subsequent

amendments to achieve the legislative end.”

Connolly v. Pension Benefit Guar. Corp., 475 U.S.

211, 227 (1986) (quoting FHA v. The Darlington,

Inc., 358 U.S. 84, 91 (1958)).

The Administrative Procedures Act (APA)

Plaintiffs argue, finally, that even if the DRA

retroactively endorses the Secretary’s policy

excluding expansion populations from the DSH

formula, his decision to exclude them was arbitrary,

capricious, and unreasonable, and_ therefore

unlawful. 5 U.S.C. § 706(2)(A). The plaintiffs rest

their argument on the reasons given by the

Secretary for changing from an exclusionary to an

inclusionary policy toward expansion populations in

his January 20, 2000, promulgation. Rehashing

these reasons, plaintiffs state “there is no rational

connection between the findings of the Secretary, all

of which support the inclusion of those populations,

and the decision by the Secretary to exclude those

populations with respect to the hospitals in

Tennessee.” Pls.’ Opp. at 30.

It is not surprising, of course, that there is little

connection between the Secretary’s pre-2000 policy

and the findings he announced in the regulation

changing that pohcy. That does not mean that there

29a

were no reasons for the prior policy, however. The

Secretary has cited the most obvious reason for his

prior exclusionary policy, namely, that expansion

populations may have higher incomes _ than

traditional Medicaid beneficiaries, and thus may be

a poor proxy for the needy patients the DSH formula

is intended to represent. That is reason enough to

uphold the prior policy under the APA.

Conclusion

Because the DRA changed the law regarding the

calculation of Medicare reimbursements under the

DSH formula, and because that change applies

retroactively, the court would grant the Secretary’s

Motion to Alter the Judgment [28] should this case

be remanded from the United States Court of

Appeals for the District of Columbia Circuit.

30a

United States District Court, District of Columbia.

COOKEVILLE REGIONAL MEDICAL CENTER,

et al., Plaintiffs,

Tommy G. THOMPSON, Secretary, Department of

Health and Human Services, Defendant.

No. Civ.A. 04-1053 JR.

Oct. 28, 2005.

MEMORANDUM ORDER

ROBERTSON, J.

Plaintiff hospitals brought this action against

the Secretary for Health and Human Services,

alleging the wrongful denial of Medicare

reimbursements for services they provided to low-

income patients in years prior to 2000. They sought

a declaration that the Secretary’s interpretation of

the Medicare statute’s disproportionate share

hospital (DSH) formula is contrary to law, and they

sought reimbursement for the difference between the

payments they received and the amounts they would

be due under their interpretation of the DSH

formula. Both parties moved for summary judgment.

On September 30, 2005 | granted plaintiff's motion

for summary judgment and denied defendant’s cross-

motion. The reasons for this order are set forth

below.

Background

This case is significantly more difficult to

describe than to decide. It involves a _ dispute

between fifteen Tennessee hospitals and_ the

Secretary for Health and Human Services over the

meaning of discrete provisions for payments made

3la

under the Medicare program, which reimburses

hospitals for inpatient services to Medicare-eligible

patients. 42 U.S.C. §§ 1395cetseg. Medicare uses a

“prospective payment” system (PPS) for

reimbursement. 42 U.S.C. § 1395ww/(d). Hospitals

are credited with fixed amounts for defined

“diagnosis-related groups,” and these amounts are

then subject to a variety of hospital-specific

adjustments. This dispute is about the correct

calculation of one such adjustment.

In 1986, Congress authorized a PPS adjustment

for hospitals that serve “a _ significantly

disproportionate number of low income patients ...”

42 U.S.C. §1395ww (d)(5)(F)G)C). It did so after

determining that low-income patients tend to

consume a_e disproportionately large share of

hospitals’ resources, resulting in higher per-case

Medicare costs. H.R. Rep. No. 99-241 at 16 (1986),

reprinted in 1986 U.S.C.C.A.N. 579, 594. The

amount a hospital receives under this provision is

calculated using a “disproportionate share hospital”

(DSH) percentage, which in turn is derived from a

statutory formula that compares the number of

patient days a hospital devotes to low-income

patients with its total number of patient days. See 42

U.S.C. § 1895ww (d)(5)(f)(v1).

Rather than _ specify a particular income

threshold for its definition of “low income,” the DSH

formula uses eligibility for Medicaid as a proxy for

low-income status. Using this proxy, the statute

defines “disproportionate share percentage” as the

sum of two fractions: the Medicare low-income

fraction, which is not at issue in this case, and the

Medicaid fraction, which is. The Medicaid fraction is

defined as:

32a

the fraction (expressed as a percentage), the

numerator of which is the number of the

hospital’s patient days for such period which

consist of patients who (for such days) were

eligible for medical assistance under a State

plan approved under subchapter XIX of this

chapter [the Medicaid program], but who

were not entitled to benefits under [Medicare

Part A], and the denominator of which is the

total number of the hospital’s patient days

for such period.

42 U.S.C. §1395ww(d)(5)\(H(vi)dD. The most

significant aspect of this definition, for purposes of

this case, is the requirement that Medicaid patients

be “eligible for medical assistance under a State plan

approved under [Title] XIX” in order to be included

in the DSH calculation. 42 U.S.C. § 1395ww

(d)(5)(f)(v2).

Title XIX of the Social Security Act (Medicaid)

authorizes the use of federal funds to help states

offset the cost of providing medical assistance to

eligible low-income individuals. See 42 U.S.C. § 1396

et seq. To receive these funds, a state must submit a

“state plan” for approval by the Secretary, and it

must administer the plan according to Medicaid

requirements. 42 U.S.C. § 13896d(a). These

requirements regulate the manner in which the plan

is implemented (e.g., requiring the plan to be state-

wide rather than limited to urban areas), as well as

which individuals may be covered. See 42 U.S.C.

§ 13896a. Only expenditures made under an approved

Medicaid state plan become eligible for matching

federal payments. 42 U.S.C. § 1396d (a)-(b).

State plans must. ordinarily meet’ the

requirements of the Medicaid statute (Title XIX) to

33a

receive funding. However, Congress has authorized

the Secretary, through Section 1115 of subchapter XI

of the Social Security Act, to approve “experimental,

pilot, or demonstration projects” that go beyond

these requirements in order to promote innovative

approaches to meeting the health care needs of low-

income individuals. 42 U.S.C. § 1315. These projects

must, in the judgment of the Secretary, be “likely to

assist in promoting the objectives of ... [Title] XIX.”

42 U.S.C. §1315a. The Secretary. may waive the

Medicaid requirements set forth in 42 U.S.C.

§ 1396a for these demonstration projects, and the

costs of such projects “shall, to the extent and for the

period prescribed by the Secretary, be regarded as

expenditures under the State plan or plans approved

under [Title XIX].”42 U.S.C. § 1815a(1)-(2).

As a result of these § 1115 waivers, states

sometimes receive matching Medicaid payments for

patients who otherwise would not have been eligible

for medical assistance under Medicaid. These

patients, referred to by the government as

“expansion populations,” are at the center of the

dispute between the hospitals and the government in

this case.

Before January 2000, the Secretary interpreted

the DSH formula as excluding patients made eligible

for Title XIX matching payments solely through a

§ 1115 waiver. Because of regional inconsistencies

among its fiscal intermediaries in the treatment of

expansion populations,’ however, the Secretary

' Fiscal intermediaries act as the Secrctary’s agents in his

dealings with Medicare service providers. ‘The intermediaries

review annual cost reports submitted by hospitals and issue a

Continued on following page

34a

issued an interim rule in January 2000 clarifying the

Department’s position. See Interim Final Rule, 65

Fed.Reg. 3136, 3137, 3139 (Jan. 20, 2000). The

Secretary explained that patients who receive

medical assistance under a demonstration project

fall into two categories: “hypothetical eligibles,” who

would be eligible for Medicaid assistance with or

without a § 1115 waiver; and “expanded eligibility

groups,’ who became eligible solely because of the

waiver. Id. The Secretary made it clear that agency

policy before the issuance of the interim rule had

been to include “hypothetical eligibles” in the DSH

calculation, but to exclude “expanded eligibility

groups.” Jd.

Having clarified the agency’s past interpretation

of the DSH formula, the Secretary then used the

same interim rule to reverse his policy and to

announce that, in future calculations, all patients

receiving medical assistance under § 1115 waiver

programs would be included in the DSH formula,

including expansion populations. Jd. at 3136-37. The

Secretary acknowledged that “[o]ne of the purposes

of a section 1115 expansion waiver is to extend Title

XIX matching payments to services furnished to

populations that otherwise could not have been

made eligible for Medicaid.” Jd. The Secretary stated

that the inclusion of persons made “eligible for Title

XIX matching payments under a section 1115

Continued from previous page

“Notice of Program Reimbursement” explaining the amount of

reimbursement a hospital may receive. Before 2000, some

intermediaries used expansion populations to calculate a

hospitals DSH _ percentage, while others followed the

Secretary's policy of excluding them.

35a

waiver’ was “fully consistent” with the goals of the

DSH adjustment. Jd. While not applying this rule

retroactively, the Secretary stated that hospitals

that had erroncously been allowed by fiscal

intermediaries to include expansion populations in

their DSH calculations would be held harmless. Jd.

The interim rule-excluding expansion populations

from DSH calculations before January 2000, and

including them thereafter-was subsequently made

final, 65 Fed. Reg. 47,054 (Aug. 1, 2000).

Procedural History

Plaintiffs are fifteen not-for-profit Tennessee

hospitals that participate in Medicare and Medicaid

through the “TennCare” program. TennCare is a

state plan operating under a § 1115 waiver that

provides medica] assistance to uninsured and

underinsured patients, many of whom do not fit

Medicaid’s traditional eligibility requirements. Prior

to 2000, each hospital submitted its DSH adjustment

request to the Secretary’s fiscal intermediary, and

each hospital’s DSH adjustment was reduced by the

exclusion of expansion populations. Plaintiffs filed

timely appeals to the Provider Reimbursement

Review Board (PRRB), but also requested expedited

judicial review because their appeal involved “a

question of law,” which the PRRB lacks authority to

decide. 42 U.S.C. § 139500(a). The PRRB granted

that request, giving plaintiffs 60 days to file a civil

action, and plaintiffs then timely filed this action.

They sought (1) a declaration that the Secretary's

former interpretation of the Medicare PPS statute,

by excluding expansion populations from the DSH

adjustment formula, contravenes the clear language

of the statute; and (2) an order requiring the

36a

Secretary to recalculate plaintiffs’ DSH percentage

using the correct formula and directing the

Secretary to pay plaintiffs the amounts unlawfully

withheld from their DSH adjustment, with interest.

Discussion

Judicial review of an agency’s interpretation of a

statutory scheme it administers has two steps.

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

Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 81

L.Ed.2d 694 (1984). First, the reviewing court looks

to the statutory language and legislative history to

determine if Congress has directly spoken to the

precise question at issue. Jd. Clear Congressional

intent must be given effect, and an agency’s

inconsistent interpretation is not’ entitled to

deference. Jd. If the statute is silent or ambiguous,

the reviewing court proceeds to the second Chevron

step, where “the question for the court is whether

the agency’s answer is based on a_ permissible

construction of the statute.” Jd. A court cannot

substitute its judgment for an agency’s reasonable

interpretation of a statute in the absence of

unambiguous Congressional intent. Jd.

This case lies at the intersection of two statutes:

the DSH formula, 42 U.S.C. § 1395ww/(d)(5)(F)(v),

and the § 1115 waiver provision, 42 U.S.C. § 1315.

The Secretary contends that these statutes are

ambiguous or at least silent on the question of

whether the DSH provision includes Medicaid

patients eligible for medical assistance only because

of a §1115 waiver. I find, however, that “the

statutory scheme is coherent and_ consistent,”

Barnhart v. Sigmon Coal Co., Inc. 5384 U.S. 438, 450,

122 S.Ct. 941, 151 L.Ed.2d 908 (2002) (citing

37a

Robinson v. Shell Oil Co., 519 U.S. 337, 340, 117

S.Ct. 8438, 136 L.Ed.2d 808 (1997)) and that “the

language at issue has a plain and unambiguous

meaning with regard to the particular dispute in the

case.” Id.

In defining its proxy for low-income patients, the

DSH formula directs the Secretary to include all

“patients who ... were eligible for medical assistance

under a State plan approved under [Title] XIX.”

§ 1395ww(d)(5)(F)(vi). And, in- defining’ the

relationship between demonstration projects and the

Medicaid program as a whole, § 1115 dictates that

the “costs of [demonstration] projects ...shall, to the

extent and for such period prescribed by the

Secretary, be regarded as expenditures under the

State plan approved under [Title] XIX.” 42 U.S.C.

§ 1315 (emphasis added). If the costs of a § 1115

demonstration project must be regarded as part of “a

State plan approved under [Title XIX],” as § 1115

mandates, then patients whose treatment is funded

by such expenditures must be “eligible for medical

assistance under a State plan approved under [Title]

XIX,” as the DSH formula specifies. See Portland

Adventist Med. Ctr. v. Thompson, 399 F.3d 1091,

1098 (2005) (“Use of the term ‘shall’ creates a

mandatory equivalence between expenditures undcr

a § 1115 project and Title XIX expenditures.”) It

follows that expansion populations, no less than

“hypothetical eligibles,” must be included in the DSH

calculation, and that the Secretary’s exclusion of

expansion populations from plaintiffs’ DSH

adjustments for fiscal vears prior to 2000

contravenes the clear language of the statute.

Although there is nothing ambiguous about the

language of the statutes, it is helpful that Congress

38a

spoke quite directly to the precise issue of the

relationship between § 1115 waivers and the DSH

formula in a later statute. Under longstanding DSH

rules, urban and rural hospitals of varying sizes face

different DSH percentage thresholds before they

become eligible for DSH adjustments. 42 U.S.C.

§ 13895ww(d)(5)(F)(v). In 1997, Congress directed the

Secretary to submit a report on the viability of

changing these varying thresholds into a single

standard for all DSH-eligible hospitals. Pub. L. No.

105-33 § 4403(b). In its directive, Congress made it

clear that the DSH formula includes the cost of

providing “medical assistance under the State plan

under title XIX ... (including... individuals who

receive medical assistance under such title pursuant

to a waiver by the Secretary under section 1115

..).’ Pub. L. No. 105-33 § 4403(b)(3) (emphasis

added). While “the views of a subsequent Congress

form a hazardous basis for inferring the intent of an

earlier one,” Reno v. Bossier Parish Sch. Bd., 520

U.S. 471, 484-85, 117 S.Ct. 1491, 1387 L.Ed.2d 730

(1997) (quoting U.S. uv. Price, 361 U.S. 304, 313, 80

S.Ct. 326, 4 L.Ed.2d 334 (1960)), Congress, through

this parenthetical, simply confirmed what was

already clear from the language and structure of the

§ 1115 and the DSH formula.”

*“ The Secretary appeared to interpret this Congressional

directive in just this way. The agency's rule explains that

Congress required the Secretary to submit a formula that

considers “the costs incurred for furnishing services to

individuals receiving Medicaid ...including... individuals who

receive medical assistance in a State with an § 1115 waiver

under Medicaid.” Final Rule, 62 Fed. Reg. 45.966, 46,002 (Aug.

29, 1997) (emphasis added).

39a

The Secretary offered two interesting, but

ultimately flawed, theories for his contention that he

had the authority to exclude expansion populations

from the DSH formula for years prior to 2000. First,

he maintained that § 1115(a)(2) provided him with

“separate expenditure authority” over medical

assistance to expansion populations. Def.’s Reply

Memo. at 7. Second, the Secretary asserted that

§ 1115(a)(2) gives him the authority to regard

medical assistance to expansion populations as part

of a Title XIX state plan for purposes of

reimbursement, but not for purposes of the DSH

adjustment. Neither contention was persuasive.

A. Section 1115 and Medicaid Expenditure

Authority

The Secretary argued at length in his briefs that

§ 1115 gives him “expenditure authority” under Title

XI with which he funds demonstration projects, and

that this “expenditure authority” is “separate” from

Title XIX. Id. As he correctly pointed out, expansion

populations cannot be made eligible for Medicaid by

a § 1115(a)(i) waiver of Medicaid’s requirements

alone. Rather, “it is with [§ 1115(a)(2) ] authority,

and this authority only, that the Secretary may

authorize federal dollars be used to reimburse states

for providing medical assistance to ‘expansion

populations’ ..."Jd. at 8. Because § 1115 is part of

subchapter XI of the Social Security Act, and not

subchapter XIX, the Secretary went on to argue that

a demonstration project is “indisputably a creature

of Title XI, approved by the Secretary pursuant to

§ 1115..., and not approved under 42 U.S.C. § 1396a,

§ 1396b, or any other provision of Title XIX.” Id. at

10 (emphasis in original).

40a

The Secretary’s contention that § 1115(a)(2)

gives him “separate expenditure authority” is

refuted, however, by the language and structure of

Title XIX and XI. The DSH formula requires the

inclusion of all patients who are “eligible for medical

assistance under a State plan approved under [Title

XTX)."42 U.S.C. §1395ww (d)(5)(F)(vi). “Medical

assistance” is defined in Title XIX as “payment of

part or all of the cost of ... care and services ... for

individuals ... whose income and resources are

insufficient to meet all of such cost....°42 U.S.C.

§ 1396d(a). The Secretary is only authorized to

provide medical assistance “under a state plan,” and

only expenditures made under a state plan are

eligible for Title XIX payments. See 42 U.S.C.

§§ 1396, 1396d(a)-(b); Portland Adventist, 399 F.3d

at 1097-98. Section 1396a spells out certain

requirements for state plans, including populations

they must serve, and § 1396b provides for the

reimbursement of states for a portion of the costs of

providing medical assistance under the state plan.

Section § 1396b also prevents federal reimbursement

for patients who fall outside of the eligibility rules of

the state plan.

These provisions defining medical assistance and

laying out the conditions for federal matching

payments make it clear that Title XIX is the source

and vehicle of tederal authority for providing medical

assistance under Medicaid. Nothing in §1115

creates a similar scheme of medical assistance or

authorizes appropriation of any sums for funding

demonstration projects. As the Ninth Circuit wrote

in Portland Adventist. “When Congress’ has

established separate funding sources, it has done so

with specific language.” 399 F.3d at 1097-98, citing

4la

42 U.S.C. § 301 (authorizing appropriations for state

“old-age assistance” plans) and § 1396 (authorizing

appropriations for Medicaid payments to states).

This is no less true for demonstration projects

funded under independent appropriations. /d., citing

42 U.S.C. § 300z-9 (authorizing appropriations for

adolescent family life demonstration projects). There

is no independent authorizing language in § 1115,

demonstrating that Congress did not consider § 1115

to be a funding source. Rather, the purpose of § 1115

is to empower the Secretary to waive certain

restrictions on state plans so that they may become

eligible for Title XIX funds. Indeed, even this

authority is conditioned on the Secretary’s

determination that such a waiver “assist[s] in

promoting the objectives of [Title] XIX.” 42 U.S.C.

§ 1315(a).

The Secretary took pains to avoid the text of

§ 1115(a)(2) when he defined his “separate

expenditure authority” as the authority to specify

that state expenditures for demonstration projects

“Shall be regarded as’ matchable for the purpose of

providing federal funding.” Jd. at 8 (quoting

42 U.S.C. § 1315). But what follows the half-quoted

clause, “shall be regarded as,” is, “expenditures

under the State plan approved under [Title] XIX.”

42U.S.C. § 1315. Rather than establishing an

independent authority to direct federal spending,

this and the other operative parts of § 1115 exphicitly

define the Secretary’s authority by reference to Title

XIX.It is clear that expansion populations become

eligible for medical assistance only under a state

plan approved under Title XIX, not a separate § 1115

funding mechanism. See Portland v. Adventist, 399

F.3d at 1097 (“Neither this provision nor any other

42a

authorizes appropriation of any sums for purposes of

funding projects approved under § 1115.”)

There is a further problem with the Secretary’s

contention, of course, namely, that it contradicts his

current practice, in force since January 2000, of

including expansion waiver populations in the DSH

calculation. When he announced the current policy,

the Secretary stated that “[o]ne of the purposes of a

section 1115 expansion waiver is to extend Title XIX

matching payments to_ services furnished to

populations that otherwise could not have been

made eligible for Medicaid.” See Interim Final Rule,

65 Fed.Reg. 3136, 3137, 31389 (Jan. 20, 2000). He

also stated that including persons made “eligible for

Title X/X matching payments under a section 1115

waiver’ was “fully consistent” with the goals of the

DSH adjustment. /d. (emphasis added). But in his

argument justifying his previous exclusion of

expansion populations, the Secretary’ called

demonstration projects (and the medical assistance

they provide) “indisputably [ ] creature[s] of Title XI,

approved by the Secretary pursuant to § 1115..., and

not approved under 42 U.S.C. § 1396a, § 1396b, or

any other provision of Title XIX.” Def.’s Reply Memo.

at 10 (emphasis in original).

The Secretary cannot have it both ways. Medical

assistance provided to expansion populations is

either part of a state plan approved under Title XIX,

or it is not. If the medical assistance provided

through demonstration projects indeed flows from a

“separate [Title XI] expenditure authority,” as the

Secretary maintained, it would contravene the

statute to include expansion populations in the DSH

formula no less than it would to exclude them if such

assistance flows from Title XIX, as plaintiffs claim.

43a

Thus, the only way the Secretary’s pre-2000

exclusionary policy could have been lawful is if his

current policy of inclusion were unlawful. Even the

ambiguity the Secretary purported to find in the

statutes could not embrace two contradictory

policies.

B. The Secretary’s “Extent and Period” Discretion

The Secretary’s second justification for his prior

exclusion of expansion populations from the DSH

statute rested on the language of § 1115(a)(2), which

provides that the cost of demonstration projects

“shall, to the extent and for the period prescribed by

the Secretary, be regarded as expenditures under

the State plan ... approved under [Title XJX].”42

U.S.C. § 1315{a)(2)(A). The Secretary claimed that

this provision gives him “broad discretion to treat

[demonstration project] expenditures as Medicaid

expenditures only to the extent of determining

Medicaid reimbursement to a state, but not for the

further purpose of calculating the DSH adjustment.”

Def.’s Reply Memo. at 13.

Such a reading rips the “extent” and “period”

language from its context, and unjustifiably turns it

into an expansive grant of authority unmoored to

any statutory scheme. As the Ninth Circuit

explained, the “extent’ and ‘period’ language,

folowing and modifying the mandatory term ‘shall,’

plainly ... refers to the lfespan of a the project-the

period during which the equivalence between § 1115

and Title XIX expenditures is required.” Portland

Adventist, 399 F.3d at 1098. In other words, the

Secretary may determine the period of time for

which demonstration project expenditures will be

reimbursed under Title XIX, and also to what extent

those expenditures will be reimbursed under Title

44a

XIX. But, once he makes those determinations, he

has no choice but to treat the costs as expenditures

under a Title XIX state plan. See Hewitt v. Helms,

459 U.S. 460, 471, 103 S.Ct. 864, 74 L.Ed.2d 675

(1983) (“Shall” is “language of an unmistakably

mandatory character’). No other reading does justice

to the structure and plain language of § 1115.

It is noteworthy that the very same language

appears in § 1115(a)(1), which grants the Secretary

the authority to waive certain state plan restrictions

“to the extent and for such period as [the Secretary]

finds necessary to enable such State or States to

carry out [a demonstration] project.” 42 U.S.C.

§ 1315(a)(1). The Secretary did not maintain that

this language means anything other than that he

may carve out certain exceptions to Title XIX’s state

plan requirements for the duration of the

demonstration project. That is, he did not claim that

this authority gives him the ability to prevent an

approved demonstration project from being included

in the DSH calculation.

Instead, the Secretary attempted to distinguish

§ 1115(a)(1)’s “extent” and “period” clause from that

in § 1115(a)(2) by pointing to the first clause’s

addition of the language, “he finds necessary to

enable such State or States to carry out such

project.” 42 U.S.C. § 1315(a)(1). Because this

language is absent from § 1115(a)(2), which deals

with program costs, the Secretary argued that the

clauses cannot mean the same thing. He pointed to

Hohn v. United States, 524 U.S. 236, 250, 118 S.Ct.

1969, 141 L.Ed.2d 242 (1998), which states, “[W]here

Congress includes particular language in one section

of a statue, but omits it in another section of the

same Act, it 1s gencrally presumed that Congress

45a

acts intentionally and purposefully in the disparate

inclusion or exclusion.” The Secretary then claimed

that a permissible reading of § 1115(a)(2)’s use of

“extent” and “period” is one that grants him the

authority to regard demonstration project

expenditures as part of Title XIX state plans for

purposes of providing matching federal payments,

but “to decline to further regard them as Medicaid

expenditures for purposes of the Medicare DSH

provision.” Def.’s Reply Memo. at 13-14.

This conclusory leap is unsupported by the

statute. The Secretary’s insistence that the deletion

of the “carry out” language in § 1115(a)(2) must be

regarded as purposeful is well taken, but an obvious

purpose presents itself: such language is_ useful

when dealing with §1115(a)(1)s waiver of

programmatic regulations (such as whether a

program must operate state-wide, or which patients

it must serve), but unnecessary when dealing with

the reimbursement of state payments for the

program once it is up and running (as § 1115(a)(2)

does). A particular Medicaid requirement may doom

a potential demonstration project unless it is waived,

but whether a State receives Title XIX matching

payments after it has carricd out a project cannot

affect its ability to carry the project out in the first

place. For this reason, additional language is

unnecessary to spell out § 1115(a)(2)’s grant of

authority to the Secretary to determine which costs,

over which periods, are expenditures that will be

eligible for matching Title XIX funds.

There is simply no statutory support for the

proposition that the Secretary can pick and choose

how to characterize the costs of demonstration

projects, regarding them as expenditures under a

46a

Title XIX state plan for purposes of reimbursement,

but not for the DSH calculation (or, for that matter,

any other statute that references Title XIX state

plans). Under § 1115(a)(2), the Secretary may decide,

consistent with “the objectives of [Title] XIX,” the

extent to which the costs of a demonstration project

should be regarded as reimbursable expenditures

under a Title XIX state plan. Once he makes this

decision, however, the DSH formula requires that

patients served by such a project be counted as part

of a hospital’s DSH adjustment. Cf. Her Majesty the

Queen in Right of Ontario v. U.S. E.P.A., 912 F.2d

1525, 1533 (D.C. Cir. 1990) (“The words ‘whenever’

the Administrator ‘has reason to believe’ imply a

degree of discretion.... Once [a] finding is made,

however, the ... action that follows is both specific

and mandatory-the Administrator ‘shall’ notify the

Governor of the specific State ...”).

Conclusion

The plain language of the DSH and §1115

waiver provisions, the statutory scheme of medical

assistance under Medicare, and Congress’s

subsequent statements on the matter lead me to the

conclusion that the DSH formula unambiguously

includes all patients eligible for medical assistance

under Title XIX, regardless of the mechanism by

which they become eligible. This includes those

patients who would not otherwise have been eligible

for Medicaid but for the § 1115 waiver provision. I

therefore find that the Secretary’s exclusionary

method of calculating the DSH adjustment that was

in effect before January 20, 2000 contravenes clear

and unambiguous statutes. Because I| find that

Congress has spoken clearly through these statutes,

I do not need to address whether the Secretary’s

47a ©

policy was a “permissible” interpretation of the

statute. Chevron U.S.A., Inc., 467 U.S. at 843.

The Secretary must instruct his fiscal

intermediaries in Tennessee to correct each of

plaintiffs’ cost reports for the fiscal years at issue,

reflecting the inclusion of all Medicaid-eligible

patients excluded under the prior invalid policy. Any

increased DSH adjustment payments to which

plaintiffs are due under this calculation must be

delivered to plaintiffs within 90 days of the receipt

by the Secretary's intermediary of all relevant

documents by each plaintiff. These payments shall

include an award of interest pursuant to 42 U.S.C.

§ 139500(f)(2). This case is remanded to _ the

Secretary for a resolution consistent with this order.

It is SO ORDERED.

48a

Social Security Act,

42 U.S.C. § 1395ww/(d)(5)(f(vi) AD)

(prior to the enactment of the Deficit

Reduction Act Of 2005, Pub. L. No. 109-171,

§ 5002(a))

Prior to enactment of the Deficit Reduction Act

Of 2005, Pub. L. No. 109-171, § 5002(a), the

Medicaid fraction of the Medicare disproportionate

share hospital adjustment was defined as follows:

the fraction (expressed as a percentage), the

numerator of which is the number of the

hospital’s patient days for such period which

consist of patients who (for such days) were

eligible for medical assistance under a State

plan approved under subchapter XIX of this

chapter [the Medicaid program], but who

were not entitled to benefits under [Medicare

Part A], and the denominator of which is the

total number of the hospital’s patient days

for such period.

49a

Social Security Act,

42 U.S.C. § 1315(a)

(a) Waiver of State plan requirements; costs

regarded as State plan expenditures; availability of

appropriations

In the case of any experimental, pilot, or

demonstration project which, in the judgment of the

Secretary, is likely to assist in promoting the

objectives of subchapter I, X, XTV, XVI, or XIX of this

chapter, or part A or D of subchapter IV of this

chapter, in a State or States--

(1) the Secretary may waive compliance with

any of the requirements of section 302, 602,

654, 1202, 1352, 1382, or 1396a of this title,

as the case may be, to the extent and for the

period he finds necessary to enable such

State or States to carry out such project, and

(2) (A) costs of such project which would not

otherwise be included as expenditures

under section 303, 655, 1203, 1353, 1383,

or 1396b of this title, as the case may be,

and which are not included as part of the

costs of projects under section 1310 of

this title, shall, to the extent and for the

period prescribed by the Secretary, be

regarded as expenditures under the State

plan or plans approved under such

subchapter, or for administration of such

State plan or plans, as may be

appropriate, and

(B) costs of such project which would not

otherwise be a permissible use of funds

under part A of subchapter IV of this

50a

chapter and which are not included as

part of the costs of projects under section

1310 of this title, shall to the extent and

for the period prescribed by the

Secretary, be regarded as a permissible

use of funds under such part.

In addition, not to exceed $4,000,000 of the

aggregate amount appropriated for payments to

States under such subchapters for any fiscal year

beginning after June 30, 1967, shall be available,

under such terms and conditions as the Secretary

may establish, for payments to States to cover so

much of the cost of such projects as is not covered by

payments under such subchapters and is not

included as part of the cost of projects for purposes of

section 1310 of this title.

Dla

Deficit Reduction Act Of 2005,

Pub. L. No. 109-171, § 5002

SEC. 5002. CLARIFICATION OF DETERMINATION

OF MEDICAID PATIENT DAYS FOR DSH

COMPUTATION.

(a)

(b)

IN GENERAL.--Section 1886(d)(5)(F)(vi) of the

Social Security Act (42 U.S.C.

1395ww(d)(5)(F)(vi)) is amended by adding after

and below subclause (II) the following:

“In determining under subclause (II) the

number of the hospital’s patient days for

such period which consist of patients who

(for such days) were eligible for medical

assistance under a State plan approved

under title XIX, the Secretary may, to the

extent and for the period the Secretary

determines appropriate, include patient days

of patients not so eligible but who are

regarded as such because they receive

benefits under a demonstration project

approved under title XI.”.

RATIFICATION AND PROSPECTIVE

APPLICATION OF PREVIOUS REGULATIONS.--

(1) IN GENERAL. -- Subject to paragraph (2),

regulations described in paragraph (3),

insofar as such regulations provide for the

treatment of individuals eligible for medical

assistance under a demonstration project

approved under title XI of the Social Security

Act under section 1886(d)(5)(F)(vi) of such

Act, are hereby ratified, effective as of the

date of their respective promulgations.

(2)

(3)

52a

NO APPLICATION TO CLOSED COST

REPORTS. -- Paragraph (1) shall not be

applied in a manner that requires the

reopening of any cost reports which are

closed as of the date of the enactment of this

Act.

REGULATIONS DESCRIBED. --_ For

purposes of paragraph (1), the regulations

described in this paragraph are as follows:

(A) 2000 REGULATION. -- Regulations

promulgated on January 20, 2000, at 65

Federal Register 3136 et seq., including

the policy in such regulations regarding

discharges occurring prior to January 20,

2000.

(B) 2003 REGULATION. -- Regulations

promulgated on August 1, 2003, at 68

Federal Register 45345 et seq.

53a

Medicare Inpatient Disproporticnate Share

Hospital (DSH) Adjustment Calculation:

Change In The Treatment Of Certain Medicaid

Patient Days In States With 1115 Expansion

Waivers, 65 Fed. Reg. 3136-01 (Jan. 20, 2000)

AGENCY: Health Care Financing Administration

(HCFA), HHS.

ACTION: Interim final rule with comment period.

SUMMARY: This interim final rule with comment

period implements a change to the Medicare DSH

adjustment calculation policy in reference to section

1115 expansion waiver days. This rule sets forth the

criteria to use in calculating the Medicare DSH

adjustment for hospitals for purposes of payment

under the prospective payment system.

DATES: Effective date: January 20, 2000.

Applicability Date: These regulations are applicable

to discharges occurring on or after January 20, 2000.

Comment date: Comments will be considered if we

receive them at the appropriate address, as provided

below, no later than 5 p.m. on March 20, 2000.

ADDRESSES: Mail an original and 3 copies of

written comments to the following address: Health

Care Financing Administration, Department of

Health and Human Services, Attention: HCFA-1124-

IFC, P.O. Box 8010, Baltimore, MD 21244-8010.

If you prefer, you may deliver an original and 3

copies of your written comments to one of the

following addresses:

Room 443-G, Hubert H. Humphrey Building, 200

Independence Avenue, SW, Washington, DC 20201,

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Room C5-16-03, 7500 Security Boulevard, Baltimore,

Maryland 21244-1850.

FOR FURTHER INFORMATION CONTACT:

Kathleen Buto, Deputy Director, Center for Health

Plans and Providers, (202) 205-2505.

SUPPLEMENTARY INFORMATION:

I. Background

A. Summary

The Medicare disproportionate share hospital

(DSH) adjustment provision under — section

1886(d)(5)(F) of the Social Security Act (the Act) was

enacted by section 9105 of the Consolidated

Omnibus Budget Reconciliation Act (COBRA) of

1985 and became effective for discharges occurring

on or after May i, 1986, as set forth in the May 6,

1986 final rule with comment period (51 FR 16772).

The size of a_ hospital’s Medicare DSH

adjustment, which is applied to the _ hospital

inpatient prospective payment system (PPS)

payment, is based on the sum of the percentage of

patient days attributable to patients eligible for both

Medicare Part A and Supplemental Security Income

(SSID, and the _ percentage of patient days

attributable to patients eligible for Medicaid but not

Medicare Part A. The first computation includes

days for patients who, during a given month, were

entitled to both Medicare Part A and SSI (excluding

State supplementation). This number is divided by

the number of covered patient days utilized by

patients under Medicare Part A for that same

period. The second computation includes patient

days associated with beneficiaries who were eligible

for medical assistance (Medicaid) under a State plan

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approved under Title XIX but who were not entitled

to Medicare Part A. (See 42 CFR 412.106(b)(4).) This

number is divided by the total number of patient

days for that same period.

Currently, hospitals whose disproportionate

patient percentage exceeds a certain threshold

(which varies for urban and rural areas) receive

either a fixed adjustment or, in the case of large

urban hospitals (100 or more beds) or large rural

hospitals (500 or more beds), a variable adjustment

based on a statutory formula. As of April 1, 1990,

variable adjustments were made for large urban

hospitals and rural referral centers. Facilities that

qualify as rural referral centers as well as sole

community hospitals receive the greater of a fixed

adjustment or a variable adjustment based on a

statutory formula. Qualifying large rural hospitals

and sole community hospitals receive a_ fixed

adjustment. Urban hospitals with 100 or more beds

that receive funds from State and local governments

for indigent care in excess of 30 percent of net

inpatient revenues are treated separately (42 CFR

412.106(c)).

B. Section 1115 Expansion Waivers

Some States provide medical assistance under a

demonstration project (also referred to as a section

1115 waiver). In some section 1115 waivers, a given

population that otherwise could have been made

eligible for Medicaid under section 1902(r)(2) or

1931(b) in a State plan amendment is made eligible

under the waiver. These populations are referred to

as hypothetical eligibles, and are specific, finite

populations identifiable in the budget neutrality

agreements found in the Special Terms and

Conditions for the demonstrations; the patient days

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utilized by that population are to be recognized for

purposes of calculating the Medicare DSH

adjustment. In eddition, the section 1115 waiver

may provide for medical assistance to expanded

ehgibility populations that could not otherwise be

made eligible for Medicaid.

Under current policy, hospitals were to include

in the Medicare DSH calculation only those days for

populations under the section 1115 waiver who were

or could have been made eligible under a State plan.

Patient days of the expanded eligibility groups,

however, were not to be included in the Medicare

DSH calculation.

II. Provisions of the Interim Final Rule With

Comment Period

In this interim final rule with comment period,

we are revising the policy, effective with discharges

occurring on or after January 20, 2000, to allow

hospitals to include the patient days of all

populations eligible for Title XIX matching payments

in a State’s section 1115 waiver in calculating the

hospital’s Medicare DSH adjustment.

One purpose of a section 1115 expansion waiver

is to extend Title XIX matching payments to services

furnished to populations that otherwise could not

have been made eligible for Medicaid. The costs

associated with these populations are matched based

on section 1115 authority. In _ fact, section

1115(a)(2)(A) of the Act states that the “costs of such

project which would not otherwise be included as

expenditures under section * * * 1903 * * * shall, to

the extent and for the period prescribed by the

Secretary, be regarded as expenditures * * *

approved under (Title XIX).” Thus, the statute

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allows for the expansion populations to be treated as

Medicaid beneficiaries.

In addition, at the time that the Congress

enacted the Medicare DSH adjustment, there were

no approved section 1115 expansion waivers.

Nonetheless, we believe allowing hospitals to include

the section 1115 expanded waiver population in the

Medicare DSH calculation is fully consistent with

the Congressional goals of the Medicare DSH

adjustment to recognize the higher costs to hospitals

of treating low income individuals covered under

Medicaid. Therefore, inpatient hospital days for

these individuals eligible for Title XIX matching

payments under a section 1115 waiver are to be

included as Medicaid days for purposes of the

Medicare DSH adjustment calculation.

In order to provide consistency in both

components of the calculation, any days that are

added to the Medicaid day count must also be added

to the total day count, to the extent that they have

not been previously so added.

Regardless of the type of allowable Medicaid day,

the hospital bears the burden of proof and must

verify with the State that the patient was eligible

under one of the allowable categories during each

day of the patient’s stay. The hospital is responsible

for and must provide adequate documentation to

substantiate the number of Medicaid days claimed.

Days for patients that cannot be verified by State

records to have fallen within a period wherein the

patient was eligible for Medicaid as described in this

rule cannot be counted.

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III. Response to Comments

Because of the large number of items of

correspondence we normally receive on Federal

not able to acknowledge or respond to them

individually. We will consider all comments we

receive by the date and time specified in the DATES

section of this preamble, and, when we proceed with

a subsequent document, we will respond to the

comments in the preamble to that document.

IV. Waiver of Proposed Rulemaking and 30-Day

Delay in the Effective Date

We ordinarily publish a notice of proposed

rulemaking in the Federal Register and invite public

comment on the proposed rule. The notice of

proposed rulemaking includes a reference to the

legal authority under which the rule is proposed, and

the terms and substances of the proposed rule or a

description of the subjects and issues involved. This

procedure can be waived, however, if an agency finds

gocd cause that a notice-and-comment procedure is

impracticable, unnecessary, or contrary to the public

interest and incorporates a statement of the finding

and its reasons in the rule issued.

We find that it would be contrary to the public

interest to undertake prior notice and comment

procedures before implementing this interim final

rule with comment period. States that have

approved section 1115 waivers are continually

involved in critical efforts to implement, refine, and

operate their Medicaid programs. For example, the

States, managed care organizations, and hospitals

are always considering their financial positions and

the adequacy of rates paid between these critical

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partners. We believe this policy change impacts their

financial positions. Therefore, we believe the

extended period of uncertainty for hospitals and

others that would result if this policy change were to

go through proposed and final rulemaking could

adversely affect the course of these critical efforts

and thereby’ disrupt services to Medicaid

beneficiaries and other low-income patients who are

served by hospitals, especially safety net hospitals.

Moreover, because our prior guidance on certain

aspects of our Medicare DSH _ policy was

insufficiently

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