Submitted: April 17, 2019
from United States District Court for the Western District of
Missouri - Jefferson City
LOKEN, WOLLMAN, and STRAS, Circuit Judges.
share hospitals" -- those that serve a disproportionate
number of indigent patients -- receive supplemental Medicaid
payments ("DSH payments") to help ensure their
financial viability. See 42 U.S.C. § 1396r-4.
DSH payments may not exceed a hospital's "costs
incurred" in furnishing hospital services to eligible
individuals "(as determined by the Secretary and net of
[Medicaid] payments)." § 1396r-4(g)(1)(A). In a
final rule promulgated in 2017 after notice and comment
rulemaking ("the 2017 Rule"), the Secretary of
Health and Human Services defined "costs incurred"
as "costs net of third-party payments, including, but
not limited to, payments by Medicare and private
insurance." 42 C.F.R. § 447.299(c)(10) (effective
June 2, 2017).
Missouri Hospital Association ("MHA"), whose
members include many disproportionate share hospitals,
commenced this action against the Secretary, The Centers for
Medicare and Medicaid Services, and its Administrator
(collectively, "the Secretary"), seeking a
declaration and injunctive relief invalidating this part of
the 2017 Rule. The district court granted summary judgment in
favor of the MHA, concluding that the 2017 Rule was contrary
to "unambiguous language of the statute explain[ing
that] the only payments that offset a hospital's Medicaid
costs are non-DSH Medicaid payments." The Secretary
appeals. Reviewing de novo, we conclude that the
2017 Rule was a reasonable exercise of the Secretary's
expressly delegated discretion to interpret this provision in
the statute. Accordingly, we reverse.
issue is the hospital-specific limit on DSH payments. In
2003, Congress directed the Secretary to perform an annual
audit of each DSH to verify that "[o]nly the
uncompensated care costs of providing" services (known
as the Medicaid shortfall) "are included in the
calculation of the hospital-specific limit." 42 U.S.C.
§ 1396r-4(j)(2)(C). The statute at issue, 42 U.S.C.
§ 1396r-4(g)(1)(A), implements that mandate. As it is
not a model of clarity, we set it out in full:
(g) Limit on amount of payment to hospital
(1) Amount of adjustment subject to uncompensated
costs (A) In general
A payment adjustment during a fiscal year shall not be
considered to be consistent with subsection (c) of this
section with respect to a hospital if the payment adjustment
exceeds the costs incurred during the year of furnishing
hospital services (as determined by the Secretary and net of
payments under this subchapter, other than under this
section, and by uninsured patients) by the hospital to
individuals who either are eligible for medical assistance
under the State plan or have no health insurance (or other
source of third party coverage) for services provided during
the year. For purposes of the preceding sentence, payments
made to a hospital for services provided to indigent patients
made by a State or unit of local government within a State
shall not be considered to be a source of third party
determining whether the Secretary's 2017 Rule exceeded
his statutory authority, we begin with the familiar analysis
of Chevron, U.S.A., Inc. v. Natural Res. Def. Council,
Inc., 467 U.S. 837 (1984). The first question is
"whether Congress has directly spoken to the precise
question at issue." If so, "the court, as well as
the agency, must give effect to the unambiguously expressed
intent of Congress." Id. at 842-43. The first
parenthetical in § 1396r-4(g)(1)(A) expressly delegates
to the Secretary the determination of "costs incurred .
. . of furnishing hospital services." When the Secretary
acts within the scope of that express delegation, his
"legislative regulations are given controlling weight
unless they are arbitrary, capricious, or manifestly contrary
to the statute." Id. at 844; see 5
U.S.C. § 706(2).
while conceding that § 1396r-4(g)(1)(A) expressly
delegates discretion to the Secretary, argues that it is
discretion only to determine "costs incurred,"
whereas the statute unambiguously provides that the only
"payments" that may reduce the determination of
"costs incurred" are Medicaid payments "other
than under this section [non-DSH payments] and [payments] by
uninsured patients." MHA argues that Congress
unambiguously mandated a specific formula: Medicaid shortfall
= Medicaid costs - Medicaid payments.
agree with MHA's statutory analysis up to a point.
Section 1396r-4(g)(1)(A) does not delegate to the Secretary
unfettered discretion to determine "costs
incurred." The statute's discretion-conferring
parenthetical specifically directs the Secretary to offset
Medicaid payments. However, as the D.C. Circuit has noted,
"[a]lthough the statute establishes that payments by
Medicaid and the uninsured must be considered, it
nowhere states that those are the only payments that
may be considered." Children's Hosp.
Ass'n of Tex. v. Azar, 933 F.3d 764, 770 (D.C. Cir.
2019) (emphasis in original). The final sentence of §
1396r-4(g)(1)(A) contains another limitation on the
Secretary's discretion -- "payments made to a
hospital for services provided to indigent patients made by a
State or a unit of local government within a State shall not
be considered to be a source of third party payment."
Contrary to MHA's argument, if the statute unambiguously
prohibited the Secretary from considering any
"payments" other than those included in the
"net of payments" parenthetical, this sentence
would be superfluous.
we disagree with MHA and the district court that the terms
"costs incurred" and "net of payments"
have plain, unambiguous meanings. The Supreme Court has noted
that the term "costs" can have different technical
meanings in different contexts. "The fact is that
without any better indication of meaning than the unadorned
term, the word 'cost' in [47 U.S.C.] §
252(d)(1), as in accounting generally, is a
'chameleon,' a 'virtually meaningless' term.
As Justice Breyer put it in [a prior decision], words like
'cost' 'give ratesetting commissions broad
methodological leeway' . . . ." Verizon
Commun's, Inc. v. F.C.C., 535 U.S. 467, 500 (2002).
Closer to the textual issue in this case, in Kindred
Hospitals East, LLC v. Sebelius, we concluded that the
Secretary was not arbitrary and capricious in ...