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Forrest General Hospital v. Azar

United States Court of Appeals, Fifth Circuit

June 10, 2019

FORREST GENERAL HOSPITAL; SOUTHWEST MISSISSIPPI REGIONAL MEDICAL CENTER, Plaintiffs-Appellants
v.
ALEX M. AZAR, II, SECRETARY, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendant-Appellee

          Appeal from the United States District Court for the Southern District of Mississippi

          Before REAVLEY, ELROD, and WILLETT, Circuit Judges.

          DON R. WILLETT, Circuit Judge.

         One tricky area of America's uniquely complex healthcare "system" is the labyrinth of acronyms and formulae that govern Medicare funding. In this appeal, two Mississippi hospitals insist that the federal government skimped on their Disproportionate Share Hospital (or DSH-pronounced "dish") payments-special funding to institutions serving large numbers of indigent patients. To determine if the hospitals were rightly compensated, we must determine if a certain DSH-related fraction-specifically the numerator-was rightly calculated. The answer, though, turns less on figuring numbers than on figuring out words. And all language cases share a common denominator: Judges must defer to plain language, not to parties seeking to elude it.

         Here, the district court gave "substantial deference" to the interpretation of the Department of Health and Human Services (HHS), which read the relevant statute and regulation to exclude from the numerator Mississippi's uncompensated care pool (UCCP) patient days.[1] Upshot: smaller numerator, smaller fraction, smaller funding. But HHS's reading of the fraction was improper, as was the district court's deference to it. The governing provisions unambiguously require HHS to include such patient days. By excluding instead of including, HHS committed a fraction infraction-and flouted the law's plain language.

         As HHS's position is foreclosed by the text and structure of the relevant provisions, we REVERSE the district court's judgment and REMAND to the Medicare Administrative Contractor (MAC) to include the UCCP days in the hospitals' DSH calculation.

         I. Background

         A. The Statutory and Regulatory Framework

         Medicare is a federal health insurance program for the elderly and disabled.[2] It is, as the Supreme Court recently observed, America's "largest federal program after Social Security," spending roughly "$700 billion annually to provide health insurance for nearly 60 million aged or disabled Americans, nearly one-fifth of the Nation's population."[3] Together, Social Security and Medicare make up about 60 percent of all federal spending.

         Medicare compensates hospitals for inpatient services under a prospective payment system, which determines national rates for various services.[4] These rates are subject to myriad adjustments.[5] This case deals with a Medicare adjustment for DSH hospitals-those that serve a "significantly disproportionate number of low-income patients."[6]

         Whether and to what extent a hospital qualifies for a Medicare DSH adjustment hinges on how many days a hospital treated people who are eligible for Medicaid (not to be confused with Medicare). Medicaid, the third-largest mandatory program in the federal budget, [7] is the cooperative federal-state health insurance program for low-income people.[8] HHS calculates a hospital's DSH adjustment using a formula called the "disproportionate patient percentage."[9] The "disproportionate patient percentage" is the sum of two fractions, a Medicare fraction and a Medicaid fraction. This case deals with the Medicaid fraction:

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 [Medicaid], but who were not entitled to benefits under [Medicare], and the denominator of which is the total number of the hospital's patient days for such period.[10]

         When making a DSH calculation you have to ask how many days a hospital treated "patients who . . . were eligible for medical assistance under a State plan approved under [Medicaid]."[11] But there's a little more to it. When Congress passed the Deficit Reduction Act of 2005, it added this to the DSH Medicaid fraction statute:

In determining [the Medicaid fraction, ] 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 [Medicaid], 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.[12]

         So, the Medicaid fraction's numerator includes both (1) days a hospital treated patients who were Medicaid-eligible, and (2) days a hospital treated patients who are regarded as Medicaid-eligible because they received demonstration project benefits. What are demonstration projects? A little more context is in order.

         One does not simply receive federal funding.[13] To participate in the Medicaid program, a state must submit a plan for medical assistance to the Centers for Medicare & Medicaid Services (CMS) for approval (this is called the "State plan"). The State plan must specify who will receive medical assistance, what kind of medical care and services will be offered, and so on.[14]CMS must then approve the plan.[15] Once a plan is approved, a state may receive matching payments from the federal government based on amounts that the state "expended . . . as medical assistance under the State plan."[16]

         Title XI § 1115 of the Social Security Act, however, authorizes the Secretary of HHS to waive certain Medicaid requirements for experimental, pilot, or demonstration projects that, in his judgment, will "assist in promoting the objectives of [Medicaid]."[17] In other words, these § 1115 waivers are Congress's green light to the Secretary to relax the usual state-plan-approval requirements. Section 1115 waivers "shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under [Medicaid]."[18] Thus, these § 1115 demonstration projects provide benefits to people who wouldn't otherwise be eligible for Medicaid benefits; and the costs of these benefits are treated as if they are matchable Medicaid expenditures. This is crucial for our case because patients who were ineligible for Medicaid but received benefits under a § 1115 demonstration project count for Medicaid fraction numerator purposes-resulting in a beefier reimbursement for hospitals.

         We've introduced the major statutory puzzle pieces. But there's a regulatory piece too, 42 C.F.R. § 412.106(b)(4). That regulation says:

(4) Second computation. The fiscal intermediary determines . . . the number of the hospital's patient days of service for which patients were eligible for Medicaid but not entitled to Medicare Part A, and divides that number by the total number of patient days in the same period. For purposes of this second computation, the following requirements apply:
(i) For purposes of this computation, a patient is deemed eligible for Medicaid on a given day only if the patient is eligible for inpatient hospital services under an approved State Medicaid plan or under a waiver authorized under section 1115(a)(2) of the Act on that day, regardless of whether particular items or services were covered or paid under the State plan or the authorized waiver.
(ii) . . . [H]ospitals may include all days attributable to populations eligible for [Medicaid] matching payments through a waiver approved under section 1115 of the Social Security Act.[19]

         This regulation is straightforward. The fiscal intermediary-a private third party tasked with auditing, reporting, and reimbursing hospitals through Medicare and Medicaid-must figure out which days to include in the Medicaid fraction numerator. From here, 42 C.F.R. § 412.106(b)(4)(i) describes a necessary condition: If a day is going to be included in the numerator, the patient underlying that day must have either (1) been "eligible for inpatient hospital services under an approved State Medicaid plan, "-the State plan that goes through the typical HHS approval process-or (2) eligible "under a waiver authorized under section 1115(a)(2)." Subsection (ii) lays out a sufficient condition, giving hospitals permission to go ahead and include days attributed to § 1115 populations.[20]

         B. The Deficit Reduction Act of 2005 and Hurricane Katrina

         We noted above how the Deficit Reduction Act modified the Medicaid fraction statute (by tacking on the "regarded as such" language). But the Act also funded a Hurricane Katrina demonstration project:

(a) IN GENERAL.-The Secretary . . . shall pay to each eligible State . . .:
(1) Under the authority of an approved Multi-State Section 1115 Demonstration Project . . .
(A) with respect to evacuees receiving health care under such project, for the non-Federal share of expenditures:
(i) for medical assistance furnished under [Medicaid], and
(ii) for child health assistance furnished under [Medicare];
(B) with respect to evacuees who do not have other coverage for such assistance through insurance, including (but not limited to) private insurance, under [Medicaid] or [Medicare], or under State-funded health insurance programs, for the total uncompensated care costs incurred for medically necessary services and supplies or premium assistance for such persons, and for those evacuees receiving medical assistance under the project for the total uncompensated care costs incurred for medically necessary services and supplies beyond those included as medical assistance or child health assistance under the State's approved plan under [Medicaid] or [Medicare] . . . .[21]

         Combined with the rest of the Deficit Reduction Act of 2005, this boils down to: Congress directs the Secretary to approve a large demonstration project.[22]From here, the statute breaks down funding for health care services into four populations: (1) evacuees receiving health care under the project; (2) affected individuals (people located in disaster relief counties) receiving health care under the project;[23] (3) evacuees who were uninsured and not Medicaid-eligible; and (4) affected individuals who were uninsured and not Medicaid-eligible.[24]

         The "non-Federal share" funds go towards the share of costs that State Medicaid programs would've had to bear anyway-costs that were eligible for federal matching funds under Medicaid. Conversely, costs of care for uninsured, non-Medicaid-eligible individuals and evacuees-costs that the State Medicaid programs and federal funds would not normally have covered- were simply covered by federal funds appropriated under the Deficit Reduction Act not related to Medicaid funds.

         In September 2005, CMS approved Mississippi's § 1115 waiver to provide Medicaid and State Children's Health Insurance Program (SCHIP) coverage for evacuees displaced from Louisiana, Mississippi, Alabama, and Florida, and those otherwise affected by Hurricane Katrina. The demonstration project extended and expedited Medicaid/SCHIP eligibility to individuals who were displaced to Mississippi because of Katrina and met certain income-eligibility standards.

         The demonstration project also permitted Mississippi to reimburse providers that incurred uncompensated care costs for medically necessary services and supplies for Katrina evacuees and affected individuals who did not have coverage under Medicare, Medicaid, SCHIP, private insurance, or under State-funded health insurance programs for a five-month period-the uncompensated care pool (UCCP). CMS approved Mississippi's UCCP in the September letter and UCCP plan details in a March 2006 letter.

         Because of the unanticipated surge of patients post-Katrina, Mississippi's Medicaid program had no way to receive and electronically process claims under the § 1115 waiver. Instead, hospitals were directed to submit paper claims in "batches" of 50 that did not differentiate between Medicaid-eligible evacuees and affected individuals under the UCCP pool. The hospitals in this case counted inpatient days for all individuals who received inpatient services (in other words, "Katrina days") under the waiver in the Medicaid fraction numerator in their 2005 and 2006 cost reports-including UCCP patient days.

         C. The Administrative and Judicial Proceedings Below

         The Medicare Administrative Contractor excluded all UCCP days in the final settlement of the hospitals' cost reports. The hospitals appealed the Contractor's decision to the Provider Reimbursement Review Board. The Review Board reasoned that the plain statutory and regulatory text governing the DSH adjustment requires all inpatient days provided under the Katrina waiver to be included in the Medicaid fraction numerator; the UCCP was under the Katrina waiver, so UCCP days go into the numerator.

         Having lost that round, HHS appealed to the CMS Administrator. The Administrator analogized the Mississippi UCCP to state-only general assistance days and charity care/uncompensated care days, noting that courts have consistently held that such days don't involve patients who are "eligible for medical assistance under a State plan approved under [Medicaid]."[25] The Administrator reiterated that days the hospitals treated UCCP patients were not days involving patients who "were eligible for medical assistance under a State plan approved under [Medicaid]."[26] The Administrator also thought that UCCP days weren't "attributable to populations eligible for [Medicaid] matching payments through a waiver approved under section 1115" and were excluded from the DSH adjustment by regulation.[27] So the Administrator excluded the UCCP days from the Medicaid fraction.

         The district court agreed with the Administrator. The district court began by explaining how deferential the standard of review is. Believing that it was required to give "substantial deference to an agency's construction of a statute that it administers," the district court tipped the scales in HHS's favor.[28] Like the Administrator below, the district court analogized the Mississippi UCCP to state charity care days. Accordingly, the district court found that the UCCP patients were not "considered [Medicaid] beneficiaries" and not "eligible for benefits under a Section 1115 waiver." It believed that the HHS approval letters' text, program details/logistics, and different sources of funding all pointed to one conclusion: The UCCP was not part of any § 1115 demonstration project.

         On appeal, the hospitals argue that the district court got it all wrong. The hospitals maintain that excluding the UCCP patient days runs contrary to statutory and regulatory directives that plainly require just the opposite. Moreover, the letters HHS sent to Mississippi approving payments under the § 1115 project establish that the UCCP patient days fall under the § 1115 waiver's authority.

         HHS agrees that the Secretary may "include patient days of patients not [eligible for Medicaid] but who are regarded as such because they receive benefits under a demonstration project."[29] But HHS thinks UCCP patients didn't receive benefits under a demonstration project.

         II. Discussion

         The rules governing jurisdiction and our standard of review are familiar.

         Jurisdiction. The district court had jurisdiction to review the Secretary's final decision under Title XVIII of the Social Security Act.[30] And we have jurisdiction over the hospitals' appeal under 28 U.S.C. § 1291.

         Standard of review. Our review of a summary-judgment grant is de novo, "applying the same standard as the district court."[31] Under Rule 56, summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."[32]

         A. The DSH Statute and Regulation are Unambiguous, so HHS's Interpretations are Owed No Deference underChevron and Auer.

         HHS contends that its legal interpretations must be upheld under the Chevron and Auer judicial deference doctrines. We disagree. Judicial deference requires textual ambiguity, and here, the DSH statute and regulation unambiguously cut the hospitals' way. There is no haziness-neither congressional nor administrative. And absent ambiguity, our ingenious design of ...


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