Forrest General Hospital v. Alex Azar, Secr , 926 F.3d 221 ( 2019 )

Case: 18-60227 Document: 00514990219 Page: 1 Date Filed: 06/10/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
No. 18-60227
June 10, 2019
Lyle W. Cayce
Clerk
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.
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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
1 Louisiana v. U.S. Army Corps of Eng’rs, 834 F.3d 574, 580 (5th Cir. 2016).
2 See Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 506 (1994).
3 Azar v. Allina Health Servs., —S. Ct.—, 2019 WL 2331304, at *2 (June 3, 2019).
4 42 U.S.C. § 1395ww(d).
5 See id.
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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:
6 Id. § 1395ww(d)(5)(F)(i)(I).
7 Elizabeth Hinton, Kendal Orgera, and Robin Rudowitz, Medicaid Financing: The
Basics, KAISER FAMILY FOUNDATION (Mar. 21, 2019), https://www.kff.org/medicaid/issue-
brief/medicaid-financing-the-basics/view/print/. While Medicaid is the third-largest program
in the budget, it will soon be surpassed by interest payments on the national debt, the fastest-
growing part of the budget and a mandatory expense if not a mandatory program.
8 See 42 U.S.C. § 1396 et seq.
9 Id. § 1395ww(d)(5)(F)(v)–(vi).
10 Id. § 1395ww(d)(5)(F)(vi)(II).
11 Id.
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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
Deficit Reduction Act of 2005, Pub. L. No. 109–171, § 5002(a), 120 Stat. 4 (2006),
12
codified at 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).
13 THE LORD OF THE RINGS: THE FELLOWSHIP OF THE RING (New Line Cinema 2001)
(“One does not simply walk into Mordor.”).
14 42 U.S.C. § 1396a(a)(10)(A).
15 42 U.S.C. § 1396a(a), (b); 42 C.F.R. §§ 430.10, 430.15.
16 See id. § 1396b(a)(1).
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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
17 See Public Welfare Amendments of 1962, Pub. L. No. 87–543, § 122, 76 Stat. 172,
192, codified at 42 U.S.C. § 1315.
18 42 U.S.C. § 1315(a)(2).
19 42 C.F.R. § 412.106(b)(4).
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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
20 42 C.F.R. § 412.106(b)(4)(ii).
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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
21 Deficit Reduction Act of 2005, Pub. L. No. 109–171, § 6201(a)(1)(A)–(B), 120 Stat. 4
(2006).
22 Id. § 6201(a)(1).
23 Id. § 6201(a)(1)(C).
24 Id. § 6201(a)(1)(D).
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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
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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.
25 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II); see also Adena Reg’l Med. Ctr. v. Leavitt, 527
F.3d 176 (D.C. Cir. 2008); Cooper Univ. Hosp. v. Sebelius, 686 F. Supp. 2d 483 (D.N.J. 2009);
Univ. of Wash. Med. Ctr. v. Sebelius, 634 F.3d 1029 (9th Cir. 2011). Pertinently, these cases
don’t deal with the Medicaid fraction statute’s next portion, the “regarded as such” portion.
26 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).
27 See 42 C.F.R. § 412.106(b)(4)(ii).
28 See Army Corps of Eng’rs, 834 F.3d at 580.
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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 under Chevron 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
29 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).
30 42 U.S.C. § 1395oo(f)(1).
31 Moon v. City of El Paso, 906 F.3d 352, 357 (5th Cir. 2018).
32 FED. R. CIV. P. 56(a).
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unambiguously cut the hospitals’ way. There is no haziness—neither
congressional nor administrative. And absent ambiguity, our ingenious design
of constitutionally separated powers assigns the duty of interpreting the law
to judges, not to regulators. 33
1. HHS’s statutory interpretation deserves no deference under
Chevron.
Under Chevron, a 35-year-old pillar of the administrative state, we defer
to reasonable agency interpretations of ambiguous statutes “unless they are
arbitrary, capricious, or manifestly contrary to the statute.” 34 But Chevron
deference must be reflective, not reflexive. If statutory text is unambiguous,
that’s that—no deference is due. The Constitution, after all, vests lawmaking
power in Congress. 35 How much lawmaking power? “All,” declares the
Constitution’s first substantive word. And Congress’s statutes define the scope
of agencies’ power. Under bedrock separation-of-powers principles, Article III
courts need not—indeed must not—outsource their constitutionally assigned
interpretive duty to Article II agencies when the Article I Congress has spoken
clearly. The integrity of our constitutional framework requires judges to fulfill
“their duty as faithful guardians of the Constitution.” 36 Chief Justice Marshall
was unsubtle: “It is emphatically the province and duty of the judicial
department to say what the law is.” 37 The judiciary is a constitutional partner,
but not a junior partner.
33 “The interpretation of the laws is the proper and peculiar province of the courts.”
THE FEDERALIST NO. 78, at 525 (Alexander Hamilton) (J. Cooke ed., 1961).
34 Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 844 (1984).
35 “All legislative Powers herein granted shall be vested in a Congress.” U.S. CONST.
art. I.
36 THE FEDERALIST NO. 78, at 528 (Alexander Hamilton) (J. Cooke ed., 1961).
37 Marbury v. Madison, 5 U.S. 137, 177 (1803).
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Step One of Chevron analysis asks whether the statutory text is
ambiguous. 38 If it is—and only if it is—courts then defer to agencies’ reasonable
interpretations. 39 But if the statute is not ambiguous, then the agency’s
interpretation gets no deference. 40
In this case, we hold that the governing statutory text is clear, meaning
HHS’s interpretation is owed no Chevron deference. Section
1395ww(d)(5)(F)(vi)(II) says to include days that a hospital treated patients
eligible under a Medicaid-approved state plan in the Medicaid fraction’s
numerator. And if the Secretary approves a demonstration project, then we
regard patient days involving patients who “receive benefits under a
demonstration project” as if they were patient days attributable to Medicaid-
eligible patients (which means those days also go into the numerator). Put
bluntly: Certain days just go into the Medicaid fraction’s numerator. Which
days? Days that a hospital treated Medicaid-eligible patients or—if the
Secretary approves a demonstration project—patients regarded as Medicaid
eligible because of a demonstration project. This is binary: Patient days are
either in or out. If patients underlying a given day were Medicaid-eligible or
“receive[d] benefits under a demonstration project,” then that day goes into the
numerator. Period. Otherwise, a patient day is out.
Just as the statute’s mechanics are straightforward, so too are its words.
The word “eligible” is generally construed to mean “capable of receiving.” 41 The
statute also explains that a qualifying patient must either be (i) Medicaid-
38 Luminant Generation Co. v. EPA, 714 F.3d 841, 850–52 (5th Cir. 2013); Army Corps
of Eng’rs, 834 F.3d at 585–86.
39 Luminant, 714 F.3d at 850, 857.
40 See id. at 850–51.
41 See Covenant Health Sys. v. Sebelius, 820 F. Supp. 2d 4, 12 (D.D.C. 2011); accord
Jewish Hosp., Inc. v. Sec’y of Health & Human Servs., 19 F.3d 270, 274 (6th Cir. 1994); see
also Eligible, BLACK’S LAW DICTIONARY (10th ed. 2014) (defining “eligible” as “[f]it and proper
to be selected or to receive a benefit”).
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eligible or (ii) “regarded as such.” 42 According to the Oxford English Dictionary,
“regarded” can mean “[t]o hold (a person) in (a specified degree of) esteem” or
to “heed or take into account in determining action or conduct.” 43 In other
words, the statute directs us to take certain patients “into account” in
determining the fiscal intermediary’s “action or conduct”—calculating the
Medicaid fraction—even though they aren’t actually Medicaid eligible. The
statute explains that we are to “regard” such patients this way because they
“receive benefits under a demonstration project.” 44 According to Black’s Law
Dictionary, to “receive” means “[t]o take (something offered, given, sent, etc.);
to come into possession of or get from some outside source .” 45 Additionally, Black’s Law Dictionary defines a “benefit” as the
“advantage or privilege something gives; the helpful or useful effect something
has.” 46 This means the fiscal intermediary must look to see who was capable of
taking something offered (receiving); and that something offered must have
had a helpful or useful effect (benefit). Finally, qualifying patients who are not
actually Medicaid-eligible but are “regarded as such,” must “receive benefits
under a demonstration project.” 47 The natural reading of “under” is “subject or
pursuant to” or “by reason of the authority of.” 48
When we piece all of this together as a cohesive whole, the statute means
that patients who aren’t actually Medicaid-eligible still count towards the
Medicaid fraction’s numerator if they’re considered or accounted to be capable
42 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).
43 See The Oxford English Dictionary (online ed. 2019), available at
http://www.oed.com/view/Entry/161187?rskey=YsWG0R&result=1&isAdvanced=false#eid.
44 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added).
45 Receive, BLACK’S LAW DICTIONARY (10th ed. 2014).
46 Benefit, BLACK’S LAW DICTIONARY (10th ed. 2014).
47 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added).
48 Ardestani v. Immigration & Naturalization Serv., 502 U.S. 129, 135 (1991) (cleaned
up); see also Under, BLACK’S LAW DICTIONARY (10th ed. 2014) (remarking that “[t]he word
‘under’ has many dictionary definitions and must draw its meaning from its context”).
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of receiving a demonstration project’s helpful or useful effects by reason of a
demonstration project’s authority. There’s only one plausible way to read this.
Thus, the statute is unambiguous, and HHS’s contrary interpretation is
entitled to no deference under Chevron.
2. HHS’s regulatory interpretation deserves no deference under Auer.
Chevron deference (regarding ambiguous statutes) has a less-famous
doctrinal cousin: Auer deference (regarding ambiguous regulations). Under
Auer v. Robbins 49—currently under reconsideration at the Supreme Court 50—
an agency’s interpretation of its own ambiguous regulation is generally
controlling unless “plainly erroneous or inconsistent with the regulation.” 51
While unanimous and initially uncontroversial, Auer has lost its luster over
the years, weathering unsparing criticism from commentators 52 and jurists, 53
including Auer’s author, the late Justice Scalia, who did not stay an Auer fan
49 519 U.S. 452 (1997).
50 Kisor v. Shulkin, 869 F.3d 1360 (Fed. Cir. 2017), cert. granted sub nom. Kisor v.
Wilkie, 137 S. Ct. 657 (U.S. Dec. 10, 2018) (limiting the grant to petition’s first question,
whether the Supreme Court should overrule Auer v. Robbins and Bowles v. Seminole Rock &
Sand Co., which direct courts to defer to an agency’s reasonable interpretation of its own
ambiguous regulation).
51 See Knapp v. U.S. Dep’t of Agric., 796 F.3d 445, 454 (5th Cir. 2015) (quotation marks
omitted) (citing Auer, 519 U.S. 461–62).
52 See, e.g., John F. Manning, Constitutional Structure and Judicial Deference to
Agency Interpretations of Agency Rules, 96 COLUM. L. REV. 612, 669 (1996) (arguing that such
deference “disserves the due process objectives of giving notice of the law to those who must
comply with it and of constraining those who enforce it”); Jeffrey A. Pojanowski, Revisiting
Seminole Rock, 16 GEO. J.L. & PUB. POL’Y 87, 88 (2018).
53 See, e.g., Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1213–25 (Thomas, J.,
dissenting) (identifying “serious constitutional questions lurking beneath” the Auer doctrine);
id. at 1210–11 (Alito, J., concurring in part and in the judgment) (noting that Justices Scalia
and Thomas have offered “substantial reasons why the Seminole Rock doctrine may be
incorrect”); Decker v. Nw. Envtl. Def. Ctr., 568 U.S. 597, 616 (2013) (Roberts, C.J., concurring)
(noting “some interest in reconsidering” Auer deference); Brett Kavanaugh, Keynote Address
at the Center for the Administrative State Public Policy Conference: Rethinking Judicial
Deference (June 2, 2016) (“I believe that Justice Scalia’s dissent in [Decker] will become the
law of the land”).
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for long, branding it one of the Court’s “worst decisions ever.” 54 Auer’s hours
seem numbered.
In practice, Auer deference mirrors Chevron deference. As with Chevron
analysis, we first evaluate whether the regulation is ambiguous. 55 If it is, then
we defer to HHS’s interpretation. But if the regulation’s plain language is
unambiguous, HHS’s interpretation is entitled to no deference. 56
In this case, the regulation, like the statute, is unambiguous, making
Auer deference inappropriate. Recall the language of 42 C.F.R. § 412.106(b)(4):
(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],
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 [the DSH numerator] 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) . . . hospitals may include all days attributable to populations
eligible for [Medicaid] matching payments through a waiver
approved under section 1115 of the Social Security Act. 57
54 See Clarence Thomas, A Tribute to Justice Antonin Scalia, 126 YALE L. J. 1600, 1603
(2017); see also Perez, 135 S. Ct. at 1211–13 (Scalia, J., concurring) (arguing that Auer
deference undermines procedural safeguards for administrative policymaking); Decker, 568
U.S. at 616–26 (Scalia, J., concurring in part and dissenting in part) (lamenting that by
making agencies both rule-drafter and rule-expositor, Auer “contravenes one of the great
rules of separation of powers”); Talk Am., Inc. v. Mich. Bell Tel. Co., 564 U.S. 50, 67 (2011)
(Scalia, J., concurring) (observing that although Auer “seems to be a natural corollary—
indeed, an a fortiori application—of the rule that we will defer to an agency’s interpretation
. . . it is not”).
55 Army Corps of Eng’rs, 834 F.3d at 571–74.
56 Id. at 574.
57 42 C.F.R. § 412.106(b)(4).
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For the reasons below, we believe that § 412.106(b)’s requirements are clear.
And where regulatory language is clear, we do not look beyond that language. 58
The regulation describes the pool of qualifying hospital patient days.
That pool includes not only those “days of service for which patients were
eligible for Medicaid,” 59 but also days of service in which a patient “is eligible
for inpatient hospital services . . . under a waiver authorized under section
1115(a)(2) . . . regardless of whether particular items or services were covered
or paid under the State plan or the authorized waiver.” 60 It’s important to point
out that section (i) begins by explaining which patients are “deemed eligible for
Medicaid” for the purpose of computing the Medicaid fraction. This phrase
equates patient days involving Medicaid-eligible patients—days the previous
paragraph expressly includes in the Medicaid fraction—with patient days
involving patients who, while not strictly eligible for Medicaid, receive
healthcare coverage under similarly comprehensive state-authorized plans
(plans that include inpatient hospital service benefits). 61 Plus, when read as a
whole, section (i) indicates that a patient’s Medicaid eligibility “on a given day”
is what’s germane. That’s what the fiscal intermediary has to figure out. What
does not matter for purposes of this regulation is what the plan documents say
about eligibility for particular services.
Just as we saw in the DSH adjustment statute, the word “eligible” is a
crucial word in this regulation—this whole regulation is about how the fiscal
intermediary determines who’s “eligible for Medicaid” and, thus, counts
58Copeland v. Comm’r, 290 F.3d 326, 332–33 (5th Cir. 2002).
5942 C.F.R. § 412.106(b)(4).
60 Id. § 412.106(b)(4)(i).
61 Cf. Deem, BLACK’S LAW DICTIONARY (10th ed. 2014) (defining “deem” as “[t]o treat
(something) as if (1) it were really something else, or (2) it has qualities that it does not have”);
HealthAlliance Hosps., Inc. v. Azar, 346 F. Supp. 3d 43, 57 (D.D.C. 2018).
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towards the Medicaid fraction’s numerator. 62 Again, this is equivalent to
figuring out who is “capable of receiving” something. 63 Likewise, the word
“under,” which plays a big role in the statutory text, does the same in the
regulation: A qualifying patient must be “eligible for inpatient hospital services
under” a state Medicaid plan or approved waiver. 64 Since the natural reading
of “under” is “subject or pursuant to” or “by reason of the authority of,” 65 when
the fiscal intermediary sits down to figure out which patients are deemed
eligible for Medicaid on a given day (for purposes of the Medicaid fraction), the
phrase “eligible for inpatient hospital services . . . under a waiver authorized
under section 1115(a)(2)” plainly describes those individuals who were capable
of receiving inpatient hospital services pursuant to the project the Secretary
approved in the § 1115(a)(2) waiver. 66
In short, the DSH adjustment regulation is unambiguous, meaning HHS
is entitled to no Auer deference.
B. The Unambiguous DSH Adjustment Statute and Regulation Favor the
Hospitals.
HHS spends almost 100% of its briefing explaining why the UCCP just
wasn’t part of a § 1115 demonstration project. First, HHS argues, its
September and March letters to Mississippi demonstrate that the UCCP was
entirely separate from the § 1115 demonstration project. Second, courts have
consistently held that state-only general assistance days and charity
care/uncompensated care days are not “eligible for medical assistance under a
62 42 C.F.R. § 412.106(b)(4).
63 See Covenant Health Sys., 820 F. Supp. 2d at 12; accord Jewish Hosp., Inc., 19 F.3d
at 274; see also Eligible, BLACK’S LAW DICTIONARY (10th ed. 2014) (defining “eligible” as “[f]it
and proper to be selected or to receive a benefit”).
64 42 C.F.R. § 412.106(b)(4)(i) (emphasis added).
65 Ardestani, 502 U.S. at 135 (cleaned up); see also Under, BLACK’S LAW DICTIONARY
(10th ed. 2014) (remarking that “[t]he word ‘under’ has many dictionary definitions and must
draw its meaning from its context”).
66 42 C.F.R. § 412.106(b)(4)(i); see also HealthAlliance, 346 F. Supp. 3d at 58.
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State plan approved under [Medicaid].” 67 The UCCP days are like those days;
those days don’t belong in the Medicaid fraction; therefore, UCCP days don’t
belong in the Medicaid fraction.
We disagree with both arguments. The UCCP was clearly part of the
§ 1115 project, and the cases HHS cites deal only with 42 U.S.C.
§ 1395ww(d)(5)(F)(vi)(II)’s first phrase, not the following “regarded as such”
phrase. Accordingly, they’re easily distinguishable. Instead, we hold that this
case’s facts are more akin to those in HealthAlliance Hospitals, Inc. v. Azar,
where the district court of Washington, D.C. held that patient days under the
Massachusetts Commonwealth Care program counted towards the DSH
numerator. 68
1. HHS’s letters to Mississippi do not bolster HHS’s case.
The fiscal intermediary must ascertain who’s “eligible for inpatient
hospital services under an approved State Medicaid plan or under a waiver
authorized under section 1115(a)(2).” 69 But HHS’s letters aren’t the slam dunk
it thinks they are. For instance, the district court focused on the words “[i]n
addition” in the September letter. But this was simply the transition phrase
the letter used as it went from discussing the Medicaid demonstration (Project
Number 11–W–00197/4) and SCHIP demonstration (Project Number 21–W–
00023/4) to discussing the UCCP. Plus, the very next paragraph—the
paragraph immediately after the UCCP paragraph—begins: “Our approval of
this demonstration,” (singular) signaling that either (i) the UCCP is itself a
demonstration or (ii) that the UCCP, Medicaid, and SCHIP programs together
67 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II); see also Owensboro Health, Inc. v. U.S. Dep’t of
Health & Human Servs., 832 F.3d 615, 617 (6th Cir. 2016); Cookeville Reg’l Med. Ctr. v.
Leavitt, 531 F.3d 844, 848 (D.C. Cir. 2008); see also Univ. of Wash. Med. Ctr., 634 F.3d at
1032; Adena Reg’l Med. Ctr., 527 F.3d at 178–80.
68 346 F. Supp. 3d at 60–61.
69 42 C.F.R. § 412.106(b)(4)(i).
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are considered to be a single demonstration. In any event, the letter’s
introductory phrase, “[i]n addition,” doesn’t show that the UCCP wasn’t part
of the approved demonstration project.
The district court also thought that because the Medicaid and SCHIP
programs had different start and end dates than the UCCP, the UCCP was a
separate undertaking that was totally distinct from the demonstration project.
This was wrong. Each piece of a demonstration project doesn’t have to work
the same way or last for the same period of time. Indeed, given that each piece
served a different function, it isn’t surprising that they began and ended on
different days.
The district court observed that the Secretary determined (as evidenced
in the 2005 and 2006 letters) that individuals participating in the Medicaid
expansion waiver “are presumed to be otherwise eligible for Medicaid or
SCHIP in their respective home State,” while no such presumptions were made
about the UCCP folks. This simply isn’t germane to the governing statute or
regulation. The statutory and regulatory texts only care about whether
patients underlying particular days were in fact eligible or regarded as eligible
for Medicaid—there’s no textually grounded reason to consider what patients
were presumed to be otherwise eligible for. 70 The district court erred when it
focused on counterfactual eligibility.
HHS also argues that it can exclude UCCP days from the Medicaid
fraction’s numerator because the statute says that “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.” 71 This is true, but not quite on
70 42 C.F.R. § 412.106(b)(4)(i).
71 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added).
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point. The Secretary may exercise discretion, and the Secretary did exercise
that discretion when he authorized the UCCP in the 2005 and 2006 letters.
But the hospitals’ argument is more convincing: Once the Secretary authorizes
a demonstration project, no take-backs. The statutory discretion isn’t
discretion to exclude populations that the Secretary has already authorized
and approved for a given period; it’s discretion to authorize the inclusion of
those populations in the first place.
2. Cases interpreting 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) do not help
HHS.
As mentioned above, HHS directs our attention to various cases dealing
with 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II)’s phrase, “eligible for medical
assistance under a State plan approved under [Medicaid].” 72 But these cases
deal only with subsection (II)’s first phrase. They don’t shed any light on
subsection (II)’s second phrase, the phrase that governs this case: “patient days
of patients not so eligible but who are regarded as such because they receive
benefits under a demonstration project.” 73 Since the cases HHS cites don’t deal
with programs authorized under a demonstration project, they’re irrelevant to
determining whether Mississippi’s UCCP days belong in the Medicaid
fraction’s numerator. 74
72 Owensboro, 832 F.3d at 617–19 (passing no judgment on the post-DRA “regarded as
such” phrase because “[t]he key dispute in this case is how to interpret the phrase ‘eligible
for medical assistance under a State plan approved under [Medicaid]’ ”); Univ. of Wash. Med.
Ctr., 634 F.3d at 1032 (“[t]his case turns on the meaning of the phrase ‘eligible for medical
assistance under a State plan approved under [Medicaid]’ ”); Cookeville, 531 F.3d at 847–48
(determining whether the Deficit Reduction Act of 2005 “constituted a valid retroactive
change in the law” and holding that the first portion of 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II)
excludes expansion waiver days); Adena, 527 F.3d at 178–80 (“[t]he question before us is
whether HCAP patients are ‘eligible for medical assistance under a State plan approved
under [Medicaid]’ ”).
73 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).
74 Univ. of Wash. Med. Ctr., 634 F.3d at 1032.
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We do, however, find Judge Ketanji Brown Jackson’s excellent opinion
in HealthAlliance Hospitals, Inc. v. Azar extremely persuasive. 75 That opinion
clearly and convincingly explains why the law governing the inclusion of § 1115
waiver patient days in the Medicaid fraction is straightforward: The plain
regulatory text demands that such days be included—period. 76
3. Per clear statutory and regulatory directive, the UCCP days belong in
the Medicaid fraction’s numerator.
HHS argues that “no patient received benefits under the UCCP.” This
statement is mystifying. If UCCP patients didn’t receive benefits under the
UCCP, what did they receive? And under what or whose authority did they
receive, well, whatever non-benefits they received? Medical assistance is a
benefit. 77 And medical assistance is precisely what UCCP patients got. Plus, if
the UCCP wasn’t established under authority of a demonstration project, then
by whose or what authority was it established? It certainly wasn’t part of a
typical “state plan” that followed the normal HHS approval process outlined in
42 U.S.C. § 1396a. HHS’s theory—that the UCCP patients did not receive
benefits under a § 1115 demonstration—offers no satisfactory answers to these
questions.
This Hurricane Katrina demonstration project encompassed the UCCP.
So, the only question the fiscal intermediary would need to answer when
counting patient days associated with an approved demonstration project
under the relevant DSH adjustment regulation is whether UCCP patients
were capable of receiving inpatient health services. They were. Accordingly,
the fiscal intermediary should’ve included UCCP days.
75346 F. Supp. 3d 43.
76Id. at 60.
77 See Benefit, BLACK’S LAW DICTIONARY (10th ed. 2014) (defining “benefit” as any
“advantage or privilege something gives; the helpful or useful effect something has”).
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III. Conclusion
Generalist judges are not policy experts. That said, interpreting the laws
under which Americans live is a quintessentially judicial function. And when
legal texts are unambiguous, as these are, courts should stand firm and decide,
not tiptoe lightly and defer.
For the reasons discussed above, we hold that HHS’s decision to exclude
UCCP patient days from the Medicaid fraction’s numerator is “not in
accordance with law.” 78 Accordingly, we REVERSE and REMAND to the
Medicaid Administrative Contractor to include the UCCP days in the hospitals’
DSH adjustment.
78 5 U.S.C. § 706(2)(A).
22