American Hospital Association v. Alex Azar, II ( 2020 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 17, 2020 Decided July 17, 2020
No. 19-5352
AMERICAN HOSPITAL ASSOCIATION , ET AL.,
APPELLEES
v.
ALEX M. AZAR, II, IN HIS OFFICIAL CAPACITY AS SECRETARY
OF HEALTH AND HUMAN SERVICES,
APPELLANT
Consolidated with 19-5353, 19-5354
Appeals from the United States District Court
for the District of Columbia
(No. 1:18-cv-02841)
(No. 1:19-cv-00132)
(No. 1:19-cv-01745)
Alisa B. Klein, Attorney, U.S. Department of Justice,
argued the cause for appellant. With her on the briefs were
Mark B. Stern, Attorney, Robert P. Charrow, General Counsel,
U.S. Department of Health & Human Services, Janice L.
Hoffman, Associate General Counsel, Susan Maxson Lyons,
Deputy Associate General Counsel for Litigation, and Robert
W. Balderston, Attorney.
2
Howard R. Rubin and Robert T. Smith were on the brief
for amici curiae Digestive Health Physicians Association, et al.
in support of appellant.
Catherine E. Stetson argued the cause for appellees. With
her on the brief were Susan M. Cook, Katherine B. Wellington,
Mark D. Polston, Joel McElvain, Christopher P. Kenny, and
Michael LaBattaglia. Kyle Druding entered an appearance.
Before: SRINIVASAN , Chief Judge, GARLAND and
MILLETT, Circuit Judges.
Opinion for the Court filed by Chief Judge SRINIVASAN .
SRINIVASAN, Chief Judge: Many hospitals provide
outpatient care at off-site facilities known as “off-campus
provider-based departments,” or PBDs. Certain services
offered by hospitals at off-campus PBDs, such as routine clinic
visits, can also be provided by independent physician practices
unaffiliated with a hospital. Although off-campus PBDs and
independent physician practices can offer the same service,
Medicare until recently reimbursed those providers at different
rates: because off-campus PBDs are considered hospitals for
regulatory purposes, they were paid a higher rate applicable to
hospitals instead of a lower rate applicable to physician
practices. The result was that, for the same outpatient service,
off-campus PBDs obtained up to twice as much per patient in
Medicare reimbursements as did physician practices.
The Department of Health and Human Services
determined that the payment differential gave rise to an
economic incentive that induced unnecessary growth in the
volume of outpatient care provided at off-campus PBDs. HHS
thus reduced the rate it paid hospitals for the most common off-
campus PBD service, “patient evaluation and management,” to
3
equal the rate paid to physician practices for that service. HHS
justified that reimbursement cut as an exercise of its statutory
authority to adopt “method[s] for controlling unnecessary
increases in the volume” of covered outpatient services. 42
U.S.C. § 1395l(t)(2)(F).
A group of hospitals brought these consolidated actions,
claiming that HHS’s rate reduction for off-campus PBDs falls
outside of the agency’s statutory authority. The district court
agreed and set aside the regulation implementing the rate
reduction. Because we conclude that the regulation rests on a
reasonable interpretation of HHS’s statutory authority to adopt
volume-control methods, we now reverse.
I.
A.
Medicare Part B health insurance covers outpatient
hospital care, including same-day surgery, preventive and
screening services, and physician visits. See 42 U.S.C.
§§ 1395j, 1395k. The Department of Health and Human
Services (HHS) sets the rates at which Medicare will reimburse
hospitals for providing such services according to an intricate
statutory system known as the Outpatient Prospective Payment
System (OPPS). See 42 U.S.C. § 1395l(t).
Under the OPPS, hospitals are not reimbursed for the
actual costs incurred in providing care. Instead, to help control
Medicare expenditures, the statute calls for HHS to set
predetermined payment amounts for each covered outpatient
service. See H.R. Rep. No. 106-436, at 33 (1999). Hospitals
then receive that amount for every instance in which they
provide the service. OPPS rates are revised each year via
notice-and-comment rulemaking and are published before they
4
go into effect. See Amgen, Inc. v. Smith, 357 F.3d 103, 106
(D.C. Cir. 2004).
HHS generally sets the rates using a complex statutory
formula. First, each covered outpatient service (or group of
related services) is assigned an Ambulatory Payment
Classification (APC). 42 U.S.C. § 1395l(t)(2)(B). HHS then
establishes “relative payment weights” for each APC based on
the median cost of providing the relevant services. Id.
§ 1395l(t)(2)(C). In that relative weighting process, HHS may
decide, for instance, that given the cost to the hospital, a certain
service should be reimbursed at twice the rate of a different
service. Next, each APC’s relative weight is multiplied by a
number known as the “conversion factor.” Id. § 1395l(t)(3)(D).
The same conversion factor applies to all APCs. Id.
Multiplying an APC’s relative payment weight by the
conversion factor produces a dollar amount, which is the base
“fee schedule amount” for that APC. Id. § 1395l(t)(4)(A). That
amount is subject to a variety of possible further adjustments,
such as adjustments reflecting regional wage differences, id.
§ 1395l(t)(4)(A), or “outlier adjustments” for hospitals facing
unusually high operating costs, id. § 1395l(t)(5).
When setting rates each year, HHS is required to reassess
its choices: what services or groups of services should make
up each APC, what an APC’s relative payment weight should
be, and what statutory adjustments (such as for labor cost
differences) should be applied. Id. § 1395l(t)(9)(A). Changes
to any of those inputs will alter the payment rate for a particular
service. Any change HHS makes in those respects, however,
must not cause overall projected expenditures for the next year
to increase or decrease. Id. § 1395l(t)(9)(B). Under this
“budget-neutrality” requirement, an increase or decrease in
projected spending must be offset by other changes.
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HHS must also update the conversion factor each year in
order to keep up with inflation in general health care costs. Id.
§ 1395l(t)(3)(C)(ii), (t)(3)(C)(iv). Increases to the conversion
factor, of course, proportionately increase overall OPPS
outlays. But adjustments to the conversion factor need not be
implemented in a budget-neutral manner—indeed, it would
make little sense to do so in light of the objective of keeping
pace with inflation.
The OPPS is designed to advance Congress’s goal of
controlling Medicare Part B costs in two ways. First, the OPPS
encourages hospital efficiency by setting payment rates
prospectively and basing the amount on median cost. Second,
because of the budget-neutrality requirement, overall OPPS
expenditure growth should closely track annual increases to the
conversion factor. Those increases are modest and their
amount is prescribed by statute.
Although HHS has significant control over the rate it will
pay hospitals for a specific service under the OPPS system, the
agency has little control over how frequently hospitals will
provide that service. Consequently, even if payment rates
remain constant, an increase in the amount of services provided
will cause an increase in overall Medicare expenditures.
Congress addressed that possibility in subparagraph (2)(F)
of the OPPS statute, the provision centrally in issue in this case.
Subparagraph (2)(F) directs HHS to “develop a method for
controlling unnecessary increases in the volume of covered
[outpatient] services.” Id. § 1395l(t)(2)(F). Relatedly,
Congress also authorized HHS to reduce the conversion factor,
thereby shrinking projected overall expenditures, if it
“determines under methodologies described in [sub]paragraph
(2)(F) that the volume of services paid for . . . increased beyond
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amounts established through those methodologies.” Id.
§ 1395l(t)(9)(C).
B.
Some hospitals provide outpatient care at facilities known
as off-campus provider-based departments (PBDs), which are
located away from the physical site of the hospital. Off-
campus PBDs are considered part of the hospital for regulatory
purposes. See 42 C.F.R. § 413.65. For that reason, services
provided at off-campus PBDs are reimbursed through the
OPPS system. HHS thus has generally paid hospitals the same
amount for outpatient care provided at an off-campus PBD as
for outpatient care provided in the main hospital.
At least some services provided at off-campus PBDs can
also be provided by freestanding physician offices, i.e., medical
practices unaffiliated with a hospital. Physician offices are
generally reimbursed at a lower rate for a given service than
hospitals, because hospitals receive a separate “facility” rate
inapplicable to freestanding physician practices. See Medicare
Program: Proposed Changes to Hospital Outpatient
Prospective Payment and Ambulatory Surgical Center
Payment Systems and Quality Reporting Programs, 83 Fed.
Reg. 37,046, 37,142 (July 31, 2018).
Consider the amounts Medicare paid for a service
commonly provided by off-campus PBDs: “evaluation and
management of a patient,” or E&M. In 2017, the E&M
reimbursement rate for off-campus PBDs under the OPPS was
$184.44 for new patients and $158.24 for established patients.
By contrast, the 2017 E&M rate for freestanding physician
offices—paid under a separate system known as the Physician
Fee Schedule—was $109.46 for new patients and $73.93 for
established patients. See id. Hospital-affiliated outpatient
 7
departments thus received between 68% and 114% more in
reimbursements per patient for the same service.
According to the Medicare Payment Advisory
Commission (MedPAC), which was established by Congress
to advise HHS, see Pub. L. No. 105-33 § 4022, 111 Stat. 251,
350, hospitals reacted to the incentive created by the payment
differential between off-campus PBDs and independent
physician practices. Almost a decade ago, hospitals began
buying freestanding physician practices and converting them
into off-campus PBDs, without much change in the facility or
the patients served. MedPAC, Report to the Congress:
Medicare Payment Policy 53, 59–61, 75–76 (Mar. 2014),
https://go.usa.gov/xdCzV. MedPAC documented substantial
increases in the provision of E&M services at hospital
outpatient departments and little to no growth in the provision
of the same services at physician offices. See id. at 42. From
2011 to 2016, the provision of E&M services at off-campus
PBDs grew by 43.8%. MedPAC, Report to the Congress:
Medicare Payment Policy 73 (2018), https://go.usa.gov/xdCzu.
By comparison, the provision of E&M services at freestanding
physician practices grew by only 0.4%. Id.
In 2015, Congress attempted to address the substantial
growth in services provided at off-campus PBDs by enacting
section 603 of the Bipartisan Budget Act of 2015, Pub. L. No.
114-74, 129 Stat. 584, 597–98 (codified at 42 U.S.C.
§ 1395l(t)(21)). Section 603 adopted something of a
compromise approach. On one hand, it did not touch the
reimbursement rates for existing off-campus PBDs. On the
other hand, it established that off-campus PBDs coming into
existence after the statute’s enactment would no longer be paid
under the OPPS, but instead would be paid under the
“applicable payment system under this part,” which HHS
interpreted to be a rate equivalent to the Physician Fee
8
Schedule. 42 U.S.C. § 1395l(t)(21)(C). That change applied
to every service—not just E&M services—provided at new off-
campus PBDs.
After section 603’s enactment, though, HHS still
continued to observe steady growth in the volume of hospital
outpatient services. 83 Fed. Reg. at 37,139. For the years 2016
through 2018, the volume and intensity of services grew
annually by 6.5%, 5.8%, and 5.4%, respectively. Id. And in
its proposed OPPS rule setting rates for 2019, the agency
projected that, without changes, volume would again increase
by 5.3% in that year, leading to $75.3 billion in overall OPPS
expenditures. Id. Outlays had been nearly $20 billion less only
a few years earlier. Id.
HHS determined that, despite the 2015 enactment of
section 603, “the differences in payment for . . . services”
continued to be “a significant factor in the shift in services from
the physician’s office to the hospital outpatient department, . . .
unnecessarily increasing hospital outpatient department
volume.” Id. at 37,142. HHS believed that the “higher
payment that is made under the OPPS, as compared to payment
under the [Physician Fee Schedule], [was] likely to be
incentivizing providers to furnish care in the hospital outpatient
setting.” Id. at 37,141. Thus, although section 603 had
removed the incentive for hospitals to purchase physician
practices and convert them into off-campus PBDs on a going-
forward basis, the statute did not remove the incentive to
provide care in off-campus PBDs already in existence.
In its rule proposing 2019 OPPS rates, HHS announced
that it “consider[ed] the shift of services” it had observed to be
“unnecessary if the beneficiary can safely receive the same
services in a lower cost setting but is instead receiving services
in the higher paid setting due to payment incentives.” Id. at
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37,142. The agency concluded that E&M services, which are
routine clinic visits, fit the bill, and thus that “the growth in
clinic visits paid under the OPPS is unnecessary.” Id.
Having found an “unnecessary increase[] in the volume of
covered [outpatient] services,” HHS proposed to exercise its
subparagraph (2)(F) authority to “develop a method for
controlling” the increase. 42 U.S.C. § 1395l(t)(2)(F); 83 Fed.
Reg. at 37,142. Specifically, the agency proposed to cut E&M
reimbursement rates to off-campus PBDs to the amount HHS
pays to freestanding physician offices for providing the same
service. “[C]apping the OPPS payment at the [Physician Fee
Schedule]-equivalent rate,” the agency explained, “would be
an effective method to control the volume of these unnecessary
services because the payment differential that is driving the
site-of-service decision [would] be removed.” 83 Fed. Reg. at
37,142.
Notably, HHS proposed to implement the E&M
reimbursement cut in a non-budget-neutral manner. In other
words, the agency would reduce payments without offsetting
increases in reimbursements for other covered outpatient
services. Id. at 37,142–43. Although the OPPS statute
generally requires annual rate adjustments to be budget-neutral,
see 42 U.S.C. § 1395l(t)(9)(B), the agency did not believe that
requirement applied to methods for controlling volume under
subparagraph (2)(F). 83 Fed. Reg. at 37,142–43. HHS chose
not to apply the reimbursement cut in a budget-neutral manner
because doing so “would not appropriately reduce the overall
unnecessary volume of covered [outpatient] services, and
instead would simply shift the movement of the volume within
the OPPS system in the aggregate.” Id. at 37,143. HHS
estimated that the proposed rule would reduce Medicare’s
expenditures by approximately $610 million in 2019 alone,
10
with an additional $150 million saved by Medicare
beneficiaries in the form of reduced coinsurance payments. Id.
After receiving comments, the agency adopted its proposal
as a final rule, with the only change that the E&M
reimbursement cut would be phased in over two years. See
Medicare Program: Changes to Hospital Outpatient
Prospective Payment and Ambulatory Surgical Center
Payment Systems and Quality Reporting Programs, 83 Fed.
Reg. 58,818, 59,004–15 (Nov. 21, 2018).
C.
The American Hospital Association and various hospitals
(whom we will refer to collectively as the Hospitals)
challenged the 2019 rule in these actions, which were
consolidated in the district court for purposes of addressing the
parties’ cross-motions for summary judgment. See Am. Hosp.
Ass’n v. Azar, 410 F. Supp. 3d 142, 146 (D.D.C. 2019). The
Hospitals first argued that HHS’s reduction in reimbursement
for E&M services exceeded the agency’s statutory authority
because the reduction does not qualify as a “method for
controlling unnecessary increases in . . . volume” under
subparagraph (2)(F) of the OPPS statute. See id. at 150–51.
The Hospitals also argued that HHS’s decision to cut
reimbursement to preexisting off-campus PBDs contravened
Congress’s decision to leave preexisting facilities unaddressed
in section 603 of the Bipartisan Budget Act of 2015. See id.
The district court agreed with the Hospitals’ first
argument. Id. at 161. The court accordingly vacated as ultra
vires the part of the challenged rule that reduced E&M
reimbursement rates. Id. This appeal followed.
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II.
We must first consider whether we have jurisdiction to
review the Hospitals’ claim. Subparagraph (12)(A) of the
OPPS statute provides that “[t]here shall be no administrative
or judicial review of” certain specified actions HHS takes in
implementing the OPPS, including “the establishment of . . .
methods described in paragraph (2)(F).” 42 U.S.C.
§ 1395l(t)(12)(A). The government contends that HHS’s cut
to E&M reimbursement qualifies as such a “method.” Thus,
the government argues, judicial review of that reimbursement
cut is precluded by statute, and we should dispose of the case
on that basis at the threshold without examining HHS’s
authority to implement the rate reduction.
We are unpersuaded. Although subparagraph (12)(A)
forecloses judicial review of the agency’s “establishment of
methods described in paragraph (2)(F),” the Hospitals’ claim is
that the payment reduction at issue is not a “method[] described
in paragraph (2)(F)” within the meaning of the statute. As a
result, to determine whether the judicial-review bar applies in
this case, we must decide whether the challenged agency action
counts as a “method for controlling unnecessary increases in
the volume of covered [outpatient] services.” Id.
§ 1395l(t)(2)(F). And that latter question is the merits issue
presented here.
Subparagraph (12)(A) therefore is a preclusion-of-review
provision that “merges consideration of the legality of [agency]
action with consideration of the court’s jurisdiction in cases in
which the challenge to the [agency’s] action raises the question
of the [agency’s statutory] authority.” Amgen, 357 F.3d at
113–14 (quoting COMSAT Corp. v. FCC, 114 F.3d 223, 226–
27 (D.C. Cir. 1997)). In such cases, if the court “find[s] that
[the agency] has acted outside the scope of its statutory
12
mandate, we also find that we have jurisdiction.” COMSAT,
114 F.3d at 227. Put differently, “the jurisdiction-stripping
provision does not apply” if the agency’s action fails to qualify
as the kind of action for which review is barred. Southwest
Airlines Co. v. TSA, 554 F.3d 1065, 1071 (D.C. Cir. 2009). As
a practical matter, then, the court can simply skip to the merits
question in its analysis. See, e.g., id.; Amgen, 357 F.3d at 114;
COMSAT, 114 F.3d at 227.
This court has already construed the provision at issue here
as “merging” the preclusion and merits analysis in that way. In
Amgen, we stated that subparagraph (12)(A)’s preclusion on
review of “other adjustments” to rates by HHS “extends no
further than the Secretary’s statutory authority to make” such
adjustments. 357 F.3d at 112. Accordingly, we concluded that
subparagraph (12)(A) “precludes judicial review of any
adjustment made by the Secretary pursuant to [his statutory]
authority . . . but not of those for which such authority is
lacking.” Id. at 113. We then proceeded to the merits question,
ultimately holding that the challenged adjustment was within
the agency’s statutory authority and that we thus lacked
jurisdiction. Id. at 114, 118. The government contends that
Amgen’s treatment of subparagraph (12)(A) was dicta, but
regardless, we fully agree with Amgen’s approach, under which
we analyze the merits to decide whether we have jurisdiction.
The government attempts to sidestep that result by
pressing us to analyze the Hospitals’ claim under the ‘ultra
vires review’ doctrine often attributed to Leedom v. Kyne, 358
U.S. 184 (1958). That doctrine, which we have likened to a
“Hail Mary pass,” “permits, in certain limited circumstances,
judicial review of agency action for alleged statutory violations
even when a statute precludes review.” Nyunt v. Chairman,
Broad. Bd. of Governors, 589 F.3d 445, 449 (D.C. Cir. 2009).
The government submits that the Hospitals’ challenge presents
13
such a circumstance and thus must satisfy the stringent
requirements set out in DCH Regional Medical Center v. Azar,
925 F.3d 503, 509 (D.C. Cir. 2019)—among them, that the
agency plainly acted in excess of its delegated powers and
contrary to a specific, clear, and mandatory prohibition in the
statute. Id.
The Hospitals’ challenge does not implicate the Kyne
framework. We are not asked to remedy a “statutory
violation[] even when a statute precludes review.” Nyunt, 589
F.3d at 449. Instead, the Hospitals argue that the “same agency
error . . . simultaneously ma[kes] the jurisdictional bar
inapplicable and compel[s] setting aside the challenged agency
action.” DCH Regional, 925 F.3d at 510 (quotation marks
omitted). Put differently, the Hospitals’ claim is that
subparagraph (12)(A)’s bar on judicial review does not apply
if their merits argument is correct, not that their merits
argument is so obviously correct that we should consider it
despite an applicable bar on our review. DCH Regional itself
recognized the distinction between cases involving a “Kyne
exception” and cases such as this one in which “the relevant
statutory bar . . . [is] effectively coextensive with the merits.”
Id. at 509–10.
In sum, subparagraph (12)(A)’s bar on judicial review is
inapplicable unless HHS’s challenged action qualifies as a
“method for controlling unnecessary increases in . . . volume”
under subparagraph (2)(F). Subparagraph (12)(A) then
ultimately does not preclude judicial scrutiny of HHS’s action
for consistency with subparagraph (2)(F). To be sure,
subparagraph (12)(A) still forecloses inquiry into “whether
[the] challenged agency decision is arbitrary, capricious, or
procedurally defective.” Amgen, 357 F.3d at 113. But such
claims are not before us here. As to the claim the Hospitals do
raise, the question whether the Hospitals are correct and the
14
question whether the preclusion provision bars review of their
claim are one and the same. We thus turn to assessing whether
HHS had statutory authority to implement the challenged E&M
reimbursement reduction.
III.
A.
We examine that question under the traditional Chevron
framework, under which we defer to the agency’s reasonable
interpretation of an ambiguous statute. See Chevron, U.S.A.,
Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). HHS
is generally entitled to Chevron deference on judicial review of
its interpretations of the Medicare statute. See Good Samaritan
Hosp. v. Shalala, 508 U.S. 402, 414 (1993); Baystate Franklin
Med. Ctr. v. Azar, 950 F.3d 84, 92 (D.C. Cir. 2020). The
Hospitals urge us not to apply Chevron in this case for several
reasons, none of which is persuasive.
First, we disagree that HHS forfeited any right to Chevron
deference. To the contrary, HHS explained in the district court
why its interpretation was entitled to Chevron treatment,
invoked the doctrine twice in its opening brief in our court, and
argued for it again in its reply brief. And in any event, our
decisions hold that Chevron deference is not subject to
forfeiture based on an agency’s litigation conduct if the
agency’s challenged action “interpret[ed] a statute it is charged
with administering in a manner (and through a process)
evincing an exercise of its lawmaking authority.”
SoundExchange, Inc. v. Copyright Royalty Bd., 904 F.3d 41, 54
(D.C. Cir. 2018). That is the case here. See 83 Fed. Reg. at
59,009, 59,011.
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Second, the Hospitals contend that HHS’s interpretation of
subparagraph (2)(F) in the challenged rule is inconsistent with
earlier agency pronouncements, such that the rule is arbitrary
and unworthy of Chevron deference. See Encino Motorcars,
LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016). But HHS has
never taken a definitive position on the scope of subparagraph
(2)(F). The Hospitals point to one sentence in the agency’s first
OPPS rulemaking cautioning that “[a]dditional study, analysis,
and possible legislative modification would be necessary
before [the agency] could consider implementing” a volume-
control method involving direct changes to reimbursement.
Medicare Program; Prospective Payment System for Hospital
Outpatient Services, 63 Fed. Reg. 47,552, 47,586 (Sept. 8,
1998). Even assuming that statement amounted to an
announcement of agency policy, which is far from clear, its
meaning is ambiguous. As the district court concluded in its
decision, the agency might well have thought that a “possible
legislative modification would be necessary” because its
proposed volume-control method would have required
amending a separate statutory formula pertaining to its
proposal, not because it believed that direct rate changes could
never qualify as a “method for controlling” volume under
(2)(F). See Am. Hosp. Ass’n, 410 F. Supp. 3d at 157 n.8.
Nor, contrary to the Hospitals’ contention, has HHS long
viewed subparagraph (2)(F) to require volume-control methods
to be budget-neutral. It is true that the agency previously
implemented a volume-control method called “packaging,”
which bundles related services together into a single payment
group, in a budget-neutral manner. See Medicare Program:
Changes to the Hospital Outpatient Prospective Payment
System and CY 2008 Payment Rates, 72 Fed. Reg. 66,580,
66,615 (Nov. 27, 2007). That example, though, does not
establish that HHS viewed (2)(F) as requiring budget-
neutrality. The agency implemented “packaging” via other
16
statutory authorities, including its power to alter the
composition of APC groups and their scaled
weights. See id.at 66,611, 66,615; 42 U.S.C. § 1395l(t)(2)(B)–
(C), (t)(9)(A). Those adjustment authorities require budget-
neutrality. See 42 U.S.C. § 1395l(t)(9)(B). HHS implemented
packaging in a budget-neutral way not because it was a (2)(F)
method, but because it involved other statutory adjustments
that call for budget-neutrality. See 72 Fed. Reg. at 66,615
(budget-neutrality implicated because of “changes in APC
weights and codes” and resulting “shifts in median costs” of
those APCs).
Finally, we reject the Hospitals’ argument that Chevron
does not apply when, as here, our consideration of the agency’s
statutory authority merges with our consideration of the
applicability of a preclusion provision. See Part II, supra. That
result would mean that Congress’s decision to enact a
preclusion provision operated to enhance judicial scrutiny and
restrict the agency’s leeway. In precluding judicial review of
certain HHS actions, though, Congress necessarily intended the
opposite outcome. See Amgen, 357 F.3d at 112 (noting “havoc
that piecemeal [judicial] review of OPPS payments could bring
about”).
B.
Having rejected the Hospitals’ arguments against applying
Chevron, we proceed to review HHS’s interpretation of
subparagraph 1395l(t)(2)(F) under Chevron’s two-step
framework. We first ask whether “Congress has directly
spoken to the precise question at issue.” Chevron, 467 U.S. at
842. If so, our work is done, for we “must give effect to the
unambiguously expressed intent of Congress.” Id. at 843. But
if the statute is “silent or ambiguous with respect to th[at]
specific issue,” id., we assume “Congress has empowered the
17
agency to resolve the ambiguity,” and we defer to the agency’s
interpretation as long as it is reasonable. Util. Air Reg. Grp. v.
EPA, 573 U.S. 302, 315 (2014).
The question at issue is whether HHS may reduce the
OPPS reimbursement for a specific service, and may
implement that cut in a non-budget-neutral manner, as a
“method for controlling unnecessary increases in the volume
of” the service. 42 U.S.C. § 1395l(t)(2)(F). In our view,
Congress did not “unambiguously forbid” the agency from
doing so. Barnhart v. Walton, 535 U.S. 212, 218 (2002); Nat’l
Ass’n of Clean Water Agencies v. EPA, 734 F.3d 1115, 1125
(D.C. Cir. 2013). We further conclude that the agency
reasonably read subparagraph (2)(F) to allow a service-
specific, non-budget-neutral reimbursement cut in the
circumstances we consider here. We therefore hold that the
agency acted within its statutory authority.
1.
At step one of Chevron, “the court begins with the text,
and employs ‘traditional tools of statutory construction’ to
determine whether Congress has spoken directly to the issue.”
Prime Time Intern. Co v. Vilsack, 599 F.3d 678, 683 (D.C. Cir.
2010) (quoting Chevron, 467 U.S. at 842–43 & n.9). Applying
those tools, we conclude that the OPPS statute does not directly
foreclose HHS’s challenged rate reduction.
To begin with, a service-specific, non-budget-neutral rate
reduction falls comfortably within the plain text of
subparagraph (2)(F). Reducing the payment rate for a
particular OPPS service readily qualifies, in common parlance,
as a “method for controlling unnecessary increases in the
volume” of that service. The lower the reimbursement rate for
a service, the less the incentive to provide it, all else being
18
equal. Reducing the reimbursement rate thus is naturally suited
to addressing unnecessary increases in the overall volume of a
service provided by hospitals. As for whether a rate reduction
under subparagraph (2)(F) can be non-budget-neutral, the
provision simply says nothing about budget-neutrality. The
text Congress enacted thus lends considerable support to the
agency’s reading of the statute at Chevron step one. See Air
Transp. Ass’n of Am. v. FAA, 169 F.3d 1, 4 (D.C. Cir. 1999)
(because operative “language d[id] not preclude the [agency’s]
interpretation,” the contrary “inference petitioner would draw
as to the statute’s meaning [was] not inevitable”).
The broader statutory context bolsters the agency’s view
that subparagraph (2)(F) authorizes service-specific rate cuts.
Under our decision in Amgen, the agency can alter the
reimbursement rate for a particular service under its
subparagraph (2)(E) authority to make “adjustments [it]
determine[s] to be necessary to ensure equitable payments,” 42
U.S.C. § 1395l(t)(2)(E); see 357 F.3d at 117 (upholding use of
equitable-adjustment authority to change “payment amount for
a single drug”). If the agency can adjust payment rates in
furtherance of the expansive purpose of achieving equitable
payments, it stands to reason that the agency can also adjust
rates to accomplish the more focused goal of controlling
unnecessary volume growth. Indeed, as the Amgen court saw
it, HHS’s robust “discretion” to adjust payment rates is a
central feature of the statutory scheme. 357 F.3d at 114
(quoting H.R. Rep. No. 105-149, at 1323 (1997) and H.R.
Conf. Rep. No. 105-217, at 785 (1997)).
The statutory context also supports construing
subparagraph (2)(F) to allow non-budget-neutral adjustments.
If the statute otherwise permits the agency to make a
discretionary rate reduction as a method of volume control, it
would be anomalous for the law to require the rate cut to be
19
implemented budget-neutrally. That would require HHS to
redistribute the costs traceable to the provision of unnecessary
services throughout the OPPS, resulting in no net savings to
Medicare and largely negating the point of reducing
reimbursement in the first place. See 83 Fed. Reg. at 37,142–
43.
The Hospitals warn that, on that reading, nothing
“prevents [HHS] from engaging in cost-control measures that
will disproportionately affect only some service providers and
beneficiaries.” Hospitals Br. 7. But budget-neutrality offers
little protection against such outcomes. If HHS reduces
reimbursements for cardiac catheterizations and then
redistributes the savings across the OPPS, that still hurts
cardiologists much more than orthopedists even if cardiologists
would get some money back in the form of slightly elevated
reimbursements for other services they provide. The agency’s
ability to advance Congress’s apparent goals in both budget-
neutrality and subparagraph (2)(F)—namely, keeping growth
in overall OPPS expenditures modest and predictable year to
year, see generally supra pp. 5–6—would be undermined, not
advanced, by requiring the savings from (2)(F) volume-control
methods to be redistributed across the OPPS.
The Hospitals also contend that, budget-neutrality aside,
subparagraph (2)(F) unambiguously does not encompass
service-specific rate adjustments. The Hospitals argue in that
regard that subparagraph (2)(F) does no more than enable the
agency to develop an “analytical mechanism for determining
whether there is an unnecessary increase in volume.” Hospitals
Br. 31 (formatting modified). That argument rests on reading
subparagraph (2)(F) in conjunction with subparagraph (9)(C),
which provides that:
20
If the Secretary determines under
methodologies described in paragraph (2)(F)
that the volume of services paid for under this
subsection increased beyond amounts
established through those methodologies, the
Secretary may appropriately adjust the update
to the conversion factor otherwise applicable in
a subsequent year.
42 U.S.C. § 1395l(t)(9)(C).
According to the Hospitals, subparagraph (9)(C) is the
exclusive way for HHS to implement subparagraph (2)(F). On
that understanding, (2)(F) empowers the agency to “develop a
method” for diagnosing whether there has been too much
growth in outpatient service volume, and if the agency decides
there has, then it can respond by—and only by—using its
(9)(C) authority to reduce the across-the-board conversion
factor. (Recall that the conversion factor is the number by
which relative payment weights for services are translated into
actual reimbursement amounts. See supra pp. 4–5.)
Subparagraph (2)(F), under the Hospitals’ argument, does not
itself authorize the agency to act on an unnecessary increase in
volume upon finding that one exists, much less to do so on a
service-specific basis. Rather, the agency can act only by
reducing the overall conversion factor under (9)(C).
That interpretation of subparagraph (2)(F) is difficult to
square with the provision’s language. Subparagraph (2)(F)
directs the agency to develop “a method for controlling
unnecessary increases” in volume, not just a method for
assessing whether unnecessary increases exist. And we think
it unlikely that Congress would have confined the agency’s
volume-control arsenal to the very blunt instrument of reducing
the across-the-board conversion factor. The Hospitals identify
21
no reason to suppose that Congress would have been concerned
only about overall OPPS volume growth, which the conversion
factor can suitably address, but not about unwarranted growth
in the volume of a single service, which the conversion factor
cannot. Cutting the conversion factor would reduce
reimbursement equally for every OPPS service, a poorly
tailored, ineffectual “method” of controlling undesirable
volume growth in a specific service.
The Hospitals respond that HHS’s reading of (2)(F)
renders subparagraph (9)(C) redundant, because cutting the
conversion factor fits textually as a “method for controlling”
unnecessary volume. We do not see the redundancy.
Subparagraph (9)(C) appears to come into play only after the
agency first attempts to address unnecessary volume increases
through methodologies implemented under subparagraph
(2)(F): “If the Secretary determines under methodologies
described in paragraph (2)(F) that” volume has “increased
beyond amounts established through those methodologies, the
Secretary may appropriately adjust the update to the conversion
factor applicable in a subsequent year.” 42 U.S.C.
§ 1395l(t)(9)(C) (emphases added). Because the (9)(C)
authority thus kicks in only after the (2)(F) authority has been
attempted and found inadequate, the former necessarily is not
redundant of the latter.
At any rate, even if subparagraph (9)(C) did amount to
surplusage under HHS’s reading of (2)(F), that would not
necessarily compel rejecting the agency’s interpretation of
(2)(F) at Chevron step one. “[A]t times Congress drafts
provisions that appear duplicative of others—simply, in
Macbeth’s words, ‘to make assurance double sure.’” Fla.
Health Scis. Ctr., Inc. v. Sec’y of Health & Human Servs., 830
F.3d 515, 520 (D.C. Cir. 2016) (citation omitted)). There may
have been particular reason for Congress to do so here. In
22
specifying how HHS is to calculate the conversion factor, the
statute envisions that the conversion factor will generally be
“increased” each year, 42 U.S.C. § 1395l(t)(3)(C), (t)(3)(C)(ii).
In that light, Congress could have thought it desirable to
confirm the agency’s power to reduce the conversion factor in
response to volume growth, as subparagraph (9)(C) does.
Next, the Hospitals argue that subparagraph (2)(F)’s
silence on budget-neutrality is itself evidence that Congress
could not have intended the provision to allow direct rate
adjustments. As noted, subparagraph (2)(F) does not address
whether volume-control “method[s]” under that provision must
be implemented in a budget-neutral fashion. Yet the OPPS
statute nearly always specifies, one way or the other, whether
a rate-adjustment authority must be exercised budget-neutrally.
See Am. Hosp. Ass’n, 410 F. Supp. 3d at 159 (citing
provisions). To the Hospitals, subparagraph (2)(F)’s
comparative silence indicates that Congress did not intend the
provision to authorize changes to payment rates.
But subparagraph (2)(F) undisputedly authorizes actions
other than direct rate adjustments, and for at least some of those
actions, a budget-neutrality requirement would make no sense.
For example, the Hospitals do not dispute that subparagraph
(2)(F) would allow HHS, as a volume-control method, to
require additional paperwork from hospitals seeking
reimbursement for certain outpatient procedures. That kind of
volume-control method, of course, is insusceptible to a budget-
neutrality mandate. Thus, (2)(F)’s silence on budget-neutrality
tells us little about whether (2)(F) includes the authority to
reduce a particular OPPS rate.
Lastly, the Hospitals make a similar argument based on
paragraph 1395l(t)(4), which sets out how “[t]he amount of
payment made from the Trust Fund under this part for a
23
covered [outpatient] service . . . furnished in a year is
determined.” 42 U.S.C. § 1395l(t)(4). Paragraph (4) makes no
mention of subparagraph (2)(F). But it expressly allows
payment amounts to be “adjusted” under other provisions, such
as subparagraphs (2)(D) and (2)(E), which authorize various
adjustments including labor-cost adjustments and equitable
adjustments. That, the Hospitals contend, is strong evidence
that Congress did not intend direct modification of OPPS
payment rates via subparagraph (2)(F).
Text and precedent, however, indicate that not all changes
to OPPS rates must flow through paragraph (4). A number of
provisions in the OPPS statute authorize HHS to set or adjust
reimbursement rates for specific outpatient services but are
unaddressed by paragraph (4). See 42 U.S.C. § 1395l(t)(14)
(providing separate formula for calculating “amount of
payment under this subsection for a specified covered
outpatient drug”); id. § 1395l(t)(15) (prescribing “amount [to
be] provided for payment for [an ungrouped] drug or biological
under this part”); id. § 1395l(t)(16)(D) (requiring payment
reduction for a certain surgical procedure performed by certain
hospitals); id. § 1395l(t)(16)(F)(i)–(ii) (requiring payment
reductions for various imaging services); id. § 1395l(t)(22)
(authorizing Secretary to make “revisions to payments” “made
under this subsection for covered [outpatient] services” in order
to decrease opioid prescriptions). Consequently, paragraph (4)
is best understood to set out only the general mechanism—not
the exclusive mechanism—by which specific OPPS rates for
covered services are “determined.”
Our decision in Amgen supports that understanding of
paragraph (4). In that case, HHS used its equitable-adjustment
authority under subparagraph (2)(E) to reduce a “transitional
pass-through” payment for a drug to zero dollars. 357 F.3d at
107. The drug’s manufacturer complained that HHS could not
24
make that sort of equitable adjustment because paragraph (t)(6)
lays out a specific formula for determining the “amount of the
[transitional pass-through] payment.” See 42 U.S.C.
§ 1395l(t)(6)(A), 1395l(t)(6)(D). Amgen rejected that
argument, holding that (t)(6)’s seemingly “mandatory”
provisions establish only “default OPPS rate calculations
subject to later adjustment.” 357 F.3d at 115. Under Amgen,
then, although (t)(6) specifies in detail how pass-through
payments must be calculated without mentioning subparagraph
(2)(E), the agency can nonetheless adjust the results of the
(t)(6) formula using its (2)(E) authority. The same, we think,
is true—or at least, not unambiguously untrue—of (t)(4) and
(2)(F), respectively.
We thus conclude that the OPPS statute does not
unambiguously foreclose HHS’s adoption of a service-specific,
non-budget-neutral rate cut as a “method for controlling
unnecessary increases in” volume. 42 U.S.C. § 1395l(t)(2)(F).
The statute is at least ambiguous as to whether that sort of rate
adjustment lies within the agency’s (2)(F) authority.
2.
At Chevron step two, we ask whether the agency’s
interpretation “is based on a permissible construction of the
statute.” Nat’l Ass’n of Clean Water Agencies v. EPA, 734 F.3d
1115, 1128 (D.C. Cir. 2013) (quoting Chevron, 467 U.S. at
843). “A ‘reasonable’ explanation of how an agency’s
interpretation serves the statute’s objectives is the stuff of
which a ‘permissible’ construction is made.” Northpoint Tech.,
Ltd. v. FCC, 412 F.3d 145, 151 (D.C. Cir. 2005) (citation
omitted).
The challenged rule meets that standard. The agency
explained that recent growth in the volume of E&M services
25
provided at off-campus PBDs was “unnecessary because it
appears to have been incentivized by the difference in payment
for each setting rather than patient acuity.” 83 Fed. Reg. at
59,007. The agency further concluded that reducing payments
in order to eliminate that incentive “would be an effective
method to control the volume of these unnecessary services
because the payment differential that is driving the site-of-
service decision will be removed.” Id. at 59,009.
That interpretation of subparagraph (2)(F) is both
“textually defensible” and “fits ‘the design of the statute as a
whole and . . . its object and policy.’” Good Samaritan Hosp.,
508 U.S. at 418, 419 (quoting Crandon v. United States, 494
U.S. 152, 158 (1990)). It is reasonable to think that Congress,
which cared enough about unnecessary volume to instruct the
agency to “develop a method for controlling” it, would have
wanted the agency to avoid causing unnecessary volume
growth with its own reimbursement practices. We thus defer
to the agency’s conclusion that (2)(F) allowed it to address that
problem by reducing a specific rate.
Sustaining HHS’s challenged reduction in this case would
not necessarily leave the agency free “to set any payment rate
for any service, without regard to the fine-grained statutory
scheme enacted by Congress.” Hospitals Br. 45. It is one thing
for HHS to use its subparagraph (2)(F) authority to eliminate a
volume-growth incentive created, in the agency’s view, by a
differential in its own payment rates. It may be another thing
for the agency to reduce payment for a service under (2)(F)
merely because doing so would decrease volume that HHS
decides is “unnecessary.” We have no occasion to decide
whether an action of that kind would rest on a reasonable
interpretation of the OPPS statute. Cf. Nat. Res. Def. Council
v. EPA., 777 F.3d 456, 469 (D.C. Cir. 2014) (agency’s
interpretation cannot be “untethered to Congress’s approach”
26
at Chevron step two); Amgen, 357 F.3d at 117 (equitable
adjustments may not “work basic and fundamental changes in
the scheme Congress created in the Medicare Act” (quotation
omitted)).
In short, we conclude under Chevron that HHS’s reduction
in reimbursement for E&M services provided by off-campus
PBDs qualifies as a “method for controlling unnecessary
increases in the volume of covered [outpatient] services.” 42
U.S.C. § 1395l(t)(2)(F). Because the challenged rate cut is thus
a “method[] described in paragraph (2)(F),” judicial review
of that action is precluded by the statute. See id.
§ 1395l(t)(12)(A). Consequently, neither we nor the district
court has jurisdiction over the Hospitals’ challenge.
IV.
The Hospitals argue in the alternative that HHS’s decision
to reduce E&M reimbursement to off-campus PBDs
contravenes section 603 of the Bipartisan Budget Act of 2015.
As explained, Congress enacted that provision in response to
reports that the payment differential between off-campus PBDs
and freestanding physician practices had induced hospitals to
purchase those practices. Section 603 established that services
performed at off-campus PBDs would no longer be paid under
the OPPS but instead would be paid under a scheme
approximating the Physician Fee Schedule. See 42 U.S.C.
§ 1395l(t)(1)(B)(v), 1395l(t)(21)(C). But the law exempted
“department[s] of a provider . . . that [furnished covered
outpatient services] prior to November 2, 2015.” Id.
§ 1395l(t)(21)(B)(ii). In the Hospitals’ view, Congress’s
decision to leave the rates paid to preexisting off-campus PBDs
unaddressed in section 603 means that the statute should be
read to bar HHS from cutting reimbursement rates for those
facilities.
27
Because the Hospitals’ section 603 argument targets
agency action we have already determined qualifies as a
“method[] described in paragraph (2)(F),” we are doubtful we
have jurisdiction to consider it. See id. § 1395l(t)(12)(A). In
any event, we reject the argument on the merits. (The law of
our circuit allows a court to assume hypothetical statutory
jurisdiction even if we cannot assume Article III jurisdiction.
See Kramer v. Gates, 481 F.3d 788, 791 (D.C. Cir. 2007).)
Nothing in the text of section 603 indicates that preexisting off-
campus PBDs are forever exempt from adjustments to their
reimbursement. Rather, the text of the law exempts those
providers from the change mandated by section 603 itself,
leaving the exempted providers subject to all the provisions of
the OPPS statute, including subparagraph (2)(F). It bears
noting, moreover, that section 603’s exemption of preexisting
off-campus PBDs from the reimbursement reductions effected
by that statute retains practical effect for all OPPS services
except the one type of service (E&M services) addressed by the
challenged rule.
Trying a different approach, the Hospitals contend that
section 603 demonstrates Congress’s judgment that increases
in volume at preexisting off-campus PBDs are not
“unnecessary” in the sense contemplated by subparagraph
(2)(F). But even assuming that were true for increases in
volume occurring by 2015, when section 603 was enacted, it
would not mean that Congress considered acceptable the
continued volume increases later taking place in 2016, 2017, or
2018, on which HHS relied in adopting the challenged rule.
See 83 Fed. Reg. at 37,139; MedPAC, Report to the Congress:
Medicare Payment Policy 73 (Mar. 2018),
https://go.usa.gov/xdCzu. Section 603 thus does not stand in
the way of the agency’s challenged rate reduction under (2)(F).
28
* * * * *
For the foregoing reasons, we reverse the judgment of the
district court.
So ordered.