Gentiva Healthcare Corp. v. Kathleen Sebelius , 723 F.3d 292 ( 2013 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 3, 2013 Decided July 23, 2013
No. 12-5179
GENTIVA HEALTHCARE CORPORATION, DOING BUSINESS AS
HERITAGE HOME HEALTH,
APPELLANT
v.
KATHLEEN SEBELIUS, SECRETARY, U.S. DEPARTMENT OF
HEALTH AND HUMAN SERVICES,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:11-cv-00438)
Robert L. Roth argued the cause for appellant. With him on
the brief was Patric Hooper.
Adam C. Jed, Attorney, U.S. Department of Justice, argued
the cause for appellee. With him on the brief were Stuart F.
Delery, Principal Deputy Assistant Attorney General, Ronald C.
Machen Jr., U.S. Attorney, and Mark B. Stern, Attorney.
Before: GARLAND, Chief Judge, BROWN, Circuit Judge, and
SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Chief Judge GARLAND.
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GARLAND, Chief Judge: Gentiva Healthcare Corporation is
a provider of home health-care services. Gentiva contends that
the Secretary of Health and Human Services violated the
Medicare statute by delegating to an outside contractor the
authority to determine whether Gentiva’s Medicare
reimbursement claims exhibited a “sustained or high level of
payment error.” 42 U.S.C. § 1395ddd(f)(3). We conclude that
the Secretary reasonably construed the statute to permit such a
delegation.
I
The Medicare program is administered by the Secretary of
the Department of Health and Human Services (HHS). 42
U.S.C. § 1395kk(a). By statute, the Secretary may “perform any
of [her] functions under” the Medicare program “directly, or by
contract . . . , as the Secretary may deem necessary.” Id.
Although the Secretary’s functions under the Medicare program
are many, this appeal concerns her role in administering the
Medicare Integrity Program. Created in 1996, that Program
directs the Secretary to “promote the integrity of the medicare
program by entering into contracts” with “eligible entities” to
carry out specified “activities.” Id. § 1395ddd(a); see Health
Insurance Portability and Accountability Act, Pub. L. No.
104-191, § 202, 110 Stat. 1936, 1996 (1996). Included among
those activities are the “[r]eview of activities of providers of
services” and the “[a]udit of cost reports.” 42 U.S.C.
§ 1395ddd(b)(1), (2).
At the core of this appeal are amendments to the Medicare
Integrity Program that Congress enacted in 2003. See Medicare
Prescription Drug, Improvement, and Modernization Act of
2003, Pub. L. No. 108-173, § 935, 117 Stat. 2066, 2407. Under
the amended statute, the Secretary may use outside contractors
to determine whether the Medicare program has overpaid a
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health-care services provider. However, “[a] medicare
contractor may not use extrapolation to determine overpayment
amounts to be recovered . . . unless the Secretary determines that
. . . there is a sustained or high level of payment error.” 42
U.S.C. § 1395ddd(f)(3). The statute further provides that
“[t]here shall be no administrative or judicial review . . . of
determinations by the Secretary of sustained or high levels of
payment errors.” Id.
In 2007, a Medicare contractor, Cahaba Safeguard
Administrators, initiated a review of reimbursement claims that
Gentiva submitted to Medicare for home health-care services it
provided to patients from July 1, 2005 to November 30, 2006.
Cahaba found that 58% of those claims had been at least
partially denied by the Medicare program for failure to comply
with Medicare coverage requirements. Cahaba also noted that
the payments Gentiva received per beneficiary served were high
compared to the average payment received by providers in
Gentiva’s region. Based on these observations, Cahaba
determined that Gentiva’s claims exhibited a “sustained or high
level of payment error.” See Decision of Administrative Law
Judge at 16, Appeal of Gentiva Health Services (Apr. 28, 2010)
(J.A. 75) (“ALJ Decision”).
Cahaba proceeded to draw a sample of 30 claims. Of these,
it initially determined that 26 claims -- nearly 87% of the
sample -- were overpaid. Extrapolating this error rate over all
of the relevant claims, Cahaba determined that Medicare had
overpaid Gentiva by $4,242,452.10. After Gentiva successfully
challenged Cahaba’s overpayment determination as to ten of the
claims in the sample, Cahaba revised its extrapolation and
calculated a lower overpayment principal of $2,112,778.00. See
ALJ Decision at 1-2.
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Before an HHS Administrative Law Judge (ALJ), Gentiva
challenged Cahaba’s overpayment determination as to ten more
claims in the sample. Gentiva also charged that Cahaba’s
sampling and extrapolation method was itself invalid. The ALJ
agreed with Gentiva that the ten identified claims had not been
overpaid and directed that the extrapolation be recalculated
accordingly. But the ALJ upheld as valid the statistical
sampling and extrapolation methodology that Cahaba used. See
ALJ Decision at 20-21.
Gentiva appealed the ALJ’s approval of Cahaba’s use of
extrapolation to the Medicare Appeals Council of HHS’
Departmental Appeals Board. Gentiva “advance[d] only one
contention” before the Appeals Council: that 42 U.S.C.
§ 1395ddd(f)(3) barred Cahaba -- or any outside contractor --
from making the “sustained or high level of payment error”
finding that is a prerequisite for using statistical extrapolation to
calculate an overpayment amount. Decision of Medicare
Appeals Council at 2, In the case of Gentiva Healthcare Corp.,
Dkt No. M-11-488 (Jan. 27, 2011) (J.A. 47). Specifically,
Gentiva argued that:
because Congress used the terminology ‘a [M]edicare
contractor’ and ‘the Secretary’ in the same sentence, it
intended that the Secretary herself make a
determination of a sustained or high level of payment
error and, therefore, the Secretary may not assign or
delegate this function to a contractor.
Id. at 2-3. The Appeals Council, however, rejected Gentiva’s
proposed reading of § 1395ddd(f)(3) as “unduly narrow” in light
of § 1395kk(a)’s “broad authority” for the Secretary to perform
any of her Medicare functions “directly, or by contract.” Id. at
5 (quoting 42 U.S.C. § 1395kk(a)). The Council concluded that
“[t]he Secretary has delegated her authority” to determine that
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extrapolation is warranted “to a program integrity contractor,
and that contractor . . . has made a valid determination under the
Act.” Id. at 6.
Gentiva challenged the Medicare Appeals Council’s
decision in district court. See 42 U.S.C. § 1395ff(b)(1)(A).
Gentiva argued that the Secretary erred in concluding that a
contractor could make the “sustained or high level of payment
error” determination required by § 1395ddd(f)(3). In the
alternative, Gentiva argued that Cahaba’s determination was not
supported by substantial evidence. The court granted summary
judgment for the Secretary.
Applying the framework of Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984), the court
first concluded that, “[i]n the absence of any explicit indication
that the § 1395ddd(f)(3) ‘sustained or high level of payment
error’ determination was intended as an exception to” the
Secretary’s “broad power” to delegate to contractors under
§ 1395kk(a), it could not find “that 42 U.S.C. § 1395ddd(f)(3)
unambiguously forecloses subdelegation.” Mem. Op. at 14,
Gentiva Healthcare Corp. v. Sebelius, No. 11-cv-438 (Apr. 6,
2012) (“Dist. Ct. Op.”). Turning to Chevron’s second step, the
court concluded that the Secretary’s interpretation of
§ 1395ddd(f)(3) as “permitting -- or, at least, as not prohibiting
-- subdelegation to Medicare contractors of the ‘sustained or
high level of payment error’ determination” was reasonable and
therefore warranted deference. Id. at 16. Finally, the district
court found it was without jurisdiction to hear Gentiva’s
“alternative argument concerning the substance of” Cahaba’s
“sustained or high level of payment error” determination, given
§ 1395ddd(f)(3)’s express instruction that “‘[t]here shall be no
administrative or judicial review . . . of determinations by the
Secretary of sustained or high levels of payment errors.’” Id. at
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22 (quoting 42 U.S.C. § 1395ddd(f)(3)). Gentiva filed a timely
notice of appeal to this court.
II
On appeal, Gentiva challenges the district court’s decision
to defer to the Secretary’s construction of § 1395ddd(f)(3) as
permitting her to delegate to a contractor the determination of a
“sustained or high level of payment error.” It also challenges
the court’s holding that the statute bars review of the merits of
that determination. We review the district court’s grant of
summary judgment on these issues de novo. See Arizona v.
Thompson, 281 F.3d 248, 253 (D.C. Cir. 2002).
A
First, we agree with the district court that review of the
Secretary’s construction of § 1395ddd(f)(3), as articulated in the
Medicare Appeals Council proceeding, is governed by the
standard of review enunciated in Chevron. See AKM LLC v.
Sec’y of Labor, 675 F.3d 752, 754 (D.C. Cir. 2012) (noting that
the Chevron standard applies, “even if the Secretary’s
interpretation arises in an administrative adjudication rather than
in a formal rulemaking process” (citing Martin v.OSHRC, 499
U.S. 144, 157 (1991))). Under that standard, we must defer to
the Secretary’s statutory interpretation “so long as the statute[]
. . . in question [is] ambiguous and the Secretary’s
interpretation[] [is] reasonable.” Id. In this case, the statute is
not unambiguous and the Secretary’s reading is not
unreasonable. Hence, although we believe Gentiva may have
the better reading of § 1395ddd(f)(3), we must defer to the
Secretary. See Allied Local and Reg’l Mfrs. Caucus v. EPA, 215
F.3d 61, 71 (D.C. Cir. 2000) (“Under Chevron, we are bound to
uphold agency interpretations as long as they are reasonable --
‘regardless whether there may be other reasonable, or even more
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reasonable, views.’” (quoting Serono Lab., Inc. v. Shalala, 158
F.3d 1313, 1321 (D.C. Cir.1998))).
Gentiva argues that 42 U.S.C. § 1395ddd(f)(3)
unambiguously requires the Secretary -- and not a contractor --
to make the “sustained or high level of payment error”
determination. This is so, Gentiva argues, because the statute
provides that “[a] medicare contractor may . . . use
extrapolation,” but that “the Secretary determines” whether
extrapolation is warranted in the first place. But even Gentiva
concedes that “Secretary” does not always mean “Secretary.”
As counsel acknowledged at oral argument, under our precedent
the Secretary may delegate the “sustained or high level of
payment error” determination to another HHS official. Oral
Arg. Recording at 9:24 - 9:37; see U.S. Telecom Ass’n v. FCC,
359 F.3d 554, 565 (D.C. Cir. 2004) (“When a statute delegates
authority to a federal officer or agency, subdelegation to a
subordinate federal officer or agency is presumptively
permissible absent affirmative evidence of a contrary
congressional intent.”).
Gentiva is right that delegations to non-governmental
entities are different and may even be “assumed to be improper
absent an affirmative showing of congressional authorization.”
U.S. Telecom Ass’n, 359 F.3d at 565. Cf. Ass’n of Am. R.Rs. v.
U.S. Dep’t of Transp., __ F.3d __, 2013 WL 3305715, at *3
(D.C. Cir. July 2, 2013) (noting that, although a statute may not
“empower[] private parties to wield regulatory authority[,]
[s]uch entities may . . . help a government agency make its
regulatory decisions”). But here, Congress has provided such an
affirmative showing in § 1395kk(a), which expressly authorizes
the Secretary to “perform any of [her] functions under this
subchapter directly, or by contract . . . , as the Secretary may
deem necessary.” 42 U.S.C. § 1395kk(a) (emphasis added).
Because there is no dispute that the “sustained or high level of
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payment error” determination is a “function” subject to
delegation within the meaning of § 1395kk(a), Oral Arg.
Recording at 4:32 - 4:37 (acknowledgment by Gentiva’s
counsel), we cannot find that Congress unambiguously barred
the Secretary from delegating that task to an outside contractor.
Nor, given § 1395kk(a)’s breadth, can we find the Secretary’s
construction unreasonable. See Nat’l Ass’n of Home Health
Agencies v. Schweiker, 690 F.2d 932, 943 (D.C. Cir. 1982)
(referring to § 1395kk(a)’s “broad scope,” and noting that its
“clear and reasonable language appears to give the Secretary the
unequivocal right to designate [contractors] to perform [her
Medicare] reimbursement functions”).
As we discuss in Part II.B below, Congress has insulated
from judicial review the merits of the Secretary’s “sustained or
high level of payment error” determination. This fact does not,
however, alter our conclusion that the Secretary may delegate
that determination to a contractor. The determination that there
was a sustained or high level of payment error is only a
screening mechanism employed to decide whether extrapolation
may be used to calculate a final overpayment amount. Providers
like Gentiva can still challenge -- at the agency level and in
court -- both the final overpayment calculation and the
extrapolation methodology that was used to calculate it. See
Oral Arg. Recording at 21:42 - 23:11 (acknowledgment by
HHS’ counsel). Indeed, Gentiva successfully overturned every
individual overpayment claim that it challenged before the
Medicare Appeals Council. In so doing, it succeeded in cutting
the contractor’s overpayment calculation in half, from a little
more than $4 million to a little more than $2 million, without
overturning the “sustained or high level of payment error”
determination. See ALJ Decision at 1. Given that this
significant level of review of final overpayment calculations
remains available, it is not unreasonable for the Secretary to
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believe that Congress intended to permit contractors to make
unreviewable determinations at the screening level.1
Gentiva may well be right that reserving the screening
function to agency personnel would better effectuate Congress’
apparent desire to give the Secretary more oversight over
contractors’ use of extrapolation. But even a desirable statutory
interpretation cannot trump an agency’s reasonable
interpretation under Chevron. See Allied Local, 215 F.3d at 71.
We therefore affirm the district court’s decision to defer to the
Secretary’s interpretation of § 1395ddd(f)(3).
B
We also agree with the district court that § 1395ddd(f)(3)
precludes us from reviewing the merits of the “sustained or high
level of payment error” determination that permitted the
contractor to use extrapolation to calculate overpayment
amounts in this case. Because that question goes to our own
jurisdiction, Chevron does not apply, and we must decide the
appropriate construction of the statute de novo. See
NetCoalition v. SEC, 715 F.3d 342, 348 (D.C. Cir. 2013). But
like the district court, we read the statute’s directive, that
“[t]here shall be no administrative or judicial review . . . of
determinations by the Secretary of sustained or high levels of
payment errors,” as clearly precluding our review. See Dist. Ct.
Op. at 22-23. Moreover, given our conclusion that § 1395kk(a)
authorizes the Secretary to delegate the making of such
1
We note that the Secretary has also provided contractors with
guidance regarding the procedures they should follow in making the
“sustained or high level of payment error” determination. See HHS,
Medicare Program Integrity Manual, Pub. 1008-08, Trans. 114 (June
10, 2005), available at http://www.cms.gov/Regulations-
and-Guidance/Guidance/Transmittals/downloads/R114PI.pdf.
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determinations to contractors, we are unpersuaded by Gentiva’s
contention that the preclusion of review applies only when the
Secretary makes the determination herself.
III
For the foregoing reasons, the judgment of the district court
is
Affirmed.