Did the Secretary of the Health and Human Services permissibly include in a hospital’s Medicare reimbursement calculation all the days that a hospital treated patients who satisfied the requirements to be entitled to Medicare Part A benefits, regardless of whether Medicare paid the hospital for those particular days?
This case asks the Supreme Court to determine whether an agency had the authority to interpret the Medicare statute and change the calculation of payments distributed to hospitals that serve low-income patients who receive Medicare benefits. Petitioner Xavier Becerra, the Secretary of Health and Human Services, argues that the Department of Health and Human Services properly followed the procedural and substantive requirements of the Administrative Procedure Act when implementing its interpretation of the meaning of “entitled to” Medicare benefits in effecting a new calculation for determining two different pools of low-income patients. Respondent Empire Health Foundation counters that the agency’s rule causes a severe undercount of the low-income patient pool, causing those hospitals that serve indigent patients to receive a significantly lower reimbursement amount. The outcome of this case has important implications for the distribution of Medicaid funding and the extension of deference to government agencies’ reasonable interpretations of legislation.
Questions as Framed for the Court by the Parties
Whether, for purposes of calculating additional payment for hospitals that serve a “significantly disproportionate number of low-income patients,” the secretary of health and human services has permissibly included in a hospital’s Medicare fraction all of the hospital’s patient days of individuals who satisfy the requirements to be entitled to Medicare Part A benefits, regardless of whether Medicare paid the hospital for those particular days.
The Medicare program currently provides additional payments, known as the disproportionate-share-hospital (“DSH”) adjustment, to hospitals that treat a significantly higher number of low-income patients than the average hospital. Empire Health Found. for Valley Hosp. Med. Ctr. v. Azar, at 878. The DSH payment is calculated using a formula that accounts for patients treated at the hospital that are insured under Medicare (the “Medicare fraction”) and those who qualify for Medicare but are not insured under it (the “Medicaid fraction”). Id.
The first measurement— the Medicare fraction—calculates the percentage of days the hospital treated patients who were insured under both Medicare Part A and received Supplemental Security Income (SSI) benefits out of the number of days the hospital treated patients who were Medicare Part A recipients for the same reporting period. Id. at 878–879. The second measurement—the Medicaid fraction—calculates the percentage of days the hospital treated patients who were eligible for Medicaid coverage, but not insured by Medicare Part A benefits, out of all days when the hospital treated patients in the same reporting period. Id. The Department of Health and Human Services (“HHS”) used the combination of these fractions to calculate DSH adjustments to hospitals, excluding “dual eligible exhausted coverage patient days” from the final payment. Id. at 880.
In 2004, following rule-making procedures, the Secretary issued a Final Rule (“2005 Rule”) regarding DSH payments, removing the term “covered” from the calculation of the DSH payments. Id. at 879–881. The 2005 Rule interpreted the statute to require the Medicare fraction to include the patient days of all Medicare Part A recipients, even if the Medicare program did not pay for—or cover—services on those patient days. Id. at 881.
Valley Hospital Medical Center (“Hospital”), challenged the calculation of the total reimbursement amount distributed to the Hospital for 2008 and appealed to the Provider Reimbursement Review Board. Id. Empire Health Foundation (“Empire”), on behalf of the Hospital, filed a complaint against the HHS, challenging the 2005 Rule in the United States District Court for the Eastern District of Washington (the “District Court”). Id. The District Court determined that the 2005 Rule’s inclusion of all individuals who were “entitled to” Medicare Part A, regardless of whether Medicare made any payments to the hospital on behalf of the patient, in the Medicare fraction calculation was substantively permissible, given that the statute’s language was unclear. Id. at 881–82. However, the District Court held that the 2005 Rule was procedurally invalid because it did not comply with the notice-and-comment rules set forth by the Administrative Procedure Act (“APA”). Id. The District Court thereby vacated the 2005 Rule amendment and prevented the Secretary from applying it to the Hospital’s reimbursement calculation. Id.
While the United States Court of Appeals for the Ninth Circuit (“Court of Appeals”) ultimately affirmed the District Court’s decision to vacate the 2005 Rule, it did so on a different basis, determining that the final rule was, in fact, a logical outgrowth of HHS’s proposed rule and, thus, the district court had erred in vacating the rule on procedural grounds. Id. at 884. The Court of Appeals, contrary to the District Court, found the 2005 Rule to be substantively invalid based on Ninth Circuit precedent in Legacy Emanuel Hosp. & Health Ctr. v. Shalala, finding that the meaning of “entitled” was not ambiguous and was limited to the days on which Medicare actually provided payment for the insured patient’s treatment. Id. at 885.
The Secretary of HHS, Xavier Beccera (“Beccera”), appealed. Brief for the Petitioner, Xavier Becerra, Secretary of Health and Human Services, Petitioner at 2. The United States Supreme Court granted the petition for writ of certiorari on July 2, 2021. Id.
STATUTORY INTERPRETATION OF ENTITLEMENT
Petitioner Becerra asserts that courts should follow the definition of “entitled” as specified by the statute, even if the meaning of the term has diverged from the term’s ordinary meaning. Brief for the Petitioner, Xavier Becerra, Secretary of Health and Human Services, Petitioner at 27. Becerra contends that the text of the Medicare Act defines “entitlement” of a beneficiary as a legal status, and any individual who meets the necessary requirements outlined by the Act bears the status of entitlement to the Medicare Part A program regardless of any limitations that restrict an individual’s access to certain benefits. Id. at 27. In support of a status-based approach to interpreting “entitlement,” Becerra points to the statutory phrasing in Section 426 of the Social Security Act, and contends that an individual’s status as a Medicare beneficiary is not contingent on the Medicare program’s actual compensation for a specific service, including cases where Medicare is unavailable for a particular service. Id. at 30. Additionally, Becerra argues that, even if the Medicare program does not cover a specific service, or if the individual has exhausted all the available benefits, the individual still holds the status of an entitled beneficiary. Id. at 35. Considering this reading of “entitlement” by both statutory provisions and the language dictating the Medicare fraction, Becerra posits that the Medicare statute does not show concern for whether the Medicare program paid for a particular patient day and does not require the Secretary to exclude patient days for which the Medicare program did not cover. Id. at 30. Becerra additionally contends that the parenthetical “(for such days)” in 42 U.S.C. § 1395ww(d)(5)(F)(vi) of the Medicare Act should be understood to confirm that, for calculation purposes, the individual should be entitled to Medicare Part A on the patient days in the reporting period. Id. at 33. Becerra highlights this clarification from the statutory text because a patient may no longer fulfill the statutory requirements to be entitled to Medicare Part A during their stay in the hospital. Id. at 33–34.
Respondent Empire counters that, because the statute forbids equating “eligible” with “entitled,” it likewise does not allow the converse, therefore precluding HHS’s rule at issue. Brief for the Respondent, Empire Health Foundation, for Valley Hospital Medical Center, Respondent at 29. Empire points out that four other circuit courts have already rejected similar arguments for equating the two terms based on the established precedent of statutory construction that different language used in different parts of a statute intends different meanings. Id. at 36. Empire asserts that HHS wrongly relies on statutory provisions outside of the Medicare statute, especially considering that provisions within the actual statute directly link “entitlement” to payment made on behalf of the patient. Id. at 37. Empire stresses that Congress intentionally chose the words of “entitled” and “eligible” to have different meanings because Congress refers to “SSI eligibility” in 42 U.S.C. Section 1396, while also referencing “SSI entitlement” in the DSH status. Id at 40. Because Congress inserted both “entitled” and “eligible” in the same provision, Empire argues that Congress intentionally wanted the two terms to bear different meanings. Id. at 40–41. Additionally, Empire argues that HHS’s interpretation of “entitled” as meaning the “absolute right to receive SSI payments” is completely inconsistent with its rejection of any consideration of whether a patient is entitled to payment under Medicare Part A when determining who is “entitled to benefits under Part A.” Id. at 42–43. Empire further contends that the parenthetical “for such days” is critical to understanding the meaning of “entitled” in the DSH statute’s context and how the statute is distinguished from other provisions. Id. at 38–39. The use of the parenthetical, Empire emphasizes, demonstrates Congress’s intentional clarification that “entitlement” is not a static characteristic, where an individual is always entitled to Medicare Part A benefits. Id. at 31. Empire argues that the parenthetical necessitates a day-by-day analysis for calculation, where some days of a patient’s stay may be excluded because Medicare did not cover those days. Id. at 37.
STATUTORY PURPOSE OF DSH
Becerra argues that the fundamental structure and overarching purpose of the disproportionate-share-hospital (“DSH”) adjustment policy supports the 2005 Rule. Brief for the Petitioner at 37. Congress carefully chose the hybrid approach, Becerra asserts, of combining the Medicare and Medicaid fractions as a compromise and incorporating the essential elements of proposals from both the House and Senate. Id. at 38. Becerra concludes that because Congress intended to measure the two categories of low-income Medicare patients and low-income non-Medicare patients separately in calculating the DSH adjustment, the Secretary’s status-based approach to interpreting “entitlement” is the correct approach. Id. at 39–40. Thus, Becerra urges the court to defer to the intended compromise embodied by the hybrid approach. Id.
Empire responds that the 2005 Rule is a complete reversal of HHS’s previous DSH policy. Brief for the Respondent at 48. Empire argues that the prior policy explicitly excluded patients who were not entitled to Medicare Part A benefits—including individuals who had exhausted their Medicare Part A benefits—from the Medicare fraction. Id. at 48–49. Thus, Empire contends that the 2005 Rule reflects a complete divergence with HHS’s prior approach to DSH calculations and therefore does not codify a longstanding policy as argued by HHS. Id. at 50. Of even greater concern, Empire emphasizes, is the exclusion of the “poorest of the poor” patients from the DSH calculation. Id. at 51. Empire points out that the most egregious conflict with the statute is that the HHS policy allows for the entire exclusion of low-income patients who are both eligible for Medicaid and entitled to SSI if those patients did not actually receive the SSI benefits to which they were entitled. Id. Empire stresses that such exclusion of these indigent patients is not only against the plain language of the text but also in opposition to Congress’s intent for the DSH statute. Id. at 22.
Becerra argues that the Secretary’s approach is a reasonable construction of the statute, and the Medicare statute does not contain any explicit Congressional foreclosure of the Secretary’s status-based approach, the agency’s interpretation of the statute, should be extended deference. Brief for the Petitioner at 42–43. Even if the congressional intent indicated that “entitlement” should be tied to whether Medicare pays for that certain increment of care, Becerra contends that such intent is still compatible with the Secretary’s status-based approach and allows the Secretary to use his interpretive judgment and discretion, as he did when adopting the 2005 Rule. Id. at 43.
Empire contends that Congress purposefully set forth defined calculations for DSH payments to limit HHS’s discretion as the agency continued to defy Congress’s intent. Brief for the Respondent at 24–25. Empire asserts that the legislative record shows that Congress explicitly provided the equation due to HHS’s defiance of previous instruction to properly implement DSH payments to hospitals. Id. By misstating its current and proposed policies, Empire argues that HSS failed to properly follow notice-and-comment procedures and took no steps to correct its errors in time, thereby further demonstrating HSS’s inability to properly carry out Congress’s intent. Id. at 26. Moreover, Empire asserts that HHS failed to provide any substantial explanation why the 2005 Rule served the DHS provision’s purposes better than other probable alternatives or any economic data of the impact of the 2005 Rule, which goes against the provision’s whole purpose of providing compensation. Id. at 28. Therefore, HHS should not be extended deference, Empire concludes, as the agency has improperly handled its responsibility to implement Congress’s will. Id.
PAYING HOSPITALS THAT SERVE LARGE AMOUNTS OF LOW-INCOME PATIENTS
Becerra contends that the 2005 Rule was not intended to undermine efforts to provide Medicare payments to hospitals. Brief for the Petitioner at 43. Becerra maintains that the standing system of reimbursement to ensures hospitals receive proper funds is incredibly difficult, particularly for those which serve a large population of low-income patients. Id. Thus, Becerra contends that the current interpretation avoids complicating an already complex scheme. Id. Overall, Becerra argues that the 2005 Rule furthers Congress’s policy objective of identifying hospitals that serve a disproportionate share of low-income patients, while preventing unnecessary and costly recordkeeping and administration. Id. at 37, 43. In particular, Becerra emphasizes many of the commentators opposed the interpretation that Empire suggests, because they felt that Empire’s proposed interpretation would result in a decrease in payments. Id. at 44. Becerra further contends that the 2005 Rule ultimately did not increase or decrease payments across the board, and therefore does not seek to reduce payments to hospitals. Id.
The Federation of American Hospitals (“FAH”), in support of Empire, counters that the Department of Health and Human Services (“HHS”) 2005 Rule reduces actual Medicare payments to hospitals that serve low-income patients. Brief of Amicus Curiae for the Federation of American Hospitals (“FAH”), in support of Respondent at 3–4. The FAH asserts that the 2005 Rule has resulted in billions of dollars in underpayment to Medicare DSH hospitals. Id. at 8. Such underpayment resulting from the 2005 Rule, the FAH emphasizes, runs directly counter to the purpose of the DSH statute, which should incentivize treatment of low-income patients by increasing Medicare reimbursement when a hospital treats beneficiaries with exhausted Medicare Part A benefits. Id. at 9–10. The FAH further maintains that the 2005 Rule reduces the amount of money received by such hospitals by nearly $50,000 per hospital but employing Empire’s interpretation would result in a nearly $100,000 per hospital increase for DSH reimbursement. Id. at 7.
CHEVRON DEFERENCE AND THE SEPARATION OF POWERS
Becerra asserts that Chevron deference should apply in this case, and the Court should defer to the agency’s reasonable interpretation of the statute. Brief for the Petitioner at 42–43. Without Chevron deference, Becerra contends that the Court would impinge on the agency’s ability to interpret statutes in a way that furthers Congress’s purpose in enacting the statute. See id. Becerra maintains that the 2005 Rule warrants deference because it embodies at least a reasonable interpretation of the statute as enacted by Congress. Id. at 26, 37, 42–43. Becerra suggests that such deference is necessary in the context of interpreting and implementing the 2005 Rule because (1) the Medicare scheme is substantially intricate and technical; (2) an alternative interpretation would generate high administrative burdens; and (3) the 2005 Rule does not aim to reduce Medicare payments to hospitals. Id. at 42–44. Finally, Becerra notes that, during the process of crafting the 2005 Rule, citizens commented on the approach taken by the agency, both in support and in opposition, ensuring that the public and hospitals were able to impact the final Rule. See id.
In support of neither party, the Americans for Prosperity Foundation counter that Chevron should be overruled, and that agency deference threatens individual liberty. Brief Amicus Curiae for Americans for Prosperity Foundation (“APF”), in support of neither party, at 5–6. The APF contends that Chevron transfers powers that were originally designed for the judiciary or legislative branches to the executive branch. Id. at 10–11. According to the APF, ceding such powers to unelected executive agencies undermines individuals’ right to choose their laws and lawmakers by removing the ability to exercise consent through a supermajority vote. Id. at 11–12. Furthermore, APF asserts that Chevron deference reduces democratic accountability because agencies may change their interpretation of laws anytime without notifying the people governed by such laws. Id. at 15–17.