Notice & Comment

D.C. Circuit Review – Reviewed: Between the Medicare Act and the Budget Control Act of 2011

The Court issued only one opinion last week, but fortunately for readers of this blog, it involves administrative law. It also provides an enlightening grammar lesson for any reader who, like me, learned most of her grammar in a foreign language class.

Gentiva Health Services, Inc. v. Becerra involved a challenge to CMS’s methodology for calculating Medicare reimbursements for hospice care, subject to two relevant limitations. First, the Medicare statute imposes a variable aggregate cap on reimbursements hospice providers may receive. Second, the Budget Control Act of 2011 required a 2% reduction in Medicare spending as part of budget sequestration.

To administer the aggregate cap, CMS makes periodic disbursements for hospice services, but requires providers to return any amounts in excess of the aggregate cap (calculated at the end of the fiscal year) once the fiscal year concludes.  In response to budget sequestration, CMS cut hospice care disbursements by 2%. But CMS had a problem: merely cutting its disbursements by 2% would not result in a 2% across-the-board reduction because providers whose reduced disbursements hit or exceeded the aggregate cap would continue to receive the same net payment they received in non-sequestration years—namely, the full amount allowed by the aggregate cap. CMS therefore adopted a method for calculating overpayments at the end of the fiscal year that resulted in an across-the-board 2% reduction for all providers. The end result was that no provider would receive net payments that exceeded 98% of the aggregate cap. Gentiva, the appellant in this case and a nationwide hospice provider, challenged that methodology as contrary to both the Medicare statute and the Budget Control Act.

In a footnote-free opinion that is helpfully punctuated by tables, Judge Rogers (joined by Judges Millett and Pillard) holds that CMS adopted a permissible construction of the Medicare statute that merits Chevron deference. Without getting too far into the weeds, this conclusion turns on whether the phrase “amount of payment made” refers to the total payments provisionally disbursed during a given year (i.e., “the amount of payment that was made”), or instead to the final net payment worked out in the reconciliation process at the end of the fiscal year (i.e., “the amount of payment that is made”). The Court concludes: “the word ‘made’ functions not as a past-tense verb, as Gentiva asserts, but rather as an adjectival past participle modifying ‘amount of payment.’” If I understand correctly, as an adjectival past participle, the phrase invokes the theoretical net payment worked out at the end of the year, so that payment becomes an object to which CMS may apply the 2% reduction. In other words, payments that would be netted out to the full amount of the aggregate cap may be further reduced to 98% of the cap.

Gentiva, however, argued that the Budget Control Act limited CMS to reducing only its periodic disbursements because that Act requires only reductions “to individual payments for services.” Pointing to the Budget Control Act’s purpose and the problem described above, the Court rejects Gentiva’s argument. Although the Court does not invoke Chevron for the portion of its opinion dealing with the Budget Control Act (which is primarily administered by OMB), its language remains deferential: CMS’s construction of the Budget Control Act was “permissible,” and CMS did not act arbitrarily or capriciously in adopting it. Perhaps this is because it is difficult to disaggregate the Medicare statute construction from the Budget Control Act construction—a difficulty similar to the one presented (but resolved differently) in a decision I discussed in my previous post.

Which leads to the final challenge, this one procedural: CMS changed its reconciliation methodology without either explaining the change or engaging in notice-and-comment rulemaking. The Medicare statute requires notice-and-comment rulemaking for any “rule, requirement, or other statement of policy . . . that establishes or changes a substantive legal standard governing . . . the payment for services . . .  under this subchapter.” The Court adopted the government’s argument that no explanation or rule-making was required because the change to its methodology was promulgated not “under this subchapter” (i.e., the Medicare statute) but instead under the Budget Control Act. Although the Court does not articulate its reasoning, this argument seems to depend upon another grammatical quandary: Does “under this subchapter” modify “rule, requirement, or other statement of policy” or “payment for services”?  Whatever statute CMS invoked when it adopted its statement of policy, the methodology laid out in that statement of policy does seem to change “a substantive legal standard governing . . .  the payment for services” under the Medicare statute.

The Court’s decision navigates straits that appear whenever an agency acts under two statutes simultaneously—straits that are particularly narrow when the agency is primarily responsible for administering one statute and not the other. The holding is technical and narrow, but the Courts navigational techniques are widely relevant and merit study.

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