Massachusetts v. Sebelius

United States Court of Appeals
For the First Circuit

No. 09-2392

COMMONWEALTH OF MASSACHUSETTS,

Plaintiff, Appellant,

v.

KATHLEEN SEBELIUS, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Mark L. Wolf, U.S. District Judge]

Before

Lynch, Chief Judge,
Boudin and Howard, Circuit Judges.

Kenneth W. Salinger, Assistant Attorney General,
Administrative Law Division, with whom Martha Coakley, Attorney
General, was on brief for appellant.
Daniel Tenny, Attorney, Appellate Staff, Civil Division,
Department of Justice, with whom Tony West, Assistant Attorney
General, Carmen Ortiz, United States Attorney, Mark B. Stern,
Attorney, Appellate Staff, Civil Division, Department of Justice,
David S. Cade, Acting General Counsel, Nancy S. Nemon, Chief
Counsel, Region I, and Clifford M. Pierce, Assistant Regional
Counsel, Department of Health and Human Services, were on brief for
appellees.

March 11, 2011
 LYNCH, Chief Judge. The Commonwealth of Massachusetts,

by the administrator of "MassHealth," its state Medicaid program,

appeals from a dismissal of its lawsuit against federal officials

for failure to state a claim under Fed. R. Civ. P. 12(b)(6). The

Commonwealth claims that the federal Centers for Medicare &

Medicaid Services (CMS) and associated entities violated the

federal Medicaid statute when they refused to allow the

Commonwealth to recover reimbursement directly from CMS in four

cases of "retroactive dual eligibility."

In each of these four cases, an individual who received

Massachusetts Medicaid funds to pay for medical services was later

deemed retroactively eligible for federal Medicare funds for the

period in which the individual received those services. The state

is trying to secure reimbursement for its past Medicaid payments by

directly petitioning the federal government for reimbursement

rather than going back to the providers of services, whom the

Medicare program clearly recognizes as appropriate claimants. This

dispute is not over whether the Commonwealth should ultimately be

reimbursed by Medicare, but whether it has chosen a permissible

mechanism to recover reimbursement. Cf. Massachusetts v. United

States, 522 F.3d 115, 129 n.8 (1st Cir. 2008).

The Commonwealth, for understandable reasons, argues that

its obligations under the federal Medicaid statute, as stated in 42

U.S.C. § 1396a(a)(25)(B) and 42 C.F.R. § 433.139(d), require that

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it seek and recover reimbursement directly from CMS in these cases

of retroactive dual eligibility, and that this is the

Commonwealth's exclusive avenue. Secretary Sebelius and the

defendant administrators of CMS and associated entities deny this

and reply that the Commonwealth must instead seek reimbursement

from providers, who then in turn must obtain payment from Medicare.

The federal defendants argue this is so because 42 U.S.C.

§ 1395f(a) and 42 C.F.R. § 424.33 only allow "providers" to receive

payments from Medicare, and the Commonwealth is, as it admits, not

a provider. Defendants argue that to meet its obligations to

recover reimbursement under the Medicaid statute, the Commonwealth

must request reimbursement from individual providers, who then must

obtain payment from the federal Medicare agency. The federal

defendants say that this is the procedure used by other states to

recover reimbursement, that they have been consistent in their

interpretation, and that Massachusetts is simply wrong when it

asserts this interpretation leaves it with no way to recover

reimbursement in accordance with the Medicaid statute.

In this matter of statutory interpretation, the district

court held that the Medicare statute unambiguously forbids the

Commonwealth from recovering reimbursement directly from CMS. In

the alternative, it held that even if the Medicare statute were

ambiguous, CMS's interpretation must be sustained under Chevron,

-3-
U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837

(1984), and Auer v. Robbins, 519 U.S. 452 (1997).

We requested at oral argument, and subsequently received,

additional briefing on what mechanisms would be available for the

Commonwealth to obtain reimbursement if its position were not

accepted. We affirm the district court's judgment, albeit on

different reasoning.

I.

The federal Medicare and Medicaid statutes, which compose

Title XVIII and Title XIX of the Social Security Act, interact.

Medicare is a health insurance program for those who are over age

65 or have certain disabilities.1 42 U.S.C. § 1395 et seq. By

contrast, Medicaid is a health insurance program for low-income

individuals; it is funded by both the federal government and state

governments.2 42 U.S.C. § 1396 et seq.

Medicaid is generally supposed to be a "payer of last

resort." Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S.

1
Medicare Part A provides hospital insurance coverage for
inpatient care in hospitals and skilled nursing facilities
(excluding custodial or long-term care). See 42 U.S.C. § 1395c et
seq. Medicare Part B provides supplementary medical insurance
coverage for doctors' services and outpatient care. See 42 U.S.C.
§ 1395j et seq.
2
To be clear, payment is not coextensive under the
Medicare and Medicaid statutes, which have different criteria for
coverage of services. Compare 42 U.S.C. § 1395d with 42 U.S.C.
§ 1396a. Medicaid coverage varies by state; the federal Medicaid
statute requires that states follow certain parameters to receive
federal funding. 42 U.S.C. § 1396.

-4-
268, 291 (2006) (quoting S. Rep. No. 99-146, at 313 (1985)). This

means that "when an individual is entitled to Medicare and eligible

for Medicaid, Medicare, like any other third party, is the primary

payor," and Medicaid may only pay a claim "to the extent that

payment allowed under the applicable payment schedule . . . exceeds

the amount of Medicare's payment." Medicaid Program: State Plan

Requirements and Other Provisions Relating to State Third Party

Liability Programs, 55 Fed. Reg. 1423, 1429 (1990). State Medicaid

agencies must "take all reasonable measures to ascertain the legal

liability of third parties . . . to pay for care and services" that

would otherwise be paid by Medicaid. 42 U.S.C. § 1396a(a)(25)(A).

It is not disputed that Medicare is a third party under this

provision.3

Under the federal Medicaid statute and its accompanying

regulations, state Medicaid agencies must follow two sets of

requirements when addressing third-party liability.4 First, if

probable third-party liability is established at the time a claim

3
CMS regulations have made clear that Medicare is such a
party. See 42 C.F.R § 433.136 ("Third party means any individual,
entity or program that is or may be liable to pay all or part of
the expenditures for medical assistance furnished under a State
plan."); N.Y. State Dep't of Soc. Servs. v. Bowen, 846 F.2d 129,
133-34 (2d Cir. 1988) (quoting CMS manuals that "define Medicare as
a third party resource").
4
We refer to the Commonwealth and its state Medicaid
program interchangeably. The Commonwealth's Executive Office for
Health and Human Services (EOHHS) administers the Massachusetts
Medicaid Program (MassHealth).

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is filed with the state agency, the agency must reject the claim

and return it to the service provider. 42 C.F.R. § 433.139(b)(1);

42 U.S.C. § 1396a(a)(25)(A). Second, if a state Medicaid agency

only "learns of the existence of a liable third party" or "benefits

become available from a third party" after Medicaid has paid the

claim, the Medicaid agency must "seek recovery of reimbursement."

42 C.F.R. § 433.139(d)(2); see also 42 U.S.C. § 1396a(a)(25)(B).

The Commonwealth relies on the second statute and regulation,

arguing they require that it seek and obtain reimbursement directly

from CMS when the liable third party is Medicare.5

The defendants argue that several provisions of the

federal Medicare statute, particularly 42 U.S.C. § 1395f(a), forbid

the Commonwealth from recovering reimbursement directly from CMS.

With some exceptions not relevant here, "payment for services . . .

may be made only to providers of services" if filed "in such

manner, and by such person or persons as the Secretary may by

regulation prescribe." 42 U.S.C. § 1395f(a)(1). By regulation, in

42 C.F.R. § 424.33, the Secretary has prescribed that "claims for

services of providers" must be "[f]iled by the provider." The

5
Two examples illustrate how retroactive dual eligibility
may occur. First, an individual over the age of 65 who does not
sign up for Medicare Part A coverage or social security benefits
until sometime after she turns 65 years old can automatically
receive retroactive Part A coverage effective six months prior to
signing up. 42 C.F.R. § 406.6(d)(4). Second, an individual may
appeal from a denial of Medicare Part A eligibility on the basis of
a disability, and may be awarded retroactive coverage.

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Commonwealth argues, and the defendants agree, that it is not a

provider. The defendants argue that while the Commonwealth may not

recover reimbursement directly from CMS, it may fulfill its

obligation under the Medicaid statute by asking providers to obtain

payment from Medicare.

The defendants argue that providers must comply with such

requests by filing a "demand bill" with Medicare. The Medicare

statute requires that providers agree to "make adequate provision

for return" of money "incorrectly collected" from individuals. 42

U.S.C. § 1395cc(a)(1)(C). CMS regulations state that a "payment

properly made to a provider by an individual not considered

entitled to Medicare benefits will be deemed to be an 'incorrect

collection' when the individual is found to be retroactively

entitled to benefits." 42 C.F.R. § 489.40(b). CMS argues that

this regulation, though it refers to payments made by individuals

rather than state Medicaid agencies, requires that providers return

state Medicaid funds in cases of retroactive dual eligibility. It

argues that providers that do not comply with this requirement face

sanctions, including termination of participation in Medicare. See

42 U.S.C. § 1395cc(b)(2)(A); 42 C.F.R. § 489.53(a)(1).

One reason the Commonwealth takes the position that it

may recover reimbursement directly from Medicare is its

interpretation of a decision of the Massachusetts Supreme Judicial

Court, Atlanticare Medical Center v. Commissioner of the Division

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of Medical Assistance, 785 N.E.2d 346 (Mass. 2003). In that case,

a group of private healthcare providers challenged a Massachusetts

regulation that required healthcare providers to return state

Medicaid payments when a liable third-party insurer was identified

after payment. The providers argued that Massachusetts placed an

undue burden on providers by making them responsible for recovering

payment from third parties. Id. The Supreme Judicial Court struck

down the state regulation. In the course of its ruling it reasoned

that the state regulation was inconsistent with the federal

Medicaid statute, namely 42 U.S.C. § 1396a(a)(25)(B), and that

state Medicaid agencies must seek reimbursement directly from

liable third parties. Id. at 350.

Some of the reimbursement claims at issue in Atlanticare

belonged to individuals who were retroactively deemed eligible for

Medicare. We stress that neither the parties nor the issues before

this court are the parties or issues that were before the Supreme

Judicial Court. In Atlanticare, the issue was the validity of a

state regulation; further, the regulation governed reimbursement

from all types of third parties, not merely instances involving

Medicare. As CMS has noted, the state regulation did not make

allowances for the fact that Medicare and Medicaid are not

coextensive in coverage; it required providers to return Medicaid

funds before Medicare made a determination that it was liable for

the particular services for which those funds had been paid.

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Federal Medicare and Medicaid officials were not parties to the

action and the Supreme Judicial Court never heard their views on

the issue before us, as it noted in its decision. Id. at 355.

Apparently, the Commonwealth did not ask CMS to submit a brief to

the court expressing its views. Cf. Chase Bank USA, N.A. v. McCoy,

131 S. Ct. 871, 877 (2011).

The parties in Atlanticare initially agreed that the

Commonwealth could not recover costs directly from Medicare. The

Commonwealth argued that under 42 C.F.R. § 424.33, Medicare may

only pay directly to providers. At oral argument, however, both

parties conceded that it might be possible for the Commonwealth to

recover directly from Medicare. Atlanticare, 785 N.E.2d at 353-54

& n.14. The court stated that the Commonwealth had cited no

authority demonstrating that it could not obtain reimbursement

directly from Medicare and that there was nothing in the record to

suggest that the Commonwealth had ever attempted to obtain

reimbursement in this fashion. Id. at 354-55. The decision did

not address either 42 U.S.C. § 1395f(a) or 42 C.F.R. § 424.33, or

how CMS administers these provisions.

Both before and after the Atlanticare decision, the

federal Medicare and Medicaid agency has taken the position that

only providers may petition Medicare for payment absent an express

allowance to the contrary. In a 1991 letter to the Commonwealth,

CMS wrote that "a State Medicaid agency . . . may not submit

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initial claims for Part A Medicare services, as these claims must

be filed by the provider."6 The letter distinguished "initial

claims" from appeals arising from denials of claims. It stated

that "a dually eligible beneficiary may certainly appoint the State

Medicaid agency to act as his or her representative to pursue

appeal of an individual denied Medicare claim" but "without such

appointment, the State Medicaid agency may not act on its own

behalf," with an exception not relevant here.

In April 2003, shortly after the decision in Atlanticare,

CMS issued a State Medicaid Director Letter stating that when an

individual receives payment for health services from Medicaid and

is later deemed retroactively eligible for Medicare, the state

Medicaid agency should ask the provider of services to file a claim

with Medicare. The letter was sent to all state Medicaid

directors, not just the Massachusetts Medicaid director. In May

2003, the Commonwealth sought clarification of this letter in light

of Atlanticare. In September 2003, it also sought to establish

itself as a "qualified billing entity" that could submit claims to

Medicare on behalf of Medicaid recipients and the facilities that

provide services to those recipients.

CMS denied the Commonwealth's request that it be

established as a qualified billing entity and reiterated that only

6
At the time, CMS was known as the Health Care Financing
Administration.

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providers may file claims with Medicare. In an October 2003 letter

denying the Commonwealth's request, CMS wrote that its

"interpretation of the regulations prohibits Medicare

Intermediaries from paying benefits due to a provider to other than

the provider of services." In a December 2003 letter clarifying

the April 2003 guidance letter, CMS wrote that "there is no

statutory authority under Medicare to allow a state to seek

recovery and be paid directly from Medicare" because "Medicare

allows only providers to bill and be paid by Medicare." It

repeated that when Medicare's third-party liability is not known

until after a state Medicaid agency has paid a claim, the state

should ask the provider to bill Medicare.

In light of CMS's statements, the Commonwealth sought a

modification of the declaratory judgment entered in Atlanticare on

the ground that new information demonstrated it could not recover

reimbursement directly from Medicare. In support of this motion,

the Commonwealth submitted copies of the April 2003 guidance letter

and the ensuing correspondence between it and CMS. A Massachusetts

Superior Court denied this motion. Atlanticare Med. Ctr. v.

Reynolds, No. 1451-H, slip op. at 2 (Mass. Super. Ct. July 28,

2004). The Superior Court stated that it found the Supreme

Judicial Court's decision in Atlanticare more persuasive than the

April 2003 guidance letter, and that the letter had merely restated

arguments the Commonwealth advanced in Atlanticare. Id. at 6.

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Again, no federal Medicare or Medicaid official was involved in the

suit or asked to submit the agency's views. The Commonwealth did

not, apparently, pursue the matter to the Supreme Judicial Court.

In later communications with the Commonwealth, CMS

continued to reiterate its position that a state Medicaid agency

cannot recover reimbursement directly from Medicare. The

Commonwealth, correctly or not, believed itself between a rock and

a hard place. In December 2006, the Commonwealth submitted four

test claims to CMS, seeking reimbursement from Medicare for

Medicaid funds paid on behalf of individuals later deemed

retroactively eligible for Medicare. CMS rejected these claims on

the ground that the Commonwealth is not a provider, consistent with

the agency's position stated earlier that non-providers may not

receive payments from Medicare. The Commonwealth then filed this

lawsuit.7 It is undisputed that the Commonwealth has exhausted its

administrative remedies.

The Commonwealth seeks (1) an injunction ordering CMS to

accept, process, approve, and pay the four reimbursement claims it

submitted in 2006, as well as (2) a declaration that the defendants

must accept and process reimbursement claims submitted by the

7
The four test claims at issue here concern $39,792.32 in
Medicaid funds paid by the Commonwealth for services to individuals
later deemed retroactively eligible for Medicare. At oral
argument, the Commonwealth stated that it pays roughly $4 million
in Medicaid funding each year for services rendered to individuals
later deemed retroactively eligible for Medicare effective at the
time those services were rendered.

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Commonwealth in cases of retroactive dual eligibility. The

district court granted the defendants' motion to dismiss under Fed.

R. Civ. P. 12(b)(6), and dismissed the Commonwealth's cross-motion

for summary judgment as moot. It held that 42 U.S.C. § 1395f(a)

unambiguously prohibits the Commonwealth from recovering

reimbursement directly from CMS. The district court held in the

alternative that even assuming the statute was ambiguous, 42 C.F.R.

§ 424.33 must receive deference because it was promulgated pursuant

to an express delegation of authority and is not arbitrary,

capricious, or manifestly contrary to the statute.

II.

We review de novo a district court's grant of a motion to

dismiss, taking as true all well-pleaded facts and making all

reasonable inferences in favor of the plaintiff. Boroian v.

Mueller, 616 F.3d 60, 64 (1st Cir. 2010). This case does not

involve any factual disputes, only a pure question of law: whether

the federal Medicaid statute requires that CMS allow the

Commonwealth to recover reimbursement directly from CMS in cases of

retroactive dual eligibility. This does not involve review of

whether there is a valid claim for reimbursement in these four test

cases; it involves review of the appropriate mechanism to obtain

such reimbursement. We agree with the defendants that as a matter

of federal law, the Commonwealth may not recover reimbursement

directly from CMS in cases of retroactive dual eligibility. This

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does not mean, however, that the state has no mechanism to receive

reimbursement. It does.

A. Agency Deference Under Chevron

This question of statutory interpretation must be treated

within the familiar framework set forth in Chevron, 467 U.S. 837.

The Secretary of Health and Human Services administers the federal

Medicare and Medicaid statutes, as well as a number of other

statutory provisions within the Social Security Act. The Secretary

has delegated administrative responsibilities for Medicare and

Medicaid to CMS. See 42 C.F.R. § 400.200. In assessing the

requirements of this statutory scheme, we must be mindful of any

deference to which CMS may be entitled.

Under Chevron, when a court reviews an agency's

construction of the statute it administers, the court must first

ask whether "Congress has directly spoken to the precise question

at issue." Chevron, 467 U.S. at 842. If the intent of Congress is

unambiguous, the court must follow that intent. Id. at 842-43. If

the intent of Congress is ambiguous, the agency's interpretation is

entitled to Chevron deference "when it appears that Congress

delegated authority to the agency generally to make rules carrying

the force of law, and that the agency interpretation claiming

deference was promulgated in the exercise of that authority."

United States v. Mead Corp., 533 U.S. 218, 226-27 (2001). Under

Chevron, such agency interpretations must be upheld if they are

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"based on a permissible construction of the statute." Chevron, 467

U.S. at 843.

Courts may not disturb regulations promulgated pursuant

to express statutory authority unless they are "arbitrary,

capricious or manifestly contrary to the statute" and they may not

disturb regulations promulgated pursuant to implicit statutory

authority unless the agency's interpretation is unreasonable. Id.

at 844. When an agency interprets its own ambiguous regulations,

its interpretation is controlling unless it is "plainly erroneous

or inconsistent with the regulation." McCoy, 131 S. Ct. at 880

(quoting Auer, 519 U.S. at 461). Deference is not given, however,

to a "post hoc rationalizatio[n] advanced by an agency seeking to

defend past agency action against attack" or when there is reason

to "suspect that the interpretation does not reflect the agency's

fair and considered judgment on the matter in question." Id. at

881 (alteration in original) (quoting Auer, 519 U.S. at 462)

(internal quotation marks omitted).8

8
Both parties cite cases from beyond this circuit that
they argue support their constructions of the Medicare and Medicaid
statutes in this case. See Conn. Dep't of Soc. Servs. v. Leavitt,
428 F.3d 138 (2d Cir. 2005); N.Y. State Dep't of Soc. Servs. v.
Bowen, 846 F.2d 129 (2d Cir. 1988); Evanston Hosp. v. Hauck, 1 F.3d
540 (7th Cir. 1993); New York v. Sebelius, No. 07-CV-1003, 2009 WL
1834599 (N.D.N.Y. June 22, 2009); Mich. Dep't of Soc. Servs. v.
Shalala, 859 F. Supp. 1113 (W.D. Mich. 1994); Petition of Maxi
Drug, Inc., 915 A.2d 480 (N.H. 2006). While we have reviewed these
cases, we note that they do not bind this circuit nor, more
importantly, do they speak directly to the issue at hand.

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B. Chevron Step One

Our first holding begins and ends with step one of the

Chevron analysis: the statutory scheme forecloses the

interpretation advanced by the Commonwealth. To determine "whether

a statute exhibits Chevron-type ambiguity . . . courts look at both

the most natural reading of the language and the consistency of the

'interpretive clues' Congress provided." Succar v. Ashcroft, 394

F.3d 8, 22 (1st Cir. 2005) (quoting Gen. Dynamics Land Sys., Inc.

v. Cline, 540 U.S. 581, 586 (2004)). This analysis looks to the

text, structure, and, when permissible, legislative history of the

statute. Id. at 22, 30. We look first to text and structure; we

note that neither party introduces legislative history and we are

unaware of any on point.9

Both parties contend that the plain language of the

statutory scheme unambiguously supports their position. The

Commonwealth points to 42 U.S.C. § 1396a(a)(25)(B), which states

that when third party liability "is found to exist after medical

assistance has been made available," with an exception not relevant

here, the state Medicaid agency must "seek reimbursement for such

assistance to the extent of such legal liability." The defendants

9
In Atlanticare, the Supreme Judicial Court considered
legislative history in construing from whom state Medicaid agencies
must seek reimbursement under 42 U.S.C. § 1396a(a)(25)(B).
Atlanticare Med. Ctr. v. Comm'r of the Div. of Med. Assistance, 785
N.E.2d 346, 351-352 (Mass. 2003). The parties here do not invoke
that legislative history, which did not concern reimbursement
directly from Medicare.

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point to 42 U.S.C. § 1395f(a), which states that, with exceptions

again not relevant here, "payment for services furnished an

individual may be made only to providers of services" as defined in

the Medicare statute.

Neither of these provisions, read in isolation, speak to

whether the Commonwealth, which is not a provider, may recover

reimbursement directly from Medicare in cases of retroactive dual

eligibility. Although 42 U.S.C. § 1396a(a)(25)(B) plainly requires

that state Medicaid agencies seek reimbursement in such cases, it

does not create a right to receive reimbursement directly from CMS.

This provision does not identify from whom the state agency should

seek this reimbursement. The federal Medicare agency could be a

candidate, but the providers that received the initial payment are

more plausible. The fact that 42 U.S.C. § 1395f(a) refers to

"payment for services furnished an individual," moreover, permits

the Commonwealth to argue that its claim is instead for

reimbursement for past payments made for such services.

Although no statutory provision explicitly resolves the

question presented here, the statutory scheme does not allow the

interpretation advanced by the Commonwealth. The Medicare statute

equates reimbursement and payment and does not allow non-providers

to receive payments from Medicare. The Commonwealth is not

included among any of the express allowances in the Medicare

statute for non-providers to receive payments. The Medicare

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statute thus forecloses the Commonwealth from receiving

reimbursement directly from Medicare.10 This result is consistent

with both the Medicaid statute's requirement that state Medicaid

agencies seek recovery of reimbursement and Congress's intent that

Medicaid generally be the payer of last resort.

We look first to the meaning of "reimbursement" in the

statutory scheme. Neither the Medicare statute nor the Medicaid

statute supports a distinction between payment and reimbursement

relevant to the test claims in this case. As to the Medicare

statute, 42 U.S.C. § 1395f(a) discusses claims for reimbursement

within its provisions governing payment for services. The statute

does not define reimbursement, nor does it express parameters for

reimbursement claims as if they were different from the parameters

for payment claims. As to the Medicaid statute, 42 U.S.C.

§ 1396a(a)(25)(B) neither defines reimbursement nor distinguishes

between it and other forms of payment for our purposes. In this

statutory context, it is most natural to read reimbursement as a

particular type of payment. See Succar, 394 F.3d at 22.

The Commonwealth challenges this reading on two grounds.

First, it argues that the Medicare statute allows non-providers to

10
The Commonwealth does not contest that the payments at
issue in this case were for "services furnished an individual"
within the meaning of 42 U.S.C. § 1395f(a). Although the
Commonwealth did not provide the services in the four test cases,
its reimbursement claims seek to recoup payments for such services
as defined in 42 U.S.C. § 1395cc(e) and accompanying sections.

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recover reimbursement despite its limitations on who may recover

payments for services. Second, it argues that this interpretation

of the statutory scheme contravenes congressional intent that

Medicaid generally be the payer of last resort.

As to the first argument, the Commonwealth has not

identified any statutory language that would allow state Medicaid

agencies to recover reimbursement from CMS under these

circumstances. The Commonwealth has identified only one instance

in which the statute allows payment for reimbursement to non-

providers: an express exception to 42 U.S.C. § 1395f(a) involving

emergency services. See 42 U.S.C. §§ 1395f(d)(2) & 1395n(b)(2).

We are aware of only one other instance in which the statute allows

a non-provider to receive reimbursement: when an individual has

made payments for certain hospital services furnished outside the

United States. See 42 U.S.C. § 1395f(f)(4). These provisions do

not allow all non-providers to receive reimbursement, and they do

not make any specific allowance for the Commonwealth's

reimbursement claims. Rather, they are express exceptions to the

general rule we have noted.

As to the second argument, our reading of the statute is

not in tension with Congress's intent that Medicaid generally be a

payer of last resort. The statute does not preclude state Medicaid

agencies from receiving reimbursement in cases of retroactive dual

eligibility through a mechanism other than direct application to

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Medicare. As the Commonwealth argues, "[t]he choice between two

federal statutes requires an analysis of both, to see if they are

indeed incompatible or if they can be harmonized." Boston & Maine

Corp. v. Mass. Bay Transp. Auth., 587 F.3d 89, 98 n.1 (1st Cir.

2009) (quoting Coker v. Trans World Airlines, Inc., 165 F.3d 579,

583-84 (7th Cir. 1999)). Here, the Medicare and Medicaid statutes

can be harmonized with one another in a manner that preserves the

purpose of the statutory scheme recognized in Ahlborn: state

Medicaid agencies may seek and recover reimbursement by asking

providers to return state Medicaid funds.

The Commonwealth advances a functional argument that,

whatever the Medicare statute says, the Commonwealth cannot

reasonably expect to receive reimbursement from providers and that

therefore the statute should be construed to allow it to recover

reimbursement directly from Medicare. The first of these

propositions is doubtful, and the second does not follow from it.

The Commonwealth has never employed the demand bill procedure that

the Secretary describes as an available alternative, and so it

cannot say that the procedure will not work. Nor does the

Commonwealth cite any statutory language that prohibits state

Medicaid agencies from recovering reimbursement from Medicare by

asking providers to employ this demand bill procedure.11

11
The Commonwealth makes two tangential arguments.
First, it argues that 42 U.S.C. § 1396a(a)(25)(B) should not
be read as merely ensuring that the rights of Medicaid

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C. Chevron Step Two and Auer

Our alternative holding is under the second step of

Chevron, under which we look to the agency's regulations. Even if

the statutory scheme did not speak unambiguously as to whether the

Commonwealth may obtain reimbursement directly from Medicare in

cases of retroactive dual eligibility, CMS's interpretation of its

regulations resolves this question and is entitled to deference.

The Commonwealth does not dispute the validity of the regulation

upon which CMS relies, 42 C.F.R. § 424.33. Nor does it challenge

CMS's regulation concerning the obligations of state Medicaid

agencies seeking reimbursement as required by the Medicaid statute,

42 C.F.R. § 433.139(d). The Commonwealth only challenges the

agency's interpretation of 42 C.F.R. § 424.33. This challenge

fails under Auer. See McCoy, 131 S. Ct. at 880.

On their face, the agency's regulations do not expressly

speak to whether the Commonwealth may recover reimbursement

beneficiaries are subrogated to the states, as is already required
in 42 U.S.C. § 1396k(a)(1)(A). We do not read the statute in this
way. Whereas 42 U.S.C. § 1396a(a)(25)(B) imposes an affirmative
obligation on state Medicaid agencies to seek reimbursement, 42
U.S.C. § 1396k(a)(1)(A) confers rights upon state Medicaid agencies
to pursue certain claims as a subrogee.
Second, the Commonwealth argues that the Medicare statute only
requires that providers "make adequate provision for return" of
"incorrectly collected" funds under 42 U.S.C. 1395cc(a)(1)(C) and
that state Medicaid funds in cases of retroactive dual eligibility
were not incorrectly collected when received. This language may
not expressly require providers to return funds in these cases, but
it does not preclude them from returning such funds at the request
of a state Medicaid agency.

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directly from Medicare in cases of retroactive dual eligibility.

Under the Medicare statute, the Secretary has provided that "[a]ll

claims for services of providers" must be "[f]iled by the

provider." 42 C.F.R. § 424.33(a). Under the Medicaid statue, the

Secretary has only provided that an agency that seeks reimbursement

"must seek recovery of reimbursement" subject to certain time

constraints. 42 C.F.R. § 433.139(d). These provisions do not

address whether reimbursement claims are "claims for services of

providers." Nor does the broader regulatory structure cast light

on this question. These regulations do resolve whether the

Commonwealth may file claims for services of providers directly

with Medicare; it may not.

The Secretary has interpreted 42 C.F.R. § 424.33 such

that state Medicaid agencies may not recover reimbursement directly

from Medicare in cases of retroactive dual eligibility. In its

April 2003 guidance letter to state Medicaid directors, CMS wrote

that "Medicaid is usually the payer of last resort" and that when

a "Medicaid agency learns of the existence of a liable third party

after a claim is paid, or benefits become available from a third

party after the claim is paid, [the state Medicaid agency] must

seek recovery from that third party." In cases "[w]hen that third

party is Medicare," CMS wrote, "neither the Medicare nor Medicaid

statute, nor HHS's regulations or policies prohibit any state from

recouping its Medicaid payment from providers" in two situations.

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 According to the guidance letter, a state may recoup its

Medicaid payment from providers when (1) "Medicare has determined

that it is liable for the service at issue" or (2) "a beneficiary,

beneficiary representative, or state (as the beneficiary's

subrogee) timely requests the provider to file a claim with

Medicare and the provider fails" to do so in a timely and

appropriate manner. In the letter, CMS also noted that, acting as

a beneficiary's subrogee, "a state may request the provider to

submit a claim for Medicare payment and the provider must honor

that request" by submitting a "demand bill." The letter concluded

that "if a provider fails to submit timely a demand bill, the

provider violates its provider agreement with Medicare if it

charges the beneficiary (or the beneficiary's subrogee), or retains

any charge already collected from the beneficiary or subrogee, for

such services."

Although the April 2003 letter did not expressly state

that the Commonwealth cannot receive reimbursement directly from

Medicare, later letters from CMS made this point clear. In its

December 2003 letter, CMS stated that "there is no statutory

authority under Medicare to allow a state to seek recovery and be

paid directly from Medicare." It stated that "Medicare allows only

providers to bill and be paid by Medicare" and that the state "may

timely request [a] provider to submit a bill timely to Medicare."

In a June 2005 letter to the Commonwealth, CMS reiterated that

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"there is no statutory authority for reimbursing Medicaid directly

for services rendered to Medicare beneficiaries." There is no

dispute that these statements apply directly to the situation at

hand and preceded the present litigation.

The Commonwealth makes three arguments that the agency's

interpretation of 42 C.F.R. § 424.33 is plainly erroneous or

inconsistent with the regulation. First, it argues that 42 C.F.R.

§ 424.33 merely parrots the statutory language of 42 U.S.C.

§ 1395f(a). Second, it argues that CMS's reliance on 42 C.F.R.

§ 424.33 and 42 U.S.C. § 1395f(a) is a post hoc litigation position

because CMS did not cite those provisions in its recent letters to

the Commonwealth. Third, it argues that CMS's interpretation of 42

C.F.R. § 424.33 is inconsistent with the statutory scheme,

including CMS's other regulations. These arguments are without

merit.

As to the first argument, it is true that the Supreme

Court has held that an agency "does not acquire special authority

to interpret its own words when, instead of using its expertise and

experience to formulate a regulation, it has elected to merely

paraphrase the statutory language." Gonzales v. Oregon, 546 U.S.

243, 257 (2006). That is not the case here, however. The

regulation fills an express gap in 42 U.S.C. § 1395f(a) as to who

may file claims, as opposed to who may receive payments. 42 C.F.R.

§ 424.33. It also uses more general terms than the statute,

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referring to "claims for services" rather than "payment for

services." See id. Even if the statutory language did not clearly

include reimbursement as a type of payment, the regulation leaves

open the possibility that petitions for reimbursement as well as

petitions for payment are both types of "claims." See id.

As to the Commonwealth's second argument, it is true that

an agency's interpretation of its regulation may not be entitled to

deference if it is merely a post hoc rationalization for past

agency action rather than the agency's fair and considered judgment

on the issue. See McCoy, 131 S. Ct. at 881. But that is not the

case here, either. The agency's construction of the statute long

predates this litigation. In Atlanticare, the Commonwealth argued

that it could not recover reimbursement from Medicare for precisely

the reason CMS now advances: it is not a provider. In that case,

the Commonwealth relied upon the federal agency's 1991 letter

stating that only providers may seek payments directly from

Medicare. The agency reiterated this position in 2003 with respect

to claims for reimbursement. The Commonwealth filed its four test

claims in this case precisely to challenge that construction.

The fact that CMS did not explicitly reference 42 C.F.R.

§ 424.33 or 42 U.S.C. § 1395f(a) in its recent letters to the

Commonwealth does not transform the agency's reliance on these

provisions into a post hoc rationalization or demonstrate a lack of

considered judgment. The basis for the federal agency's position

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has been clear since before this litigation began. In the federal

agency's 1991 letter to the Commonwealth, it invoked 42 C.F.R.

§§ 424.30-424.45 to explain why, with exceptions not relevant here,

providers were required to file the "initial claim" with Medicare.

In its motion for reconsideration of the Atlanticare decision, the

Commonwealth conveyed to the Superior Court that "Medicare will

only pay directly to providers under 42 C.F.R. § 424.33" and

another provision. Atlanticare, No. 1451-H, slip op. at 3.

As to the third argument, the Commonwealth asserts that

CMS's construction of 42 C.F.R. § 424.33 contravenes congressional

intent that Medicaid serve as payer of last resort. Specifically,

the Commonwealth argues that the federal agency's interpretation

necessarily precludes it from receiving reimbursement when Medicare

is retroactively liable for services previously paid by its state

Medicaid agency. The Commonwealth makes two arguments for why this

is the case. First, it argues that the Atlanticare decision

forbids the Commonwealth from recovering reimbursement through

providers rather than directly from Medicare, though that was not

the issue before the Supreme Judicial Court. Second, it argues

that the Secretary has not shown that CMS may compel providers to

comply with a state Medicaid agency's request that they file a

demand bill with Medicare to recover funds for reimbursement.

It does not follow from these arguments that the

Secretary's interpretation precludes state Medicaid agencies from

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reasonably expecting to receive reimbursement in cases of

retroactive dual eligibility. With respect to the Commonwealth's

first argument, it is not relevant to our inquiry that Atlanticare

can be read to limit some of the options available to the

Commonwealth.12 We must look to whether the federal agency's

interpretation of 42 C.F.R. § 424.33 is plainly inconsistent with

that regulation, not whether the agency's interpretation is

inconsistent with a judicial construction of the statute. With

respect to its second argument, the Commonwealth has never

requested that a provider file a demand bill in the manner the

Secretary describes. It has no basis to argue that such requests

will go unheeded or that there exists no lawful avenue by which

compliance with such requests could be enforced.13

12
As the Supreme Judicial Court noted, it rested its
holding on the particular circumstances at issue in that case and
on the absence of evidence or argument as to whether state Medicaid
agencies may obtain reimbursement directly from Medicare. It also
noted that it did not know the Secretary's position on that matter.
Atlanticare, 785 N.E.2d at 354-55. This case has given rise to
additional evidence and argument, including by the Secretary.
13
We need not address the Commonwealth's belated effort to
shift this litigation to a dispute about another regulation, 42
C.F.R. § 489.40(b). It is CMS's position that a payment made by a
state Medicaid agency on behalf of an individual later deemed
retroactively eligible for Medicare constitutes an "incorrect
collection" under 42 C.F.R. § 489.40(b). From this, the agency
argues that providers that do not make "adequate provision for
return" of these "incorrectly collected" funds will be ineligible
for future payments under 42 U.S.C. § 1395cc(a)(1)(C).
In its supplemental brief, the Commonwealth belatedly argues
this interpretation of 42 C.F.R. § 489.40(b) is plainly erroneous
and inconsistent with the regulation. We do not decide the
question. Regardless, the Commonwealth has not shown that it

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 We consider CMS bound by its representation as to the

mechanisms available for the Commonwealth to seek and recover

reimbursement.14 See Massachusetts, 522 F.3d at 129 n.8. The

Commonwealth has raised valid practical concerns about the

consequences of CMS's position for the states. From its point of

view, it is less expeditious for state Medicaid agencies to ask

providers to file demand bills in cases of retroactive dual

eligibility than it would be for state Medicaid agencies to

petition CMS directly.

The federal agency, however, has policies supporting its

interpretation within the context of this highly complex statutory

scheme. For example, the defendants noted at oral argument that an

entity that makes a false representation to CMS concerning a

medical service can be held liable under federal causes of action

against fraud. This is a considerable incentive toward honesty and

efficiency. The Commonwealth argues that there is an ample federal

anti-fraud enforcement mechanism already but does not directly

cannot require providers that receive state Medicaid funds to
follow the demand bill procedure. Nor has it shown that other
states have been unable to secure reimbursement by asking providers
to submit demand bills to Medicare. CMS represents that this is
the standard procedure across the country.
14
The Commonwealth argues that CMS's positions in this case
cannot bind providers that are not parties to this litigation. See
Beaudette v. Louisville Ladder, Inc., 462 F.3d 22, 26 (1st Cir.
2006). We do not assert that it does. However, CMS's positions do
bind CMS with respect to how it will address future behavior by
providers relevant to its positions in this suit.

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address this policy concern. If state Medicaid agencies could

simply relay past claims to Medicare, it is not clear that

providers could be held liable for fraud in this manner.

We are not the forum to evaluate these competing policy

concerns. The decision on policy issues belongs to the Congress,

and where Congress has delegated, to the Secretary. Our duty is to

interpret the law, and policy arguments should be made to the

Executive and to the Congress.

III.

We emphasize that we are only answering a very specific

question within the context of the arguments that have been

presented to us. This is a complex statutory area, and there have

been strong arguments presented on both sides. We find that CMS's

position that state Medicaid agencies may not recover reimbursement

directly from Medicare is required by the statutory language and,

in any event, is consistent with the agency's regulations. It is

clear that other states have recovered reimbursement through other

means, including the demand bill mechanism the agency claims

providers must follow in cases of retroactive dual eligibility.

The judgment of the district court is affirmed.

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