Allina Health System v. Sebelius

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

ALLINA HEALTH SYSTEM,

Plaintiff,

v. Civil Action No. 09-cv-1889 (RLW)

KATHLEEN SEBELIUS, Secretary,
United States Department of Health
and Human Services,

Defendant.

MEMORANDUM OPINION

Plaintiff Allina Health System (“Allina”) brings this suit to challenge, under the

Administrative Procedure Act, 5 U.S.C. §§ 701, et seq., a Medicare reimbursement decision of

the Secretary of Health and Human Services. Broadly speaking, Allina contends that the

Secretary improperly calculated the disproportionate share hospital adjustments for five Allina-

owned hospitals, during fiscal years ranging from 1993 through 2003. More specifically, this

case turns on the parties’ rival interpretations of a single phrase as used in the applicable

adjustment formula: “entitled to benefits under [Medicare] Part A.” 42 U.S.C. §

1395ww(d)(5)(F)(vi)(II). The parties have cross moved for summary judgment, and those

motions are presently pending before the Court. (Dkt. Nos. 6, 17). Disagreeing that the

interpretation pressed by Allina is compelled by the plain language of the statute, and otherwise

finding the Secretary’s interpretation permissible and reasonable, the Court concludes that

Allina’s attacks against the Secretary’s decision are without merit.

1
 Accordingly, upon careful consideration of the parties’ briefing, the Administrative

Record, and the governing authorities, the Court concludes, for the reasons that follow, that

Allina’s Motion for Summary Judgment will be DENIED and that the Secretary’s Cross-Motion

for Summary Judgment will be GRANTED.

BACKGROUND

A. Statutory and Regulatory Framework

Few regulatory regimes rival the complexity of the federal Medicare statute. Fortunately,

the narrow question presented in this case does not require the Court to venture too far down the

statute’s labyrinthine paths. 1

At a general level, “[t]he federal Medicare program provides health insurance for the

elderly and disabled and reimburses qualifying hospitals for services provided to eligible

patients.” Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 915-16 (D.C. Cir.

2013). The Medicare statute itself is divided into five “Parts,” two of which are implicated here.

“Part A covers medical services furnished by hospitals and other institutional providers.”

Northeast Hosp. Corp. v. Sebelius, 657 F.3d 1, 2 (D.C. Cir. 2011) (citing 42 U.S.C. §§ 1395c–

1395i-5). Part E, also relevant to this dispute, sets forth “various ‘Miscellaneous Provisions,’

one of which is the Prospective Payment System (“PPS”) for reimbursing Part A inpatient

hospital services.” Id. at 3 (citing 42 U.S.C. § 1395ww(d)). “Under the PPS, Medicare

1
The Fourth Circuit has described the Medicare statute as “among the most completely
impenetrable texts within human experience.” Rehab. Ass’n v. Kozlowski, 42 F.3d 1444, 1450
(4th Cir. 1994). Other courts of appeal, including the District of Columbia Circuit, have echoed
this assessment. See Abraham Lincoln Mem. Hosp. v. Sebelius, 698 F.3d 536, 540-41 (7th Cir.
2012); In re Avandia Mktg., 685 F.3d 353, 365 (3d Cir. 2012); Northeast Hosp. Corp. v.
Sebelius, 657 F.3d 1, 13 (D.C. Cir. 2011); Alhambra Hosp. v. Thompson, 259 F.3d 1071, 1076
(9th Cir. 2001). For a more literary-flavored spin, consider Judge Lamberth’s recent
characterization of the statute as akin to “a law written by James Joyce and edited by E.E.
Cummings.” Catholic Health Initiatives Iowa, Corp. v. Sebelius, 841 F. Supp. 2d 270, 271
(D.D.C. 2012), rev’d, 718 F.3d 914 (D.C. Cir. 2013).
2
reimburses a hospital for services based on prospectively determined national and regional rates

rather than on the actual amount the hospital spends.” Id. (citing 42 U.S.C. § 1395ww(d)). This

prospective payment rubric also entails some adjustments based on hospital-specific factors, one

of which is the “disproportionate share hospital” (“DSH”) adjustment. See 42 U.S.C. §

1395ww(d)(5)(F)(i)(I). Through the DSH adjustment, the government pays more to hospitals

that “serve[] a significantly disproportionate number of low-income patients,” id., “based on

Congress’s judgment that low-income patients are often in poorer health, and therefore costlier

for hospitals to treat,” Catholic Health, 718 F.3d at 916 (citing Adena Reg’l Med. Ctr. v. Leavitt,

527 F.3d 176, 177-78 (D.C. Cir. 2008)).

A hospital’s potential DSH adjustment is based on its “disproportionate patient

percentage” or “DPP,” a formula that serves as a “‘proxy measure’ for the number of low-

income patients a hospital serves.” Northeast Hosp., 657 F.3d at 3 (quoting H.R. REP. NO. 99-

241, pt. 1, at 17 (1985)). The DPP is defined by statute as the sum of two fractions, commonly

referred to as the “Medicare fraction” and the “Medicaid fraction.” These fractions “represent

two distinct and separate measures of low income—SSI (i.e., welfare) and Medicaid,

respectively—that when summed together, provide a proxy for the total low-income patient

percentage.” Catholic Health, 718 F.3d at 916. The Medicare fraction is:

[T]he fraction (expressed as a percentage), the numerator of which is the number
of such hospital’s patient days for such period which were made up of patients
who (for such days) were entitled to benefits under [Medicare] Part A . . . and
were entitled to supplementary security income [SSI] benefits . . . and the
denominator of which is the number of such hospital’s patient days for such fiscal
year which were made up of patients who (for such days) were entitled to benefits
under [Medicare] Part A.

42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). And the Medicaid fraction is:

[T]he fraction (expressed as a percentage), the numerator of which is the number
of such hospital’s patient days for such period which consists of patients who (for
such days) were eligible for medical assistance under a State [Medicaid] plan . . .
3
 but who were not entitled to benefits under [Medicare] Part A . . . and the
denominator of which is the total number of the hospital’s patient days for such
period.

Id. § 1395ww(d)(5)(F)(vi)(II). As our Court of Appeals recently observed, “[t]his language is

downright byzantine.” Catholic Health, 718 F.3d at 916. In an effort to simplify things

somewhat, the Court provides a visual chart depicting these fractions:

Medicare fraction Medicaid fraction
Numerator Patient days for patients “entitled Patient days for patients “eligible
to benefits under Part A” and for [Medicaid]” but not “entitled
“entitled to SSI benefits” to benefits under Part A”
Denominator Patient days for patients “entitled Total number of patient days
to benefits under Part A”

See id. at 917. This case turns on the propriety of the Secretary’s interpretation of the phrase

“entitled to benefits under Part A,” as used in the numerator of the Medicaid fraction.

For purposes of Medicare reimbursements, a “fiscal intermediary,” generally a private

insurance company acting on the Secretary’s behalf, initially calculates a hospital’s DSH

adjustment. See 42 C.F.R. §§ 421.1, 421.3, 421.100-.128. If a hospital disputes the

intermediary’s calculations, it may then appeal the determination to the Provider Reimbursement

Review Board (“PRRB”), an administrative tribunal appointed by the Secretary. See 42 U.S.C. §

1395oo(a), (h). From there, the Secretary is authorized to review a PRRB determination on her

own motion, but she has delegated that authority to the Administrator of the Centers for

Medicare and Medicaid Services (“CMS”). Id. § 1395oo(f). Finally, if a provider is dissatisfied

with the final decision of the CMS Administrator, it may then seek judicial review by initiating a

civil action in district court. Id.

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 B. Factual and Procedural Background

Allina owns and operates five Minnesota-based hospitals—United Hospital, Abbott

Northwestern Hospital, Buffalo Hospital, Mercy Hospital, and Unity Hospital—all of which

participate in the federal Medicare program. (See Dkt. No. 1 (“Compl.”) at ¶ 9). This dispute

centers around DSH adjustment amounts calculated for these hospitals for varying fiscal years

ranging from 1993 to 2003. In particular, the parties dispute the role that so-called dual-eligible

exhausted benefit days and Medicare secondary payer (“MSP”) days serve in the Medicaid

fraction of the DSH adjustment formula. The term “dual-eligible” refers to patients who are

eligible to receive benefits under both Medicare Part A and a state Medicaid program, generally

the elderly poor. See McCreary v. Offner, 172 F.3d 76, 78 (D.C. Cir. 1999). Dual-eligible

exhausted days, in turn, are patient days for individuals who are eligible for both Medicare and

Medicaid, but who have exhausted their Medicare benefits for the days at issue. 2 See Catholic

Health, 718 F.3d at 917. MSP days are, roughly speaking, patient days for which a party other

than Medicare—such as a state Medicaid program or an employer-sponsored health plan—has

paid for patient services in full, and for which Medicare makes no payment by statute. See 42

U.S.C. § 1395y(b)(2). 3 The parties’ dispute in this case is whether patients falling within these

2
Generally, Medicare Part A will cover only a limited number of successive days during a
single period of hospitalization. Once a hospital stay extends beyond the allotted number of
days, the patient’s benefits under Medicare Part A are deemed “exhausted.” Under current
regulations, Medicare Part A covers 60 days as “full benefit days” (for which Medicare pays the
hospital for all covered services, other than a deductible), along with an additional 30 days as
“coinsurance days” (whereby Medicare pays for all covered services except for a daily
coinsurance amount). 42 C.F.R. § 409.61(a)(1). A beneficiary’s entitlement to these 90 benefit
days is renewed each time he or she begins a benefit period. Id. § 409.61(c). As a further
benefit, Medicare also provides 60 additional “lifetime reserve” days that a beneficiary may draw
upon when “hospitalized for more than 90 days in a benefit period.” Id. § 409.61(a)(2). But as
the name implies, these lifetime reserve days are non-renewable.
3
MSP days can also include patient days for which a primary payer makes partial payment
for services, but at an amount less than that allowable under Medicare. In those circumstances,
5
categories of patient days—dual-eligible exhausted days and MSP days—were “entitled to

benefits under Part A,” as used in the Medicaid fraction of the DPP formula. 4

The Allina hospitals’ fiscal intermediary, in originally calculating the applicable DSH

adjustments for the periods at issue, determined that the contested days should be excluded from

the numerator of the Medicaid fraction. In other words, the intermediary concluded that such

patients did not fall into the category of individuals who were “not entitled to benefits under

[Medicare] Part A.” (See Administrative Record (“AR”) at 24-25). The Hospitals then appealed

the intermediary’s determination to the PRRB, and the Board reversed, finding that the days in

question should be counted in the Medicaid fraction. (AR at 21-30). 5 According to the PRRB,

“[b]ecause there is no right to payment from Medicare once a patient has exhausted its benefits,

or [when] services are covered/paid by a primary payor other than Medicare are non-covered,

these days . . . would be included in [the] Medicaid fraction.” (AR at 27). From there, the

Acting Deputy Administrator of CMS opted to review the matter, ultimately reversing the

PRRB’s decision and upholding the intermediary’s original determination. (AR at 2-11). That

is, the Acting Deputy Administrator concluded that the contested days should be excluded from

the Medicaid fraction of the DSH adjustment formula. Allina then sought review in this Court.

The matter is presently before the Court on Allina’s Motion for Summary Judgment (Dkt.

No. 6) and the Secretary’s Cross-Motion for Summary Judgment (Dkt. No. 17).

Medicare may make an additional payment, but that payment amount, when combined with the
original payment made by the primary payer, cannot exceed the total Medicare allowable amount
for the services. 42 U.S.C. § 1395y(b)(4); see also 42 C.F.R. 411.33(e). The parties’ dispute in
this case, though, surrounds only those days for which Medicare made no payment whatsoever.
4
For simplicity’s sake, the Court will refer to these two categories of patient days as the
“contested days” throughout the remainder of this Opinion.
5
Though they never expressly say as much, the Hospitals presumably want to include the
contested days in the Medicaid fraction because the inclusion of these additional days, “at least
in some cases, . . . will result in a higher DPP, and therefore in greater payments to hospitals.”
Catholic Health, 718 F.3d at 917.
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 ANALYSIS

A. Legal Standard of Review

Under the Medicare Act, judicial review of the Secretary’s reimbursement decisions is

governed by the APA. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (citing 42

U.S.C. § 1395oo(f)(1)); Tenet HealthSystems HealthCorp. v. Thompson, 254 F.3d 238, 243-44

(D.C. Cir. 2001). In APA cases, as in all cases, summary judgment is proper if the moving party

“shows that there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” FED. R. CIV. P. 56(a). Under the APA, then, the reviewing court

must review the administrative record to determine whether there is “‘a genuine dispute’ as to

some material fact” that would render the challenged agency decision “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law.” Sherley v. Sebelius, 689 F.3d 776,

780 (D.C. Cir. 2012) (quoting 5 U.S.C. § 706(2)). While the court must conduct a “searching

and careful” review, the agency’s action remains “entitled to a presumption of regularity,”

Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415-16 (1971), and the court

“will not second guess an agency decision or question whether the decision made was the best

one,” C & W Fish Co. v. Fox, 931 F.2d 1556, 1565 (D.C. Cir. 1991). But the court must

nevertheless be satisfied that the agency “examine[d] the relevant data and articulate[d] a

satisfactory explanation for its action including a rational connection between the facts found and

the choice made.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43

(1983); see also Nat’l Ass’n of Home Builders v. EPA, 682 F.3d 1032, 1036 (D.C. Cir. 2012).

Additionally, where a case turns on an agency’s interpretation of a statute it is charged

with implementing, as here, courts must apply the two-part Chevron test. Chevron U.S.A. Inc. v.

Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). Under Chevron Step One, the court must

first determine “whether Congress has directly spoken to the precise question at issue.” Id. at

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842; Pub. Citizen v. Nuclear Regulatory Comm’n, 901 F.2d 147, 154 (D.C. Cir. 1990). In

answering this question, the court reviews the statute de novo, “employing traditional tools of

statutory construction.” Nat’l Ass’n of Clean Air Agencies v. EPA, 489 F.3d 1221, 1228 (D.C.

Cir. 2007); see also Bell Atl. Tel. Co. v. FCC, 131 F.3d 1044, 1047 (D.C. Cir. 1997)

(characterizing the Chevron Step One inquiry “as a search for the plain meaning of the statute”).

If the intent of Congress is clear, then the court’s inquiry ends, and the clear and unambiguous

statutory language controls. See Northeast Hosp., 657 F.3d at 4 (citing Chevron, 467 U.S. at

842-43). If the statute is ambiguous, however, then the analysis shifts to Chevron Step Two, and

the court must consider “whether the agency’s [interpretation] is based on a permissible

construction of the statute.” Chevron, 467 U.S. at 843; see also Peter Pan Bus Lines v. FMSCA,

471 F.3d 1350, 1353 (D.C. Cir. 2006). Under Chevron, “[a] statute is ambiguous if it can be

read more than one way.” AFL-CIO v. Fed. Election Comm’n, 333 F.3d 168, 173 (D.C. Cir.

2003). “Because the judiciary functions as the final authority on issues of statutory construction,

an agency is given no deference at all on the question whether a statute is ambiguous.” Wells

Fargo Bank, N.A. v. Fed. Deposit Ins. Corp., 310 F.3d 202, 205-06 (D.C. Cir. 2002) (internal

citations and quotation marks omitted).

B. Entitled To Benefits Under Part A

Allina mounts two separate lines of attack in challenging the Secretary’s reimbursement

determination in this case. First, Allina argues that the Secretary’s interpretation of the phrase

“entitled to benefits under Part A” violates the plain language of the Medicare Act, and thus fails

under Chevron Step One. Second, Allina asserts that even if the statute is ambiguous and does

not plainly compel its proffered reading of the statute, the Secretary’s interpretation is

8
unreasonable and otherwise merits no deference under Chevron Step Two. The Court takes

these arguments in turn.

1. The Secretary’s Interpretation Does Not Violate The Plain Language Of The
Medicare Statute

Allina principally contends that the Secretary’s exclusion of the contested days from the

numerator of the Medicaid fraction contravenes the clear text of the Medicare Act. In so

arguing, Allina stridently insists that the language “entitled to benefits under Part A”

unambiguously refers only to those days for which patients were entitled to receive payment of

Medicare Part A benefits. As Allina sees things, because Medicare did not make any payment

on the contested days, the plain language of the Medicare statute requires that the contested days

be included in the numerator of the DSH formula’s Medicaid fraction. Unsurprisingly, the

Secretary disagrees. According to the Secretary, the statutory language compels the opposite

result: that the contested days must be excluded from the Medicaid fraction. In the Secretary’s

view, a patient’s being “entitled” to Part A benefits turns on whether the patient meets the

statutory criteria for Medicare benefits, irrespective of whether Medicare actually makes

payment for the days at issue.

Both parties spill a great deal of ink on this line of argument, with each side maintaining

that its statutory interpretation is not only superior, but required. With the benefit of a recent,

intervening decision from the D.C. Circuit on this very issue, though, the Court need not tarry

long at this first Chevron waypoint.

In Catholic Health, our Court of Appeals confronted the precise question now before this

Court—“how to interpret the phrase ‘entitled to benefits under part A’ in the Medicaid fraction

numerator [of the DSH adjustment formula].” See Catholic Health, 718 F.3d at 917. After

9
weighing many of the same contentions pressed by the parties here, the Circuit disagreed that the

plain language of the statute compelled either interpretation:

We think it unnecessary to parse all the other provisions of the statute the parties
cite in support of their respective positions. We conclude that, although the
Department’s interpretation is the better one, it is not quite inevitable. Either
interpretation seems permissible, a conclusion that is reinforced by our recent
decision in Northeast Hospital v. Sebelius, 657 F.3d 1 (D.C. Cir. 2011) . . . . The
basic arguments made by the parties in Northeast Hospital track those made here,
and after a lengthy analysis, in which we noted “the Medicare statute’s
inconsistent and specialized use of the phrase ‘entitled to benefits under Part A,’”
id. at 13, we found the statute ambiguous on this question.

Id. at 920. Simply put, the D.C. Circuit’s recent rulings in both Catholic Health and Northeast

Hospital control the result here. 6 The statutory language does not unambiguously compel either

side’s interpretation, which means that no party emerges victorious at the Chevron Step One

stage. So with the salient statutory language in hand, the Court forges ahead to Chevron Step

Two and Allina’s remaining APA-based arguments.

2. The Secretary’s Interpretation Is Based On A Permissible Reading Of The
Medicare Statute And Is Not Arbitrary Or Capricious

Allina argues that even if the Secretary’s interpretation does not contravene the plain text

of the Medicare statute, her construction is nevertheless impermissible under Chevron Step Two

and otherwise arbitrary and capricious. On this front, Allina’s theories have evolved somewhat

over the course of briefing in this case, but its overall arguments can be distilled as follows.

First, Allina contends that the Secretary’s interpretation warrants no deference because it is

inconsistent with her treatment of the same phrase used elsewhere in the Medicare statute.

Second, Allina assails the Secretary’s construction as inconsistently applied within the DSH

6
The Sixth Circuit has found this same statutory provision ambiguous. See Metro. Hosp.
v. U.S. Dep’t of Health & Human Servs., 712 F.3d 248, 255 (6th Cir. 2013) (weighing arguments
akin to those presented in this case and concluding “that the statute’s plain language does not
unambiguously endorse either party’s interpretation”).
10
adjustment rubric itself. Through this argument, Allina complains about the “illogical” result

that assertedly flows from the Secretary’s decision, insofar as the contested days were excluded

from both the Medicaid fraction and the Medicare fraction. Third, Allina argues that the

Secretary’s reading of the statute improperly equates the terms “eligible” and “entitled,” relying

on a string of decisions from various courts of appeals outside of the District of Columbia

Circuit. And fourth, Allina argues that the Secretary’s interpretation amounts to impermissible

retroactive rulemaking in violation of the APA. The Court addresses each of these arguments in

turn, finding none persuasive.

As a threshold matter, it bears emphasis that the D.C. Circuit has previously described the

Secretary’s proffered interpretation—that the phrase “entitled to benefits under Part A” looks to

a whether a patient satisfies the statutory criteria for Medicare benefits, as opposed to whether

payment was made for the patient’s services on a particular day—as a “permissible”

interpretation for Chevron purposes. Catholic Health, 718 F.3d at 920. In turn, our Court of

Appeals “defer[red] to the Department’s construction” in Catholic Health, concluding that, as

between competing statutory readings nearly identical to those pressed by Allina and the

Secretary here, “the Department’s interpretation [was] the better one.” Id. This could well be

the end of the matter. But since the Court of Appeals did not devote much attention to the

second phase of the Chevron analysis in Catholic Health—perhaps due to the appellant’s

“somewhat weak[]” presentation on the issue in that case, id.—this Court will proceed to explain

why Allina’s arguments do not compel a contrary result here. Given our Circuit’s statements in

Catholic Health, however, the Court at least begins from the proposition that the Secretary’s

interpretation is presumptively permissible under Chevron Step Two.

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 First, Allina contends that the Secretary’s interpretation is unreasonable because it

conflicts with her construction of the same language in other provisions of the Medicare statute.

In particular, Allina focuses on the Secretary’s previous interpretation of the phrase “entitled to

benefits under part A” as used in the definition of “[M]edicare-dependent, small rural hospital”

that appears elsewhere in Section 1395ww. See 42 U.S.C. § 1395ww(d)(5)(G)(iv); Changes to

the Hospital Inpatient PPS and FY 1991 Rates, 55 Fed. Reg. 35,990, 35,996 (Sept. 4, 1990)

(“[42 U.S.C. § 1395ww(d)(5)(G)(iv)] states that Medicare dependency is limited to consideration

of those inpatients entitled to part A benefits. Since patients who have exhausted their part A

benefits are no longer entitled to payment under part A, we do not believe such stays should be

counted.”). Allina seizes upon this apparent inconsistency, arguing that at a minimum, the

Secretary was required to offer a rational explanation for the disparity. However, Allina never

raised this argument during any of the administrative proceedings—whether before the PRRB or

the CMS Administrator. (See AR 15, 672-687). Under long-settled precedent, then, this

argument is waived, and the Court need not consider it. See ExxonMobil Oil Corp. v. FERC, 487

F.3d 945, 962 (D.C. Cir. 2007) (“A party must first raise an issue with an agency before seeking

judicial review.”); Nuclear Energy Inst. v. EPA, 373 F.3d 1251, 1297 (D.C. Cir. 2004) (“It is a

hard and fast rule of administrative law, rooted in simple fairness, that issues not raised before an

agency are waived and will not be considered by a court on review.”); Grossmont Hosp. Corp. v.

Sebelius, 903 F. Supp. 2d 39, 48-49 (D.D.C. 2012) (refusing to hear arguments not raised with

the PRRB or CMS Administrator).

Second, and somewhat relatedly, Allina attacks as unreasonable the Secretary’s varying

interpretations of the “entitled to benefits” phrase within the two fractions of the DSH adjustment

formula. Allina complains that as a result of the Secretary’s determination, the patient days at

12
issue were not only excluded from the numerator of the Medicaid fraction, but also from the

Medicare fraction. As Allina sees things, “because the two numerators of the fractions are

defined as the inverse of each other,” (Dkt. No. 6 (“Pl.’s Mem.”) at 12), this means that the

contested days must be included somewhere in the DSH adjustment formula. Since the

Secretary’s decision failed to account for these days altogether—i.e., they were completely

excluded from the DSH calculation—Allina decries the Secretary’s position as “illogical” and

irrational. At first blush, this argument has some appeal to it. As Allina rightly points out,

during the time period at issue, the Secretary interpreted the phrase “entitled to benefits under

Part A” as used in the Medicare fraction to encompass only covered patient days; it was not until

a 2004 rulemaking that the Secretary adopted an interpretation of the phrase as used in the

Medicare fraction “to include the days associated with dual-eligible beneficiaries . . . , whether

or not the beneficiary has exhausted Medicare Part A hospital coverage.” Medicare Program;

Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates, 69

Fed. Reg. 48,916, 49,099 (Aug. 11, 2004). But this revised interpretation suggests, if anything, a

somewhat knotty interpretative question as to the Secretary’s construction of the DSH formula’s

Medicare fraction, not the Medicaid fraction, as is at issue here. 7

In pressing this line of reasoning, Allina is essentially advancing the alternative claim that

the Secretary wrongly construed the Medicare fraction of the DSH formula. That is, Allina

asserts that even if the Secretary properly excluded the contested days from the Medicaid

fraction, at a minimum, the Secretary should have counted the days in the Medicare fraction.

(See Dkt. No. 35 (“Pl.’s Supp. Brief”) at 6-10). But this has never been the scope of Allina’s

7
To be clear, the Court expresses no opinion as to the propriety of the Secretary’s
interpretation of the phrase “entitled to benefits under Part A” as used in the Medicare fraction.
That question is not before the Court.

13
challenge. Rather, the relief Allina has consistently sought—before the PRRB, before the CMS

Administrator, and before this Court—is much narrower: a determination that the contested days

be included in the numerator of the Medicaid fraction. 8 And as already explained, the Court will

not consider theories that were never presented to the agency at the administrative level. Nuclear

Energy Inst., 373 F.3d at 1297; Grossmont Hosp., 903 F. Supp. 2d at 48-49. Allina cannot so

substantially repackage its theories at this late stage in the game.

Otherwise, in focusing on the scope of the claim Allina does legitimately advance, the

Court remains unconvinced that the Secretary’s interpretation of the Medicare fraction renders

her reading of the separately-defined Medicaid fraction unreasonable. First, as the Supreme

Court has observed, varying interpretations, even within the same statute, do not irrefutably

render an agency construction unreasonable. See Envtl. Def. v. Duke Energy Corp., 549 U.S.

561, 574 (2007) (“A given term in the same statute may take on distinct characters from

association with distinct statutory objects calling for different implementation strategies.”).

While the two fractions certainly work together to comprise the DSH proxy, our Circuit has also

explained that these components “represent two distinct and separate measures of low income.”

Catholic Health, 718 F.3d at 916 (emphasis added). Given these distinct objectives, and mindful

of the nuance and “tremendous complexity of the Medicare statute,” Methodist Hosp. v. Shalala,

38 F.3d 1225, 1229 (D.C. Cir. 1994), the Court is wary of placing too much weight on

8
Allina’s focus on the Medicaid fraction has been evident since the outset of this dispute.
This was Allina’s theory before the PRRB, (see AR at 674) (“[T]he Providers respectfully
request that the Board order the Intermediary to revise the DSH calculation for each of the
Providers to include dual eligible days in the numerator of the Medicaid fraction”) (emphasis
added); before the CMS Administrator, (see AR 15) (incorporating the Providers’ post-hearing
brief to the PRRB for purposes of the CMS Administrator’s review); and before this Court (see
Dkt. No. 1 (“Compl.”) at ¶ 43A) (praying that the Court “direct[] the Secretary to recalculate the
Hospitals’ Medicare DSH payments to include the days at issue in the numerator of the Medicaid
fractions”) (emphasis added); (see also Pl.’s Mem. at 19) (same).

14
parallelism. In addition, it bears emphasis that the DSH proxy is just that—a proxy, not an exact

calculation. Thus, to the extent that some patient days were not captured by the Secretary’s

calculation of the hospitals’ DSH adjustments, this does not necessarily render her interpretation

impermissible or unreasonable. Finally, as already noted, the Secretary has since revised her

construction of the applicable phrase in the Medicare fraction to bring that interpretation in line

with the position Allina challenges in this case. See 69 Fed. Reg. at 49,099. Rather than

establishing arbitrariness, as Allina seems to suggest, these changes are better seen as an

indication that the Secretary’s reading of the phrase in the Medicaid fraction—a reading that has

remained unchanged—is the result of measured, reasoned analysis. See Metro. Hosp., 712 F.3d

at 269 (opining that such a “correction further demonstrates that the Secretary’s interpretation of

this statutory phrase [42 U.S.C. § 1395ww(d)(5)(F)(vi)(II)] is the product of a reasoned analysis

of its terms, not an ad hoc determination meant to unduly restrict DSH adjustments”).

Third, though couched principally within its plain-language arguments at the Chevron

Step One stage, Allina also appears to contend that the Secretary’s interpretation is unreasonable

because she improperly equates the terms “eligible” and “entitled” as used in the Medicaid

fraction. To this end, Allina points out that the numerator of the Medicaid fraction speaks to

patients who are “eligible for” Medicaid but “not entitled to benefits under Part A.” According

to Allina, these different terms must carry different meanings, yet the Secretary’s focus on

whether a patient meets Medicare’s statutory criteria (versus looking to whether Medicare made

payment on a particular day, as Allina proposes) blurs any potential distinction between the two.

In so arguing, Allina relies on a line of appellate decisions concluding that the terms “eligible”

and “entitled” have different meanings in the DSH adjustment formula. See Cabell Huntington

Hosp., Inc. v. Shalala, 101 F.3d 984, 988 (4th Cir. 1996); Legacy Emanuel Hosp. & Health Ctr.

15
v. Shalala, 97 F.3d 1261, 1265 (9th Cir. 1996); Deaconess Health Servs. Corp. v. Shalala, 83

F.3d 1041, 1041 (8th Cir. 1996); Jewish Hosp., Inc. v. Sec’y of Health & Human Servs., 19 F.3d

270, 275 (6th Cir. 1994). Allina further stresses that some of those cases interpreted the phrase

“entitled to benefits” to mean “that one possesses the right or title to that benefit,” consistent

with Allina’s theory in this case. Jewish Hosp., 19 F.3d at 275; see also Legacy Emanuel Hosp.,

97 F.3d at 1265 (“[T]he use of the broader word ‘eligible’ indicates a meaning different from

‘entitlement,’ which means the absolute right to . . . payment.”) (internal quotation marks and

citation omitted).

The Court finds this line of argument unpersuasive for several reasons. Most

significantly, Allina’s heavy reliance on the above-cited cases is unavailing because none of

those decisions directly dealt with the precise issue before this Court—i.e., the phrase “entitled to

benefits under Part A.” Rather, all of those courts were called upon to interpret the other

component of the Medicaid fraction’s numerator—the requirement that patients be “eligible” for

Medicaid. For this very reason, our Court of Appeals “declined to follow” those same cases,

characterizing those courts’ discussion of the phrase “entitled to benefits” as dicta. Northeast

Hosp., 657 F.3d at 12 n.7. This Court agrees with that assessment and follows the lead of our

Circuit. Those decisions do not lend any meaningful support to Allina’s arguments here.

Moreover, the D.C. Circuit has rejected the substance of this “eligible” versus “entitled”

argument as unpersuasive in any event, observing in Northeast Hospital that “the fact that the

DSH factions speak of ‘eligibility’ for Medicaid but ‘entitlement’ to Medicare” was not

“enlightening.” Id. at 12. Instead, as the Circuit went on to state, “the Secretary’s interpretation

of ‘entitled’ as ‘meeting the statutory criteria for entitlement’ . . . does not actually collapse the

terms.” Id. (explaining that an individual could be “‘eligible’ for, but not ‘entitled’ to, Part A

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benefits because one has not yet ‘enrolled’ in the program”). This Court concurs. The

Secretary’s reading of the statute at issue here does not equate these two terms, and Allina’s

insistence otherwise lacks merit.

Fourth, Allina argues that the Secretary’s interpretation in this case amounts to

impermissible retroactive rulemaking. The Court can dispense with this argument rather easily,

since the D.C. Circuit recently rejected the same contention in Catholic Health. As Allina’s

argument goes, it was not until the above-referenced 2004 rulemaking “that the Secretary began

applying her new policy retrospectively to exclude [dual-eligible days] from the Medicaid

fraction for earlier years.” (Dkt. No. 19 (“Pl.’s Opp’n”) at 24). But our Court of Appeals held

otherwise, explaining that the Secretary’s “policy of excluding dual-eligible exhausted days from

the Medicaid fraction was announced four years earlier in Edgewater, and the [2004] rulemaking

was simply a reiteration of this position.” Catholic Health, 718 F.3d at 921 (referencing

Edgewater Med. Ctr., HCFA Adm’r Dec., 2000 WL 1146601, reprinted in MEDICARE &

MEDICAID GUIDE (CCH) ¶ 80,525 (June 19, 2000)). In view of this, the Circuit concluded that

“[t]here is no doubt that the Edgewater adjudication set forth the interpretation that governs this

case prior to the 2004 rulemaking, so the alleged retroactivity problem is not one of retroactive

rulemaking.” Id. at 922 (emphasis omitted). This holding resolves Allina’s retroactivity

arguments here. 9 Simply put, the Secretary’s interpretation of the phrase “entitled to benefits

under Part A” as used in the Medicaid fraction raises no problems of retroactive rulemaking.

9
Somewhat relatedly, Allina points to two adjudications that, in its view, evince the
Secretary’s original policy of including “dual eligible exhausted days” in the numerator of the
Medicaid fraction. See Presbyterian Med. Ctr. of Phila. v. Aetna Life Ins. Co., HCFA Adm’r
Dec., reprinted in MEDICARE & MEDICAID GUIDE (CCH) ¶ 45,032 (Nov. 29, 1996); Jersey Shore
Med. Ctr., PRRB Dec. No. 99-D4, reprinted in MEDICARE & MEDICAID GUIDE (CCH) ¶ 80,083
(Aug. 26, 1998). But in neither of those proceedings did the Secretary squarely consider, much
less decide, the question at issue here. Instead, the CMS’s Administrator’s adjudication in
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 * * *

In sum, none of Allina’s arguments establishes that the Secretary’s reading of the relevant

statutory language is impermissible or unreasonable. And given the wide deference due the

Secretary in interpreting the complexities of the Medicare statute, the Court concludes that

Allina’s challenges under the APA are without merit.

CONCLUSION

For the foregoing reasons, the Court concludes that Allina’s Motion for Summary

Judgment will be DENIED and that the Secretary’s Cross-Motion for Summary Judgment will

be GRANTED. An appropriate Order accompanies this Memorandum Opinion.

Digitally signed by Judge Robert L.
Wilkins
DN: cn=Judge Robert L. Wilkins,
o=U.S. District Court,
ou=Chambers of Honorable
Robert L. Wilkins,
Date: October 8, 2013 email=RW@dc.uscourt.gov, c=US
Date: 2013.10.08 13:09:07 -04'00'

ROBERT L. WILKINS
United States District Judge

Presbyterian Medical Center turned on the proper contours of Medicaid eligibility, rather than
entitlement to Medicare Part A benefits, as relevant to this dispute. And as the Secretary rightly
points out, the PRRB’s determination in the Jersey Shore case was later vacated without any
substantive discussion by the CMS Administrator on the interpretive question at issue. Thus,
neither of those adjudications established the Secretary’s interpretation of the phrase “entitled to
benefits under [Medicare] Part A” as used in the Medicaid fraction of the DSH proxy formula.

18