Adirondack Medical Center v. Sebelius

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)
ADIRONDACK MEDICAL CENTER, )
et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 11-1671 (RMC)
) (Consolidated with 12-457)
KATHLEEN SEBELIUS, Secretary, )
Department of Health and Human )
Services, )
)
Defendant. )
)

OPINION

This case arises out of the federal Medicare program; it relates to payments to rural

and sole community hospitals for the inpatient care they provide to Medicare beneficiaries. The

Secretary of Health and Human Services adjusted the rate paid to these types of hospitals

downward in order to ameliorate the increasing rate paid to all hospitals due to revamping the

diagnosis coding system. The authority for this adjustment is found in a general statutory

provision. Plaintiffs object to the downward adjustment. They contend that because Congress

expressly authorized the Secretary to make such a downward adjustment for other types of

hospitals without similarly providing for such an adjustment for rural and sole community

hospitals, Congress stripped the Secretary of authority to make the same type of downward

adjustment for rural and community hospitals. The Secretary did not read the legislative silence

in this way, and the Court defers to the Secretary=s reasonable statutory interpretation. Plaintiffs=

complaint will be dismissed for failure to state a claim.

1
 I. FACTS

Medicare is a federal health insurance program for the elderly and the disabled. 42

U.S.C. § 1395 et seq. Under Medicare Part A, the Secretary reimburses participating hospitals for

care they provide to Medicare beneficiaries. Plaintiffs are providers of hospital services that have

been designated under Medicare as either a Asole community hospital@ or a AMedicare-dependent,

small rural hospital.@ See 42 U.S.C. ' 1395ww(d)(5)(D)(iii) (defining sole community hospital);

id. ' 1395ww(d)(5)(G)(iv) (defining rural hospital). Because they are critical to providing

hospital services in remote and rural areas and because they face significant financial difficulties,

the Medicare Act provides special payment protections for such hospitals. Id.

§§ 1395ww(d)(5)(D) & 1395ww(d)(5)(G).

In order to provide a cost-savings incentive, Congress directed the Secretary to

create an “inpatient prospective payment system” (“IPPS”), whereby the Secretary pays the

hospital a fixed payment for each patient discharge, as described in 42 U.S.C. ' 1395ww(d).

Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1226-27 (D.C. Cir. 1994). The rate is

set in advance and that is the amount paid no matter how much the hospital actually spends on that

patient. Id. Because hospitals are paid a fixed rate, they are encouraged to minimize the cost of

treatment. Id.

IPPS depends on the patient=s diagnosis. Diagnoses are assigned to a Adiagnosis

related group@ (DRG), and each DRG is assigned a weight that is multiplied by a base dollar

amount to determine payment. 42 C.F.R. ' 412.64(g). The majority of hospitals are paid the

2
Afederal rate,@ the product of the DRG times a base dollar Astandardized@ amount. 1 Id. Sole

community and rural hospitals are paid the Ahospital-specific rate,@ the product of the DRG times

each hospital=s unique target amount. The target amount is based on each hospital=s historic

per-person operating costs in a specific year. 42 U.S.C. ' 1395ww(d)(5)(D); id. '

1395ww(d)(5)(G). Sole community and rural hospitals are paid whichever rate yields a higher

payment, the federal rate or the hospital-specific rate. 2 Id.

Effective at the start of Fiscal Year (“FY”) 2008, 3 the Secretary implemented a

new diagnosis classification system using AMedicare severity diagnosis-related groups,@ called

MS-DRGs. See 72 Fed. Reg. 66,580, 66,886 (Nov. 27, 2007). Just like the original DRG

system, the Secretary assigns a weight to each MS-DRG. The value of the MS-DRG is multiplied

by the standardized amount to determine the federal rate and by the target amount to determine the

hospital-specific rate. The MS-DRG system was designed to better account for differences in the

severity of an illness. Id.

The Secretary anticipated changes to how hospitals code and report diagnoses

under the new system and predicted a resulting increase in payments, i.e., Acoding creep.@ To

combat such coding creep, the Secretary adjusted the federal rate downward. See 72 Fed. Reg.

1
The standardized amount is roughly an average of operating costs per discharge of all patients for
all IPPS hospitals in a given time period. 42 U.S.C. § 1395ww(d)(2)(C).
2
For rural hospitals, if the hospital-specific rate is higher than the federal rate, the hospital is paid
the federal rate plus 75% of the amount by which the hospital-specific rate exceeds the federal rate.
42 U.S.C. ' 1395ww(d)(5)(G)(ii)(II).
3
Fiscal year 2008 started on October 1, 2007.

3
47,130 (Aug. 22, 2007) (“August 2007 Final Rule”). 4 Specifically, actuaries estimated that an

adjustment of -4.8% over the course of three years was needed to maintain budget neutrality, and

the Secretary established a -1.2 % prospective adjustment for FY 2008 and -1.8% for FY 2009.

Id. at 47,416.

As authority for the rate adjustment, the Secretary cited 42 U.S.C.

' 1395ww(d)(3)(A)(vi), enacted in 2000, which provides for adjustments to the federal rate:

Insofar as the Secretary determines that the adjustments under paragraph
(4)(C)(i) [providing for annual adjustments to the DRGs and weighting
factors] for a previous fiscal year (or estimates that such adjustments for a
future fiscal year) did (or are likely to) result in a change in aggregate
payments under this subsection during the fiscal year that are a result of
changes in the coding or classification of discharges that do not reflect real
changes in the case mix, the Secretary may adjust the average standardized
amounts computed under this paragraph for subsequent fiscal years so as to
eliminate the effect of such coding or classification changes.

The Secretary originally sought to adjust both the federal rate and the hospital-specific rate in the

August 2007 Final Rule. See generally 72 Fed. Reg. 47,130.

On September 29, 2007, just two months after the Secretary issued the August 2007

Final Rule adjusting the federal rate downward, Congress enacted the Transitional Medical

Assistance, Abstinence Education, and QI Programs Extension Act of 2007. See Pub. L. No.

110-90, ' 7, 121 Stat. 984 (2007) (attached to Pls.’ Reply [Dkt. 21] as Ex. C) (“TMA”). Section

4
Plaintiffs suggest that the term “coding creep” is pejorative. See Pls.’ Reply [Dkt. 21] at n.4.
The Court does not view it that way, as the term only means that under the MS-DRG codes,
payments crept up for reasons not related to real changes in patient severity of illness. The
Secretary is merely adjusting the payment rate to counterbalance the phenomenon. As the agency
indicated in the August 2007 Final Rule, “We do not believe there is anything inappropriate,
unethical or otherwise wrong with hospitals taking full advantage of coding opportunities to
maximize Medicare payment that is supported by documentation in the medical record.” 72 Fed.
Reg. at 47,180.
4
7(a) of the TMA reduced the adjustment of the federal rate specified in the August 2007 Final

Rule, providing for a -0.6% adjustment for FY 2008 and a -0.9% adjustment for FY 2009.

Section 7(b) further instructed the Secretary how and when to apply an adjustment to the federal

rate in the future. If the Secretary determines that implementation of the MS-DRG system results

in an increase that does not reflect real changes in patient severity of illness, then the Secretary

shall adjust the federal rate downward. 5 TMA § 7(b). Notably, and critically to Plaintiffs’

5
Section 7(b) provides:

(b) Subsequent Adjustments

(1) In General. --- Notwithstanding any other provision of law, if the Secretary
determines that implementation of [the MS-DRG] system resulted in changes in
coding and classification that did not reflect real changes in case mix under [42
U.S.C. ' 1395ww(d)] for discharges occurring during fiscal year 2008 or 2009 that
are different than the prospective documentation and coding adjustments applied
under § (a), the Secretary shall---

(A) make an appropriate adjustment under paragraph (3)(A)(vi) of
[' 1395ww(d)]; and

(B) make an additional adjustment to the standardized amounts under [42
U.S.C. ' 1395ww(d)] for discharges occurring only during fiscal years
2010, 2011, and 2012 to offset the estimated amount of the increase or
decrease in aggregate payments (including interest as determined by the
Secretary) determined, based upon a retrospective evaluation of claims data
submitted under such [MS-DRG] system, by the Secretary with respect to
discharges occurring during fiscal years 2008 and 2009.

(2) Requirement --- Any adjustment under paragraph (1)(B) shall reflect the
difference between the amount the Secretary estimates that implementation of such
[MS-DRG] system resulted in changes in coding and classification that did not
reflect real changes in case mix and the prospective documentation and coding
adjustments applied under subsection (a). An adjustment made under paragraph
(1)(B) for discharges occurring in a year shall not be included in the determination
of standardized amounts for discharges occurring in a subsequent year.

5
complaint, the TMA dealt only with the federal rate and was silent as to payments to rural and sole

community hospitals.

Two months after the enactment of the TMA, the Secretary determined that her

authority to make an adjustment to the federal rate under § (d)(3)(A)(vi) did not apply to the

hospital-specific rate. 72 Fed. Reg. at 66,886. She also changed the adjustments to the federal

rate as directed by the TMA. Id. As a result, sole community and rural hospitals (like Plaintiffs)

generally obtained higher payments in FY 2008 and FY 2009.

However, the Secretary still viewed payments to sole community and rural

hospitals as artificially inflated by the new MS-DRG. Even though the Secretary did not have the

authority to adjust the hospital-specific rate under § (d)(3)(A)(vi), she determined in 2011 that she

had authority under a “special exceptions and adjustments” provision. This “gap-filler” provision

authorizes the Secretary to provide “for such other exceptions and adjustments to [IPPS] payment

amounts . . . as the Secretary deems appropriate.” 42 U.S.C. ' 1395ww(d)(5)(I)(i). 6 The

Secretary engaged in notice and comment rulemaking and promulgated a Final Rule reducing the

hospital-specific rate for FY 2011 and FY 2012. Finding that the predicted coding creep had

occurred in FY 2008 and FY 2009, i.e., that there was an artificial increase in payments unrelated

to any actual change in the severity of illnesses treated, the Secretary made a -2.9 % adjustment to

both the federal rate and to the hospital-specific rate for FY 2011. 75 Fed. Reg. 50,042,

50,067-71 (Aug. 16, 2010). Similarly, the Secretary made a -2.0% downward adjustment for FY

Id. The FY 2008 and FY 2009 adjustments were finalized through rulemaking. See 72
Fed. Reg. at 66,886 (adjustment for FY 2008); 73 Fed. Reg. 48,447, 48,434 (Aug. 19,
2008) (adjustment for FY 2009).
6
Subsection 1395ww(d)(5)(I)(i) was in place for some years before 2000 when § (d)(3)(A)(vi)
was enacted.
6
2012 in both the federal as well as the hospital-specific rates. 76 Fed. Reg. 51,476, 51,499 (Aug.

18, 2011). 7

Plaintiffs filed a request for expedited judicial review with the Provider

Reimbursement Review Board (“PRRB”). The PRRB determined that it lacked jurisdiction, or

alternatively, that expedited judicial review was appropriate. Plaintiffs appealed and the

Administrator for the Centers for Medicare & Medicaid Services reversed the finding of no

jurisdiction, thereby removing any barrier to immediate judicial review.

Plaintiffs immediately filed suit, asserting that the reduction of the FY 2011

hospital-specific rate should be set aside because it was outside the Secretary’s statutory authority

and because it was arbitrary and capricious. They filed a second complaint challenging the FY

2012 downward adjustment to the hospital-specific rate for the same reasons. The cases were

consolidated here.

The Secretary moves to dismiss for failure to state a claim, arguing that the

Secretary had proper authority to adjust the hospital-specific rate downward under the gap-filler

provision and that the decision to make such an adjustment was reasonable. Plaintiffs oppose and

move for summary judgment. They contend, in essence, that the Secretary’s express authority to

adjust the federal rate under ' 1395ww(d)(3)(A)(vi) and the TMA must mean that the Secretary

does not have similar authority to adjust the hospital-specific rate.

7
The Secretary proposes for FY 2013 a -1.9 % reduction in the federal rate and a -0.5% reduction
in the hospital-specific rate. See 77 Fed. Reg. 27,870, 27,886, 27,889 (May 11, 2012).
7
 II. LEGAL STANDARD

A. Dismissal for Failure to State a Claim

A motion to dismiss for failure to state a claim under Federal Rule of Civil

Procedure 12(b)(6) challenges the adequacy of a complaint on its face. Fed. R. Civ. P. 12(b)(6).

A complaint must be sufficient Ato give a defendant fair notice of what the . . . claim is and the

grounds upon which it rests.@ Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal

citations omitted). Although a complaint does not need detailed factual allegations, a plaintiff=s

obligation to provide the grounds of his entitlement to relief Arequires more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will not do.@ Id. To

survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to

state a claim for relief that is Aplausible on its face.@ Twombly, 550 U.S. at 570.

A court must treat the complaint=s factual allegations as true, Aeven if doubtful in

fact.@ Id. at 555. But a court need not accept as true legal conclusions set forth in a complaint.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In deciding a motion under Rule 12(b)(6), a court

may consider the facts alleged in the complaint, documents attached to the complaint as exhibits or

incorporated by reference, and matters about which the court may take judicial notice. Abhe &

Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C. Cir. 2007).

B. APA Review

1. Authority

Plaintiffs contend that the Secretary’s action must be set aside as “in excess of

statutory jurisdiction, authority, or limitations, or short of statutory right” in violation of the

Administrative Procedure Act (“APA”), 5 U.S.C. ' 706(2)(C). “An agency=s power is not greater

8
than that delegated to it by Congress.” Lyng v. Payne, 476 U.S. 926, 937 (1986); see also

Transohio Sav. Bank v. Dir., Office of Thrift Supervision, 967 F.2d 598, 621 (D.C. Cir. 1992).

Agency actions beyond delegated authority are ultra vires and should be invalidated. Transohio,

967 F.2d at 621. A court looks to the agency’s enabling statute and subsequent legislation to

determine whether the agency has acted within the bounds of its authority. Univ. of D.C. Faculty

Ass=n/NEA v. D.C. Fin. Responsibility & Mgmt. Assistance Auth., 163 F.3d 616, 620-21 (D.C. Cir.

1998).

When reviewing an agency=s interpretation of its enabling statute, a court

undertakes a two-step analysis as set forth in Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984). See Mount Royal Joint Venture v. Kempthorne, 477 F.3d 745,

754 (D.C. Cir. 2007). First, the court determines whether “Congress has directly spoken to the

precise question at issue” and, if so, the court must “give effect to the unambiguously expressed

intent of Congress.” 467 U.S. at 842-43. To decide whether Congress has addressed the precise

question at issue, the court analyzes the text, purpose, and structure of the statute. Ranbaxy Labs.

Ltd. v. Leavitt, 469 F.3d 120, 124 (D.C. Cir. 2006). When the statute is not ambiguous, the text

controls and no deference is extended to an agency’s interpretation in conflict with the text.

Chase Bank U.S.A., N.A. v. McCoy, 131 S. Ct. 871, 882 (2011).

If, on the other hand, the statute is ambiguous or silent on an issue, the court

proceeds to the second step of the Chevron analysis and determines whether the agency’s

interpretation is based on a permissible construction of the statute. Chevron, 467 U.S. at 843;

Sherley v. Sebelius, 644 F.3d 388, 393 (D.C. Cir. 2011). Under the second Chevron step, a court

determines the level of deference due to the agency=s interpretation of the law it administers. See

9
Kempthorne, 477 F.3d at 754. When the agency’s interpretation is permissible and reasonable, 8

it receives controlling weight. Id. at 754. Applying Chevron deference, a court defers to the

agency, “even if the agency’s reading differs from what the court believes is the best statutory

interpretation.” See Nat’l Cable & Telecomm. Ass’n v. Brand X Internet Servs., 545 U.S. 967,

980 (2005). Under Chevron step 2, a plaintiff must show that the statutory language “cannot bear

the interpretation adopted by the Secretary.” Sullivan v. Everhart, 494 U.S. 83, 91-92 (1990).

And here, “the tremendous complexity of the Medicare program enhances the deference due the

Secretary=s decision.” Cmty. Care Found. v. Thompson, 318 F.3d 219, 225 (D.C. Cir. 2003)

(internal quotation marks omitted).

Chevron deference is only appropriate if Congress has delegated authority to an

agency to make rules having the “force of law” and the agency rule at issue was “promulgated in

the exercise of that authority.” United States v. Mead Corp., 533 U.S. 218, 230B31 (2001).

Generally, if an agency promulgates its interpretation through notice-and-comment rulemaking or

formal adjudication, a court gives the agency=s interpretation Chevron deference. Id. The

parties agree that this case must be analyzed under the two-step process set forth by Chevron.

2. Arbitrary and Capricious

In addition to asserting that the Secretary’s action was ultra vires in violation of 5

U.S.C. ' 706(2)(C) of the Administrative Procedure Act (“APA”), Plaintiffs also assert that the

Court should set aside the Secretary’s downward adjustment of the hospital-specific rate because

the action was arbitrary, capricious, and not in accordance with the law in violation of APA

8
An interpretation is permissible and reasonable if it is not arbitrary, capricious, or
manifestly contrary to the statute. Kempthorne, 477 F.3d at 754.

10
' 706(2)(A). See Tourus Records, Inc. v. DEA, 259 F.3d 731, 736 (D.C. Cir. 2001). In

determining whether an action was arbitrary and capricious, a reviewing court “must consider

whether the [agency’s] decision was based on a consideration of the relevant factors and whether

there has been a clear error of judgment.” Marsh v. Oregon Natural Res. Council, 490 U.S. 360,

378 (1989) (internal quotation marks omitted). At a minimum, the agency must have considered

relevant data and articulated an explanation establishing a “rational connection between the facts

found and the choice made.” Bowen v. Am. Hosp. Ass=n, 476 U.S. 610, 626 (1986) (internal

quotation marks omitted); see also Pub. Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993)

(“The requirement that agency action not be arbitrary or capricious includes a requirement that the

agency adequately explain its result.”). An agency action usually is arbitrary or capricious if

the agency has relied on factors which Congress has not intended it
to consider, entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs counter to
the evidence before the agency, or is so implausible that it could not
be ascribed to a difference in view or the product of agency
expertise.

Motor Vehicle Mfrs. Ass=n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

As the Supreme Court has explained, “the scope of review under the >arbitrary and

capricious= standard is narrow and a court is not to substitute its judgment for that of the agency.”

Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43. Rather, agency action is normally “entitled to a

presumption of regularity.” Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 415

(1971), abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977).

III. ANALYSIS

Plaintiffs’ challenge to the Secretary’s authority and to the reasonableness of the

11
Secretary’s decision is governed by Chevron. Under step one of Chevron, the Court must

determine whether ACongress has directly spoken to the precise question at issue@ and if so, the

Court must Agive effect to the unambiguously expressed intent of Congress.@ Kempthorne, 467

U.S. at 842-43.

Subsection (d)(3)(A)(vi) and the TMA unambiguously address only adjustments to

the federal rate. Further, § (d)(5)(I)(i) plainly grants broad authority to the Secretary to provide

“for such other exceptions and adjustments to [IPPS] payment amounts . . . as the Secretary deems

appropriate.” 42 U.S.C. ' 1395ww(d)(5)(I)(i). The ambiguity lies in what § (d)(3)(A)(vi) and

TMA do not say. They do not address adjustments to the hospital-specific rate. Plaintiffs claim

that the statutes’ silence on the topic of the hospital-specific rate works to revoke the Secretary’s

authority under § (d)(5)(I)(i) to make such adjustments. They argue that “[i]n drafting the TMA

and ' 1395ww(d)(3)(A)(vi) to specify adjustments to the standardized amount, Congress intended

to exclude adjustments to the hospital-specific rate.” Pls.’ Opp’n [Dkt. 10] at 18. 9

Since § (d)(3)(A)(vi) and the TMA are silent on the issue of adjustments to the

hospital-specific rate, the Court proceeds to the second step of the Chevron analysis to determine

whether the Secretary’s interpretation is based on a permissible construction of the statute.

Chevron, 467 U.S. at 843. Because the Court finds that the Secretary’s construction is

9
The Secretary asserts that Plaintiffs waived their arguments based on the TMA because they did
not specifically cite it during the notice and comment period. However, the Secretary herself
raised the issue of the TMA in her opening brief. See Def.’s Mot. to Dismiss [Dkt. 7] at 12 n.2.
Further, Plaintiffs cited the TMA during their administrative appeal to the Provider
Reimbursement Review Board and in the Complaint filed in Civil No. 12-457. When Civil No.
12-457 was consolidated with this case, the Secretary was required to address the issues raised in
that case in her Reply brief, see Minute Order Apr. 13, 2012, and she did so. Plaintiffs’ claim
concerning the TMA has been properly raised and fully briefed.

12
permissible and reasonable, her construction must be given controlling weight. Her decision to

adjust the hospital-specific rate for FY 2011 and FY 2012 was not arbitrary or capricious.

Plaintiffs insist that when Congress granted the Secretary authority to adjust the

federal rate under § (d)(3)(A)(vi), Congress must have repealed the Secretary’s general adjustment

authority under § (d)(5)(I)(i). But § (d)(3)(A)(vi) merely states that to the extent the Secretary

finds the new MS-DRG coding system caused (or likely will cause) an artificial rate increase

unrelated to the severity of patient illness, the Secretary “may adjust the average standardized

amounts 10 computed under [§1395ww(d)(3)] . . . to eliminate” that effect. TMA contains a

similar provision. See TMA § 7(b) (providing that if the Secretary determines that the new

coding system has resulted in artificially high payments, the Secretary shall make an appropriate

adjustments to the federal rate). Subsection (d)(3)(A)(vi) and the TMA do not contain

prohibitory language stating that the Secretary is barred from adjusting the hospital-specific rate,

nor do they contain limiting language, such as “the Secretary may adjust only the federal rate” or

“an adjustment to the federal rate is the only way the Secretary may address the problem of

artificially inflated requests for payment.” 11 See Pub. Citizen, Inc. v. Rubber Mfrs. Ass’n, 533

F.3d 810, 817 (D.C. Cir. 2008) (“Congress knows well how to say that [action is authorized] only

under specified provisions or circumstances, but it did not do so here.”)

Furthermore, Plaintiffs’ claim that the Secretary’s § (d)(5)(I)(i) catchall authority

was implicitly repealed by later statutory enactments asserts a repeal by implication. Repeals by
10
The “standardized” amount is the starting point for calculating the federal rate.
11
The placement of § (d)(3)(A)(vi) also reflects Congress’ intent to address only the adjustment to
the federal rate. Section (d)(3)(A) is headed “Updating previous standardized amounts,” and
§ d)(3)(A)(vi) is one of six subsections that address only the standardized rate.

13
implication are disfavored and “will not be presumed unless the intention of the legislature to

repeal [is] clear and manifest.” Hawaii v. Office of Hawaiian Affairs, 129 S. Ct. 1436, 1445

(2009). There is no such clear and manifest indication that Congress intended to repeal the

catchall adjustment provision by enactment of either § (d)(3)(A)(vi) or the TMA.

The D.C. Circuit rejected a claim similar to Plaintiffs’ claim in Amgen, Inc. v.

Smith, 357 F.3d 103, 106 (D.C. Cir. 2004). There, the plaintiff challenged a different catchall

provision in the Medicare Act, 42 U.S.C. § 1395l(t)(2)(E), which empowers the Secretary to make

“other adjustments as determined to be necessary to ensure equitable payments.” The Amgen

plaintiff claimed that parts of the Medicare Act that set forth particular steps to making and

calculating payment adjustments operated to limit the Secretary’s authority to make other

adjustments under § 1395l(t)(2)(E). Amgen, 357 F.2d at 106. The Circuit found the claim

lacked merit, emphasizing that the Secretary should not be stripped of catchall authority when

Congress relies on the Secretary’s expertise in managing the complexities of the Medicare

program. Id. at 106, 117.

Plaintiffs’ assertion of “repeal by implication” is closely related to their misguided

assertion that their statutory interpretation is mandated because “the specific governs the general.”

To resolve a contradiction within a statute, courts often find that a specific provision that conflicts

with a general provision controls. See Edmond v. United States, 520 U.S. 651, 657 (1997); Varity

Corp. v. Howe, 516 U.S. 489, 512 (1996). The “specific governs the general” maxim “is not an

absolute rule, but merely a strong indication of statutory meaning that can be overcome by textual

indications that point in the other direction.” RadLAX Gateway Hotel, LLC v. Amalgamated

14
Bank, 132 S. Ct. 2065, 2072 (2012). 12 Here, there simply is no conflict. Subsection

(d)(3)(A)(vi) and the TMA authorize the Secretary to make an adjustment to the federal rate and

§ (d)(5)(I)(i) also permits the Secretary to make adjustments.

Plaintiffs also assert that to construe § (d)(5)(I)(i) as a broad grant of authority

renders the more limited grant in § (d)(3)(A)(vi) and the TMA mere surplusage. See Radlax, 132

S. Ct. at 2071 (the specific/general canon applies to avoid contradiction as well as to avoid

superfluity). The canon of construction regarding superfluities, like the concept that “the specific

governs the general,” is not a mandate. The canon merely provides that “if possible” a court

should construe a statute to give effect to every word and clause and should avoid a construction

that renders a word or clause surplusage. Rubber Mfrs, 533 F.3d at 816-17. The subsections at

issue here, as construed by the Secretary, are not redundant. 13 Subsection (d)(5)(I)(i) permits the

Secretary to make any adjustment deemed appropriate, while § (d)(3)(A)(vi) and the TMA

empower the Secretary to adjust the federal rate under the circumstances specified.

12
Despite Plaintiffs’ claim to the contrary, RadLAX is not particularly helpful in deciding this
case. In RadLAX, the Supreme Court rejected a debtor’s claim that its bankruptcy plan should be
permitted as a cramdown because it provided creditors the “indubitable equivalent” of their claims
under 11 U.S.C. § (b)(2)(A)(iii). Critically, the proposed plan included the sale of collateral at
auction without the “credit bid” procedure required by the immediately prior subsection,
§ (b)(2)(A)(ii), which was enacted at the same time. RadLAX, 132 S. Ct. at 2069. The Court
reviewed de novo the meaning of these two provisions and found that the terms of the specific
provision (requiring the credit bid procedure) must be honored. Id. at 2071-72. Here, the Court
must give Chevron deference to the Secretary’s construction of § (d)(5)(I)(i), enacted years before
§ (d)(3)(A)(vi). Further, the Secretary’s application of § (d)(5)(I)(i) to the hospital-specific rate
does not impact the adjustment to the federal rate in § (d)(3)(A)(vi) or the TMA.
13
Even if these clauses were deemed to be redundant, the result is not that § (d)(3)(A)(vi) and the
TMA repeal § (d)(5)(I)(i). “Redundancies across statutes are not unusual events in drafting, and
so long as there is no ‘positive repugnancy’ between two laws, a court must give effect to both.”
Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253 (1992) (citation omitted). There is no conflict,
let alone “repugnancy,” between the clauses at issue.
15
 Plaintiffs also argue that the Court should make a negative inference due to the

congressional silence regarding the hospital-specific rate in § (d)(3)(A)(vi) and the TMA, on the

bases of the old maxim, the “expression of one thing implies the exclusion of another.” In other

words, Plaintiffs contend that by empowering the Secretary to adjust the federal rate, Congress

stripped the Secretary of power to adjust the hospital-specific rate. The Circuit applied this

concept in Halverson v. Slater, 129 F.3d 180 (D.C. Cir. 1997), where it held that 49 U.S.C. § 2104,

the statute authorizing the Secretary of Transportation to delegate powers over Great Lakes

pilotage to Coast Guard officials, was intended to exclude delegations of authority to non-Coast

Guard officials under a catchall delegation provision, 49 U.S.C. § 322. The Circuit determined

that a delegation of power to the Coast Guard meant that power could not be delegated to a

non-Coast Guard entity.

Even so, Halverson did not set forth a hard and fast rule. To determine whether

the mention of one thing actually implies the exclusion of another, a court examines the text,

structure, legislative history, and purpose of the statute. Shook v. Dist. of Columbia Fin.

Responsibility & Mgmt. Assistance Corp., 132 F.3d 775, 782 (D.C. Cir. 1998). The Shook court

explained:

Sometimes Congress drafts statutory provisions that appear
preclusive of other unmentioned possibilities --- just as it sometimes
drafts provisions that appear duplicative of others --- simply, in
Macbeth’s words, “to make assurance double sure.” That is,
Congress means to clarify what might be doubtful --- that the
mentioned item is covered --- without meaning to exclude the
unmentioned ones.

Id. Halverson was decided based on a completely different statute, with a distinct structure,

history, and purpose. Here, as discussed above, Congress expressly addressed adjusting the

16
federal rate to combat coding creep by enacting both § (d)(3)(A)(vi) and the TMA without any

reference to the pre-existing catchall adjustment provision. In so doing, Congress lessened the

Secretary’s announced federal rate adjustment and specified how she should make future

adjustments. Its specificity may have been to “make assurance double sure” on rate adjustments

for most hospitals. The legislature’s silence regarding adjustment to the hospital-specific rate

probably speaks more to who lobbied for the lower federal rate adjustments specified in the TMA

than to any congressional intent expressed by such silence. There is nothing to support Plaintiffs’

assertion that the grant of specific authority to adjust the federal rate repudiated the Secretary’s

authority to adjust the hospital-specific rate under her existing authority.

Plaintiffs make two additional arguments regarding the TMA. First, they point out

that the introductory clause to § 7(b) indicates that the section applies “notwithstanding any other

provision of law,” reasoning that this language causes the TMA to supplant § (d)(5)(I)(i). This

argument fails. The “notwithstanding” clause merely indicates that to the extent that other

provisions conflict with § 7(b), § 7(b) controls. Section 7(b) does not conflict with the catchall

provision, § (d)(5)(I)(i). As there is no conflict, the “notwithstanding” clause has no bearing on

this case.

Second, Plaintiffs argue that § 7(b)(2) directs the Secretary to evaluate federal rate

payment data from FY 2008 and 2009 and, if adjustments to the federal rate were too high or too

low for that year, to make adjustments in FY 2010, 2011, or 2012 to offset the difference.

Plaintiffs allege that the adjustment challenged here was based on the same study and thus no

adjustment should have been made to the hospital-specific rate. This argument is based on a

mistake of fact. The Secretary conducted a separate study of hospital-specific rate payments for

17
FY 2008 and FY 2009. See 75 Fed. Reg. at 50059-63. The adjustment challenged in this case

was based on this separate study.

It must be pointed out that sole community and rural hospitals already were entitled

by statute to special payment provisions. If Congress wanted to give sole community and rural

hospitals the benefit of coding creep, it would do so explicitly. But there is no logical reason why

Congress would want to do this in the first place. Plaintiffs’ interpretation of the statute flies in

the face of the expressed intent of Congress. Subsection (d)(3)(A)(vi) and the TMA manifest the

intent to permit the Secretary to make payment adjustments to counteract the artificial inflation of

payments under the new coding system. It is illogical to presume that at the same time that

Congress empowered the Secretary to reduce the federal rate, it worked against its own purpose by

impliedly revoking the Secretary’s power to reduce the hospital-specific rate. When Congress

has intended to pay sole community and rural hospitals a more favorable rate, it has done so

directly and in a way sure to benefit these hospitals, via the special payment provisions. See 42

U.S.C. ' 1395ww(d)(5)(D) (sole community hospitals); id. ' 1395ww(d)(5)(G) (rural hospitals).

It defies logic to construe § (d)(3)(A)(vi) and the TMA as intended to capture coding creep to

benefit sole community and rural hospitals at the expense of federal rate hospitals. The Court

cannot find, in the face of the statutes’ silence on the precise issue, that the legislature intended to

strip the Secretary of the power to adjust the hospital-specific rate under the gap-filler provision.

In sum, the Secretary’s interpretation of § (d)(3)(A)(vi) and § 7 of the TMA is

entitled to Chevron deference. See Chevron, 467 U.S. at 843. Since § (d)(3)(A)(vi) and § 7 of

the TMA are silent on the issue of adjustment to the hospital-specific rate, the Secretary’s

determination that she has the authority to adjust the hospital-specific rate under § (d)(5)(I)(i)

18
is reasonable and permissible. The Secretary’s decision to adjust the hospital-specific rate for FY

2011 and FY 2012 was not arbitrary or capricious.

IV. CONCLUSION

For the reasons stated above, the Secretary’s motion to dismiss [Dkt. 7] will be

granted, and Plaintiffs’ motion for summary judgment [Dkt. 10] will be denied as moot. Further,

the Secretary’s motion to file a surreply [Dkt. 22] will be granted. This case will be dismissed.

Date: September 17, 2012 /s/
ROSEMARY M. COLLYER
United States District Judge

19