Silverado Hospice, Inc. v. Xavier Becerra

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

SILVERADO HOSPICE, INC., a No. 20-56348
Delaware corporation; PROCARE
HOSPICE, LLC, a Delaware limited D.C. Nos.
liability corporation, 8:19-cv-01007-
Plaintiffs-Appellants, DMG-RAO
8:19-cv-01098-
v. DMG-RAO
2:19-cv-05096-
XAVIER BECERRA, Secretary of DMG-RAO
United States Department of Health
and Human Services,
Defendant-Appellee. OPINION

Appeal from the United States District Court
for the Central District of California
Dolly M. Gee, District Judge, Presiding

Argued and Submitted March 18, 2022
San Francisco, California

Filed August 1, 2022

Before: Morgan Christen and Daniel A. Bress, Circuit
Judges, and Barbara M. G. Lynn, * District Judge.

Opinion by Judge Bress

*
The Honorable Barbara M. G. Lynn, Chief United States District
Judge for the Northern District of Texas, sitting by designation.
2 SILVERADO HOSPICE V. BECERRA

SUMMARY **

Medicare

The panel affirmed the district court’s summary
judgment in favor of the government in an action brought by
hospice providers who alleged that the Centers for Medicare
and Medicaid Services’ method of implementing the Budget
Control Act’s across-the-board cuts for hospice
reimbursements was contrary to the Medicare statute and the
Budget Control Act.

This case involves the complex interaction between two
statutory limits on federal Medicare spending relating to
hospice care. Hospices that treat Medicare beneficiaries
receive periodic reimbursements throughout the year from
the Centers for Medicare and Medicaid Services (“CMS”),
but the Medicare statute caps hospices’ aggregate annual
reimbursement. The Budget Control Act separately requires
the federal government to implement across-the-board
cuts—commonly known as “sequestration”—to direct
spending programs (including Medicare) when certain
statutory conditions are met, as they were here.

The triggering of sequestration required CMS to
determine how to cut hospice spending in a manner
consistent with the Medicare statute’s cap requirements.
CMS ultimately issued a technical direction letter (“TDL”)
to its Medicare Administrative Contractors (“MAC”)
providing instructions on how to address sequestration
amounts relating to the cap calculation. The TDL explained
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
 SILVERADO HOSPICE V. BECERRA 3

that its overpayment calculation method would apply
retroactively to the 2013 and 2014 fiscal years.

The plaintiff hospices exceeded their aggregate caps in
the 2013 fiscal year, and three Silverado hospices also
exceeded their aggregate caps in the 2014 fiscal year. In
2015, plaintiffs’ MACs issued notices of its aggregate cap
determinations for both fiscal years. In each of the eight
notices, the MAC included the details of its cap calculations
under the TDL’s multi-step method and requested refunds of
the overpayment amounts. Plaintiffs appealed their cap
determinations to the Provider Reimbursement Review
Board (“PRRB”), arguing that their MAC had failed to
calculate the aggregate cap using the “actual net amount of
payment received by the hospice provider.” Instead, the
MAC had calculated their overpayments using the TDL
method. Plaintiffs argued that the MAC’s calculation
method was contrary to 42 U.S.C. § 1395f(i)(2)(A), which
specifies how the aggregate cap is calculated. The PRRP
upheld the MAC’s overpayment calculations.

The panel held that CMS correctly concluded that the
Budget Control Act required it to reduce the total annual
amounts paid to hospices, not only the periodic
reimbursements, and that the agency’s chosen method for
implementing sequestration was consistent with the
Medicare statute. CMS adopted a method that harmonized
the Budget Control Act and the Medicare statute, ensuring
the necessary percentage reduction to Medicare spending
without altering the statutorily mandated calculation of the
annual hospice cap. Plaintiffs’ preferred method, by
contrast, would not achieve sequestration’s required
spending reductions.
4 SILVERADO HOSPICE V. BECERRA

Having concluded that the Budget Control Act required
a reduction in annual hospice payments, and not just periodic
reimbursements, the panel next considered whether the
agency’s chosen method was consistent with other language
in the Medicare statute, and specifically the cap calculation
methodology. The panel held that it was. The statute’s plain
language established that the “amount of payment made”
does not refer to historical, periodic reimbursements, but
rather the payment to which a hospice is legally entitled in a
fiscal year.

Finally, the panel held that the agency was not required
to undertake notice-and-comment rulemaking before
implementing the Budget Control Act’s sequestration
mandate. The agency’s sequestration method, as reflected
in the TDL and the PRRB’s decisions, did not amount to the
“establish[ment]” or “change[]” of a substantive legal
standard governing payment for services under Medicare,
within the meaning of 42 U.S.C. § 1395hh. Rather,
Congress enacted the Budget Control Act’s sequestration
requirements, and the President implemented sequestration
when the statutory conditions were triggered.

COUNSEL

Brian M. Daucher (argued), Sheppard Mullin Richter &
Hampton LLP, Costa Mesa, California; Matthew G.
Halgren, Sheppard Mullin Richter & Hampton LLP, San
Diego, California; for Plaintiffs-Appellants.

McKaye L. Neumeister (argued) and Michael S. Raab,
Appellate Staff; Tracy L. Wilkison, Acting United States
Attorney; Brian M. Boynton, Acting Assistant Attorney
General; Civil Division, United States Department of
 SILVERADO HOSPICE V. BECERRA 5

Justice, Washington, D.C.; Daniel J. Barry, Acting General
Counsel; Janice L. Hoffman, Associate General Counsel;
Susan Maxson Lyons, Deputy Associate General Counsel
for Litigation; W. Charles Bailey Jr., Attorney; United States
Department of Health & Human Services, Washington,
D.C.; for Defendant-Appellee.

W. Jerad Rissler, Arnal Golden Gregory LLP, Atlanta,
Georgia; William A. Dombi, Director, Center for Health
Law, Washington, D.C.; for Amicus Curiae National
Association for Home Care & Hospice.

OPINION

BRESS, Circuit Judge:

This case involves the complex interaction between two
statutory limits on federal Medicare spending relating to
hospice care. Hospices that treat Medicare beneficiaries
receive periodic reimbursements throughout the year from
the Centers for Medicare and Medicaid Services (CMS), but
the Medicare statute caps hospices’ aggregate annual
reimbursement. The Budget Control Act separately requires
the federal government to implement across-the-board
cuts—commonly known as “sequestration”—to direct
spending programs (including Medicare) when certain
statutory conditions are met, as they were here.

The plaintiffs are hospice providers who allege that
CMS’s method of implementing sequestration for hospice
reimbursements is contrary to the Medicare statute and the
Budget Control Act. We conclude that the plaintiffs’
challenge is without merit. CMS adopted a method that
harmonized the Budget Control Act and the Medicare
statute, ensuring the necessary percentage reduction to
6 SILVERADO HOSPICE V. BECERRA

Medicare spending without altering the statutorily mandated
calculation of the annual hospice cap. Plaintiffs’ preferred
method, by contrast, would not achieve sequestration’s
required spending reductions. For these reasons and those
that follow, we affirm the district court’s grant of summary
judgment to the government.

I

Silverado Hospice, Inc. and ProCare Hospice, LLC
operate Medicare-certified hospices in Southern California,
five of which are at issue here. Some of the hospices’
patients are elderly or disabled individuals who receive
palliative care and whose treatment is covered by their
insurance under Medicare Part A. 42 U.S.C. § 1395d(d). A
Medicare beneficiary is eligible for hospice benefits if he or
she is terminally ill, meaning a life expectancy of six months
or less. Id. § 1395f(a)(7)(A); id. § 1395x(dd)(3)(A).

CMS administers the hospice benefit on behalf of the
Department of Health and Human Services (HHS). Part of
the agency’s responsibility entails controlling the program’s
costs, while ensuring that hospices are properly reimbursed
for their care of Medicare beneficiaries. We start with the
relevant background on hospice reimbursements, which
frames this dispute.

A

Medicare reimbursements for hospice care are partially
a matter of timing. So that hospices receive funds
throughout the year for the care they provide to Medicare
beneficiaries, CMS periodically reimburses hospices using a
Medicare Administrative Contractor (MAC) as
intermediary. See 42 U.S.C. § 1395g(a); id.
§ 1395h(c)(2)(A)–(B); 42 C.F.R. § 418.302(d)–(e). The
 SILVERADO HOSPICE V. BECERRA 7

reimbursements are based on a pre-set, per-patient amount
for each day that a hospice provides care to a Medicare
beneficiary. 42 U.S.C. § 1395f(i)(1); see also 42 C.F.R.
§§ 418.302, 418.306; Back v. Sebelius, 684 F.3d 929, 930
(9th Cir. 2012).

However, the reimbursements are subject to an aggregate
annual cap per hospice facility. See 42 U.S.C.
§ 1395f(i)(2)(A); 42 C.F.R. § 418.308(a); L.A. Haven
Hospice, Inc. v. Sebelius, 638 F.3d 644, 649–50 (9th Cir.
2011). The Medicare statute provides:

The amount of payment made under this part
for hospice care provided by . . . a hospice
program for an accounting year may not
exceed the “cap amount” for the year
(computed under subparagraph (B))
multiplied by the number of medicare
beneficiaries in the hospice program in that
year (determined under subparagraph (C)).

42 U.S.C. § 1395f(i)(2)(A). The aggregate cap is calculated
retrospectively at the close of each fiscal year, based on how
many unique patients a hospice treated that year. 42 C.F.R.
§ 418.308(c). A hospice whose Medicare reimbursements
exceeded the aggregate cap must repay the difference. Id. at
§ 418.308(d). For example, if a MAC made $1,200 in
periodic payments throughout the year but the hospice is
subject to a $1,000 annual cap, the hospice would need to
remit $200 at the end of the fiscal year. About ten percent
of hospices exceeded the cap in 2010.

The precise calculation of the aggregate cap amount is
determined based on 42 U.S.C. § 1395f(i)(2)(B)–(C).
Section 1395f(i)(2)(B) provides the calculation for the per-
patient cap amount, which is in turn multiplied by the
8 SILVERADO HOSPICE V. BECERRA

“number of medicare beneficiaries” as determined by
§ 1395f(i)(2)(C). Id. § 1395f(i)(2)(A). In 1984, the
aggregate cap’s first year, the per-patient cap amount was
$6,500. Id. § 1395f(i)(2)(B)(i). But the per-patient amount
was indexed to inflation and rose to $26,157.50 in 2013, the
first fiscal year at issue here. Id.; Medicare Program; FY
2015 Hospice Wage Index and Payment Rate Update,
79 Fed. Reg. 50,452, 50,471 (Aug. 22, 2014). The Medicare
regulations also provide detailed rules for counting the
“number of medicare beneficiaries” a hospice treats in a
fiscal year. See 42 U.S.C. § 1395f(i)(2)(C); 42 C.F.R.
§ 418.309(b)(2). The parties do not dispute the method of
calculating the per-patient cap amount. Nor do they dispute
the method for determining the “number of medicare
beneficiaries.”

Once a fiscal year ends, hospices have five months to
self-determine their aggregate cap amounts, file notice with
their MACs, and “remit any overpayment due.” 42 C.F.R.
§ 418.308(c). The MAC then “issues the final cap
determination” and “reconcile[s] the final payments” to the
hospice. 79 Fed. Reg. at 50,473. If the MAC determines
that a hospice exceeded the aggregate cap and has an
outstanding overpayment, the MAC’s letter containing the
“final determination of program reimbursement” also
includes a demand for repayment. 42 C.F.R. § 405.1803(a)–
(b); id. § 418.308(c).

If a hospice disputes the MAC’s final cap determination,
and the amount in controversy is at least $10,000, the
hospice can appeal to the Provider Reimbursement Review
Board (PRRB), an HHS tribunal. See 42 U.S.C.
§ 1395oo(a). Unless the Administrator of CMS elects to
review it, the PRRB’s decision constitutes HHS’s final
decision. 42 U.S.C. § 1395oo(f)(1); 42 C.F.R.
 SILVERADO HOSPICE V. BECERRA 9

§ 405.1875(a). A hospice can then obtain judicial review of
the agency’s final decision in federal court. 42 U.S.C.
§ 1395oo(f)(1).

B

The aggregate annual cap is not the only restriction on
Medicare’s hospice spending. The Balanced Budget and
Emergency Deficit Control Act of 1985, Pub. L. No. 99-177,
99 Stat. 1038, as amended by the Budget Control Act of
2011, Pub. L. No. 112-25, 125 Stat. 240, requires the
President to make automatic spending cuts (the
aforementioned “sequestration”) to federal spending when
certain statutory conditions are triggered. See 2 U.S.C.
§§ 900–03. When sequestration is triggered, the President
must reduce the federal government’s direct spending by a
certain percentage based on the Budget Control Act’s
mandates.

The Budget Control Act generally requires the Office of
Management and Budget (OMB) to calculate a uniform
percentage by which the budgets of nonexempt spending
programs are to be sequestered. See 2 U.S.C. §§ 901a(6),
935(a)(1). Certain spending programs, however, are exempt
from sequestration. 2 U.S.C. § 905. Although Medicare
Part A is not exempt, the Budget Control Act has special
rules for Medicare sequestration. See id. §§ 901a(6)(A),
906(d).

Relevant here, the Budget Control Act limits the
sequestration of spending for certain Medicare programs to
a flat two percent across-the-board reduction. Id.
§ 901a(6)(A). One type of Medicare spending subject to the
two-percent reduction is “individual payments for services
furnished” under Medicare Part A, which covers hospice
care. Id. §§ 901a(6)(A), 906(d)(1)(A). To secure the proper
10 SILVERADO HOSPICE V. BECERRA

“total percentage reduction” in covered “programs,” the
Budget Control Act requires that the two-percent reduction
in “individual payments for services furnished” during a
given fiscal year be applied “such that the reduction made in
payments . . . shall achieve the required total percentage
reduction in those payments for that period.” Id.
§ 906(d)(1).

In March 2013, the statutory conditions for sequestration
were triggered. The President accordingly signed a
sequestration order requiring federal agencies to implement
spending reductions, as calculated by OMB. See
Sequestration Order for Fiscal Year 2013, 78 Fed. Reg.
14,633 (Mar. 1, 2013). Beginning the following month,
MACs reduced their periodic reimbursements to hospices by
two percent. When these periodic payments were made, it
remained to be seen whether the hospices would ultimately
exceed their cap amounts at the end of the year. Although
only the 2013 and 2014 fiscal years are at issue here,
sequestration has also been implemented every year since.

C

The triggering of sequestration required CMS to
determine how to cut hospice spending in a manner
consistent with the Medicare statute’s cap requirements.
Although one might think that reducing spending by two
percent should not be so difficult, it turns out that the matter
is somewhat involved. It is complex because having reduced
periodic payments by two percent, the agency then had to
devise a back-end reconciliation procedure that addressed
both the aggregate cap and the prior payments. And the
agency had to do so in a way that complied with the Budget
Control Act, the Medicare statute, and Medicare regulations.
 SILVERADO HOSPICE V. BECERRA 11

After a period of uncertainty about what the rules should
be, CMS ultimately issued a technical direction letter (TDL)
to its MACs providing instructions on how to address
sequestration amounts relating to the cap calculation. The
TDL explained that its overpayment calculation method
would apply retroactively to the 2013 and 2014 fiscal years.
Although hospice providers were frustrated by the apparent
revision in how some MACs were assessing amounts owed
for cap overages, the agency concluded that its methodology
was necessary to implement sequestration.

The TDL established a multi-step process for reconciling
the aggregate cap with the Budget Control Act’s required
two-percent reduction in Medicare Part A spending. First,
the MAC adds amounts withheld from a hospice provider’s
periodic reimbursements due to sequestration—that is, the
two percent skimmed off the top of every reimbursement
throughout the year—to the aggregate periodic
reimbursement actually paid. This sum is the pre-
sequestration reimbursement amount. It is equivalent to
what the hospice’s aggregate reimbursement amount would
have been, but for sequestration.

Second, the MAC compares the pre-sequestration
reimbursement amount to the hospice’s aggregate cap,
calculated as specified in § 1395f(i)(2). If the pre-
sequestration reimbursement amount exceeds the aggregate
cap, the difference between the two amounts is the pre-
sequestration overpayment amount. In other words, it is the
amount the hospice would have received in excess of the
aggregate cap, but for sequestration.

Third, if there is an overpayment amount, the MAC
reduces the amount by two percent to reflect the actual
overpayment the hospice received. This sum constitutes the
12 SILVERADO HOSPICE V. BECERRA

post-sequestration overpayment amount that the provider
must remit to the MAC.

If this sounds complicated, it is. But a helpful chart used
in Gentiva Health Services, Inc. v. Cochran, 523 F. Supp. 3d
81, 88 (D.D.C. 2021), aff’d, 31 F.4th 766 (D.C. Cir. 2022),
and reproduced by the government in its brief, illustrates the
TDL’s multi-step method by comparing a hypothetical
Hospice A that met its $1,000 cap to a hypothetical Hospice
B that exceeded it by $200:

CMS TDL Method
Hospice Hospice
A B
A. Annual Aggregate Cap $1,000 $1,000
B. Actual Preliminary Payments $980 $1,176
C. Sequestered Amount $20 $24
D. Pre-sequestration $1,000 $1,200
Reimbursement Amount (B+C)
E. Pre-sequestration Amount in $0 $200
Excess of Cap (D-A)
F. 2% of the Pre-Sequester Amount $0 $4
Overpayment
G. Revised Payment in Excess of $0 $196
Cap (E-F)
H. Final Amount Retained by $980 $980
Hospice (B-G)

While the agency’s method is complex, its ultimate
effect is clear: each hospice ultimately receives 98% of the
compensation it would have received but for sequestration.
This means hospices that exceed the aggregate cap, even
with two percent of their periodic reimbursements being
withheld throughout the year, still have their total annual
 SILVERADO HOSPICE V. BECERRA 13

capped reimbursement amount reduced by two percent.
Under the agency’s sequestration method, Hospice B would
repay $196 and, like Hospice A, would retain $980.

Under plaintiffs’ preferred method, by contrast, CMS
would only sequester two percent of the periodic
reimbursements that hospices receive during the fiscal year.
If a hospice reached or exceeded its aggregate cap even with
reduced periodic reimbursements, as the plaintiff hospices
here did, then based on the cap it would see no reduction in
the total amount of payment it kept at year end under
sequestration. Using the chart above, if the agency adopted
plaintiffs’ preferred method, Hospice B would have to repay
only $176 (B minus A in the above chart) and would retain
$1,000—the same amount that it would have retained before
sequestration was implemented. But the agency rejected
plaintiffs’ method.

D

The plaintiff hospices exceeded their aggregate caps in
the 2013 fiscal year, and the three Silverado hospices also
exceeded their aggregate caps in the 2014 fiscal year. In
2015, plaintiffs’ MAC issued notices of its aggregate cap
determinations for both fiscal years. In each of the eight
notices, the MAC included the details of its cap calculations
under the TDL’s multi-step method and requested refunds of
the overpayment amounts. To give a sense of the numbers,
comparing the TDL calculation method to plaintiffs’ desired
method, for Silverado’s three hospices in fiscal year 2014,
the disputed repayment amounts were $116,649.59,
$36,104.78, and $129,920.95.

Plaintiffs appealed their cap determinations to the
PRRB. They argued that their MAC had failed to calculate
the aggregate cap using the “actual net amount of payment
14 SILVERADO HOSPICE V. BECERRA

received by the hospice provider.” The MAC had calculated
their overpayments using the TDL method we described
above. But plaintiffs argued that the MAC’s calculation
method was contrary to § 1395f(i)(2)(A), which specifies
how the aggregate cap is calculated.

The PRRB upheld the MAC’s overpayment calculations.
The PRRB concluded that “nothing in the Medicare statutory
or regulatory provisions governing hospice payment”
required MACs to use the “net reimbursement to the
hospice.” Rather, the terms “amount paid” and “amount of
payment” in the Medicare statute had to be “viewed on a cap
year basis,” and it was to the aggregate year-end amount that
sequestration applied. The PRRB also recognized that, if
CMS had directed MACs to pay periodic reimbursements
without any reductions and then apply the two percent
reduction only at the end of the fiscal year, “assessing and
collecting overpayments on all Medicare-participating
hospices . . . would not be administratively practicable.”
The Administrator of CMS declined to review the PRRB’s
decisions.

Plaintiffs filed three actions in federal court, which were
then consolidated. The district court granted the
government’s motion for summary judgment. The district
court concluded that CMS was required to reduce its total
hospice spending for the year, and that the agency’s method
did so in a manner consistent with the Medicare statute.

II

We review de novo the district court’s summary
judgment decision. KST Data, Inc. v. DXC Tech. Co.,
980 F.3d 709, 713 (9th Cir. 2020). We set aside the agency’s
decisions under the Administrative Procedure Act if they are
“arbitrary, capricious, an abuse of discretion, or otherwise
 SILVERADO HOSPICE V. BECERRA 15

not in accordance with law.” 42 U.S.C. § 1395oo(f)(1);
5 U.S.C. § 706(2)(A).

We hold that CMS correctly concluded that the Budget
Control Act required it to reduce the total annual amounts
paid to hospices, not only the periodic reimbursements, and
that the agency’s chosen method for implementing
sequestration is consistent with the Medicare statute.
Plaintiffs’ preferred method, by contrast, would not reduce
hospice spending by the required two percent.

A

The relevant provision of the Budget Control Act, as it
applies to Medicare programs, provides:

To achieve the total percentage reduction in
those programs required by section 902 or
903 of this title . . . OMB shall determine . . .
the percentage reduction that shall apply,
with respect to the health insurance programs
under title XVIII of the Social Security Act—

(A) in the case of Parts A and B of such
title, to individual payments for services
furnished during the one-year period . . .

such that the reduction made in payments
under that order shall achieve the required
total percentage reduction in those payments
for that period.

2 U.S.C. § 906(d)(1).

CMS interpreted § 906(d)(1) to require a two-percent
reduction in the total annual payment made to a hospice
16 SILVERADO HOSPICE V. BECERRA

provider, after application of the annual cap amount.
Plaintiffs argue, however, that “individual payments” for
Medicare Part A in § 906(d)(1)(A) refers to hospices’
periodic reimbursements. They thus contend that
§ 906(d)(1)(A) required only a reduction in the periodic
reimbursement amounts, not the total annual amounts.
Plaintiffs acknowledge that Congress could have applied
sequestration to a hospice’s aggregate annual payments after
application of the cap, but insist that Congress instead
referred only to periodic reimbursements.

Plaintiffs are mistaken. The “individual payments for
services” referenced in § 906(d)(1), read in context with the
rest of the Budget Control Act, does not refer to hospices’
periodic reimbursements. The Budget Control Act is
concerned with reducing federal spending on “the health
insurance programs,” not just some preliminary spending
components of those programs. See id. § 906(d)(1)
(emphasis added). The relevant “program” here is Medicare
Part A. This is the “direct spending” that the Budget Control
Act requires the agency to reduce. See id. § 901a(6)(A); see
also id. § 901a(7) (referencing “the percentage reduction for
the Medicare programs”). That is consistent with
§ 906(d)(1)’s mandate to achieve a “total percentage
reduction.” The “total” here is keyed off the cap amount
because the periodic reimbursements are effectively
preliminary in nature, always subject to the cap rules
requiring year-end reconciliation.

To accept plaintiffs’ contrary interpretation of
§ 906(d)(1), meanwhile, would be to conclude that hospices
whose sequestration-reduced periodic reimbursements
nonetheless exceed their aggregate caps face no annual
reduction in their reimbursements. The implication of
plaintiffs’ argument is that Congress, in attempting to enact
 SILVERADO HOSPICE V. BECERRA 17

across-the-board cuts to federal spending, in fact failed to
reduce Medicare Part A spending for certain hospices by the
intended percentage. We are hesitant to read such a result
into § 906(d)(1) because we do “not lightly conclude that
Congress enacted a self-defeating statute.” Quarles v.
United States, 139 S. Ct. 1872, 1879 (2019).

To illustrate the implications of plaintiffs’ position, we
could imagine that ten hospices receive reimbursements, the
aggregate cap is $100, nine hospices qualify for exactly $100
in pre-sequestration periodic reimbursements, and the
remaining hospice qualifies for $110. Before sequestration,
the government’s spending would be $1,000 (the $100
aggregate cap across ten hospices). After sequestration’s
two-percent reduction, we would expect the government to
spend $980. Applying two-percent reductions to periodic
reimbursements throughout the year, the first nine hospices
would be paid $98 and the tenth would be paid $107.80. The
first nine would be under the cap and would owe the
government nothing. The tenth would be over the cap.
Under the agency’s method, the tenth hospice would repay
$9.80, putting total program spending at $980. Under
plaintiffs’ proposed method, the tenth hospice would only
repay $7.80. In that case, the government’s total spending
would be $982—only a 1.8% reduction. Accepting
plaintiffs’ argument would be tantamount to concluding that
the Budget Control Act failed to achieve its desired
objective. And it would produce the anomalous result that
hospices operating below their caps face a two percent
reduction, but hospices that exceed their caps do not.

Fortunately, we need not conclude that Congress
intended this anomaly because the Budget Control Act and
the Medicare statute can be read harmoniously. When we
combine the Budget Control Act’s mandate to reduce
18 SILVERADO HOSPICE V. BECERRA

“individual payments,” 2 U.S.C. § 906(d)(1)(A), with the
Medicare statute’s description of what constitutes “payment
for hospice care,” 42 U.S.C. § 1395f(i), it becomes clear that
the relevant payment that must be reduced during
sequestration is the aggregate amount that a hospice is
legally entitled to for a fiscal year. It is not just the periodic
reimbursements that a hospice receives throughout the year
that must be reduced.

The relevant portion of the Medicare statute, § 1395f(i),
is titled “payment for hospice care.” The statute provides
that “the amount paid to a hospice program with respect to
hospice care for which payment may be made” is “[s]ubject
to the limitation” of § 1395f(i)(2), which is the aggregate
cap. Id. § 1395f(i)(1). The aggregate cap provision, in turn,
specifies that the “amount of payment made under this part
for hospice care provided by . . . a hospice program for an
accounting year may not exceed” the aggregate cap. Id.
§ 1395f(i)(2). These provisions of the Medicare statute
contemplate “payment” being determined in the aggregate,
based on the fiscal year as a whole. They do not refer to
periodic reimbursements. Reimbursements that exceed the
aggregate cap at the end of the fiscal year are not “payment
for hospice care” to which a hospice is legally entitled under
§ 1395f(i)(1).

Taking § 906(d)(1) of the Budget Control Act and
§ 1395f(i) of the Medicare statute together, then, it is clear
that the statutes require the agency to reduce the total annual
payment that hospices receive by two percent. This
requirement necessarily applies when a hospice exceeds the
aggregate cap. In that event, the agency must reduce the
amount that the hospice would receive after application of
the aggregate cap because the cap amount is the amount that
 SILVERADO HOSPICE V. BECERRA 19

the agency otherwise would have paid the hospice absent
sequestration.

When courts can “interpret statutes to be coherent and
internally consistent,” they should. Freeman v. Gonzales,
444 F.3d 1031, 1039 (9th Cir. 2006). Here, the “text,
context, and structure” of the Budget Control Act and the
Medicare statute confirm that the agency was required to
reduce the annual amounts paid to hospices by two percent.
See Becerra v. Empire Health Found., 142 S. Ct. 2354, 2368
(2022) (noting in a recent challenge to HHS reimbursements
that “[t]ext, context, and structure all support calculating the
Medicare fraction HHS’s way.”).

B

Having concluded that the Budget Control Act required
a reduction in annual hospice payments, and not just periodic
reimbursements, we now consider whether the agency’s
chosen method is consistent with other language in the
Medicare statute, and specifically the cap calculation
methodology. We hold that it is.

The Medicare statute specifies that the “amount of
payment made under this part for hospice care . . . for an
accounting year may not exceed the ‘cap amount’ for the
year (computed under subparagraph (B)) multiplied by the
number of medicare beneficiaries in the hospice program in
that year (determined under subparagraph (C)).” 42 U.S.C.
§ 1395f(i)(2)(A) (emphasis added). On this point, the
parties’ dispute turns on the meaning of the italicized phrase.
Plaintiffs maintain that “amount of payment made” should
be interpreted as “payments actually made” to a hospice
during a fiscal year, such that the agency can determine
overpayment amounts only by factoring in actual, historical
payments that the hospices received, without adding in the
20 SILVERADO HOSPICE V. BECERRA

sequestered portions of periodic reimbursements that
hospices did not receive. For its part, the agency does not
interpret “amount of payment made” to refer to actual,
historical periodic reimbursements, but rather to the amount
that a hospice is legally entitled to in a fiscal year.

The agency’s interpretation is the much better one. As a
textual matter, the Medicare statute does not contain any
reference to historic or “actual” payments made, but instead
places a legal limit—in the form of the aggregate cap—on
the amount that a hospice can be reimbursed in a given fiscal
year. 42 U.S.C. § 1395f(i)(2). And the word “made” is not
the past tense of a verb, as plaintiffs contend, but a past
participle that functions as an adjective and takes the passive
voice. See Gentiva Health Servs., Inc. v. Becerra, 31 F.4th
766, 776 (D.C. Cir. 2022). It places an upper bound on the
amount of reimbursement a hospice can receive; it does not
refer to past periodic reimbursements.

As a logical matter, too, “amount of payment made”
cannot refer to payments “actually” made. If it did,
§ 1395f(i)(2) would require the agency to ensure that
periodic reimbursements to a hospice do not exceed an
amount that can only be determined months, and sometimes
years, later. See 79 Fed. Reg. at 50,473 (noting that hospices
must “wait at least 3 months after the end of the cap year”
before self-determining aggregate cap overpayments). Even
once final cap determinations are calculated after the close
of a fiscal year, there can be subsequent adjustments to a
hospice’s cap that could require the hospice to remit further
overpayment amounts. See 42 U.S.C. § 1395g(a)
(contemplating “necessary adjustments” to the amount owed
to a Medicare provider “on account of previously made
overpayments or underpayments”); 42 C.F.R.
§ 418.309(b)(2) (“The aggregate cap calculation for a given
 SILVERADO HOSPICE V. BECERRA 21

cap year may be adjusted after the calculation for that year
based on updated data.”). The statute’s plain language thus
establishes that the “amount of payment made” does not
refer to historical, periodic reimbursements, but rather the
payment to which a hospice is legally entitled in a fiscal year.
See 42 U.S.C. § 1395f(i)(2)(A). 1

The Medicare statute does require that the aggregate cap
itself be calculated according to § 1395f(i)(2)(B) and (C).
But that point is inapposite here, making plaintiffs’ reliance
on Los Angeles Haven Hospice, Inc. v. Sebelius, 638 F.3d
644 (9th Cir. 2011), and Lion Health Services, Inc. v.
Sebelius, 635 F.3d 693 (5th Cir. 2011), misplaced. Both
decisions invalidated a regulation that purported to alter the
aggregate cap calculation itself, contrary to the statute. Here,
by contrast, the agency has not altered the statutory method
by which the aggregate cap is calculated. Rather, the agency
has validly interpreted “amount of payment made” to include
the sequestered portions of hospices’ periodic
reimbursements, and to not be limited to amounts actually
paid to hospices after the sequestered portions are withheld.

In short, the agency’s sequestration method is driven by
three considerations. First, the Budget Control Act requires
a reduction in the total amount of payment to which a
hospice is entitled. Second, in circumstances in which a

1
Notably, hospice payments are also subject to a separate “inpatient
cap,” which limits reimbursement for inpatient services to “20 percent of
the aggregate number of days” in a year that a Medicare beneficiary
received hospice care. 42 U.S.C. § 1395x(dd)(2)(A)(iii). This cap also
cannot be applied until the end of the year, reinforcing the agency’s
decision to interpret “amount of payment made” as a year-end
determination, and belying plaintiffs’ argument that overpayment
amounts can be calculated by comparing the aggregate cap and the sum
of periodic reimbursements.
22 SILVERADO HOSPICE V. BECERRA

hospice exceeds the aggregate cap, the sequestration
mandate requires the agency to reduce the amount that a
hospice is entitled to after the application of the aggregate
cap. Third, the Medicare statute does not specify that the
aggregate cap must be subtracted from the sum of a
hospice’s historical periodic reimbursements. Given these
considerations, the agency reasonably instituted a
sequestration method that is consistent with the text of both
the Budget Control Act and the Medicare statute. The
agency’s method gives effect to sequestration without
impermissibly altering the calculation of the aggregate cap.
See Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1619 (2018)
(explaining that courts have a “duty to interpret Congress’s
statutes as a harmonious whole rather than at war with one
another”).

Plaintiffs’ further arguments to the contrary are
unpersuasive. The agency’s sequestration method is not
inconsistent with 42 C.F.R. § 418.308(d), which simply
states that “[p]ayments made to a hospice during a cap period
that exceed the cap amount are overpayments and must be
refunded.” This regulation did not purport to interpret
“amount of payment made” in § 1395f(i)(2)(A). The same
is true of the non-binding description in the then-operative
version of the Medicare Benefit Policy Manual, ch. 9, § 90.2.
Both sources merely confirmed that the payment to which a
hospice is legally entitled in a fiscal year is limited by the
aggregate cap.

Finally, we note that our decision is fully consistent with
the conclusions of the only other federal court of appeals to
address the interplay between the Budget Control Act’s
sequestration mandate and the Medicare statute’s
reimbursement provisions for hospice care. Earlier this year,
the D.C. Circuit affirmed a district court’s grant of summary
 SILVERADO HOSPICE V. BECERRA 23

judgment to the government on a hospice provider’s
identical challenge to CMS’s sequestration method.
Gentiva, 31 F.4th at 768, 777. Gentiva held that the agency’s
“methodology comports with the statutory text, purpose, and
operation,” and “harmonizes the Medicare statute with the
requirements of the Budget Control Act.” Id. at 777, 779.
Our analysis accords with that of the D.C. Circuit.

III

Plaintiffs have raised one final issue: whether the agency
was required to undertake notice-and-comment rulemaking
before implementing the Budget Control Act’s sequestration
mandate. Like the D.C. Circuit, see id. at 780–81, we reject
this argument as well.

The Medicare statute requires that a “rule, requirement,
or other statement of policy . . . that establishes or changes a
substantive legal standard governing . . . the payment for
services . . . under this subchapter” (i.e., under Medicare)
must be “promulgated by the Secretary by regulation.”
42 U.S.C. § 1395hh(a)(2). And any such regulation is also
subject to a 60-day notice-and-comment period. Id.
§ 1395hh(b)(1).

The agency’s sequestration method, as reflected in the
TDL and the PRRB’s decisions, did not amount to the
“establish[ment]” or “change[]” of a substantive legal
standard governing payment for services under Medicare,
within the meaning of § 1395hh. Rather, Congress enacted
the Budget Control Act’s sequestration requirements, and
the President implemented sequestration when the statutory
conditions were triggered. It was not the agency that
established or changed any legal standard, but Congress that
directed the agency to reduce its spending through the
24 SILVERADO HOSPICE V. BECERRA

Budget Control Act. The agency simply abided by
congressional and presidential directives.

Plaintiffs’ invocation of Azar v. Allina Health Services,
139 S. Ct. 1804 (2019), is unpersuasive. In Allina, the
Supreme Court held that a new Medicare reimbursement
policy was subject to notice-and-comment rulemaking,
rejecting the agency’s argument that the new policy was
exempt because it was merely filling a “gap” left by the
Medicare statute and its existing regulations. 139 S. Ct.
at 1817. Allina explained that “when the government
establishes or changes an avowedly ‘gap’-filling policy, it
can’t evade its notice-and-comment obligations.” Id.

But Allina specifically left open what would happen if
“the statute itself required” the agency to establish or change
a substantive legal standard. 139 S. Ct. at 1816. Since
Allina, we have rejected a challenge to a MAC’s local
coverage determination on this basis, holding that the
statutorily required coverage determinations did not
“‘establish or change’ the standard for reimbursement
contained in the statute itself,” so the plaintiff’s “reliance on
Allina [was] therefore misplaced.” Agendia, Inc. v. Becerra,
4 F.4th 896, 902 (9th Cir. 2021). Here, the agency was not
establishing a gap-filling policy under the Medicare statute
but implementing a new directive required under a separate
statute: the Budget Control Act. See Gentiva, 31 F.4th
at 780–81 (“When CMS adopted the sequestration
methodology, it did not act pursuant to its authority to
effectuate the Medicare statute, but rather pursuant to the
mandate of the Budget Control Act.”). Notice-and-comment
rulemaking under § 1395hh was not required.

* * *
 SILVERADO HOSPICE V. BECERRA 25

The judgment of the district court is

AFFIRMED.