DC Hosp Assn v. DC

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 4, 2000 Decided July 21, 2000

No. 99-7239

The District of Columbia Hospital Association, et al.,
Appellees

v.

District of Columbia and
Herbert Weldon, Deputy Director for Health Care Finance
of Medical Assistance Administration,
Appellants

Appeal from the United States District Court
for the District of Columbia
(No. 98cv02575)

---------

Donna M. Murasky, Senior Assistant Corporation Counsel,
with whom Robert R. Rigsby, Corporation Counsel, and
Charles L. Reischel, Deputy Corporation Counsel, were on
the briefs, argued the cause for appellants.

 Christopher L. Keough, with whom Ronald N. Sutter and
Kimberly N. Brown were on the brief, argued the cause for
appellees.

Before Silberman and Sentelle, Circuit Judges, and
Buckley, Senior Circuit Judge.

Opinion for the court filed by Senior Judge Buckley.

Buckley, Senior Judge: The District of Columbia appeals
the district court's ruling that its method of computing certain
payments to hospitals violated the federal Medicaid statute.
Because we agree that the District of Columbia's interpreta-
tion of the law is contrary to its plain meaning, we affirm the
district court's grant of summary judgment to the District of
Columbia Hospital Association.

I. Background

A. Regulatory Framework

The Medicaid statute, Subchapter XIX of the Social Securi-
ty Act, establishes a cooperative plan between the federal
government and the States to provide medical services to low-
income individuals. 42 U.S.C. ss 1396-1396v (1994 & Supp.
III 1997). The program is jointly funded by the Federal and
State governments and is administered by the States pursu-
ant to federal guidelines. See generally id. ss 1396a, 1396b;
42 C.F.R. s 430.0-.25 (1999). The statute treats the District
of Columbia ("District") as a State. 42 U.S.C. s 1396d(b)
(Supp. III 1997). To qualify for federal funding, a State must
have its own Medicaid plan approved by the Health Care
Financing Administration ("HCFA") of the United States
Department of Health and Human Services. Id. s 1396; 42
C.F.R. s 430.10.

All State plans are required to provide Medicaid beneficia-
ries with inpatient hospital services. 42 U.S.C.
ss 1396a(a)(10)(A), 1396d(a)(1). Because of the greater costs
it found to be associated with the treatment of indigent
patients, Congress has directed that hospitals providing inpa-
tient care must be compensated under the Medicaid program

at rates that "take into account ... the situation of hospitals
which serve a disproportionate number of low-income patients
with special needs." Id. s 1396a(a)(13)(A)(iv); see also H.R.
Rep. No. 100-391(1), at 524, reprinted in 1987 U.S.C.C.A.N.
2313-1, 2313-344 (discussing adjustments in payments to
"disproportionate share hospitals" ("DSH")). The adjust-
ments mandated by Congress ("DSH adjustments" or "DSH
payments") are achieved through increases in the "rate or
amount of payment for such services." 42 U.S.C.
s 1396r-4(a)(1)(B).

States may select one of three complex formulae for calcu-
lating the DSH payments. Id. s 1396r-4(c)(1), (2), (3). Un-
der the formula selected by the District ("(c)(1) formula"), see
D.C. Mun. Regs. tit. 29, s 908.4(b) (1999), the DSH adjust-
ment must equal "at least the product of [ ] the amount paid
under the State plan to the hospital for operating costs for
inpatient hospital services" ("base amount"), multiplied by the
hospital's "disproportionate share adjustment percentage."
42 U.S.C. s 1396r-4(c)(1). Because this case hinges on the
calculation of the base amount, we will spare the reader the
labyrinthine process by which the disproportionate share
adjustment percentage is derived. We simply observe that it
alone would justify the Supreme Court's description of the
Medicaid statute as "an aggravated assault on the English
language, resistant to attempts to understand it." Schweiker
v. Gray Panthers, 453 U.S. 34, 43 n.14 (1981) (quoting Fried-
man v. Berger, 409 F. Supp. 1225, 1226 (S.D.N.Y. 1976)).

B. The District of Columbia's Plan

The District's Medicaid plan is administered by an agency
within the Department of Human Services that was called the
Commission on Health Care Finance ("CHCF") at the time
this controversy originated. Although it has since been re-
named the Medical Assistance Administration, the parties
have continued to refer to the agency as the CHCF, as will
we.

District of Columbia residents who qualify for Medicaid on
the basis of their eligibility for assistance under the Tempo-
rary Assistance for Needy Families program (formerly Aid to

Families with Dependent Children) are required by the Dis-
trict's Medicaid Managed Care Amendment Act of 1992 to
enroll in managed care plans. D.C. Code Ann. s 1-359(d)(2)
(1999 Repl. & Supp. 2000). Other Medicaid beneficiaries
continue to receive services on a fee-for-service basis. The
District pays the managed care organizations ("MCOs") that
administer the managed care plans a fixed pre-paid amount
per Medicaid enrollee. The MCOs, in turn, are responsible
for providing these enrollees with all the health care services
to which they are entitled under the statute, including inpa-
tient hospital services provided under contract between the
MCOs and participating hospitals. Id. s 1-359(d)(2), (3).

C. The Litigation

Without delving too deeply into the tortuous history of this
litigation, it suffices to say that the District and the District of
Columbia Hospital Association ("Association") have been en-
gaged for the better part of the past decade in an argument
over the District's calculation of DSH payments. In 1994, the
Association filed a suit in which it claimed, among other
things, that the District's method of computing DSH adjust-
ments violated the Medicaid statute by failing to take into
account the services provided managed care patients through
the MCOs. While the suit was pending, a newly appointed
Commissioner of the CHCF agreed to revise the District's
methodology. Because the parties believed this would re-
solve their dispute, the district court dismissed the suit as
moot. Subsequent to the dismissal of the case, it became
apparent that the parties were not in fact in accord as to how
DSH adjustments should be computed. The bone remaining
in contention was the District's failure to include, in the (c)(1)
formula's base amount, the operating costs incurred by hospi-
tals in providing inpatient services to Medicaid managed care
patients.

In 1998, the Association initiated the present action seeking
a declaratory judgment that the District's exclusion of Medic-
aid managed care patients from the base amount violated the
Medicaid statute. The Association subsequently filed a mo-
tion requesting the district court to compel the District to

comply with representations the Association claims the Dis-
trict made in settling the earlier litigation. The court grant-
ed the Association's motion for summary judgment based on
its holding that the District's method of calculating DSH
payments was contrary to law, and it granted the Associa-
tion's motion to compel compliance with its version of the
earlier understanding. District of Columbia Hosp. Ass'n v.
District of Columbia, 73 F. Supp. 2d 8 (D.D.C. 1999). The
District filed a timely appeal, and we have jurisdiction to
review the district court's final order pursuant to 28 U.S.C.
s 1291.

II. Analysis

We review a grant of summary judgment de novo, applying
the same standard as the district court. See, e.g., Everett v.
United States, 158 F.3d 1364, 1367 (D.C. Cir. 1998), cert.
denied, 526 U.S. 1132 (1999). Summary judgment is appro-
priate where there is no genuine issue as to any material fact
and the moving party is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c).

The dispositive question in this case is one of statutory
interpretation. Specifically, we are concerned here with the
proper application of the formula selected by the District for
the computation of the DSH adjustment. That formula pro-
vides that the adjustment must

be in an amount equal to at least the product of (A) the
amount paid under the State plan to the hospital for
operating costs for inpatient hospital services (of the kind
described in section 1395ww(a)(4) of this title), and (B)
the hospital's disproportionate share adjustment percent-
age (established under section 1395ww(d)(5)(F)(iv) of this
title)[.]

42 U.S.C. s 1396r-4(c)(1) (emphasis added).

The controversy in this case centers on the meaning to be
given the word "under" in the quoted text. The District
contends that it is not required to include the cost of provid-
ing inpatient services to Medicaid managed care patients in

the base amount because the hospitals receive payments for
those services from MCOs rather than from the District.
Because the payments are not made directly by the District,
it reasons that they are not made "under the State plan."

It is axiomatic that "[t]he starting point in statutory inter-
pretation is the language of the statute itself." Ardestani v.
INS, 502 U.S. 129, 135 (1991) (internal quotation marks and
brackets omitted). The Supreme Court has observed that
"[t]he word 'under' has many dictionary definitions and must
draw its meaning from its context." Id. We see nothing in
the context of the Medicaid statute, however, that would
require us to give the word other than its ordinary meaning.
"Under" is defined as "required by[,] in accordance with[, or]
bound by." Webster's Third New International Dictionary
2487 (1981); see also Ardestani, 502 U.S. at 135 (finding "the
most natural reading" of "under" in context of Equal Access
to Justice Act to mean " 'subject [or pursuant] to' or 'by
reason of the authority of' ") (quoting St. Louis Fuel and
Supply Co. v. FERC, 890 F.2d 446, 450 (D.C. Cir. 1989)).

Although payments from MCOs to hospitals for the care of
Medicaid patients are not made directly by the District, they
are clearly made pursuant to, and under the authority of, the
District's Medicaid plan. MCOs may not receive payment for
services to Medicaid patients unless they have completed a
Medicaid managed care provider agreement with the District.
D.C. Mun. Regs. tit. 29, s 5308.1. The contracts between the
MCOs and the hospitals that serve their Medicaid enrollees
are closely regulated by the District. For example, District
regulations require MCOs to submit their contracts with
hospitals to the District for prior approval, id. s 5313.1; to
notify the District before effecting any changes in such
agreements, id. s 5304.2-.3; to contract only with hospitals
located in the District, id. s 5313.9; and to assure that
financial and programmatic information maintained by the
hospital regarding Medicaid managed care patients will be
available for inspection by the MCO or the District. Id.
s 5313.10(d).

 Moreover, we can find nothing in the statute that would
require us to confine "the amount paid under [a] State plan to
[a] hospital" to that paid by the State itself. To the contrary,
if Congress had so intended, it could have specified that only
a State's "direct" payments were to be taken into account, as
it did in the preceding subsection of the statute. See 42
U.S.C. s 1396r-4(b)(3)(A)(i)(II) (referring to "the amount of
the cash subsidies for patient services received directly from
State and local governments") (emphasis added). That it did
not do so here is compelling evidence that Congress did not
intend to limit the computation of payments to those made
directly by the District. See Russello v. United States, 464
U.S. 16, 23 (1983) ("[W]here Congress includes particular
language in one section of a statute but omits it in another
section of the same Act, it is generally presumed that Con-
gress acts intentionally and purposely in the disparate inclu-
sion or exclusion.") (internal quotation marks and citation
omitted).

If more were required, our construction of the statutory
language is wholly consistent with Congress's purpose in
creating the DSH adjustment. See Holloway v. United
States, 526 U.S. 1, 6 (1999) ("In interpreting the statute at
issue, we consider not only the bare meaning of the critical
word or phrase but also its ... purpose in the statutory
scheme.") (internal quotation marks and brackets omitted).
"Congress's 'overarching intent' in passing the disproportion-
ate share provision was to supplement the ... payments of
hospitals serving 'low income' persons." Legacy Emanuel
Hosp. and Health Ctr. v. Shalala, 97 F.3d 1261, 1265 (9th Cir.
1996) (quoting Jewish Hosp. v. Secretary of Health & Human
Serv., 19 F.3d 270, 275 (6th Cir. 1994)). As the Ninth Circuit
has noted, "[p]atients meeting the statutory requirements for
Medicaid do not cease to be low-income patients on days that
the state does not pay Medicaid inpatient hospital benefits."
Id. at 1266. Similarly, patients who must be enrolled in
MCOs pursuant to the District's Medicaid plan do not cease
to impose higher costs on the hospitals that serve them.

 Finally, we are unpersuaded by the District's offer of a
letter from the General Accounting Office asserting that
States have the discretion to exclude Medicaid managed care
patients from their calculation of the maximum DSH adjust-
ment a given hospital may receive under another section of
the Medicaid statute. As the Supreme Court has recently
made clear, "[i]nterpretations such as those in opinion let-
ters--like interpretations contained in policy statements,
agency manuals, and enforcement guidelines, all of which lack
the force of law--do not warrant Chevron-style deference."
Christensen v. Harris County, 120 S. Ct. 1655, 1662 (2000).
This is a reference to Chevron U.S.A. Inc. v. Natural Re-
sources Defense Council, Inc., 467 U.S. 837 (1984), which
holds that courts must defer to an agency's permissible
construction of a statute it is charged with administering
when "the statute is silent or ambiguous with respect to the
specific issue" before the court. Id. at 843. Because the
provision at issue here is unambiguous, we owe no deference
to a contrary construction even if formally adopted by the
Secretary of Health and Human Services.

III. Conclusion

Because the District's interpretation is contrary to the
plain meaning and purpose of the Medicaid statute, we hold
that the District may not exclude the operating costs incurred
by hospitals in their service of Medicaid managed care pa-
tients in calculating DSH payments pursuant to the (c)(1)
formula. We have no need, therefore, to reach the district
court's alternative holding based on the Association's motion
to compel. The district court's grant of summary judgment
to the Association is therefore

Affirmed.