McCreary, Maurice v. Offner, Paul

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 8, 1998 Decided April 13, 1999

No. 98-5155

Maurice McCreary, M.D., et al.,

Appellants

v.

Paul Offner, Commissioner of Health Care Finance

of the District of Columbia Department of Human Services,

and United States of America,

Appellees

Appeal from the United States District Court

for the District of Columbia

(No. 97cv01524)

James A. Barker, Jr. argued the cause for appellants.
With him on the briefs was Allen V. Farber.

Alisa B. Klein, Attorney, U.S. Department of Justice,
argued the cause for appellees. With her on the brief were
Frank W. Hunger, Assistant Attorney General, Wilma A.

Lewis, U.S. Attorney, and Barbara C. Biddle, Attorney, U.S.
Department of Justice.

John M. Ferren, Corporation Counsel, Charles L. Reischel,
Deputy Corporation Counsel, and Lutz Alexander Prager,
Assistant Deputy Corporation Counsel, were on the brief for
appellee Paul Offner.

Before: Wald, Tatel and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: Under Medicaid's "buy-in" program,
states must use Medicaid funds to enroll certain needy,
Medicare-eligible individuals in Medicare's Part B supplemen-
tal insurance program. In this case, we must determine
whether the buy-in program requires states to reimburse
Medicare providers the entire twenty percent copayment that
patients normally pay for a particular service under Part B,
or whether, as the United States Department of Health and
Human Services has long permitted, states may limit reim-
bursement to the almost always lower Medicaid rate for the
same service. Relying on HHS policy, the District of Colum-
bia began capping copayment reimbursement at Medicaid
rates in 1990. Appellants, a group of District of Columbia
doctors, challenge the District's policy, arguing that until
Congress amended the buy-in statutes in 1997, the law re-
quired the District to reimburse them at Medicare rates.
Finding the pre-1997 statutes ambiguous as to state copay-
ment reimbursement obligations, and finding HHS's interpre-
tation reasonable, we affirm the district court's grant of
summary judgment for the District.

I

Enacted in 1965, Medicare finances medical procedures for
people over 65 and people with disabilities. See 42 U.S.C.
ss 1395-1395ccc (1994). Medicare has two parts, Part A and
Part B. Part A provides reimbursement for inpatient hospi-
tal care and related post-hospital, home health, and hospice
care. See id. ss 1395c to 1395i-4. Enrollment in Part A is
automatic. Part B is voluntary. It provides supplemental

insurance for hospital out-patient services, physician services,
and other medical services not covered under Part A. See id.
ss 1395j to 1395w-4. Part B imposes cost-sharing obli-
gations on people who choose to participate. These include
an annual deductible, monthly premiums, and--of particular
relevance to this case--copayments. Copayments consist of
twenty percent of the "reasonable charge" for the service
rendered, an amount determined annually by HHS. See id.
s 1395l(a). Medicare directly reimburses Part B providers
for the remaining eighty percent. See id.

Also enacted in 1965, Medicaid, a cooperative federal-state
program, finances medical care for the poor, regardless of
age. See 42 U.S.C. ss 1396-1396v (1994). Participating
states must establish financial eligibility criteria, identify
covered medical services, develop rate schedules, and submit
their plans to HHS for approval. See id. ss 1396a(a),
1396a(b). HHS approval entitles a state to substantial feder-
al funding, ranging from fifty percent to eighty-three percent
of the cost of medical services provided under the plan. See
id. s 1396d(b). Doctors and other health care providers are
not required to service Medicaid patients, but if they do they
must accept reimbursement from the state at its Medicaid
rate as payment in full; they may not demand additional
payment from patients. See id. ss 1320a-7b(d), 1396o.
State Medicaid rates for any given service are almost always
lower than the "reasonable charge" for the same service
under Medicare Part B. Indeed, Medicaid rates are often
even lower than the eighty percent of the reasonable charge
that the federal government reimburses Medicare providers.

Medicare and Medicaid intersect with respect to the elderly
poor--so-called "dual eligibles." While these people are eligi-
ble to purchase supplemental medical insurance through
Medicare Part B, many cannot afford Part B's premiums,
deductibles, and copayments. Medicaid has therefore long
allowed states to use Medicaid dollars to enroll dual eligibles
in Medicare Part B by paying their cost-sharing obligations.
See Pub. L. No. 89-97, s 121(a), 79 Stat. 286, 346 (1965)
(codified at 42 U.S.C. s 1396a(a)(15)) (repealed 1988). Be-
cause the federal government heavily subsidizes Medicaid,

this "buy-in" program enables states to shift a large portion
of the cost of caring for the elderly poor to the federal
treasury.

In 1986, Congress expanded the buy-in program beyond
dual eligibles to include a newly created category of "qualified
medicare beneficiaries" ("QMBs"): elderly people not quite
poor enough to qualify for Medicaid but who nonetheless met
certain neediness criteria. See Pub. L. No. 99-509, s 9403,
100 Stat. 1874, 2053-55 (1986) (codified at 42 U.S.C.
ss 1396a(a)(10)(E), 1396d(p)(1) (1994)). Initially optional, the
QMB buy-in program became mandatory in 1988. See Pub.
L. No. 100-360, s 301, 102 Stat. 683, 748 (1988) (deleting "at
the option of a State" from 42 U.S.C. s 1396a(a)(10)(E)).
Also in 1988, Congress redefined the term "QMB" to include
dual eligibles. See Pub. L. No. 100-485, s 608(d), 102 Stat.
2343, 2416 (1988).

This appeal presents the following issue: Are Medicare
providers performing Part B services to QMBs entitled to
state reimbursement for the entire twenty percent copayment
that a non-QMB Medicare patient would normally pay, or
may states limit reimbursement such that providers receive
no more than the state's Medicaid rate for the same service?
For example, suppose that the reasonable charge for a given
Part B service is $100, but a state's Medicaid rate for the
same service is only $90. If a Medicare doctor performs that
service, the federal government reimburses the doctor $80,
whether or not the patient is a QMB. If the patient is a
QMB, does the buy-in scheme require the state to reimburse
the doctor for the patient's entire $20 Medicare Part B
copayment? Or may the state give the doctor only $10 so
that total reimbursement, including the federal government's
$80, equals $90, the Medicaid rate? If the Medicaid rate for
the particular service is $70, may the state refuse to reim-
burse the doctor at all because the $80 provided by the
federal government already exceeds the Medicaid rate? See
Paramount Health Sys., Inc. v. Wright, 138 F.3d 706, 708
(7th Cir. 1998) (using this example).

Four statutory provisions added to the buy-in scheme in
1986 frame this issue. Read alone, two suggest that states
must use Medicaid funds to reimburse Medicare providers
performing Part B services to QMBs for the full twenty
percent copayment ($20 in the above example) for which non-
QMB Medicare patients would be responsible. Under 42
U.S.C. s 1396a(a)(10)(E)(i), a state Medicaid plan "must"
provide for "making medical assistance available for medicare
cost-sharing ... for qualified medicare beneficiaries." Sec-
tion 1396d(p)(3)(D) in turn defines "medicare cost-sharing" to
include Medicare premiums, deductibles, and "[t]he difference
between the [80 percent of the reasonable charge that the
federal government reimburses providers under Part B] and
the amount that would be paid ... if any reference to '80
percent' ... were deemed a reference to '100 percent.' "
Section 1396a(a)(10)(E)(i)'s mandatory language coupled with
section 1396d(p)(3)(D)'s reference to specific percentages sug-
gests that states must use buy-in funds to reimburse provid-
ers for the entire twenty percent Part B copayment.

The other two provisions enacted in 1986 suggest a differ-
ent interpretation. Section 1396a(a)(VIII) provides that
"medical assistance made available to [QMBs] ... shall be
limited to medical assistance for medicare cost-sharing ...,
subject to the provisions of [section 1396a(n)]." Before its
amendment in 1997, section 1396a(n), entitled "Payment
amounts," in turn provided:

In the case of [Medicaid funds provided] for medicare
cost-sharing respecting the furnishing of a service or
item to a qualified medicare beneficiary, the State plan
may provide payment in an amount ... that results in a
sum of such payment amount and any amount of pay-
ment made [by the federal government under Medicare
Part B for] the service or item exceeding the amount
that is otherwise payable under the State [Medicaid] plan
for the item or service for eligible individuals who are not
qualified medicare beneficiaries.

Id. s 1396a(n) (amended 1997) (emphasis added). Section
1396a(n)'s use of the word "may" rather than "shall" suggests

that states are permitted, not obligated, to reimburse Part B
providers above the Medicaid rate--$10 if as in the above
example the Medicaid rate were $90, or zero if the Medicaid
rate were $80 or less.

Even before the 1986 enactment of these four QMB provi-
sions, HHS had long taken the position that the buy-in
scheme required states to reimburse providers for Part B
copayments only in an amount equal to the difference, if any,
between the Medicaid payment and the eighty percent of the
Medicare Part B charge that the federal government pays.
See Policy Information Memorandum from Director, Bureau
of Program Policy, Department of Health and Human Ser-
vices, to Associate Regional Administrators (Sept. 29, 1981)
("California's payment of amounts only up to its standard
maximum allowable rate under its [Medicaid] program is
acceptable."); Policy Information Memorandum No. 6 from
Associate Commissioner for Program Coordination, Depart-
ment of Health, Education and Welfare, to Health Services
Administration Regional Staff (Mar. 4, 1971) ("[T]he [state]
agency is not necessarily obligated to pay the full amount of
the deductibles and co-insurance costs according to the rates
established under [Medicare], but only that amount which will
satisfy the requirement for payment in full according to the
[Medicaid] method of payment."). HHS reiterated this policy
following the 1986 amendments to the buy-in scheme. See
Dep't of Health & Human Svcs., State Medicaid Manual
s 3490.14 (1991).

In 1990, the District of Columbia (a state for Medicaid
purposes) amended its Medicaid program to limit reimburse-
ment for QMB Part B copayments to the Medicaid rate. See
37 D.C. Reg. 5593 (1990). HHS approved the District's plan
in 1991. The District implemented its plan for more than six
years without challenge.

In 1997, a coalition of D.C. doctors and the Medical Society
of the District of Columbia sued the city in the Superior
Court for the District of Columbia, claiming that the buy-in
statutes required states to pay QMB Part B copayments in
full. Alleging breach of contract, unjust enrichment, and

promissory estoppel, the doctors sought retroactive reim-
bursement. The doctors also sued the District for injunctive
relief in the United States District Court for the District of
Columbia. The city removed the first suit to federal court,
where the two cases were consolidated.

One month later, Congress enacted the Balanced Budget
Act of 1997, Pub. L. No. 105-33, 111 Stat. 251 ("Budget Act").
Section 4714(a) of the Budget Act, entitled "Clarification
Regarding State Liability for Medicare Cost-Sharing," ex-
pressly authorized states to limit Medicare cost-sharing pay-
ments for QMBs based on Medicaid rates. See id. s 4714(a),
111 Stat. at 509-10. Section 4714(c) applied this putative
"clarification" retroactively to any pending lawsuit seeking
reimbursement from states under the buy-in program. See
id. s 4714(c), 111 Stat. at 510. Recognizing the prospective
validity of section 4714(a), the doctors abandoned their re-
quest for injunctive relief. Instead, they amended their
complaint to challenge the constitutionality of section
4714(c)'s retroactivity provision, claiming that it violates the
Takings and Due Process Clauses of the Fifth Amendment as
well as principles of separation of powers. The United States
intervened to defend the constitutionality of the retroactivity
provision.

The district court upheld section 4714(c), concluding:

[O]ne thing is clear: the law regarding state liability to
pay for the health services provided to QMBs has never
been crystal clear. Section 4714 has certainly provided
clarification where it was needed. For this reason, the
Court concludes that applying section 4714 retroactively,
as Congress directed, is not impermissible under the
Constitution.

McCreary v. Offner, 1 F. Supp. 2d 32, 37 (D.D.C. 1998).
Because section 4714's clarification of the buy-in scheme
undermined the theory of the doctors' breach of contract
action--that pre-1997 law required reimbursement at Medi-
care rates--the district court granted summary judgment for
the District. See id. The doctors appeal. Our review is de

novo. See Heller v. Fortis Benefits Ins. Co., 142 F.3d 487,
491-92 (D.C. Cir. 1998).

II

According to the doctors, pre-1997 law clearly required
states to reimburse them for all Part B cost-sharing obli-
gations incurred by QMBs. The Budget Act, they argue,
could not constitutionally change that requirement retroac-
tively. The United States (supported by the District) re-
sponds that: (1) pre-1997 law was ambiguous regarding state
cost-sharing obligations, and under Chevron U.S.A. Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837 (1984),
we must defer to HHS's reasonable interpretation of that
scheme; (2) even if Chevron deference to HHS's interpreta-
tion of the pre-1997 scheme is inappropriate, under Loving v.
United States, 517 U.S. 748, 770 (1996) ("subsequent legisla-
tion declaring the intent of an earlier statute is entitled to
great weight in statutory construction") (internal quotation
omitted), we should give deference to Congress's 1997 inter-
pretation of the prior scheme, as did the district court; and
(3) if the Budget Act did change the buy-in scheme retroac-
tively, then the doctors' constitutional arguments fail on the
merits. Mindful of our obligation to avoid constitutional
questions when possible, see Ashwander v. TVA, 297 U.S. 288,
341 (1936) (Brandeis, J., concurring), we begin by addressing
the government's Chevron argument. After all, if Chevron
deference to HHS's interpretation of pre-1997 law is appro-
priate, we must sustain the District's reimbursement cap
without regard to the Budget Act.

The doctors insist--as they must to avoid Chevron defer-
ence--that before 1997 sections 1396a(a)(10)(e) and
1396d(p)(3)(D) unambiguously required states to reimburse
providers in full for copayments for Part B services per-
formed on QMBs. They argue that the permissive "may"
language in section 1396a(n) comports with this reading,
interpreting that section simply to authorize states to deviate
from their otherwise rigid Medicaid payment schedules. Ac-
cording to the doctors, section 1396a(n) did nothing more than
provide an exception to the general rule that states must

never reimburse Medicaid providers in excess of HHS-
approved schedules. Section 1396a(n) used the permissive
"may" instead of the mandatory "shall," the doctors contend,
because state Medicaid rates occasionally exceed the Medi-
care rates for the same service.

The doctors' interpretation of the buy-in statutes is certain-
ly plausible. But as we read the pre-1997 statutes and their
legislative history, we think Congress has not so "unambigu-
ously expressed" its intent as to make the doctors' interpreta-
tion mandatory. Chevron, 467 U.S. at 843; see also Air
Transp. Ass'n of America v. FAA, 1999 WL 110689, at *3
(D.C. Cir. Mar. 5 1999) ("Although the inference petitioner
would draw as to the statute's meaning is not by any means
unreasonable, it is also not inevitable.").

To begin with, if the buy-in statutes really spoke as clearly
as the doctors contend, section 1396a(n) would have had no
need to provide separately that states could deviate from
their otherwise mandatory Medicaid schedules. Addressing
the same issue, the Seventh Circuit put it this way: "[I]f ...
[sections 1396a(a)(10)(e) and 1396d(p)(3)(D) of] the statute
clearly entitle[ ] [providers] to reimbursement at Medicare
rates (if it is not clear, Chevron is back in play), the state
could hardly be penalized for such reimbursement. That
would be penalizing it for complying with the statute." Para-
mount, Inc., 138 F.3d at 709; see also Rehabilitation Ass'n v.
Kozlowski, 42 F.3d 1444, 1469 (4th Cir. 1994) (Niemeyer, J.,
dissenting) ("It is utterly implausible, I submit, to believe that
Congress would create a new section in the [Medicaid] Act
solely to acknowledge that it is permissible for states to do
what Congress requires them to do in other sections."). The
United States makes this argument, but the doctors nowhere
respond.

The government also points out that the very provision
from which the doctors derive a state obligation to pay cost-
sharing in full--section 1396a(a)(10)(E)(i)--requires that state
plans make cost-sharing available for QMBs. Because states
must detail their QMB cost-sharing policies in their Medicaid
regulations before submitting those regulations to HHS for

approval, the argument goes, states' cost-sharing obligations
could never cause them to run afoul of their own regulations.
This argument makes sense. Again, the doctors nowhere
respond.

The doctors' interpretation of section 1396a(n) suffers from
another problem. During the almost twenty years prior to its
enactment, states often reimbursed providers for Medicare
cost-sharing in excess of Medicaid rates. Why then did Con-
gress need to enact section 1396a(n) to authorize such reim-
bursement? See Paramount, 138 F.3d at 709 (making this
point). The doctors point out that during the twenty years
prior to the enactment of section 1396a(n) states had not used
Medicaid funds to pay cost-sharing for "pure QMBs" (QMBs
not otherwise eligible for Medicaid) because the QMB pro-
gram did not even exist during that period. True as that may
be, the doctors cannot dispute that by 1986 states had often
exceeded their own Medicaid rates with respect to dual
eligibles.

The doctors claim to find support for their position in the
House Report accompanying the 1986 enactment of the QMB
program, which stated that "the Medicaid program would pay
the Part B deductible and the beneficiary's 20 percent coin-
surance." H.R. Rep. No. 99-727, at 106 (1986), reprinted in
1986 U.S.C.C.A.N. 3607, 3696. But because this language did
not speak to whether states must make the entire copayment
even in excess of Medicaid rates, it helps the doctors little.
Moreover, subsequent legislative history squarely conflicts
with the doctors' interpretation of the buy-in program. The
House Report accompanying the 1988 amendments said:

It is the understanding of the Committee that, with
respect to dual Medicaid-Medicare eligibles, some States
pay the coinsurance even if the amount that Medicare
pays for the service is higher than the State Medicaid
payment rate, while others do not. Under the Commit-
tee bill, States would not be required to pay the Medi-
care coinsurance in the case of a bill where the amount
reimbursed by Medicare--i.e., 80 percent of the reason-

able charge--exceeds the amount Medicaid would pay for
the same item or service.

H.R. Rep. No. 100-105(II), at 61 (1987), reprinted in 1988
U.S.C.C.A.N. 857, 884; see also H.R. Rep. No. 101-247, at 364
(1989), reprinted in 1989 U.S.C.C.A.N. 1906, 2090 ("The
Medicaid programs typically pay the Medicare coinsurance
only to the extent that their payment, plus the Medicare
payment, does not exceed what the Medicaid program would
pay for the service in question.... The Committee bill ...
does not change the current policy regarding the amount
which a Medicaid program must reimburse on such claims.").
Although post-enactment legislative history may or may not
be a valid tool for ascertaining congressional intent, see
United States v. Carlton, 512 U.S. 26, 39 (1994) (Scalia, J.,
concurring) (referring to "post-legislation legislative history"
as an "oxymoron"), our task here is not to divine conclusively
the meaning of section 1396a(n), but rather to determine
whether it is reasonably susceptible to more than one mean-
ing. With respect to this question, post-enactment legislative
commentary offering a plausible interpretation is certainly
relevant, much like plausible interpretations from litigants,
other courts, law review articles, or any other source would
be. The fact that the 1988 and 1989 House Reports inter-
preted section 1396a(n) differently from the interpretation
favored by the doctors suggests that the statute is far from
unambiguous.

We have a similar reaction to four pre-Budget Act circuit
court decisions that found the buy-in scheme unambiguous.
See Haynes Ambulance Serv., Inc. v. Alabama, 36 F.3d 1074,
1077 (11th Cir. 1994) (per curiam); Pennsylvania Med. Soc'y
v. Snider, 29 F.3d 886, 891-902 (3d Cir. 1994); Rehabilitation
Ass'n, 42 F.3d at 1451-58; New York City Health & Hospi-
tals Corp. v. Perales, 954 F.2d 854, 858-59 (2d Cir. 1992).
Although all four circuits found the statutes sufficiently clear
to preclude Chevron deference, they were not unanimous
about the meaning of the supposedly unambiguous scheme.
The Second, Third, and Eleventh Circuits essentially adopted
the interpretation the doctors urge in this case. The Fourth
Circuit expressly rejected this reading, as well as the position

HHS took there (and takes here). Instead, it held that
section 1396a(n) allowed states to pay more cost-sharing for
pure QMBs than for dual eligibles. See Rehabilitation Ass'n,
42 F.3d at 1454-55. The plausibility of these competing
interpretations simply confirms our view that the buy-in
scheme is ambiguous. See Smiley v. Citibank, 517 U.S. 735,
739 (1996) ("In light of the two dissents from the opinion of
the Supreme Court of California, and in light of the opinion of
the Supreme Court of New Jersey creating the conflict that
has prompted us to take this case, it would be difficult indeed
to contend that the [statute] is unambiguous with regard to
the point at issue here.") (citation and footnote omitted).

III

Proceeding to the second step of the Chevron inquiry, we
ask whether HHS has reasonably interpreted the buy-in
statutes. The United States's position is simple: Because the
word "may" in section 1396a(n) is permissive, not mandatory,
states are allowed to but need not exceed their Medicaid
rates. To us, this seems eminently reasonable--"may" means
may.

The doctors make only one argument challenging the rea-
sonableness of HHS's interpretation. Relying on INS v.
Cardoza-Fonseca, 480 U.S. 421, 446 n.30 (1987), which stated
that "[a]n agency interpretation of a relevant provision which
conflicts with the agency's earlier interpretation is entitled to
considerably less deference than a consistently held agency
view," the doctors claim that HHS has not consistently inter-
preted the buy-in statutes. In support, they cite the follow-
ing commentary from a 1983 HHS rulemaking:

Since 1971, HHS policy has been to require State
agencies that have a "buy-in" agreement to pay, in
addition to the Part B premium, the Part B coinsurance
and deductible amount for services provided to beneficia-
ries under Part B, even if the services are not routinely
provided under the Medicaid State Plan.

48 Fed. Reg. 10,378, 10,379 (1983) (notice of proposed rule-
making). That rulemaking has no relevance to the question

presented here, however, because there HHS merely conclud-
ed that the buy-in program does not require states to pay
Part B cost-sharing for services not covered by their Medic-
aid plans; the rulemaking did not address whether a state
must pay QMBs' full copayments for services that are cov-
ered under its Medicaid plan. The most relevant commen-
tary in the rulemaking, moreover, actually comports with the
position HHS takes in this case: "[I]f a State limits the
amount, duration or scope of Medicaid services covered in the
State plan, then the State may similarly limit payment of
Medicare Part B cost sharing amounts on those same services
in accordance with its Medicaid service limitations." 52 Fed.
Reg. 47,926, 47,928 (1987) (final rule). Not only does this
rulemaking suggest no agency inconsistency, but the doctors
have failed to cite any other instances of alleged agency
inconsistency in the twenty-eight years since HHS first artic-
ulated its copayment reimbursement policy. Indeed, HHS
appears to have approved the Medicaid plans of every state
that has chosen to limit total copayment reimbursement to
Medicaid rates.

Because we conclude that HHS's interpretation of the buy-
in statutes is reasonable, we have no need to reach the
doctors' constitutional challenge to the Budget Act. The
district court's grant of summary judgment for the District is
affirmed.

So ordered.