United States Court of Appeals, District of Columbia Circuit
September 28, 2017
from the United States District Court for the District of
Columbia (No. 1:15-cv-00480) Daniel C. Gibson argued
the cause for appellants. With him on the briefs was
James F. Flynn.
J. Shaw, Attorney, U.S. Department of Justice, argued the
cause for appellee.
him on the brief was Michael S. Raab, Attorney.
Before: Garland, Chief Judge, Tatel, Circuit Judge, and
Ginsburg, Senior Circuit Judge.
our sister circuits, the Sixth, ruled that the Centers for
Medicare and Medicaid Services' (CMS) method for counting
hospital beds conflicted with the plain language of the
applicable regulation. CMS amended the regulation to permit
its preferred counting method but-central to this
case-applied the Sixth Circuit's interpretation to
hospitals located within that circuit until the revised
regulation took effect. Appellants, hospitals in the Sixth
Circuit, challenge CMS' decision to acquiesce to the
Sixth Circuit's ruling. Given that obeying judicial
decisions is usually what courts expect agencies to do, the
hospitals face an uphill battle. The district court found
that the agency acted reasonably, and we agree.
reimburses hospitals for providing inpatient care through the
Inpatient Prospective Payment System. 42 U.S.C. §
1395ww(a), (d). Under that system, Medicare pays hospitals a
fixed amount for each patient regardless of the actual costs
incurred. 42 C.F.R. § 412.2(a). In order to account for
certain differences among hospitals, the reimbursement
formula includes several supplemental adjustments.
See 42 U.S.C. § 1395ww(d). Two such adjustments
are at issue here: the Indirect Medical Education (IME)
adjustment, which supplements payments to hospitals that
train medical residents, id. § 1395ww(d)(5)(B),
and the Disproportionate Share Hospital (DSH) adjustment,
which supplements payments to hospitals that serve a
disproportionate share of low-income patients, id.
§ 1395ww(d)(5)(F). Both adjustments turn, in part, on
the number of inpatient beds at the hospital. Also, due to
the particularities of the formulas, hospitals claiming the
IME adjustment generally benefit when the bed count is lower,
see 42 C.F.R. § 412.105, while hospitals
claiming the DSH adjustment benefit when the bed count is
higher, see id. § 412.106.
this "complex and highly technical regulatory program,
" Thomas Jefferson University v. Shalala, 512
U.S. 504, 512 (1994) (quoting Pauley v. BethEnergy Mines,
Inc., 501 U.S. 680, 697 (1991)), counting beds is no
simple matter. A hospital's bed count is calculated
according to an intricate formula set forth at 42 C.F.R.
§ 412.105(b). Prior to October 1, 2003, that regulation
[T]he number of beds available in a hospital is determined by
counting the number of available bed days during the cost
reporting period, not including beds or bassinets in the
healthy newborn nursery, custodial care beds, or beds in
excluded distinct part hospital units, and dividing that
number by the number of days in the cost reporting period.
42 C.F.R. § 412.105(b) (2002).
issue in this case are two types of beds occasionally used
for inpatient care but unmentioned in section
412.105(b)'s express exclusions: "swing beds"
and "observation beds." Swing beds, found primarily
in small rural hospitals, change in reimbursement status
depending on whether the facility is using the bed for acute
care or skilled nursing care. See Medicare Program;
Changes to the Hospital Inpatient Prospective Payment Systems
and Fiscal Year 2004 Rates, 68 Fed. Reg. 45, 346, 45, 418-19
(2003). Observation beds are short-term beds used for
outpatient care when a patient has not been formally admitted
to the hospital. See id. Even though section
412.105(b) did not expressly exclude swing or observation
beds, the "longstanding policy" of CMS, which
administers Medicare on behalf of the United States
Department of Health and Human Services (HHS), was to exclude
these beds when calculating bed counts. See id.;
Joint Stipulations ¶ 2.
2001, two Kentucky hospitals that fell short of the bed count
needed to qualify for the DSH adjustment challenged CMS'
interpretation of section 412.105(b). See Clark Regional
Medical Center v. HHS, 314 F.3d 241, 242 (6th Cir.
2002). The hospitals argued that excluding swing and
observation beds conflicted with section 412.105(b)'s
plain text. In Clark Regional Medical Center v. HHS,
the Sixth Circuit agreed, explaining that "[b]ecause the
regulation specifically lists certain types of beds that are
excluded from the bed count, but does not list swing ...