Grant Medical Center v. Hargan

          Argued September 28, 2017

         Appeal 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.

          Weili J. Shaw, Attorney, U.S. Department of Justice, argued the cause for appellee.

          With him on the brief was Michael S. Raab, Attorney.

          Before: Garland, Chief Judge, Tatel, Circuit Judge, and Ginsburg, Senior Circuit Judge.

          OPINION

          Tatel, Circuit Judge

         One of 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.

         I.

         Medicare 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.

         Under 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 provided:

[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).

         At 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.

         In 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 ...