Empire Health Found. v. Price (334 F. Supp. 3d 1134, 2018)

ROSANNA MALOUF PETERSON, United States District Judge

Plaintiff Empire Health Foundation ("Empire"), for Valley Hospital Medical Center (the "Hospital"), brings this action against the Secretary of the United States Department of Health and Human Services (the "Secretary"). Before the Court is Empire's Motion for Summary Judgment, ECF No. 34, and the Secretary's Cross-Motion for Summary Judgment, ECF No. 46. Theresa Sherman and Daniel Hettich appeared on behalf of Empire. James Bickford appeared on behalf of the Secretary. Having considered the parties' filings and oral argument, the remaining record, and the relevant law, the Court is fully informed.

This case concerns the validity of the Secretary's 2005 Final Rule promulgation with regard to the Secretary's interpretation of the phrase "entitled to benefits under [Medicare Part A]" in 42 U.S.C. § 1395ww. Both parties have moved for summary judgment. For the reasons set forth below, Empire's motion is granted in part and denied in part, and the Secretary's motion is denied.

PROCEDURAL HISTORY

Effective October 1, 2004, the Secretary's 2005 Final Rule relating to Medicare Part A hospital coverage amended 42 C.F.R. § 412.106(b)(2) to reflect the Secretary's newly adopted policy regarding the assessment of Medicare Part A patient-days. ECF No. 11-2. The actual language of the 2004 amendment, which removed the word "covered" from 42 C.F.R. § 412.106(b)(2), appeared for the first time in the 2008 publication of the regulation. Id. Pursuant to the Medicare disproportionate share hospital ("DSH") reimbursement process, Wisconsin Physicians Services, the fiscal intermediary that was auditing the Hospital's cost reporting, applied the amended policy from the 2005 Final Rule to the Hospital's cost reporting period for the 2008 fiscal year. ECF No. 34 at 14. The Hospital timely filed an appeal with the Provider Reimbursement Review Board ("Board"). Id.

After filing its appeal, the Hospital sought expedited judicial review pursuant to 42 U.S.C. § 1395oo(f)(1), which states that providers "shall also have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy whenever the Board determines ... that it is without authority to decide the question." See ECF No. 11-1. Finding that it was without authority to decide the legal issue in this case, the Board granted the Hospital's request for expedited judicial review regarding whether the regulation, 42 C.F.R. § 412.106(b)(2), is valid. ECF No. 11-2.

Empire, on behalf of the Hospital, filed the complaint in this matter alleging that the 2005 Final Rule amending 42 C.F.R. § 412.106(b)(2) is substantively and procedurally invalid and that the agency should be enjoined from applying the 2005 Final Rule against the Hospital. See ECF No. 1. Empire moves for summary judgment, challenging the Secretary's interpretation of the phrase "entitled to benefits under [Medicare Part A]" as inconsistent with the plain language of the statute, inconsistent with circuit precedent, and arbitrary and capricious. ECF No. 34 at 20-30. Empire also challenges the adequacy of the notice that the Secretary provided prior to the promulgation of the 2005 Final Rule. Id. at 17-20. Alternatively, if the Court agrees with the Secretary regarding the treatment of unpaid Medicare Part A days, Empire asks that the Court direct the Secretary "to include unpaid [supplemental security income ('SSI') ] eligible patient days in the numerator of the [Medicare fraction] utilizing SSI payment status codes that reflect the individuals' eligibility for SSI-even if the individuals did not receive SSI payments," as a matter of consistency. Id. at 23.

Empire also challenges the validity of the inclusion of Part C coverage days in the Hospital's 2008 fiscal year DSH calculation. Id. at 11. In a 2014 case, the D.C. Circuit Court of Appeals vacated the Medicare Part C regulatory revision on procedural grounds. See Allina Health Servs. v. Sebelius , 746 F.3d 1102, 1109 (D.C. Cir. 2014). Accordingly, both Empire and the Secretary have agreed that this Court should remand the Part C issue back to the Board.

The Secretary also moves for summary judgment, arguing that the Court should find the Secretary's 2005 Final Rule substantively and procedurally valid.

JURISDICTION

This case comes to the Court from the Provider Reimbursement Review Board, which hears appeals concerning DSH reimbursement payments to hospitals and other Medicare providers. The Board concluded that this case "involves a question of law or regulations" that it "is without authority to decide." See ECF No. 11-2 (citing 42 C.F.R. § 405.1842(f)(1), (g)(2) ). Pursuant to 42 U.S.C. § 1395oo(f)(1), the Board granted expedited judicial review of the legal questions raised by the Hospital in its appeal, now being prosecuted by Empire. The Board found that it "lacks the authority to decide whether regulation, 42 C.F.R. § 412.106(b)(2) is valid." ECF No. 11-2.

The Secretary disputes the Court's jurisdiction to hear Empire's challenge to the Secretary's assessment of SSI-entitlement. ECF No. 46 at 32. As the Court makes clear below, it finds that the Secretary's assessment of SSI-entitlement in the Medicare fraction of the disproportionate patient percentage provision is outside the scope of the Board's grant of expedited judicial review in this matter. See infra Part III. However, the Court has subject matter jurisdiction over the other questions of law presented in this matter pursuant to the Board's grant of expedited judicial review under 42 U.S.C. § 1395oo(f)(1), and pursuant to 28 U.S.C. § 1331, as a civil action arising under the laws of the United States, because Empire challenges the interpretation of a provision in the Medicare Act, 42 U.S.C. § 1395ww(d)(5)(F). See ECF No. 1.

LEGAL STANDARD FOR SUMMARY JUDGMENT

When parties file cross-motions for summary judgment, the Court considers each motion on its own merits. See Fair Housing Council of Riverside County, Inc. v. Riverside Two , 249 F.3d 1132, 1136 (9th Cir. 2001). A court may grant summary judgment where "there is no genuine dispute as to any material fact" of a party's prima facie case, and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett , 477 U.S. 317, 322-33, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; see also Fed. R. Civ. P. 56(c). Because Empire's claims arise under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701 - 706, resolution of its claims "does not require fact finding on behalf of [the] court." Nw. Motorcycle Ass'n v. USDA , 18 F.3d 1468, 1471-72 (9th Cir. 1994).

Here, there are no disputed facts, and the Court's grant of jurisdiction is limited to the legal question of the validity of 42 C.F.R. § 412.106(b)(2).

STATUTORY AND REGULATORY FRAMEWORK

Under Part A of the Medicare Act, the Medicare program reimburses providers for inpatient services based on the Prospective Payment System ("PPS"), which derives reimbursements from standardized reimbursable expenditure rates that are subject to adjustments based on certain hospital-specific factors. See 42 U.S.C. §§ 1395c to 1395i-5, 1395ww(d). The Hospital's challenge concerns the DSH adjustment, created to "compensate hospitals for the additional expense per patient associated with serving high numbers of low-income patients." Phoenix Mem. Hosp. v. Sebelius , 622 F.3d 1219, 1221 (9th Cir. 2010). As alleged in the complaint, the Hospital provided short-term acute care to patients insured under the federal health insurance program Medicare in the 2008 fiscal year. ECF No. 1 at 3.

Whether a hospital receives a DSH adjustment, and the amount of the adjustment received, is determined by a calculation of the hospital's disproportionate patient percentage ("DPP"). 42 U.S.C. § 1395ww(d)(5)(F)(v), (vii). The DPP is the sum of two fractions, commonly referred to as the Medicare fraction and Medicaid fraction. The relevant statutory language for determining the DPP is as follows:

(vi) In this subparagraph, the term "disproportionate patient percentage" means, with respect to a cost reporting period of a hospital, the sum of-

(I) the fraction (expressed as a percentage), the numerator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under part A of this subchapter and were entitled to supplementary security income benefits (excluding any State supplementation) under subchapter XVI of this chapter, and the denominator of which is the number of such hospital's patient days for such fiscal year which were made up of patients who (for such days) were entitled to benefits under part A of this subchapter , and

(II) the fraction (expressed as a percentage), the numerator of which is the number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under subchapter XIX, but who were not entitled to benefits under part A of this subchapter, and the denominator of which is the total number of the hospital's patient days for such period.

42 U.S.C. § 1395ww(d)(5)(F)(vi) (emphasis added).

The regulation implementing the DPP provision, 42 C.F.R. § 412.106(b), as amended by the 2005 Final Rule, states the formula for determining the DPP, which serves "as a proxy for all low-income patients." Legacy Emanuel Hosp. & Health Ctr. v. Shalala , 97 F.3d 1261, 1265 (9th Cir. 1996). The formula is as follows, represented visually:

Medicare Fraction Medicaid Fraction Days Entitled to Medicare Part A Days Eligible for Medicaid and to SSI (but not entitled to Medicare) ________________________________ + ______________________________ = DPP Days Entitled to Medicare Part A Total Patient Days

See 42 C.F.R. § 412.106(b). "A higher DPP produces a higher adjustment percentage, which in turn produces a larger adjustment payment." Metro. Hosp. v. United States HHS , 712 F.3d 248, 251 (6th Cir. 2013) ("In sum, the DPP is the key figure in determining whether a hospital will receive additional Medicare dollars for serving low-income patients and, if so, in what amount.").

As referenced in the above equation, the numerator of the Medicare fraction consists of the number of patient-days in the relevant period for patients who were both "entitled to benefits under [Medicare] part A" and "entitled to [SSI] benefits." 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The relevant portion of the implementing regulation closely tracks the statute. It states that the Secretary calculates the DPP by determining the number of patient days that "[a]re associated with discharges occurring during each month" and "[a]re furnished to patients who during that month were entitled to both Medicare Part A (including Medicare Advantage (Part C) ) and SSI , excluding those patients who received only State supplementation." 42 C.F.R. § 412.106(b)(2) (emphasis added). The Secretary then divides this number by the number of patient days that "[a]re associated with discharges that occur during that period" and "[a]re furnished to patients entitled to Medicare Part A (including Medicare Advantage (Part C) )". Id. § 412.106(b)(2).

EMPIRE'S CHALLENGE TO THE VALIDITY OF 42 C.F.R. § 412.106(B)(2)

As previously stated, the issue under expedited judicial review in this matter is the validity of 42 C.F.R. § 412.106(b)(2). See ECF No. 11-2. "[R]egulations, in order to be valid, must be consistent with the statute under which they are promulgated." United States v. Larionoff , 431 U.S. 864, 873, 97 S.Ct. 2150, 53 L.Ed.2d 48 (1977). In addition, "[a] substantive rule is invalid if the agency has failed to comply with APA requirements." Southern California Aerial Advertisers' Ass'n v. Fed. Aviation Admin. , 881 F.2d 672, 677 (9th Cir. 1989) ; see also Buschmann v. Schweiker , 676 F.2d 352, 355-56 (9th Cir. 1982) ("A regulation is invalid if the agency fails to follow procedures required by the Administrative Procedures Act, 5 U.S.C. § 553."). Thus, a regulation may be substantively valid but fail because it is procedurally invalid.

Empire argues that the Secretary's 2005 Final Rule is both substantively and procedurally invalid. ECF No. 34 at 17-30. The Secretary contends that the 2005 Final Rule was properly adopted and that the Secretary's interpretation of the phrase "entitled to benefits under [Medicare] part A" is reasonable. See ECF No. 46 at 22-32. The Court first considers the substantive validity of 42 U.S.C. § 412.106(b)(2), then its procedural validity.

I. Interpretation of the Phrase "Entitled to Benefits Under [Medicare] Part A"

Empire challenges the Secretary's application of 42 C.F.R. § 412.106(b)(2), which is the Medicare fraction in the DPP provision, and contends that the agency's interpretation of 42 U.S.C. § 1395ww(d)(5)(F) is arbitrary and capricious. See ECF No. 1 at 14. Under the 2005 Final Rule, the patient-days of patients who exhausted their Medicare Part A coverage are included in the Medicare fraction. See 69 Fed. Reg. 49,098 -99 (Aug. 11, 2004). Prior to the Secretary's promulgation of the 2005 Final Rule, exhausted Medicare Part A patient-days were not included in the Medicare fraction, and when a patient was eligible for Medicaid, exhausted Medicare Part A patient-days were included in the Medicaid fraction. See id. The Secretary argues that it correctly and reasonably interpreted § 1395ww(d)(5)(F) in the 2005 Final Rule amending 42 C.F.R. § 412.106(b)(2), and in the agency's subsequent application of the regulation. See ECF No. 46 at 2.

The standard of review for an agency's interpretation of a statute that is reflected in a regulation adopted through notice-and-comment rulemaking is the two-step framework outlined in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). See United States v. Mead Corp. , 533 U.S. 218, 226-27, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001) (requiring analysis under the Chevron framework for regulations adopted through notice-and-comment rulemaking). The first question for the reviewing court is "whether Congress has directly spoken to the precise question at issue." Chevron , 467 U.S. at 842, 104 S.Ct. 2778. "If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Id. at 842-43, 104 S.Ct. 2778. The reviewing court employs "traditional tools of statutory construction" to ascertain whether "Congress had an intention on the precise question." Id. at 843 n.9, 104 S.Ct. 2778. The precise substantive question before the Court is whether Congress intended the phrase "entitled to benefits under [Medicare] Part A" in the Medicare fraction of the DPP provision to mean "qualified to receive benefits" or "legally due payment."

The Supreme Court has held that "if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. at 843, 104 S.Ct. 2778. In this second step of Chevron , the court "must reject administrative constructions of [a] statute ... that are inconsistent with the statutory mandate or that frustrate the policy that Congress sought to implement." Fed. Election Comm'n v. Democratic Senatorial Campaign Committee , 454 U.S. 27, 32, 102 S.Ct. 38, 70 L.Ed.2d 23 (1981). The agency's construction need not be the only possible permissible interpretation of the statute, nor must it be "even the reading the court would have reached if the question initially had arisen in a judicial proceeding." Chevron , 467 U.S. at 843 n.11, 104 S.Ct. 2778. Rather, the agency's construction need only be a "permissible" construction of the statute. Id. at 843, 104 S.Ct. 2778.

A. Stare Decisis for Chevron Decisions

"A court's prior judicial construction of a statute overrides an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for discretion." Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs. , 545 U.S. 967, 983, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005). In other words, the doctrine of stare decisis applies if a prior court has reached a Chevron Step One decision finding that "Congress has directly spoken to the precise question at issue." See Chevron , 467 U.S. at 842, 104 S.Ct. 2778.

Empire argues that in Legacy Emanuel Hospital and Health Center v. Shalala , 97 F.3d 1261, 1265 (9th Cir. 1996), the Ninth Circuit Court of Appeals reached a Chevron Step One decision regarding the interpretation of "entitled" in the DPP provision, and that interpretation is binding on this Court. See ECF No. 34 at 21-22. The Secretary contends that the Legacy court's Chevron Step One determination is "limited to the precise question at issue" in Legacy , which was the interpretation of the word "eligible" in the Medicaid fraction. See ECF No. 46 at 25-27 (citing Legacy Emanuel , 97 F.3d at 1265-66 ). The Secretary argues that the Legacy court did not answer the precise question presently before this Court regarding the interpretation of the phrase "entitled to benefits under [Medicare] part A" in the Medicare fraction of the DPP provision. Id. The Secretary argues that the Legacy decision is not binding on this Court, and that the Court should proceed with a full Chevron analysis. Id.

The Court first considers whether the Ninth Circuit's statements in Legacy constitute a Chevron Step One holding regarding the statutory meaning of "entitled" in the context of the Medicare fraction when the Legacy court's statements related to the statutory meaning of "entitled" in the context of the Medicaid fraction. If so, then the Legacy holding would be binding on this Court under the doctrine of stare decisis.

In Legacy , the Ninth Circuit Court of Appeals considered the validity of the Secretary's interpretation of the word "eligible" in the Medicaid fraction of the DPP provision. See Legacy Emanuel , 97 F.3d at 1261-62. The Legacy court held that "the language of the Medicare reimbursement provision is clear: the Medicaid proxy includes all patient days for which a person was eligible for Medicaid benefits, whether or not Medicaid actually paid for those days of service." Id. at 1265. The court based its conclusion on "Congress's use of the word 'eligible' rather than 'entitled,' as well as Congress's use of the Medicaid proxy to define non-Medicare low-income patients for purposes of determining a hospital's share of low-income patients." Id. The words "eligible" and "entitled" both appear in the Medicaid fraction.

In reaching its conclusion, the Legacy court cited and discussed Jewish Hospital, Inc. v. Secretary of Health and Human Services , a Sixth Circuit Court of Appeals decision that considered the same question regarding the interpretation of "eligible" in the Medicaid fraction. See Legacy Emanuel , 97 F.3d at 1264-65 (citing Jewish Hosp., Inc. v. Sec'y of Health & Human Servs. , 19 F.3d 270 (6th Cir. 1994) ). In Jewish Hospital , the Secretary argued that Congress intended "eligible" in the Medicaid fraction to include "only those days actually paid by Medicaid." Jewish Hosp. , 19 F.3d at 272. The Sixth Circuit concluded that, "by using the different terms 'entitled' and 'eligible' in adjacent provisions, Congress intended different meanings for the terms." Legacy Emanuel , 97 F.3d at 1264 (citing Jewish Hosp. , 19 F.3d at 275 ). Although the court found Congress's intent clear, it continued its analysis. See Jewish Hosp. , 19 F.3d at 275. The Sixth Circuit went on to hold that, "even if the language of the statute can be deemed silent or ambiguous, the Secretary's construction is not permissible" because "[t]he legislative history of the Medicaid proxy clearly shows that the Secretary's construction is contrary to that intent expressed by Congress." Id. at 275-76 (emphasis in original). The Jewish Hospital court held that according to the plain language of the DSH adjustment statute, "the word 'eligible' refers to whether a patient is capable of receiving ... Medicaid." Id. at 274.

In 2013, after the Secretary issued the 2005 Final Rule amending the agency's policy regarding the interpretation of "entitled to benefits under [Medicare] part A" in the Medicare fraction, the parties in Metropolitan Hospital v. United States HHS , 712 F.3d 248 (6th Cir. 2013), challenged whether the patient-days of individuals "entitled to benefits under [Medicare] part A" in the Medicare fraction include "the patient days of all Medicare [Part A] beneficiaries, regardless of whether a beneficiary has exhausted coverage for any particular patient day." Id. at 253. In the case presently before the Court, Empire similarly challenges whether the statutory interpretation of "entitled to benefits under [Medicare] part A" in the 2005 Final Rule applies to patient-days for which no payment was received under Medicare Part A. See ECF No. 1 at 1, 14.

After opining that "courts often describe statutory language as 'clear' or 'unambiguous' without making a Chevron step-one holding," the Metropolitan Hospital court determined that the Jewish Hospital decision was "unclear regarding whether the court's Chevron step-one discussion is a holding," because "the only explicit statements of a holding that appear in Jewish Hospital are expressed in terms of Chevron step two." Metro. Hosp. , 712 F.3d at 256. The Metropolitan Hospital court stated that the Jewish Hospital opinion "proceeds in the Chevron analysis to conclude that the Secretary's interpretation was impermissible," a holding in line with Chevron step two. Id. at 256 (citing Jewish Hosp. , 19 F.3d at 275-76 ).

The Metropolitan Hospital court stated that, even if it read the Jewish Hospital decision as a Chevron Step One holding, the Metropolitan Hospital court "decline[d] to hold that Jewish Hospital's 'back-up' analysis contrasting the phrase 'entitled to benefits under [Medicare] part A' with the phrase 'eligible for [Medicaid]' " resolved the "precise question at issue" in Metropolitan Hospital , which was the interpretation of "entitled to benefits under [Medicare] part A" in the Medicare fraction. Id. at 257. Therefore, the court in Metropolitan Hospital concluded it was not bound by the Jewish Hospital decision, and proceeded with a full Chevron analysis of the statutory interpretation of the phrase "entitled to benefits under [Medicare] part A." Id. at 255-66.

In this case, Empire argues that the Legacy court's conclusion is controlling as a Chevron Step One decision that "the statutory language is clear because of Congress's use of 'eligible' rather than 'entitled,' and because Congress's overarching goal was to reimburse hospitals for the added expense of serving low-income patients." ECF No. 34 at 22 (citing Legacy , 97 F.3d at 1266 ). Empire argues that, when the Legacy court distinguished "eligible" and "entitled" in the Medicaid fraction, the Legacy court found that Congress's intent was clear and unambiguous and that Congress intended "entitled" to mean "entitled to payment," foreclosing this Court's need to repeat a Chevron Step One analysis of the interpretation of the phrase "entitled to benefits under [Medicare] part A" in the Medicare fraction of the DPP provision. Id. (citing Legacy , 97 F.3d at 1266 ).

The Secretary contends that Legacy's Chevron Step One holding is not controlling in this case. ECF No. 46 at 26. The Secretary argues that the opinion in Legacy only applies narrowly to the specific issue in that case, namely the meaning of "eligible" as it pertained to Medicaid patient-days in the Medicaid fraction, and not to the meaning of the language in the Medicare fraction at issue in this case. ECF No. 46 at 26.

Courts considering the statutory interpretation of the Medicaid and Medicare fractions have concluded that the two fractions are separate and distinct. The Metropolitan Hospital court concluded that it is "clear from the statute" that "these two fractions are exclusive of one another." Metro. Hosp. , 712 F.3d at 262-63. Nevertheless, they are interrelated. A Medicare Part A patient-day may not be counted as a Medicaid patient-day, because the DPP provision excludes the patient-days of patients who are entitled to Medicare Part A benefits from the Medicaid fraction. See id. (citing 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) ).

The Legacy court concluded that the clauses "entitled to benefits under [Medicare] part A" and "eligible for medical assistance under [Medicaid]" "serve different purposes" in the Medicare and Medicaid fractions respectively. Legacy Emanuel , 97 F.3d at 1266. Within the Medicare fraction, "the language 'entitled to benefits under [Medicare]' does not serve to define Medicare patients that are low-income." Id. The low-income status of patients in the Medicare fraction is determined by their entitlement to SSI. Id. "Within the Medicaid proxy, in contrast, the language 'eligible for medical assistance under [Medicaid]' defines the low-income status of patients." Id.

Departing from the Sixth Circuit's ambiguous Chevron Step Two conclusion in Jewish Hospital , the Ninth Circuit Court in Legacy reached a Chevron Step One decision regarding Congress's clear intent regarding the meaning of "eligible" in the Medicaid fraction. See Legacy Emanuel , 97 F.3d at 1265. The Legacy court held that the congressional intent regarding the use of "eligible" in the Medicaid fraction was clear, rather than reaching a holding regarding the interpretation of "entitled" in the Medicare fraction. See id. That decision is controlling in this circuit regarding the Medicaid fraction, but the Legacy court did not resolve "the precise question at issue" in the matter before this Court regarding the interpretation of the phrase "entitled to benefits under [Medicare] part A." See 42 U.S.C. § 1395ww(d)(5)(F)(vi). Accordingly, this Court undertakes a Chevron analysis in the specific context of the Medicare fraction within the DPP provision.

B. Chevron Step One Analysis

Employing the traditional tools of statutory construction, the Court first considers "whether Congress has directly spoken to the precise question at issue." Chevron , 467 U.S. at 842-43, 843 n.9, 104 S.Ct. 2778. Courts may presume that "Congress legislates with knowledge of [the court's] basic rules of statutory construction." McNary v. Haitian Refugee Ctr., Inc. , 498 U.S. 479, 496, 111 S.Ct. 888, 112 L.Ed.2d 1005 (1991). Traditional tools of judicial statutory construction include considering the plain meaning of the language in the statute, dictionary definitions, canons of construction, legislative purpose, and legislative history. See, e.g. , Legacy Emanuel , 97 F.3d at 1265.

Empire argues that the Secretary's interpretation of "entitled to benefits under [Medicare] part A" in the 2005 Final Rule's amendment of the DPP provision fails Chevron Step One because it is contrary to the plain language of the statute and is applied inconsistently within the statute. See ECF No. 34 at 20-23. The Secretary contends that 42 U.S.C. § 426 provides a clear meaning for the phrase "entitled to benefits under Medicare Part A" in the Medicare fraction. ECF No. 46 at 23. Additionally, the Secretary argues that if the Court finds the meaning of the word "entitled" in the Medicare fraction ambiguous, the Court should uphold the agency's interpretation of the statute as permissible under a Chevron Step Two analysis. ECF No. 46 at 5, 27.

Clarifying the meaning of "entitled" matters because an individual may satisfy the conditions for Medicare eligibility, but may not receive Medicare Part A benefits because Medicare Part A provides a limited benefit to hospitalized patients: beneficiaries are covered only for the first 90 days of any given hospitalization. 42 C.F.R. § 409.61(a)(1). Each Medicare Part A beneficiary also "has a non-renewable lifetime reserve" of 60 additional days of coverage which, until they are exhausted, can be used to cover periods of hospitalization lasting longer than 90 days. Id. § 409.61(a)(2).

By statute, Medicare generally pays after other sources of insurance, such as a worker's compensation plan. 42 U.S.C. § 1395y(b). Individuals may receive both Medicare Part A and Medicaid benefits. These individuals are "dual-eligible." See Metro. Hosp. , 712 F.3d at 252. Two scenarios exist in which a person may qualify for Medicare Part A and yet not receive or be "covered" by his or her Medicare Part A benefits. First, an individual may have other sources of insurance that must be exhausted before an individual receives Medicare Part A benefits. 42 U.S.C. § 1395y(b)(2) (describing the "Medicare Secondary Payer" system). Second, an individual may exhaust her Medicare Part A coverage by using all of the hospital care patient-days provided for under Medicare. Id. § 1395d(b)(1). In the first case, Medicare Part A benefits only begin when the individual's other coverage is exhausted. Id. § 1395y(b)(2). In the second case, Medicare no longer pays for the patient's hospital services. In either scenario, individuals who are qualified for Medicare Part A benefits do not receive those benefits because they have either not exhausted their other coverage or they have exhausted their Medicare Part A coverage.

Under the Secretary's current policy, the Secretary counts all the patient-days of individuals qualified for Medicare Part A in the Medicare fraction of the DPP provision, regardless of whether they are receiving coverage for their hospital patient-days under Medicare Part A.

1. Plain Language

"In construing the provisions of a statute, we first look to the language of the statute to determine whether it has a plain meaning." Satterfield v. Simon & Schuster, Inc. , 569 F.3d 946, 951 (9th Cir. 2009). Where the statutory language is plain and "admits of no more than one meaning," the duty of interpretation does not arise. Caminetti v. United States , 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917). "A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning." Perrin v. United States , 444 U.S. 37, 42, 100 S.Ct. 311, 62 L.Ed.2d 199 (1979). However, the canon that courts "construe a statutory term in accordance with its ordinary or natural meaning" applies only "in the absence of [a statutory] definition." FDIC v. Meyer , 510 U.S. 471, 476, 114 S.Ct. 996, 127 L.Ed.2d 308 (1994).

i. No Statutory Definition Exists in 42 U.S.C. § 1395ww

No definition of the phrase "entitled to benefits under [Medicare] Part A" is provided in the DPP provision or elsewhere in the statutory section in which the DPP formula appears. See 42 U.S.C. § 1395ww ; see also Metro. Hosp. , 712 F.3d at 256. However, the Secretary argues that 42 U.S.C. § 426(a) provides a statutory definition of the phrase "entitled to benefits under [Medicare] Part A." See ECF No. 46 at 23. Subsection 426(a) provides that "every individual who ... has attained age 65, and ... is entitled to monthly [Social Security benefits] ... shall be entitled to hospital insurance benefits under [Medicare Part A] for each month for which he meets the [above specified conditions]." The Secretary contends that, in the language of 42 U.S.C. § 426(a), "Congress has defined [']entitled to part A['] and foreclosed [Empire's] interpretation that ['entitled'] turns on whether a particular patient day is covered." ECF No. 46 at 23.

The Court disagrees. Subsection 426(c), titled "Conditions," states that "[f]or the purposes of subsection (a) ... entitlement of an individual to hospital benefits for a month shall consist of entitlement to have payment made under, and subject to the limitations in, [Medicare Part A] on his behalf for inpatient hospital services ... during such month." Furthermore, § 426 does not reference the DPP provision, so it is unclear whether Congress actually contemplated defining "entitled to benefits under [Medicare] part A" through § 426. The Court finds that the definition provided in subsection 426(a) is not dispositive with regards to the meaning of "entitled to benefits under [Medicare] part A" in the DPP provision within 42 U.S.C. § 1395ww. Therefore, the Court will consider the ordinary meaning of the word "entitled."

ii. Ordinary Meaning of "Entitled"

"Entitle" is defined in Black's Law Dictionary as "to grant a legal right to" and "to qualify for." Entitle , Black's Law Dictionary (10th ed. 2014). Empire argues that, in the context of 42 U.S.C. § 1395ww, "entitled to benefits under [Medicare] Part A" means "granted a legal right to" actual payment of benefits under Medicare Part A. ECF No. 34 at 21. Conversely, the Secretary contends that the phrase "entitled to benefits under [Medicare] Part A" is properly interpreted as meaning "qualified for" benefits under Medicare Part A, regardless of whether payment is made. See ECF No. 46 at 23.

It appears to the Court that "entitle" has two plainly conflicting meanings. The Court thus finds that the plain meaning of "entitled" in this context does not demonstrate Congress's clear and unambiguous intent as required by Chevron Step One. See Chevron , 467 U.S. at 842-43, 104 S.Ct. 2778. Therefore, the Court considers another canon of construction: whether Congress's intended meaning of "entitled to benefits under [Medicare] part A" may be inferred from other uses of the word "entitled" or the phrase "entitled to benefits under [Medicare] part A" within 42 U.S.C. § 1395ww.

iii. Consistent Use

Another rule of statutory construction is that "identical words used in different parts of the same act are intended to have the same meaning." Gustafson v. Alloyd Co. , 513 U.S. 561, 570, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995). Conversely, the use of different language by Congress creates a presumption that Congress intended the terms to have different meanings. See Washington Hosp. Center v. Bowen , 795 F.2d 139, 146 (D.C. Cir. 1986).

The phrase "entitled to benefits under [Medicare] part A" appears seven times throughout 42 U.S.C. § 1395ww other than in the DPP provision, and three times within the DPP provision. See 42 U.S.C. § 1395ww. "Moreover, the phrase 'entitled to benefits under [Medicare] part A' appears in more than 30 other sections of the Medicare statute, indicating that the phrase has a specific, consistent meaning throughout the statutory scheme, rather than a varying, context-specific meaning in each section and subsection." Metro. Hosp. , 712 F.3d at 260. In the Medicare statute, several references to the phrase expressly recognize the difference between a patient who has exhausted his or her Medicare Part A coverage for a particular spell of illness and a patient who is not entitled to Medicare benefits at all. Id. For example, 42 U.S.C. § 1395l(t)(1)(B)(ii) provides coverage for certain outpatient-department services that are "furnished to a hospital inpatient who (I) is entitled to benefits under [Medicare] part A ... but has exhausted benefits for inpatient services during a spell of illness, or (II) is not so entitled." The Court finds Congress's frequent use of the phrase "entitled to benefits under [Medicare] part A" and the logic of the Metropolitan Hospital decision persuasive but not dispositive.

In contrast, Empire argues that when Congress used the word "entitled" for Medicare Part A benefits and SSI benefits in the Medicare fraction, Congress intended the word to be applied consistently. ECF No. 34 at 23-24. Empire asserts that the Secretary interprets the word "entitled" differently within the same sentence of the statute, in conflict with Congress's intention and the canon of statutory construction that "identical words used in different parts of the same statute are generally presumed to have the same meaning." Id. (quoting IBP, Inc. v. Alvarez , 546 U.S. 21, 34, 126 S.Ct. 514, 163 L.Ed.2d 288 (2005) ). The Court agrees that the Secretary treats "entitled" for the purposes of Medicare Part A as "qualified for," and "entitled" for the purposes of SSI benefits as "granted a legal right to" actually payment. See 69 Fed. Reg. 49,098 -99 (Aug. 11, 2004). The Secretary's inconsistent interpretation of "entitled" conflicts with the canon of construction holding that the same word used within a statute generally has the same meaning.

Taking both of these arguments into consideration, the Court concludes that Congress's intent regarding the interpretation of the phrase "entitled to benefits under [Medicare] part A" in the DPP provision is not clearly evinced by the repeated uses of the word "entitled" or the phrase "entitled to benefits under [Medicare] part A." Based on the absence of a statutory definition, the lack of clear ordinary meaning, and the Congress's repeated but unclear uses of the word "entitled" and phrase "entitled to benefits under [Medicare] part A," the Court finds that Congress's intent is unclear as to the meaning of "entitled to benefits under [Medicare] part A" in the DPP provision. Therefore, the Court next looks to the statutory purpose to determine whether Congress provided a clear and unambiguous intent for the meaning of the phrase "entitled to benefits under [Medicare] part A" in its expression of the purpose of the DSH provision. See Chevron , 467 U.S. at 842-43, 104 S.Ct. 2778.

2. Statutory Purpose

If the statutory text is unclear, courts may look to the purpose of the statute to determine whether Congress clearly and unambiguously expressed its intent there. See Chevron , 467 U.S. at 843 n.9, 104 S.Ct. 2778 ("If a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect."). "In ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole." K Mart Corp. v. Cartier , 486 U.S. 281, 108 S.Ct. 1811, 100 L.Ed.2d 313 (1988). "[T]he function of the courts" in cases of statutory interpretation "is to construe the language so as to give effect to the intent of Congress." United States v. American Trucking Ass'ns , 310 U.S. 534, 542, 60 S.Ct. 1059, 84 L.Ed. 1345 (1940).

"Congress's 'overarching intent' in passing the [DSH] provision was to supplement the [PPS] payments of hospitals serving 'low income' persons." Legacy Emanuel , 97 F.3d at 1265. "Congress intended the Medicare and Medicaid fractions to serve as a proxy for all low-income patients." Id. In the Medicare fraction, the low-income status of Medicare patients receiving hospital care "is determined by their entitlement to SSI." Id. at 1256-66. In the Medicaid fraction, the number of Medicaid-eligible patient-days accounts for the low-income patients eligible to receive Medicaid and receiving hospital care. Id. at 1266. However, "knowing the statute's general purpose and that the two DPP fractions are mutually exclusive is insufficient to divine a clear congressional intent regarding whether a Medicare patient who has exhausted his or her days of inpatient services for a particular spell of illness is 'entitled to benefits under [Medicare] part A.' " Metro. Hosp. v. United States HHS , 712 F.3d 248, 263 (6th Cir. 2013).

Neither party's interpretation of "entitled" includes in the DPP calculation all groups of low-income patients. See id.

"Because either interpretation would necessarily exclude certain low-income patients from the DPP calculation," the Sixth Circuit in Metropolitan Hospital found "no support for a clear statutory mandate to account for all low-income patients between the two fractions." Id. Likewise, this Court finds no clear intent regarding the meaning of "entitled to benefits under [Medicare] part A" in the statutory purpose of 42 U.S.C. § 1395ww.

Neither the plain language of 42 U.S.C. § 1395ww nor the statutory purpose demonstrates a clear and unambiguous Congressional intent for the meaning of the phrase "entitled to benefits under [Medicare] part A" in the DPP provision. See Chevron , 467 U.S. at 842-43, 104 S.Ct. 2778. Therefore, the Court concludes its Chevron Step One analysis and considers whether the Secretary's interpretation is permissible under Chevron Step Two.

C. Chevron Step Two Analysis

"[I]f the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Chevron , 467 U.S. at 843, 104 S.Ct. 2778. "[U]nder Chevron step two, we ask whether an agency interpretation is 'arbitrary or capricious in substance,' " Judulang v. Holder , 565 U.S. 42, 52 n.7, 132 S.Ct. 476, 181 L.Ed.2d 449 (2011), or "manifestly contrary to the statute." Mayo Found. for Med. Educ. & Research v. United States , 562 U.S. 44, 53, 131 S.Ct. 704, 178 L.Ed.2d 588 (2011). "A court lacks authority to undermine the regime established by the Secretary unless her regulation is 'arbitrary, capricious, or manifestly contrary to the statute.' " Sebelius v. Auburn Reg'l Med. Ctr. , 568 U.S. 145, 133 S.Ct. 817, 826, 184 L.Ed.2d 627 (2013). Furthermore, "[a] court must uphold the Secretary's judgment as long as it is a permissible construction of the statute, even if it differs from how the court would have interpreted the statute in the absence of an agency regulation." Id.

Under Chevron Step Two, courts generally give agency statutory interpretations substantial deference "when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority." Mead Corp. , 533 U.S. at 226-27, 121 S.Ct. 2164. An agency's interpretation of statutory authority is examined "in light of the statute's text, structure, and purpose." Miguel-Miguel v. Gonzales , 500 F.3d 941, 949 (9th Cir. 2007). The interpretation fails if it is "unmoored from the purposes and concerns" of the underlying statutory framework. Judulang , 565 U.S. at 64, 132 S.Ct. 476.

In the regulation implementing the DPP provision, the Secretary uses "entitled" only once in the numerator of the Medicare fraction, departing from the statutory language of 42 U.S.C. § 1395ww. See 42 C.F.R. § 412.106(b) (assessing patient-days of patients who were "entitled to both Medicare Part A (including Medicare Advantage (Part C) ) and SSI"). The Secretary interprets this single use of "entitled" in different ways for counting patient-days of patients "entitled" to Medicare Part A and counting patient-days of patients "entitled" to SSI. The Secretary counts patient-days for which individuals are "entitled to [SSI benefits]" as only those days on which individuals actually receive payment of SSI benefits. In contrast, under the 2005 Final Rule, the Secretary counts patient-days for which individuals are "entitled to benefits under [Medicare] Part A" as all patient-days on which an individual qualifies for Medicare Part A, whether or not the individual actually receives Medicare Part A benefits on that day. This inconsistent application of the word "entitled" does not appear entirely reasonable; however, nothing in the language of 42 U.S.C. § 1395ww precludes the Secretary's interpretations in relation to Medicare Part A and SSI benefits. See Metro. Hosp. , 712 F.3d at 265-66. Therefore, the Secretary's interpretation is not "manifestly contrary to the statute." Chevron , 467 U.S. at 843, 104 S.Ct. 2778.

The Court next considers whether the Secretary has considered the "purposes and concerns" of the underlying statutory framework. See Judulang , 565 U.S. at 64, 132 S.Ct. 476. The Secretary provided the agency's reasons for reaching its interpretation of the phrase "entitled to benefits under [Medicare] part A" when the Secretary published the 2005 Final Rule. See 69 Fed. Reg. 49,098 -99 (Aug. 11, 2004). The Secretary stated that the agency "proposed this change to facilitate consistent handling of [Medicare Part A] days across all hospitals." Id. at 49,098. The Secretary considered and responded to the comments that had been submitted before adopting a policy to include the patient-days associated with dual-eligible beneficiaries in the Medicare fraction, whether or not the beneficiary has exhausted Medicare Part A hospital coverage. Id. at 49,098 -99. Based upon the Secretary's rationale in the 2005 Final Rule, the Court concludes that the Secretary's decision to count all the patient-days of individuals qualified for Medicare Part A, regardless of whether they are receiving coverage under Medicare Part A, must be given controlling weight. See Chevron , 467 U.S. at 843, 104 S.Ct. 2778.

The Court finds that Congress provided no express guidance regarding how Medicare Part A patient-days should be counted for the purposes of assessing the DPP in assessing the DSH adjustment. Therefore, the Court finds permissible the Secretary's interpretation of "entitled to benefits under [Medicare] part A" in § 1395ww, and, under Chevron , the Court defers to the Secretary's construction. See Chevron , 467 U.S. at 843, 104 S.Ct. 2778. Although it finds that 42 C.F.R. § 412.106(b)(2) is substantively valid based upon the Secretary's statutory interpretation, the Court also must analyze whether 42 C.F.R. § 412.106(b)(2) is procedurally valid.

II. Procedural Validity of 42 C.F.R. § 412.106(b)(2)

Empire argues that the Secretary did not follow proper notice-and-comment procedures in the implementation of the 2005 Final Rule because the Secretary misstated his then-existing policy in the 2003 Notice of Proposed Rulemaking, invalidating the 2005 Final Rule. ECF No. 34 at 19-20. The Secretary contends that the 2005 Final Rule was properly adopted despite the Secretary's misstatement of the agency's policy in the 2003 Notice of Proposed Rulemaking; the Rule is a logical outgrowth of the proposed rule; and the Rule is, therefore, procedurally valid. See ECF No. 46 at 27-30.

A. Rulemaking Process Leading to the 2005 Final Rule

The rulemaking process leading to the promulgation of the 2005 Final Rule occurred over a two-year period. In both May 2003 and May 2004, the Secretary published a notice of proposed rulemaking in anticipation of promulgating a final rule for the upcoming federal fiscal year. Between May and July each year, an approximately two-month-long open comment period followed each notice of proposed rulemaking, one in 2003 and one in 2004. In August 2003 and August 2004, the Secretary promulgated final rules for the upcoming federal fiscal year, the 2004 Final Rule and the 2005 Final Rule, respectively.

The Secretary did not adopt the 2003 proposal in the 2004 Final Rule and stated that the Secretary would address the comments regarding the agency's proposal in a later document. Likewise, the 2004 notice of proposed rulemaking merely stated that the Secretary would address the comments that the agency had received in a forthcoming rule. See 69 Fed. Reg. 28,286 (May 18, 2004). The first time that the Secretary addressed the comments submitted regarding the 2003 notice of proposed rulemaking was in the promulgation of the 2005 Final Rule. See infra Part II.A.6.

A recent district court case decided in the D.C. Circuit, Stringfellow Memorial Hospital v. Azar , provides a thorough history of the rulemaking process for the 2005 Final Rule as it relates to the Secretary's amendment of his policy regarding the application of "entitled to benefits under [Medicare] part A" in the Medicare fraction of the DPP provision. See Stringfellow Mem'l Hosp. v. Azar , 317 F.Supp.3d 168 (D.D.C. 2018). The Court recommends reading Stringfellow for a detailed description of the Secretary's rulemaking process, which the Court will repeat here only in relevant part.

1. 2003 Notice of Proposed Rulemaking

In May 2003, the Secretary issued a notice of proposed rulemaking for the 2004 fiscal year that proposed a change in how he treated individuals not receiving Medicare Part A benefits for purposes of the DPP calculation and DSH adjustment. See 68 Fed. Reg. 27,154 (May 19, 2003). The Secretary inaccurately stated that the agency's then-existing policy counted all dual-eligible patient-days in the Medicare fraction, excluding them from the Medicaid fraction, even if the patient was not receiving Medicare Part A benefits. See id. at 27,207 -08. The Secretary proposed to change this policy for counting the patient-days of Medicare Part A beneficiaries whose Medicare Part A coverage had been exhausted. He proposed to count exhausted Medicare Part A patient-days in the Medicaid fraction of the DPP provision. See id. at 27,208 -09.

2. Initial 2003 Comment Period for 2003 Proposed Rule

An initial open comment period followed the 2003 notice of proposed rulemaking, with a July 18, 2003 deadline for the submission of comments. 68 Fed. Reg. 27,154 (May 19, 2003).

Many commenters supported the policy that the Secretary had described as the then-existing policy: the inclusion of dual-eligible patient-days in the Medicare fraction of the DPP provision, regardless of whether the patient's Medicare Part A coverage had been exhausted. See, e.g. , AR at 486R; 583R; 718R; 816R. These commenters indicated that they opposed the proposed change to begin including dual-eligible exhausted patient-days in the numerator of the Medicaid fraction.

For example, the American Hospital Association ("AHA") opposed the proposed change because the [Centers for Medicare and Medicaid Services ("CMS") ] provided "no justified reason for making this change, and there are clear reasons not to make this change." Administrative Record ("AR") at 754R. The AHA noted that "the proposed change would place a significant new regulatory and administrative burden on hospitals," and that "CMS clearly states in the proposed rule that the current formula is consistent with statutory intent." Id. In addition, the AHA explained that "it is likely that this proposed change would result in reduced DSH payments to hospitals," because "[a]ny transfer of a particular patient day from the Medicare fraction (based on total Medicare patient days) to the Medicaid fraction (based on total patient days) will dilute the value of that day, and therefore reduce the overall patient percentage and the resulting DSH adjustment." Id. at 754-55R. The AHA stated that "the calculation of dual-eligible days must not be changed." Id. at 755R.

A number of commenters echoed the AHA, opposing the proposed change on the grounds that the change would result in large administrative burdens for hospitals. See, e.g. , id. at 486R (comments of Association of American Medical Colleges that the "current policy is consistent with statutory intent" and that the proposed policy will impose a "new administrative burden ... on hospitals to provide documentation"); id. at 583R (comments of Healthcare Association of New York State that "it will be difficult for hospitals to provide the data required under this proposal").

Two commenters supported the proposed policy change. See id. at 566R (comments in support from BlueCross BlueShield); id. at 860R (comments in support from the law firm Vinson & Elkins). In addition to supporting the Secretary's proposed policy, Vinson & Elkins also expressed confusion about the Secretary's statement of the then-existing policy. See id. at 860R. Vinson & Elkins "disagree[d] ... that CMS' description of its past practice is correct." Id. Specifically, Vinson & Elkins noted that the proposed rule was "at odds with the plain language of the regulation" governing the DSH adjustment, which stated that the Medicare fraction included " 'covered patient days' only"-in other words, unexhausted days only. Id. at 861R (quoting 42 C.F.R. § 412.106(b)(2)(i) before its amendment). That is, the Secretary's stated proposed rule was actually the manner in which dual-eligible exhausted days were currently being handled and the exact opposite of the policy the Secretary had put forth as the then-existing policy. Vinson & Elkins urged CMS to correct its misstatement, arguing that if the agency chose to stand by those statements, "it will squander its credibility with the courts and set[ ] itself up not only to lose as the issue is litigated but to subject itself to paying attorney fees and other sanctions." Id.

Southwest Consulting Associates ("SCA") also wrote to identify the misstatement, noting that "CMS' statement 'the days of patients who have exhausted their Medicare Part A coverage will no longer be included in the Medicare fraction'

is inconsistent with CMS' current actual practice with respect to the Medicare fraction." Id. at 405R. SCA had obtained a letter from the U.S. Department of Health and Human Service's Office of General Counsel, dated August 14, 2001, "stating that only covered days [that is, unexhausted days] are used in the [Medicare] fraction." Id. ; see also id. at 363R (letter from Linda Banks, CMS, to Christopher Keough, noting that "the Medicare/SSI denominator includes only the covered days," not exhausted days). Thus, SCA noted that "[t]o say that [exhausted] days 'will no longer be included' " in the Medicare fraction "may be a change in 'policy,' but it is clearly not a change in 'practice.' That begs the question-What was the 'policy'-what CMS professed or what it did?" Id. at 405R.

3. 2004 Final Rule

On August 1, 2003, the Secretary issued a final rule for the 2004 fiscal year. Regarding the treatment of dual-eligible patient-days, the Secretary noted that "[w]e are still reviewing the large number of comments received on the proposed provision relating to dual-eligible patient days in the May 19, 2003 [sic]. Due to the number and nature of the comments we received on our proposed policies, we are addressing the public comments in a separate document." 68 Fed. Reg. 45,346, 45,421 (Aug. 1, 2003). The 2004 Final Rule did not acknowledge or address the commenters' concerns that the agency may have misstated its then-existing policy by confusing its current practice with its proposed practice. No other document or notice followed between August 1, 2003, and May 2004.

4. 2004 Notice of Proposed Rulemaking

In May 2004, the Secretary issued a notice of proposed rulemaking for the 2005 fiscal year for general changes to the Medicare system. The 2004 notice of proposed rulemaking stated that the comments relating to dual-eligible patient-days would be addressed in a forthcoming final rule. 69 Fed. Reg. 28,286 (May 18, 2004). The Secretary explained that "[d]ue to the number and nature of the public comments received, we did not respond to the public comments on these proposals in the [2004 Final Rule]." Id. The Secretary did not mention any possible misstatement of his policy for handling dual-eligible days or any confusion regarding the agency's current policy and its proposed policy.

5. 2004 Comment Period for 2004 Notice of Proposed Rulemaking and the Secretary's Clarification of the Agency's Policy

An open comment period followed the publication of the 2004 notice of proposed rulemaking. This comment period closed on July 12, 2004. 69 Fed. Reg. 28,196 (May 18, 2004). During the 2004 comment period, many of the same commenters again wrote to the Secretary, opposing the proposed rule and supporting the policy that the Secretary had described as the then-existing policy.

Approximately three days before the 2004 comment period closed, the Secretary issued a clarification via the CMS website regarding the agency's statement of its then-existing policy for counting exhausted patient-days for dual-eligible individuals. See AR at 340R; see also 69 Fed. Reg. 49,098 (Aug. 11, 2004) ("A notice to this effect was posted on CMS's website ... on July 9, 2004."). In the CMS website clarification notice, the Secretary noted his misstatement of the agency's then-existing policy in the 2003 notice of proposed rulemaking, and concluded: "It has come to our attention, however, that [our previous statement of our policy] is not accurate. Our policy has been that only covered patient days are included in the Medicare fraction ( 42 C.F.R § 412.106(b)(2)(i) )." AR at 340R.

Following the Secretary's clarification notice, numerous commenters submitted comments opposing the proposed rule. See, e.g. , id. at 30-31R (comments of California Healthcare Association dated July 12, 2004, which do not mention the website notice, and restate the policy and proposal in line with the Secretary's inaccurate statements in the 2003 notice of proposed rulemaking); id. at 130R (comments of New Jersey Hospital Association dated July 12, 2004, restating the inaccurate policy articulated by the Secretary in the 2003 notice of proposed rulemaking and objecting to the proposed rule); id. at 152R (comments of Catholic Healthcare West dated July 9, 2004, laying out a similar argument). The reasons commenters provided for this opposition were substantially the same as those submitted in the 2003 comment period regarding concerns about the administrative burden and costs of implementing the proposed change. As support for their opposition, commenters also cited the Secretary's 2003 statement that the agency's then-existing policy was consistent with statutory intent. See, e.g. , id. at 130R (comments of New Jersey Hospital Association).

Several commenters mentioned the Secretary's website posting in their comments. See, e.g. , AR at 82R (comments of the Federation of American Hospitals, stating that "CMS admitted in a July 7, 2004[,] bulletin that it had been mistaken in its assertion that Part A Exhausted/Noncovered Days were in the Medicare percentage"). The Federation of American Hospitals ("FAH"), which had written in opposition to the proposed rule during the first comment period, AR at 789R (submitted July 8, 2003), wrote to discuss the Secretary's misstatement. Id. at 81-82R. In its July 12, 2004, comment, FAH explained that, "[w]hen drafting its comments for FY 2004, FAH took at face value CMS's statement that, historically, Part A Exhausted/Noncovered Days have been included in the Medicare fraction." Id. at 81R. "Assuming that this was true, and concerned that, if moved to the Medicaid fraction, the burden would be on the provider to identify these days, which might result in a lower number of days counted, FAH argued for a continuation of the existing policy to include these days in the Medicare percentage." Id. Since submitting its initial comments, however, "FAH ha[d] been informed that at least one knowledgeable fiscal intermediary, and possibly members of CMS staff, have indicated that further research has confirmed that such days are, in fact, not currently (and never were) included in the Medicare percentage." Id. at 82R. FAH thus urged the Secretary to "continue to accept comments on this issue." Id. at 81R. In addition, FAH argued that dual-eligible exhausted days should be included in the Medicare fraction, but that "[i]f such days are not counted in the Medicare fraction, then the days must be counted in the Medicaid fraction." Id. at 82R.

The National Association of Public Hospitals and Health Systems ("NAPH") submitted its comment on July 8, 2004, stating, "we are deeply troubled by the recent web posting of a modification of these comments on the CMS website." Id. at 288R. The NAPH comment continued, "by posting [the notice] a few days before the FY 2005 IPPS proposed rule comments are due, CMS has limited the ability of the provider community to properly analyze and comment on this policy in the context of the