Council For Urological Interes v. Sylvia Mathews Burwell
790 F.3d 212, 2015 U.S. App. LEXIS 9867, 416 U.S. App. D.C. 143 (2015)
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Rule of Law:
An agency's interpretation of an ambiguous statute is entitled to Chevron deference if it is a reasonable construction of the statute, but agency action must be upheld on the grounds invoked by the agency during rulemaking, not on post-hoc rationalizations by appellate counsel (Chenery doctrine).
Facts:
- Medicare provides federally funded health insurance for outpatient hospital procedures, reimbursing hospitals at higher rates than other facilities for these procedures.
- Physicians, through joint ventures, lease laser technology and other medical equipment to hospitals.
- These physicians typically prefer to perform procedures in hospitals due to higher Medicare reimbursement rates, creating a financial incentive to refer patients to hospitals where they have leasing arrangements.
- The Stark Law prohibits physicians with a "financial relationship" with a hospital from referring Medicare patients to that hospital, but includes exceptions, such as for equipment rentals meeting specific conditions.
- One condition for the equipment rental exception states that rental charges must be set in advance, consistent with fair market value, and "not determined in a manner that takes into account the volume or value of any referrals."
- The Stark Law also grants the Secretary authority to impose "such other requirements ... as needed to protect against program or patient abuse" for equipment leases.
- The Secretary previously proposed banning per-click leases and expanding the definition of "furnishing" designated health services in 1998, but did not adopt these in the 2001 final rule, though she expressed concern and intent to monitor.
- In 2007, the Secretary again proposed these bans, and adopted them in a 2008 final rule, explicitly prohibiting per-click equipment leases and defining an entity "furnishing" services to include those who perform, not just bill for, designated health services.
Procedural Posture:
- The Council for Urological Interests filed an action in district court in March 2009, alleging the 2008 rule exceeded the Secretary’s authority under the APA and violated the RFA.
- The Secretary moved to dismiss the complaint for lack of subject-matter jurisdiction, arguing administrative remedies must be exhausted.
- The district court granted the Secretary's motion to dismiss.
- The D.C. Circuit reversed the dismissal, holding that the Council and other affected parties lacked access to administrative review because the statute only permitted Medicare "providers" who billed Medicare to seek such review (Council for Urological Interests v. Sebelius, 668 F.3d 704 (D.C.Cir.2011)).
- On remand, the parties filed cross-motions for summary judgment in the district court.
- The district court granted the government’s motion for summary judgment, concluding the agency regulations were entitled to Chevron deference and were reasonable, and rejected the Council’s RFA claims (Council for Urological Interests v. Sebelius, 946 F.Supp.2d 91 (D.D.C.2013)).
- The Council timely appealed both the APA and RFA claims to the D.C. Circuit Court of Appeals.
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Issue:
Does the Secretary of Health and Human Services' 2008 rule, which bans per-click equipment leases and expands the definition of "entity furnishing designated health services," exceed her statutory authority under the Stark Law and comply with the Administrative Procedure Act and Regulatory Flexibility Act?
Opinions:
Majority - Circuit Judge GRIFFITH (Parts II.A, III, IV, V); Circuit Judge HENDERSON (Part II.B)
Yes, the Secretary's interpretation of "furnishing designated health services" and compliance with the RFA are valid; however, No, the Secretary's ban on per-click leases is not reasonable under Chevron step two. Regarding the per-click ban (Part II.A, Griffith): The court found that the statute is ambiguous at Chevron step one regarding the permissibility of per-click leases. While the rental-charge clause (42 U.S.C. § 1395nn(e)(1)(B)(iv)) requires charges not to account for referral volume, the final clause (42 U.S.C. § 1395nn(e)(1)(B)(vi)) explicitly grants the Secretary authority to impose "other requirements... as needed to protect against program or patient abuse." This "other requirements" clause provides the Secretary with discretion to ban per-click leases. The legislative history stating that charges "may" be based on units of service is not obligatory and does not clearly limit the Secretary's explicit authority to add requirements to protect against abuse. Congress demonstrated elsewhere in the Stark Law that it knew how to explicitly permit per-click fees (e.g., group practice exception) and how to limit the Secretary's "other requirements" authority (e.g., employment exception), but did not do so for equipment leases. Regarding the per-click ban (Part II.B, Henderson): The per-click ban fails at Chevron step two because the Secretary’s explanation in the 2008 rulemaking was unreasonable. The Secretary's preamble attempted to reconcile the ban with the 1993 Conference Report by arguing that the "total amount of rent" (rental income) could be said to fluctuate based on referrals, implicitly reinterpreting the Conference Report's clear statement that "units of service rates" are what cannot fluctuate. This convoluted explanation, which effectively reads "rates" out of the Conference Report, is not a "reasonable explanation of how an agency’s interpretation serves the statute’s objectives." The court emphasized that, per Chenery v. SEC, it cannot affirm agency action based on post-hoc rationalizations by counsel that were not articulated during the rulemaking. Therefore, the per-click ban must be remanded. Regarding the definition of "furnishing designated health services" (Part III, Griffith): The Secretary’s expanded definition of an "entity furnishing designated health services" to include entities that perform services (not just bill for them) is a reasonable construction of the statute under Chevron step two. The terms "provide" and "furnish" are used interchangeably in the statute, and this definition rationally furthers the purpose of the Stark Law by closing a loophole that allowed physician-owned entities to circumvent the law by having hospitals bill Medicare. The new definition does not render the group practice exception meaningless, as it still allows employees without ownership interests to refer patients and applies to group practices that meet other ownership exceptions (e.g., rural providers). The regulation is rationally related to the Stark Law's purpose of preventing financial interests from influencing referrals and is not impermissibly vague, as the Secretary provided guidance in the preamble and can further clarify through adjudication. Regarding Regulatory Flexibility Act (RFA) compliance (Part IV, Griffith): The Secretary satisfied the RFA's requirements. Although the term "certify" was not explicitly used, the preamble contained a statement that the policies would not have a significant impact on small entities, which the court deemed sufficient. The Secretary's belief that existing arrangements could be restructured, coupled with the delayed effective date to allow restructuring, provided a factual basis for this certification. The court's review of the substance of such certifications is highly deferential, especially for predictions of economic effects.
Dissenting - Circuit Judge KAREN LECRAFT HENDERSON
No, Congress unambiguously intended to authorize per-click equipment leases, and therefore the Secretary’s ban on them exceeds her authority at Chevron step one. Judge Henderson argues that the "other requirements" authority (42 U.S.C. § 1395nn(e)(1)(B)(vi)) cannot be used to contradict Congress's unambiguous intent. Subsection (iv) of the equipment exception addresses rental charges, stating they cannot be determined "in a manner that takes into account the volume or value of any referrals." While the term "rental charges" is textually ambiguous, capable of referring to either total rental income or the per-patient rate, the 1993 House Conference Report explicitly clarifies this ambiguity. The Conference Report states that "charges for ... equipment leases may be based on ... rates based on units of service furnished, so long as the amount of the ... units of service rates does not fluctuate during the contract period." This legislative history unambiguously demonstrates Congress's intent that fixed per-click rates are permissible. This clear legislative history resolves the ambiguity at Chevron step one, precluding the agency from banning per-click leases. The use of "may" in the Conference Report still constrains the agency; if Congress states something "may" be done, the agency is not free to prohibit it. The distinction between "compensation per unit of services" in the group practice exception and "rental charges" in the equipment exception does not override this clear legislative intent.
Dissenting - Circuit Judge GRIFFITH
The per-click rule should have been upheld based on the Secretary's reasoning on appeal, because the Council failed to properly raise the Chenery argument. Judge Griffith agrees that the Secretary's original explanation of the legislative history in the 2008 rulemaking was unreasonable. However, he argues that the Council for Urological Interests failed to properly raise the Chenery argument (that the agency cannot rely on new reasoning on appeal) in its opening brief. He contends that the brief excerpt cited by the majority did not implicitly raise Chenery, especially given that the Council had explicitly raised it before the district court and was aware of the Secretary's appellate arguments. Therefore, Judge Griffith believes the court should have considered the Secretary's alternative reasoning offered on appeal (that the legislative history does not limit the Secretary's "other requirements" authority), and on that basis, the per-click ban should have been upheld.
Analysis:
This case highlights the complexities of Chevron deference, particularly the interplay between statutory text, legislative history, and agency reasoning under the Chenery doctrine. The split in the majority regarding the per-click ban underscores the fine line between statutory ambiguity and an agency's permissible construction. The decision reinforces that while agencies have discretion to fill statutory gaps, their justifications must be reasonable and articulated during the rulemaking process. For law students, it illustrates that legislative history can still play a crucial role in Chevron step one analysis when the text is ambiguous, and the strict application of Chenery doctrine prevents courts from ratifying agency actions based on post-hoc justifications.
