Bethesda Health, Inc. v. Azar

980 F.3d 121

BETHESDA HEALTH, INC., doing business as Bethesda Memorial Hospital, et al., Appellees

v.Alex M. AZAR, II, in his official capacity as Secretary of Health and Human Services, Appellant

No. 19-5260

United States Court of Appeals, District of Columbia Circuit.

Argued September 11, 2020

Decided November 13, 2020

Jennifer L. Utrecht, Attorney, U.S. Department of Justice, argued the cause for appellant. With her on the briefs were Mark B. Stern, Attorney, Robert P. Charrow, General Counsel, U.S. Department of Health & Human Services, Janice L. Hoffman, Associate General Counsel, Susan Maxson Lyons, Deputy Associate General Counsel for Litigation, and Debra M. Laboschin, Attorney.

Ashley C. Parrish, Washington, DC, argued the cause for appellees. With him on the brief were Mark D. Polston, Christopher P. Kenny, and Gabriel Krimm, Washington, DC.

Before: Srinivasan, Chief Judge, Katsas, Circuit Judge, and Ginsburg, Senior Circuit Judge.

Ginsburg, Senior Circuit Judge:

The Social Security Act provides hospitals treating a disproportionate number of patients under Medicaid with a higher rate of reimbursement under Medicare. 42 U.S.C. § 1395ww(d)(5)(F). In calculating the proportion of treatment a hospital provided to Medicaid patients (the Medicaid fraction), the statute and relevant regulations permit the hospital to include not just patients covered under traditional Medicaid plans, but also patients eligible for treatment under experimental Medicaid "demonstration projects" approved by the Secretary of Health and Human Services. See id. ; 42 C.F.R. § 412.106(b)(4).

In calculating their Medicaid fractions, the plaintiff hospitals sought to include days of care funded by Florida's Low Income Pool, an approved Medicaid demonstration project. Through the Low Income Pool, the State of Florida and the federal government jointly reimbursed hospitals for care provided to uninsured and underinsured patients. The Secretary, however, refused to allow the hospitals to include these patients in their Medicaid fraction, on the ground that the patients were treated out of charity rather than as designated beneficiaries of a demonstration project.

The district court disagreed with the Secretary's analysis. Bethesda Health, Inc. v. Azar , 389 F. Supp. 3d 32 (2019). As the court explained, the Secretary's own regulation states that, for the purposes of calculating the Medicaid fraction, "hospitals may include all days attributable to populations eligible for [Medicaid] matching payments through a [demonstration project]" so long as the services provided under the demonstration project include "inpatient hospital services." 42 C.F.R. § 412.106(b)(4)(i)-(ii). It was "obvious to the [c]ourt that uninsured and underinsured patients received inpatient hospital services" through the Low Income Pool, because (1) the Secretary authorized federal matching funds to reimburse hospitals for these services, and (2) the hospitals rigorously documented the services provided using funds from the Pool. Bethesda , 389 F. Supp. 3d at 45.

The district court found the Secretary's arguments to the contrary unpersuasive. The Secretary argued the text of the regulation allows hospitals to include days of care provided under a demonstration project only if the project entitles specific patients to specific benefit packages. Id. at 47-48. As the court noted, however, this is not what the regulation says. Rather, a patient must have been "eligible for inpatient services," meaning the demonstration project enabled the patient to receive inpatient services,...