No. 95-110

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

RYE PSYCHIATRIC HOSPITAL CENTER, INC.,
PETITIONER

v.

DONNA E. SHALALA,
SECRETARY OF HEALTH AND HUMAN SERVICES

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

DREW S. DAYS, III
Solicitor General

FRANK W. HUNGER
Assistant Attorney General

ANTHONY J. STEINMEYER
DOUGLAS B. JORDAN
Attorneys

Department of Justice
Washington, D.C. 20530
(202)514-2217

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QUESTION PRESENTED

Whether petitioner, a psychiatric hospital governed
by a specific Medicare reimbursement system
(TEFRA), is entitled to an adjustment for treating a
large proportion of low-income patients, when the
Medicare statute and implementing regulations ex-
pressly authorize that adjustment only for hospitals
governed by a different Medicare reimbursement sys-
tem (PPS).

(I)

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TABLE OF CONTENTS

Page

Opinions below . . . . 1
Jurisdiction . . . . 1
Statement . . . .  2
Argument . . . . 9
Conclusion . . . . 18

TABLE OF AUTHORITIES

Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661 (1990). . . . 11
Episcopal Hosp. v. Shalala, 994 F.2d 879 (D.C. Cir.
Ct. 1993), cert. denied, 114 S. Ct. 876 (1994)  . . . . 15
Good Samaritan Hosp. v. Shalala, 113 S. Ct. 2151
(1993) . . . . 2, 3
Harrison v. PPG Industries, Inc., 446 U.S. 578
(1980) . . . . 11
Hillsborough County Hosp. Auth. v. Shalala, 49 F.3d
1516 (11th Cir. 1995), petition for cert. pending
No. 95-98 . . . . 15
Massachusetts Federation of Nursing Homes, Inc. v.
Massachusetts, 772 F. Supp. 31 (D. Mass. 1991) . . . . 16
Morales v. Trans World Airlines, Inc., 504 U.S. 374
(1992) . . . . 11
Multicare Medical Center v. Washington,  768 F. Supp
1349 (W.D. Wash. 1991) . . . . 16
New Jersey Ass'n of Health Care Facilities, Inc. v.
Gibbs, 838 F. Supp 881 (D.N.J. 1993) . . . . 16
Pittsdon Coal Group v. Sebben, 488 U.S. 105 (1988) . . . .. 11
Sacred Heart Medical Center v. Sullivan, 958 F.2d 537
(3rd Cir. 1992) . . . . 15
Schweiker v. Wilson, 450 U.S. 221 (1981) . . . . 17
Standefer v. United States, 447 U.S. 10 (1980) . . . . 11

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IV

Cases-Continued:

Page

Tucson Medical  Center v. Sullivan, 947 F.2d 971 (D.C.
Cir 1991)  . . . . 
Webster v. Doe, 486 U.S. 592 (1988)  . . . . 
Constitution, statutes and regulations:
U.S. Const. Amend. V (Due Process Clause)  . . . . 
Deficit Reduction Act of 1984, Pub. L. No. 98-369,
 2315(h), 98 Stat. 1080-1081  . . . . 
Omnibus Budget Reconciliation Act of 1989, Pub. L. No.
101-239,  6003(i), 103 Stat. 2158  . . . . . 
Social Security Amendments of 1983, Pub. L. No. 98-21,
97 Stat. 65
601(e), 97 Stat. 157  . . . . 
603(a), 97 Stat. 166-167  . . . .  
Tax Equity and Fiscal Responsibility Act, Pub. L. No.
97-248,96 Stat. 324  . . . . 
  42 U.S.C. 1395f(b)  . . . . 
  42 U.S.C. 1395f(b)(2)  . . . . 
  42 U.S.C. 1395x(v)  . . . . 
  42 U.S.C. 1395ww  . . . . 
  42 U.S.C. 1395ww(a)(l)(A) . . . .  6
  42 U.S.C.1395ww(a)(l)(B)i) . . . .  6
  42 U.S.C. 1395ww(a)(l)(D)  . . . . 6
  42 U.S.C. 1395ww(a)(2) . . . . 5, 6, 11, 12
  42 U.S.C. 1395ww(a)(2)(B) . . . . 6, 13
  42 U.S.C. 1395ww(b)  . . . . 10
  42 U.S.C. 1395ww(b)(l)  . . . . 
  42 U.S.C. 1395ww(b)(3)(A)  . . . . 
  42 U.S.C. 1395ww(b)(4)A)  . . . . 4, 6, 8, 13, 14, 15
  42 U.S.C 1395ww(b)(4)(A)(i)  . . . . 
  42 U.S.C 1395ww(b)(4)(A)(i) (Supp. V 1993)  . . . . 
  42 U.S.C. 1395ww(b)(4)(B) . . . .  
  42 U.S.C. 1395ww(d)  . . . . 
  42 U.S.C.1395ww(d)(l)(B)  . . . . 
  42 U.S.C. 1395ww(d)(l)(B)(i)  . . . . 3
  42 U.S.C. 1395ww(d)(5)(F)  . . . . 3, 4, 5, 9
  42 U.S.C. 1395ww(d)(5)(F)(i)  . . . . 
  42 U.S.C. 1395ww(d)(9)(B) (ii)(III)-(IV)  . . . . 

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v

Regulations -- Continued:

Page

42 C. F. R.:

Section 412.106  . . . . 3 
Section 413.40(b)(l)  . . . . 2
Section 413.40(g)(3)(i)  . . . . 16
Section 413.40 (g)(3) (ii)(D)  . . . . 17
Section 413.40 (g)(3) (iii)  . . . . 17
Section 413.40(i)  . . . . 3

Miscellaneous:
7 Fed. Reg. (1982):
p. 43,285  . . . .  13
p. 43,296  . . . .  14
p. 43,303  . . . .  14
H.R. Conf. Rep. No. 760, 97th Cong., 2d Sess. (1982)  . . . .  16
H.R. Rep. No. 25, 98th Cong., 1st Sess. (1983)  . . . .   3
H.R. Rep. No. 494, 97th Cong., 2d Sess. (1982)  . . . .  16

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IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

No. 95-110

RYE PSYCHIATRIC HOSPITAL CENTER, INC.,
      PETITIONER

v.

     DONNA E. SHALALA,
SECRETARY OF HEALTH AND HUMAN SERVICES

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS 
    FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

       OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 3a-
26a) is reported at 52 F.3d 1163. The opinion of the
district court is reported at 846 F. Supp. 1170.1

       JURISDICTION

The judgment of the court of appeals (Pet. App. 1a-
2a) was entered on April 10, 1995. The petition for a

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1

 The district court opinion reprinted in petitioner's ap-
pendix (Pet. App. 27a-41a) is not the decision in this case. It
appears to have been included by mistake. We therefore cite
the reported decision.    (1)

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2

writ of certiorari was filed on July 10, 1995 (a
Monday). The jurisdiction of this Court is invoked
under 28 U.S.C, 1254(1).

        STATEMENT

1. a. Before 1982, the Medicare program reim-
bursed hospitals for providing inpatient services to
eligible patients under a "reasonable cost" formula
generally based on necessary costs actually incurred.
42 U.S.C. 1395(v); see generally Good Samaritan
Hosp. v. Shalala, 113 S. Ct. 2151,2154-2155 (1993). In
1982, Congress enacted the Tax Equity and Fiscal
Responsibility Act (TEFRA) to give hospitals an
incentive to reduce their costs. Pub. L. No. 97-248, 96
Stat. 324. Under TEFRA, hospitals that keep their
costs under a "target amount" are entitled to
bonuses, and hospitals that exceed that amount must
absorb at least some of the additional costs. 42 U.S.C.
1395ww(b)(l). The target amount under TEFRA is
based on the "allowable operating costs" for inpatient
services during a one-year base period, increased by
an annual percentage. 42 U.S.C. 1395ww(b)(3)(A); 42
C.F.R. 413.40(b)(l). The statute provides for adjust-
ments to that increase
where events beyond the hospital's control or
extraordinary circumstances, including changes
in the case mix of such hospital, create a
distortion in the increase in costs for a cost
reporting period.
42 U.S.C. 1395ww(b)(4)(A)(i).
In addition, under a 1990 amendment to TEFRA,
hospitals may ask for additional relief, which the
Secretary may provide "as [she] deems appropriate."
42 U.S.C. 1395ww(b)(4)(A)(i) (Supp. V 1993). Such

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3

relief may include the adoption of a new base period
"which is more representative, as determined by the
Secretary, of the reasonable and necessary cost of
inpatient services." Ibid; see 42 C.F.R. 413.40(i).
b. In 1983, Congress established the "prospective
payment system" (PPS) to give hospitals incentives
for increased efficiency and to give the government
more control over health care expenditures. H.R.
Rep. No. 25, 98th Cong., lst Sess. 132(1983). Under
the PPS, payment to hospitals for most inpatient
services is based on predetermined national or
regional average rates for the cost. of treating parti-
cular illnesses. See 42 U.S.C. 1395ww(d). Cases are
classified into one of approximately 470 "Diagnosis
Related Groups" (DRGs), and compensation is based
on those classifications rather than the actual costs
of each case.  See 42 U.S.C. 1395ww(d). A 1986
amendment to the statute authorized additional
adjustments to the reimbursement schedules for PPS
hospitals serving a "significantly disproportionate
number of low-income patients" with special needs
(the disproportionate share adjustment, or DSA). 42
U.S.C.1395ww(d)(5)(F); see also 42 C.F.R. 412.106. -
The 1983 Act establishing the PPS specifically
excluded five types of hospitals from that reimburse-
ment system, including psychiatric hospitals such as.
petitioner. 42 U.S.C. 1395ww(d)(l)(B)(i). Psychiatric
hospitals, including petitioner, continue to be reim-
bursed under TEFRA. See Tucson Medical Center v.
Sullivan, 947 F.2d 971, 975 n.5 (D.C. Cir. 1991); see-
also Good Samaritan, 113 S. Ct. at 2155 n.3.
2. Petitioned"- brought this action to compel the
Secretary to increase its reimbursement on the
ground that it serves a disproportionately large share
of low-income patients.  846 F. Supp. at 1176. It

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4

argued that it was entitled to the additional reim-
bursement under 42 U.S.C. 1395ww(d)(5(F), the pro-
vision that expressly authorizes DSAs for P P S
hospitals, and that the deniaI of DSAs to non-PPS
hospitals violated principles of substantive due
process and equal protection. See 846 F. Supp. at
1177.
The district court granted summary judgment for
petitioner on a ground not raised by either party. It
agreed with the Secretary that Section 1395ww(d)
(5)(F) applies only to PPS hospitals, and not to
TEFRA hospitals such as petitioner. 846 F. Supp. at
1180. The court also held, however, that petitioner
was entitled to a DSA under 42 U.S.C. 1395ww(b)
(4)(A). The court determined that the first sentence
of Section 1395ww(b)(4)(A) (reproduced at p. 2, supra)
-which authorizes adjustments for TEFRA hos-
pitals based on "extraordinary circumstances, in-
cluding changes in the case mix of such hospital,"
42 U.S.C. 1395ww(b)(4)(A)-"dea1s in different lan-
guage with the same factual problem of a substantial
proportion of low-income patients" as does Section
1395ww(d)(5)(F). 846 F. Supp. at 1183. The court
based that determination on its view- that the term
"case mix" in Section 1395ww(b)(4)(A} "clearly in-
cludes the concept of `significant[ly] disproportionate
number of low-income patients.'" 846 F. Supp. at 1183
(quoting Section 1395ww(d)(5)(F)). The court further
determined (846 F. Supp. at 1183) that the adjustment
sought by petitioner was also authorized by the
second sentence of Section 1395ww(b)(4)(A), which
empowers the Secretary to make such adjustments
"as [she] deems appropriate." 42 U.S.C. 1395ww(b)
(4)(A). The court issued its opinion as declaratory
relief. 846 F. Supp. at 1184.

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5

3. On cross-appeals, the court of appeals reversed
the rulings in favor of petitioner and affirmed those in
favor of the Secretary. Pet. App. 3a-26a.
The court of appeals held, first, that the district
court properly interpreted Section 1395ww(d)(5)(F) to
exclude psychiatric hospitals and other non-PPS
hospitals] from eligibility for DSAs. Pet. App. 14a-
19a. The court observed that Section 1395ww(d)(5)(F)
applies only to PPS hospitals, i.e., "subsection (d)
hospital[s]," a term defined to mean "other than * * *
a psychiatric hospital." Pet. App. 14a-15a (quoting 42
U.S.C. 1395ww(d)(5)(F)(i) and 1395ww(d)(l)(B)).
The court of appeals held, next, that petitioner was
not entitled to a DSA under 42 U.S.C. 1395ww(a)(2).
Pet. App. 17a-18a. Section 1395ww(a)(2) provides in
pertinent part:

The Secretary shall provide for such exemptions
from, and exceptions and adjustments to, the limi-
tation established under (l)(A) as he deems appro-
priate, including those which he deems necessary
to take into account-

*****

  (B) the special needs of psychiatric hospitals and
of public or other hospitals that serve a
significantly disproportionate number of patients
who have low income * * *.

The court determined that Section 1395ww(a)(2) did
not apply to the time periods for which petitioner
sought additional reimbursement.  The court ex-
plained that Section 1395ww(a)(2) "provide[d] for ex-
ceptions to the [cost] limitations established by [42
U. S. C.] 1395ww(a)(l)(A)," which, it pointed out, did

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6

"not apply to reporting periods beginning after
October 1, 1983." Pet. App. 18a (citing 42 U.S.C.
1395ww(a)(l)(D)). Accordingly, the court reasoned,
the exception to those cost limitations provided by
Section 1395ww(a)(2) likewise was inapplicable to
reporting periods after October 1, 1983. Pet. App. 18a.
The court of appeals further held that additional
reimbursement was not available under 42 U.S.C.
1395ww(b)(4)(A), the provision upon which the district
court had relied. Pet. App. 19a-24a. The court of
appeals concluded that the term "case mix" in sub-
section (b)(4)(A) "refers to the medical condition of a
hospital's patients, not to their financial conditions."
Pet. App. 20a. In support of that conclusion, the court
cited the two provisions that it had already found to
apply only to cost periods prior to October 1983. In
connection with the general  cost limitations
established by Section 1395ww(a)(l)(A), the statute at
that time had directed the Secretary to "establish
case mix indexes for all short-term hospitals, and
* * * set limits for each hospital based upon the
general mix of types of medical cases." Pet. App. 20a
(quoting 42 U.S.C. 1395ww(a)(l)(B)(i)). That pro-
vision, the court explained, made it "reasonably plain
that `case mix' refers to the mix of medical
[conditions] rather than financial conditions of the
patients." Pet. App. 20a. That reading was reinforced
by the provision allowing the Secretary, in her
discretion, `to adjust or exempt a hospital from the
general limitations in Section 1395ww(a)(l)(A) to
accommodate "the special needs of * * * hospitals
that serve a significantly disproportionate number of
patients who have low income."  Pet. App. 21a
(quoting 42 U.S.C. 1395ww(a)(2)(B)). The court
reasoned that the separate provision for hospitals

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7

with a disproportionate number of low-income
patients would have been unnecessary if the term
"case mix" incorporated that factor, since "case mix
indexes" were the basis for the general cost limita-
tions that applied in the absence of an exemption or
adjustment under the separate provision. Pet. App.
21a.
The court of appeals found further support for its
interpretation of the term "case mix" in the dif-
ferences. between the PPS and the TEFRA reim-
bursement systems. Pet. App. 23a-24a. The court
observed that the DSA authorized for PPS hospitals
"is attributable to Congress's conclusion that low-
income patients tend to be in poorer health, and
therefore to cost more to treat, than others." Id. at
23a. Because PPS hospitals are reimbursed on the
basis of DRGs `that reflect national or regional
average costs of treating various illnesses, "PPS
hospitals that treat a disproportionate share of low-
income patients * * * would be shortchanged * * *
for doing so unless the per illness reimbursement
were adjusted upward to take account of that fact."
Ibid. In contrast, a TEFRA hospital is reimbursed
"based on its allowable costs in a base year," which
includes "any added costs associated with the
treatment of low-income patients in the base year."
Ibid. Thus, to the extent that those added costs are
reflected in the base year, an adjustment providing
additional compensation for those same costs could
result in over-reimbursement. Ibid.2

___________________(footnotes)

2 The court of appeals also found support for its inter-
pretation of "case mix" in the legislative history and in the
Secretary's interpretation of the Medicare statute. Pet. App.
21a-23a. It observed that the term was used in the legislative

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8

The court of appeals "recognize[d] * * * that a
TEFRA hospital may incur added costs that are not
included in its base, * * * particularly if the pro-
portion of low-income patients served increases as
compared with its base year." Pet. App. 24a. But the
court observed that "a TEFRA hospital is not
without recourse in these circumstances" (ibid.); it
could apply for an adjustment under Section
1395ww(b)(4)(A).  The court emphasized, however,
that an adjustment under that provision "would be
based on the fact that more of its patients are sicker
or require more intensive or extensive care, not on
their income levels." Ibid.
Finally, the court of appeals rejected petitioner's
claim that, if the Medicare statute were construed to
deny DSAS to TEFRA hospitals while authorizing
them for PPS hospitals, it would violate equal
protection. Pet. App. 24a-25a. To the extent that peti-
tioner advanced that claim as a facial challenge, the
court held that the differential treatment was reason-
able in light of the differences between the two
reimbursement systems. Id. at 25a. To the extent
that petitioner sought to make the claim on an "as
applied" basis, the court held that its challenge was
not ripe because it had not applied for an adjustment
under Section 1395ww(b)(4)(A). See Pet. App. 25a.

___________________(footnotes)

history "in the context of indices of case mix complexity which,
like the Yale University system which it specifically
mentioned, dealt with medical condition." Id. at 21a. The
court also observed that "[t]he Secretary repeatedly has
construed the term `case mix' to refer to the types of medical
cases treated by hospitals." Id. at 22a.

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9

ARGUMENT

The court of appeals correctly held that petitioner
is not entitled to additional Medicare reimbursement
based on its treatment of an allegedly dispro-
portionate share of low-income patients. 3  Petitioner
acknowledges (Pet. 10) that the decision below "is the
only decision by an appellate court to consider the
availability of the [disproportionate share adjustment]
to non-PPS hospitals." Further review is therefore
not warranted.
1. In the courts below, petitioner relied on three
statutory provisions in claiming additional reim-
bursement. None of those provisions supports peti-
tioner's claim.
a. Only one of the provisions cited by petitioner
expressly mandates additional reimbursement to
hospitals for treatment of a disproportionate share of
low-income patients. That is 42 U.S.C. 1395ww(d)
(5)(F)(i), which in relevant part states:

For discharges occurring on or after May. 1,
1986, and before October 1, 1995, the Secretary
shall provide * * * for an additional payment
amount for each subsection (d) hospital which-

   (1) serves a significantly disproportionate
  number of low-income patients * * *.
As both courts below correctly held, Section
1395ww(d)(5)(F) does not apply to non-PPS hospitals
such as petitioner. Pet. App. 14a-15a; 846 F. Supp. at
1180. Section 1395ww(d)(5)(F) applies only to P P S

___________________(footnotes)  

3 The district court assumed, without deciding, that peti-
tioner "treats a substantial number of low-income patients."
846 F. Supp. at 1180 n.35.  For purposes of this brief, we
 assume the same.

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10

hospitals, i.e., "subsection (d) hospitals]," a term that
is defined to exclude psychiatric hospitals and other
hospitals that continue to be reimbursed under the
TEFRA provisions of Section 1395ww(b), rather than
under the PPS. See 42 U.S.C. 1395ww(d)(l)(B)(i).
Petitioner does not directly challenge the
conclusion of the courts below that only PPS hos-
pitals are entitled to the disproportionate share
adjustment (DSA) authorized by Section 1395ww(d)
(5)(F). Instead, petitioner relies on two sets of
statutory provisions that it contends form the "back-
ground" for Section 1395ww(d)(5)(F). Pet. 14. One set
of provisions, which predates Section 1395ww(d)(5)(F),
directed the Secretary to develop criteria for making
DSAs to PPS hospitals. See Pet. 11 (citing Social
Security Amendments of 1983 (1983 Act), Pub. L. No.
98-21,  601(e), 97 Stat. 157) and Pet. 13 (citing Deficit
Reduction Act of 1984, Pub. L. No. 98-369,  2315(h), 98
Stat. 1080-1081). The other set of provisions directed
the Secretary to study whether non-PPS hospitals
could be brought into the PPS or a similar pro-
spective reimbursement system. Pet. 6-7 (citing 1983
Act,  603(a), 97 Stat. 166-167, and Omnibus Budget
Reconciliation Act of 1989, Pub. L. No. 101-239,
6003(i), 103 "Stat. 2158).  Those "background"
provisions are irrelevant, for they do not alter the
facts that Section 1395ww(d)(5)(F) limits DSAs to
PPS hospitals and that petitioner is not a PPS hos-
pital.
b. Petitioner renews (Pet. 18-21) its contention
that it is entitled to a DSA under 42 U.S.C. 1395ww
(a)(2). The courts below correctly held that Section
1395ww(a)(2) does not apply to the time periods for
which petitioner sought reimbursement. Pet. App.
17a-18a; see 846 F. Supp. at 1173 n.6, 1178 n.30.

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11

In Section 1395ww(a)(2), Congress authorized the
Secretary to provide for "exemptions from, and ex-
ceptions and adjustments to," the general cost
limitations established by Section 1395ww(a)(l)(A).
42 U.S.C. 1395ww(a)(2). Congress further provided
that those limitations "shall not apply to cost
reporting periods beginning on or after October I_,
1983." 42 U.S.C. 1395ww(a)(l)(D). As the court of
appeals reasoned, because Section 1395ww(a)(2) ex-
clusively concerns departures from the generally
applicable cost limitations of Section 1395ww(a)(l)(A),
it is operative only for those reporting periods for
which the general limitations are operative: i.e.,
periods before October 1983. Pet. App. 18a. Because
the present case concerns later cost reporting
periods (see 846 F. Supp  at 1177), Section" 1395ww-
(a)(2) is inapplicable here.
Petitioner also argues that Section 1395ww(a)(2)
must be construed to apply to later cost reporting
periods for three reasons, none of which is persuasive.
Petitioner argues, first, that Section 1395ww(a)(2)
was so "vital" that, if Congress had intended it not to
apply after October 1983, "this conclusion would be
found in the legislative history." Pet. 19. "It is not
the law," however, "that a statute can have no effects
which are not explicitly mentioned in its legislative
history." Pittston Coal Group v. Sebben, 488 U.S. 105,
115 (1988)! Petitioner also points out that, after

___________________(footnotes)  

4 Accord, e.g., Eli Lilly & Co. v. Medtronic, Inc., 496 U.S.
661, 669 n.2 (1990); Standefer v. United States, 447 U.S. 10, 20
n.12 (1980); Harrison v. PPG Industries, Inc., 446 U.S. 578,
592 (1980); see also Morales v. Trans World Airlines, Inc., 504
U.S. 374, 385 n.2 (1992) ("[Legislative history need not confirm
the details of changes in the law effected by statutory language

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12

October 1983, Congress enacted a technical amend-
ment correcting a misspelling in Section 1395
ww(a)(2). Pet. 20. That amendment signifies that the
provision had not been repealed, but it implies nothing
about the cost reporting periods to which it was
applicable. Finally, petitioner argues that Congress
"reaffirmed" the continuing availability of a DSA
under Section 1395ww(a)(2) when it amended 42
U.S.C. 1395f(b)(2) in 1984 to include a reference to
hospitals that serve large numbers of low-income
patients. Pet, 14 see also Pet. 8, 15, 23, 28. The
district court, however, correctly held that the
reasonable cost system set forth in Section 1395f(b)
has been substantially modified by the TEFRA
reimbursement provisions of Section 1395ww(b). 846
F. Supp. at 1178 (citing 42 U.S.C. 1395f(b) (payment is
"subject to to provisions of sections 1395e and
1395ww of this title") and 42 U.S.C. 1395ww(b)
(applies "[notwithstanding section 1395f(b) of this
title'')).
In any event, if we assume arguendo that Section
1395ww(a)(2) were applicable to the cost reporting
periods at issue here, it still would not entitle peti-
tioner to additional reimbursement for serving a dis-
proportionate share of low-income patients. Section
1395ww(a)(2) provides in relevant part:
The Secretary shall provide for such exemptions
from, and exceptions and adjustments to, the
limitation established under paragraph (1)(A) as
he deems appropriate, including those which he
deems necessary to take into account-

___________________(footnotes)
                                              
before we will interpret that language according to its natural
meaning.").

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13

          *****
  (B) the special needs of psychiatric hospitals and
of public or other hospitals  that serve a
significantly disproportionate number of patients
who have low income * * *.
Contrary to petitioner's assertion, Section 1395ww
(a)(2) is not "mandatory." Pet. 12. Rather, as the
court of appeals held (Pet. App. 18a n.6), it gives the
Secretary discretion to make only those adjustments
and exceptions that she "deems appropriate" (42
U.S.C. 1395ww(a)(2)(B)). Compare Webster v. Doe,
486 U.S. 592, 600 (1988). Nor is Section 1395ww(a)
(2)(B) a "specific DSA requirement * * * for
psychiatric hospitals," as petitioner asserts (Pet. 12).
Instead, it authorizes the Secretary to take into
account the "special needs" of two categories of
hospitals: (1) "psychiatric hospitals," and (2) "public
or other hospitals that serve a disproportionate
number of patients who have low income." See 47 Fed.
Reg. 43,285 (1982). It does not imply a categorical
determination that psychiatric hospitals serve large
numbers of low-income patients, much less a
categorical determination that they are entitled to
additional compensation for doing so.
c. Finally, petitioner argues that it was entitled to
additional compensation under 42 U.S.C. 1395ww(b)
(4)(A), which in relevant part provides:

  The Secretary shall provide for an exemption
from, or an exception and adjustment to, the
method under this subsection for determining the
amount of payment to a hospital where events
beyond the hospital's control or extraordinary
circumstances, including changes in the case mix

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14

of such a hospital, create a distortion in the
increase in costs for a cost reporting period.[5]

The court of appeals correctly upheld the Secretary's
interpretation of this provision, under which the term
"case mix" refers to the variety of medical conditions
of a hospital's patients. See, e.g., 47 Fed. Reg. 43,296,
43,303 (198.2) ("case mix" involves consideration of the
"number of possible combinations of diagnoses, pro-
cedures, complications, and admitting status"). As
the court of appeals explained in detail, that inter-
pretation accords with the language,6 structure,7 and
legislative history,8 of the Medicare statute?

___________________(footnotes)

5 The sentence immediately following that quoted in
the text authorizes the Secretary to provide for such other
exemptions, exceptions, and adjustments "as the Secretary
deems appropriate." 42 U.S.C. 1395ww(b)(4)(A). Although
the district court relied on that second sentence, as well as the
first, in holding that petitioner was entitled to relief (see 846 F.
Supp. at 1183), petitioner does not rely on it here; instead, peti-
tioner relies only on the sentence of Section 1395ww(b)(4)(A)
quoted in the text. In any event, the second sentence does not
support petitioner's position.
6 The Medicare statute directs the Secretary, for cost
reporting periods prior to October 1983, to establish "case mix
indexes" and to set cost limits for each short-term hospitial
based upon the general mix of types of medical cases with res-
pect to which Such hospital provides services for which pay-
ment may be made under this subchapter."  42 U.S.C.
1395ww(a)(l)(B)(i).  A separate provision authorizes the
Secretary to depart from those limits as necessary to
accommodate "the special needs of * * * hospitals that serve
a significantly disproportionate number of patients who have
low income." 42 U.S.C. 1395ww(a)(2)(B)). As the court of
appeals reasoned, the two provisions make clear that Congress
did not consider the term "case mix" to include the proportion
of patients with low income. If Congress had intended "case
mix" to reflect the financial condition of patients, the second

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15

___________________(footnotes)
                                 
provision, authorizing departures from the case-mix-indexed
limitations based on the number of low-income patients, would
be superfluous in light of the first provision. See Pet. App. 20a;
see also, e.g., 42 U. S. C.. 1395ww(d)(9)(B) (ii)(III)-(IV) (reim-
bursement formula for Puerto Rico uses terms "case mix" and
"disproportionate share [of low-income patients]" in successive
provisions).
7 As the court of appeals explained, because a PPS hospital
is reimbursed based on national or regional average costs for
treating a particular illness, an adjustment may be appropriate
to reflect the fact that an individual PPS hospital serves a
disproportionate share of low-income patients, whose financial
condition may make the same illness more costly to treat (see
Pet. App. 5a). A TEFRA hospital, in contrast, is reimbursed
on the basis of the allowable costs actually incurred in a base.
year. Thus, if a TEFRA hospital incurred higher allowable
costs than other hospitals in its base year because it served a
higher proportion of low-income patients, that fact will be
taken into account without the need for a separate adjustment.
Id. at 23a-24a. As the court recognized, the base year will not
take into account any change in the proportion of low-income
patients served by a TEFRA hospital, and such a change may
result in an increase in allowable costs that are not adequately
reflected by the annual percentage increases. In that situation,
the hospital may apply for an adjustment under Section
1395ww (b)(4)(A), but the adjustment "would be based on the
fact that more of its patients are sicker or require more
intensive or extensive care, not on their income levels." Pet.
App. 24a.  Several courts have relied on the differences
between the PPS and TEFRA systems in denying to PPS
hospitals adjustments authorized by the TEFRA provisions.
See, e.g., Hillsborough County Hosp. Auth. v. Shalala, 49 F.3d
1516 (llth Cir. 1995), petition for cert. pending, No. 95-98;
Episcopal Hosp. v. .Shalala, 994 F.2d 879,884 (D.C. Cir. 1993),
cert. denied, 114 S. Ct. 876 (1994); Sacred Heart Medical
Center v. Sullivan, 958 F.2d 537, 545-549 (3d Cir. 1992).
Contrary to petitioner's argument (Pet. 18), those precedents
support, rather than conflict with, the court of appeals' denial
of a PPS adjustment to a TEFRA hospital in this case.

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Petitioner asserts that, "if the adjustment for
changes in case mix required by [Section 1395ww](b)
(4)(A) is to have any meaning at all, it must include an
adjustment for a hospital treating a large number of
poorer, thus sicker patients."  Pet. 26-27. As
the court of appeals explained, however, Section
1395ww(b)(4)(A), as interpreted by the Secretary,
provides meaningful relief. In accordance with that
interpretation, a hospital may apply for an adjustment
under Section 1395ww(b)(4)(A) based on a showing
that, as compared to its base year, "more of its
patients are sicker or require more intensive or
extensive care.". Pet. App. 24a.10

___________________(footnotes)

8 As the court of appeals observed (Pet. App. 21a-22a), the
legislative history referred to "case mix" in the context of
indices of medical complexity and expressly referred to a Yale
University system that dealt with medical condition. S. Rep.
No. 494, 97th Cong., 2d Sess. 24-25 (1982); H.R. Conf. Rep. No.
760, 97th Cong., 2d Sess. 418 (1982).
9 Petitioner cites (Pet. 25-26) three decisions under another
statute that it claims illustrate "variations" in the meaning of
the term "case mix." Significantly, none of those decisions
uses the term to refer to a patient's financial condition. See
Massachusetts Federation of Nursing Homes, Inc. v.
Massachusetts, 772 F. Supp. 31, 33 (D. Mass. 1991) (under
Medicaid, " '[c]ase mix' refers to patients' levels' of sickness, or
acuity"); see also New Jersey Ass`n of Health Care Facilities,
Inc. v. Gibbs, 838 F. Supp. 881, 912 (D.N.J. 1993) (Medicaid);
Multicare Medical Center v. Washington, 768 F. Supp. 1349,
1361-1362 & n.3 (W.D. Wash. 1991) (Medicaid).
10 42 C.F.R. 413.40(g)(3)(i) provides that the Secretary
(through the Health Care Financing Administration (HCFA))
"may make an adjustment to take into account factors that
would result in a significant distortion in the operating costs of
inpatient hospital services between the base year and the cost
reporting period subject to the [otherwise applicable reimburse-
ment] limits." Among the factors upon which such

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2. Petitioner appears (see Pet. 11, 30) to renew its
contention that the denial of DSAs to non-PPS
hospitals violates the equal protection component of
the Due Process Clause. That contention does not
merit further review.11 Non-PPS hospitals are not a
suspect class, and petitioner's claim of differential
treatment does not implicate a fundamental right.
The question is therefore whether Congress ration-
ally could limit DSAs to PPS hospitals. See, e.g.,
Schweiker v. Wilson, 450 U.S. 221, 234-236 (1981).
For the reasons set forth in the decisions below, Con-
gress rationally could do so. Pet. App. 24a-25a; 846 F.
Supp. at 1181-1182.

___________________(footnotes)

an adjustment may be based are "[increases in service intensity
or length of stay attributable to changes in the type of patient
served." 42 C.F.R. 413.40(g)(3) (ii)(D).  Petitioner errs in
suggesting (Pet. 23 n.13) that the service-intensity/length-of-
stay factor is excluded from consideration by 42 C.F.R.
413.40(g)(3)(iii). The latter provision merely states that HCFA
may make an adjustment based on certain factors `([without a
formal request from a hospital," 42 C.F.R. 413.40(g)(3)(iii). As
noted above, petitioner has never made such a request.
11 It is doubtful that petitioner's equal protection claim is
properly presented, The court of appeals observed that peti-
tioner has not applied under Section 42 U.S.C. 1395ww(b)(4)(B)
for the additional compensation that it sought in this action.
Pet. App. 25a. The court correctly held that petitioner's
failure to do so made its "as applied" equal protection challenge
not ripe. Ibid. In our view, that failure also precludes con-
sideration of any facial equal protection claim.  A contrary
conclusion would permit a facial constitutional challenge to a
statute by a litigant to whom the statute has not been applied in
the manner claimed to be unconstitutional.

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CONCLUSION

The petition for a writ of certiorari should be
denied.

Respectfully submitted.

DREW S. DAYS III
Solicitor General

FRANK W. HUNGER
Assistant Attorney General

ANTHONY J. STEINMEYER
DOUGLAS B. JORDAN
Attorneys

SEPTEMBER 1995