Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-12-05179/USCOURTS-caDC-12-05179-0/pdf.json

Parties Involved:
Gentiva Healthcare Corporation
Appellant
Kathleen Sebelius
Appellee

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 3, 2013 Decided July 23, 2013

No. 12-5179

GENTIVA HEALTHCARE CORPORATION, DOING BUSINESS AS

HERITAGE HOME HEALTH,

APPELLANT

v.

KATHLEEN SEBELIUS, SECRETARY, U.S. DEPARTMENT OF

HEALTH AND HUMAN SERVICES,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:11-cv-00438)

Robert L. Roth argued the cause for appellant. With him on

the brief was Patric Hooper. 

Adam C. Jed, Attorney, U.S. Department of Justice, argued

the cause for appellee. With him on the brief were Stuart F.

Delery, Principal Deputy Assistant Attorney General, Ronald C.

Machen Jr., U.S. Attorney, and Mark B. Stern, Attorney.

Before: GARLAND, Chief Judge, BROWN, Circuit Judge, and

SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Chief Judge GARLAND.

USCA Case #12-5179 Document #1448010 Filed: 07/23/2013 Page 1 of 10
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GARLAND,Chief Judge: Gentiva Healthcare Corporation is

a provider of home health-care services. Gentiva contends that

the Secretary of Health and Human Services violated the

Medicare statute by delegating to an outside contractor the

authority to determine whether Gentiva’s Medicare

reimbursement claims exhibited a “sustained or high level of

payment error.” 42 U.S.C. § 1395ddd(f)(3). We conclude that

the Secretary reasonably construed the statute to permit such a

delegation.

I 

The Medicare program is administered by the Secretary of

the Department of Health and Human Services (HHS). 42

U.S.C. § 1395kk(a). By statute, the Secretary may “perform any

of [her] functions under” the Medicare program “directly, or by

contract . . . , as the Secretary may deem necessary.” Id.

Although the Secretary’s functions under the Medicare program

are many, this appeal concerns her role in administering the

Medicare Integrity Program. Created in 1996, that Program

directs the Secretary to “promote the integrity of the medicare

program by entering into contracts” with “eligible entities” to

carry out specified “activities.” Id. § 1395ddd(a); see Health

Insurance Portability and Accountability Act, Pub. L. No.

104-191, § 202, 110 Stat. 1936, 1996 (1996). Included among

those activities are the “[r]eview of activities of providers of

services” and the “[a]udit of cost reports.” 42 U.S.C.

§ 1395ddd(b)(1), (2). 

At the core of this appeal are amendments to the Medicare

Integrity Program that Congress enacted in 2003. See Medicare

Prescription Drug, Improvement, and Modernization Act of

2003, Pub. L. No. 108-173, § 935, 117 Stat. 2066, 2407. Under

the amended statute, the Secretary may use outside contractors

to determine whether the Medicare program has overpaid a

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health-care services provider. However, “[a] medicare

contractor may not use extrapolation to determine overpayment

amounts to be recovered . . . unless the Secretary determines that

. . . there is a sustained or high level of payment error.” 42

U.S.C. § 1395ddd(f)(3). The statute further provides that

“[t]here shall be no administrative or judicial review . . . of

determinations by the Secretary of sustained or high levels of

payment errors.” Id.

In 2007, a Medicare contractor, Cahaba Safeguard

Administrators, initiated a review of reimbursement claims that

Gentiva submitted to Medicare for home health-care services it

provided to patients from July 1, 2005 to November 30, 2006. 

Cahaba found that 58% of those claims had been at least

partially denied by the Medicare program for failure to comply

with Medicare coverage requirements. Cahaba also noted that

the payments Gentiva received per beneficiary served were high

compared to the average payment received by providers in

Gentiva’s region. Based on these observations, Cahaba

determined that Gentiva’s claims exhibited a “sustained or high

level of payment error.” See Decision of Administrative Law

Judge at 16, Appeal of Gentiva Health Services (Apr. 28, 2010)

(J.A. 75) (“ALJ Decision”). 

Cahaba proceeded to draw a sample of 30 claims. Of these,

it initially determined that 26 claims -- nearly 87% of the

sample -- were overpaid. Extrapolating this error rate over all

of the relevant claims, Cahaba determined that Medicare had

overpaid Gentiva by $4,242,452.10. After Gentiva successfully

challenged Cahaba’s overpayment determination as to ten of the

claims in the sample, Cahaba revised its extrapolation and

calculated a lower overpayment principal of $2,112,778.00. See

ALJ Decision at 1-2.

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Before an HHS Administrative Law Judge (ALJ), Gentiva

challenged Cahaba’s overpayment determination as to ten more

claims in the sample. Gentiva also charged that Cahaba’s

sampling and extrapolation method was itself invalid. The ALJ

agreed with Gentiva that the ten identified claims had not been

overpaid and directed that the extrapolation be recalculated

accordingly. But the ALJ upheld as valid the statistical

sampling and extrapolation methodology that Cahaba used. See

ALJ Decision at 20-21.

Gentiva appealed the ALJ’s approval of Cahaba’s use of

extrapolation to the Medicare Appeals Council of HHS’

Departmental Appeals Board. Gentiva “advance[d] only one

contention” before the Appeals Council: that 42 U.S.C.

§ 1395ddd(f)(3) barred Cahaba -- or any outside contractor --

from making the “sustained or high level of payment error”

finding that is a prerequisite for using statistical extrapolation to

calculate an overpayment amount. Decision of Medicare

Appeals Council at 2, In the case of Gentiva Healthcare Corp.,

Dkt No. M-11-488 (Jan. 27, 2011) (J.A. 47). Specifically,

Gentiva argued that:

because Congress used the terminology ‘a [M]edicare

contractor’ and ‘the Secretary’ in the same sentence, it

intended that the Secretary herself make a

determination of a sustained or high level of payment

error and, therefore, the Secretary may not assign or

delegate this function to a contractor.

Id. at 2-3. The Appeals Council, however, rejected Gentiva’s

proposed reading of § 1395ddd(f)(3) as “unduly narrow” in light

of § 1395kk(a)’s “broad authority” for the Secretary to perform

any of her Medicare functions “directly, or by contract.” Id. at

5 (quoting 42 U.S.C. § 1395kk(a)). The Council concluded that

“[t]he Secretary has delegated her authority” to determine that

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extrapolation is warranted “to a program integrity contractor,

and that contractor . . . has made a valid determination under the

Act.” Id. at 6. 

Gentiva challenged the Medicare Appeals Council’s

decision in district court. See 42 U.S.C. § 1395ff(b)(1)(A). 

Gentiva argued that the Secretary erred in concluding that a

contractor could make the “sustained or high level of payment

error” determination required by § 1395ddd(f)(3). In the

alternative, Gentiva argued that Cahaba’s determination was not

supported by substantial evidence. The court granted summary

judgment for the Secretary. 

Applying the framework of Chevron U.S.A. Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837 (1984), the court

first concluded that, “[i]n the absence of any explicit indication

that the § 1395ddd(f)(3) ‘sustained or high level of payment

error’ determination was intended as an exception to” the

Secretary’s “broad power” to delegate to contractors under

§ 1395kk(a), it could not find “that 42 U.S.C. § 1395ddd(f)(3)

unambiguously forecloses subdelegation.” Mem. Op. at 14,

Gentiva Healthcare Corp. v. Sebelius, No. 11-cv-438 (Apr. 6,

2012) (“Dist. Ct. Op.”). Turning to Chevron’s second step, the

court concluded that the Secretary’s interpretation of

§ 1395ddd(f)(3) as “permitting -- or, at least, as not prohibiting

-- subdelegation to Medicare contractors of the ‘sustained or

high level of payment error’ determination” was reasonable and

therefore warranted deference. Id. at 16. Finally, the district

court found it was without jurisdiction to hear Gentiva’s

“alternative argument concerning the substance of” Cahaba’s

“sustained or high level of payment error” determination, given

§ 1395ddd(f)(3)’s express instruction that “‘[t]here shall be no

administrative or judicial review . . . of determinations by the

Secretary of sustained or high levels of payment errors.’” Id. at

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22 (quoting 42 U.S.C. § 1395ddd(f)(3)). Gentiva filed a timely

notice of appeal to this court. 

II

On appeal, Gentiva challenges the district court’s decision

to defer to the Secretary’s construction of § 1395ddd(f)(3) as

permitting her to delegate to a contractor the determination of a

“sustained or high level of payment error.” It also challenges

the court’s holding that the statute bars review of the merits of

that determination. We review the district court’s grant of

summary judgment on these issues de novo. See Arizona v.

Thompson, 281 F.3d 248, 253 (D.C. Cir. 2002).

A 

First, we agree with the district court that review of the

Secretary’s construction of § 1395ddd(f)(3), as articulated in the

Medicare Appeals Council proceeding, is governed by the

standard of review enunciated in Chevron. See AKM LLC v.

Sec’y of Labor, 675 F.3d 752, 754 (D.C. Cir. 2012) (noting that

the Chevron standard applies, “even if the Secretary’s

interpretation arises in an administrative adjudication rather than

in a formal rulemaking process” (citing Martin v.OSHRC, 499

U.S. 144, 157 (1991))). Under that standard, we must defer to

the Secretary’s statutory interpretation “so long as the statute[]

. . . in question [is] ambiguous and the Secretary’s

interpretation[] [is] reasonable.” Id. In this case, the statute is

not unambiguous and the Secretary’s reading is not

unreasonable. Hence, although we believe Gentiva may have

the better reading of § 1395ddd(f)(3), we must defer to the

Secretary. See Allied Local and Reg’l Mfrs. Caucus v. EPA, 215

F.3d 61, 71 (D.C. Cir. 2000) (“Under Chevron, we are bound to

uphold agency interpretations as long as they are reasonable --

‘regardless whether there may be other reasonable, or even more

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reasonable, views.’” (quoting Serono Lab., Inc. v. Shalala, 158

F.3d 1313, 1321 (D.C. Cir.1998))).

Gentiva argues that 42 U.S.C. § 1395ddd(f)(3)

unambiguously requires the Secretary -- and not a contractor --

to make the “sustained or high level of payment error”

determination. This is so, Gentiva argues, because the statute

provides that “[a] medicare contractor may . . . use

extrapolation,” but that “the Secretary determines” whether

extrapolation is warranted in the first place. But even Gentiva

concedes that “Secretary” does not always mean “Secretary.” 

As counsel acknowledged at oral argument, under our precedent

the Secretary may delegate the “sustained or high level of

payment error” determination to another HHS official. Oral

Arg. Recording at 9:24 - 9:37; see U.S. Telecom Ass’n v. FCC,

359 F.3d 554, 565 (D.C. Cir. 2004) (“When a statute delegates

authority to a federal officer or agency, subdelegation to a

subordinate federal officer or agency is presumptively

permissible absent affirmative evidence of a contrary

congressional intent.”). 

Gentiva is right that delegations to non-governmental

entities are different and may even be “assumed to be improper

absent an affirmative showing of congressional authorization.” 

U.S. Telecom Ass’n, 359 F.3d at 565. Cf. Ass’n of Am. R.Rs. v.

U.S. Dep’t of Transp., __ F.3d __, 2013 WL 3305715, at *3

(D.C. Cir. July 2, 2013) (noting that, although a statute may not

“empower[] private parties to wield regulatory authority[,]

[s]uch entities may . . . help a government agency make its

regulatory decisions”). But here, Congress has provided such an

affirmative showing in § 1395kk(a), which expressly authorizes

the Secretary to “perform any of [her] functions under this

subchapter directly, or by contract . . . , as the Secretary may

deem necessary.” 42 U.S.C. § 1395kk(a) (emphasis added). 

Because there is no dispute that the “sustained or high level of

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payment error” determination is a “function” subject to

delegation within the meaning of § 1395kk(a), Oral Arg.

Recording at 4:32 - 4:37 (acknowledgment by Gentiva’s

counsel), we cannot find that Congress unambiguously barred

the Secretary from delegating that task to an outside contractor. 

Nor, given § 1395kk(a)’s breadth, can we find the Secretary’s

construction unreasonable. See Nat’l Ass’n of Home Health

Agencies v. Schweiker, 690 F.2d 932, 943 (D.C. Cir. 1982)

(referring to § 1395kk(a)’s “broad scope,” and noting that its

“clear and reasonable language appears to give the Secretary the

unequivocal right to designate [contractors] to perform [her

Medicare] reimbursement functions”). 

As we discuss in Part II.B below, Congress has insulated

from judicial review the merits of the Secretary’s “sustained or

high level of payment error” determination. This fact does not,

however, alter our conclusion that the Secretary may delegate

that determination to a contractor. The determination that there

was a sustained or high level of payment error is only a

screening mechanism employed to decide whether extrapolation

may be used to calculate a final overpayment amount. Providers

like Gentiva can still challenge -- at the agency level and in

court -- both the final overpayment calculation and the

extrapolation methodology that was used to calculate it. See

Oral Arg. Recording at 21:42 - 23:11 (acknowledgment by

HHS’ counsel). Indeed, Gentiva successfully overturned every

individual overpayment claim that it challenged before the

Medicare Appeals Council. In so doing, it succeeded in cutting

the contractor’s overpayment calculation in half, from a little

more than $4 million to a little more than $2 million, without

overturning the “sustained or high level of payment error”

determination. See ALJ Decision at 1. Given that this

significant level of review of final overpayment calculations

remains available, it is not unreasonable for the Secretary to

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believe that Congress intended to permit contractors to make

unreviewable determinations at the screening level.1

Gentiva may well be right that reserving the screening

function to agency personnel would better effectuate Congress’

apparent desire to give the Secretary more oversight over

contractors’ use of extrapolation. But even a desirable statutory

interpretation cannot trump an agency’s reasonable

interpretation under Chevron. See Allied Local, 215 F.3d at 71. 

We therefore affirm the district court’s decision to defer to the

Secretary’s interpretation of § 1395ddd(f)(3). 

B 

 We also agree with the district court that § 1395ddd(f)(3)

precludes us from reviewing the merits of the “sustained or high

level of payment error” determination that permitted the

contractor to use extrapolation to calculate overpayment

amounts in this case. Because that question goes to our own

jurisdiction, Chevron does not apply, and we must decide the

appropriate construction of the statute de novo. See

NetCoalition v. SEC, 715 F.3d 342, 348 (D.C. Cir. 2013). But

like the district court, we read the statute’s directive, that

“[t]here shall be no administrative or judicial review . . . of

determinations by the Secretary of sustained or high levels of

payment errors,” as clearly precluding our review. See Dist. Ct.

Op. at 22-23. Moreover, given our conclusion that § 1395kk(a)

authorizes the Secretary to delegate the making of such

1

 We note that the Secretary has also provided contractors with

guidance regarding the procedures they should follow in making the

“sustained or high level of payment error” determination. See HHS,

Medicare Program Integrity Manual, Pub. 1008-08, Trans. 114 (June

10, 2005), available at http://www.cms.gov/Regulationsand-Guidance/Guidance/Transmittals/downloads/R114PI.pdf.

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determinations to contractors, we are unpersuaded by Gentiva’s

contention that the preclusion of review applies only when the

Secretary makes the determination herself.

III

 For the foregoing reasons, the judgment of the district court

is

Affirmed.

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