UN ITED STA TES D ISTRIC T C OU RT F OR THE D ISTRIC T OF CO LU M BIA

____________________________________ CA RI TA S ME DI CA LCEN TE R e t al

. , : : Plaintiffs, : Civil Action No.: 07-1889 (RMU)

: v. : Document Nos.: 16, 21

: CHARL ES E. J OHNSON, : ActingSecre tary , U.S. Depar tment of : He a lthand

Human Se rv ic e s, : : De fe nd ant. : ____________________________________:

____________________________________ BA PTI ST MEMORI AL

HOSPI TAL

– : MI SSI SSI PPI COUNTY, I NC. e t al

. , :

: Plaintiffs, : Civil Action No.: 07-2197 (RMU)

: v. : Document Nos.: 14, 18

: CHARL ES E. J OHNSON, : ActingSecre tary , U.S. Depar tment of : He a lthand

Human Se rv ic e s, : : De fe nd ant. : ____________________________________:

____________________________________ C H IP P E W A V A LLE Y H O S P IT A L & : OAKVI EW CAR E CENTER, I NC. e t al

. , :

: Plaintiffs, : Civil Action No.: 07-2329 (RMU)

: v. : Document Nos.: 14, 18

: CHARL ES E. J OHNSON, : ActingSecre tary , U.S. Depar tment of : He a lthand

Human Se rv ic e s, : : De fe nd ant. : ____________________________________:The orig inal d efendant to this ac tion, Michael O . L eav itt, w as the Se cretary of the U .S. 1 Dep artm ent o f H ealth and Hum an S erv ices when this ac tion w as ins tituted. Pursuant to F ederal Rule of Civ il Pro cedure 25 (d), the co urt ha s sub stituted the current A ctingSe cretary , C harles E. J ohns on, for Mr. L eav itt as th e de fendan t to this ac tion. See F ED . R. C IV . P. 25(d) (statingan “o ff ic er ’s s uc ce ss or

is aut om at ic al ly

s ub st itut ed

a s a party ” an d th at

“ [l ]a te r pr oc ee di ng s sh ou ld be in the substituted

party ’s nam e”). 2 M EM OR

AN DU M OP IN ION D ENY I N G TH E P LA INT IF FS ’ M OT I ON F OR S UM M ARY J UDGMENT ; G R A N TI N G TH E D E F E NDANT ’ S C R O SS -M OT I ON F OR S UM M ARY J UDGMENT I. IN TR OD UC TIO N This matter is befor e the c ourt on the plaintiffs’ motion for summar y judgme nt and the defe ndant’s cr oss-motion for summary judgme nt. The plaintiffs, a group of hospitals that re ceive fundingthroug h Medica

re, c omplain that the defe ndant, the Ac ting Sec reta ry of the De partment of He alth and Human Ser vices (“ the Depa

rtment”), err ed by

promulg atinga rule reg ardingthe 1 rate at which some of

their Medica

re r eimbursement r ates we re c alculate d from January 1, 1999 throug h J uly

31, 2000. In their motion for summary judgme nt, the plaintiffs reque st that the
c ourt inv a lid ate the ru le . T he de fe nd ant h a s f ile d a c ro ss- mot ion

fo r s umm ary

jud g me nt, maintaining that the court should uphold the rule. F or the re asons discussed be low, the cour t de te rm ine s th at th e ru le is e nti tle d to de fe re nc e . A c c or din g ly , th e c ourt de nie s th e pla int if

fs ’ motion for summary

judgme nt and g rants the de fenda nt’s cross-motion for summar y judgme nt.

II. F ACTUAL & P ROCEDURAL BACK GR OUND This suit concerns the rate at which hospitals re ceive Medica re r eimbursements for providing three specific ty pes of outpatient se rvice s: ambulatory surg ical, ra diology

andThe court will re fer to am bulatory surg ical, radiology

and diag nostic serv ices as the “three 2 relev ant se rv ices” throug hout this Mem orand um O pinion
. Wh at th e de fe nd an t r ef

er s to a s th e “b le nd

r at e, ” th e pl ai nt if

fs c al l the “ bl en de d paym en t r at e 3 lim its,” reiteratingthat the am ount hosp itals are reim bursed is lim ited b y

this m ethodo log y . Pls.’ Rep ly in Sup port o f Mot. for S um m . J. & O pp’n to D ef.’s Cros s- Mot. fo r Sum m . J. (“P ls.’ R ep ly ”) a t 1 4 n. 3. Th e co urt a ck no w le dg es th e pl ai nt if

fs ’ po in t b ut , f

or s im pl ic ity , r ef

er s to th is m ethodo log y

as the “b lend rate.” 3 diag nostic service s. Pls.’ Mot. for Summ . J . (“Pls.’ Mot.”) at 6. To provide conte x t for the 2 de fe nd ant’ s r

ule re g ard ingthe re imb ur se me nt r ate s f or the se thr e e se rv ic e s, the c ourt be g ins wi th a brie f history

of Medica

re r eimbursement methodolog ies. At the ince ption of the Medica re prog ram in 1965, all hospital service s – both inpatient and outpatient – wer e re imbursed using the “r easona

ble cost” r ate, whic h provides that the hospital is reimburse d for the a ctual costs that it incurred in f

urnishing the service
. Id. at 4; se e als o Co un ty of L .A . v . S

ha lal a , 192 F.3d 1005, 1008 (D.C. Cir. 1999). B y the ea rly 1980s, howeve r, Cong ress ha d started to bec ome dissatisfied wi th t he re a so na

ble c os t r ate , whic h it

pe rc e ive d a s b re e din g“ ‘l itt le inc e nti ve fo r h os pit a ls t o keep c osts down’ bec ause ‘ the more the y spent, the more the y

wer e re imbursed.’” County of L.A. , 192 F.3d at 1008. I n 1983, Congr ess cr eate d a “Prospe ctive Pay ment Sy stem” (“ PPS ”) f

or inpatient service s. Def.’ s Cross-Mot. for Summ. J . & O pp’n to Pls.’ Mot. (“Def .’s Cross-Mot.”)
at 4- 5; see also 42 U.S.C. § 1395ww (applying the PPS to inpatient service s). Reimbursement
un de r t he PPS r ate de pe nd s o n th e c on dit ion be ingtr e ate d r athe r t

ha n o n th e a c tua l c os ts incurre d. Def

.’s Cross-Mot. at 5. While Congre ss applied the PPS t o inpatient service s in 1983, it continued to reimburse outpatient service s using the r easona ble cost rate. Id. In an ef fort to cur b hospital outpatient costs, in the Omnibus Budg et Reconc iliation Act of 1986 (“ the 1986 Act” ) Cong ress be g an apply ing a “blend r ate” to ambulatory surg ical 34

proce dures. Pub. L . No. 99-509, 100 Stat. 1874 (codif ied as amended at 42 U.S.C. § 1395 l (i )( 3) ). Th e “ ble nd

rate ” is a hy br id b e tw e e n th e re a so na

ble c os t f or mul a and the PPS formula. De f.’s Cross-Mot. at 6. In regulations conce rningthe blend rate, the De partment explained that the rate was a temporar y pay ment method that would be used until a PPS for
amb u l at o r

y s ur g i c a l p r o c e d

ur e s c o u l d

b e d e v e l o p e d
. 5 2 F e d
. R e g . 3 6 , 7 6 7 ( O c t . 1 , 1 9 8 7 )
. In 1 9 8 8 , C o n g r e s s th e na

p p l i e d th e b l e n d r at e t o r a d i o l o g y

an d o th e r d i a g n o s t i c s e r

v i c e s . P u b
. L. No. 100-203, 101 Stat. 1330 (codif ied as amended at 42 U.S.C. § 1395 l (a) (2)( E)). Me anwhile, Congr ess continued to wor k toward de velopinga PPS for outpatient service s, and in the Ba l an ce d Bu d getAc to f 1 9 9 7 (“ BBA ”) i tan n o un ce d th ata P P S fo r o u t

p at i en t s erv i ce s wo u l d

go into effe ct beg inning on January 1, 1999. Pub. L . No. 105-33, 111 Stat. 251. To be c onsistent with this enactment, Cong ress a dded a “ confor ming amendment” e stablishing that both the blend rate and the r easona

ble cost rate, which wa s still beingapplied to other ty pes of outpatient service s, would sunset when the PPS went into effe ct on J anuar y 1, 1999. Id. ; se e als o 42 U. S.C. § 1395 l (t) (c odifying c onformingamendments). The plan w ent awr

y , howeve r, whe n the Depa rtment rea liz ed that Medic are was at risk of a “total sy stems failure” if the De partment did not quickly corr ect a computer pr og ramming defe ct that made its computer s unable to distinguish betwe en the year s 1900 and 2000 (“ the Y2K crisis”). D ef.’ s Cross-Mot. at 11. The De partment re arr ang ed its priorities and postponed implementing the PPS until afte r the Y2K crisis was averte d. Id. Congr ess ratified this decision in the Ba lance d Budg et Refineme nt Act of 1999 (“ the 1999 Act” ). Pub. L . No. 106-113, 113 Stat. 1501. I n the 1999 Act, Cong ress did not extend the sunset dates for the blend rate and the
rea sonable c ost rate be y ond J anuar y 1, 1999. Id. ; see also Pls.’ Mot. at 8. In o the r w or ds ,5

Congr ess did not addre ss what re imbursement method would apply to the three rele vant servic es be tw e e n Jan

ua ry 1, 19 99 and

wh e n th e PPS w a s f

ina lly imp le me nte d. Pls. ’ M ot. at 8. Con g re ss did, however , extend a provision establishing “ rea sonable c ost reduction fa ctors”: f actor s that
a ff e c t th e c a lc ulatio n o f t

he re a so na

ble c os t r ate . Pu

b. L . N o. 10 6- 11 3, 11 3 St at. 1 50 1; se e als o Pls.’ Mot. at 8. On Ap ri l 7 , 2 0 0 0 , th e d ef en d an tp ro mu l gat eda r

u l e e s t ab l i s h i n g th atth e P P S wo u l d go into effe ct later

that y ear . 65 Fe d. Reg . 18,489-90. The r ule also established that for the inter val be tw e e n Jan

ua ry 1, 19 99 and

the date the PPS w e nt i nto e ff e c t, t he ble nd rate wo uld

c on tin ue to be applied to the thr ee r eleva nt service s. Id. On August 1, 2000, the PP S finally went into eff

ect. 65 F e d. Re g . 4 05 35 . T he pla int if fs ob je c t to the po rt ion

of the ru le that a

pp lie d th e ble nd

ra te to the three rele vant servic es fr om J anuar y 1, 1999 throug h J uly

31, 2000. Pls.’ Mot. at 14. The plaintiffs have moved for summar y judgme nt, contendingthat they are entitled to be re imbursed at the re asonable cost rate rathe r than at the blend rate. Id. at 1. The de fenda nt, on the other hand, has oppose d the plaintiffs’ motion for summary judgme nt and filed a

cross-motion for summary judgme nt, assertingthat he prope rly applied the blend r ate. De f.’s Cross-Mot. at 1. Th e c ourt tur ns no w t o th e pa

rt ie s’ argume nts .

III . A NA LY SIS A. Le ga l St anda r d fora M ot ion forSum m ar y J udgm e nt Summary jud g me nt i s a

pp ro pr iate wh e n “ the ple a din g s, de po sit ion s, ans we rs to interrog atories, a

nd admissions on file, toge ther with the a ffidavits, if any , show that there is no g e nu ine iss ue a s to any

mate ri a l f

a c t and that th e mov ingpa

rt y is e nti tle d to a

jud g me nt a s a6

matter of la

w.” F ED . R. C IV . P. 56 (c ); se e als o Ce lote xCor p. v . Ca tre tt , 477 U.S. 317, 322 (1 98 6) ; Diamond v. Atwood , 43 F.3d 1538, 1540 ( D.C. Cir. 1995). To deter mine which fa cts are “mater ial,” a c ourt must look to t he substantive law on which ea ch cla im rests. Anderson v. Liberty Lobby, Inc. , 4 77 U. S. 2 42 , 2 48 (1 98 6) . A“ g e nu ine iss ue ” is o ne wh os e re so lut ion c ou ld establish an ele ment of a c laim or defe nse and, the ref ore, a ffe ct the outcome of the ac tion. Celotex , 4 77 U. S. at 32 2; Anderson , 477 U.S. at 248. In r uli ngon a mot ion fo r s umm ary

jud g me nt, the c ourt

mus t dr aw a ll j us tif

ia ble infere nces in the nonmovingparty ’s favor and a cce pt the nonmoving pa rty ’s evidenc e as true . Anderson , 477 U.S. at 255. A nonmoving pa rty , howeve r, must establish more than “ the mere exis tence of a sc intill a of e vidence ” in support of its position. Id. at 252. To pre vail on a motion for summary

judgme nt, the moving pa rty must show that the nonmoving par ty “fa il[ ed] to make a showingsufficie nt to establish the exi stence of an e lement essential to that par ty ’s ca se.” Celotex , 477 U.S. at 322. By pointing to the abse nce of evidenc e prof

fer ed by the nonmoving party , a movingparty

may succe ed on summary

judgme nt. Id. The nonmovingparty

may defe at summary

judgme nt throug h fac tual repr esentations made in a sw orn af

fidavit if he “ support[s] his alleg ations . . . with facts in the re cord,” Gree ne v. Dalton , 1 6 4 F. 3 d

6 7 1 , 6 7 5 (D
. C
. C i r. 1 9 9 9 ) ( qu o t i n g Harding v. Gray , 9 F.3d 150, 154 ( D.C. Cir. 1993)), or provides “dir ect testimonial evidenc e,” Arrington v. United States , 473 F.3d 329, 338 (D.C. Cir. 2006). B. Legal Stan dard f

or Judicial Review of

Agency Inter pretat ions of Statutes The Supreme Court set forth a two- step approa ch to deter mine whether

an ag ency ’s interpre tation of a statute is valid under the APA. Che v ro n, U. S. A. , I nc . v . Na tural R es. De

f.7

Council, Inc. , 4 67 U. S. 8 37 (1 98 4) . T his a pp ro a c h, c omm on ly

re fe rr e d to a s “ Chevron de fe re nc e ,” re qu ir e s th e c ourt to f ir st l oo k to “ wh e the r C on g re ss h a s sp ok e n to the pr e c ise question at issue.” Id. at 842. I f so, the cour t ends its inquiry
. Id. B ut, if the statut e is ambig uous or silent, the second ste p require s the court to def er to the a g ency ’s position, so long as it is reasona

ble. Id. at 84 3; Sea-Land Serv s., Inc. v . Dep’ t of Tr ansp. , 1 37 F .3 d 6 40 , 6 45 (D .C. Cir. 1998) (holdingthat “[ Chevron ] defere nce c omes into play of cour se, only

as a c onsequenc e of statutory

ambig uity , and then only if the re viewingcourt finds a n implicit delega

tion of
au th o ri ty t o th e a gen cy ”)
. Inap p l yi n g Chevron , the Supreme Court ha s held that “[a]dmi nistrative implementation of a pa rticular statutory

provision qualifies for Chevron defe renc e whe n it appear s that Congr ess deleg ated a uthority to the ag ency

g ener ally to make rules ca rry ing the forc e of la

w, and that the a g ency

interpre tation claiming de fer ence was promulg ated in the e x erc ise of that author ity .” United States v. Me ad Corp. , 533 U.S. 218, 226- 27 (2001). Indeed, “

judgme nt about the best re g ulatory tools to employ

in a par ticular situation is . . . entitled to considerable defe renc e fr om the g ener alist judiciary .” W . Union Int’l, Inc . v. Fed. Commc ’ns Comm’n , 804 F.2d 1280, 1292 ( D.C. Cir. 1986).

C. The Co ur t D e nie s t he P lai nt iffs’ M ot ion forSum m ar y J udgm e ntand G r ant s t he De fend ant ’s Cr os s- M ot ion forSum m ar y J udgm e nt Th e pla int if

fs c la im the de fe nd ant e rr e d b y pr omu lg atin ga

ru le a pp lyingthe ble nd

rate to the ca lculation of pay

ments for the thre e re levant ser vices fr om J anuar

y 1, 1999 throug h J uly

31, 2000. Pls.’ Mot. at 1. This claim is based on four ra tionales, ea ch of which the plaintiffs contend indepe ndently

invalidates the rule
. Id. at 2- 3. F ir st, the pla int if fs argue that th e ru le violates plain statutory

languag e and le g islative intent. Id. at 2. More spe cifica lly , the plaintiffsThe cano n express io un ius es t exclu sio a lterius d ic ta te s th at “ expl ic itd ir ec ti on

f or s om ethi ngin 4 one prov ision, and its a bsenc e in a parallel pro v ision, im plies an inte nt to neg ate it in the secon d contex t.” C

he ne y R
. C o. v . I nt er stat e C om m er ce C

om m ’n , 9 02 F.2 d 6 6, 68 (D. C. C ir. 1 990) ( qu ot i ng Cli nc hf

ie ld C oa l C o. v . F ed

. Mi ne S af et y & H ea lth R ev ie wC

om m ’n , 8 95 F.2 d 7 73, 77 9 (D. C. C ir. 1 990)). The plaintiffs m ak e on e ad ditional arg um ent to sup port th eir con tention that ap plication of the 5 blend rate to the three relev ant se rv ices is incons istent w ith leg islativ e inten t: they assert that the blend rate v iolates th e “p rohibition on cross - subsid iz ation, ” a canon spe cific to Medicare. P ls.’ Mot. at 19- 20. The defend ant co rrectly ob serv es that the plaintiffs fa iled to raise this argum ent duringthe notice and com m ent p eriod, D ef.’s Cros s- Mot. at 27, a point the p laintiffs do no t contest, se e ge ne ra ll

y P ls
. ’ R ep ly
. B ec au se “ [i ]tis w el l e st ab li sh ed th at is su es n ot

r ai se d in com m ents b efore th e ag ency

are waiv ed,” the court will n ot co nsider this argum ent. N at ’l W ildlife F ed. v. EPA , 2 86 F.3 d 5 54, 56 2 (D .C . C ir. 2 002). 8 claim that the rule violates the plain text of the BB A bec ause the BB A “e x pressly terminated [application of the blend rate to the three rele vant servic es] effe ctive January 1, 1999.” Id. at 14. The plaintiffs f

urther a ssert that application of the blend rate violates cle ar le g islative intent beca use Cong ress intende d to impose the rea sonable c ost rate, not the blend r ate, f or the thre e rele vant servic es. Id. at 15-20. To arr ive at th is c on c lus ion , th e pla int if fs fo c us on

the 19 99 Ac t, i n whic h Co ng re ss extended application of the cost reduc tion factors. Id. at 16. Invoking the statutory canon expre ssio unius est exclusio alterius , the plaintiffs conte nd that by extending application of the 4 cost reduc tion factors but not the blend r ate, Cong ress e x presse d its int ent to prec lude application of the blend r ate to the se rvice s at issue. Id. at 16-18. And be cause the cost re duction fac tors apply solely to the rea sonable c ost rate, Cong ress must have intende d to ext end application of the
rea sonable c ost rate whe n it ex tended the c ost reduction fa ctors. Id. at 18. L ikewise, the plaintiffs point out that Congre ss historically applied the r easona

ble cost rate to the three rele vant
se rv ic e s; i n th e ir

vie w, thi s b ols te rs the ir

a sse rt ion that Co ng re ss i nte nd e d f or the re a so na

ble c os t rate to be applied f

rom J anuar

y 1, 1999 throug h J uly

31, 2000. Id. at 19. 59

The plaintiffs ne x t offer

a sec ond argument as an a lternative to the f irst: they asser t that
e ve n if the c ourt de te rm ine s th at c on str

uin gthe B B A l ite ra lly

wo uld pla inl y be inc on sis te nt w ith leg islative intent, the court should still i nvalidate the r ule. Id. at 20 -2 6. In ma

kin gthi s a

rgume nt, the plaintiffs ac knowledg e that it is possibl e to interpre t the BB A as c reating a g ap in Medica

re pay ments for the thre e re levant ser vices fr om J anuar

y 1, 1999 throug h J uly

31, 2000. Id. at 20- 21. The pa

rties agree that this plain readingof the statute – whic h would result in the plaintiffs beingentitled to no Medicar e pay ments at all – would be inconsistent with leg islative intent. Id.
at 21 . I f c on str

uin ga statut e lit e ra lly

wo uld pr od uc e an a bs ur d r e su lt, the a g e nc y

is e nti tle d to
e na c t a ru le that vi olate s th e pla in l angua g e of the statut e , b ut t

he a g e nc y mus t mo dif

y the pla in languag e no more than nec essar y to effe ctuate le g islative intent. Id. at 22. The pla intiffs point out that in such situations, t he ag ency ’s dec ision is not entitled to Chevron defe renc e. Id. In the instant case , the plaintiffs dec lare , the rule a pplying the blend rate to the three rele vant servic es modified the statute more than nec essar y beca use the minimum deviation from the plain languag e of the statute would have been to a pply the re asonable cost rate rathe r than the blend rate. Id. at 23-26. The rea soning that the plaintiffs use to support this contention echoe s the ir fi rs t argume nt, dis c us se d a bo ve , in wh ic h th e y

ma int a in t

hat th e a pp lic atio n o f t

he ble nd rate to the service s at issue violates leg islative intent. See id. at 15 -2 0. Th e pla int if fs a g a in s ub mit that Co ng re ss m

us t ha ve int e nd e d to a

pp ly the re a so na

ble c os t r ate be c a

us e it e xten de d th e c os t reduc tion factors, which apply only to the rea sonable c ost rate, in the 1999 Ac t. Id. at 24. And the plaintiffs re peat their

asser tion that the application of the ble nd rate to the three rele vant service s from January

1, 1999 throug h J uly

31, 2000 conflicte d with Congre ss’s aim to sunset the blend rate beg inning on January 1, 1999. Id. at 25.The plaintiffs did n ot ad dress the d efendant’s co ntention , D ef.’s Cros s- Mot. at 31, that the 6 plaintiffs w aiv ed th is argum ent b y failingto raise it duringthe notice and com m ent p eriod, see ge ne ra ll y Pls. ’ R eply
. The court deem s the plaintiffs to hav e co ncede d this po int. See Tw elve Jo hn D oes v. D is tr ic t o

f C olum bi a , 1 17 F
. 3d

5 71 , 5 77 ( D
. C
. C ir
. 1 99 7) ( no ti ngth at argum en ts no t a dd re ss ed are tr ea te d as c on ce de d)
. 10 The plaintiffs’ third argument in favor of invalidating the rule is that the rule is arbitrar y and ca pricious bec ause it fa ils to provide a re asoned e x planation for tr eatingthe three rele vant service s differ ently

from other

outpatient service s. Id. at 26-28. The plaintiffs, howeve r, fa iled to r a ise thi s o bje c tio n d

ur ingthe no tic e and

c omm e nt p e ri od
. B e c a

us e “ iss ue s n ot r a ise d in 6 comments befor e the a g ency are waived,” the cour

t will not consider this argument. Nat’l W ildlif e Fe d. v. EPA , 286 F.3d 554, 562 ( D.C. Cir. 2002). Four th, and finally , the plaintiffs
c o n t e n d th atth e r u l e i s i mp e r

m i s s i b l y r e tr o a c t i v e . P l s . ’ M o t . at2 8
- 3 0
. M o r e s p e c i f i c a l l y, althoug h the rule a

pplied to the three rele vant servic es fur nished beg inning on January 1, 1999, the ag ency

did not promulgate it until April 7, 2000. Id. Th e de fe nd ant’ s p or

tr ay a l of the c a se dif

fe rs sh arp ly

fr om t he pla int if

fs ’. He fi rs t c on te sts th e pl ain ti ffs ’ as serti on th at t he ru le v io lat es t he s tat ut e’s pl ain lan guage becau se t he BBA expressly terminated a

pplication of the blend r ate e ffe ctive January 1, 1999. SeePls.’ Mot. at 14- 15. In the def

endant’ s view, bec ause Cong ress e nvisioned that the blend rate would sunset and be re place d by

the PPS on J anuar

y 1, 1999, it is m ere ly

silent as to what pay

ment method applied to the service s in question from J anuar y 1, 1999 throug h J uly

31, 2000. Def

.’s Cross-Mot. at 19- 22 . T his dis tin c tio n is piv ota l be c a us e wh e n Co ng re ss i s si le nt o r l e ave s a g a p f or the a g e nc y

to fill, as the def

endant maintains Cong ress did her e, it prese nts a quintessential ca se ca lling for Chevron defe renc e. Id. The de fenda

nt also observe s that the BB A provided f or the sunset not only

of the blendThe p la in ti ff s re sp on d to th is argum en t i n th ei r re pl y b y s ur m is in g th at

C on g re ss m eant

to 7 expr es sl y

e xt en d ap pl ic at io n of

th e re as on ab le c os t r at e, b ut in adv erte nt ly

f ai le d to a s th e re su lt of a “draftingerror. ” Pls.’ Rep ly at 1 3. 11 rate , but also of the re asonable cost rate eff ective January

1, 1999. Id. at 24 -2 5. Th e re fo re , if extending the blend r ate through J uly 31, 2000 violated the plain languag e of the BB A, then extending the r easona

ble cost rate would also have violated the statute. Id. at 25. And in a
re late d a rgume nt, the de fe nd ant d isp ute s th e pla int if fs ’ c on te nti on

that Co ng re ss e xpre sse d it s pref ere nce f or the re asonable cost rate by extending the c ost reduction fa ctors, which the plaintiffs maintain apply

solely to the rea sonable c ost rate. Id. at 25-26. F irst, the defe ndant
c ounte rs the pla int if

fs ’ a sse rt ion

that th e c os t r e du c tio n f

a c tor s a pp ly on ly to t he re a so na

ble c os t rate by pointing out that the re asonable cost is part of the ble nd rate calc ulus. Id. at 26. In any
e ve nt, the de fe nd ant a

ve rs that ha d Co ng re ss i nte nd e d to e xten d th e re a so na ble c os t r ate , it

wo uld have do ne so e xplic itl y , r athe r t ha n me re ly imp lyingits int e nt t o e xten d th e re a so na ble c os t r ate by e xten din ga

pp lic atio n o f t

he c os t r e du c tio n f

a c tor s. Id.

7 Th e de fe nd ant t

he n ta ke s a im at th e pla int if

fs ’ c e ntr a l argume nt, name ly that th e ru le
ex ten di ng app li cat io n o f t he b len d rat e vi ol ate d cl ear l egis lat iv e in ten t b ecaus e th e BBA established that the blend r ate would sunset on January 1, 1999. SeePls.’ Mot. at 14-20. From the def endant’ s point of view, Cong ress did not intend to terminate the e x isting pay ment methods befor e the PPS was implemented. Def .’s Cross-Mot. at 22-24. Rather , the provision setting J anuar y 1, 1999 as the sunset date for the blend rate was e x pressly denoted a s a mere “conf orming amendment” appende d to the section authorizing the enac tment of the PPS
. Id. at 23. The de fenda

nt asserts, in other w ords, that the sunset provision demonstrate d Congr ess’s intent to seamlessly

repla ce the blend rate with the PPS , as opposed to proving , as the plaintiffs12

alleg e, that Cong ress intende d to terminate the ble nd rate even if the PPS did not go into ef fec t as planned. Id. Had Cong ress intende d to reve rse its dec ade- long tr end aw ay from cost-ba sed reimburse ment and re turn to the rea sonable c ost rate, it would have demonstrated that intent much more c lear ly

than in a “c onformingamendment.” Id. Th e de fe nd ant n e xt ad dr e sse s th e pla int if fs ’ a sse rt ion s th at th e ru le is n ot e nti tle d to Chevron defe renc e and that it erroneously modifies the plain languag e of the BB A more tha n
nece ssary . See Pls.’ Mot. at 20. The defe ndant ar g ues that the c ourt nee d not determine what constitutes the minimum deviation from the statutory languag e bec ause the rule that the pla intiffs
c i t e a s r e qu i r i n gth atan a l ys i s i s i n a p p l i c a b l e h e r e . D e f

. ’ s C r o s s - M o t . at1 8
. M o r e s p e c i f i c a l l y, the def endant a g ree s with the plaintiffs that the fa ct that Cong ress fa iled to articulate what pa y me nt m e tho d w ou ld a

pp ly if the PPS di d n ot g o into e ff e c t on Janu ary 1, 19 99 c re ate s a “statutory anomaly .” Id. B ut i n th e de fe nd ant’ s v ie w, Con g re ss’ s si le nc e on thi s p oint g ive s r ise to the principle that whe n there are two way s of avoidinga statutory anomaly , both of which a re equally consistent with the statutory text and leg islative intent, the ag ency ’s choice betwee n the two equally

plausible alternatives is entitled to Chevron defe renc e. Id. at 18-19. In th e a lte rn ativ e , th e de fe nd ant a rgue s th at th e c ourt

sh ou ld u ph old the ru le e ve n if

it deems the “ minimum deviation” test pe rtinent here beca use apply ing the blend rate to the three service s in question from J anuar y 1, 1999 throug h J uly

31, 2000 constituted the minimum possible deviation from the plain languag e of the statute. Id. at 29-31. This asse rtion is based on the de fe nd ant’ s v ie w, dis c us se d a bo ve , th at Co ng re ss i nte nd e d to c on tin ue to a pp ly the ble nd rate until the PP S went into effe ct. Id. at 29 . T he re fo re , to have a pp lie d th e re a so na

ble c os t r ate rathe r than the ble nd rate to the interval in question would have marke d a depa rture f rom clea r13

cong ressional intent. Id. B a s e d o nh i s r e a s o n i n g , th e d e f e n d an ta l s o c o n t e s t s th e p l a i n t i f f s ’ f i n a l ar g u m e n t , n am e l y, that the rule w as impermissibly retroa ctive. SeePls.’ Mot. at 28-30. Observingthat an ag ency rule is impermissibly

retroa ctive only

if it attache s new leg al conse quence s or depr ives the plaintiff of a

pree x isting rig ht, the defe ndant states that the r ule applying the blend rate to the three rele vant servic es fr om J anuar y 1, 1999 throug h J uly

31, 2000 mere ly

maintained the status quo beca use the blend r ate ha d been in e ffe ct prior to January 1, 1999. Def

.’s Cross-Mot. at 33- 34 . T he re fo re , a lth ou g h th e ru le wa s e na c te d a ft e r Janu ary 1, 19 99 , it

is n ot i mpe rm iss ibl y retroa ctive. Id. In contra st, applying the rea sonable c ost rate be g inning on January 1, 1999 would have c hang ed the status quo, and the ref ore w ould have be en impermissibly retroa ctive. Id. The plaintiffs f

ail to respond dire ctly

to this arg ument, and instead r eca pitulate their asse rtion that the rule w as re troac tive beca use it was ena cted a fter January 1, 1999. Pls.’ Reply

in Support of Mot. for Summ. J . & O pp’n to Def .’s Cross-Mot. for Summ. J . (“Pls.’ Reply”) at 27-28. Th e pla int if

fs ra ise tw o a dd iti on a l argume nts in t he ir op po sit ion

to t he de fe nd ant’ s c ro ssmot ion fo r s umm ary

jud g me nt a

nd re ply in s up po rt

of the ir mot ion fo r s umm ary

jud g me nt. F ir st, afte r addr essingsome of the points raise d in the defe ndant’s cr oss-motion for summary judgme nt, they

decla re that “[t] he re mainder of the ar g uments” ra ised by the def endant “ war

rant no attention” bec ause the y do not refle ct the conside red judg ment of the de fenda nt at the time the rule wa s promulgated, and instea d constitute mere “ post-hoc rationaliz ations of litigation counsel.” Id. at 24-25. The defe ndant counter s that the rationale for his position is articulated
c le arl y in t he ru le and

that hi s p os iti on

in t his lit ig atio n “ is p re c ise ly the po sit ion ” that he too k in promulg atingthe rule. D ef.’ s Reply in Support of Cross-Mot. (“De f.’s Reply”) at 14-15.14

Second, the plaintiffs a ssert that the rule is arbitrar y and ca pricious bec ause the defe ndant fa iled to acknowle dg e the c omments submit ted in favor of the plaintiffs’ position when he promulg ated the rule. Pls.’ Reply

at 20-24. In response , the def endant notes that only

nine out of the 10,500 comments submitted during the notice and c omment period supported the plaintiffs’ position and
aver s that the final rule “implicit[ ly ] reject[ed]” those comments. Def .’s Reply at 16-17. B e c a us e an a g e nc y

ne e d o nly

state the c e ntr a l r e a so ns fo r i ts d e c isi on , th e e na c tme nt o f t he ru le was not proc edura lly

defic ient. Id. For the re asons discussed be low, the cour t defe rs to the def

endant’ s decision to apply the blend rate to the three service s in question from J anuar y 1, 1999 throug h J uly

31, 2000. As an initial matter, the court de termines that the plain text of the BB A is silent as to what pay ment method would apply

from January

1, 1999 throug h J uly

31, 2000 in the event the PPS was not implemented on J anuar

y 1, 1999. 42 U.S.C. §§ 1395 l (a) (2)( B) , 1395 l (t)(1) (A). A lthough the plaintiffs contend that the BB A expressly terminated the blend rate ef fec tive J anuar

y 1, 1999, Pls.’ Mot. at 15, they

drawthis conclusion solely from the “ confor

ming amendments” sec tion of the B BA , which esta

blishes that the blend rate applies to “se rvice s . . . furnished be fore J anuar y 1, 1999,” 42 U.S.C. § 1395 l (a) (2)( B) . Plainly , the provision to which this amendment wa s meant to “ c on fo rm ” wa s th e ne w s ub se c tio n o f t he B B A, wh ic h e sta

bli sh e d th at th e PPS r ate wo uld apply to “servic es . . . fur

nished duringa y ear

beg inning with 1999.” 42 U .S.C. § 1395 l (t)(1) (A). To interpre t the confor

ming amendment as unambiguously providing for the te rmination of the blend rate re g ardle ss of whethe r the PPS was implemented on J anuar y 1, 1999 would place more weig ht on the amendment than it ca n rea sonably

bear
. See Springdale M

em. Hosp. Ass’n, Inc. v
. Bowen , 8 1 8 F. 2 d

1 3 7 7 , 1 3 8 6 (8 thC i r. 1 9 8 7 ) ( ci t i n g CBS , I nc . v . FCC , 453 U.S. 367, 381-8115

(1981) ( holding that nothingin the leg islative history indicated that Cong ress intende d a mer e
c on fo rm ingame ndme nt t o h ave the “ ra dic a l e ff e c t” of c ha ng ingCon g re ss’ s a

pp ro a c h w ith respe ct to Medica

re pa y ments). When the PPS was not implemented on January 1, 1999 as pla nn e d, it c re ate d a

g a p a s to wh at pa

y me nt m e tho d a

pp lie d, and

the de fe nd ant p ro pe rl y promulg ated a

rule to fill that g ap. Cf. Ry. Labor Exe cutives’ Ass’n v. Nat’l Me diation Bd. , 29 F .3 d 6 55 , 6 71 (D .C. Cir . 1 99 4) (h old ingthat be c a us e Con g re ss h a d s po ke n to the pr e c ise question at issue, there was no g ap for the ag ency

to fill). Thus, the cour

t proce eds to the sec ond step of the Chevron test. Chevron , 467 U.S. at 843. The c ourt’s task is to determine whether the def endant’ s decision as to what pay ment method applied betwe en January 1, 1999 and Jul y

31, 2000 was re asonable ; if it was, the cour t must defer

to it. Am . B ar

As s’n v . FTC , 4 3 0 F. 3 d

4 5 7 , 4 6 8 (D
. C
. C i r. 2 0 0 5 ) ( qu o t i n g Chevron , 467 U.S. at 845). To dete rmine whe ther the r ule interpre ting the statute was re asonable , the cour t examines the defe ndant’s justification for his c onstruction of the statute. See, e .g. , S. Co. Servs., In c . v . FCC , 313 F.3d 574, 580- 81 (D.C. Cir. 2002) (a naly zing the ag ency ’s re asoning
conce rningwhat interpr etation would best ef fec tuate leg islative intent). The de fenda nt notes that the De pa rtme nt h a d a

pp lie d th e ble nd

rate to t he thr e e re le va

nt s e rv ic e s f

or ov e r a de c a de pr ior

to 19 99 ; th e re fo re , h e de c ide d th at “ c on tin uin gthe us e of

e xistin gme tho do log ie s unti l th e PPS could take the ir place ” would ef fec tuate Cong ress’s intent to have a sea mless transition between the e xistin gme tho do log ie s and the PPS. D e f. ’s Cr os s- Mo t. at 19 . T he c ourt de te rm ine s n ot o nly that this was a re asonable decision, but that it was the dec ision that best effe ctuated Cong ress’s intent. I n contra st, the plaintiffs have f ailed to per suade the court that it would be re asonable for the de fe nd ant t o in fe r t

hat Co ng re ss i nte nd e d to re ve rs e c ours e by de pa rt ingfr om t

he ble nd rate16

and re turning to the rea sonable c ost rate be fore the PPS was implemented. The thin reed on wh ic h th e pla int if

fs ’ a rgume nt r e sts – th at Co ng re ss i mpl ie d it s p re fe re nc e fo r t he re a so na

ble c os t
rate by e xten din gthe c os t r e du c tio n f a c tor s a ft e r i t di sc ov e re d th at th e PPS w ou ld n ot g o into
e ff e c t on Janu ary 1, 19 99 – c oll a

ps e s und e r t

he we ig ht o f t

he de fe re nc e to whic h th e de fe nd ant i s entitled. See W

. Union Int’l , 804 F.2d at 1292 (emphasizing that a g ency deter minations are entitled to “consider able de fer ence ”). A ccor dingly , the cour t defe rs to the dec ision to apply the blend rate to the servic es in question from January 1, 1999 throug h J uly

31, 2000. In makingthis determination, the cour t rejec ts the plaintiffs’ conte ntion that the rule had an impermissible retr oactive e ffe ct. A rule is impermissibl y retroa ctive only

if it “attac hes new leg al conse quence s to events completed be fore its enactment.” Lan dg ra f v . U SI Fi lm Prod

s. , 511 U.S. 244, 270 (1994). To de termine whe ther a rule fa lls int o this categ ory , the cour t must t ake into account “ familiar c onsiderations of f air notice , rea sonable re liance, a nd settled expectations.” Id. He re , th e pla int if fs do no t atte mpt

to p e rs ua de the c ourt

that th e de c isi on

to
c on tin ue a pp lyingthe ble nd

rate to t he thr e e re le va

nt s e rv ic e s f

ro m Jan ua ry 1, 19 99 thr ou g h July 31, 2000 disturbed hospitals’ settled expectations. Se e ge ne ra lly Pls.’ Reply . Nor c ould they , for the blend rate had be en in ef fec t with respec t to those service s for ove r ten year s prior to 1999. 42 U.S.C. § 1395 l (i)(3) ; 42 U.S.C. § 1395 l (a )( 2) (E ). Ac c or din g ly , th e c ourt ho lds that th e ru le did not have an imper

missibl y retroa ctive ef

fec t. Landgraf

, 511 U.S. at 270. Finally , the cour

t addre sses the plaintiffs’ a ssertion that the ena ctment of the r ule was proce durally

defic ient. The plaintiffs a lleg e that the de fenda nt’s justifications of the rule a re
mere ly “post-hoc r ationalizations” not raised whe n the rule w as promulg ated. See Pls.’ Reply at 23-24. The c ourt reje cts this alleg ation. Whil e the de fenda nt’s arguments in this l itigation17

expand on the points raised in the text of the final rule, his position has not chang ed. See65 Fe d. Reg . 18,489-90 (Apr . 7, 2000). In addition, the plaintiffs claim the rule is arbitrar y and ca pricious bec ause the defe ndant failed to a cknowledg e the c omments submit ted in support of the plaintiffs’ position during the notice and c omment period. SeePls.’ Reply at 20-24. B ut the plaintiffs misconstrue the de fe nd ant’ s d

uty to r e sp on d to c omm e nts re c e ive d. An a g e nc y ne e d n ot r e sp on d to or

e xplic itl y discuss ever

y comment re ceive d “so longas it responds in a r easone d manner to significa

nt
c omm e nts re c e ive d” or

e xpla ins the ru le in a

wa y that im pli c itl y re je c ts s ig nif

ic ant c omm e nts
rec eived. U.S. Satellite Broad. Co., Inc. v. F ed. Commc ’ns Comm’n , 7 40 F .2 d 1 17 7, 11 88 (D .C. Cir . 1 98 4) . H e re , a lth ou g h th e de fe nd ant d id n ot r e sp on d e xplic itl y to t he nin e c omm e nts
su bmi tte d in

fa vo r o f t he pla int if

fs ’ p os iti on

(o ut o f m or e tha

n 1 0, 00 0 c omm e nts re c e ive d in total), he did re spond in a rea soned manne r to the ce ntral conc erns r aised duringthe notice a nd comment per iod. See65 Fe d. Reg . 18,489-90 (Apr . 7, 2000). More over, by explaining that he believed Cong ress intende d to continue to apply the blend rate until the PP S was implemented, the de fe nd ant i mpl ic itl y

re je c te d th e pla int if

fs ’ c omp e tin gpr op os iti on , th at Co ng re ss i nte nd e d to apply the re asonable cost rate afte r January 1, 1999 and bef

ore the PPS was implemented. See65 Fe d. Reg . 18,490 (Apr. 7, 2000) (conc luding that g iven the fa ct that the Y2K c risis delay ed implementation of the PPS , “the most appropr iate re ading ” of the BB A was that “it authorizes the Se c re tary

to c on tin ue to [a pp ly the ble nd ra te ] unt il PPS c an b e imp le me nte d. I f t he Con g re ss had known a

bout the Y2K proble m at the time it enacte d the PPS statute, this is t he only rational
a pp ro a c h it

c ou ld h ave a do pte d. ” ) A s a re su lt, the c ourt

re je c ts t he pla int if

fs ’ c la im that th e ru le
was a rbitrar y and ca pricious and holds that the de fenda nt properly

applied the blend r ate to the18

three service s in question from J anuar y 1, 1999 throug h J uly

31, 2000.

IV . C ON CL USI ON For the fore g oing r easons, the c ourt denies the pla intiffs’ motion for summary judgme nt
and g ra nts the de fe nd ant’ s c ro ss- mot ion fo r s umm ary

jud g me nt. An

Or de r c on sis te nt w iththi s Memorandum Opinion is separ ately and conte mporane ously

issued this 26th day

of Mar ch, 2009.

RI CARDO M. URBI

NA United States District J udg e