IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 11–50682

PALADIN COMMUNITY MENTAL HEALTH CENTER; SHERRY OSTEEN,

Plaintiffs – Appellants

v.

KATHLEEN SEBELIUS, in her official capacity as Secretary of Health and

Human Services; DR. DONALD BERWICK, in his official capacity as the

Administrator of Centers for Medicare and Medicaid Services,

Defendants – Appellees

Appeal from the United States District Court

for the Western District of Texas

Before JOLLY, DeMOSS, and STEWART, Circuit Judges.

HAROLD R. DeMOSS, JR., Circuit Judge:

This appeal involves a challenge to the 2011 Medicare payment rate set

by the Secretary of Health and Human Services (the “Secretary”) for partial

hospitalization services. Paladin Community Mental Health Center and Sherry

Osteen (collectively, “Paladin”) claim the Secretary’s use of both hospital-based

and community mental health center cost data in establishing and adjusting the

2011 relative payment weights and ultimate payment rate was in excess of her

statutory authority. Without first presenting an administrative claim, Paladin

filed suit in district court, alleging jurisdiction was proper under 28 U.S.C.

§ 1331. After a hearing, the district court concluded that Congress expressly

United States Court of Appeals

Fifth Circuit

F I L E D

June 15, 2012

Lyle W. Cayce

Clerk

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precluded judicial review of the Secretary’s payment rate decisions and

dismissed the case for lack of subject matter jurisdiction. We affirm.

I.

A.

The Medicare Act establishes a health insurance program for elderly and

disabled persons. See 42 U.S.C. § 1395 et seq. Medicare Part A provides coverage

for inpatient hospital services and institutional care, see §§ 1395c to 1395i–5,

while Medicare Part B provides supplemental coverage for physician and

outpatient department services. §§ 1395j to 1395w–4. Both hospitals and

community mental health centers are eligible to receive Medicare Part B

payments for certain qualifying outpatient services, including partial

hospitalization program services. See §§ 1395x(s), 1395x(ff)(1)–(3). Paladin is a

Medicare-certified community mental health center which provides partial

hospitalization services to patients in and around Austin, Texas, and derives

over 80% of its revenue from Medicare payments.

For years Medicare paid suppliers of partial hospitalization services based

on their specific costs. However, in 1997, in an attempt to better control costs

and encourage more efficient delivery of care, Congress directed the Secretary

to establish an outpatient prospective payment system where providers would

be paid predetermined rates for partial hospitalization services.See § 1395l(t)(1).

In creating the new payment system, the Secretary was required to (i) develop

a classification system for covered services and groups of services, and then (ii)

“establish relative payment weights for covered [outpatient department] services

. . . based on median (or, at the election of the Secretary, mean) hospital costs”

using recent cost data. § 1395l(t)(2)(A)–(C). In any given year, the ultimate

payment rate for covered services was the product of a “conversion factor” and

the various “relative payment weight[s,]” § 1395l(t)(3)(C)–(D), adjusted

geographically based on local labor costs and other factors. § 1395l(t)(4).

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In 2000, the Secretary established the outpatient prospective payment

system using a “per diem” methodology and then calculated the initial relative

payment weights and ultimate payment rate for partial hospitalization services.

Thereafter, the Secretary was instructed to

review not less often than annually and revise the groups, the

relative payment weights, and the wage and other adjustments

described in paragraph (2) to take into account changes in medical

practice, changes in technology, the addition of new services, new

cost data, and other relevant information and factors.

§ 1395l(t)(9)(A). The Secretary was also instructed to maintain “[b]udget 1

neutrality” year-to-year by ensuring that any increased expenditure for one

payment component is offset by a decrease in another payment component so

that total Medicare payments for partial hospitalization services equal what

would have been paid under the pre-1997 system. See §§ 1395l(t)(3)(A)–(B),

(t)(9)(B).

Since 2000, the Secretary has used the annual review and adjustment

process to help her refine the payment system. This process includes analyzing

cost data provided by both hospitals and community mental health centers. In

2000 through 2002, 2009, and 2010, the Secretary used only hospital-based cost

data to compute the relative payment weights and ultimate payment rate for

covered services for all partial hospitalization service providers. However, in

response to comments from community mental health centers, from 2003

through 2008 the Secretary used both hospital-based and community mental

health center cost data in computing relative payment weights and the ultimate

payment rate for all providers.2

Section 1395l(t)(9) was formerly § 1395l(t)(6). One cross-reference in the statute was

1

not amended to conform to the renumbering of the other provisions. See § 1395l(t)(12)(C).

The Secretary continued to use only hospital-based cost data in instances where 2

community mental health center cost data was unavailable or of questionable validity.

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B.

In July 2010, the Secretary sought comment on a proposed rule

establishing the 2011 payment rate for partial hospitalization services. The

proposed rule provided that the Secretary would compute separate partial

hospitalization costs, relative payment weights, and ultimate payment rates for

hospitals and community mental health centers based on their own respective

cost data (i.e., hospital rates would reflect only their own data and community

mental health center rates would reflect only their own data). The Secretary’s

reasoning for this change was based on “the different cost structures of

[community mental health centers] and hospital-based [partial hospitalization

programs].” See 75 Fed. Reg. 71992 (November 24, 2010) (indicating that over

the years hospital costs had remained stable while community mental health

center costs had declined, thereby resulting in underpayments to hospitals and

overpayments to community mental health centers). During her consideration,

the Secretary indicated that Congress had granted her the authority to revise

the covered service groups and relative payment weights and make other

adjustments by basing rates on (i) only hospital-based cost data, (ii) both

hospital-based and community mental health center cost data, or (iii) only

community mental health center cost data. Id.

Ultimately, in an attempt to prevent potential community mental health

center closures caused by lower payment rates, the Secretary implemented a

two-year transition into using only community mental health center cost data

to calculate payment rates for community mental health centers. Id. at 71,993.

The final rule for 2011, promulgated in November 2010, used (i) only hospitalbased cost data to calculate the relative payment weights for hospital-based

partial hospitalization services, and (ii) both hospital-based and community

mental health center cost data to calculate the relative payment weights for

community mental health center partial hospitalization services. Id.

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C.

In December 2010, prior to implementation of the final rule and without

first pursuing an administrative remedy, Paladin filed a complaint seeking

injunctive relief and a declaration that the Secretary’s action was unlawful.

Paladin argued that the Secretary “circumvented the clear instructions of

Congress regarding utilization of hospital cost data as the sole metric for

developing relative payment weights for partial hospitalization services for

[community mental health centers].” The Secretary moved to dismiss for lack of

subject matter jurisdiction and, alternatively, for failure to exhaust

administrative remedies. After a hearing, the district court dismissed the

complaint for lack of subject matter jurisdiction, explaining that “sections

1395l(t)(12)(A) and (C) expressly preclude review of the relative payment-weight

determination, and . . . the Secretary has acted within her statutory authority

to establish payment rates for [outpatient department] services pursuant to

section 1395l(t)(2)(C).”

Paladin timely appealed.

II.

Paladin raises several issues on appeal. The first is whether, pursuant to

§ 1395l(t)(12), Congress precluded from judicial review Paladin’s challenge to the

Secretary’s 2011 payment rate determinations for partial hospitalization

services. The second is, assuming Congress did not preclude judicial review,

whether Paladin must exhaust its administrative remedies prior to filing suit in

district court. And the third is, assuming the district court has jurisdiction and

administrative exhaustion is not required, whether the Secretary is permitted

to use community mental health center cost data in establishing and adjusting

the 2011 payment rates for community mental health centers. Because we affirm

the district court’s determination that it lacked subject matter jurisdiction, we

need not reach the second and third issues.

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A.

The Secretary determined that she would calculate relative payment

weights for partial hospitalization services provided by community mental

health centers in 2011 using both hospital-based and community mental health

center cost data. See 75 Fed. Reg. at 71993. The district court found that

Congress expressly precluded judicial review of such determinations and

dismissed Paladin’s complaint for lack of subject matter jurisdiction. We review

the district court’s determination that it lacked subject matter jurisdiction de

novo. Nat’l Athletic Trainers’ Ass’n v. U.S. Dep’t of Health & Human Servs., 455

F.3d 500, 502 (5th Cir. 2006).

B.

There is a “strong presumption that Congress intends judicial review of

administrative action.” Bowen v. Mich. Acad. of FamilyPhysicians, 476 U.S. 667,

670 (1986). However,

[s]ubjectto constitutional constraints, Congress can, of course, make

exceptions to the historic practice whereby courts review agency

action. The presumption of judicial review is, after all, a

presumption, and “like all presumptions used in interpreting

statutes, may be overcome by,” inter alia, “specific language or

specific legislative history that is a reliable indicator of

congressional intent,” or a specific congressional intent to preclude

judicial review that is “‘fairly discernible’ in the detail of the

legislative scheme.”

Id. at 672–73 (quoting Block v. Cmty. Nutrition Inst., 467 U.S. 340, 349, 351

(1984)).

Here, the Medicare Act’s legislative scheme makes clear Congress’s

specific intent to preclude certain payment rate determinations from judicial

review:3

Congress’s reason for precluding judicial review is also clear. Judicial determinations 3

forcing the Secretary to retroactively alter payment rates for various covered services—e.g.,

payment rates that are adjusted annually and are required to remain budget neutral—would

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There shall be no administrative or judicial review under section

1395ff of this title, 1395oo, of this title, or otherwise of—(A) the

development of the classification system under [section 1395l(t)(2)],

including the establishment of groups and relative payment weights

for covered [outpatient department] services, of wage adjustment

factors, other adjustments, and methods described in [section

1395l(t)(2)(F)]; . . . [and] (C) periodic adjustments made under

[section 1395l(t)(9)].

§ 1395l(t)(12); see Am. Soc’y of Cataract & Refractive Surgery v. Thompson, 279

F.3d 447, 452 (7th Cir. 2002) (finding no judicial review of “relative values and

relative value units” under Medicare Part B); Painter v. Shalala, 97 F.3d 1351,

1356 (10th Cir. 1996) (finding no judicial review of “conversion factor” under

Medicare Part B). The plain text of § 1395l(t)(12) makes Congress’s intent “fairly

discernible” and thus overcomes the general presumption favoring judicial

review. Mich. Acad., 476 U.S. at 673.

Faced with clear congressional intent to preclude from judicial review the

Secretary’s establishment of, and annual adjustments to, relative payment

weights for partial hospitalization service payments, Paladin attempts to draw

a distinction between relative payment weights and the “national rate” (a nonstatutory term Paladin uses apparently meaning the ultimate payment

rate—the per diem rate—for covered services). This attempt fails. As the

Secretary points out, every relative payment weight is simply a component part

of the ultimate payment rate, and every component is itself dependent upon the

Secretary’s determination of the median or mean costs for that particular service

pursuant to § 1395l(t)(2)(C), factoring in any other periodic adjustments made

pursuant to § 1395l(t)(9). Paladin’s argument that Congress permits judicial

likely wreak havoc on the already complex administration of Medicare Part B’s outpatient

prospective payment system. See Am. Soc’y of Cataract & Refractive Surgery v. Thompson, 279

F.3d 447, 454 (7th Cir. 2002) (noting judicial review of annual adjustments to Medicare

payment fee schedules would be “disruptive,” particularlywithrespectto the budget neutrality

requirement).

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review of the ultimate payment rate yet forbids judicial review of the component

parts of that same rate makes no logical sense and flies in the face of the

statutory text. The ultimate payment rate is simply the sum of numerous

relative payment weights, as adjusted, and a court cannot review or adjust the

ultimate payment rate without improperly reviewing or adjusting its component

parts. See Am. Soc’y of Cataract & Refractive Surgery, 279 F.3d at 452 (finding

no judicial review over “relative values” also means no judicial review over the

component parts of those values).

Moreover, the ultimate payment rate in any given year is based upon the

aggregate adjustments made to the relative payment weights by the Secretary

since she established the prospective payment system in 2000 (i.e., ten years of

adjustments from 2001 to 2011). Not only did Congress expressly shield from

judicial review the Secretary’s initial establishment of relative payment weights

in 2000, it also expressly shielded from judicial review her annual adjustments 

made to the relative payment weights which are supposed to “take into account

changes in medical practice, changes in technology, the addition of new services,

new cost data, and other relevant information and factors.” See §§ 1395l(t)(9),

(t)(12)(A), (C). Straightforward application of the statutory text shows that

Paladin’s challenge falls within the class of activities Congress specifically

precluded from judicial review.

C.

Paladin also argues that the district court should have exercised

jurisdiction pursuant to Leedom v. Kyne, 358 U.S. 184, 188–89 (1958), even if

Congress expressly precluded the Secretary’s determinations from judicial

review. In Kyne, the Supreme Court recognized a narrow exception to a

congressional bar on judicial review for claims that an agency exceeded the scope

of its authority or violated a clear statutory mandate. Id.

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Paladin’s reliance on Kyne is misplaced. While Kyne does permit a district

court “to conduct a cursory review of the merits of the case to determine whether

the Secretary violated a clear statutory mandate,” Hanauer v. Reich, 82 F.3d

1304, 1309 (4th Cir. 1996) (internal quotation omitted), our cursory review

reveals that the Secretary was acting within her delegated authority. When the

Secretary made her 2011 payment rate determinations she was acting pursuant

to her authority both to (i) “establish relative payment weights for covered

[outpatient department] services . . . based on median (or, at the election of the

Secretary, mean) hospital costs,” § 1395l(t)(2)(C), and (ii) “review not less often

than annually and revise the groups, the relative payment weights, and the

wage and other adjustments . . . to take into account changes in medical practice,

changes in technology, the addition of new services, new cost data, and other

relevant information and factors.” § 1395l(t)(9)(A).

Paladin’s argument is at best a dispute over the Secretary’s interpretation

of the “based on . . . hospital costs” language found in § 1395l(t)(2)(C), which is

not the “extraordinary” situation that falls within the very limited Kyne

exception. Kirby Corp. v. Pena, 109 F.3d 258, 269 (5th Cir. 1997). Where Paladin

asserts that the Secretary should interpret “based on . . . hospital costs” as

requiring her to use hospital-based cost data as the sole metric in calculating and

adjusting the relative payment weights and ultimate payment rate for 2011, the

Secretary has instead decided to base the relative payment weights and ultimate

payment rate on both hospital-based and community mental health center cost

data. Even if her interpretation was incorrect, the Secretary’s decision can

hardly be said to be “so contrary to the terms of the relevant statute that it

necessitates judicial review independent of” the no-review provisions of

§ 1395l(t)(12). Id. (noting that there must be a “facial violation[]” of the relevant

statute to fall within the Kyne exception). There is enough ambiguity inherent

in the phrase “based on . . . hospital costs” that the Secretary’s interpretation

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deserves deference because it is at least a plausible construction of the statute.

See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 &

n.11 (1984); see also Sierra Club v. EPA, 356 F.3d 296, 305–06 (D.C. Cir. 2004)

(finding “based on” to be ambiguous); McDaniel v. Chevron Corp., 203 F.3d 1099,

1111 (9th Cir. 2000) (finding “based on” generally refers to a “starting point”);

Fed. Recovery Servs., Inc. v. United States, 72 F.3d 447, 451 (5th Cir. 1995)

(noting Congress could have “insert[ed] the adverb ‘solely’ before ‘based upon’”).

III.

For the foregoing reasons, we find that Congress expressly precluded

judicial review of the Secretary’s determinations and that her actions are not a

facial violation of a clear statutory mandate. Accordingly, the district court’s

dismissal for lack of subject matter jurisdiction is AFFIRMED.

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