### IN THE UNI TED STATES COURT OFAPPEALS FOR THE FIF TH CIRCUIT

No. 11–50682

PALADIN COMMUNITY MENTAL HEALTH CENTER; SHERRY OSTEEN, Plaintiffs – Appellants
v. KATHLEEN SEBELIUS, in her official capacity as Secretary o f H e alth 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 c hallenge to the 2011 Medicare payment rate set by the Se c r e t a ry 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 exp r e ssly U n i te d S ta te s C o u rt o f A p p ea l s

F i ft h C i rc u i t 

### F I L E D June15 , 20 12 Lyle W . Cayce Clerk Case: 11-50682 Document: 00511887930 Page: 1 Date Filed: 06/15/2012No. 11-50682

precluded judicial review of the Secretary’s pay ment 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 inpati e nt h ospital services and institutional care, see §§ 1395c to 1395i–5, while Medicare Part B p r o vides supplemental coverage for physician and outpatient department services. §§ 13 9 5j to 1395w–4. Both hospitals and community mental h ealth centers are eligible to receive Medicare Part B payments for certain qualifying outpatient s e rvices, including partial hospitalization program services. See §§ 1395x(s), 1395x(ff)(1)–(3). Paladin is a Medicare-certified community mental health center wh i c h p rovides 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. H o wever, 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 hospitalizatio n s ervic e s . See § 1 3 9 5 l (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)

“e s t ab li sh rel ative p aym e nt w ei ghts for covered [outpatient department] s ervic e s . . . based on median (or, at the election of the Secretary, mean) hospital costs” using recent cost data. § 1395l(t)(2)(A)–(C). I n 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 Se c r e tary 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 p ay m e nt weights, and the wage and other adjustments described in paragraph (2) to take into account changes in medical practice, chang e s 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]ud g et 1

neu t r al ity” year-to-year by ensuring that any increased expenditure for one payment component is offset by a decrease in another paym e n t c o m ponent so that total Medicare payments for partial hospit alization services equal what would have been paid under the p r e - 1 9 97 system. See §§ 1395l(t)(3)(A)–(B), (t)(9)(B). Since 2000, the Sec r e t ary 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 co m p u t e the relative payment weights and ultimate payment rate for covered services for all partial hospital i z a ti o n service providers. However, in
response to comments from communi ty mental health centers, from 2003 th r o u gh 2008 the Secretary used both hospital-based and community ment al health center cost data in computing relative payment weights and the ultimate payment rate for all providers. 2

Sec tio n 1395l(t) (9) wa s for me rly § 1395l(t) (6)

. On e cro ss -r efe renc e in the st atut e wa s 1 not ame ndedt o c onf

ormt o the renum beri ng of the othe r pr ovis ions

. See§ 1395l(t) (12) (C)

. The Sec ret ary cont inu e d t o use only hos pit al- bas ed cos t dat a in ins tanc es wh ere 2
com munity me ntal health c ente r cos t dat a w as unavailab le or of ques tio nable validi ty. 3 Case: 11-50682 Document: 00511887930 Page: 3 Date Filed: 06/15/2012No. 11-50682 B. In July 2010, the Secretary sought comment on a proposed rule establishing the 2011 payment rate for pa rtial hospitalization services. The proposed rule provided that the Se c r e t a ry 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 w o u l d r e f lect only their own data). The Secretary’s reasoning for this change was based on “the different cost structu res 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 c o m m unity 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 Con gr e ss had granted her the authority to revise the covered service groups and relative payment weights and make other

a djustments by basing rates on (i) only hospital-based cost data, (ii) bo th hospital-based and community m e n t al 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 cau s e d by lower payment rates, the Secretary implemented a two-year transition into using only community mental health center cost d ata 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 relativ e payment weights for community mental health center partial hospitalization services. Id.

4 Case: 11-50682 Document: 00511887930 Page: 4 Date Filed: 06/15/2012No. 11-50682 C. In December 2010, prior to implementation of the final rule and without first pursui n g an administrative remedy, Paladin filed a complaint seeking injunctive relief and a declaration that the Secretary’s a c tion was unlawful. Paladin argued that the Secretary “circumvented the clea r instructions of Congress regarding utilization of hospital c o s t d a ta as the sole metric for developing relative payment weights for partial hospital i z a tion services for [community mental health centers].” The Secretary moved to dismiss for lack of subj e c t m atter jurisdiction and, alternatively, for failure to exhaust administrative remedies. After a h e a ri ng, the district court dismissed the complaint for lack of subject matter jurisdiction, explaining that “s e c ti ons 1395l(t)(12)(A

) an d ( C) expressly preclude review of the relative payment-weight determination, and

. . . the Secretary has acted within her statutory authority to establish pay m e nt 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 P al a din’ s ch all en ge to the Secretary’s 2011 payment rate dete r m i n ations for partial hospitalization services. The second is, ass u m i n g 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 2 0 1 1 p aym e nt 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.

5 Case: 11-50682 Document: 00511887930 Page: 5 Date Filed: 06/15/2012No. 11-50682 A. The Secretary determined that she would calculate relative payment weights for partial hospitalizatio n s e rvices 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 l a c k e d 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 inte n d s judicial review of administrative action.” Bowen v. Mich. Acad. ofFami l y P h ys ic ians , 476 U.S. 667, 670 (1986). However, [ s] ubj ect to co n s titutional constraints, Congress can, of course, make exceptions to the historic practice whereby courts r evi ew agency action. The presumption of judicial review is, after al l, a presumption, and “like all presumptions used i n i n t erpreting statutes, may be overcome by,” inter alia , “specific lan guage 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. Cm t y . Nutrition Inst. , 467 U.S. 340, 349, 351 (1984)). Here, the Medicare Act’s legislative scheme m akes clear Congress’s specific intent to preclude certain payment rate determinations from judi c i al review: 3

Congres s’ s reas on for pr eclu ding judic ial revie w is als o clea r. Judi cial det erm inati ons 3 for cing the Sec ret ary to retroac tively alt er paym ent rat esf or variou s cover ed se rvice s—e.g. , paym ent rat es that are adjus ted annually and are requ ired to rem ain budget neut ral—wo uld 6 Case: 11-50682 Document: 00511887930 Page: 6 Date Filed: 06/15/2012No. 11-50682

Th e r e s hall be no administrative or judicial review under section 1395ff of this title, 1395oo, of this title, or otherwi s e of—(A) the development of the classification system under [section 1395l(t)(2)], including the establishment of group s an d relative payment weights for covered [outpatient depart m e nt] 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 r e vi e w 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 a n nual 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 nons t a t u tory 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 p articular service pursuant to § 1395l(t)(2)(C), factoring in any other periodic adjustments made pursuant to § 13 9 5 l (t)(9). Paladin’s argument that Congress permits judicial

lik ely wr e a k h avoc on the alre ady com ple x adm inis tra tio n of Me dic are Part B’s outp atie nt pr os pec tive paym ent sys tem

. See Am

. Soc’ y of Catarac t & Ref

ractiv e Surger

y v. Thom

ps on , 279 F.3d 447, 454 (7th Cir. 2002) (no ting jud i c i al revie w of annual adjus tm ents to Me dic are paym ent fee sc hedu les wo uld be “disrupt ive,” particularly with re sp ect to the budget neut rality requ irem ent)

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review of the ultimate payment rate yet forbids judicial review of the component parts of that same r a t e makes no logical sense and flies in the face of the statutory t e xt

. 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 adjust m e nt s 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,

n e w cost data, and other relevant information and factors.” See §§ 1395l(t)(9), (t)(12)(A), (C). Straightforward application of the statutory text shows th a t Paladin’s challenge falls within the class of activiti e s C o n gress specifically precluded from judicial review. C. P al a din also argues that the district court should have exerci s e d jurisdiction pursuant to Leedom v. Kyne , 35 8 U

. S

. 184, 188–89 (1958), even if Congress expre s s ly precluded the Secretary’s determinations from judicial review. In Kyne , the Supreme Court recogni z ed 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 ma n d a t e ,” 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 w e i gh t s 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, a n d 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

n o t th e “extraordinary” situation that falls within the very limited Ky n e exception. Kirby Corp. v. Pena , 109 F.3d 258, 269 (5th Cir. 1997). Where Paladin asserts that the Se c r e tary 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 an d 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 sai d t o b e “ s o c ontrary to the terms of the relevant statute that it

nec e s s it ates 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 Kyneexception). 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, 1 1 11 (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 reason s , w e 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 dis t ri c t court’s dismissal for lack of subject matter jurisdiction is AFFIRMED.

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