Court Opinion

ID: 2662603
Source: CourtListenerOpinion
Date Created: 2014-04-03 12:34:26.816171+00
Date Added: 2024-06-11T12:30:08.245942
License: Public Domain

UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF COLUMBIA

GENTIVA HEALTHCARE CORP.,
d/b/a HERITAGE HOME HEALTH,

        Plaintiff,
               v.                                       Civil Action No. 11-438 (JEB)
KATHELEEN SEBELIUS, Secretary,
U.S. Department of Health and Human
Services,

       Defendant.

                                 MEMORANDUM OPINION

       Plaintiff Gentiva Healthcare Corporation provides home health services to beneficiaries

under the Medicare program, which reimburses providers like Gentiva. Operating under a

contract with Defendant Kathleen Sebelius, the Secretary of the U.S. Department of Health and

Human Services, a Medicare contractor in 2007 undertook a review of a subset of Gentiva’s

claims for such reimbursement. Finding a “sustained or high level of payment error” among

Gentiva’s claims, the contractor proceeded to calculate Medicare’s total overpayment to Gentiva

by extrapolating from a sample of 30 claims to the universe of 1,951 claims. After determining

that 26 of the 30 claims in the sample had been overpaid, the contractor extrapolated that 85.64%

error rate across the total number of claims and sought to recoup from Gentiva the sum of

$4,242,452.10 in Medicare overpayments.

       Gentiva sought administrative review of the overpayment assessment and eventually

succeeded in overturning the contractor’s overpayment determination with respect to most of the

claims in the sample. The total amount Gentiva owed was correspondingly diminished to

approximately $850,000. The Secretary, however, upheld the contractor’s finding of a

                                                1
“sustained or high level of payment error” and subsequent use of extrapolation.

       In this suit Gentiva claims that the Secretary’s decision upholding the contractor’s use of

extrapolation to calculate its overpayment amount was “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law” in violation of the Administrative Procedure

Act and the Medicare statute. Specifically, Gentiva argues that the Secretary, not a Medicare

contractor, must make the “sustained or high level of payment error” determination before a

contractor can use extrapolation to calculate a provider’s overpayment amount. In the

alternative, Gentiva challenges the merits of the contractor’s determination that a “sustained or

high level of payment error” was present.

       Both parties now seek summary judgment. Because the Medicare statute contains a

broad authorization for the Secretary to delegate her responsibilities to contractors and in light of

the deference to which agencies’ interpretations of their own statutes are entitled, the Court finds

that the Secretary’s determination that a contractor may make the “sustained or high level of

payment error” determination was neither arbitrary and capricious nor contrary to law.

Furthermore, because Congress expressly precluded judicial review of “sustained or high level of

payment error” determinations, the Court lacks jurisdiction to consider Gentiva’s challenge to

the contractor’s finding that such a level of payment error existed here. The Court will thus grant

Defendant’s Motion for Summary Judgment and deny Plaintiff’s.

I.     Background

       A. Regulatory Framework

       Established in 1965 by Title XVIII of the Social Security Act, the Medicare program

provides federally subsidized health insurance for elderly and disabled individuals. See 42

U.S.C. § 1395 et seq. The program reimburses participating providers of medical services,

                                                  2
including home health services, for the reasonable, actual costs of services rendered to Medicare

beneficiaries. See id. § 1395f(b)(1). The Centers for Medicare & Medicaid Services (CMS), a

component of HHS, is charged with administering the Medicare program on the Secretary’s

behalf.

          Private entities have long played a role in the administration of Medicare. See, e.g., id. §

1395h(a) (authorizing Medicare contractors, referred to as “intermediaries,” to perform

processing and payment functions for Part A); id., § 1395u(a) (authorizing contractors, referred

to as “carriers,” to perform processing and payment functions for Part B); see also 42 C.F.R. 421

et seq. Indeed, Congress has provided the Secretary with the broad authority to “perform any of

[her] functions under [the Medicare statute] directly, or by contract . . . as [she] may deem

necessary.” 42 U.S.C. § 1395kk(a); see also Nat’l Ass’n of Home Health Agencies v.

Schweiker, 690 F.2d 932, 943 (D.C. Cir. 1982) (interpreting § 1395kk(a) as “authoriz[ing] the

Secretary to perform any of his Medicare functions, including his reimbursement functions,

either directly or indirectly”).

          In 1996 Congress created the Medicare Integrity Program (MIP), pursuant to which the

Secretary was required to “promote the integrity of the Medicare program” by engaging

contractors to perform a variety of activities aimed at reducing overpayment and fraud. See

Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, §§ 201-02,

110 Stat. 1936, 1994-96 (Aug. 21, 1996), codified at 42 U.S.C. §§ 1395i(k)(4), 1395ddd.

Congress expanded and amended the MIP when it passed the Medicare Prescription Drug,

Improvement, and Modernization Act of 2003 (MMA), Pub L. No. 108-173, §§ 911, 935, 117

Stat. 2066, 2409 (Dec. 8, 2003), codified at 42 U.S.C §§ 1395kk-1, 1395ddd(f). Consistent with

this initiative, Medicare contractors are empowered to identify instances in which the program

                                                    3
overpaid a provider and to recoup any such overpayments on the Secretary’s behalf. See

generally 42 U.S.C. § 1395ddd.

       Congress, however, imposed a limit on contractors’ ability to estimate overpayment

amounts by extrapolating from a sample of relevant claims (as opposed to evaluating each and

every claim individually). Specifically – and this is the language in dispute here – the statute

provides that “[a] medicare contractor may not use extrapolation to determine overpayment

amounts . . . unless the Secretary determines that . . . there is a sustained or high level of payment

error . . . or . . . documented educational intervention has failed to correct the payment error.”

Id., § 1395ddd(f)(3). Congress further specified that there would be “no administrative or

judicial review . . . of determinations by the Secretary of sustained or high levels of payment

errors” in this context. Id.

       The Secretary promulgated regulations implementing this statutory provision, see 42

C.F.R. § 405.926(p), and also addressed it in the Medicare Integrity Program Manual. See Pub.

1008-08, Trans. 114 (June 10, 2005), available at www.cms.hhs.gov/transmittals/downloads/

R114PI.pdf. While the regulation merely classifies “[d]eterminations by the Secretary of

sustained or high levels of payment errors” as an “[a]ction that [is] not [an] initial

determination[ ] and [is] not appealable,” 42 C.F.R. § 405.926, in comments made during the

notice-and-comment rulemaking process the Secretary stated that “Congress required contractors

to identify a likelihood of sustained or high level of payment error.” 74 Fed. Reg. 65296, 65303

(emphasis added). The Manual provides contractors with guidance concerning how the

“sustained or high level of payment error” determination should be made. See Pub. 1008-08,

Trans. 114 (June 10, 2005), Requirement No. 3734.2. Specifically, it provides that a contractor

may use a “variety of means” to identify the requisite level of payment error, including, for

                                                  4
example, sample probes, information from law-enforcement investigations, provider history, and

allegations of wrongdoing by current or former employees. See id.

       B. Factual and Procedural Background

       Operating under the name Heritage Home Health, Gentiva provides home health services

to Medicare beneficiaries in Salt Lake City, Utah. See Administrative Record (A.R.) at 57, 392.

In January 2007, Cahaba Safeguard Administrators, LLC, operating under a contract with the

Secretary pursuant to 42 U.S.C. § 1395ddd, initiated an onsite audit of Heritage Home Health.

See id. at 5, 681. After reviewing claims for services provided between July 1, 2005, and

November 30, 2006, Cahaba determined that 58% of those claims had been overpaid. See id. at

351, 682. Based on this 58% error-rate determination, Cahaba concluded that Gentiva’s Salt

Lake City location had a “sustained or high level of payment error” such that Cahaba was

entitled to use extrapolation to calculate the total amount Gentiva had been over-reimbursed

under § 1395ddd(f)(3). See id. at 351, 682.

       Cahaba then proceeded to draw a sample of 30 claims from a universe of 1,951 claims for

services rendered by Gentiva during a slightly different time period, November 1, 2005, through

November 24, 2006. See A.R. at 3, 682. After reviewing these 30 claims individually, Cahaba

determined that 26 of them had been overpaid – an error rate of approximately 85.64%. See

A.R. at 5435, 681-83. In a letter dated October 23, 2008, Cahaba notified Gentiva that, based on

its extrapolation of the results of that initial sample to the 1,951 total claims, it would seek to

recoup $4,242,452.10 in Medicare overpayments. See id. at 5, 336, 356, 681-83.

       Believing that the overpayment assessment was erroneous, Gentiva then began what was

to be an extensive appeals process. Consistent with Medicare regulations governing the appeals

process, see 42 C.F.R. §§ 405.920, 405.924(b), 405.940-58, Gentiva first sought a

                                                   5
redetermination from Cahaba and then sought reconsideration by another Medicare contractor.

See A.R. at 467-71, 5348-49. As a result of these preliminary appeals, Cahaba’s initial

overpayment findings with respect to 10 of the allegedly overpaid claims were reversed. See id.

at 467-71, 5348-49. With the number of overpaid claims reduced to 16 out of the sample of 30,

the overpayment assessment was correspondingly reduced to $2,112,778. See id. at 467-71,

5349.

        Gentiva then requested hearings before an administrative law judge on 10 of the

remaining 16 claims, declining to pursue further appeals of the other 6 allegedly overpaid claims.

See id. at 5, 529, 388-406. The ALJ ultimately issued ten separate but substantively similar

decisions that reversed Cahaba’s overpayment determination for all 10 claims on the ground that

the services for which Medicare had reimbursed Gentiva had in fact been reasonable and

necessary. See id. at 3, 55-75. The ALJ, however, upheld Cahaba’s use of sampling and

extrapolation. See id. at 3, 20-21, 70-71, 74. The effect of the ALJ’s decisions, therefore, was to

further reduce the number of overpaid claims in the sample of 30 from 16 to 6 – the only

remaining overpaid claims being those 6 that Gentiva declined to bring to the ALJ’s attention –

and, by extrapolation, the amount owed from $2,112,778 to approximately $850,000. See

Compl., ¶ 23.

        Gentiva appealed each of the ALJ’s ten decisions to the Medicare Appeals Council

(MAC) of the Departmental Appeals Board. See A.R. at 49-51, 4-5. As the ALJ had found in its

favor with respect to each of the overpayment determinations at issue, Gentiva challenged only

the portion of her decisions that upheld Cahaba’s use of sampling and extrapolation. See id. at 4-

5, 21, 24-27, 49-51. Relying on 42 U.S.C. § 1395ddd(f)(3), Gentiva argued that the Secretary –

not Cahaba, a contractor – was required to identify a “sustained or high level of payment error”

                                                 6
before Cahaba was entitled to proceed by extrapolation. See id. at 24-27; 42 U.S.C. § 1395

ddd(f)(3) (“A Medicare contractor may not use extrapolation . . . unless the Secretary determines

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

        On January 27, 2011, the MAC issued its decision, concluding that Medicare contractors

are permitted to make the predicate “sustained or high level of payment error” determination

under 42 U.S.C. § 1395ddd(f)(3). See A.R. at 7-8. Cahaba, accordingly, had been entitled to

determine Gentiva’s overpayment amount by extrapolating from a sample of claims after it had

determined that a high level of payment error existed. See id. The MAC’s opinion constituted

the “final decision” of the Secretary. See 42 C.F.R. § 405.1130.

        Seeking review of the MAC’s judgment, Gentiva filed a Complaint initiating the instant

suit on February 25, 2011. Gentiva first contends that the MAC’s decision that Medicare

contractors like Cahaba may make the “sustained or high level of payment error” determination

is arbitrary and capricious and contrary to 42 U.S.C. § 1395ddd(f)(3). See Compl., ¶¶ 27-28. In

the alternative, Gentiva maintains that the MAC acted arbitrarily, capriciously, and without

substantial evidentiary support by upholding Cahaba’s determination that Gentiva had exhibited

a sustained or high level of payment error despite the fact that only 6 of the 30 claims in the

sample were ultimately found to have been overpaid. See id., ¶¶ 29-30. In addition, Gentiva

seeks a writ of mandamus “requiring the Secretary to order her contractors to make a corrected

overpayment determination based solely on the unfavorable determinations in the six claims in

the 30-claim sample, without any extrapolation.” Id., ¶ 32. Parties have now filed Cross-

Motions for Summary Judgment.

II.     Legal Standard

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       Summary judgment may be granted if “the movant shows that there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Holcomb v.

Powell, 433 F.3d 889, 895 (D.C. Cir. 2006). A fact is “material” if it is capable of affecting the

substantive outcome of the litigation. Holcomb, 433 F.3d at 895; Liberty Lobby, Inc., 477 U.S. at

248. A dispute is “genuine” if the evidence is such that a reasonable jury could return a verdict

for the nonmoving party. See Scott v. Harris, 550 U.S. 372, 380 (2007); Liberty Lobby, Inc.,

477 U.S. at 248; Holcomb, 433 F.3d at 895.

       Although styled Motions for Summary Judgment, the pleadings in this case more

accurately seek the Court’s review of an administrative decision. The standard set forth in Rule

56(c), therefore, does not apply because of the limited role of a court in reviewing the

administrative record. See Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89-90 (D.D.C. 2006)

(citing National Wilderness Inst. v. United States Army Corps of Eng'rs, 2005 WL 691775, at *7

(D.D.C. 2005); Fund for Animals v. Babbitt, 903 F. Supp. 96, 105 (D.D.C. 1995), amended on

other grounds, 967 F. Supp. 6 (D.D.C. 1997)). “[T]he function of the district court is to

determine whether or not as a matter of law the evidence in the administrative record permitted

the agency to make the decision it did.” Id. (internal citations omitted). Summary judgment thus

serves as the mechanism for deciding, as a matter of law, whether the agency action is supported

by the administrative record and otherwise consistent with the APA standard of review. See

Richards v. INS, 554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977), cited in Bloch v. Powell, 227 F.

Supp. 2d 25, 31 (D.D.C. 2002), aff’d, 348 F.3d 1060 (D.C. Cir. 2003).

       The Administrative Procedure Act “sets forth the full extent of judicial authority to

review executive agency action for procedural correctness.” FCC v. Fox Television Stations,

                                                 8
Inc., 129 S. Ct. 1800, 1810 (2009). It requires courts to “hold unlawful and set aside agency

action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). This is a “narrow” standard of

review as courts defer to the agency’s expertise. Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State

Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). An agency is required to “examine the

relevant data and articulate a satisfactory explanation for its action including a rational

connection between the facts found and the choice made.” Id. (internal quotation omitted). The

reviewing court “is not to substitute its judgment for that of the agency,” id., and thus “may not

supply a reasoned basis for the agency's action that the agency itself has not given.” Bowman

Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86 (1974) (internal

quotation omitted). Nevertheless, a decision that is not fully explained may be upheld “if the

agency's path may reasonably be discerned.” Id. at 286.

III.   Analysis

       Gentiva advances two primary arguments in support of its contention that the Secretary’s

decision upholding Cahaba’s use of extrapolation was arbitrary, capricious, or otherwise contrary

to law. First, it maintains that 24 U.S.C. § 1395ddd(f)(3) requires that the Secretary (or her

subordinates), not a Medicare contractor, make a determination that a provider’s claims exhibit a

“sustained or high level of payment error” before the contractor is authorized to use

extrapolation. Second, even if Cahaba was permitted to make the “sustained or high level of

payment error” determination itself, Gentiva contends that no such level of payment error was

present here. The Court will address each argument in turn.

       A. Authority of Contractor to Make Determination

       In full, 42 U.S.C. § 1395ddd(f)(3) provides:

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               (3) Limitation on use of extrapolation

               A Medicare contractor may not use extrapolation to determine
               overpayment amounts to be recovered by recoupment, offset, or
               otherwise unless the Secretary determines that –

                       (A) there is a sustained or high level of payment error; or

                       (B) documented educational intervention has failed to
                           correct the payment error.

               There shall be no administrative or judicial review under section
               1395ff of this title, section 1395oo of this title, or otherwise, of
               determinations by the Secretary of sustained or high levels of
               payment errors under this paragraph.

Relying on this provision, Gentiva argues that the statute plainly requires the Secretary, not a

contractor, to determine that a “sustained or high level of payment error” is present before a

contractor can use extrapolation.

       Complicating matters for Gentiva, however, is 42 U.S.C. § 1395kk(a). Section 1395kk(a)

states that “[t]he Secretary may perform any of his functions under this subchapter directly, or by

contract . . . as the Secretary may deem necessary.” In light of the Secretary’s broad authority to

subdelegate her responsibilities in the administration of the Medicare program to contractors,

what Gentiva presents as a simple question of statutory interpretation – “Secretary,” it reasonably

argues, means Secretary – becomes a more nuanced inquiry into whether 42 U.S.C. §

1395ddd(f)(3) bars the Secretary’s subdelegation of the “sustained or high level of payment

error” inquiry to Medicare contractors like Cahaba.

       Emphasizing Congress’s preclusion of judicial review and the plain language of §

1395ddd(f)(3), Gentiva argues that the statue should be read to prohibit subdelegation to

contractors. And even if the Secretary could lawfully make this subdelegation, Gentiva further

contends, she could only do so via notice-and-comment rulemaking. Highlighting § 1395kk(a)’s

                                                 10
seemingly unbounded subdelegation authorization and the practical necessity of the delegation,

the Secretary maintains she lawfully delegated the “sustained or high level of payment error”

determination to Medicare contractors. Notice-and-comment rulemaking, she insists, was not

required.

       The Court perceives these as two distinct questions, and it will consider them separately.

First, it will determine whether the Secretary is empowered to subdelegate the § 1395ddd(f)(3)

“sustained or high level of payment error” inquiry to contractors. Finding that she is, it then

addresses whether that delegation must be made in the form of a notice-and-comment

rulemaking. Ultimately, it concludes that the Secretary’s subdelegation was lawful, and,

accordingly, Cahaba was entitled to make the “sustained or high level of payment error”

determination.

                       1.   Secretary’s Power to Subdelegate

       In adjudicating this challenge to the Secretary’s interpretation of the Medicare statute, the

Court must begin with the standard set forth in (no, not Chevron) U.S. Telecom Ass’n v. FCC,

359 F.3d 554 (D.C. Cir. 2004). In U.S. Telecom, the D.C. Circuit resolved a dispute about

whether a statute should be read to permit an agency to subdelegate its authority to an outside

entity. See id. at 565-68. Because “the general conferral of regulatory authority does not

empower an agency to subdelegate to outside parties,” the court eschewed the deference it would

normally lend to an agency’s interpretation of a statute it administers in favor of a higher bar

when dealing with such a subdelegation. Id. at 568. Specifically, it held that “federal agency

officials . . . may not subdelegate to outside entities – private or sovereign – absent affirmative

evidence of authority to do so.” Id. at 566 (emphasis added).

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       Because this case similarly concerns the Secretary’s ability to subdelegate to an outside

entity – namely, contractor Cahaba – the Secretary accordingly must identify “affirmative

evidence” of her authority to do so. Section 1395kk(a), which grants the Secretary the power to

“perform any of [her] functions under this subchapter directly, or by contract . . . , as [she] may

deem necessary,” id. (emphasis added), however, is just such evidence. As our Circuit has

acknowledged, “[T]he clear and reasonable language of the [Medicare] Act, reinforced by

statements from its legislative history, appears to give the Secretary the authority to designate

intermediaries,” now referred to as “Medicare contractors,” “to perform [her] reimbursement

functions.” Schweiker, 690 F.2d at 943 (citing § 1395kk). In light of this strong “affirmative

evidence” of subdelegation authority, the Secretary’s interpretation of § 1395ddd(f)(3) clears the

U.S. Telecom hurdle.

       That cannot, however, be the whole story. In finding that § 1395kk constitutes

affirmative evidence of the Secretary’s power to subdelegate her Medicare functions to private

contractors, the Court acknowledges the possibility that Congress might nevertheless have

prohibited particular subdelegations. That it has done just that with respect to the “sustained or

high level of payment error” determination is Gentiva’s position in this litigation. The remaining

interpretive question, therefore, is whether § 1395ddd(f)(3) should be read to bar a subdelegation

that would otherwise be authorized under § 1395kk(a).

                       a. Chevron Step One

       In addressing this question, we now get to Chevron’s familiar framework.

Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984); see also, e.g.,

Shays v. Federal Election Comm'n, 414 F.3d 76, 96 (D.C. Cir. 2005); Republican Nat'l Comm. v.

FEC, 76 F.3d 400, 404 (D.C. Cir. 1996). “First, always, is the question whether Congress has

                                                 12
directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end

of the matter; for the court, as well as the agency, must give effect to the unambiguously

expressed intent of Congress.” Chevron, 467 U.S. at 842-43. This inquiry is commonly referred

to as “Chevron step one.” See, e.g., Intermountain Ins. Serv. of Vail v. CIR, 650 F.3d 691 (D.C.

Cir. 2011). “‘Although Chevron step one analysis begins with the statute's text,’ the court must

examine the meaning of certain words or phrases in context and also ‘exhaust the traditional

tools of statutory construction . . . .’” Sierra Club v. EPA, 551 F.3d 1019, 1027 (D.C. Cir.

2008) (quoting Am. Bankers Ass'n v. Nat'l Credit Union Admin., 271 F.3d 262, 267 (D.C. Cir.

2001)).

          In contending that the statute unambiguously forecloses the Secretary’s interpretation – in

other words, that it unambiguously prohibits subdelegation of the “sustained or high level of

payment error” determination – Gentiva emphasizes Congress’ use of the two terms “Medicare

contractor” and “Secretary” in the very same sentence. When Congress uses two words in the

same provision, Gentiva suggests, it should be assumed that it intended those words to have

different meanings. See, e.g., Washington Hosp. Ctr. v. Bowen, 795 F.2d 139, 146 (D.C. Cir.

1986). Indeed, Congress used “Medicare contractor” and “Secretary” throughout § 935 of the

MMA in a seemingly purposive manner, distinguishing the contractor’s roles from the

Secretary’s. See generally MMA, Pub. L. No. 108-173, § 935(1)-(8), 117 Stat. 2066, 2408-11

(Dec. 8, 2003), codified at 42 U.S.C. § 1395ddd(f)(1)-(8).

          In the case of § 1395ddd(f)(3), moreover, distinguishing between the contractor’s role

and the Secretary’s makes sense. Titled “Limitation on Extrapolation,” this provision was

seemingly intended to do just that: limit the use of a technique for calculating overpayment that

is undoubtedly more convenient, but that has the potential to prejudice providers. See 42 U.S.C.

                                                  13
§ 1395ddd(f)(3). Predicating a contractor’s ability to utilize extrapolation on the Secretary’s

determination that the “sustained or high level of payment error” existed – as opposed to

permitting it to make such a determination itself – would impose a more significant barrier to the

use of this technique.

       Gentiva also points to Congress’s having shielded the “sustained or high level of payment

error” determination from agency and judicial review, see 42 U.S.C. § 1395ddd(f)(3), as

evidence of its intent that the Secretary, and not a contractor, make that finding. Because it

would be quite unusual for Congress to have chosen to insulate a contractor’s decision from

oversight, the argument goes, the statute should be read as requiring the Secretary to perform the

“sustained or high level of payment” analysis herself.

       All that, however, goes only so far as to show that the statute is ambiguous. Congress

expressly granted the Secretary the authority to subdelegate “any of [her] functions under this

subchapter,” 42 U.S.C. § 1395kk(a), which includes § 1395ddd(f)(3). In 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 this broad power, the statute is certainly not

unambiguous on this point. The plain language of the statute simply does not address the

Secretary’s subdelegation authority, let alone clearly abrogate that authority. The Court,

accordingly, cannot find that 42 U.S.C. § 1395ddd(f)(3) unambiguously forecloses

subdelegation.

                         b. Chevron Step Two

       Because Congress “has not directly addressed the precise question at issue,” Chevron,

467 U.S. at 843, the Court turns to Chevron step two. Before doing so, however, it pauses to

note that although the interpretation to which the Court affords deference was not promulgated in

                                                14
a regulation that was the result of a notice-and-comment rulemaking, it nevertheless is entitled to

the respect that accompanies analysis under Chevron step two. Indeed, Plaintiff appears to

concede that the Court should afford Chevron deference to the Secretary’s interpretation, as

outlined in the MAC’s decision, if it finds the statute ambiguous (though it, of course, maintains

that the statute is not ambiguous). See Pl.’s Mot. at 16; Pl.’s Opp. and Reply at 1-2, 10-15. In

any event, because the interpretation of the statute announced in the MAC’s decision was the

result of a relatively formal adjudication, is consistent with the Secretary’s comments during

notice-and-comment rulemaking and with guidance previously issued in the Medicare Program

Integrity Manual (both of which would be entitled to some deference under Skidmore v. Swift &

Co., 323 U.S. 134 (1944), even absent the MAC’s decision), and carries the force of law, the

Court will proceed to Chevron step two. See Menkes v. Dept. of Homeland Sec., 637 F.3d 319,

331-33 (D.C. Cir. 2011) (applying Chevron deference to an interpretation reached in an informal

adjudication); Village of Barrington, Ill. v. Surface Transp. Bd., 636 F.3d 650, 659 (D.C. Cir.

2011) (same); see also Tex. Clinical Labs, Inc. v. Sebelius, 612 F.3d 771, 775-76 (5th Cir. 2010)

(defering to an interpretation rendered by the MAC). The outcome, moreover, would likely be

the same even were the Court only applying the less deferential Skidmore standard. See U.S. v.

Mead Corp., 533 U.S. 218, 234-35 (2001); Skidmore, 323 U.S. at 139-40.

        “At Chevron step two we ask whether the agency's interpretation of the statute is

‘reasonable.’” Northeast Hospital Corp. v. Sebelius, 657 F.3d 1, 23 (D.C Cir. 2011) (citing

Abington Crest Nursing & Rehab. Ctr. v. Sebelius, 575 F.3d 717, 719 (D.C. Cir. 2009)); see

Chevron, 467 U.S. at 843. At this stage, the Court must uphold the agency's interpretation if it is

“based on a permissible construction of the statute.” Chevron, 467 U.S. at 843. “The court need

not conclude that the agency construction was the only one it permissibly could have adopted to

                                                15
uphold the construction, or even the reading the court would have reached if the question initially

had arisen in the judicial proceeding.” Id. at 843 n. 11. Especially in the context of the

“‘complex and highly technical’ statutes governing Medicare,” the Secretary’s considerable

expertise justifies the Court’s deference to her interpretation. Cape Cod Hosp. v. Sebelius, 630

F.3d 203, 216 (D.C. Cir. 2011) (quoting Methodist Hosp. v. Shalala, 38 F.3d 1225, 1229 (D.C.

Cir. 1994)).

       In adjudicating Gentiva’s claim, the Secretary interpreted § 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. In so doing, she relied on § 1395kk(a)’s broad grant of

subdelegation authority, see A.R. at 7, highlighted other responsibilities that were statutorily

assigned to “the Secretary” but that the Secretary has subdelegated to Medicare contractors, see

id., and noted that the Eastern District of Arkansas had previously upheld the subdelegation. See

id. at 8 (citing John v. Sebelius, No. 09-cv-552, 2010 WL 3951465 (E.D. Ark. 2010)). This

interpretation, moreover, was consistent with the Secretary’s comments during notice-and-

comment rulemaking, see 74 Fed. Reg. 65296, 65303, and with the Medicare Program Integrity

Manual. See Pub. 1008-08, Trans. 114 (June 10, 2005), available at www.cms.hhs.gov/

transmittals/downloads/R114PI.pdf. Because it concludes that the Secretary’s interpretation is a

reasonable one, the Court will afford it deference.

       First and foremost, Section 1395kk’s grant of subdelegation authority, which the D.C.

Circuit has previously interpreted as providing “the Secretary the unequivocal right to designate

[Medicare contractors] to perform [her] reimbursement functions,” Schweiker, 690 F.2d at 943,

is not expressly limited or even mentioned by § 1395ddd(f)(3). It is reasonable, therefore, to

interpret § 1395ddd(f)(3) to leave the Secretary’s power to subdelegate intact.

                                                 16
       In addition, the Secretary emphasizes that one would have to read Congress to have

imposed a very significant burden on her agency in order to credit Gentiva’s interpretation.

“Given the size of the Medicare program,” she argues, “the Secretary does not have the resources

to conduct a review of payment claims for every audited Medicare provider to determine whether

any particular provider has a sustained or high level of payment error.” Def.’s Mot. & Opp. at

14. It is correct that requiring HHS’s intervention at this preliminary stage of an audit would be

strikingly inefficient given the volume of reimbursement claims. Reading § 1395ddd(f)(3) to

forbid subdelegation, furthermore, would run counter to the Medicare Integrity Program’s

broader goal of encouraging reliance on Medicare contractors in the audit context.

       Indeed, the Secretary has delegated to Medicare contractors essentially all functions

related to initial payment determinations, audits, and even the preliminary stages of dispute

resolution. See 42 C.F.R. § 421.100; see also Schweiker, 690 F.2d 932, 943 (D.C. Cir. 1982).

While contractors have played a larger role in the administration of the Medicare program since

the institution of the MIP, private parties have been involved with the Medicare reimbursement

process since the program’s inception. See, e.g., id. § 1395h(a) (authorizing Medicare

contractors, referred to as “intermediaries,” to perform processing and payment functions for Part

A); id., § 1395u(a) (authorizing contractors, referred to as “carriers,” to perform processing and

payment functions for Part B). Against this backdrop and in light of § 1395kk, one would

certainly have expected Congress to have explicitly prohibited subdelegation had it intended that

a particular portion of the audit process be performable only by agency officials.

       The only other court to have considered this question, moreover, found that a Medicare

contractor may perform the “sustained or high level of payment” determination on the

Secretary’s behalf. In John v. Sebelius, No. 09-cv-552, 2010 WL 3951465 (E.D. Ark. 2010), the

                                                17
Eastern District of Arkansas addressed a plaintiff’s argument “that there is no statutory authority

for the Secretary to delegate the function of making a finding of a sustained or high level of

payment error for purposes of § 1395ddd(f)(3).” Id. at *3. Although the court resolved the

question without a detailed analysis, it, too, concluded that the Secretary had lawfully

subdelegated her authority to a Medicare contractor in compliance with § 1395ddd(f). See id.

Like the MAC, which cited the decision in John in resolving the instant dispute, see A.R. at 8,

this Court can identify no meaningful difference between that case and this one.

       Although Gentiva makes much of Congress’s having foreclosed judicial review of the

“sustained or high level of payment error” determination and suggests that the preclusion of

judicial review reveals Congress’s intent to prohibit subdelegation, barring review of such a

finding is less consequential than Gentiva would make out. As the Secretary explained in

response to comments received during the notice-and-comment process regarding the regulations

she ultimately enacted to implement the MMA:

               [W]hile the determination of whether a provider or supplier has a
               sustained or high level of payment error is not subject to appeal,
               the initial or revised determinations made on the underlying claims
               for items or services would be subject to appeal. . . . Therefore, we
               do not anticipate any denials of claims solely based on this
               determination. Rather, the determination of a sustained or high
               error rate will be used as the basis for a contractor undertaking
               further review of claims submitted by the provider or supplier.

74 Fed. Reg. at 65303-04. The Secretary further emphasized that the “sustained or high level of

payment error” is not a “sanction” and “does not result in an assessment of civil money penalties,

or any other administrative action.” Id. at 65304. Instead, it has no independent effect on a

provider and merely “serves as the basis for a contractor's review of a provider's or supplier's

subsequent claim submissions.” Id.

                                                 18
       As this case demonstrates, an aggrieved provider has a panoply of opportunities for

administrative and judicial review of the overpayment assessment that ultimately results from a

contractor’s use of extrapolation. By pursuing redetermination, reconsideration, a hearing before

an ALJ, and review by the MAC, Gentiva succeeded in having every overpayment determination

it chose to appeal overturned. Indeed, the remaining $850,000 in overpayments Gentiva owes to

the agency may have resulted from Gentiva’s own decision not proceed with further

administrative appeals of the 6 claims that remain designated as overpaid. Despite the fact that

the initial “sustained or high level of payment error” determination lies beyond the reach of

reviewing tribunals, therefore, Gentiva had a full opportunity to challenge the overpayment

assessment.

       Finally, it is worth emphasizing that the Secretary has not simply subdelegated her

authority to Medicare contractors without providing them guidance on how that authority should

be exercised. Indeed, the Secretary has laid out the procedures contractors should follow in

making the “sustained or high level of payment error” determination in the Medicare Program

Integrity Manual. See Pub. 1008-08, Trans. 114 (June 10, 2005), available at

www.cms.hhs.gov/transmittals/downloads/R114PI.pdf. Specifically, the Manual provides that a

contractor may use a “variety of means” to identify the requisite level of payment error,

including, for example, sample probes, information from law-enforcement investigations,

provider history, and allegations of wrongdoing by current or former employees. See id.,

Requirement No. 3734.2. In determining whether a particular provider has demonstrated a

“sustained or high level of payment error,” then, a contractor merely follows the procedures the

Secretary has outlined.

                                                19
       In the end, therefore, the Court will defer to the Secretary’s reasonable interpretation of

an ambiguous statute to permit subdelegation of the “sustained or high level of payment error

determination” to Medicare contractors.

               2. Notice-and-Comment Rulemaking

       Gentiva suggests, however, that even if such a subdelegation is permissible, it must be

effected through a notice-and-comment rulemaking. As no such rulemaking took place, it

argues, the Court must reverse the Secretary’s finding that Cahaba properly extrapolated from

the sample in arriving at Gentiva’s overpayment amount.

       The only support Gentiva provides for its contention that the Secretary was required to

effect her subdelegation via a formal rulemaking is 42 U.S.C. § 1395hh(a)(2), which states:

               No rule, requirement, or other statement of policy . . . that
               establishes or changes a substantive legal standard governing the
               scope of benefits, the payment for services, or the eligibility of
               individuals, entities, or organizations to furnish or receive services
               or benefits under this title shall take effect unless it is promulgated
               by Secretary by regulation . . . .

Gentiva fails to explain, however, how the Secretary’s subdelegation of her authority to make the

“sustained or high level of payment error” determination “establishe[d] or change[d] a

substantive legal standard governing the scope of benefits, the payment for services, or the

eligibility of individuals, entities or organizations to furnish or receive services.” Id.

       It has done no such thing. Indeed, Gentiva cannot point to a substantive legal standard

affected by the Secretary’s subdelegation of her “sustained or high level of payment error”

decisionmaking authority because the subdelegation plainly affects only the identity of the initial

decisionmaker, not the standards deployed in making that decision. The subdelegation,

accordingly, was not required under § 1395hh(a)(2) to be effected via notice-and-comment

rulemaking. Cf. John, 2010 WL 3951465 at *3 (rejecting plaintiff’s argument that, even if the

                                                  20
Secretary had the authority to subdelegate to a Medicare contractor, “there is no evidence

showing such a delegation actually occurred”).

       That the Secretary may have memorialized some of her delegations in regulations in

some instances, see, e.g., 42 C.F.R. § 405.904(a)(2), moreover, does not entail that she is

required to do so in every case. Congress’s empowerment of the Secretary to subdelegate to

contractors in § 1395kk(a) gives no indication that each subdelegation would have to be effected

through notice-and-comment rulemaking. Congress’s intention, on the contrary, appears to have

been to provide the Secretary with a large amount of flexibility in utilizing the services of private

contractors. “The need for such flexibility is obvious when one considers the numerous

responsibilities assigned to the Secretary under the Medicare Act.” Schweiker, 690 F.2d at 943.

       Finally, even if the Secretary’s subdelegation is a “rule” under the APA – which Gentiva

does not even appear to argue – “interpretive rules, general statements of policy, or rules of

agency organization, procedure, or practice” are exempt from the notice-and-comment

requirements of 5 U.S.C. § 553(b)(A). “The reading of the § 553 exemptions that seems most

consonant with Congress' purposes in adopting the APA is to construe them as an attempt to

preserve agency flexibility in dealing with limited situations where substantive rights are not at

stake.” Am. Hosp. Ass’n v. Bowen, 834 F.2d 1037, 1045 (D.C. Cir. 1987). Because it does not

itself “alter the rights or interests of parties, although it may alter the manner in which the parties

present themselves or their viewpoints to the agency,” Chamber of Commerce of U.S. v. U.S.

Dept. of Labor, 174 F.3d 206, 211 (D.C. Cir. 1999) (citation and quotation marks omitted), the

subdelegation seems properly classified as an interpretive rule, a rule of procedure, or a rule of

agency organization. Again, it has no effect on any substantive legal rights or standards; it is

                                                  21
merely an instance of the Secretary’s exercising her statutorily conferred authority to employ

Medicare contractors to perform various audit-related responsibilities.

       Ultimately, while it may have been preferable for the Secretary to have used notice-and-

comment rulemaking to effect her subdelegation, Gentiva cannot demonstrate that she was

required to do so.

       B. Merits of Contractor’s Determination

       Having resolved Gentiva’s challenge to Cahaba’s role as decisionmaker, the Court now

turns to its alternative argument concerning the substance of that decision. Gentiva maintains

that even if a Medicare contractor like Cahaba can make the “sustained or high level of payment

error” determination, no such level of payment error was present here. The Court, however,

lacks jurisdiction to consider that argument.

       Although there is a “strong presumption that Congress intends judicial review of

administrative action,” Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667, 670 (1986),

that presumption can be overcome by “clear and convincing evidence” that Congress intended to

preclude the suit. Abbott Laboratories v. Gardner, 387 U.S. 136, 141 (1967). The language of

42 U.S.C. § 1395ddd(f)(3), which provides that “[t] here shall be no administrative or judicial

review under section 1395ff of this title, section 1395oo of this title, or otherwise, of

determinations by the Secretary of sustained or high levels of payment errors under this

paragraph,” is precisely that. Cf. Amgen, Inc. v. Smith, 357 F.3d 103, 112 (D.C. Cir. 2007)

(“That Congress intended to preclude judicial review is . . . ‘clear and convincing’ from the plain

text of [the statute] alone.”). Indeed, it is difficult to think of anything “Congress could have said

to make the plain and unambiguous language of the statute, and its corresponding intent more

clear.” Painter v. Shalala, 97 F.3d 1351, 1356 (10th Cir. 1996). It is unsurprising, therefore, that

                                                  22
courts evaluating parallel language in other provisions of the Medicare statute have found

Congress to have precluded judicial review. See, e.g. Amgen, Inc., 357 F.3d at 112 (construing

42 U.S.C. § 1395l(t)(12)(E)); Am Soc’y of Dermatology v. Shalala, 962 F. Supp. 141, 146

(D.D.C. 1996) (construing 42 U.S.C. § 1395w-4(i)(1)), aff’d, 116 F.3d 941 (D.C. Cir. 1997);

Tex. Alliance for Home Care Servs. v. Sebelius, 811 F. Supp. 2d 76, 91 (D.D.C. 2011)

(construing 42 U.S.C. § 1395w-3(b)(11)).

       That Congress would have insulated the “sustained or high level of payment error”

determination from judicial review, moreover, makes sense. This determination, as the Secretary

has explained and the Court has discussed in detail in Part III.A.1.i, supra, is not an initial

determination of an overpayment assessment; rather, it merely “serves as the basis for a

contractor’s review of a provider’s or supplier’s subsequent claim submissions.” 74 Fed. Reg. at

65303-04. No sanction attaches to this initial determination; it merely permits a contractor to use

a particular method of calculation in determining an overpayment amount. See id. And perhaps

most importantly, an aggrieved provider has myriad opportunities to appeal the overpayment

assessment that ultimately results from that calculation.

       Gentiva’s only response is to resort to its argument that the Secretary, not the contractor,

is supposed to determine when a “sustained or high level of payment error” exists. “[T]he bar on

administrative and judicial review,” it argues, “applies only where the Secretary (and not a

Medicare contractor) makes such a determination.” Pl.’s Opp. & Reply at 16. Because the Court

has already found that the responsibility for making the “sustained or high level of payment

error” determination is properly subdelegable to Medicare contractors, however, this argument is

unavailing. As Gentiva itself emphasized in arguing against the Secretary’s authority to

subdelegate, Congress has plainly precluded judicial review of the “sustained or high level of

                                                  23
payment error” determination. That the Secretary has exercised her authority to subdelegate that

determination to a contractor does not make an unreviewable determination reviewable.

IV. Conclusion

       For the foregoing reasons, the Court will grant Defendant’s Motion for Summary

Judgment and deny Plaintiff’s. A separate Order consistent with the Opinion will issue this day.

                                                    /s/ James E. Boasberg
                                                    JAMES E. BOASBERG
                                                    United States District Judge
Date: April 6, 2012

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