OCTOBER TERM, 1992
Syllabus
GOOD SAMARITAN HOSPITAL ET AL.
v. SHALALA, SECRETARY OF
HEALTH AND HUMAN SERVICES
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH
CIRCUIT
No. 91-2079. Argued March 22, 1993-Decided June 7, 1993
Title 42 U. S. C. § 1395f(b)(1) requires the Secretary of Health
and Human Services to reimburse the lesser of the "customary
charges" or the "reasonable costEs]" of providers of health care
services to Medicare beneficiaries, while § 1395x(v)(1)(A) empowers
the Secretary to issue regulations setting forth the methods to be
used in computing reasonable costs, which may include the
establishment of appropriate cost limits. Regulations issued
pursuant to that authority impose such limits based on a range of
factors designed to approximate the cost of providing general
routine patient service, but permit various exceptions, exemptions,
and adjustments to the limits. After their costs during the
relevant period exceeded the corresponding cost limits, petitioner
providers filed an administrative appeal challenging the limits'
validity. In ruling for petitioners on expedited review, the
District Court adopted their interpretation that §
1395x(v)(1)(A)(ii) (clause (ii))-which requires the regulations to
"provide for the making of suitable retroactive corrective
adjustments where, for a provider of services for any fiscal
period, the aggregate reimbursement produced by the methods of
determining costs proves to be either inadequate or
excessive"-entitled them to reimbursement of all costs they could
show to be reasonable, regardless of whether the costs surpassed
the amount calculated under the regulations' cost limit schedule.
In reversing, the Court of Appeals reasoned that petitioners'
request for adjustments would amount to a retroactive change in the
methods used to compute costs that would be invalid under
Bowen v.
Georgetown Univ. Hospital, 488 U. S. 204. Instead,
the court adopted the Secretary's interpretation that clause (ii)
permits only a year-end book balancing to reconcile the actual
"reasonable" costs under the regulations with the interim, advance
payments that the statute requires to be made during the year based
on the provider's approximate, anticipatory estimates of what its
reimbursable costs will be.
Held: Clause (ii) does not require the Secretary to
afford petitioners an opportunity to establish that they are
entitled to reimbursement for costs in excess of the limits stated
in the regulations. Pp. 409-420.
403
(a) Clause (ii)'s language does not itself clearly settle the
matter at issue, but is ambiguous as to which of the parties'
interpretations is correct. Pp.409-412.
(b) While
Georgetown, supra, eliminated across-the-board
retroactive rulemaking from the scope of clause (ii), it did not
foreclose either of the parties' interpretations of the statute.
Pp. 412-414.
(c) Confronted with an ambiguous statutory provision, this Court
generally will defer to a permissible interpretation espoused by
the agency entrusted with its implementation, particularly when the
agency's construction is contemporaneous. By providing in more than
one instance for the year-end book-balancing adjustment that, in
the Secretary's view, is mandated by clause (ii), regulations
promulgated soon after Medicare's enactment support the Secretary's
current approach. On the other hand, those regulations nowhere
mentioned a mechanism for implementing the kind of substantive
recalculation and deviation from approved methods suggested by
petitioners. Moreover, the agency's development-and continued
augmentation-of the various exceptions, exemptions, and adjustments
to the cost limits is difficult to harmonize with an interpretation
of clause (ii) that would give a provider the right to contest the
application of any particular and statutorily authorized method to
its own circumstances. Rather, it is consistent with a view that
the cost limits by definition entailed generalizations that would
benefit some subscribers while harming others, and with a desire to
refine these approximations through the Secretary's creation of
exceptions and exemptions. Pp.414-416.
(d) The Court rejects petitioners' argument that any deference
to the agency's current position is precluded by the fact that,
over the years, the agency has shifted from a book-balancing
approach to a retroactive rulemaking approach and then back again.
The Secretary responds that such inconsistency is attributable to
the lower courts' erroneous interpretations of clause (ii) and
points out that the agency returned to its initial position
following
Georgetown. How much weight should be given to the
agency's views in such a situation will depend on the facts of
individual cases. Cf.
Federal Election Comm'n v.
Democratic Senatorial Campaign Comm., 454 U. S. 27, 37.
Pp.416-417.
(e) In the circumstances of this case, the Court defers to the
Secretary's interpretation of clause (ii). Her restrictive reading
of the clause is at least as plausible as petitioners', closely
fits the design of the statute as a whole and its objects and
policy, and does not exceed her statutory authority, but comports
with § 1395x(v)(1)(A)'s broad delegation to her. Pp. 417-420.
952 F.2d
1017, affirmed.
404
WHITE, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and BLACKMUN, O'CONNOR, KENNEDY, and THOMAS, JJ.,
joined. SOUTER, J., filed a dissenting opinion, in which STEVENS
and SCALIA, JJ., joined,
post, p. 420.
Carel T. Hedlund argued the cause for petitioners. With
her on the briefs was
Leonard C.
Homer.
Edward C.
DuMont argued the cause for
respondent.
With him on the brief were Solicitor General Starr, Assistant
Attorney General Gerson, Edwin S. Kneedler, Anthony J. Steinmeyer,
John P. Schnitker, Susan K. Zagame, Darrel J. Grinstead, and Henry
R. Goldberg. *
JUSTICE WHITE delivered the opinion of the Court.
As a means of providing health care to the aged and disabled,
Congress enacted the Medicare program in 1965. See Title XVIII of
the Social Security Act, 79 Stat. 291, as amended, 42 U. S. C. §
1395
et seq. Under the program, providers of health care
services can enter into agreements with the Secretary of Health and
Human Services pursuant to which they are reimbursed for certain
costs associated with the treatment of Medicare beneficiaries. To
operate the program, the Secretary issued regulations imposing
limits on the amount of repayment based on a range of factors
designed to approximate the cost of providing general routine
patient service. The question before us is whether the Secretary
must afford the six petitioning hospitals an opportunity to
establish that they are entitled to reimbursement for costs in
excess of such limits.
I A
A complex statutory and regulatory regime governs reimbursement,
rough description of which is necessary back-
*
Joel M. Hamme filed a brief for the American Health
Care Association as
amicus curiae urging reversal.
405
ground to this case. To begin, Congress has required the
Secretary to repay the lesser of the "reasonable cost" or
"customary charg[e]." See 42 U. S. C. § 1395f(b)(1). Rather than
attempt to define "reasonable cost" with precision, Congress
empowered the Secretary to issue appropriate regulations setting
forth the methods to be used in computing such costs. See §
1395x(v)(1)(A).1
Prior to 1972, the Secretary's regulations contemplated
reimbursement of the entirety of a provider's services to Medicare
patients unless its costs were found to be "substantially out of
line" with those of similar institutions. See,
e. g., 20 CFR
§ 405.451(c) (1967).2 In 1972, apparently fueled by concern that
providers were passing on inefficient and excessive expenses, see
H. R. Rep. No. 92-231, pp. 82-85 (1971); S. Rep. No. 92-1230, pp.
188-189 (1972), Congress amended the statute to specify that
"reasonable costs" meant only those "actually incurred, excluding
therefrom any part of incurred cost[s] found to be unnecessary in
the efficient delivery of needed health services," 42 U. S. C. §
1395x(v)(1)(A), and to authorize the Secretary-as part of the
"methods" of determining costs-to establish appropriate cost
limits, see ibid.
Accordingly, the Secretary promulgated regulations, updated
yearly and establishing routine cost limits based on factors such
as the type of health care provider (hospital, skilled nursing
facility, etc.), type of services it rendered, its geographical
location, size, and mix of patients treated. See
1 Section 1395x(v)(1)(A) provides in pertinent part that the
Secretary "shall" determine reasonable costs "in accordance with
regulations establishing the method or methods to be used, and the
items to be included, in determining such costs for various types
or classes of institutions, agencies, and services."
2 Regulations regarding the determination of reimbursable costs
were originally codified at 20 CFR §§405.401-405.454 (1967). They
have twice been redesignated, first in 1977, at 42 CFR pt. 405, see
42 Fed. Reg. 52826 (1977), and then in 1986, at 42 CFR pt. 413, see
51 Fed. Reg. 34790 (1986). Unless reference to a particular date is
appropriate, the 1986 designation will be used in this opinion.
406
20 CFR § 405.460 (1975). Hospitals are divided in terms of bed
size, and of whether they are urban-i.
e., located in a
Standard Metropolitan Statistical Area (SMSA)-or rural. As of 1979,
the labor-related component of provider costs was to be determined
by a wage index keyed to the hospital's location. See,
e.
g., 46 Fed. Reg. 33637 (1981).
The regulations generally provide that reimbursable costs must
be within the cost limits. The regulations also allow for
adjustments to the limits as applied to a provider's particular
claim. A provider classified as a rural hospital can apply for
reclassification as an urban one. 42 CFR § 413.30(d) (1992). An
exemption from the applicable cost limits can be obtained under
certain specified situations
e. g., when excess expenses are
due to "extraordinary circumstances," or when the provider is the
sole hospital in a community, a new provider, or a rural hospital
with fewer than 50 beds. § 413.30(e). In addition, exceptions are
available for,
inter alia, "atypical services,"
extraordinary circumstances beyond the provider's control, unusual
labor costs, or essential community services. § 413.30(f).3
Two statutory provisions are of central importance to this
litigation. First, apparently to protect providers' liquidity, the
statute contemplates a system of interim, advance payments during
the year. Specifically, the Secretary "shall periodically determine
the amount which should be paid ... and the provider of services
shall be paid, at such time or times as the Secretary believes
appropriate (but not less often than monthly) ... the amounts so
determined, with
3 Congress substantially modified the payment system by
instituting the Prospective Payment System (PPS), effective October
1, 1983. Under this new system, providers are reimbursed a fixed
amount for each discharge, based on the patient's diagnosis, and
regardless of actual cost. See 42 U. S. C. § 1395ww(d). Because the
providers' claims in this litigation involve costs incurred from
1980 to 1983, PPS is not at issue. Moreover, PPS does not apply to
skilled nursing facilities or home health agencies, nor does it
apply to all hospitals. See §§ 1395ww(d), (b); 42 CFR §§
412.22-412.23 (1992).
407
necessary adjustments on account of previously made overpayments
or underpayments." 42 U. S. C. § 1395g(a). These interim payments
by definition are only approximate ones, based on the provider's
preaudit, estimated costs of anticipated services. See 42 CFR
§§413.64(e), (f) (1992). Second, the regulations were required to
"provide for the making of suitable retroactive corrective
adjustments where, for a provider of services for any fiscal
period, the aggregate reimbursement produced by the methods of
determining costs proves to be either inadequate or excessive." 42
U. S. C. § 1395x(v)(1)(A)(ii) (clause (ii)).
B
Petitioners are six Nebraska hospitals certified as "providers"
of health care services and classified as "rural" for Medicare
purposes. Between 1980 and 1984, their costs exceeded the
corresponding cost limits. Pursuant to 42 U. S. C. §
139500,
they filed an appeal to the Provider Reimbursement Review Board
(PRRB) in which they challenged the validity of the applicable cost
limits on two grounds. First, they claimed that the wage index that
was used to calculate reasonable cost of labor did not account for
the use of part-time employees. Because petitioners used a greater
proportion of part-time employees than the national average, this
had the effect of artificially lowering their index values. In
support of their claim, they pointed to Congress' decision in 1983
ordering the Secretary to conduct a wage index study to consider
the distortion due to part-time employment, Medicare and Medicaid
Budget Reconciliation Amendments of 1984, Pub. L. 98-369, §
2316(a), 98 Stat. 1081, followed by the Secretary's own revision of
the wage index in 1986 which accounted for part-time employees, 51
Fed. Reg. 16772 (1986), and to Congress' directive that the revised
index be applied to discharges occurring after May 1, 1986,
Medicare and Medicaid Budget Reconciliation Amendments of 1985,
Pub. L. 99-272, § 9103(a), 100 Stat. 156. Second,
408
they asserted that under the cost limits a rural hospital could
not show that it incurred the same wage costs as its urban
counterparts when in fact its location next to urban hospitals
forced it to compete for employees by offering equivalent
compensation. Petitioners also complained that the cost limits were
applied conclusively rather than presumptively. Invoking clause
(ii), which provides for "suitable retroactive corrective
adjustments," they argued that they were entitled to reimbursement
of all costs they could show to be reasonable, even if they were in
excess of the applicable cost limit.4
Because the PRRB believed that it lacked the authority to award
the desired relief, it granted petitioners' request for expedited
judicial review. See 42 U. S. C. § 139500(f)(1). Adhering to the
Eighth Circuit's decision in
St. Paul-Ramsey Medical Center
v.
Bowen, 816 F.2d
417 (1987), the District Court ruled for petitioners, holding
that clause (ii) compelled the Secretary to reimburse all costs
shown to be reasonable, regardless of whether they surpassed the
amount calculated under the cost limit schedule.5
The United States Court of Appeals for the Eighth Circuit
reversed.
Good Samaritan Hospital v.
Sullivan,
952 F.2d
1017 (1991). The court relied on our decision in
Bowen
v.
Georgetown Univ. Hospital, 488 U. S. 204 (1988), in
which we held that clause (ii) does not permit retroactive
rulemaking. 952 F. 2d, at 1023. It reasoned that petitioners'
request for adjustments to correct "inequalities in the systern ...
would amount to a retroactive change in the
methods used to
compute costs that, after
Georgetown, is invalid."
Id., at 1024. Instead, the Court of Appeals adopted the
Secretary's more modest view of clause (ii) as permitting only a
"year-end book balancing of the monthly installments" with
4 Petitioners concede that they do not qualify for any of the
exceptions or exemptions provided in the regulations. Brief for
Petitioners 22, n. 19. 5 The court did not rule on the hospitals'
claim that the wage index and rural/urban classifications were
arbitrary and capricious in violation of the Administrative
Procedure Act, 5 U. S. C. § 706.
409
the amount determined to be "reasonable" under the applicable
regulations.
Ibid. Under this approach, clause (ii)
establishes the mechanism through which the total of the interim
payments extended pursuant to § 1395g (which merely purport to be
estimates of actual costs) are reconciled with the postaudit
amounts determined at year's end to be owed under the methods
determining allowable costs.6 We granted certiorari to resolve a
conflict among the Courts of Appeals.7 506 U. S. 914 (1992).
II A
The starting point in interpreting a statute is its language,
for "[i]f the intent of Congress is clear, that is the end of the
matter."
Chevron U. S.
A. Inc. v.
Natural
Resources Defense Council, Inc., 467 U. S. 837, 842
(1984). See also
NLRB v.
Food &
Commercial
Workers, 484 U.
S. 112, 123 (1987). Clause (ii) instructs the Secretary to
"provide for
6 In addition, the Court of Appeals held that failure to account
for parttime employment and for proximity to urban hospitals in the
cost limits was not arbitrary and capricious, since "[b]oth the
wage index and the rural/urban distinction were based on objective
data and regulations." 952 F. 2d, at 1025.
7Compare
Good Samaritan Hospital v.
Sullivan,
952 F.2d
1017 (CA8 1991) (case below) (construing clause (ii) to
provide merely for year-end book balancing);
Sierra Medical
Center v.
Sullivan, 902 F.2d
388 (CA5 1990) (same);
Hennepin County v.
Sullivan, 280 U. S. App. D. C. 13,
883
F.2d 85 (1989) (same), cert. denied, 493 U. S. 1043 (1990);
Daughters of Miriam Center for the Aged v.
Mathews,
590 F.2d
1250 (CA3 1978) (same), with
Mt. Diablo Hospital
v.
Sullivan, 963 F.2d
1175 (CA9 1992) (construing clause (ii) to require
Secretary to reimburse all "reasonable costs," including those in
excess of the cost limits), cert. pending, No. 92-720;
Medical
Center Hospital v.
Bowen, 839 F.2d
1504 (CAll 1988) (same);
Fairfax Nursing Center, Inc. v.
Califano, 590 F.2d
1297 (CA4 1979) (same);
Springdale Convalescent
Center v.
Mathews, 545 F.2d
943 (CA5 1977) (same);
Whitecliff, Inc. v.
United States, 210 Ct. Cl. 53,
536 F.2d
347 (1976) (same);
Kingsbrook Jewish Medical Center v.
Richardson, 486 F.2d
663 (CA2 1973) (same).
410
the making of suitable retroactive corrective adjustments where,
for a provider of services for any fiscal period, the aggregate
reimbursement produced by the methods of determining costs proves
to be either inadequate or excessive." Petitioners argue that the
mandate is clear: The methods for determining reasonable costs
having been determined pursuant to § 1395x(v)(1)(A), clause (ii)
must be read to mean that such methods nonetheless might yield
"inadequate or excessive" amounts in any particular instance. Where
such is the case, it is submitted, the clause mandates a correction
that will provide full reimbursement for reasonable costs.
In contrast, the Secretary asserts that the "aggregate
reimbursement" refers to the sum total of the interim payments made
pursuant to § 1395g. These payments are, of course, based on the
methods chosen by the Secretary to determine reasonable costs, but
they are only anticipatory estimates of what the providers'
reimbursable costs will be, made before all relevant data are
available. At year's end, when the provider's reimbursable costs
for services actually provided during that year are on hand, the
preaudit "aggregate" of the interim payments can be compared to the
postaudit amounts due under the methods. Because the interim
payments might have been erroneously calculated, their total might
not match amounts owed, and adjustments must be performed to
reconcile the two. See 42 CFR §§413.64(e), (f) (1992).
In our view, the language of clause (ii) does not itself clearly
settle the issue before us. The clause is ambiguous in two
respects. First, the "aggregate reimbursement produced by the
methods of determining costs" could mean either (in petitioners'
view) the amount due given proper application of the Secretary's
regulations, or (in the Secretary's view) the total of the interim
payments, themselves derived from application of the methods to
rough, incomplete data. Second, the clause refers to "inadequate"
and "excessive" reimbursements, but without at any point stating
the
411
standard against which inadequacy or excessiveness is to be
measured. Petitioners contend that the implicit referent must be
the reasonable costs as established by the providers, without
regard to the methods; the Secretary concludes that it must be the
reasonable costs as determined by the agency applying the
methods.
Each of the conflicting constructions is plausible but each has
its difficulty. Petitioners contend that although the interim
reimbursements might lead to inaccurate repayments, they are not
part of the methods of determining
costs to which §
1395x(v)(1)(A) refers, but rather are payment methods governed by §
1395g. Moreover, the book-balancing role the Secretary would have
us assign to clause (ii) arguably is already performed by § 1395g,
which mandates periodic reimbursement "prior to audit or settlement
by the General Accounting Office ... with necessary adjustments on
account of previously made overpayments or underpayments." The
Secretary counters that, while clause (ii) is directed at yearend
adjustments and designed to ensure that providers are reimbursed
their reasonable costs, § 1395g addresses periodic adjustments to
be made during the course of the fiscal year; § 1395g thus has its
own role to play and is not surplusage.8
The Secretary also argues that words such as "corrective" and
"adjustments" more readily evoke the simple mathematical
rectifications that she contemplates than the complex process of
revisiting applicable methods and comparing the amounts paid with
an ill-defined standard of "reasonable" costs that is called for by
petitioners' approach.9 It is true
8 The Secretary observes, however, that had clause (ii) not been
enacted, "the authority for some similar year-end mechanism might
have been inferred under the Act as a whole, including 42 U. S. C.
[§ ]1395g." Brief for Respondent 27, n. 16.
9 Also of potential significance is Congress' reference to
"aggregate reimbursement" as opposed to mere "reimbursement."
"Aggregate" signifies "sum total," see Webster's Collegiate
Dictionary 64 (9th ed. 1983), and its use therefore might suggest
that Congress had in mind the outcome of adding up the interim
payments.
412
that § 1395x(v)(1)(A) defines reasonable cost as "the cost
actually incurred, excluding therefrom any part of incurred cost
found to be unnecessary in the efficient delivery of needed health
services," and petitioners contend that this is the yardstick
against which reimbursements must be measured. But the statute
proceeds to explain that reasonable cost "shall be determined in
accordance with regulations establishing the method or methods to
be used." In similar fashion, the 1972 amendments allow for the
provision of "limits on the direct or indirect overall incurred
costs or incurred costs of specific items or services or groups of
items or services
to be recognized as reasonable." Ibid.
(emphasis added). In short, aside from the implementing agency's
determination pursuant to its regulations, as to which Congress
granted broad discretion, there is no available standard of
reasonableness that could form a ready basis for "correct[ion]" or
"adjustmen[t]." 10
B
Because both the parties and the Court of Appeals are of the
view that
Georgetown is controlling, we turn our attention
for a moment to our decision in that case. In 1983, a District
Court struck down the Secretary's 1981 new cost
10 While both parties invoke legislative history, in this case
it is of little, if any, assistance. Petitioners point to a comment
in the Committee Reports explaining that the cost limits were
merely "presumptive" and that "[p]roviders would, of course, have
the right to obtain reconsideration of their classification for
purposes of cost limits applied to them and to obtain relief from
the effect of the cost limits on the basis of evidence of the need
for such an exception." S. Rep. No. 92-1230, pp. 188-189 (1972). As
the Secretary notes, it is entirely possible that by providing for
exceptions, exemptions, and reclassifications, the agency satisfied
this demand. Indeed, the only specific exemption mentioned in the
Committee Reportssole community hospitals-was put into effect by
the agency. See id., at 188; 42 CFR §413.30(e)(1) (1992). The
legislative history adduced by the Secretary is no more
persuasive.
413
rule for failure to comply with notice and comment requirements.
After following proper procedures, the Secretary promulgated the
same rule in 1984 and sought to apply the method retroactively for
the time it had been held invalid. 488 U. S., at 206-207. Drawing
on the authority of clause (ii), the Secretary thus began to recoup
"overpayments" claimed to have been made to hospitals as a result
of the District Court's decision. The precise question we faced was
whether clause (ii) permitted such retroactive rulemaking. We held
that it did not. As we explained, although clause (ii) "permits
some form of retroactive action [it does not] provid[e] authority
for the retroactive promulgation of cost-limit rules."
Id.,
at 209. Rather,
"clause (ii) directs the Secretary to establish a procedure for
making case-by-case adjustment to reimbursement payments where the
regulations prescribing computation methods do not reach the
correct result in individual cases. The structure and language of
the statute require the conclusion that the retroactivity provision
applies only to case-by-case adjudication, not to rulemaking."
Ibid. (footnote omitted).
As we further stated: "[N]othing in clause (ii) suggests that it
permits changes in the
methods used to compute costs;
rather, it expressly contemplates corrective adjustments to the
aggregate amounts or reimbursement produced pursuant to
those methods."
Id., at 211 (emphasis in original).
But while
Georgetown eliminated across-the-board,
retroactive rulemaking from the scope of clause (ii), it did not
foreclose either of the two interpretations urged in this case:
case-by-case adjustments based on a comparison of interim payments
with "reasonable" costs as determined by the Secretary; and
case-by-case adjustments based on a comparison
414
of amounts due under the regulations with "reasonable" costs as
demonstrated by the provider. Cf. id., at 209, n. 1.
III A
Confronted with an ambiguous statutory provision, we generally
will defer to a permissible interpretation espoused by the agency
entrusted with its implementation. See
National Railroad
Passenger Corporation v.
Boston &
Maine Corp.,
503 U. S. 407,
417 (1992);
Department of Treasury, IRS v.
FLRA,
494 U. S. 922,
933 (1990);
K mart Corp. v.
Cartier, Inc., 486 U. S. 281, 291-292
(1988). Of particular relevance is the agency's contemporaneous
construction which "we have allowed ... to carry the day against
doubts that might exist from a reading of the bare words of a
statute."
FHA v.
The Darlington, Inc., 358 U. S. 84, 90 (1958).
See also
Aluminum Co. of America v.
Central Lincoln
Peoples' Utility Dist., 467 U. S. 380, 390
(1984).
In this case, the regulatory framework put in place by the
agency in furtherance of the Medicare program supports the
book-balancing approach to clause (ii). Nowhere in the regulations
was there mention of a mechanism for implementing the kind of
substantive recalculation and deviation from approved methods
suggested by petitioners. On the other hand, the regulations
provided on more than one occasion for the year-end book-balancing
adjustment that, in the Secretary's opinion, is mandated by clause
(ii). For instance, 20 CFR § 405.451(b)(1) (1967) stated:
"These regulations also provide for the making of suitable
retroactive adjustments after the provider has submitted fiscal and
statistical reports. The retroactive adjustment will represent the
difference between the amount received by the provider during the
year ... and the amount determined in accordance with an accepted
method of cost apportionment to be the actual
415
cost of services rendered to beneficiaries during the year."
11
Use of the words "suitable retroactive adjustment," borrowed
from clause (ii), demonstrates the agency's understanding. As we
wrote in
Georgetown: "It is clear from the language of these
provisions that
they are intended to implement the Secretary's
authority under clause (ii)." 488 U. S., at 211, n. 2 (emphasis
added). What is more, "[t]hese are the
only regulations that
expressly contemplate the making of retroactive corrective
adjustments."
Id., at 212 (emphasis added). From the outset,
then, the agency viewed clause (ii) as a directive for retroactive
adjustment of payments for allowable costs, as determined by the
methods.
In the aftermath of the 1972 amendments adding the cost limit
provision, the agency appears to have ascribed the same role to
clause (ii), namely to retroactively correct the difference between
interim payments and reasonable costsonly, as a result of the
amendments, the adjustment would now be based on the
new
definition of reasonable costs, which includes the cost limits that
as a general rule were not to be exceeded. As previously described,
however, the regulations promulgated by the Secretary permitted
various exceptions, exemptions, and adjustments to the limits. See
20 CFR § 405.460(f) (1975);
supra, at 406. A provider could
obtain a reclassification "on the basis of evidence that [its]
classification is at variance with the criteria specified in
promulgating limits." 20 CFR § 405.460(f)(1) (1975). Exemptions for
sole community hospitals have expanded to include new providers,
rural hospitals with less than 50 beds; exceptions now extend to
atypical services, circumstances such as strikes or floods,
educational services, essential community
11 Other regulations, by comparison, appeared to be directed at
the periodic preaudit adjustments to be made during the course of
the year as expressly required by § 1395g. See,
e. g., 20
CFR § 405.454(e) (1967).
416
services, unusual labor costs. See 42 CFR § 413.30 (1992). The
agency's development-and continued augmentation-of a list of
situations in which the cost limits would be waived is difficult to
harmonize with an interpretation of clause (ii) that would give a
provider the right to contest the application of any particular and
statutorily authorized method to its own circumstances. Rather, it
is consistent with a view that the cost limits by definition
entailed generalizations that would benefit some providers while
harming others, and with a desire to refine these approximations
through the Secretary's creation of exceptions and
exemptions.12
B
Petitioners argue that any deference to the agency's current
position is unwarranted in light of its shifting views on the
matter. It is true that over the years the agency has embraced a
variety of approaches. Compare,
e. g., Regents of Univ. of
California v.
Heckler, 771 F.2d
1182 (CA9 1985) (agency contends that clause (ii) permits only
book balancing);
Whitecliffv. United States, 210 Ct. Cl. 53,
536 F.2d
347 (1976) (same), with
Georgetown, supra (agency argues
that clause (ii) allows retroactive rulemaking). In response, the
Secretary attributes such inconsistency to the lower courts'
erroneous interpretations of clause (ii). If providers could obtain
substantive retroactive adjustments in the event of
12 The agency's explanation of how it was computing cost limits
in 1981 further illustrates this basic understanding: "The revised
limits, like the current limits, are set at 112 percent of the mean
labor-related costs and mean non-labor costs of each comparison
group. The 12 percent allowance above the mean
is intended to
account for variations in costs that are consistent with efficiency
but are not explicitly accounted for under our methodology for
deriving and adjusting the limits, or by the exceptions or
exemptions provided by our regulations." 46 Fed. Reg. 33639
(1981) (emphasis added). Like the exceptions and exemptions
themselves, such an allowance cannot easily be reconciled with the
notion that clause (ii) permits adjustments whenever costs
consistent with efficiency are unaccounted for.
417
alleged underpayment, the argument goes, then so, in the face of
alleged underpayment, would the agency. However, in the aftermath
of
Georgetown, she notes that the agency returned to its
earlier position.
The Secretary is not estopped from changing a view she believes
to have been grounded upon a mistaken legal interpretation. See
Automobile Club of Mich. v.
Commissioner, 353 U. S. 180, 180-183
(1957). Indeed, "[a]n administrative agency is not disqualified
from changing its mind; and when it does, the courts still sit in
review of the administrative decision and should not approach the
statutory construction issue
de novo and without regard to
the administrative understanding of the statutes."
NLRB v.
Iron Workers, 434 U. S. 335, 351 (1978). See also
NLRB v.
Curtin Matheson Scientific, Inc., 494 U. S. 775, 787
(1990);
NLRB v. J.
Weingarten, Inc., 420 U. S. 251, 265-266
(1975). On the other hand, the consistency of an agency's position
is a factor in assessing the weight that position is due. As we
have stated: "An agency interpretation of a relevant provision
which conflicts with the agency's earlier interpretation is
'entitled to considerably less deference' than a consistently held
agency view."
INS v.
Cardoza-Fonseca, 480 U. S. 421, 446, n. 30
(1987) (quoting
Watt v.
Alaska, 451 U. S. 259, 273
(1981)). How much weight should be given to the agency's views in
such a situation, and in particular where its shifts might have
resulted from intervening and possibly erroneous judicial decisions
and its current position from one of our own rulings, will depend
on the facts of individual cases. Cf.
Federal Election
Comm'n v.
Democratic Senatorial Campaign Comm., 454 U. S. 27, 37
(1981).
C
In the circumstances of this case, where the agency's
interpretation of a statute is at least as plausible as competing
ones, there is little, if any, reason not to defer to its
construction. We should be especially reluctant to reject the
418
agency's current view which, as we see it, so closely fits "the
design of the statute as a whole and ... its object and policy."
Crandon v.
United States, 494 U. S. 152, 158
(1990).
Section 1395 explicitly delegates to the Secretary the authority
to develop regulatory methods for the estimation of reasonable
costs. See 42 U. S. C. § 1395x(v)(1)(A)P To be sure, by virtue of
their being generalizations, they necessarily will fail to yield
exact numbers-to the detriment of health care providers at times,
to their benefit at other times.14 Presumably, the methods could
use a more exact mode of calculating depreciation, cf.
Daughters
of Miriam Center for the Aged v.
Mathews, 590 F.2d
1250 (CA3 1978), or to account for proximity to a college or
university because it can distort the wage index, cf.
Austin,
Texas, Brackenridge Hospital v.
Heckler, 753 F.2d
1307, 1316 (CA5 1985), or to a high-crime zone in which
heightened, and expensive, security is called for. All of these
variables, and many others, affect actual costs; factoring them in
the methods undoubtedly would improve their accuracy. But "[w]here,
as here, the statute expressly entrusts the Secretary with the
responsibility for
13 Such a delegation of authority is not atypical in the context
of the Social Security Act. Indeed, we noted that "Congress has
'conferred on the Secretary exceptionally broad authority to
prescribe standards for applying certain sections of the Act.'''
Heckler v.
Campbell, 461 U. S. 458, 466 (1983)
(quoting
Schweiker v.
Gray Panthers, 453 U. S. 34, 43
(1981)).
14 There is no doubt that under petitioners' expansive reading
of clause (ii) nothing would prevent the Secretary from demanding
reimbursement where she could show that application of the methods
resulted in overpayment. For instance, the modified wage index,
whose generalized retroactive application we rejected in
Georgetown, arguably could be imposed on a
hospital-by-hospital basis. Such an outcome, by undermining
providers' ability to predict costs, runs counter to one of
Congress' apparent motivations in authorizing cost limits. See S.
Rep. No. 92-1230, at 188 (because limits on costs recognized as
reasonable would be set prospectively, "the provider would know in
advance the limits to Government recognition of incurred costs and
have the opportunity to act to avoid having costs that are not
reimbursable").
419
implementing a provision by regulation, our review is limited to
determining whether the regulations promulgated exceeded the
Secretary's statutory authority and whether they are arbitrary and
capricious."
Heckler v.
Campbell, 461 U. S. 458, 466
(1983) (footnote and citations omitted).
Besides being textually defensible, the Secretary's restrictive
reading of clause (ii) comports with this broad delegation of
authority. Congress saw fit to empower the agency to devise methods
to estimate actual costs, and the agency has opted for the use of
certain generalizations, with additional fine-tuning by way of
exceptions, exemptions, reclassifications, and by making allowances
for possible variations in costs consistent with efficiency. See
supra, at 406, n. 3.15 What the agency forbids is the kind
of wide-range, ad hoc reassessments of the accuracy of the chosen
methods implicit in petitioners' interpretation. Indeed, and for
all practical purposes, petitioners' contention is that the methods
chosen by the agency did not take into account sufficient
variables,
15 Moreover, we note that in its 1981 amendment to § 1395x(v),
Congress explicitly endorsed the agency's method of implementing
the statute by providing that
"[t]he Secretary, in determining the amount of the payments that
may be made ... may not recognize as reasonable (in the efficient
delivery of health services) routine operating costs for the
provision of general inpatient hospital services by a hospital to
the extent these costs exceed 108 percent of the mean of such
routine operating costs per diem for hospitals, or, in the judgment
of the Secretary, such lower percentage or such comparable or lower
limit as the Secretary may determine. The Secretary may provide for
such exemptions and exceptions to such limitation as he deems
appropriate." 42 U. S. C. § 1395x(v)(1)(L)(i) (1976 ed., Supp. V),
repealed, Pub. L. 97-248, § 101(a)(2), 96 Stat. 335.
See also H. R. Rep. No. 97-158, pp. 326-327 (1981).
As remarked earlier, see n. 12, supra, the thrust of this scheme
(imposing a firm ceiling set above the mean, purportedly to account
for possible inaccuracies in the methods, and allowing the
Secretary to provide for appropriate waivers) is at least at some
variance with the notion that a dissatisfied provider can exceed
the imposed limits and invoke its own waivers for any reason the
Secretary has failed to take into account.
420
namely, the proportion of part-time workers and proximity to
urban centers. It is, in all but name, a challenge to the validity
of the methods-albeit in an individual case-including the cost
limits, the exceptions and the exemptions, and to their adequacy as
gauges of reasonable costs. The Secretary has construed the statute
to allow such attacks, not
via clause (ii), but rather, in
keeping with the broad authority with which she is possessed, by
way of the arbitrary and capricious provision of the Administrative
Procedure Act, 5 U. S. C. § 706.16
IV
The issue is not without its difficulties whichever way we turn.
Though not the sole permissible one, the agency's interpretation of
clause (ii), manifested in regulations promulgated soon after
enactment and expressed today, "give[s] reasonable content to the
statute's textual ambiguities."
Department of Treasury, IRS
v.
FLRA, 494 U. S., at 933. The judgment of the Court of
Appeals is
Affirmed.
JUSTICE SOUTER, with whom JUSTICE STEVENS and JUSTICE SCALIA
join, dissenting.
In the Court's view, the contrasting interpretations of clause
(ii) proffered by the petitioners and the Secretary are in such
equipoise that even slight deference to the Secretary is enough to
tip the balance her way. As I read it, however, the language of
clause (ii) plainly favors the petitioners.
The Court focuses on two portions of clause (ii). First, it
says, the phrase "aggregate reimbursement produced by the methods
of determining costs" may be understood, not only as the
petitioners would read it, but as the Secretary does: "the total of
the interim payments ... derived from application of the methods
[of determining costs] to rough, incom-
16 In fact, petitioners invoked this provision below, see App.
13-14, but the Court of Appeals rejected their APA claims, and they
were not renewed in this Court.
421
plete data."
Ante, at 410. Second, the Court finds that
"inadequate or excessive" may well mean, as the Secretary suggests,
inadequate or excessive as measured against "the reasonable costs
as determined by the [Secretary] applying the methods [of
determining costs]."
Ante, at 411. I think the language of
clause (ii) precludes these readings.
Clause (ii) identifies its subject, "aggregate reimbursement,"
as the figure "produced by the methods of determining costs." Thus,
once we know what "the methods of determining costs" are, we should
be able to discover the nature of the "aggregate reimbursement"
that is "produced by" those methods. Section 1395x(v)(1)(A) makes
it clear that "methods" refers to the regulations implementing the
statutory mandate to pay providers of services "the cost actually
incurred, excluding therefrom any part of incurred cost found to be
unnecessary in the efficient delivery of needed health services."
The first sentence of § 1395x(v) (l)(A), which together with §
1395hh authorizes the Secretary to issue such regulations,
identifies them as "regulations establishing the ... methods to be
used ... in determining ... costs." And clause (i) of §
1395x(v)(1)(A) uses the exact same phrase as clause (ii): the
regulations shall take into account both direct and indirect costs,
it says, so that "under the methods of determining costs," patients
who are not Medicare beneficiaries will not subsidize
beneficiaries, nor will beneficiaries subsidize nonbeneficiaries.
Thus, "the methods of determining costs" are not procedures for
estimating costs to make interim payments; rather, they are the
means for figuring the actual "reasonable cost of ...
services."
The Secretary appears not to dispute this, but contends, in the
Court's words, that the phrase "produced by the methods of
determining costs" actually means "derived from application of the
methods to rough, incomplete data."
Ante, at 410. In other
words, as the Secretary asserted at oral argument, "what you're
really doing is taking estimated data
422
but running them through the same methods that you're eventually
going to run the final data through in order to get a result." Tr.
of Oral Arg. 31-32. There is, however, an obvious difficulty with
this proposed interpretation: the complete lack of any reference to
"incomplete" or "estimated" data in clause (ii). Two less obvious
difficulties are even more telling.
First, nothing in Title XVIII of the Social Security Act
specifies that interim payments should be calculated by applying to
estimated data the complete, detailed methodology for reaching a
final reasonable cost figure; the Secretary's own regulations,
indeed, suggest just the opposite. "The interim payment," states
the relevant regulation, "may be related to the last year's average
per diem, or to charges, or to any other ready basis of
approximating costs." 42 CFR § 413.60(a) (1992). And for purposes
of devising preliminary estimates, this makes perfect sense;
working through a permissible method for determining costs in all
its detail may not improve the quality of an estimate if the raw
figures used are mostly guesswork. But this divergence of methods
for calculating interim payments and methods for determining
reasonable cost casts doubt on the Secretary's proffered
interpretation of "produced by the methods of determining costs."
If interim, estimated payments may in fact be calculated without
strict adherence to the methods of determining costs, it is hard to
see why Congress would choose to identify a series of interim
payments as "the aggregate reimbursement produced by the methods of
determining costs."
Second, the Secretary's interpretation assumes that "the methods
of determining costs" are no more than a series of equations, which
can be applied as readily to final, audited cost figures as to mere
projections. But the statute suggests that the term "methods" is
not to be understood so narrowly. In the words of the statute, for
example, the regulations establishing the methods may not only
"provide for
423
determination of the costs of services on a per diem, per unit,
per capita, or other basis"; they may also "provide for the use of
estimates of costs of particular items or services." §
1395x(v)(1)(A). Thus, as the statute conceives of them, the methods
encompass not only a set of equations, but a set of determinations
about whether to use actual costs or cost estimates for particular
items or services. This set of determinations is relevant, of
course, not to reckoning interim payments, but to calculating the
final reimbursement due the provider of health services.
Accordingly, a figure that is "produced by the methods of
determining costs" should, absent some contrary indication, be the
final figure.
The Court asserts that a contrary indication may be found in the
use of the adjective "aggregate" to modify "reimbursement."
"'Aggregate,'" says the Court, "signifies 'sum total' and its use
therefore might suggest that Congress had in mind the outcome of
adding up the interim payments."
Ante, at 411, n. 9
(citation omitted). I find no such suggestion in the statute's use
of that term, for "aggregate," unlike, say, "cumulative," carries
no necessary connotation of addition over time. More importantly,
there is a far better explanation for the use of the term
"aggregate." A health care provider will, over the course of a
fiscal year, provide many different kinds of services to Medicare
beneficiaries. Part A Medicare benefits, for example, cover, among
other things, "inpatient hospital services," see 42 CFR § 409.5
(1992), a term that encompasses everything from bed and board,
nursing services, and use of hospital facilities to medical social
services, drugs, biologicals, supplies, appliances and equipment,
certain other diagnostic and therapeutic services, and medical or
surgical services provided by certain interns or
residents-in-training. § 409.10(a). The statute plainly
contemplates the use of different methods to determine the costs of
these various services, see 42 U. S. C. § 1395x(v) (l)(A) (stating
that the regulations "may provide for using different methods in
different circumstances"), and the Sec-
424
retary has indeed provided for a number of different methods.
For instance, under the Secretary's "[d]epartmental method" for
apportioning costs, the provider's cost of "routine services" is
apportioned between Medicare and nonMedicare patients on an average
cost per diem basis, whereas the cost of "ancillary" services is
apportioned on the basis of the ratio of Medicare beneficiary
charges to total patient charges in each department. See 42 CFR §
413.53(a)(1) (1992). The combined reimbursement for all of the
different services performed by a health care provider, as
calculated under all of the different methods allowed by the
statute and specified in the regulations and other materials
published by the Secretary, may aptly be labeled the "aggregate
reimbursement."
As I thus read the statute, the term "aggregate" is important in
making it clear not only that the "reimbursement" considered in
clause (ii) is the total amount received by a provider for all of
the services it has rendered to Medicare beneficiaries, but that
the amount received should be considered only as a whole. This
focus on the total amount received means that a provider who shows
that a method results in an understating of the reasonable cost of
a particular service will not necessarily be entitled to a
"retroactive corrective adjustmen[t]" to recover that particular
cost, for the Government may be able to show that the same method,
or another method used by the provider, has overstated other costs.
(By the same token, of course, the Government will not always
deserve an adjustment when it shows that a method has overstated a
particular cost.) The text's direction to look only at the total
reimbursement also means that the provider will not be entitled to
the prospective application of a more accurate method of its own
devising, an insight into the statute that is hardly new; as the
Court acknowledges, see
ante, at 413, we recognized in
Bowen v.
Georgetown Univ. Hospital, 488 U. S. 204, 211 (1988)
(emphasis in original), that "nothing in clause (ii) suggests that
it permits
425
changes in the
methods used to compute costs; rather, it
expressly contemplates corrective adjustments to the ag
gregate
amounts of reimbursement produced pursuant to those
methods."
This emphasis on the total, aggregate reimbursement received by
the health care provider makes sense in light of the broader goals
of the Medicare program, addressing as it does Congress's concern
that Medicare neither subsidize, nor be subsidized by, non-Medicare
patients. See § 1395x(v)(1)(A)(i). As long as the aggregate
Medicare reimbursement to a health care provider equals its total
reasonable costs of providing services to Medicare beneficiaries,
that goal has been attained; the details of the methods used do not
matter. Thus, I can find no ambiguity in the phrase "aggregate
reimbursement produced by the methods of determining costs"; it
refers univocally to the total, final amount due to a provider for
services rendered to Medicare beneficiaries under the regulations
promulgated by the Secretary.
The Court also finds ambiguity in the direction stated in clause
(ii) to provide for an adjustment if the reimbursement proves to be
"inadequate or excessive." While I agree with the Court that clause
(ii) does not itself "at any point stat[e] the standard against
which inadequacy or excessiveness is to be measured,"
ante,
at 410-411, the absence of an explicit reference to a standard in
clause (ii) does not keep us from looking for other textual clues
about that standard. In this case, the strongest textual clue is
found in the immediate neighbor of clause (ii), clause (i).
Together, clauses (i) and (ii) form the fourth and last sentence of
§ 1395x(v)(1)(A). Whereas the third sentence of § 1395x(v)(1)(A) is
permissive, the fourth sentence is mandatory; it concerns those
things that the Secretary's regulations "shall" take into account
or for which they "shall" provide. Clause (i) requires the
regulations to take into account "both direct and indirect costs of
providers of services" so that "the necessary costs of effi-
426
ciently delivering covered services to individuals covered by
the insurance programs established by this subchapter will not be
borne by individuals not so covered, and the costs with respect to
individuals not so covered will not be borne by such insurance
programs." § 1395x(v)(1)(A)(i). The first of these two undesired
results, it will be noted, would occur if the aggregate
reimbursement to the provider were inadequate, in the sense of
failing to cover all reasonable costs; the second, if that
reimbursement were excessive.
Clause (ii) does not contain as exhaustive a description of its
goal as clause (i); it simply requires the regulations to provide
for suitable corrective adjustments where the methods of
determining costs produce a reimbursement that "proves to be either
inadequate or excessive." § 1395x(v)(1) (A)(ii). Reading the two
clauses together, however, I think it most reasonable to take
clause (ii)'s "inadequate or excessive" as shorthand for the two
consequences that were just described in the same order, but more
fully, in clause (i). This construction has the further virtue, of
course, of support in my reading of the phrase "aggregate
reimbursement produced by the methods of determining costs." For if
that phrase, as I contend, refers to the amount ultimately due the
provider as calculated under the Secretary's regulations (that is,
according to the Secretary's "methods"), then the standard against
which that amount is measured as "inadequate or excessive" must
refer to some other figure (that is, a figure produced by some
different method); no amount can be "inadequate or excessive" in
relation to itself. Thus, in context, the phrase "inadequate or
excessive" is not equivocal.
Broadening the context to all of Title XVIII only confirms the
view that clause (ii) requires regulations providing for
case-by-case exceptions to the methods for determining costs.
Section 1395x(v)(1)(A), where clause (ii) is located, is a
definitional, rather than an operative, provision; § 1395x(v)
defines "[r]easonable costs." The chief operative provision
427
to which § 1395x(v) relates is § 1395f(b), which is titled
"Amount paid to provider of services"; § 1395f(b)(1) provides that
under the Medicare program, providers of services are generally to
be paid "the lesser of (A) the reasonable cost of such services, as
determined under section 1395x(v) of this title ... or (B) the
customary charges with respect to such services." "Payments to
providers of services" are covered under another section, 1395g.
That section requires the Secretary "periodically [to] determine
the amount which should be paid ... to each provider of services,"
and requires "the provider of services [to] be paid, at such time
or times as the Secretary believes appropriate (but not less often
than monthly) ... the amounts so determined, with necessary
adjustments on account of previously made overpayments or
underpayments." § 1395g(a). As the Court notes,
ante, at
411, the petitioners argue that this section's provision for
"necessary adjustments on account of previously made overpayments
or underpayments" provides for the very bookbalancing operation
that the Secretary advances as the function of clause (ii), and
thus renders clause (ii), as interpreted by the Secretary, entirely
superfluous. The Court nonetheless appears to accept the
Secretary's explanation that § 1395g deals with periodic
adjustments to be made during the course of the fiscal year,
whereas clause (ii) is directed at year-end adjustments.
Ibid. Two circumstances keep me from doing the same.
First, nothing in the language of § 1395g excludes "yearend
adjustments" from its purview, or draws any distinction at all
between periodic and year-end adjustments. All payments to
providers for services to Medicare beneficiaries are made under the
authority of § 1395g, since it is the only section in Title XVIII
of the Social Security Act to deal with that subject; and § 1395g
thus authorizes all payments to be "adjust[ed] on account of
previously made overpayments or underpayments." It is doubtless
this breadth which leads the Secretary to concede that had clause
(ii) never been en-
428
acted, "the authority for some similar year-end mechanism might
have been inferred under the Act as a whole, including 42 U. S. C.
1395g." Brief for Respondent 27, n. 16.
Second, the Secretary's proposed distinction between year-end
and periodic adjustments fails to explain why Title XVIII would
describe year-end, but not periodic, adjustments as "retroactive."
The Secretary interprets "retroactive," as it appears in clause
(ii), to mean only relating to a period for which some payment has
already been made, thus rejecting the more common, stricter legal
sense of the word, which implies the upsetting of some prior
settled expectation or transaction. In this weak sense employed by
the Secretary, however, the adjustments authorized by § 1395g are
just as "retroactive" as those authorized under the Secretary's
interpretation of clause (ii); they too relate to "previously made
overpayments or underpayments." This leaves the Secretary with no
way to explain why Congress, in passing the Social Security
Amendments of 1965 (which established the Medicare program, and
contained both passages, see 79 Stat. 297, 323), chose to
distinguish § 1395g "adjustments" from § 1395x(v)(1)(A)(ii)
"retroactive corrective adjustments."
For all of these reasons, I believe the text of the statute
unambiguously requires the promulgation of regulations allowing
providers (and the Secretary) to seek adjustments on the grounds
that, as calculated under the methods of determining costs, the
total reimbursement for a fiscal period is lower than (or higher
than) the actual reasonable cost of providing services to Medicare
beneficiaries. I respectfully dissent from the Court's opposite
conclusion.
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