Greenbrier Hospital, L.L.C. v. Azar, No. 19-30331 (5th Cir. Sept. 9, 2020) (King, Costa, Ho)

What do you do when a case implicates two provisions of the same law that appear to conflict? In this fascinating case about conflicting HHS regulations, Judge Ho provides the answer.

In 1999, Congress directed HHS to establish and implement a new Medicare reimbursement scheme for inpatient psychiatric facilities (IPFs). Pub. L. No. 106-113, App. F § 124(a)(1), 113 Stat. 1501, 1501A-332 (1999).

HHS established the new scheme in a 2004 final rule. It included a transition schedule from the old system to a new one over a three-year period from 2005 to 2008. See 69 Fed. Reg. 66922, 66964-66,66980 (Nov. 15, 2004). During the transition, IPFs would receive a “blended payment” based on a combination of the old and new regimes. The particular combinations varied, with a new formula coming into effect each year on July 1:

Id. at 66980 (emph. added).

In 2005, HHS published a correction to its final rule in the Federal Register. See 70 Fed. Reg. 16724, 16729 (Apr. 1, 2005). The agency had “inadvertently used incorrect dates for the cost reporting periods” in the 2004 rule. Id. at 16726. Under the 2004 rule, a new formula would take effect on July 1 of each year. But the agency had intended for the new formula to take effect on January 1--not July 1--of each year. Id. HHS attempted to fix the error by aligning the transition timeline to the calendar year. Behold, the "corrected" regulation:

Id. at 16729 (emph. added).

As Judge Ho's opinion for the Court, explains, however, in its effort to fix one problem, HHS created another:

Greenbrier Hospital, an IPF, claimed that because of this January 1 glitch, it should be permitted to choose which formula would determine its compensation from the federal government. Working from that premise, Greenbrier submitted a reimbursement claim seeking compensation at the 75% rate—that is, the one from the preceding year—for the period from January 1, 2008 to December 31, 2008.

The Centers for Medicare & Medicaid Services (CMS), which administers HHS’s reimbursements, disagreed and paid Greenbrier at the post-transition, 100% per diem rate. That result carried the day through the remainder of Greenbrier's administrative appeals.

The district court granted summary judgment to the government. In its view, the the conflicting reimbursement schemes rendered the regulation ambiguous. And because it viewed the Administrator's interpretation as reasonable, the district court deferred to it under Auer. Greenbrier appealed.

Judge Ho's opinion for the Court begins by emphasizing that the competing regulatory formulae "are mutually exclusive" and "collide full-on" such that it is "not possible" to reconcile them. Under the circumstances, he explains, the Court has just two options:

Here, there was a principled basis for choosing one provision over the other. As a result, the Court was able to avoid the nuclear option of "outright invalidation." Judge Ho explains that "[c]ontext makes clear that we should construe the 2005 rule to give effect to the new formula, and not the formula from the preceding year, when presented with a cost report that begins on January 1." That is so, he adds, because

  1. it is how the previous rule worked (citing Ross v. Blake, 136 S. Ct. 1850, 1857-58 (2016) (consulting statutory “precursor” for context));
  2. there is no reason not to construe the 2005 rule the same way, i.e. so that the new formula takes "effect at the beginning of each calendar year just as it did at the beginning of July each year";
  3. in the 2005 rule, HHS made clear that it didn't intend its new rule to change policy, only to correct its previous error; and
  4. subsequent preambles in the Federal Register "make clear that the new formula applies on January 1 of each year" (citing examples).

Accordingly, the Fifth Circuit affirmed. Before I end this post, though, I'd like to highlight one more thing about Judge Ho's opinion and raise some questions for readers.

Beginning with my final highlight, in a footnote, Judge Ho reveals that the Office of the Federal Register made all this ever more confusing for the regulated public. In dealing with that wrinkle, he dumps knowledge on all us mortals who don't know the difference between the CFR and Federal Register versions of a regulation, much less why it matters:

Further adding to the confusion, the Office of the Federal Register omitted the correction for subsection (a)(4) from the 2005 edition of the Code of Federal Regulations. Under the CFR version, the 75% per diem rate still applies to cost reporting periods beginning on or before January 1, 2008, consistent with the text of the Federal Register. But only those cost reporting periods that begin on or after July 1, 2008—rather than January 1, 2008—trigger the 100% per diem rate. The misprint thus leaves a six-month gap for cost reporting periods beginning after January 1, 2008, but before July 1, 2008.
Contrary to Greenbrier’s argument, the text of the Federal Register, and not the misprint in the CFR, controls. The CFR is a reproduction of regulations that agencies promulgate in the Federal Register. See 44 U.S.C. § 1510(a). So when a conflict between the two exists, we look to the rule’s original publication—just as we do when a conflict exists between the Statutes at Large and the United States Code. See U.S. Nat’l Bank of Or. v. Indep. Ins. Agents of Am., Inc., 508 U.S. 439, 448 (1993).

I love that Judge Ho took the time to clear that up. How many of you can honestly say you actually knew whether the CFR or Federal Register version of a regulation controls in the case of a conflict? I, for one, did not.

Now some questions for readers:

  1. The Fifth Circuit affirmed the district court's judgment, but do you think the panel approved of the district court's application of Auer?
  2. A key reason Auer (Kisor these days) instructs courts to defer to permissible agency interpretations of ambiguous regulations under certain (very limited) circumstances is that agencies are better-suited to make the sort of pure policy choices that are necessary to resolve genuine ambiguities. In your view, is Judge Ho exercising the sort of policy discretion that Kisor says is better left to agencies in this opinion? Does it matter?
  3. Judge Ho explains that in the face of an irresolvable conflict, the court must either do the least damage to the text possible by choosing which of the two competing provisions should apply or, if that's impossible, simply declare both provisions ineffective. In this case, the Court avoided the outright invalidation option. But imagine a statutory-conflict case where outright invalidation was unavoidable. Would outright invalidation of the two conflicting statutory provisions require the court to conduct a severability analysis to determine whether the rest of the statute remained viable after the partial invalidation?
Greenbrier Hospital, L.L.C. v. Azar, No. 19-30331 (5th Cir. Sept. 9, 2020)
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