     Case: 11-50682   Document: 00511887930   Page: 1   Date Filed: 06/15/2012




          IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                   Fifth Circuit

                                                                  FILED
                                                                 June 15, 2012

                                 No. 11–50682                    Lyle W. Cayce
                                                                      Clerk

PALADIN COMMUNITY MENTAL HEALTH CENTER; SHERRY OSTEEN,

                                           Plaintiffs – Appellants
v.

KATHLEEN SEBELIUS, in her official capacity as Secretary of Health and
Human Services; DR. DONALD BERWICK, in his official capacity as the
Administrator of Centers for Medicare and Medicaid Services,

                                           Defendants – Appellees



                  Appeal from the United States District Court
                       for the Western District of Texas


Before JOLLY, DeMOSS, and STEWART, Circuit Judges.
HAROLD R. DeMOSS, JR., Circuit Judge:
        This appeal involves a challenge to the 2011 Medicare payment rate set
by the Secretary of Health and Human Services (the “Secretary”) for partial
hospitalization services. Paladin Community Mental Health Center and Sherry
Osteen (collectively, “Paladin”) claim the Secretary’s use of both hospital-based
and community mental health center cost data in establishing and adjusting the
2011 relative payment weights and ultimate payment rate was in excess of her
statutory authority. Without first presenting an administrative claim, Paladin
filed suit in district court, alleging jurisdiction was proper under 28 U.S.C.
§ 1331. After a hearing, the district court concluded that Congress expressly
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precluded judicial review of the Secretary’s payment rate decisions and
dismissed the case for lack of subject matter jurisdiction. We affirm.
                                         I.
                                        A.
      The Medicare Act establishes a health insurance program for elderly and
disabled persons. See 42 U.S.C. § 1395 et seq. Medicare Part A provides coverage
for inpatient hospital services and institutional care, see §§ 1395c to 1395i–5,
while Medicare Part B provides supplemental coverage for physician and
outpatient department services. §§ 1395j to 1395w–4. Both hospitals and
community mental health centers are eligible to receive Medicare Part B
payments for certain qualifying outpatient services, including partial
hospitalization program services. See §§ 1395x(s), 1395x(ff)(1)–(3). Paladin is a
Medicare-certified community mental health center which provides partial
hospitalization services to patients in and around Austin, Texas, and derives
over 80% of its revenue from Medicare payments.
      For years Medicare paid suppliers of partial hospitalization services based
on their specific costs. However, in 1997, in an attempt to better control costs
and encourage more efficient delivery of care, Congress directed the Secretary
to establish an outpatient prospective payment system where providers would
be paid predetermined rates for partial hospitalization services. See § 1395l(t)(1).
In creating the new payment system, the Secretary was required to (i) develop
a classification system for covered services and groups of services, and then (ii)
“establish relative payment weights for covered [outpatient department] services
. . . based on median (or, at the election of the Secretary, mean) hospital costs”
using recent cost data. § 1395l(t)(2)(A)–(C). In any given year, the ultimate
payment rate for covered services was the product of a “conversion factor” and
the various “relative payment weight[s,]” § 1395l(t)(3)(C)–(D), adjusted
geographically based on local labor costs and other factors. § 1395l(t)(4).

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       In 2000, the Secretary established the outpatient prospective payment
system using a “per diem” methodology and then calculated the initial relative
payment weights and ultimate payment rate for partial hospitalization services.
Thereafter, the Secretary was instructed to
       review not less often than annually and revise the groups, the
       relative payment weights, and the wage and other adjustments
       described in paragraph (2) to take into account changes in medical
       practice, changes in technology, the addition of new services, new
       cost data, and other relevant information and factors.
§ 1395l(t)(9)(A).1 The Secretary was also instructed to maintain “[b]udget
neutrality” year-to-year by ensuring that any increased expenditure for one
payment component is offset by a decrease in another payment component so
that total Medicare payments for partial hospitalization services equal what
would have been paid under the pre-1997 system. See §§ 1395l(t)(3)(A)–(B),
(t)(9)(B).
       Since 2000, the Secretary has used the annual review and adjustment
process to help her refine the payment system. This process includes analyzing
cost data provided by both hospitals and community mental health centers. In
2000 through 2002, 2009, and 2010, the Secretary used only hospital-based cost
data to compute the relative payment weights and ultimate payment rate for
covered services for all partial hospitalization service providers. However, in
response to comments from community mental health centers, from 2003
through 2008 the Secretary used both hospital-based and community mental
health center cost data in computing relative payment weights and the ultimate
payment rate for all providers.2


       1
       Section 1395l(t)(9) was formerly § 1395l(t)(6). One cross-reference in the statute was
not amended to conform to the renumbering of the other provisions. See § 1395l(t)(12)(C).
       2
      The Secretary continued to use only hospital-based cost data in instances where
community mental health center cost data was unavailable or of questionable validity.

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                                      B.
      In July 2010, the Secretary sought comment on a proposed rule
establishing the 2011 payment rate for partial hospitalization services. The
proposed rule provided that the Secretary would compute separate partial
hospitalization costs, relative payment weights, and ultimate payment rates for
hospitals and community mental health centers based on their own respective
cost data (i.e., hospital rates would reflect only their own data and community
mental health center rates would reflect only their own data). The Secretary’s
reasoning for this change was based on “the different cost structures of
[community mental health centers] and hospital-based [partial hospitalization
programs].” See 75 Fed. Reg. 71992 (November 24, 2010) (indicating that over
the years hospital costs had remained stable while community mental health
center costs had declined, thereby resulting in underpayments to hospitals and
overpayments to community mental health centers). During her consideration,
the Secretary indicated that Congress had granted her the authority to revise
the covered service groups and relative payment weights and make other
adjustments by basing rates on (i) only hospital-based cost data, (ii) both
hospital-based and community mental health center cost data, or (iii) only
community mental health center cost data. Id.
      Ultimately, in an attempt to prevent potential community mental health
center closures caused by lower payment rates, the Secretary implemented a
two-year transition into using only community mental health center cost data
to calculate payment rates for community mental health centers. Id. at 71,993.
The final rule for 2011, promulgated in November 2010, used (i) only hospital-
based cost data to calculate the relative payment weights for hospital-based
partial hospitalization services, and (ii) both hospital-based and community
mental health center cost data to calculate the relative payment weights for
community mental health center partial hospitalization services. Id.

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                                       C.
      In December 2010, prior to implementation of the final rule and without
first pursuing an administrative remedy, Paladin filed a complaint seeking
injunctive relief and a declaration that the Secretary’s action was unlawful.
Paladin argued that the Secretary “circumvented the clear instructions of
Congress regarding utilization of hospital cost data as the sole metric for
developing relative payment weights for partial hospitalization services for
[community mental health centers].” The Secretary moved to dismiss for lack of
subject matter jurisdiction and, alternatively, for failure to exhaust
administrative remedies. After a hearing, the district court dismissed the
complaint for lack of subject matter jurisdiction, explaining that “sections
1395l(t)(12)(A) and (C) expressly preclude review of the relative payment-weight
determination, and . . . the Secretary has acted within her statutory authority
to establish payment rates for [outpatient department] services pursuant to
section 1395l(t)(2)(C).”
      Paladin timely appealed.
                                       II.
      Paladin raises several issues on appeal. The first is whether, pursuant to
§ 1395l(t)(12), Congress precluded from judicial review Paladin’s challenge to the
Secretary’s 2011 payment rate determinations for partial hospitalization
services. The second is, assuming Congress did not preclude judicial review,
whether Paladin must exhaust its administrative remedies prior to filing suit in
district court. And the third is, assuming the district court has jurisdiction and
administrative exhaustion is not required, whether the Secretary is permitted
to use community mental health center cost data in establishing and adjusting
the 2011 payment rates for community mental health centers. Because we affirm
the district court’s determination that it lacked subject matter jurisdiction, we
need not reach the second and third issues.

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                                              A.
       The Secretary determined that she would calculate relative payment
weights for partial hospitalization services provided by community mental
health centers in 2011 using both hospital-based and community mental health
center cost data. See 75 Fed. Reg. at 71993. The district court found that
Congress expressly precluded judicial review of such determinations and
dismissed Paladin’s complaint for lack of subject matter jurisdiction. We review
the district court’s determination that it lacked subject matter jurisdiction de
novo. Nat’l Athletic Trainers’ Ass’n v. U.S. Dep’t of Health & Human Servs., 455
F.3d 500, 502 (5th Cir. 2006).
                                              B.
       There is a “strong presumption that Congress intends judicial review of
administrative action.” Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667,
670 (1986). However,
       [s]ubject to constitutional constraints, Congress can, of course, make
       exceptions to the historic practice whereby courts review agency
       action. The presumption of judicial review is, after all, a
       presumption, and “like all presumptions used in interpreting
       statutes, may be overcome by,” inter alia, “specific language or
       specific legislative history that is a reliable indicator of
       congressional intent,” or a specific congressional intent to preclude
       judicial review that is “‘fairly discernible’ in the detail of the
       legislative scheme.”
Id. at 672–73 (quoting Block v. Cmty. Nutrition Inst., 467 U.S. 340, 349, 351
(1984)).
       Here, the Medicare Act’s legislative scheme makes clear Congress’s
specific intent to preclude certain payment rate determinations from judicial
review:3

       3
         Congress’s reason for precluding judicial review is also clear. Judicial determinations
forcing the Secretary to retroactively alter payment rates for various covered services—e.g.,
payment rates that are adjusted annually and are required to remain budget neutral—would

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       There shall be no administrative or judicial review under section
       1395ff of this title, 1395oo, of this title, or otherwise of—(A) the
       development of the classification system under [section 1395l(t)(2)],
       including the establishment of groups and relative payment weights
       for covered [outpatient department] services, of wage adjustment
       factors, other adjustments, and methods described in [section
       1395l(t)(2)(F)]; . . . [and] (C) periodic adjustments made under
       [section 1395l(t)(9)].
§ 1395l(t)(12); see Am. Soc’y of Cataract & Refractive Surgery v. Thompson, 279
F.3d 447, 452 (7th Cir. 2002) (finding no judicial review of “relative values and
relative value units” under Medicare Part B); Painter v. Shalala, 97 F.3d 1351,
1356 (10th Cir. 1996) (finding no judicial review of “conversion factor” under
Medicare Part B). The plain text of § 1395l(t)(12) makes Congress’s intent “fairly
discernible” and thus overcomes the general presumption favoring judicial
review. Mich. Acad., 476 U.S. at 673.
       Faced with clear congressional intent to preclude from judicial review the
Secretary’s establishment of, and annual adjustments to, relative payment
weights for partial hospitalization service payments, Paladin attempts to draw
a distinction between relative payment weights and the “national rate” (a non-
statutory term Paladin uses apparently meaning the ultimate payment
rate—the per diem rate—for covered services). This attempt fails. As the
Secretary points out, every relative payment weight is simply a component part
of the ultimate payment rate, and every component is itself dependent upon the
Secretary’s determination of the median or mean costs for that particular service
pursuant to § 1395l(t)(2)(C), factoring in any other periodic adjustments made
pursuant to § 1395l(t)(9). Paladin’s argument that Congress permits judicial



likely wreak havoc on the already complex administration of Medicare Part B’s outpatient
prospective payment system. See Am. Soc’y of Cataract & Refractive Surgery v. Thompson, 279
F.3d 447, 454 (7th Cir. 2002) (noting judicial review of annual adjustments to Medicare
payment fee schedules would be “disruptive,” particularly with respect to the budget neutrality
requirement).

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review of the ultimate payment rate yet forbids judicial review of the component
parts of that same rate makes no logical sense and flies in the face of the
statutory text. The ultimate payment rate is simply the sum of numerous
relative payment weights, as adjusted, and a court cannot review or adjust the
ultimate payment rate without improperly reviewing or adjusting its component
parts. See Am. Soc’y of Cataract & Refractive Surgery, 279 F.3d at 452 (finding
no judicial review over “relative values” also means no judicial review over the
component parts of those values).
      Moreover, the ultimate payment rate in any given year is based upon the
aggregate adjustments made to the relative payment weights by the Secretary
since she established the prospective payment system in 2000 (i.e., ten years of
adjustments from 2001 to 2011). Not only did Congress expressly shield from
judicial review the Secretary’s initial establishment of relative payment weights
in 2000, it also expressly shielded from judicial review her annual adjustments
made to the relative payment weights which are supposed to “take into account
changes in medical practice, changes in technology, the addition of new services,
new cost data, and other relevant information and factors.” See §§ 1395l(t)(9),
(t)(12)(A), (C). Straightforward application of the statutory text shows that
Paladin’s challenge falls within the class of activities Congress specifically
precluded from judicial review.
                                       C.
      Paladin also argues that the district court should have exercised
jurisdiction pursuant to Leedom v. Kyne, 358 U.S. 184, 188–89 (1958), even if
Congress expressly precluded the Secretary’s determinations from judicial
review. In Kyne, the Supreme Court recognized a narrow exception to a
congressional bar on judicial review for claims that an agency exceeded the scope
of its authority or violated a clear statutory mandate. Id.



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      Paladin’s reliance on Kyne is misplaced. While Kyne does permit a district
court “to conduct a cursory review of the merits of the case to determine whether
the Secretary violated a clear statutory mandate,” Hanauer v. Reich, 82 F.3d
1304, 1309 (4th Cir. 1996) (internal quotation omitted), our cursory review
reveals that the Secretary was acting within her delegated authority. When the
Secretary made her 2011 payment rate determinations she was acting pursuant
to her authority both to (i) “establish relative payment weights for covered
[outpatient department] services . . . based on median (or, at the election of the
Secretary, mean) hospital costs,” § 1395l(t)(2)(C), and (ii) “review not less often
than annually and revise the groups, the relative payment weights, and the
wage and other adjustments . . . to take into account changes in medical practice,
changes in technology, the addition of new services, new cost data, and other
relevant information and factors.” § 1395l(t)(9)(A).
      Paladin’s argument is at best a dispute over the Secretary’s interpretation
of the “based on . . . hospital costs” language found in § 1395l(t)(2)(C), which is
not the “extraordinary” situation that falls within the very limited Kyne
exception. Kirby Corp. v. Pena, 109 F.3d 258, 269 (5th Cir. 1997). Where Paladin
asserts that the Secretary should interpret “based on . . . hospital costs” as
requiring her to use hospital-based cost data as the sole metric in calculating and
adjusting the relative payment weights and ultimate payment rate for 2011, the
Secretary has instead decided to base the relative payment weights and ultimate
payment rate on both hospital-based and community mental health center cost
data. Even if her interpretation was incorrect, the Secretary’s decision can
hardly be said to be “so contrary to the terms of the relevant statute that it
necessitates judicial review independent of” the no-review provisions of
§ 1395l(t)(12). Id. (noting that there must be a “facial violation[]” of the relevant
statute to fall within the Kyne exception). There is enough ambiguity inherent
in the phrase “based on . . . hospital costs” that the Secretary’s interpretation

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deserves deference because it is at least a plausible construction of the statute.
See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 &
n.11 (1984); see also Sierra Club v. EPA, 356 F.3d 296, 305–06 (D.C. Cir. 2004)
(finding “based on” to be ambiguous); McDaniel v. Chevron Corp., 203 F.3d 1099,
1111 (9th Cir. 2000) (finding “based on” generally refers to a “starting point”);
Fed. Recovery Servs., Inc. v. United States, 72 F.3d 447, 451 (5th Cir. 1995)
(noting Congress could have “insert[ed] the adverb ‘solely’ before ‘based upon’”).
                                       III.
      For the foregoing reasons, we find that Congress expressly precluded
judicial review of the Secretary’s determinations and that her actions are not a
facial violation of a clear statutory mandate. Accordingly, the district court’s
dismissal for lack of subject matter jurisdiction is AFFIRMED.




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