                           UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF COLUMBIA
____________________________________
CARITAS MEDICAL CENTER et al.,         :
                                       :
                      Plaintiffs,      :    Civil Action No.:    07-1889 (RMU)
                                       :
                      v.               :    Document Nos.:       16, 21
                                       :
CHARLES E. JOHNSON,                    :
Acting Secretary, U.S. Department of   :
Health and Human Services,             :
                                       :
                      Defendant.       :
____________________________________:

____________________________________
BAPTIST MEMORIAL HOSPITAL –          :
MISSISSIPPI COUNTY, INC. et al.,     :
                                     :
                      Plaintiffs,    :       Civil Action No.:   07-2197 (RMU)
                                     :
                      v.             :       Document Nos.:      14, 18
                                     :
CHARLES E. JOHNSON,                  :
Acting Secretary, U.S. Department of :
Health and Human Services,           :
                                     :
                      Defendant.     :
____________________________________:

____________________________________
CHIPPEWA VALLEY HOSPITAL &           :
OAKVIEW CARE CENTER, INC. et al., :
                                     :
                      Plaintiffs,    :       Civil Action No.:   07-2329 (RMU)
                                     :
                      v.             :       Document Nos.:      14, 18
                                     :
CHARLES E. JOHNSON,                  :
Acting Secretary, U.S. Department of :
Health and Human Services,           :
                                     :
                      Defendant.     :
____________________________________:
                                   MEMORANDUM OPINION

             DENYING THE PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT;
          GRANTING THE DEFENDANT’S CROSS-MOTION FOR SUMMARY JUDGMENT

                                        I. INTRODUCTION

       This matter is before the court on the plaintiffs’ motion for summary judgment and the

defendant’s cross-motion for summary judgment. The plaintiffs, a group of hospitals that receive

funding through Medicare, complain that the defendant, the Acting Secretary of the Department

of Health and Human Services (“the Department”),1 erred by promulgating a rule regarding the

rate at which some of their Medicare reimbursement rates were calculated from January 1, 1999

through July 31, 2000. In their motion for summary judgment, the plaintiffs request that the

court invalidate the rule. The defendant has filed a cross-motion for summary judgment,

maintaining that the court should uphold the rule. For the reasons discussed below, the court

determines that the rule is entitled to deference. Accordingly, the court denies the plaintiffs’

motion for summary judgment and grants the defendant’s cross-motion for summary judgment.



                     II. FACTUAL & PROCEDURAL BACKGROUND

       This suit concerns the rate at which hospitals receive Medicare reimbursements for

providing three specific types of outpatient services: ambulatory surgical, radiology and




1
       The original defendant to this action, Michael O. Leavitt, was the Secretary of the U.S.
       Department of Health and Human Services when this action was instituted. Pursuant to Federal
       Rule of Civil Procedure 25(d), the court has substituted the current Acting Secretary, Charles E.
       Johnson, for Mr. Leavitt as the defendant to this action. See FED . R. CIV . P. 25(d) (stating an
       “officer’s successor is automatically substituted as a party” and that “[l]ater proceedings should
       be in the substituted party’s name”).


                                                    2
diagnostic services.2 Pls.’ Mot. for Summ. J. (“Pls.’ Mot.”) at 6. To provide context for the

defendant’s rule regarding the reimbursement rates for these three services, the court begins with

a brief history of Medicare reimbursement methodologies. At the inception of the Medicare

program in 1965, all hospital services – both inpatient and outpatient – were reimbursed using

the “reasonable cost” rate, which provides that the hospital is reimbursed for the actual costs that

it incurred in furnishing the service. Id. at 4; see also County of L.A. v. Shalala, 192 F.3d 1005,

1008 (D.C. Cir. 1999). By the early 1980s, however, Congress had started to become dissatisfied

with the reasonable cost rate, which it perceived as breeding “‘little incentive for hospitals to

keep costs down’ because ‘the more they spent, the more they were reimbursed.’” County of

L.A., 192 F.3d at 1008. In 1983, Congress created a “Prospective Payment System” (“PPS”) for

inpatient services. Def.’s Cross-Mot. for Summ. J. & Opp’n to Pls.’ Mot. (“Def.’s Cross-Mot.”)

at 4-5; see also 42 U.S.C. § 1395ww (applying the PPS to inpatient services). Reimbursement

under the PPS rate depends on the condition being treated rather than on the actual costs

incurred. Def.’s Cross-Mot. at 5. While Congress applied the PPS to inpatient services in 1983,

it continued to reimburse outpatient services using the reasonable cost rate. Id.

       In an effort to curb hospital outpatient costs, in the Omnibus Budget Reconciliation Act

of 1986 (“the 1986 Act”) Congress began applying a “blend rate”3 to ambulatory surgical



2
       The court will refer to ambulatory surgical, radiology and diagnostic services as the “three
       relevant services” throughout this Memorandum Opinion.
3
       What the defendant refers to as the “blend rate,” the plaintiffs call the “blended payment rate
       limits,” reiterating that the amount hospitals are reimbursed is limited by this methodology. Pls.’
       Reply in Support of Mot. for Summ. J. & Opp’n to Def.’s Cross-Mot. for Summ. J. (“Pls.’
       Reply”) at 14 n.3. The court acknowledges the plaintiffs’ point but, for simplicity, refers to this
       methodology as the “blend rate.”


                                                   3
procedures. Pub. L. No. 99-509, 100 Stat. 1874 (codified as amended at 42 U.S.C. §

1395l(i)(3)). The “blend rate” is a hybrid between the reasonable cost formula and the PPS

formula. Def.’s Cross-Mot. at 6. In regulations concerning the blend rate, the Department

explained that the rate was a temporary payment method that would be used until a PPS for

ambulatory surgical procedures could be developed. 52 Fed. Reg. 36,767 (Oct. 1, 1987). In

1988, Congress then applied the blend rate to radiology and other diagnostic services. Pub. L.

No. 100-203, 101 Stat. 1330 (codified as amended at 42 U.S.C. § 1395l(a)(2)(E)). Meanwhile,

Congress continued to work toward developing a PPS for outpatient services, and in the

Balanced Budget Act of 1997 (“BBA”) it announced that a PPS for outpatient services would go

into effect beginning on January 1, 1999. Pub. L. No. 105-33, 111 Stat. 251. To be consistent

with this enactment, Congress added a “conforming amendment” establishing that both the blend

rate and the reasonable cost rate, which was still being applied to other types of outpatient

services, would sunset when the PPS went into effect on January 1, 1999. Id.; see also 42 U.S.C.

§ 1395l(t) (codifying conforming amendments).

       The plan went awry, however, when the Department realized that Medicare was at risk of

a “total systems failure” if the Department did not quickly correct a computer programming

defect that made its computers unable to distinguish between the years 1900 and 2000 (“the Y2K

crisis”). Def.’s Cross-Mot. at 11. The Department rearranged its priorities and postponed

implementing the PPS until after the Y2K crisis was averted. Id. Congress ratified this decision

in the Balanced Budget Refinement Act of 1999 (“the 1999 Act”). Pub. L. No. 106-113, 113

Stat. 1501. In the 1999 Act, Congress did not extend the sunset dates for the blend rate and the

reasonable cost rate beyond January 1, 1999. Id.; see also Pls.’ Mot. at 8. In other words,


                                                 4
Congress did not address what reimbursement method would apply to the three relevant services

between January 1, 1999 and when the PPS was finally implemented. Pls.’ Mot. at 8. Congress

did, however, extend a provision establishing “reasonable cost reduction factors”: factors that

affect the calculation of the reasonable cost rate. Pub. L. No. 106-113, 113 Stat. 1501; see also

Pls.’ Mot. at 8.

        On April 7, 2000, the defendant promulgated a rule establishing that the PPS would go

into effect later that year. 65 Fed. Reg. 18,489-90. The rule also established that for the interval

between January 1, 1999 and the date the PPS went into effect, the blend rate would continue to

be applied to the three relevant services. Id. On August 1, 2000, the PPS finally went into effect.

65 Fed. Reg. 40535. The plaintiffs object to the portion of the rule that applied the blend rate to

the three relevant services from January 1, 1999 through July 31, 2000. Pls.’ Mot. at 14. The

plaintiffs have moved for summary judgment, contending that they are entitled to be reimbursed

at the reasonable cost rate rather than at the blend rate. Id. at 1. The defendant, on the other

hand, has opposed the plaintiffs’ motion for summary judgment and filed a cross-motion for

summary judgment, asserting that he properly applied the blend rate. Def.’s Cross-Mot. at 1.

The court turns now to the parties’ arguments.



                                          III. ANALYSIS

                   A. Legal Standard for a Motion for Summary Judgment

        Summary judgment is appropriate when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a judgment as a


                                                  5
matter of law.” FED . R. CIV . P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322

(1986); Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C. Cir. 1995). To determine which facts are

“material,” a court must look to the substantive law on which each claim rests. Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A “genuine issue” is one whose resolution could

establish an element of a claim or defense and, therefore, affect the outcome of the action.

Celotex, 477 U.S. at 322; Anderson, 477 U.S. at 248.

       In ruling on a motion for summary judgment, the court must draw all justifiable

inferences in the nonmoving party’s favor and accept the nonmoving party’s evidence as true.

Anderson, 477 U.S. at 255. A nonmoving party, however, must establish more than “the mere

existence of a scintilla of evidence” in support of its position. Id. at 252. To prevail on a motion

for summary judgment, the moving party must show that the nonmoving party “fail[ed] to make

a showing sufficient to establish the existence of an element essential to that party’s case.”

Celotex, 477 U.S. at 322. By pointing to the absence of evidence proffered by the nonmoving

party, a moving party may succeed on summary judgment. Id.

       The nonmoving party may defeat summary judgment through factual representations

made in a sworn affidavit if he “support[s] his allegations . . . with facts in the record,” Greene v.

Dalton, 164 F.3d 671, 675 (D.C. Cir. 1999) (quoting Harding v. Gray, 9 F.3d 150, 154 (D.C. Cir.

1993)), or provides “direct testimonial evidence,” Arrington v. United States, 473 F.3d 329, 338

(D.C. Cir. 2006).

        B. Legal Standard for Judicial Review of Agency Interpretations of Statutes

       The Supreme Court set forth a two-step approach to determine whether an agency’s

interpretation of a statute is valid under the APA. Chevron, U.S.A., Inc. v. Natural Res. Def.


                                                  6
Council, Inc., 467 U.S. 837 (1984). This approach, commonly referred to as “Chevron

deference,” requires the court to first look to “whether Congress has spoken to the precise

question at issue.” Id. at 842. If so, the court ends its inquiry. Id. But, if the statute is

ambiguous or silent, the second step requires the court to defer to the agency’s position, so long

as it is reasonable. Id. at 843; Sea-Land Servs., Inc. v. Dep’t of Transp., 137 F.3d 640, 645 (D.C.

Cir. 1998) (holding that “[Chevron] deference comes into play of course, only as a consequence

of statutory ambiguity, and then only if the reviewing court finds an implicit delegation of

authority to the agency”). In applying Chevron, the Supreme Court has held that

“[a]dministrative implementation of a particular statutory provision qualifies for Chevron

deference when it appears that Congress delegated authority to the agency generally to make

rules carrying the force of law, and that the agency interpretation claiming deference was

promulgated in the exercise of that authority.” United States v. Mead Corp., 533 U.S. 218, 226-

27 (2001). Indeed, “judgment about the best regulatory tools to employ in a particular situation

is . . . entitled to considerable deference from the generalist judiciary.” W. Union Int’l, Inc. v.

Fed. Commc’ns Comm’n, 804 F.2d 1280, 1292 (D.C. Cir. 1986).

          C. The Court Denies the Plaintiffs’ Motion for Summary Judgment and
              Grants the Defendant’s Cross-Motion for Summary Judgment

        The plaintiffs claim the defendant erred by promulgating a rule applying the blend rate to

the calculation of payments for the three relevant services from January 1, 1999 through July 31,

2000. Pls.’ Mot. at 1. This claim is based on four rationales, each of which the plaintiffs

contend independently invalidates the rule. Id. at 2-3. First, the plaintiffs argue that the rule

violates plain statutory language and legislative intent. Id. at 2. More specifically, the plaintiffs



                                                   7
claim that the rule violates the plain text of the BBA because the BBA “expressly terminated

[application of the blend rate to the three relevant services] effective January 1, 1999.” Id. at 14.

The plaintiffs further assert that application of the blend rate violates clear legislative intent

because Congress intended to impose the reasonable cost rate, not the blend rate, for the three

relevant services. Id. at 15-20.

        To arrive at this conclusion, the plaintiffs focus on the 1999 Act, in which Congress

extended application of the cost reduction factors. Id. at 16. Invoking the statutory canon

expressio unius est exclusio alterius,4 the plaintiffs contend that by extending application of the

cost reduction factors but not the blend rate, Congress expressed its intent to preclude application

of the blend rate to the services at issue. Id. at 16-18. And because the cost reduction factors

apply solely to the reasonable cost rate, Congress must have intended to extend application of the

reasonable cost rate when it extended the cost reduction factors. Id. at 18. Likewise, the

plaintiffs point out that Congress historically applied the reasonable cost rate to the three relevant

services; in their view, this bolsters their assertion that Congress intended for the reasonable cost

rate to be applied from January 1, 1999 through July 31, 2000. Id. at 19.5

4
        The canon expressio unius est exclusio alterius dictates that “explicit direction for something in
        one provision, and its absence in a parallel provision, implies an intent to negate it in the second
        context.” Cheney R. Co. v. Interstate Commerce Comm’n, 902 F.2d 66, 68 (D.C. Cir. 1990)
        (quoting Clinchfield Coal Co. v. Fed. Mine Safety & Health Review Comm’n, 895 F.2d 773, 779
        (D.C. Cir. 1990)).
5
        The plaintiffs make one additional argument to support their contention that application of the
        blend rate to the three relevant services is inconsistent with legislative intent: they assert that the
        blend rate violates the “prohibition on cross-subsidization,” a canon specific to Medicare. Pls.’
        Mot. at 19-20. The defendant correctly observes that the plaintiffs failed to raise this argument
        during the notice and comment period, Def.’s Cross-Mot. at 27, a point the plaintiffs do not
        contest, see generally Pls.’ Reply. Because “[i]t is well established that issues not raised in
        comments before the agency are waived,” the court will not consider this argument. Nat’l
        Wildlife Fed. v. EPA, 286 F.3d 554, 562 (D.C. Cir. 2002).


                                                       8
        The plaintiffs next offer a second argument as an alternative to the first: they assert that

even if the court determines that construing the BBA literally would plainly be inconsistent with

legislative intent, the court should still invalidate the rule. Id. at 20-26. In making this argument,

the plaintiffs acknowledge that it is possible to interpret the BBA as creating a gap in Medicare

payments for the three relevant services from January 1, 1999 through July 31, 2000. Id. at 20-

21. The parties agree that this plain reading of the statute – which would result in the plaintiffs

being entitled to no Medicare payments at all – would be inconsistent with legislative intent. Id.

at 21. If construing a statute literally would produce an absurd result, the agency is entitled to

enact a rule that violates the plain language of the statute, but the agency must modify the plain

language no more than necessary to effectuate legislative intent. Id. at 22. The plaintiffs point

out that in such situations, the agency’s decision is not entitled to Chevron deference. Id.

        In the instant case, the plaintiffs declare, the rule applying the blend rate to the three

relevant services modified the statute more than necessary because the minimum deviation from

the plain language of the statute would have been to apply the reasonable cost rate rather than the

blend rate. Id. at 23-26. The reasoning that the plaintiffs use to support this contention echoes

their first argument, discussed above, in which they maintain that the application of the blend rate

to the services at issue violates legislative intent. See id. at 15-20. The plaintiffs again submit

that Congress must have intended to apply the reasonable cost rate because it extended the cost

reduction factors, which apply only to the reasonable cost rate, in the 1999 Act. Id. at 24. And

the plaintiffs repeat their assertion that the application of the blend rate to the three relevant

services from January 1, 1999 through July 31, 2000 conflicted with Congress’s aim to sunset the

blend rate beginning on January 1, 1999. Id. at 25.


                                                   9
       The plaintiffs’ third argument in favor of invalidating the rule is that the rule is arbitrary

and capricious because it fails to provide a reasoned explanation for treating the three relevant

services differently from other outpatient services. Id. at 26-28. The plaintiffs, however, failed

to raise this objection during the notice and comment period.6 Because “issues not raised in

comments before the agency are waived,” the court will not consider this argument. Nat’l

Wildlife Fed. v. EPA, 286 F.3d 554, 562 (D.C. Cir. 2002). Fourth, and finally, the plaintiffs

contend that the rule is impermissibly retroactive. Pls.’ Mot. at 28-30. More specifically,

although the rule applied to the three relevant services furnished beginning on January 1, 1999,

the agency did not promulgate it until April 7, 2000. Id.

       The defendant’s portrayal of the case differs sharply from the plaintiffs’. He first contests

the plaintiffs’ assertion that the rule violates the statute’s plain language because the BBA

expressly terminated application of the blend rate effective January 1, 1999. See Pls.’ Mot. at 14-

15. In the defendant’s view, because Congress envisioned that the blend rate would sunset and

be replaced by the PPS on January 1, 1999, it is merely silent as to what payment method applied

to the services in question from January 1, 1999 through July 31, 2000. Def.’s Cross-Mot. at 19-

22. This distinction is pivotal because when Congress is silent or leaves a gap for the agency to

fill, as the defendant maintains Congress did here, it presents a quintessential case calling for

Chevron deference. Id.

       The defendant also observes that the BBA provided for the sunset not only of the blend


6
       The plaintiffs did not address the defendant’s contention, Def.’s Cross-Mot. at 31, that the
       plaintiffs waived this argument by failing to raise it during the notice and comment period, see
       generally Pls.’ Reply. The court deems the plaintiffs to have conceded this point. See Twelve
       John Does v. District of Columbia, 117 F.3d 571, 577 (D.C. Cir. 1997) (noting that arguments
       not addressed are treated as conceded).


                                                   10
rate, but also of the reasonable cost rate effective January 1, 1999. Id. at 24-25. Therefore, if

extending the blend rate through July 31, 2000 violated the plain language of the BBA, then

extending the reasonable cost rate would also have violated the statute. Id. at 25. And in a

related argument, the defendant disputes the plaintiffs’ contention that Congress expressed its

preference for the reasonable cost rate by extending the cost reduction factors, which the

plaintiffs maintain apply solely to the reasonable cost rate. Id. at 25-26. First, the defendant

counters the plaintiffs’ assertion that the cost reduction factors apply only to the reasonable cost

rate by pointing out that the reasonable cost is part of the blend rate calculus. Id. at 26. In any

event, the defendant avers that had Congress intended to extend the reasonable cost rate, it would

have done so explicitly, rather than merely implying its intent to extend the reasonable cost rate

by extending application of the cost reduction factors.7 Id.

       The defendant then takes aim at the plaintiffs’ central argument, namely that the rule

extending application of the blend rate violated clear legislative intent because the BBA

established that the blend rate would sunset on January 1, 1999. See Pls.’ Mot. at 14-20. From

the defendant’s point of view, Congress did not intend to terminate the existing payment methods

before the PPS was implemented. Def.’s Cross-Mot. at 22-24. Rather, the provision setting

January 1, 1999 as the sunset date for the blend rate was expressly denoted as a mere

“conforming amendment” appended to the section authorizing the enactment of the PPS. Id. at

23. The defendant asserts, in other words, that the sunset provision demonstrated Congress’s

intent to seamlessly replace the blend rate with the PPS, as opposed to proving, as the plaintiffs

7
       The plaintiffs respond to this argument in their reply by surmising that Congress meant to
       expressly extend application of the reasonable cost rate, but inadvertently failed to as the result
       of a “drafting error.” Pls.’ Reply at 13.


                                                    11
allege, that Congress intended to terminate the blend rate even if the PPS did not go into effect as

planned. Id. Had Congress intended to reverse its decade-long trend away from cost-based

reimbursement and return to the reasonable cost rate, it would have demonstrated that intent

much more clearly than in a “conforming amendment.” Id.

       The defendant next addresses the plaintiffs’ assertions that the rule is not entitled to

Chevron deference and that it erroneously modifies the plain language of the BBA more than

necessary. See Pls.’ Mot. at 20. The defendant argues that the court need not determine what

constitutes the minimum deviation from the statutory language because the rule that the plaintiffs

cite as requiring that analysis is inapplicable here. Def.’s Cross-Mot. at 18. More specifically,

the defendant agrees with the plaintiffs that the fact that Congress failed to articulate what

payment method would apply if the PPS did not go into effect on January 1, 1999 creates a

“statutory anomaly.” Id. But in the defendant’s view, Congress’s silence on this point gives rise

to the principle that when there are two ways of avoiding a statutory anomaly, both of which are

equally consistent with the statutory text and legislative intent, the agency’s choice between the

two equally plausible alternatives is entitled to Chevron deference. Id. at 18-19.

       In the alternative, the defendant argues that the court should uphold the rule even if it

deems the “minimum deviation” test pertinent here because applying the blend rate to the three

services in question from January 1, 1999 through July 31, 2000 constituted the minimum

possible deviation from the plain language of the statute. Id. at 29-31. This assertion is based on

the defendant’s view, discussed above, that Congress intended to continue to apply the blend rate

until the PPS went into effect. Id. at 29. Therefore, to have applied the reasonable cost rate

rather than the blend rate to the interval in question would have marked a departure from clear


                                                 12
congressional intent. Id.

        Based on his reasoning, the defendant also contests the plaintiffs’ final argument, namely,

that the rule was impermissibly retroactive. See Pls.’ Mot. at 28-30. Observing that an agency

rule is impermissibly retroactive only if it attaches new legal consequences or deprives the

plaintiff of a preexisting right, the defendant states that the rule applying the blend rate to the

three relevant services from January 1, 1999 through July 31, 2000 merely maintained the status

quo because the blend rate had been in effect prior to January 1, 1999. Def.’s Cross-Mot. at 33-

34. Therefore, although the rule was enacted after January 1, 1999, it is not impermissibly

retroactive. Id. In contrast, applying the reasonable cost rate beginning on January 1, 1999

would have changed the status quo, and therefore would have been impermissibly retroactive.

Id. The plaintiffs fail to respond directly to this argument, and instead recapitulate their assertion

that the rule was retroactive because it was enacted after January 1, 1999. Pls.’ Reply in Support

of Mot. for Summ. J. & Opp’n to Def.’s Cross-Mot. for Summ. J. (“Pls.’ Reply”) at 27-28.

        The plaintiffs raise two additional arguments in their opposition to the defendant’s cross-

motion for summary judgment and reply in support of their motion for summary judgment. First,

after addressing some of the points raised in the defendant’s cross-motion for summary

judgment, they declare that “[t]he remainder of the arguments” raised by the defendant “warrant

no attention” because they do not reflect the considered judgment of the defendant at the time the

rule was promulgated, and instead constitute mere “post-hoc rationalizations of litigation

counsel.” Id. at 24-25. The defendant counters that the rationale for his position is articulated

clearly in the rule and that his position in this litigation “is precisely the position” that he took in

promulgating the rule. Def.’s Reply in Support of Cross-Mot. (“Def.’s Reply”) at 14-15.


                                                   13
Second, the plaintiffs assert that the rule is arbitrary and capricious because the defendant failed

to acknowledge the comments submitted in favor of the plaintiffs’ position when he promulgated

the rule. Pls.’ Reply at 20-24. In response, the defendant notes that only nine out of the 10,500

comments submitted during the notice and comment period supported the plaintiffs’ position and

avers that the final rule “implicit[ly] reject[ed]” those comments. Def.’s Reply at 16-17.

Because an agency need only state the central reasons for its decision, the enactment of the rule

was not procedurally deficient. Id.

       For the reasons discussed below, the court defers to the defendant’s decision to apply the

blend rate to the three services in question from January 1, 1999 through July 31, 2000. As an

initial matter, the court determines that the plain text of the BBA is silent as to what payment

method would apply from January 1, 1999 through July 31, 2000 in the event the PPS was not

implemented on January 1, 1999. 42 U.S.C. §§ 1395l(a)(2)(B), 1395l(t)(1)(A). Although the

plaintiffs contend that the BBA expressly terminated the blend rate effective January 1, 1999,

Pls.’ Mot. at 15, they draw this conclusion solely from the “conforming amendments” section of

the BBA, which establishes that the blend rate applies to “services . . . furnished before January

1, 1999,” 42 U.S.C. § 1395l(a)(2)(B). Plainly, the provision to which this amendment was meant

to “conform” was the new subsection of the BBA, which established that the PPS rate would

apply to “services . . . furnished during a year beginning with 1999.” 42 U.S.C. § 1395l(t)(1)(A).

To interpret the conforming amendment as unambiguously providing for the termination of the

blend rate regardless of whether the PPS was implemented on January 1, 1999 would place more

weight on the amendment than it can reasonably bear. See Springdale Mem. Hosp. Ass’n, Inc. v.

Bowen, 818 F.2d 1377, 1386 (8th Cir. 1987) (citing CBS, Inc. v. FCC, 453 U.S. 367, 381-81


                                                 14
(1981) (holding that nothing in the legislative history indicated that Congress intended a mere

conforming amendment to have the “radical effect” of changing Congress’s approach with

respect to Medicare payments). When the PPS was not implemented on January 1, 1999 as

planned, it created a gap as to what payment method applied, and the defendant properly

promulgated a rule to fill that gap. Cf. Ry. Labor Executives’ Ass’n v. Nat’l Mediation Bd., 29

F.3d 655, 671 (D.C. Cir. 1994) (holding that because Congress had spoken to the precise

question at issue, there was no gap for the agency to fill).

       Thus, the court proceeds to the second step of the Chevron test. Chevron, 467 U.S. at

843. The court’s task is to determine whether the defendant’s decision as to what payment

method applied between January 1, 1999 and July 31, 2000 was reasonable; if it was, the court

must defer to it. Am. Bar Ass’n v. FTC, 430 F.3d 457, 468 (D.C. Cir. 2005) (quoting Chevron,

467 U.S. at 845). To determine whether the rule interpreting the statute was reasonable, the court

examines the defendant’s justification for his construction of the statute. See, e.g., S. Co. Servs.,

Inc. v. FCC, 313 F.3d 574, 580-81 (D.C. Cir. 2002) (analyzing the agency’s reasoning

concerning what interpretation would best effectuate legislative intent). The defendant notes that

the Department had applied the blend rate to the three relevant services for over a decade prior to

1999; therefore, he decided that “continuing the use of existing methodologies until the PPS

could take their place” would effectuate Congress’s intent to have a seamless transition between

the existing methodologies and the PPS. Def.’s Cross-Mot. at 19. The court determines not only

that this was a reasonable decision, but that it was the decision that best effectuated Congress’s

intent. In contrast, the plaintiffs have failed to persuade the court that it would be reasonable for

the defendant to infer that Congress intended to reverse course by departing from the blend rate


                                                  15
and returning to the reasonable cost rate before the PPS was implemented. The thin reed on

which the plaintiffs’ argument rests – that Congress implied its preference for the reasonable cost

rate by extending the cost reduction factors after it discovered that the PPS would not go into

effect on January 1, 1999 – collapses under the weight of the deference to which the defendant is

entitled. See W. Union Int’l, 804 F.2d at 1292 (emphasizing that agency determinations are

entitled to “considerable deference”). Accordingly, the court defers to the decision to apply the

blend rate to the services in question from January 1, 1999 through July 31, 2000.

       In making this determination, the court rejects the plaintiffs’ contention that the rule had

an impermissible retroactive effect. A rule is impermissibly retroactive only if it “attaches new

legal consequences to events completed before its enactment.” Landgraf v. USI Film Prods., 511

U.S. 244, 270 (1994). To determine whether a rule falls into this category, the court must take

into account “familiar considerations of fair notice, reasonable reliance, and settled

expectations.” Id. Here, the plaintiffs do not attempt to persuade the court that the decision to

continue applying the blend rate to the three relevant services from January 1, 1999 through July

31, 2000 disturbed hospitals’ settled expectations. See generally Pls.’ Reply. Nor could they, for

the blend rate had been in effect with respect to those services for over ten years prior to 1999.

42 U.S.C. § 1395l(i)(3); 42 U.S.C. § 1395l(a)(2)(E). Accordingly, the court holds that the rule

did not have an impermissibly retroactive effect. Landgraf, 511 U.S. at 270.

       Finally, the court addresses the plaintiffs’ assertion that the enactment of the rule was

procedurally deficient. The plaintiffs allege that the defendant’s justifications of the rule are

merely “post-hoc rationalizations” not raised when the rule was promulgated. See Pls.’ Reply at

23-24. The court rejects this allegation. While the defendant’s arguments in this litigation


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expand on the points raised in the text of the final rule, his position has not changed. See 65 Fed.

Reg. 18,489-90 (Apr. 7, 2000).

       In addition, the plaintiffs claim the rule is arbitrary and capricious because the defendant

failed to acknowledge the comments submitted in support of the plaintiffs’ position during the

notice and comment period. See Pls.’ Reply at 20-24. But the plaintiffs misconstrue the

defendant’s duty to respond to comments received. An agency need not respond to or explicitly

discuss every comment received “so long as it responds in a reasoned manner to significant

comments received” or explains the rule in a way that implicitly rejects significant comments

received. U.S. Satellite Broad. Co., Inc. v. Fed. Commc’ns Comm’n, 740 F.2d 1177, 1188 (D.C.

Cir. 1984). Here, although the defendant did not respond explicitly to the nine comments

submitted in favor of the plaintiffs’ position (out of more than 10,000 comments received in

total), he did respond in a reasoned manner to the central concerns raised during the notice and

comment period. See 65 Fed. Reg. 18,489-90 (Apr. 7, 2000). Moreover, by explaining that he

believed Congress intended to continue to apply the blend rate until the PPS was implemented,

the defendant implicitly rejected the plaintiffs’ competing proposition, that Congress intended to

apply the reasonable cost rate after January 1, 1999 and before the PPS was implemented. See 65

Fed. Reg. 18,490 (Apr. 7, 2000) (concluding that given the fact that the Y2K crisis delayed

implementation of the PPS, “the most appropriate reading” of the BBA was that “it authorizes

the Secretary to continue to [apply the blend rate] until PPS can be implemented. If the Congress

had known about the Y2K problem at the time it enacted the PPS statute, this is the only rational

approach it could have adopted.”) As a result, the court rejects the plaintiffs’ claim that the rule

was arbitrary and capricious and holds that the defendant properly applied the blend rate to the


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three services in question from January 1, 1999 through July 31, 2000.



                                     IV. CONCLUSION

       For the foregoing reasons, the court denies the plaintiffs’ motion for summary judgment

and grants the defendant’s cross-motion for summary judgment. An Order consistent with this

Memorandum Opinion is separately and contemporaneously issued this 26th day of March, 2009.




                                                     RICARDO M. URBINA
                                                    United States District Judge




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