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Ninth Circuit Says Arizona Not Entitled to $36M in Medicaid Costs December 9, 2007

Posted by rezjudicata in 9th Circuit, Federal Circuits.
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Arizona Health Care v. McClellan, No 05-16386 (9th Cir. Dec. 3, 2007)

Issue(s): Administrative Law > Agency Interpretations of Law >> Chevron Deference; Indian Health Care Improvement Act > Statutory Interpretation >> Medicaid Reimbursement

Section 402(e) of the Indian Health Care Improvement Act (IHCIA) requires the federal government (through Medicaid) to reimburse all Medicaid costs for services “received through an Indian Health Service facility.” The Health Care Financing Administration (HCFA) interprets § 402(e) to mean services an IHS facility offers and bills Medicaid for. Is the meaning of § 402(e) ambiguous; and if so, is the HCFA interpretation reasonable?

The Ninth Circuit answered both questions in the affirmative. As the title of the IHCIA suggests, the Act was meant to improve health care service for Indians. Section § 402(e), in effect, gave IHS facilities a second source of funding beyond congressional appropriations. Tapping into Medicaid, Congress allowed IHS facilities to seek reimbursement for services provided to Medicaid-eligible Indians. Beginning in 1997, the Arizona Health Care System began billing the HCFA under § 402(e) for services provided to Indians who came to the System on an IHS referral. Eventually, Arizona claimed $36 million from the HCFA. The HCFA refused to reimburse Arizona based on its interpretation that § 402(e) did not include IHS referrals.*

The Court analyzed the conflicting interpretations using the so-called “Chevron two-step.” At the heart of the conflict was the meaning of “services received through an IHS facility.” Under Chevron‘s first prong, the Court found that this phrase was susceptible to several interpretations. The phrase could mean services received the physical confines of an IHS facility or as interpreted by the HCFA. Because nothing in the statute itself or the legislative history clarified the scope of § 402(e), the Court found the phrase ambiguous.

Due to the statutory ambiguity, the Court moved to Chevron‘s second prong. Under the second prong, a court may not overrule an agency (in this case the HCFA) interpretation that is reasonable. HCFA did not limit § 402(e) to services provided in the physical confines of an IHS facility. Instead, the agency included instances where the IHS facility used a non-IHS contractor to provide a service.* As long as the IHS facility offered the particular service, HCFA would reimburse the facility. Finding that this interpretation was not arbitrary, capricious, or manifestly wrong, the Ninth Circuit held the HCFA interpretation reasonable. Consequently, the Court ruled that Arizona was not entitled to the $36 million.

*A note on the significance of HCFA’s decision to exclude referrals: When an IHS facility “referred” a patient to an Arizona health care provider, it was because the IHS facility did not offer that service. As a result, IHS never billed Medicaid in those scenarios. HCFA included contracted services because the IHS facility had, in effect, said “we offer X service.” But, instead of performing the service itself, IHS contracted with another facility to perform the actual medical care.

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