Nos. 97-1947, 97-1949 and 97-2079
In the Supreme Court of the United States
OCTOBER TERM, 1997
BEVERLY COMMUNITY HOSPITAL ASSOCIATION,
DBA BEVERLY HOSPITAL, ET AL., PETITIONERS
v.
S. KIMBERLY BELSHÉ, DIRECTOR,
CALIFORNIA DEPARTMENT OF HEALTH SERVICES
RICHARD GILMORE, M.D., ET AL., PETITIONERS
v.
DONNA E. SHALALA, ET AL.
CALIFORNIA AMBULANCE ASSOCIATION, ET AL., PETITIONERS
v.
DONNA E. SHALALA, ET AL.
ON PETITIONS FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
BRIEF FOR THE FEDERAL RESPONDENT
IN OPPOSITION IN NOS. 97-1949 AND 97-2079
AND BRIEF FOR THE UNITED STATES AS
AMICUS CURIAE SUPPORTING RESPONDENT
IN NO. 97-1947
SETH P. WAXMAN
Solicitor General
Counsel of Record
FRANK W. HUNGER
Assistant Attorney General
BARBARA C. BIDDLE
ALISA B. KLEIN
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTION PRESENTED
Whether Section 4714 of the Balanced Budget Act of 1997, Pub. L. No. 105-33,
111 Stat. 509-511, clarifies the States' payment obligations to providers
of medical services to qualified Medicare beneficiaries, set forth in the
prior version of the Medicaid Act, 42 U.S.C. 1396a(n) (1994 & Supp.
II 1996).
In the Supreme Court of the United States
OCTOBER TERM, 1997
No. 97-1947
BEVERLY COMMUNITY HOSPITAL ASSOCIATION,
DBA BEVERLY HOSPITAL, ET AL., PETITIONERS
v.
S. KIMBERLY BELSHÉ, DIRECTOR,
CALIFORNIA DEPARTMENT OF HEALTH SERVICES
No. 97-1949
RICHARD GILMORE, M.D., ET AL., PETITIONERS
v.
DONNA E. SHALALA, ET AL.
No. 97-2079
CALIFORNIA AMBULANCE ASSOCIATION, ET AL., PETITIONERS
v.
DONNA E. SHALALA, ET AL.
ON PETITIONS FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
BRIEF FOR THE FEDERAL RESPONDENT
IN OPPOSITION IN NOS. 97-1949 AND 97-2079
AND BRIEF FOR THE UNITED STATES AS
AMICUS CURIAE SUPPORTING RESPONDENT
IN NO. 97-1947
OPINIONS BELOW
This brief is submitted by the Secretary of Health and Human Services in
opposition to three petitions for a writ of certiorari that seek review
of the same judgment of the United States Court of Appeals for Ninth Circuit.
The Secretary was named as a defendant in No. 97-1949 and No. 97-2079, but
participated only as amicus curiae in No. 97-1947. The opinion of the court
of appeals (97-1947 Pet. App. 1a-23a) is reported at 132 F.3d 1259. The
opinions of the district court (97-1947 Pet. App. 24a-29a; 97-1949 Pet.
App. 23a-31a; 97-2079 Pet. App. 26-28) are unreported.
JURISDICTION
The judgment of the court of appeals was entered on December 2, 1997. 97-1947
Pet. App. 30a-32a. A petition for rehearing was denied on March 3, 1998.
The petitions for a writ of certiorari were filed on June 1, 1998. The jurisdiction
of this Court is invoked under 28 U.S.C. 1254(1).
STATEMENT
1. a. Medicare is a federal program that provides for medical coverage for
individuals who are disabled or at least 65 years of age, and who meet certain
other eligibility requirements. Those persons are automatically enrolled
in Part A of the Medicare program, a federally funded hospital insurance
program. See 42 U.S.C. 1395 et seq. (1994 & Supp. II 1996). A provider
of medical services to beneficiaries under Medicare Part A receives a significant
portion of its fee from the federal government, which pays the provider
from the Federal Hospital Insurance Trust Fund established by 42 U.S.C.
1395i.1 The beneficiary is responsible for coinsurance payments and deductible
amounts. See 42 U.S.C. 1395e.
Persons who are covered by Medicare Part A (and certain other persons) may
also purchase supplementary insurance for additional medical services under
Part B of the Medicare program by paying a monthly premium to the Federal
Supplementary Medical Insurance Trust Fund, which is established by 42 U.S.C.
1395t. A provider of medical services to beneficiaries under Medicare Part
B receives a portion of its fee, typically 80% of the applicable fee schedule
amount, from the Supplementary Medical Insurance Trust Fund. The beneficiaries
of Part B services pay (in addition to premiums) coinsurance, copayments
and deductible amounts. 42 U.S.C. 1395l(a)(1) and (b), 1395r.
b. The Medicaid program is a cooperative federal-state public assistance
program that provides federal financial assistance (i.e., federal matching
funds) to States that elect to pay for medical services on behalf of certain
needy individuals. See 42 U.S.C. 1396 et seq. (1994 & Supp. II 1996);
Harris v. McRae, 448 U.S. 297, 301 (1980).2 The Medicaid Act gives participating
States discretion in setting the rates they will pay providers, within boundaries
set by federal law. See 42 U.S.C. 1396a(a)(30). A participating State must
submit a state plan, setting forth the fee schedule or methodology that
the State will use in reimbursing providers, to the Secretary of Health
and Human Services for approval. See 42 U.S.C. 1396a(b). Providers generally
must accept a State's payment for services covered under the Medicaid plan
as payment in full, and may not seek to collect other than nominal payments
for such services from the beneficiary or elsewhere. See 42 U.S.C. 1396o.
c. The Medicare and Medicaid Acts overlap in coverage for needy persons
who are also elderly or disabled. Such individuals are often entitled to
participate in Medicare Part A, but they may not be able to pay either the
premiums needed to enroll in Medicare Part B or the coinsurance, copayments
and deductibles for which they would be responsible under Parts A and B.
To address that problem, Congress has required States participating in the
Medicaid program to enter "buy-in" agreements with the Secretary
of Health and Human Services. Under a buy-in agreement, the States use Medicaid
funds to pay the Medicare Part B premiums on behalf of individuals who are
eligible for both Medicare and Medicaid, and certain other persons who are
eligible for Medicare but do not meet the general eligibility criteria for
Medicaid coverage. See 42 U.S.C. 1395v, 1396d(a). As a result, the State's
Medicaid program pays the Medicare premium, rather than the full medical
expenses, of the elderly or disabled Medicaid-eligible persons, and these
persons are then enrolled in the Medicare B program; the cost of their medical
care thus is shifted in large part from the States' Medicaid programs to
the federal government under Medicare.
Initially, the only persons eligible for this Medicare "cost-sharing"
were those who met the qualifications for both Medicare and Medicaid services
("dual eligibles"). In 1986, Congress extended the class of persons
eligible for the buy-in program to include individuals who have incomes
below the federal poverty line but who do not meet the income and assets
qualifications for Medicaid eligibility. See Omnibus Budget Reconciliation
Act of 1986 (OBRA), Pub. L. No. 99-509, § 9403, 100 Stat. 2053-2054.
Members of this new class of individuals eligible for the buy-in program
were called Qualified Medicare Beneficiaries, or "QMBs." See OBRA
§ 9403(b), 100 Stat. 2053. In 1988, Congress required States' Medicaid
plans to buy-in to Medicare Part B for these individuals (as well as the
"dual eligibles" who had been covered by buy-in agreements before
1986). Medicare Catastrophic Coverage Act of 1988, Pub. L. No. 100-360,
§ 301(a)(1), 102 Stat. 748. Congress also redefined the statutory term
"qualified medicare beneficiary" to include both the former group
of QMBs (a group often called "pure" QMBs) and dual eligibles.
Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, §
8434, 102 Stat. 3805; see 42 U.S.C. 1396d(p)(1).
d. As noted above, Medicare Part B typically leaves individuals responsible
for copayments, coinsurance, and deductible amounts. The elderly poor and
disabled poor who are enrolled in Part B under the buy-in process (the QMBs)
are often unable to meet such expenses. Congress has therefore required
participating States' Medicaid plans to contribute towards those expenses
on behalf of QMBs. See 42 U.S.C. 1396a(a)(10)(E)(i), 1396d(p)(3). The amount
owed by the States to providers of medical services for those expenses is
the subject of this dispute.
The Section of the Medicaid Act that governs the "contents" of
state plans requires that a state plan for medical assistance must "provide
* * * for making medical assistance [i.e., Medicaid funds] available for
medicare cost-sharing" for QMBs. 42 U.S.C. 1396a(a)(10)(E)(i). The
Medicaid Act defines "medicare cost-sharing" to include the specified
premiums, coinsurance, copayments and deductibles owed under Medicare. 42
U.S.C. 1396d(p)(3).
Although Section 1396a(a)(10)(E)(i) thus requires States to make medical
assistance available for Medicare cost-sharing for QMBs, that Section does
not address the amount of cost-sharing to be paid by the States. A different
Section, titled "Payment Amounts," addresses that issue. Before
1997, that Section provided:
In the case of medical assistance furnished under this subchapter for medicare
cost-sharing respecting the furnishing of a service or item to a qualified
medicare beneficiary, the State plan may provide payment in an amount with
respect to the service or item that results in the sum of such payment amount
and any amount of payment made under subchapter XVIII of this chapter [i.e.,
Medicare] with respect to the service or item exceeding the amount that
is otherwise payable under the State plan for the item or service for eligible
individuals who are not qualified medicare beneficiaries.
42 U.S.C. 1396a(n) (emphasis added).
The Secretary of Health and Human Services read Section 1396a(n) to permit
States to limit their cost-sharing payments to the amount (if any) by which
the State's Medicaid rate for the service provided exceeded the amount that
Medicare has paid, and has approved state plans that impose such a cap.3
In essence, the Secretary permitted the States to limit their payments to
the amount that they would have paid for QMBs' medical services under the
Medicaid program, had they not been enrolled in Medicare, less the federal
contribution made under Medicare. Providers of medical services argued,
however, that the Medicaid and Medicare statutes required the States to
pay those expenses in full. Four courts of appeals rejected the Secretary's
construction of the Medicaid Act and ruled that the Act required States
to pay the cost sharing in full. See Rehabilitation Ass'n of Virginia, Inc.
v. Kozlowski, 42 F.3d 1444 (4th Cir. 1994), cert. denied, 516 U.S. 811 (1995)
(Kozlowski); Haynes Ambulance Serv., Inc. v. State of Alabama, 36 F.3d 1074
(11th Cir. 1994) (per curiam) (Haynes); Pennsylvania Med. Soc'y v. Snider,
29 F.3d 886 (3d Cir. 1994) (Snider); New York City Health & Hosps. Corp.
v. Perales, 954 F.2d 854 (2d Cir.), cert. denied, 506 U.S. 972 (1992) (Perales).4
Although those appellate courts each rejected the Secretary's construction
of Section 1396a(n), they disagreed among themselves as to the precise rationale
for the result that they had reached, see 97-1947 Pet. App. 20a, there were
dissents from two of the appellate decisions, see Kozlowski, 42 F.3d at
1462-1472 (Niemeyer, J., dissenting); Perales, 954 F.2d at 863-869 (Cardamone,
J., dissenting), and two district courts upheld the Secretary's construction
even after Kozlowski, the last of the appellate decisions, was issued. See
Dameron Physicians Med. Group v. Shalala, 961 F. Supp. 1326 (N.D. Cal. 1997);
Kulkarni v. Leean, No. 96-C-884-S, 1997 WL 527674 (W.D. Wis. June 23, 1997).
e. In 1997, Congress enacted Section 4714 of the Balanced Budget Act, which
amended 42 U.S.C. 1396a(n). Section 4714(a) is titled "Clarification
Regarding State Liability For Medicare Cost-Sharing." See Balanced
Budget Act of 1997 (BBA or 1997 Act), § 4714(a), Pub. L. No. 105-33,
111 Stat. 509. It provides that, in carrying out its cost-sharing obligations
under Section 1396a(n), "a State is not required to provide any payment
for any expenses incurred relating to payment for deductibles, coinsurance,
or copayments for medicare cost-sharing to the extent that" such payments
would exceed "the payment amount that would otherwise be made under
the State [Medicaid] plan." 42 U.S.C. 1396a(n)(1)(B). Section 4714(a)
thus expressly continues in effect the Secretary's longstanding position
under the applicable Medicaid provisions as they existed before the enactment
of the 1997 Act. As its title states, Section 4714(a) was enacted to "[c]larif[y]
that state Medicaid programs may limit Medicare cost-sharing to amounts
that, with the Medicare payment, do not exceed what the state's Medicaid
program would have paid for such service to a recipient who is not a QMB."
H.R. Conf. Rep. No. 217, 105th Cong., 2d Sess. 870-871 (1997).
Congress also provided that the clarification in Section 4714(a) would apply,
not only prospectively, but also to payments for items and services rendered
before the effective date of the clarification, if such payments were the
subject of any lawsuit pending as of, or initiated after, the date of enactment.
See BBA § 4714(c), 111 Stat. 511; 97-1947 Pet. App. 38a. The amendment
does not apply, however, to payments that were the subject of cases challenging
the Secretary's interpretation of the Medicaid Act prior to passage of the
1997 Act that had been litigated to final judgment.
2. a. Before the 1997 amendments were passed, petitioners, who provide medical
services to QMBs in California, brought these actions to compel the California
Medicaid program to pay cost-sharing for QMBs in full. Petitioners challenged
California's policy, reflected in state regulations and in a state plan
approved by the Secretary, of limiting cost-sharing payments to the amount
(if any) by which the California Medicaid rate exceeds what Medicare pays.
Petitioners argued, inter alia, that the Medicaid Act required the State
to pay cost-sharing in full.
The same district judge presided in each case. The district court granted
petitioners' motions for summary judgment, following the Second, Third,
and Eleventh Circuit decisions that had rejected the Secretary's construction
of the Medicaid Act, and also adopting the "similar reasoning"
of the Fourth Circuit, except in part. See 97-2079 Pet. App. 26-28; see
also 97-1947 Pet. App. 27a-29a; 97-1949 Pet. App. 20a-23a.
b. The Secretary appealed the district court's decisions. After briefing
on appeal was complete, Congress enacted Section 4714 of the Balanced Budget
Act of 1997. In supplemental briefing, petitioners urged that Section 4714
changed rather than clarified the prior payment rules, and that the retroactive
application of the new payment rules was unconstitutional.5 The court of
appeals reversed. It held that Section 4714 clarified the law, and that
it therefore has no retroactive effect that might be called into constitutional
question. 97-1947 Pet. App. 1a-23a.6
The court emphasized that "Congress expressly (and formally) stated
as its intention that the new provision in [BBA] § 4714 was a 'clarification'
of the payment rules contained in Section 1396a(n). It has been established
law since nearly the beginning of the republic * * * that congressional
legislation that thus expresses the intent of an earlier statute must be
accorded great weight." 97-1947 Pet. App. 18a. The court remarked that
some of this Court's decisions have "question[ed] the competence of
a later Congress to opine on the intended meaning of an earlier statute,"
but it observed that those decisions "involved attempts to use less
formal types of subsequent legislative history, particularly Senate and
House Committee Reports, to infer the meaning of prior enactments."
Ibid. "By contrast, here Congress has formally declared [BBA] §
4714 to be a clarification of Section 1396a(n) in the title of the Act as
well as in the Committee Reports." Id. at 19a.
The court rejected petitioners' argument that Section 4714(a) could not
be a clarification of the law because it effected a substantial change in
the law. That argument, the court held, failed to take account of the differences
in rationales among the decisions construing Section 1396a(n); it also ignored
the fact that "any quality of crystal clarity is uniformly recognized
as totally absent from the Medicaid and Medicare statutes," which have
been characterized as "among the most completely impenetrable texts
within human experience." 97-1947 Pet. App. 19a-20a. The court found
Section 1396a(n) itself to be "a superb example of the baffling nature
of the statute." Id. at 20a. "Given the extraordinary difficulty
that the courts have found in divining the intent of the original Congress,
a decision by the current Congress to intervene by expressly clarifying
the meaning of Section 1396a(n) is worthy of real deference," and petitioners'
arguments that the law changed rather than clarified the law "incorrectly
presume a clearly established meaning for Section 1396a(n)-something that
simply did not exist before [BBA] § 4714 was adopted." Id. at
20a-21a.
The court therefore "honor[ed]" Congress's express description
of Section 4714(a) as a clarification of the law. 97-1947 Pet. App. 21a.
That decision, observed the court, "moots all of [petitioners'] constitutional
objections to the new legislation, because those objections rest entirely
on the assertedly retroactive, rather than declaratory, nature of [BBA]
§ 4714." Ibid.
ARGUMENT
The court of appeals correctly concluded that Section 4714(a) of the Balanced
Budget Act of 1997 clarified rather than changed existing law governing
States' obligations under their Medicaid plans to pay for Medicare cost-sharing,
and therefore raises no potential constitutional questions of retroactivity.
That decision does not conflict with any decision of any other court of
appeals, and it presents no issue of continuing importance. Furthermore,
even if Section 4714(a) changed the law, petitioners' constitutional claims
would lack merit. Further review is therefore not warranted.
1. In enacting Section 4714(a), Congress ratified the Secretary's longstanding
position that a State may limit its cost-sharing payments to the difference
between the State's Medicaid rate and the amount that Medicare pays for
a given service. Because the Secretary's construction of prior law was correct
and reasonable, Section 4714 did not change the law and therefore raises
no questions of retroactivity.
"The power of an administrative agency to administer a congressionally
created * * * program necessarily requires the formulation of policy and
the making of rules to fill any gap left, implicitly or explicitly, by Congress."
Morton v. Ruiz, 415 U.S. 199, 231 (1974). Accordingly, as this Court held
in Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467
U.S. 837 (1984), where Congress has not expressed its intention on a precise
question at issue, courts should defer to a reasonable interpretation of
the statute in question by the agency charged with administering the program
under that statute. Id. at 844.
The Secretary's position on the extent of the States' cost-sharing obligations
was reasonable. Section 1396a(a)(10)(E)(i) imposed upon the States the obligation
to provide "for making medical assistance available for cost-sharing
* * * for qualified medicare beneficiaries." That provision, however,
did not specify any particular amount that States must make available for
cost-sharing. Section 1396a(n), titled "Payment Amounts," did
address the issue of amount, and provided that a State "may" pay
cost-sharing even if the sum of the federal Medicare payment and the state
payment exceeded the amount otherwise payable under the state Medicaid plan
to eligible individuals who are not QMBs. The Secretary reasonably construed
Section 1396a(n) to permit, but not to require, States to pay cost-sharing
in excess of the State's Medicaid rate. The Secretary's construction flowed
naturally from the language of the Medicaid Act, since there was no other
apparent reason for Congress to have provided in the Medicaid Act that a
State "may" pay more cost-sharing than the difference between
the State's Medicaid rate and the amount that Medicare pays.
Petitioners emphasize that three of the four courts of appeals that rejected
the Secretary's construction of Section 1396a(n) read that provision as
providing only that providers (or States) would not be penalized for accepting
(or making) payments that, with the Medicare payment, exceeded the Medicaid
rate. See Perales, 954 F.2d at 859; Snider, 29 F.3d at 895; Haynes, 36 F.3d
at 1076. As the Seventh Circuit recently explained, however, those readings
of the Medicaid Act are "undermined by the fact that if [as petitioners
argue] * * * the statute clearly entitle[d] [petitioners] to reimbursement
at Medicare rates, * * * the state [or provider] could hardly be penalized
for such reimbursement. That would be penalizing it for complying with the
statute." Paramount Health Sys. v. Wright, 138 F.3d 706, 709 (7th Cir.
1998), petition for cert. pending, No. 97-2029.7 As Judge Niemeyer pointed
out in his dissent in Kozlowski, "[i]t is utterly implausible * * *
to believe that Congress would create a new section in the Act solely to
acknowledge that it is permissible for states to do what Congress requires
them to do in other sections." 42 F.3d at 1469.
The Secretary's construction, moreover, comports with the purpose of the
buy-in provisions, which is to relieve the States from the financial obligations
that they would have to shoulder under their Medicaid plans if QMBs were
not able to participate in the Medicare Part B program. Specifically, the
Secretary's construction recognizes that, if the States did not buy QMBs
into Medicare, the States would be required to pay for the medical care
of at least those QMBs who are eligible for Medicaid, at whatever their
Medicaid rates would allow. It is therefore reasonable to conclude that
the States should not have to pay for medical services at a rate that is
higher than the rate at which their own Medicaid plans would otherwise have
required payment.
The legislative development of the provisions at issue further supports
the reasonableness of the Secretary's construction. When Congress made buy-in
coverage of all QMBs mandatory in 1988, the House Report accompanying the
legislation specifically stated that States would not be required to make
payments in excess of their Medicaid ceilings. See H.R. Rep. No. 105(II),
100th Cong., 2d Sess. 61 (1988). In 1989, Congress again amended the QMB
provisions to "codif[y] the current practice with respect to dual eligibles
and extend[] it to qualified Medicare beneficiaries." H.R. Rep. No.
247, 101st Cong., 1st Sess. 429 (1989). It did so, inter alia, by requiring
physicians to accept assignments of claims from QMBs for the specific purpose
of preventing physicians from exceeding the Medicaid ceilings by billing
QMB patients directly for such additional amounts. Ibid.; see 42 U.S.C.
1395w-4(g)(3); Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239,
§ 6102(a), 103 Stat. 2169. Thus, Congress has treated QMBs principally
as persons eligible for Medicaid benefits, but whose medical expenses are
paid in large part by Medicare.
Even if the Medicaid Act is less than crystal clear on the extent of state
Medicaid plans' obligations to pay for cost-sharing, it cannot be reasonably
contended that the law was so clear and firmly settled against the Secretary's
construction that Section 4714(a) must be viewed as a change in the law,
despite Congress's express designation of it as a clarification. This Court,
of course, had never considered the statutory question at issue. Although
four circuits had rejected the Secretary's construction, they had not read
the statutes in the same way, and neither the Seventh Circuit nor the Ninth
Circuit-where the constitutional challenges to Section 4714(a) have been
brought-addressed the statutory question. Two district courts had disagreed
with the four circuits' construction of the Medicaid Act and had upheld
the Secretary's position.
At a minimum, therefore, the Medicaid Act was "a hopeless muddle so
far as [QMB] reimbursement [was] concerned." Paramount, 138 F.3d at
711; see also Kozlowski, 42 F.3d at 1450 (describing provisions governing
Medicaid and Medicare financing as "among the most impenetrable texts
within human experience"); 97-1947 Pet. App. 19a-20a (decision below;
same). "[T]he fact that well-intentioned and intelligent experts at
legal exegesis have arrived at three or four seemingly plausible readings
of a particular text may be the best evidence that this interpretive puzzle
has no definitive answer." Kozlowski, 42 F.3d at 1462-1463 (Niemeyer,
J., dissenting). Under these circumstances, Congress's designation of Section
4714(a) as a clarification, rather than a change, of the States' obligations
under the Medicaid Act, deserves deference.
2. Petitioners urge the Court to grant certiorari to clarify how much weight
should be given to a congressional interpretation of prior law, as reflected
in a statutory amendment. Petitioners argue that there is tension in this
Court's precedents addressing the issue. See 97-1947 Pet. 12-17; 97-1949
Pet. 18-21; 97-2079 Pet. 18-23. That issue is not presented in this case,
however, because the Secretary reasonably construed the prior law to arrive
at the result that Congress subsequently directed in Section 4714(a). Accordingly,
the question of the weight owed to Congress's view, as expressed in Section
4714(a), that the new statute is a "clarification," is academic.
At the least, this Court could not reject Congress's view that Section 4714
clarifies prior law without first analyzing the complex and now-superseded
pre-1997 framework governing state payment of cost-sharing for QMBs, and
determining whether the Secretary's construction of those provisions would
have been owed deference under Chevron. That antecedent question of statutory
interpretation, however, is of no continuing importance.
Moreover, the asserted tension in this Court's decisions is illusory. This
Court has stated that express congressional declarations in legislation
about the meaning of an earlier statute are given great weight, but that
statements in "subsequent legislative history" such as committee
reports about the meaning of earlier legislation are not. Compare, e.g.,
Loving v. United States, 517 U.S. 748, 769-770 (1996) (legislation), and
Red Lion Broad. Co. v. FCC, 395 U.S. 367, 380-381 (1969) (same); with, e.g.,
Public Employees Retirement Sys. v. Betts, 492 U.S. 158, 167-168 (1989)
(legislative history); Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found.,
484 U.S. 49, 63 n.4 (1987) (same); Consumer Prod. Safety Comm'n v. GTE Sylvania,
447 U.S. 102, 116-118 & n.13 (1980) (same); United States v. Philadelphia
Nat'l Bank, 374 U.S. 321, 348-349 (1963) (same); and United States v. United
Mine Workers, 330 U.S. 258, 281-282 (1947) (same).
In its Paramount decision, the Seventh Circuit identified two cases, South
Dakota v. Yankton Sioux Tribe, 118 S. Ct. 789 (1998), and Rainwater v. United
States, 356 U.S. 590 (1958), in which this Court declined to give weight
to subsequent legislation in construing earlier enactments. See Paramount,
138 F.3d at 711. These cases are readily reconciled with the Loving line
of authority. In Yankton Sioux Tribe, the subsequent legislative materials
made contradictory statements about the effect of the prior law at issue,
and the Court therefore declined to give those materials significant weight.
See 118 S. Ct. at 804 (emphasizing that legislative record "reveals
no consistent, or even dominant, approach to the territory in question,
and it carries but little force in light of the strong textual and contemporaneous
evidence of diminishment") (internal quotation marks omitted). Although
the Court did state in that case that "the views of a subsequent Congress
form a hazardous basis for inferring the intent of an earlier one,"
see id. at 803 (quoting Philadelphia Nat'l Bank, 374 U.S. at 348-349), it
did not suggest that subsequent legislation should never be given heed in
determining the scope of an earlier law passed by Congress.
Rainwater involved the applicability of the False Claims Act to civil claims
against a wholly owned government corporation. It was argued in that case
that Congress's amendment of the criminal (but not the civil) provisions
of the Act in 1918, to cover "any corporation in which the United States
of America is a stockholder," suggested that the 1863 Congress that
enacted the False Claims Act did not intend it to apply to any government
corporations. The Court found the 1918 legislation not probative of the
scope of the original Act because the amendment was evidently concerned
with different kinds of corporations, in which the government might have
an ownership interest, and not wholly owned government corporations. See
Rainwater, 356 U.S. at 593-594. The Court did not suggest that subsequent
legislation is per se irrelevant to the scope of an earlier statute; rather,
it simply found the subsequent legislation in that case not probative.
This case is readily distinguishable from Rainwater and Yankton. In this
case, Congress has unmistakably addressed the precise statutory question
at hand in legislation. Petitioners therefore do not dispute that, prospectively
at least, the amendments made by Section 4714(a) definitively define the
scope of States' cost-sharing obligations. Under these circumstances, the
lower court correctly concluded that Congress's clarification of Section
1396a(n) in 1997 deserved great deference in defining the earlier scope
of that law.8
3. Petitioners argue that Section 4714 effects an unconstitutionally retroactive
change in the law governing the States' cost-sharing obligations to providers
under the Medicaid Act. That contention, however, necessarily depends on
petitioners' characterization of Section 4714(a) as a change in the law
rather than a clarification. Because, as we have explained, Section 4714(a)
did clarify prior law, petitioners' constitutional arguments are not properly
presented. For the same reason, the court of appeals had no occasion to
address petitioners' constitutional arguments.
Even if petitioners' constitutional challenges were properly presented,
they would lack merit. Petitioners first argue that the application of Section
4714 to their cases would violate the separation of powers principle set
forth in United States v. Klein, 80 U.S. (13 Wall.) 128 (1872), by directing
the outcomes of their cases. See 97-1947 Pet. 17-24; 97-1949 Pet. 21-25.
This Court has made clear, however, that "[w]hatever the precise scope
of Klein, * * * its prohibition does not take hold when Congress 'amend[s]
applicable law.'" Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 218
(1995) (quoting Robertson v. Seattle Audubon Soc'y, 503 U.S. 429, 441 (1992)).
Without question, Section 4714(a) amended the law applicable to States'
cost-sharing obligations to providers of medical services, and did not simply
direct the outcomes of these particular cases. That point is underscored
by the fact that Section 4714's amendment to Section 1396a(n) applies prospectively
as well as to pending cases. Section 4714 therefore "did amend applicable
law," Seattle Audubon Soc'y, 503 U.S. at 441, and Klein has no relevance
to this case.
Petitioners' takings and due process challenges to Section 4714 under the
Fifth Amendment are also without merit. As explained above, under Medicaid,
the States, with the financial assistance of the federal government's matching
funds, provide medical assistance to the needy. The Secretary read the pre-1997
Medicaid Act to permit States to limit their cost-sharing payments to the
difference between the State's Medicaid rate and the amount that Medicare
would pay for a given service. California had chosen to exercise that option
in its state plan. Even if Section 4714 changed the law, the change simply
ratified the payment rules already set forth in California law; it did not
change the amount that the federal government would pay providers. Because
Section 4714 did not affect any contractual obligation of the federal government
to petitioners, the cases on which they principally rely concerning contractual
obligations of the federal government to private parties, United States
v. Winstar Corp., 518 U.S. 839 (1996), Perry v. United States, 294 U.S.
330 (1935), and Lynch v. United States, 292 U.S. 571 (1934), are inapposite.9
Thus, the only question is whether Section 4714 effected an unconstitutional
taking or violated due process if (by hypothesis) it reduced the amount
of cost-sharing that the States legally owed providers for services already
rendered. As this Court recently reaffirmed, "a party challenging governmental
action as an unconstitutional taking bears a substantial burden." Eastern
Enterprises v. Apfel, 118 S. Ct. 2131, 2146 (1998) (plurality opinion);
see id. at 2156-2157 (Kennedy, J., concurring in the judgment and dissenting
in part). Although a plurality of the Court in Eastern Enterprises held
that the statute under review there effected an unconstitutional taking
without just compensation, five members of the Court explicitly disagreed
with that conclusion. In any event, the plurality did not disavow any of
the Court's earlier takings cases reaffirming that Congress has "considerable
leeway" (id. at 2149) in enacting social and economic legislation,
even if that legislation has a retroactive effect. See id. at 2147-2149
(discussing Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211 (1986),
and Concrete Pipe & Prods. of Cal. v. Construction Laborers Pension
Trust for Southern Cal., 508 U.S. 602 (1993)).
Application of that settled jurisprudence leads to the conclusion that Section
4714 is constitutional. In determining whether governmental regulation amounts
to a taking, this Court considers the economic impact of the regulation,
its interference with investment-backed expectations, and the character
of the governmental action. See, e.g., Eastern Enterprises, 118 S. Ct. at
2146 (plurality opinion); Connolly, 475 U.S. at 224-225. All three factors
point to a conclusion that Section 4714(a) did not effect a taking. As for
the economic impact of the legislation, whereas one plaintiff in Connolly
had been assessed nearly 25% of that firm's net worth, see 475 U.S. at 222,
petitioners have made no effort to show that Section 4714 would have a comparable
economic impact on them. On the issue of investment-backed expectations,
the law challenged in Connolly expanded the employers' obligation to pay
benefits, even though those employers had contracts expressly limiting their
obligations to pay benefits. See id. at 218. In contrast, the California
Medicaid plan put petitioners on notice that payment would be limited to
the amount by which California's Medicaid rate exceeded what Medicare pays.
See California Med. Ass'n v. Lackner, 172 Cal. Rptr. 815, 819 (Ct. App.
1981) (California Medicaid rules constitute a promise to pay providers "at
the rates set forth therein") (emphasis added). Thus, at the time petitioners
provided medical services, they had only their hope that their contested
reading of the Medicaid Act would ultimately prevail and supersede their
contracts with the State. Finally, as for the character of the government
regulation at stake, Section 4714, like the statute upheld in Connolly,
does not permit the government to "physically invade or permanently
appropriate any of the [petitioners'] assets for its own use," Connolly,
475 U.S. at 225, nor does it have a severely retroactive effect out of proportion
to petitioners' own experience, cf. Eastern Enterprises, 118 S. Ct. at 2149-2150
(plurality opinion). Petitioners' takings claim is therefore without basis.
Petitioners' due process challenge is similarly without merit. That argument
ignores Congress's broad power to enact legislation "adjusting the
benefits and burdens of economic life" and to make such legislation
retroactive. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976).
Such legislation comes to a court "with a presumption of constitutionality,
and * * * the burden is on one complaining of a due process violation to
establish that the legislature has acted in an arbitrary and irrational
way." Ibid. Retroactive economic legislation passes due process scrutiny
as long as "the retroactive application of the legislation is itself
justified by a rational legislative purpose." Pension Benefit Guar.
Corp. v. R.A. Gray & Co., 467 U.S. 717, 730 (1984).
Congress plainly had rational bases for making Section 4714 retroactive.
First, Section 4714 conformed federal law to the state-law contract between
providers and those States (like California) that had limited their cost-sharing
payments to the difference between the State's Medicaid rate and the amount
that Medicare paid. Second, Section 4714 conformed the law to the States'
expectations, which were formed by the Secretary's longstanding construction
of the Medicaid Act and by the Secretary's approval of state plans adhering
to that construction. Finally, it was rational for Congress simply to "correct
the unexpected results" of the decisions that rejected the Secretary's
construction of Section 1396a(n). General Motors Corp. v. Romein, 503 U.S.
181, 191 (1992). Petitioners' due process challenge thus lacks merit.10
CONCLUSION
The petitions for a writ of certiorari should be denied.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
FRANK W. HUNGER
Assistant Attorney General
BARBARA C. BIDDLE
ALISA B. KLEIN
Attorneys
SEPTEMBER 1998
1 We use the term "provider" in this brief "in its colloquial
sense rather than in its technical Medicare senses," as did the Seventh
Circuit in the related case of Paramount Health Systems, Inc. v. Wright,
138 F.3d 706, 706 (1998), petition for cert. pending, No. 97-2029.
2 Federal financial participation is calculated according to a statutory
formula that pays, at a minimum, 50% of the State's costs. 42 U.S.C. 1396b(a)(1),
1396d(b).
3 It is undisputed that States must pay Part B premiums in full.
4 The relevant state authorities filed petitions for a writ of certiorari
in Kozlowski and Perales. In the government's responses to the certiorari
petitions in those cases, we argued that, although we believed that the
courts of appeals' decisions were wrong, the absence of a conflict among
the circuits counseled against further review. See 94-1912 Gov't Br. in
Opp. 7-12 (July 1995); 92-315 Gov't Br. in Opp. 7-9 (Oct. 1992).
5 Petitioners did not dispute that the new law could be applied prospectively.
See 97-1947 Pet. App. 18a.
6 The court of appeals rejected petitioners' argument that Section 4714
does not apply to these cases because they were already on appeal when the
Balanced Budget Act of 1997 was enacted, and therefore the cases were not
"pending" within the meaning of Section 4714(c). See 97-1947 Pet.
App. 16a-17a. That argument has not been renewed in this Court.
7 The petition pending in Paramount raises the same question as that presented
here, and our response to that petition is being filed contemporaneously
with this brief.
8 The Seventh Circuit expressed concern that the Loving line of cases would
permit an unsuccessful litigant to obtain a "'clarifying' amendment
that would reverse the interpretation that the district court had given
to [a] statute, even if that meaning was crystal clear" before the
amendment. Paramount, 138 F.3d at 710 (emphasis added). That concern was
misplaced, because nothing in the Loving line suggests that Congress could
in that way alter the meaning of a "crystal clear" statute. Nor
is that concern presented here: by the Seventh Circuit's own characterization,
the prior rules governing QMB reimbursement were not "crystal clear"
but a "hopeless muddle." Id. at 711.
9 Petitioners' assertion that Congress made Section 4714 retroactive to
save matching funds is both irrelevant and unsupported. Matching funds are
owed to States, not to providers (see 42 U.S.C. 1396b (1994 & Supp.
II 1996)); they do not affect the amount of compensation that providers
receive for their services from the States. Moreover, Section 4714(a) is
permissive. If all the States choose to pay cost-sharing in full, the federal
government would still match those payments. Thus, any savings of matching
funds would be, at most, "merely incidental" to Congress's regulatory
objectives. See Winstar, 518 U.S. at 898.
10 Petitioner Gilmore asserts that retroactive application of Section 4714
violates the Contract Clause. See 97-1949 Pet. 25-28. It is well established,
however, that Congress is not subject to the requirements of the Contract
Clause. See, e.g., R.A. Gray, 467 U.S. at 732-733.