Bethesda Health, Inc., Doing Business As Bethesda Memorial Hospital v. Alex M. Azar, Ii, in His Official Capacity As Secretary of Health and Human Services

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 11, 2020 Decided November 13, 2020

No. 19-5260

B
ETHESDA HEALTH, INC., DOING BUSINESS AS BETHESDA
MEMORIAL HOSPITAL, ET AL.,
A
PPELLEES

v.

A
LEX M. AZAR, II, IN HIS OFFICIAL CAPACITY AS SECRETARY
OF
HEALTH AND HUMAN SERVICES,
A
PPELLANT

Appeal from the United States District Court
for the District of Columbia
(No. 1:18-cv-00875)

Jennifer L. Utrecht, Attorney, U.S. Department of Justice,
argued the cause for appellant. With her on the briefs were
Mark B. Stern, Attorney, Robert P. Charrow, General Counsel,
U.S. Department of Health & Human Services, Janice L.
Hoffman, Associate General Counsel, Susan Maxson Lyons,
Deputy Associate General Counsel for Litigation, and Debra
M. Laboschin, Attorney.

Ashley C. Parrish argued the cause for appellees. With
him on the brief were Mark D. Polston, Christopher P. Kenny,
and Gabriel Krimm.

2

Before: S
RINIVASAN, Chief Judge, KATSAS, Circuit Judge,
and G
INSBURG, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge
G
INSBURG.

G
INSBURG, Senior Circuit Judge: The Social Security Act
provides hospitals treating a disproportionate number of
patients under Medicaid with a higher rate of reimbursement
under Medicare. 42 U.S.C. § 1395ww(d)(5)(F). In calculating
the proportion of treatment a hospital provided to Medicaid
patients (the Medicaid fraction), the statute and relevant
regulations permit the hospital to include not just patients
covered under traditional Medicaid plans, but also patients
eligible for treatment under experimental Medicaid
“demonstration projects” approved by the Secretary of Health
and Human Services. See id.; 42 C.F.R. § 412.106(b)(4).

In calculating their Medicaid fractions, the plaintiff
hospitals sought to include days of care funded by Florida’s
Low Income Pool, an approved Medicaid demonstration
project. Through the Low Income Pool, the State of Florida
and the federal government jointly reimbursed hospitals for
care provided to uninsured and underinsured patients. The
Secretary, however, refused to allow the hospitals to include
these patients in their Medicaid fraction, on the ground that the
patients were treated out of charity rather than as designated
beneficiaries of a demonstration project.

The district court disagreed with the Secretary’s analysis.
Bethesda Health, Inc. v. Azar, 389 F. Supp. 3d 32 (2019). As
the court explained, the Secretary’s own regulation states that,
for the purposes of calculating the Medicaid fraction,
“hospitals may include all days attributable to populations
eligible for [Medicaid] matching payments through a

3

[demonstration project]” so long as the services provided under
the demonstration project include “inpatient hospital services.”
42 C.F.R. § 412.106(b)(4)(i) -(ii). It was “obvious to the [c]ourt
that uninsured and underinsured patients received inpatient
hospital services” through the Low Income Pool, because (1)
the Secretary authorized federal matching funds to reimburse
hospitals for these services, and (2) the hospitals rigorously
documented the services provided using funds from the Pool.
Bethesda, 389 F. Supp. 3d at 45.

The district court found the Secretary’s arguments to the
contrary unpersuasive. The Secretary argued the text of the
regulation allows hospitals to include days of care provided
under a demonstration project only if the project entitles
specific patients to specific benefit packages. Id. at 47-48. As
the court noted, however, this is not what the regulation says.
Rather, a patient must have been “eligible for inpatient
services,” meaning the demonstration project enabled the
patient to receive inpatient services, regardless whether the
project gave the patient a right to these services or allowed the
patient to enroll in an insurance plan that provided the services.
Id. at 43-44, 47-48. Here, it is not disputed the patients who
received inpatient care were eligible to do so because each was
either uninsured or underinsured. Id. at 48. The court also
rejected the Secretary’s reliance upon Adena Reg’l Med. Ctr. v.
Leavitt, 527 F.3d 176 (D.C. Cir. 2008), as that case did not
involve a demonstration project. Bethesda, 389 F. Supp. 3d at
51-52.

Just last year, the Fifth Circuit considered the same issues
in another case in which the Secretary tried to exclude from the
Medicaid fraction days of care funded through an
“uncompensated care pool” created by a demonstration project.
Forrest Gen. Hosp. v. Azar, 926 F.3d 221 (2019). The pool
reimbursed hospitals in Mississippi for services provided to

4

uninsured patients affected by Hurricane Katrina, but did not
entitle specific patients to specific services. Id. at 226. The
Secretary made arguments nearly identical to those he presents
here, but the Fifth Circuit held the “plain regulatory text
demands that such days be included — period.” Id. at 234
(citing HealthAlliance Hosps., Inc. v. Azar, 346 F. Supp. 3d 43,
60 (D.D.C. 2018)). The district court here reached the same
well-reasoned conclusion.

We see no flaw in Judge Collyer’s analysis and therefore
embrace the district court’s opinion as the law of this circuit.
The judgment of the district court is, accordingly,

Affirmed.