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March 9, 1998


The opinion of the court was delivered by: HARRIS

 Before the Court are plaintiffs' motion for summary judgment, defendant's opposition thereto and cross-motion for summary judgment, plaintiff's memorandum in opposition to defendant's cross-motion and in further support of its motion for summary judgment, and defendant's reply in support of its cross-motion for summary judgment. Upon consideration of the entire record, the Court grants plaintiffs' motion and denies defendant's cross-motion. Although "findings of fact and conclusions of law are unnecessary on decisions of motions under Rule 12 or 56," Fed. R. Civ. P. 52(a), the Court nevertheless sets forth its reasoning.


 Originally enacted in 1965, the Medicare program, title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq., provides health benefits to individuals who are over the age of 65, have a qualifying disability, or suffer from end-stage renal disease. Id. at § 1395c. Although defendant has primary responsibility for administering the Medicare program, some of that responsibility has been delegated to the Health Care Financing Administration ("HCFA"). The HCFA, in turn, has entered into agreements with "fiscal intermediaries," under which the intermediaries act as agents of the Secretary by providing payment for services covered by Medicare.

 Among other benefits, Medicare provides coverage for hospital services. In 1983, Medicare abandoned its system of reimbursing service providers for inpatient care according to the reasonable costs that the providers incurred, and adopted a Prospective Payment System ("PPS"). The PPS reimburses providers according to a predetermined set of payment rates for various diagnoses and procedures. 42 U.S.C. § 1395ww(d).

 The PPS allows for numerous adjustments to its basic payment rates. Among them are adjustments for hospitals serving a significantly disproportionate share of low-income patients. Id. at § 1395ww(d)(5)(F). There are two methods for determining eligibility for a disproportionate share hospital ("DSH") adjustment: the "proxy method," id. at § 1395ww(d)(5)(F)(i)(I), and the "Pickle method," id. at § 1395ww(d)(5)(F)(i)(II).

 Under the proxy method, a service provider qualifies for a DSH adjustment if a certain fraction of its total inpatient days are attributable to Medicaid patients and Medicare patients who receive supplemental security income. *fn1" Id. at §§ 1395ww(d)(5)(F)(i)(I), 1395ww(d)(5)(F)(v) and (vi). Under the Pickle method, eligibility turns on a provider's share of net inpatient care revenues received from state and local government sources for indigent care. *fn2" Id. at § 1395ww(d)(5)(F)(i)(II). In particular, the Pickle method provides a DSH adjustment to a hospital that

is located in an urban area, has 100 or more beds, and can demonstrate that its net inpatient care revenues (excluding any of such revenues attributable to this subchapter [Medicare] or State plans approved under subchapter XIX of this chapter [Medicaid]), during the cost reporting period in which the discharges occur, for indigent care from State and local government sources exceed 30 percent of its total of such net inpatient care revenues during the period.

 Id. A hospital eligible for a DSH adjustment under both the proxy and Pickle methods may receive an adjustment under the method producing the greater payment. 51 Fed. Reg. 31458 (1986).

 Plaintiffs are hospitals that provide inpatient services to Medicare recipients and low-income patients. Plaintiffs claimed entitlement to DSH adjustments under the Pickle method for fiscal years 1989-1991. Compl. PP 15-16, at 5. After receiving input on these claims from the HCFA, a fiscal intermediary denied all of plaintiffs' claims for adjustments.

 Pursuant to 42 U.S.C. § 1395oo(a), plaintiffs appealed those decisions to the Provider Reimbursement Review Board ("PRRB"), an administrative body created to mediate Medicare disputes. Before the PRRB hearing, the parties agreed on all but one element of the methodology for determining eligibility for a DSH adjustment under the Pickle method: the intermediary maintained that the net inpatient care revenues used for the denominator include net inpatient care revenues attributable to Medicare and Medicaid; plaintiffs maintained that the net inpatient care revenues in the denominator exclude those net inpatient care revenues attributable to Medicare and Medicaid. *fn3" These divergent constructions turn on whether the "such" in the denominator incorporates the Medicare and Medicaid exclusion from the numerator's parenthetical phrase. On September 13, 1995, the PRRB unanimously reversed the decision of the intermediary and granted plaintiffs' claims. See Administrative Record ("A.R.") at 57-72. Notably, the PRRB concluded that the plain meaning of the statute supported the exclusion of Medicare and Medicaid revenues from the denominator. Id. at 69.

 On November 16, 1995, the HCFA Administrator reversed the PRRB's decision. Id. at 2-12. The Administrator concluded that the statute contained "incontrovertible referential ambiguity" and that the legislative history did not directly address the issues of the case. Id. at 11. The Administrator concluded that, in light of the asserted textual ambiguity, HCFA's original construction of the statute, which included Medicare and Medicaid revenues in the denominator, was "reasonable" and "neither arbitrary nor capricious from a policy standpoint." Id. at 12.

 Plaintiffs filed this action under 42 U.S.C. § 1395oo(f)(1), seeking declaratory and monetary relief. In their motion for summary judgment, which seeks reversal of the Administrator's decision, plaintiffs claim that (1) the Pickle method requires the exclusion of Medicare and Medicaid revenues from the denominator, and (2) the Administrator's decision was contrary to the Medicare statute, arbitrary and capricious, and otherwise contrary to law under the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq. In their cross-motion for summary judgment, defendants contend that (1) Congress has clearly indicated that the denominator of the Pickle method includes Medicare and Medicaid revenues, and (2) even if Congress has not clearly indicated the inclusion of Medicare and Medicaid revenues, defendant's interpretation of the denominator should be upheld as reasonable. Upon consideration of the entire record, the Court grants plaintiffs' motion.


 Summary judgment may be granted only when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Because the issues raised by these motions concern only questions of statutory interpretation, they are appropriate for resolution on a motion for summary judgment.

 For guidance in resolving the pending motions, the Court looks to the framework for reviewing an agency's construction of a statute set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984). Under Chevron, a court must first ascertain "whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." If, however, a court concludes that the statute is ambiguous or silent on the relevant question, ...

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