## Facts

- Medicare’s Inpatient Prospective Payment System (IPPS) reimburses most hospitals using a standardized national base amount (“federal-rate”) and some hospitals using hospital-specific historical costs (“hospital-specific rate”), both multiplied by DRG weights.
- In 2007, HHS revised DRG classifications and weights, producing unintended overpayments.
- Congress expressly authorized the Secretary to offset DRG-related overpayments by adjusting the standardized amount used for federal-rate hospitals. 42 U.S.C. § 1395ww(d)(3)(A)(vi).
- The Secretary also invoked a separate, broad grant to create “other exceptions and adjustments” to IPPS payment amounts. 42 U.S.C. § 1395ww(d)(5)(I)(i).
- Using that broad authority, the Secretary implemented an offset that spread the financial impact of correcting overpayments across both federal-rate and hospital-specific-rate hospitals.
- Hospital-specific-rate hospitals challenged the offset, arguing Congress authorized only a standardized-amount adjustment and did not permit reducing their payments.
- The district court dismissed the hospitals’ challenge, and the hospitals appealed.

## Issues

1. Whether § 1395ww(d)(3)(A)(vi) implicitly limited the Secretary to adjusting only the standardized amount to offset DRG-related overpayments, thereby barring an offset applied to hospital-specific-rate hospitals.
2. Whether § 1395ww(d)(5)(I)(i) independently authorized the Secretary to impose an offset affecting hospital-specific-rate hospitals to correct DRG-related overpayments.

## Decision

- The D.C. Circuit affirmed the judgment for the Secretary.
- The court held that § 1395ww(d)(3)(A)(vi) did not displace the Secretary’s broader adjustment authority under § 1395ww(d)(5)(I)(i).
- The Secretary lawfully exercised discretion to spread the offset across both federal-rate and hospital-specific-rate hospitals.
- The court rejected the hospitals’ claim that Congress’s standardized-amount adjustment was the exclusive mechanism for addressing DRG-related overpayments.

## Legal Principles

- A specific statutory authorization to adjust one component of Medicare IPPS payments does not, without clear language, withdraw a separate broad statutory grant allowing “other exceptions and adjustments” to payment amounts.
- Courts avoid reading later, specific provisions as impliedly repealing or narrowing earlier broad delegations absent unmistakable congressional intent.
- When statutory provisions can be read together coherently, an agency may use both a targeted adjustment tool and a general adjustment authority to address payment effects from program changes.
- Under the Secretary’s broad adjustment authority, HHS may require both federal-rate and hospital-specific-rate hospitals to share the burden of correcting unintended DRG-related overpayments.

## Conclusion

The D.C. Circuit upheld HHS’s 2007 IPPS offset methodology, ruling that Congress’s standardized-amount offset authorization did not foreclose the Secretary from using her separate broad adjustment authority to apply an overpayment correction to hospital-specific-rate hospitals as well.


Adirondack Med. Ctr. v. Sebelius, 740 F.3d 692 (D.C. Cir. 2014)