INGHAM REGIONAL MEDICAL CENTER, MCLAREN NORTHERN MICHIGAN, BAY REGIONAL MEDICAL CENTER, LAKEWOOD HEALTH SYSTEM, GIFFORD MEDICAL CENTER, INC., Plaintiffs-Appellants
UNITED STATES, Defendant-Appellee
from the United States Court of Federal Claims in No.
1:13-cv-00821-MBH, Judge Marian Blank Horn.
Elizabeth Cooley, Pires Cooley, Washington, DC, argued for
plaintiffs-appellants. Also represented by Alexander John
Phyllis Jo Baunach, Commercial Litigation Branch, Civil
Division, United States Department of Justice, Washington,
DC, argued for defendant-appellee. Also represented by
Benjamin C. Mizer, Robert E. Kirschman, Jr., Steven J.
Gillingham; Gerald Anthony Wesley, Defense Legal Services
Agency, United States Department of Defense, Aurora, CO.
Prost, Chief Judge, Dyk and Hughes, Circuit Judges.
Hughes, Circuit Judge.
Regional Medical Center, Mclaren Northern Michigan, Bay
Regional Medical Center, Lakewood Health System, and Gifford
Medical Center, Inc. brought suit against the Government
alleging that they were underpaid for certain outpatient
medical services. The Court of Federal Claims dismissed
Appellants' complaint for failure to state a claim upon
which relief can be granted. We find that Ingham may bring a
claim for breach of contract but that Appellants may not
bring money-mandating claims under 10 U.S.C. §
1079(j)(2) and 32 C.F.R. § 199.7(h)(2) because the
Government's interpretation of the statute was
reasonable. Accordingly, we reverse-in-part, affirm-in-part,
1956, Congress established TRICARE, a military health care
system (previously called the Civilian Health and Medical
Program of the Uniformed Services (CHAMPUS)). TRICARE
provides medical and dental care for current and former
members of the military and their dependents. The Secretary
of Defense is responsible for contracting with outside health
care providers to deliver medical care to TRICARE recipients.
See 10 U.S.C. § 1073(a)(2); 32 C.F.R. §
199.1. Hospitals that provide TRICARE services are reimbursed
in accordance with guidelines set forth by the Department of
Defense (DoD). See 32 C.F.R. § 199.14.
2001, Congress amended the TRICARE statute governing the
reimbursements for outside healthcare providers. The statute
previously permitted, but did not require, DoD to use
Medicare reimbursement rules. The amendment replaced the
permissive word "may" with "shall" such
that the statute read:
The amount to be paid to a provider of services for services
provided under a plan covered by this section
shall be determined under joint regulations
to be prescribed by the administering Secretaries which
provide that the amount of such payments shall be determined
to the extent practicable in accordance with the same
reimbursement rules as apply to payments to providers of
services of the same type under title XVII of the Social
Security Act [Medicare].
10 U.S.C. § 1079(j)(2) (2002) (emphasis
added). Thus, § 1079(j)(2) required TRICARE
to use the same reimbursement rules as Medicare to the extent
responded to the statutory change by issuing an Interim Final
Rule, effective August 12, 2002. TRICARE; Sub-Acute Care
Program; Uniform Skilled Nursing Facility Benefit; Home
Health Care Benefit; Adopting Medicare Payment Methods for
Skilled Nursing Facilities and Home Health Care Providers, 67
Fed. Reg. 40, 597-02 (June 13, 2002). The Interim Final Rule
noted that Medicare was phasing in a new Outpatient
Prospective Payment System (OPPS) methodology for outpatient
services and that DoD:
plan[ned] to follow the Medicare approach. However, because
of complexities of the Medicare transition process and the
lack of TRICARE cost report data comparable to
Medicare's, it is not practicable for the Department to
adopt Medicare OPPS for hospital outpatient services at this
Id. at 40, 601; J.A. 4. The Interim Final Rule
adopted new methods of payment for four categories of
hospital-based outpatient services. DoD issued a Final Rule
in 2005, which provided a more detailed explanation of the
payment rules for hospital-based outpatient services.
See TRICARE; Sub-Acute Care Program; Uniform Skilled
Nursing Facility Benefit; Home Health Care Benefit; Adopting
Medicare Payment Methods for Skilled Nursing Facilities and
Home Health Care Providers, 70 Fed. Reg. 61, 368-01 (October
24, 2005). For most outpatient services, hospitals would
receive payments "based on the TRICARE-allowable cost
method in effect for professional providers or the CHAMPUS
Maximum Allowable Charge (CMAC)." Id. at 61,
371. These payment rules applied until 2009, when TRICARE
introduced a new payment system for hospital outpatient
services that was similar to the Medicare OPPS rules.
complained that CMAC was only intended to be used for
individual health care providers, not institutions with large
overhead costs. TRICARE responded to these complaints by
hiring a consultant, Kennel and Associates, Inc., to
undertake a study of the accuracy of its payments to the
hospitals. The Kennel Study compared CMAC payments to the
payments that would have been made using Medicare payment
principles, and determined that DoD "(1)
underpaid hospitals for outpatient radiology but,
(2) correctly paid hospitals for all other outpatient
services." J.A. 5 (emphasis in original).
DoD created a discretionary payment process and notified the
hospitals via letter on April 25, 2011. The letter explained
that DoD would permit the hospitals to request a review of
their TRICARE reimbursements:
Based on the request, your hospital may be paid an
adjustment, subject to the availability of appropriations, in
return for your acceptance of DoD's offer of additional
payment based on criteria established by the agency . . . .
[P]ayment of the discretionary adjustments will also be
contingent on the execution of a ...