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In judging the validity of the Secretary of the Department of Health and Human Services' regulations, the court applies the familiar two-step framework of Chevron. The court first asks whether Congress has directly spoken to the precise question at issue, in which case the court must give effect to the unambiguously expressed intent of Congress. If the statute is silent or ambiguous with respect to the specific issue, the court moves to the second step and defer to the agency's interpretation as long as it is based on a permissible construction of the statute. However, deference is only appropriate when the agency has exercised its own judgment. When, instead, the agency's decision is based on an erroneous view of the law, its decision cannot stand.
Plaintiffs owned two new facilities for which they sought classification as long-term care hospitals before they began admitting patients. Defendant, the Department of Health and Human Services, rejected plaintiffs' request, citing regulations that required new hospitals to have six months of experience before they can qualify as "long-term." Plaintiffs challenged the regulations, arguing that the Medicare statute did not mandate an initial data-collection period. The district court agreed with the plaintiffs, and held that 42 U.S.C.S. § 1395ww(d)(1)(B)(iv)(I) did not mandate an initial data-collection period and in fact manifestly required Health and Human Services (HHS) to reimburse hospitals as long-term hospitals from the first day of operation, and declared 57 Fed. Reg. 39,746, 39,800-01 (1992) invalid. Defendant appealed.
Did Congress delegate the definitional authority to the Secretary of Health and Human Services, thereby warranting the reversal of the district court’s decision?
The court concluded that the United States Congress intended the defendant, Secretary of Health and Human Services, to exercise discretion in determining the manner in which a hospital qualified as a long-term care facility. The court therefore reversed the decision of the district court. However, because the Secretary evaluated the various reimbursement alternatives on the assumption that a hospital could not qualify as a long-term care hospital until it had been in operation for some period of time, and because that assumption was incorrect, the Secretary must make a fresh determination as to whether she wished to adopt the self-certification or retroactive adjustment options. The court remanded the case to permit her to determine whether she wished to retain the existing regulations knowing that other options were permissible.