author: Justice Ginsburg Justice Scalia,

text:
    REGIONS HOSPITAL v. SHALALA, SECRETARY OF HEALTH AND HUMAN SERVICES
    No. 96-1375.
    Argued December 1, 1997
    Decided February 24, 1998

      Ginsburg, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Stevens, Kennedy, Souter, and Breyer, JJ., joined. Scaua, J., filed a dissenting opinion, in which O’Connor and Thomas, JJ., joined, post, p. 464.

      Ronald N. Sutter argued the cause and filed briefs for petitioner.

      Lisa Schiavo Blatt argued the cause for respondent. With her on the brief were Acting Solicitor General Wax-man, Assistant Attorney General Hunger, Deputy Solicitor General Kneedler, Deputy Assistant Attorney General Preston, Barbara C. Biddle, Neil H. Koslowe, Harriet S. Rabb, Henry R. Goldberg, and Thomas W. Coons.

   Justice Ginsburg

delivered the opinion of the Court.

Section 9202(a) of the Medicare and Medicaid Budget Reconciliation Amendments of 1985, Pub. L. 99-272, 100 Stat. 151, 171-175, 42 U.S.C. § 1395ww(h) (GME Amendment), provides: “The Secretary [of Health and Human Services] shall determine, for the hospital’s cost reporting period that began during fiscal year 1984, the average amount recognized as reasonable under this subehapter for direct graduate medical education costs of the hospital for each full-time-equivalent resident.” § 1395ww(h)(2)(A). The Amendment directs the Secretary to use the 1984 amount, adjusted for inflation, to calculate a hospital’s graduate medical education (GME) reimbursement for subsequent years. § 1395ww(h) (2). The Secretary interprets the GME Amendment to permit a second audit of the 1984 GME costs to ensure accurate future reimbursements, even though the GME costs had been audited previously. 42 CFR § 413.86(e) (1996). This case presents the question whether the Secretary’s “reaudit” rule is a reasonable interpretation of the GME Amendment. We conclude that it is.

I

A

Under the Medicare Act and its implementing regulations, 42 U. S. C. § 1395 et seq., the costs of certain educational programs for interns and residents, known as GME programs, are “allowable eost[s]” for which a hospital (a provider) may receive reimbursement. 42 CFR § 413.85(a) (1996). At the close of each fiscal year, the provider prepares a “cost repor[t].” § 405.1801(b). That report, which serves as the basis for its total allowable Medicare reimbursement, shows the provider’s costs and the percentage of those costs allocated to Medicare services. §§ 413.20(b), 413.24(f). The provider files the report with a “fiscal intermediary,” usually an insurance company, designated by the Secretary. 42 U. S. C. § 1395h. The intermediary examines the cost report, audits it when found necessary, and issues a written “notice of amount of program reimbursement” (NAPR). The NAPR determines the total amount payable to the provider for Medicare services during the reporting period, 42 CFR § 405.1803 (1996), and is subject to review by the Provider Reimbursement Review Board (PRRB), the Secretary, and ultimately the courts. See 42 U. S. C. §§ 1395oo(a), (b), (f)(1); 42 CFR §§ 405.1835, 405.1837 (1996).

By regulation, the Secretary may reopen, within three years, any determination by a fiscal intermediary, the PRRB, or the Secretary herself “to revise any matter in issue at any such proceedings.” § 405.1885(a). In other words, the Secretary can recoup excessive (or correct insufficient) reimbursement for a given year so long as the Secretary acts within the three-year reopening window.

In April 1986, Congress changed the method for calculating reimbursable GME costs. See 42 U. S. C. § 1395ww(h). In lieu of discrete annual determinations of “reasonable cost ... actually incurred,” § 1395x(v)(1)(A), Congress designated a baseline year, 1984, for cost determinations, i. e., costs “recognized as reasonable” for that year would serve as the base figure used to calculate GME reimbursements for all subsequent years. The GME Amendment directed the Secretary to determine a per-resident amount by dividing each provider’s 1984 GME costs “recognized as reasonable” by the number of full-time-equivalent residents working for the provider in 1984. § 1395ww(h)(2)(A). The 1984 per-resident amount, adjusted for inflation, would then be used to determine the provider’s GME reimbursements for all fiscal years “beginning on or after July 1, 1985.” Note following 42 U. S. C. § 1395ww, p. 1131. The provider’s reimbursable costs for a particular year would be computed by multiplying the inflation-adjusted 1984 per-resident amount by the provider’s weighted number of full-time-equivalent residents, as determined by § 1395ww(h)(4), and the hospital’s Medicare patient load, § 1395ww(h)(3)(C).

In September 1988, the Secretary published a proposed regulation to implement the GME Amendment. At that time, the Secretary reported reason to believe some “questionable” GME costs had been “erroneously reimbursed” to providers for their 1984 fiscal year, the period Congress designated in 1986 to serve continually as the base year. 53 Fed. Reg. 36591 (1988). To prevent perpetuation of past mistakes under the new GME cost-reimbursement methodology, the Secretary proposed to give fiscal intermediaries re-auditing authority to ensure that future payments would be based on an “accurate” determination of providers’ 1984 GME costs. Id., at 36591-36592. The final regulation, published in September 1989, instructs intermediaries to verify each hospital’s base-year GME costs and its average number of full-time-equivalent residents; exclude from those base-year GME costs “any nonallowable or misclassified costs, including those previously allowed under . . . this chapter”; and, upon the hospital’s request, include GME costs miselas-sified as operating costs during the base period. 42 CFR §§ 413.86(e)(1)(ii)(AMC) (1996).

The Secretary made clear that the reaudit rule permitted no recoupment of excess reimbursement for years in which the reimbursement determination had become final. 54 Fed. Reg. 40302 (1989). Rather, the rule sought to prevent future overpayments and to permit recoupment of prior excess reimbursement only for years in which the reimbursement determination had not yet become final. Id., at 40301, 40302; 42 CFR § 413.86(e)(1)(iii) (1996).

B

Regions Hospital (Hospital), the petitioner, is a teaching hospital eligible for GME cost reimbursement. On February 28, 1986, the Hospital received from its intermediary an NAPR for the 1984 reporting period which reflected total 1984 GME costs of $9,892,644. A reaudit commenced in late 1990 ultimately yielded a determination that the.Hospital’s total allowable 1984 GME costs were $5,916,868. The recomputed average per-resident amount was $49,805, in contrast to the original $70,662. The Secretary sought to use this recomputed amount to determine reimbursements for future years and past years within the three-year reopening window of § 405.1885. The reaudit determination would not be used to recoup excessive reimbursement paid to the Hospital for its 1984 GME costs, for the three-year window had already closed on that year.

On appeal to the PRRB, the Hospital challenged the validity of the reaudit rule. The PRRB responded that it lacked authority to invalidate the Secretary’s regulation, and the Hospital sought expedited judicial review under 42 U. S. C. § 1395oo(f)(1). On cross-motions for summary judgment, the District Court for the District of Minnesota ruled for the Secretary. Adopting the reasoning of the Court of Appeals for the District of Columbia Circuit in Administrators of the Tulane Educational Fund v. Shalala, 987 F. 2d 790 (1993), cert. denied, 510 U. S. 1064 (1994), the District Court concluded that the language of § 1395ww(h)(2)(A) was ambiguous, and that the Secretary’s reaudit regulation reasonably interpreted Congress’ prescription. The District Court also held that the reauditing did not impose an impermissible “retroactive rule.” App. to Pet. for Cert. 7a-8a.

The Court of Appeals for the Eighth Circuit affirmed in a per curiam opinion, following Tulane. Si. Paul-Ramsey Medical Center, Inc. v. Shalala, 91 F. 3d 57 (1996). In a similar case, the Sixth Circuit, rejecting Tulane, saw no ambiguity in the GME Amendment and alternately held that even if the provision lacked clarity, the Secretary’s interpretation was unreasonable. Toledo Hospital v. Shalala, 104 F. 3d 791, 797-801 (1997), cert. pending, No. 96-2046. We granted certiorari to resolve this conflict, 520 U. S. 1250 (1997), and now affirm the Eighth Circuit’s judgment.

II

The Hospital argues that the Secretary’s reaudit regulation is an impermissible retroactive rule and, on that account alone, is invalid. It is an argument we need not linger over. Landgraf v. USI Film Products, 511 U. S. 244 (1994), explained that “ ‘the legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place,’ ” id., at 265 (quoting Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U. S. 827, 855 (1990) (Scalia, J., concurring)), but further clarified that a prescription “‘is not made retroactive merely because it draws upon antecedent facts for its operation,’ ” 511 U. S., at 270, n. 24 (quoting Cox v. Hart, 260 U. S. 427, 435 (1922)). The reaudit rule accords with Landgraf’s instruction. The rule calls for application of the cost-reimbursement principles in effect at the time the costs were incurred. A correct application of those principles, not the application of any new reimbursement principles, is the rule’s objective. Cf. Bowen v. Georgetown Univ. Hospital, 488 U. S. 204, 207 (1988) (regulation at issue impermissibly invoked a new substantive standard as a basis for recouping sums previously paid to hospitals). Furthermore, the Secretary’s reaudits leave undisturbed the actual 1984 reimbursements and reimbursements for any later cost-reporting year on which the three-year reopening window had closed. The adjusted reasonable cost figures resulting from the re-audits are to be used solely to calculate reimbursements for still open and future years. See supra, at 454.

Understandably, there is no Circuit split on this issue. - Although holding against the Secretary on other grounds, the Sixth Circuit concisely stated why the reaudit rule “does not amount to an impermissibly retroactive regulation”: The rule “require[s] a determination based upon events occurring in the base year,” but “it does not change the standards under which the base year costs are to be determined.” Toledo Hospital v. Shalala, 104 F. 3d, at 795.

l — I HH HH

We turn, next, to the question that has divided the Circuits: Is the Secretary’s interpretation of § 1395ww(h)(2)(A), embodied in the reaudit rule, entitled to deference? Under the formulation now familiar, when we examine the Secretary’s rule interpreting a statute, we ask first whether “the intent of Congress is clear” as to “the precise question at issue.” Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 842 (1984). If, by “employing traditional tools of statutory construction,” id., at 843, n. 9, we determine that Congress’ intent is clear, “that is the end of the matter,” id., at 842. But “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Id., at 843. If the agency’s reading fills a gap or defines a term in a reasonable way in light of the Legislature’s design, we give that reading controlling weight, even if it is not the answer “the court would have reached if the question initially had arisen in a judicial proceeding.” Id., at 843, n. 11.

A

We must decide whether Congress, under §1395ww(h) (2)(A), intended to prohibit the Secretary from ensuring an accurate GME base-year amount by reauditing a provider’s statement of 1984 GME costs for past errors, outside the Secretary’s three-year reopening window. Put another way, does “shall determine” for the baseline year 1984 the “amount recognized as reasonable” inevitably refer to the amount originally, or on reopening within three years, recognized as reasonable; or could the statute plausibly be read to mean, in light of the new methodology making 1984 critical for all subsequent years, an “amount recognized as reasonable” through a reauditing process designed to catch errors that, if perpetuated, could grossly distort future reimbursements?

Separate provisions of the Medicare Act speak clearly to the timing of other “recognized as reasonable” determinations. For example, 42 U. S. C. § 1395x(v)(1)(A) permits the Secretary to “provide for the establishment of limits [on certain costs] to be recognized as reasonable based on estimates of the costs necessary in the efficient delivery of needed health services.” (Emphasis added.) Section 1395uu(c)(1)(B), which concerns payments to promote the closing or converting of underutilized hospital facilities, directs the Secretary, in determining the hospital’s proper “transitional allowance,” to acknowledge the “outstanding portion of actual debt obligations previously recognized as reasonable for purposes of reimbursement.” (Emphasis added.)

Section 1395ww(h)(2)(A), in contrast, is silent on the matter of time, and therefore, we think, ambiguous. We agree with the Court of Appeals for the District of Columbia Circuit that “the phrase 'recognized as reasonable,’ by itself, does not tell us whether Congress means to refer the Secretary to action already taken or to give directions on actions about to be taken.” Tulane, 987 F. 2d, at 796. In other words, the phrase “recognized as reasonable” might mean costs the Secretary (1) has recognized as reasonable for 1984 GME cost-reimbursement purposes, or (2) will recognize as reasonable as a base for future GME calculations.

The Hospital urges that Congress could not have intended “recognized as reasonable” to mean two separate amounts: one for 1984 itself; and a lower, recalculated amount once the Secretary, cognizant that 1984 had become the base year for subsequent determinations, checked and discovered miscalculations. Why this must be so is not apparent. As the Secretary said, it is “hard to believe that Congress intended that misclassified and nonallowable costs [would] continue' to be recognized through the GME payment indefinitely.” 54 Fed. Reg. 40301 (1989).

We face these choices. Congress meant either for the Secretary to calculate future reimbursements using the figure emerging through regular NAPR review and the three-year reopening window, or for the Secretary to use the figure recognized as reasonable at a later time, informed by a more careful assessment. The Secretary realized, tardily, that the Hospital’s reimbursement for 1984 (like that granted many other providers) was inconsistent with the reasonableness standards under the Medicare Act and its implementing regulations. Congress likely assumed that the Secretary would act in time to adjust the 1984 costs to achieve accuracy both in 1984 reimbursements and in future calculations. Had Congress contemplated that the Secretary would not have responded to the 1986 GME Amendment swiftly enough to catch 1984 NAPR errors within the Secretary’s three-year reopening period, what would the Legislature have anticipated as the proper administrative course? Error perpetuation until Congress plugged the hole? Or the Secretary’s exercise of authority to effectuate the Legislature’s overriding purpose in the Medicare scheme: reasonable (not excessive or unwarranted) cost reimbursement?

While the Hospital’s reading of the GME Amendment is plausible, it is not the “only possible interpretation.” See Sullivan v. Everhart, 494 U. S. 83, 89 (1990). As Judge Wald wrote in her opinion for the D. C. Circuit: “Context is all, and ... we believe the use of the 1984 figures for the indefinite future cautions . . . against a reading of [‘recognized as reasonable’] that allows no elbow room for adjustments [to correct] prior miscalculations or errors.” Tulane, 987 F. 2d, at 796. Because the Hospital’s construction is not an inevitable one, we turn to the Secretary’s position, examining its reasonableness as an interpretation of the governing legislation.

B

The purpose of the GME Amendment was to “limit payments to hospitals” for GME costs. See H. R. Conf. Rep. No. 99-453, p. 482 (1985) (emphasis added). The Secretary’s reaudit rule brings the base-year calculation in line with Congress’ pervasive instruction for reasonable cost reimbursement. The rule does not permit recoupment of any time-barred 1984 overpayment, but it enables the Secretary, for open and future years, to carry out that official’s responsibility to reimburse only reasonable costs, and to prevent payment of uncovered, improperly classified, or excessive costs. See supra, at 454.

Until the GME Amendment in 1986, GME costs were determined annually; one year’s determination did not control a later year’s reimbursement. The GME Amendment, which called for a base-year GME cost determination that would control payments in later years, became law at a time when other Medicare changes were underway, including installation of a new prospective payment system (PPS). See 54 Fed. Reg. 40301 (1989) (acknowledging that GME costs were not given prompt scrutiny “because of the many changes that were taking place in Medicare generally”). The GME Amendment introduced the new statutory concept of per-resident GME costs; it was this innovation that caused the Secretary “to examine GME costs that ha[d] been reimbursed in the past and to question the significant variation in costs that ha[d] been allowed.” 53 Fed. Reg. 36593 (1988).

Concerned that providers may have been reimbursed erroneously, the Secretary attempted to assure reimbursement in future and still open years of reasonable costs, but no more. To accomplish this, the Secretary endeavored to strip from the base-period amount improper costs, e.g., physician costs for activities unrelated to the GME program, malprae-tice costs, and excessive administrative and general service costs. The Secretary so proceeded on the assumption that Congress, when it changed the system for GME cost reimbursement, surely did not want to cement misclassified and nonallowable costs into future reimbursements, thus perpetuating literally million-dollar mistakes.

The Hospital maintains it is “irrational” to assume Congress intended the Secretary to reaudit 1984 GME costs outside the three-year reopening window of 42 CFR § 405.1885(a) (1996). We disagree. Because the period for reassessing 1984 NAPRs had closed, the Secretary’s re-auditing rule, by design, could affect only the base-year per-resident calculation used to compute reimbursements from 1985 onward. In effect, the Secretary altered the reopening period prescribed in the agency’s regulations by lengthening the time for base-year GME cost correction. The Secretary did not enlarge the time the agency had to seek repayment of excess reimbursements in years closed under the three-year prescription; rather, the Secretary extended only the time for determining the proper amount of reimbursement due in subsequent years.

The GME Amendment necessitated comprehensive regulations, and the reaudit rule was formulated and issued as part of the full set of regulations. Viewed in the context of other, contemporaneous changes in Medicare and the Secretary’s decision not to pursue recoupment of 1984 GME reimbursements, the three-year gap from the 1986 enactment of the GME Amendment to release of the Secretary’s final regulations in 1989 was not exorbitant. As the D. C. Circuit said, three years is “not an unreasonable period for developing, proposing, permitting comment, and finalizing a regulatory framework for a complex statutory scheme.” Tulane, 987 F. 2d, at 797.

The Hospital also contends Congress would not have endorsed reauditing as a fair measure, because fading memories, changes in personnel, and discarded records make it unreasonable to demand that providers “reprove” their base-year GME costs. We note these countervailing considerations. Providers can challenge the accuracy of specific auditing principles in individual eases. 42 CFR § 413.86(e) (1)(v) (1996). Providers dissatisfied with the Secretary’s determination may seek judicial review under 42 U. S. C. § 1395oo(f)(1). For providers who discarded their 1984 records, the Secretary offered “an equitable solution” permitting them, during the reaudit, “to furnish documentation from cost reporting periods subsequent to the base period in support of the allocation of physician compensation costs in the GME bas[e] period.” See 55 Fed. Reg. 36063 (1990). Furthermore, the reaudit rule allowed providers to request upward adjustment in their reimbursable PPS hospital-specific rate if the GME reaudit revealed previously claimed GME costs that should have been classified as operating costs eligible for PPS reimbursement. 42 CFR § 413.86(j) (1)(i) (1996).

Finally, the Hospital argues that because 42 CFR §§405.1807 and 405.1885(a) (1996) render an intermediary’s determination “final and binding” after three years, the Secretary’s reaudit regulation violates principles of issue preclusion. The initial 1984 GME cost determination, however, was made under the pre-GME Amendment regime, when “final and binding” referred only to year-by-year determination. An issue determined for one year (1984 only) is not the same as a base-year determination to be carried forward into the unlimited future. Furthermore, the base-year cost calculation was derived from an intermediary’s determination in an NAPR, without a hearing before the PRRB on the reasonableness of the costs. Absent actual and adversarial litigation about base-year GME costs, principles of issue preclusion do not hold fast. See Cromwell v. County of Sac, 94 U. S. 351, 353 (1877) (“[T]he judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted .... [T]he inquiry must always be as to the point or question actually litigated.” (emphasis added)); cf. Thomas Jefferson Univ. v. Skalala, 512 U. S. 504, 517 (1994) (declining to bind Secretary to GME cost determination previously made by intermediary).

In sum, we agree with the Secretary that the reaudit rule is not impermissibly retroactive, and that it “reflects a reasonable interpretation of the law.” Thus, it “merits our approbation.” Holly Farms Corp. v. NLRB, 517 U. S. 392, 409 (1996). The judgment of the Court of Appeals is accordingly

Affirmed.

Justice Scalia,

with whom Justice O’Connor and Justice Thomas join,

dissenting.

The Medicare Act requires the Secretary to reimburse teaching hospitals for the Graduate Medical Education (GME) costs attributable to Medicare services. See 42 U. S. C. § 1395 et seq. For fiscal years 1965 through 1984, hospitals were entitled to be reimbursed for the actual “reasonable costs” incurred each year. See §§ 1395f(b)(1), x(v)(1)(A). In 1986, however, Congress directed that thereafter reimbursement rates per full-time-equivalent resident would be indexed to each hospital’s 1984 GME costs “recognized as. reasonable under this subehapter,” divided by the number of full-time-equivalent residents that year. See § 1395ww(h)(2)(A). The Court today determines that the phrase “recognized as reasonable under this subchapter” can reasonably be construed as an authorization for the Secretary to redetermine a hospital’s composite 1984 GME costs, rather than as a reference to a previously made determination; and thus concludes, pursuant to Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 842 (1984), that the Secretary’s reaudit regulation is lawful, see 42 CFR § 413.86(e)(1)(iii) (1996). See ante, at 452. Because I believe that the 1984 GME costs “recognized as reasonable” in 42 U. S. C. § 1395ww(h)(2)(A) must be the “reasonable costs” for which the Secretary actually reimbursed the hospitals in 1984, I respectfully dissent.

On April 7,1986, the enactment date of the provision tying future GME reimbursements to 1984 GME costs, the Secretary had in place a longstanding procedure for determining a hospital’s reasonable GME costs. Under that procedure, the three-year window during which the Secretary could revise the 1984 determinations had not yet closed for any hospital entitled to reimbursement, see 42 CFR § 405.1885(a) (1985). Indeed, for many hospitals, like Regions, the 3-year period had uot yet, or had barely, begun to run, since the 1984 costs had not yet, or had only recently, been determined. On February 28, 1986, Regions’ fiscal intermediary, see 42 U. S. C. § 1395h, determined that Regions had incurred reasonable 1984 GME costs of $9,892,644 (Regions was later reimbursed for that amount); that decision became final under the Secretary’s regulations on March 1, 1989. Nonetheless, in 1991, pursuant to the 1989 regulation now before the Court, Regions’ fiscal intermediary reopened the prior determination of reasonable 1984 GME costs (albeit for the limited purpose of calculating future reimbursement rates), reducing them to $5,916,868.

In light of the procedures already in place for determining a hospital’s reasonable 1984 GME costs when §1395ww(h) was enacted, that provision’s reference to a hospital’s 1984 GME costs “recognized as reasonable under this subehapter” cannot reasonably be interpreted to authorize the Secretary to determine a hospital’s 1984 GME costs anew. It is true, as the Court points out, that in isolation the phrase “recognized as reasonable” is ambiguous: it “might mean costs the Secretary (1) has recognized as reasonable for 1984 GME cost-reimbursement purposes, or (2) will recognize as reasonable as a base for future GME calculations.” Ante, at 458. But as we have insisted, the words of a statute are not to be read in isolation; statutory interpretation is a “holistic endeavor,” United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365, 371 (1988). Viewing the words “recognized as reasonable” in their entire context, they cannot reasonably be understood to authorize a new composite cost determination.

To begin with, it should be borne in mind that § 1395ww(h)(2)(A) does not provide directly for a determination of composite costs “recognized as reasonable.” It provides for a determination of the average per full-time resident of costs recognized as reasonable. If this is to be interpreted as an authorization for a new “recognition of composite-cost reasonableness,” so to speak, it is a most oblique and indirect authorization — so oblique and indirect as to be implausible. That new computation of composite costs, rather than the relatively mechanical averaging of those costs per full-time resident, would have been the major feature of the provision, so that one would have expected it to read something like “the Secretary shall determine each hospital’s reasonable direct GME costs for the 1984 cost reporting period, and the average amount of those costs attributable to each full-time-equivalent resident.”

It is impossible to imagine, moreover, how the words “recognized as” found their way into the provision unless they were meant to refer to the recognition of reasonableness already made under the pre-existing system. The interpretation that the Court accepts treats them “essentially as sur-plusage — as words of no consequence,” Ratzlaf v. United States, 510 U. S. 135, 140-141 (1994), which, of course, we avoid when possible.

“We are not at liberty to construe any statute so as to _deny effect to any part of its language..It is a cardinal rule of statutory construction that significance and effect shall, if possible, be accorded to every word. As early as in Bacon’s Abridgment, sect. 2, it was said that 'a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.’ This rule has been repeated innumerable times.” Market Co. v. Hoffman, 101 U. S. 112, 115-116 (1879).

See also United States v. Nordic Village, Inc., 503 U. S. 30, 36 (1992); Federal Election Comm’n v. National Conservative Political Action Comm., 470 U. S. 480, 486 (1985). If § 1395ww(h)(2)(A) conferred a new cost-determination authority upon the Secretary, to be exercised in the future, it would have sufficed (and would have been normal) to direct the Secretary “to determine, for the hospital’s cost reporting period that began during fiscal year 1984, the average amount recognized as reasonable under this subehapter for direct [GME] costs of the hospital for each full-time-equivalent resident.” The specification of an amount “recognized as reasonable under this subehapter” only makes sense as a reference to a determination made (or to be made) independent of § 1395ww(h)(2)(A) itself — i. e., to the amount “recognized” under the procedures already in place for determining the reasonable 1984 GME costs. Indeed, under the Secretary’s interpretation the words “recognized as” become not only superfluous but positively misleading, since without them there would be no question that authority for a new determination was being conferred. It is an unacceptable interpretation which causes the critical words of the text to be (1) meaningless and (2) confusing.

That “recognized as” refers to a determination under the pre-existing regime is strongly confirmed by another provision of the statute that enacted § 1395ww(h)(2)(A) into law: “The Secretary ... shall report to [specified Committees of the Senate and House of Representatives], not later than December 31, 1987, on whether [§ 1395ww(h)] should be revised to provide for greater uniformity in the approved FTE resident amounts established under [§1895ww(h)(2)]} and, if so, how such revisions should be implemented.” § 9202(e), 100 Stat. 176 (emphases added). This surely envisions that the Secretary will know the amounts established under § 1395ww(h)(2)(A) by December 31,1987 — well within the 3-year window for revisiting and revising any teaching hospital’s actual 1984- reimbursement amounts. The Secretary’s assertion that § 1395ww(h)(2)(A) confers a new authority to make cost determinations can technically be reconciled with this directive for a December 31, 1987, evaluation only by saying that the new authority was supposed to be exercised before that date. But if it was supposed to be exercised before that date, it was entirely superfluous, since all prior determinations could be revised before that date under the old authority. In short, given the evaluation deadline, the Secretary’s interpretation makes no sense.

Most judicial constructions of statutes solve textual problems; today’s construction creates textual problems, in order to solve a practical one. The problem to which the Secretary’s implausible reading of the statute is the solution is simply this: Though the Secretary had plenty of time, after enactment of § 1395ww(h)(2)(A), to correct any erroneous determinations of 1984 GME costs before the 3-year revision window closed, she (or more precisely her predecessor) neglected to do so. We obligingly pull her chestnuts from the fire by accepting a reading of the statute that is implausible. The Court asks the following question:

"Had Congress contemplated that the Secretary would not have responded to the 1986 GME Amendment swiftly enough to catch 1984 NAPE errors within the Secretary’s three-year reopening period, what would the Legislature have anticipated as the proper administrative course? Error perpetuation -until Congress plugged the hole? Or the Secretary’s exercise of authority to effectuate the Legislature’s overriding purpose in the Medicare scheme: reasonable (not excessive or unwarranted) cost reimbursement?” Ante, at 459-460.

The answer to that question is easy. But it is the wrong question. Of course it can always be assumed that Congress would prefer whatever would preserve, in light of unforeseen eventualities, “the Legislature’s overriding purpose.” We are not governed by legislators’ “overriding purposes,” however, but by the laws that Congress enacts. If one of them is improvident or ill conceived, it is not the province of this Court to distort its fair meaning (or to sanction the Executive’s distortion) so that a better law will result. The immediate benefit achieved by such a practice in a particular ease is far outweighed by the disruption of legal expectations in all cases — disruption of the rule of law— that government by ex post facto legislative psychoanalysis produces.

I would pronounce the Secretary’s reaudit regulation ultra vires and reverse the Court of Appeals.

       When the petitioner filed its petition and briefs with the Court, it was known as “St. Paul-Ramsey Medical Center.” It changed its name to “Regions Hospital” on September 15, 1997.

       The Hospital also raises the specter of the Secretary perpetually re-auditing the base-year costs. Here, the Secretary had a compelling reason to reaudit the base-year costs, for those costs, under the new GME scheme, would be projected far into the future. The Administrative Procedure Act, 80 Stat. 392, as amended, 5 U. S. C. § 701 et seq., which requires a court to “hold unlawful and set aside agency action” that is “arbitrary” or “capricious,” see § 706(2)(A), should protect the Hospital from any future reaudits performed without legitímate reason.

       Congress more firmly instructed that the Secretary, no later than December 31, 1987, “shall report” to specific Committees of the Senate and House of Representatives on the need for revisions to provide greater uniformity in approved full-time-equivalent resident amounts. The date set for the report was inside the three-year reopening window. Note following 42 U. S. C. § 1395ww; see post, at 468. Missing the deadline by some years, the Secretary did not file the required report until March 24, 1992. The Secretary’s failure to meet the deadline, a not uncommon occurrence when heavy loads are thrust on administrators, does not mean that official lacked power to act beyond it. See, e.g., Brock v. Pierce County, 476 U. S. 253, 260 (1986) (even though the Secretary of Labor did not meet a “shall” statutory deadline, the Court “would be most reluctant to. conclude that every failure of an agency to observe a procedural requirement voids subsequent agency action”).

       The Hospital contends Congress did not delegate authority to the Secretary specifically to reaudit the 1984 base-year amount, in contrast to its express delegation to “establish rules” for computing the number of full-time-equivalent residents under § 1395ww(h)(4). But “the concept of reasonable costs already was a mainstay of Medicare statutes and regulations, [so] there was no need to establish any new rulemaking authority for its determination.” Tulane, 987 F. 2d, at 795, n. 5 (citations omitted). See 42 U. S. C. §§ 1395x(v)(1)(A), 1895hh(a)(1).

       The dissent acknowledges that, “in reasonable’ is ambiguous,” post, at 466, but finds clarity when those words are read “in their entire context,” ibid. We agree that context counts and stress in this regard what the Court has said “[o]ver and over”: “‘In expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy.’ ” United States Nat. Bank of Ore. v. Independent Ins. Agents of America, Inc., 508 U. S. 439, 455 (1993) (quoting United States v. Heirs of Boisdoré, 8 How. 113, 122 (1849)).

       The PPS scheme established fixed payment rates, based on patient diagnosis, for a provider’s operating costs of furnishing in-patient care to program beneficiaries. See 42 U. S. C. § 1395ww(d); Good Samaritan Hospital v. Shalala, 508 U. S. 402, 406, n. 8 (1998). Costs incurred in connection with GME programs were excluded from the PPS scheme. 42 U. S. C. §§ 1395ww(a)(4) and (d)(1)(A).

       In fact, the Hospital took advantage of the Secretary’s “equitable solution.” Because the Hospital did not maintain base-year records reflecting physician time for teaching medical students, it used 1989 and 1990 time studies in endeavoring to establish the accuracy of its allocation of 1984 GME costs.

       Title 42 U. S. C. § 1395ww(h)(2)(A) provides that “[t]he Secretary shall determine, for the hospital’s cost reporting period that began during fiscal year 1984, the average amount recognized as reasonable under this sub-chapter for direct graduate medical education costs of the hospital for each full-time-equivalent resident.”

       Title 42 CFR § 413.86(e) (1)(iii) (1996) provides that “[i]f the hospital’s cost report for its GME base period is no longer subject to reopening under § 405.1885 of this chapter, the intermediary may modify the hospital's base-period costs solely for purposes of computing the per resident amount.”


source: Caselaw Access Project

author: Justice Ginsburg

license: Public Domain

text:
    RIVET et al. v. REGIONS BANK OF LOUISIANA et al.
    No. 96-1971.
    Argued January 21, 1998
    Decided February 24, 1998

      Ginsbueg, J., delivered the opinion for a unanimous Court.

      John Gregory Odom argued the cause for petitioners. With him on the briefs were Stuart K Des Roches and Linda V. Farrer.

      Charles L. Stern, Jr., argued the cause for respondents. With him on the brief were John M. Landis and Michael H. Rubin.

   Justice Ginsburg

delivered the opinion of the Court.

Congress has provided for removal of eases from state court to federal court when the plaintiff’s eomplaint alleges a claim arising under federal law. Congress has not authorized removal based on a defense or anticipated defense federal in character. This ease presents the question whether removal may be predicated on a defendant’s assertion that a prior federal judgment has disposed of the entire matter and thus bars plaintiffs from later pursuing a state-law-based case. We reaffirm that removal is improper in such a ease. In so holding we clarify and confine to its specific context the Court’s second footnote in Federated Department Stores, Inc. v. Moitie, 452 U. S. 894, 897, n. 2 (1981). The defense of claim preclusion, we emphasize, is properly made in the state proceeding, subject to this Court’s ultimate review.

I

This case arose out of a series of mortgages and conveyances involving a parcel of real property in New Orleans. In 1983, a partnership that owned the Louisiana equivalent of a leasehold estate in the property mortgaged that interest to respondent Regions Bank of Louisiana (Bank). One year later, to secure further borrowing, the partnership granted a second mortgage to petitioners Mary Anna Rivet, Minna Ree Winer, Edmond G. MLranne, and Edmond G. MIranne, Jr. The partnership thereafter filed for bankruptcy, and the bankruptcy trustee sought court permission to sell the leasehold estate free and clear of all claims.

In June and August 1986 orders, the Bankruptcy Court first granted the sale application and later approved sale of the leasehold estate to the Bank, sole bidder at the public auction. The court also directed the Recorder of Mortgages for Orleans Parish to cancel all liens, mortgages, and encumbrances, including the mortgages held by the Bank and petitioners. Nonetheless, petitioners’ mortgage remained inscribed on the mortgage rolls of Orleans Parish. Subsequently, in 1993, the Bank acquired the underlying land from respondents Walter L. Brown, Jr., and Perry S. Brown. The Bank then sold the entire property to the current owner, respondent Fountainbleau Storage Associates (FSA).

On December 29,1994, petitioners filed this action in Louisiana state court. They alleged that the 1993 transactions violated Louisiana law because the property was transferred without satisfying petitioners’ superior rights under the second mortgage. In their prayer for relief, petitioners sought recognition and enforcement of their mortgage or, alternatively, damages. Respondents removed the action to the District Court for the Eastern District of Louisiana. Federal-question jurisdiction existed, they contended, because the prior Bankruptcy Court orders extinguished petitioners’ rights under the second mortgage.

In federal court, petitioners filed a motion to remand and respondents moved for summary judgment. The District Court denied the remand motion. Relying on the Fifth Circuit’s decision in Carpenter v. Wichita Falls Independent School Dist., 44 F. 3d 362 (1995), the District Court held that removal was properly predicated on the preclusive effect of the 1986 Bankruptcy Court orders. The court then granted summary judgment to the Bank and FSA on the ground that the Bankruptcy Court’s adjudication barred petitioners’ suit. The District Court also granted summary judgment to the Browns, ruling that petitioners failed to state a claim against them.

The Fifth Circuit affirmed. 108 F. 3d 576 (1997). It agreed with the District Court that under Carpenter a defendant could remove “'where a plaintiff files a state cause of action completely precluded by a prior federal judgment on a question of federal law.’ ” 108 F. 3d, at 586 (quoting Carpenter, 44 F. 3d, at 370). Carpenter's holding, the Court of Appeals thought, was dictated by the second footnote to our decision in Moitie, 452 U. S., at 397, n. 2.

In dissent, priate under Moitie only where a plaintiff loses in federal court on an "essentially federal” claim and, recharacterizing the claim as one based on state law, files again in state court. 108 F. 3d, at 594. She concluded that removal here was improper because there was nothing federal about petitioners’ claim.

The Courts of Appeals have adopted differing views regarding the propriety of removing a state-court action to federal court on the ground that the claim asserted is precluded by a prior federal judgment. We granted certiorari, 521 U. S. 1152 (1997), to resolve the matter.

H

í>

A state-court action may be removed to federal court if it qualifies as a "civil action ... of which the district courts of the United States have original jurisdiction,” unless Congress expressly provides otherwise. 28 U. S. C. § 1441(a). In this case, respondents invoked, in support of removal, the district courts’ original federal-question jurisdiction over "[a]ny civil action . . . founded on a claim or right arising under the Constitution, treaties or laws of the United States.” 28 U. S. C. § 1441(b); see also 28 U. S. C. § 1331.

We have long held that “[t]he presence or absence of federal-question jurisdiction is governed by the ‘well-pleaded complaint rule,’ which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff’s properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U. S. 386, 392 (1987); see also Louisville & Nashville R. Co. v. Mottley, 211 U. S. 149, 152 (1908). A defense is not part of a plaintiff’s properly pleaded statement of his or her claim. See Metropolitan Life Ins. Co. v. Taylor, 481 U. S. 58, 63 (1987); Gully v. First Nat. Bank in Meridian, 299 U. S. 109, 112 (1936) (“To bring a ease within the [federal-question removal] statute, a right or immunity created by the Constitution or laws of the United States must be an element, and an essential one, of the plaintiff’s cause of action.”). Thus, “a ease may not be removed to federal court on the basis of a federal defense, . . . even if the defense is anticipated in the plaintiff’s complaint, and even if both parties admit that the defense is the only question truly at issue in the case.” Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1, 14 (1983).

Allied as an “independent corollary” to the well-pleaded complaint rule is the further principle that “a plaintiff may not defeat removal by omitting to plead necessary federal questions.” Id., at 22, If a court concludes that a plaintiff has “artfully pleaded” claims in this fashion, it may uphold removal even though no federal question appears on the face of the plaintiff’s complaint. The artful pleading doctrine allows removal where federal law completely preempts a plaintiff’s state-law claim. See Metropolitan Life Ins. Co., 481 U. S., at 65-66 (upholding removal based on the preemptive effect of § 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974); Avco Corp. v. Machinists, 390 U. S. 557, 560 (1968) (upholding removal based on the preemptive effect of § 301 of the Labor Management Relations Act, 1947). Although federal preemption is ordinarily a defense, “[o]nce an area of state law has been completely preempted, any claim purportedly based on that pre-empted state-law claim is considered, from its inception, a federal claim, and therefore arises under federal law.” Caterpillar, 482 U. S., at 393.,

B

Petitioners’ complaint sought recognition and enforcement of a mortgage. The dispute involved Louisiana parties only, and petitioners relied exclusively on Louisiana law. Respondents defended their removal of the case from state court to federal court on the ground that petitioners’ action was precluded, as a matter of federal law, by the earlier Bankruptcy Court orders. We now explain why the removal was improper.

Under the doctrine on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.” Moitie, 452 U. S., at 398; see also Baker v. General Motors Corp., ante, at 233, n. 5 (“a valid final adjudication of a claim precludes a second action on that claim or any part of it”). Claim preclusion (res judicata), as Rule 8(c) of the Federal Rules of Civil Procedure makes clear, is an affirmative defense. See also Blonder-Tongue Laboratories, Inc. v. University of Ill. Foundation, 402 U. S. 313, 350 (1971) (“Res judicata and collateral estoppel [issue preclusion] are affirmative defenses that must be pleaded.” (italics omitted)).

A case blocked by the claim preclusive effect of a prior federal judgment differs from the standard case governed by a completely preemptive federal statute in this critical respect: The prior federal judgment does not transform the plaintiff’s state-law claims into federal claims but rather extinguishes them altogether. See Commissioner v. Sunnen, 333 U. S. 591, 597 (1948) (“The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment.”). Under the well-pleaded complaint rule, preclusion thus remains a defensive plea involving no recasting of the plaintiff’s complaint, and is therefore not a proper basis for removal.

In holding removal appropriate here, the Court of Appeals relied on a footnote — the second one — in our Moitie opinion. The Fifth Circuit is not alone in concluding from the Moitie footnote that removal properly may rest on the alleged pre-clusive effect of a prior federal judgment. See supra, at 474, n. 2. The Moitie footnote, however, was a marginal comment and will not bear the heavy weight lower courts have placed on it.

We granted certiorari in Moitie principally to address the Ninth Circuit’s “novel exception to the doctrine of res judicata.” 452 U. S., at 398. In that case, several actions alleging price fixing by department stores in California were consolidated in federal court and dismissed. Most of the plaintiffs appealed and obtained a reversal, but two chose instead to file separate claims in state court. The defendants removed the actions to Federal District Court, where plaintiffs unsuccessfully moved to remand and defendants successfully moved to dismiss the actions on preclusion grounds. The Court of Appeals for the Ninth Circuit agreed that removal was proper, but held that preclusion did not apply in the unique circumstances of the ease. Moitie v. Federated Department Stores, Inc., 611 F. 2d 1267 (1980).

In the course of reversing the Ninth Circuit’s holding on preclusion, we noted, without elaboration, our agreement with the Court of Appeals that “at least some of the claims had a sufficient federal character to support removal.” 452 U. S., at 397, n. 2. In that case-specific context, we declined to “question . . . [the District Court’s] factual finding” that the plaintiffs “had attempted to avoid removal jurisdiction by artfully casting their essentially federal[-]law claims as state-law claims.” Ibid, (internal quotation marks omitted).

“Moitie’s enigmatic footnote,” Rivet, 108 F. 3d, at 584, we recognize, has caused considerable confusion in the circuit courts. We therefore clarify today that Moitie did not create a preclusion exception, to the rule, fundamental under currently governing legislation, that a defendant cannot remove on the basis of a federal defense.

In sum, claim preclusion by reason of a prior federal judgment is a defensive plea that provides no basis for removal under § 1441(b). Such a defense is properly made in the state proceedings, and the state courts’ disposition of it is subject to this Court’s ultimate review.

* # *

For the foregoing reasons, the judgment of the Court of Appeals for the Fifth Circuit is reversed, and the ease is remanded for further proceedings consistent with this opinion.

It is so ordered.

       The events leading to this lawsuit actually involved two predecessors of Regions, First Federal Bank and Secor Bank. For ease of discussion, we use the name Regions Bank to cover all three entities.

       Compare In re Brand Name Prescription, Drugs, 128 F. 3d 599, 612 (CA7 1997) (removal is allowed where “sole basis for filing a state suit is to get around ... a federal judgment”), cert. pending sub nom. Abbott Labs v. Huggins, No. 97-775; and Ultramar America, Ltd. v. Dwelle, 900 F. 2d 1412, 1415-1417 (CA9 1990) (removal permitted “where a plaintiff files state claims after a federal judgment has been entered ... on essentially the same claims,” provided the federal judgment sounds in federal law), with Travelers Indemnity Co. v. Sarkisian, 794 F. 2d 754, 759-761 (CA2 1986) (removal under Moitie permitted only where the elements of a plaintiff’s state-law claim are virtually identical to the elements of a federal claim the plaintiff previously elected to file in federal court).

       We note also that under the relitigation exception to the Anti-Injunction Act, 28 U. S. C. § 2283, a federal court may enjoin state-court proceedings "where necessary ... to protect or effectuate its judgments.” Ibid.