ANDERSON, Justice.
Respondent Minnesota Department of Human Services (DHS) assessed surcharges against seven hospital and hospital systems (collectively, the Hospitals) under Minn.Stat. § 256.9657, subd. 2 (2014).
Under Minnesota law, the Hospitals are subject to a 1.56% surcharge on their net patient revenue, excluding revenue received from Medicare patients. Minn.Stat. § 256.9657, subd. 2. The amount of each hospital's surcharge liability is calculated by DHS and is based on information reported to DHS by each hospital at the end of the fiscal year. DHS then invoices each hospital for its surcharge liability on a monthly basis.
A hospital may appeal the amount of the surcharge assessed by DHS within 30 days
Each of the appeals asserted the same basic legal theory. The Hospitals claim that federal law preempts the surcharge to the extent that it requires them to pay a surcharge on revenues obtained from insurance carriers that participate in the Federal Employee Health Benefits Act (FEHBA) or the TRICARE program. Both FEHBA and TRICARE are programs through which the federal government provides its employees and uniformed members of the armed services with health insurance benefits.
FEHBA authorizes the federal government to provide health insurance to employees of the federal government, as well as their families and dependents. See generally 5 U.S.C. §§ 8901-14 (2012). The program is managed by the Office of Personnel Management (OPM). Rather than providing health insurance directly, FEHBA authorizes OPM to enter into contracts with group health insurance carriers. 5 U.S.C. § 8902(a). Premiums are paid by the employing federal agency and the federal employee and are kept in a fund, known as the FEHBA Fund, in the U.S. Treasury. 5 U.S.C. § 8906. OPM administers the FEHBA Fund and manages disbursements from the fund to FEHBA carriers. Id.
Carriers fall into two different categories: community-rated and experience-rated. Premiums paid to community-rated carriers by the FEHBA Fund are based on a capitation rate that charges a set amount for each individual insured by the carrier. 48 C.F.R. § 1602.170-2. Premiums due to community-rated carriers are paid on a monthly basis, regardless of actual costs incurred by the carrier. 48 C.F.R. § 1632.170(a).
Premiums paid to experience-rated carriers, on the other hand, are based on historical data of the actual expenses incurred by the carrier. 48 C.F.R. § 1602.170-7. The premiums due to experience-rated plans are held in the FEHBA Fund under a Letter of Credit (LOC). 48 C.F.R. § 1632.170(b). The premiums are paid to the carrier from the FEHBA Fund on a "checks-presented basis." 48 C.F.R. § 1632.170(b)(2). In other words, an experience-rated carrier must reimburse the provider, usually based on a pre-negotiated rate, and then seek reimbursement for their expenditures from the FEHBA Fund based on the amount the carrier paid to the provider.
TRICARE, the other federal program at issue, provides health insurance to uniformed members of the United States Armed Services and their dependents. 10 U.S.C. § 1072(7) (2012); 32 C.F.R. § 199.17. TRICARE's authorizing statute directs the Secretary of Defense to enter into contracts with group health insurance carriers. 10 U.S.C. § 1074(c)(2)(B) (2012). During the relevant period, TRICARE entered into contracts with regional contractors to administer the TRICARE program.
The TRICARE regional contractor for the West Region, to which Minnesota belongs, entered into contracts with some, but not all, of the Hospitals. If a hospital has a contract with the TRICARE regional contractor, the hospital is reimbursed for care provided to TRICARE patients at a negotiated rate, which cannot exceed TRICARE's maximum-allowable rate and usually represents either a percentage of
Both FEHBA and TRICARE's authorizing statutes contain provisions preempting certain state laws. FEHBA's preemption provision provides:
5 U.S.C. § 8909(f)(1). FEHBA contains an exception for state or local taxes, fees, or monetary payments "on the net income or profit accruing to or realized by such carrier ... from business conducted under this chapter, if that tax, fee, or payment is applicable to a broad range of business activity." 5 U.S.C. § 8909(f)(2).
TRICARE's authorizing statute also includes a preemption provision that entrusts the Secretary of Defense with the power to declare that state laws are preempted if they are "inconsistent with a specific provision of [a TRICARE] contract or a regulation" promulgated by the Secretary of Defense. 10 U.S.C. § 1103(a) (2012). Additionally, the Secretary of Defense may determine that a state law is preempted when "preemption of the State or local law or regulation is necessary to implement or administer the provisions of the contract or to achieve any other important Federal interest." Id. The Secretary of Defense has used this statutory authority to promulgate a regulation with similar language to FEHBA's preemption provision. See 32 C.F.R. § 199.17(a)(7)(iii). The Secretary of Defense has specifically mandated that "interpretations [of the preemption regulation] shall be consistent with those applicable to the Federal Employees Health Benefits Program under 5 U.S.C. 8909(f)." Id. Thus, the preemption provisions of FEHBA and TRICARE with respect to taxes, fees, or other monetary payments imposed on carriers are coextensive.
The Hospitals claim that these preemption provisions apply and preempt Minn. Stat. § 256.9657, subd. 2, to the extent that the Minnesota statute requires the Hospitals to pay a surcharge on revenue received from FEHBA and TRICARE carriers. DHS denied the Hospitals' appeals via letter on September 21, 2012. At the request of the Hospitals, DHS initiated a consolidated contested case proceeding under the Minnesota Administrative Procedure Act (MAPA) to determine whether Minn.Stat. § 256.9657, subd. 2, is preempted. See Minn.Stat. § 14.57 (2014).
The case was assigned to an Administrative Law Judge (ALJ). The parties then entered into an agreement to toll defenses to the Hospitals' claims with respect to years prior to 2010,
Both parties moved for summary disposition, which is the MAPA equivalent of summary judgment. Pietsch v. Minn. Bd. of Chiropractic Exam'rs, 683 N.W.2d 303, 306 (Minn.2004) (citing Minn. R. 1400.5500(K) (2003)). To support their motion for summary disposition, the Hospitals submitted declarations from senior administrative officials at North Memorial and Park Nicollet to show that the Hospitals passed on the cost of the surcharge to the FEHBA and TRICARE carriers. The administrative officials described the process for calculating the surcharge liability, stated that their respective hospitals counted the surcharge as a cost when setting rates for their services, and explained that their respective hospitals negotiated rates with FEHBA and TRICARE carriers that covered all of the hospitals' expenses, including the surcharge.
The Hospitals also commissioned an expert report. The expert examined the financial statements and budgeting process of the two representative hospitals, along with other information provided by the Hospitals. The expert concluded that the representative hospitals considered the surcharge as an expense when setting their budgets and rates for services and that, as a result, the cost of the surcharge was ultimately passed on to FEHBA and TRICARE carriers.
After a hearing, the ALJ issued recommendations to the Commissioner of DHS. The ALJ concluded that the surcharge was not preempted because, although it is a "tax, fee, or other monetary payment," the surcharge is not "imposed, directly or indirectly, on a carrier." 5 U.S.C. § 8909(f)(1). As a result, the ALJ recommended denying the Hospitals' motion for summary disposition and granting DHS's motion for summary disposition. The Hospitals filed exceptions to the ALJ's recommendations and submitted those exceptions to the Commissioner. After reviewing the Hospitals' exceptions and the responses from DHS, the Commissioner issued an order resolving the contested case. The Commissioner followed the recommendations of the ALJ, denied the Hospitals' motion for summary disposition, and granted DHS's motion for summary disposition.
The Hospitals appealed the Commissioner's order to the court of appeals pursuant to Minn.Stat. § 14.63 (2014), and the court of appeals affirmed the Commissioner's decision. In re Gillette Children's Specialty Healthcare, 867 N.W.2d 513 (Minn.App. 2015). We subsequently granted the Hospitals' petition for review on the preemption issue and granted DHS's cross-petition challenging whether the Hospitals have standing in this case.
As an initial matter, DHS argues that the Hospitals do not have standing to challenge their surcharge assessments. Under Minnesota law, "[s]tanding is acquired in two ways: either the plaintiff has suffered some `injury-in-fact' or the plaintiff
DHS argues that, because the Hospitals claim that they have passed on the full cost of the surcharge to the FEHBA and TRICARE carriers, the Hospitals have not suffered an injury and therefore have no standing. The Hospitals counter that they have standing under either means of establishing standing. We conclude that the Hospitals have standing pursuant to statute.
The Hospitals claim standing under Minn.Stat. § 256.9657, subd. 6, which states that providers may request a contested-case hearing regarding the amount of the surcharge DHS assesses them on a monthly basis. The Hospitals argue that they have standing under this statute because they challenged the amount of the surcharge and each hospital perfected its appeals for various months within the relevant time period. DHS responds by arguing that the statute gives the Hospitals the ability to challenge only the amount of the surcharge, not its validity. Specifically, DHS argues that section 256.9657, subdivision 6, permits challenges regarding only the technical calculation of net revenues and the surcharge amount.
The arguments advanced by DHS are unpersuasive. The plain language of section 256.9657, subdivision 6, clearly gives providers the right to appeal the amount of the surcharge assessed on them by DHS. In this case, the Hospitals have done just that. DHS is correct that the basis of the claim made by the Hospitals focuses on the legal authority for the assessment rather than, for example, an argument about whether a specific assessment was calculated correctly. But by arguing that some of their net revenues cannot be subjected to the surcharge, the Hospitals are disputing the total amount of the assessed surcharges, contending that the amount of the surcharges should be reduced. The contention of DHS that the statute only contemplates challenges regarding the calculation of net revenues finds no support in the statutory text. In fact, Minn.Stat. § 256.9657, subd. 6, never uses the phrase "net revenue." Nor does the statutory language narrow the permissible claims to arithmetic errors. The Hospitals' challenge to the amount of their surcharge falls squarely within the parameters of the appeals contemplated by Minn.Stat. § 256.9657, subd. 6, and the Hospitals clearly have standing to pursue their claims.
We now turn to the Hospitals' contention that Minn.Stat. § 256.9657, subd. 2, is preempted by federal law to the extent that it requires the Hospitals to pay a surcharge on revenue received from FEHBA and TRICARE carriers.
This case comes before us on review from an administrative proceeding under MAPA in which the agency interpreted a federal statute. We review an administrative agency's interpretation of federal statutes de novo. Hinneberg v. Big Stone Cty. Hous. & Redev. Auth., 706 N.W.2d 220, 225 (Minn.2005). We independently review agency decisions without deferring to the rulings of lower
The Commissioner decided this case on cross-motions for summary disposition. "Summary disposition is the administrative equivalent of summary judgment." Pietsch v. Minn. Bd. of Chiropractic Exam'rs, 683 N.W.2d 303, 306 (Minn.2004) (citing Minn. R. 1400.5500(K) (2003)). A contested case may be resolved on a motion for summary disposition "where there is no genuine issue as to any material fact." Minn. R. 1400.5500(K) (2015). On review from an order granting summary disposition, the scope of our review is governed by MAPA. Hy-Vee Food Stores, Inc. v. Minn. Dep't of Health, 705 N.W.2d 181, 184 (Minn.2005). An administrative agency's decision in a contested case may be overturned or modified
Minn.Stat. § 14.69 (2014).
Because this case involves a question of preemption, it is necessary for us to review when and how state law may be preempted by federal law. In general, state law may be preempted "by express provision, by implication, or by a conflict between federal and state law." N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). The only form of preemption at issue in this case is express preemption.
"`[T]he purpose of Congress is the ultimate touchstone' in every pre-emption case." Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996) (quoting Retail Clerks Int'l Ass'n, Local 1625, AFL-CIO v. Schermerhorn, 375 U.S. 96, 103, 84 S.Ct. 219, 11 L.Ed.2d 179 (1963)). "If the statute contains an express pre-emption clause, the task of statutory construction must in the first instance focus on the plain wording of the clause, which necessarily contains the best evidence of Congress' pre-emptive intent." CSX Transp., Inc. v. Easterwood,
When a court examines a preemption provision, it must do so "with the starting presumption that Congress does not intend to supplant state law." Travelers Ins. Co., 514 U.S. at 654, 115 S.Ct. 1671. When a state law concerns an area, such as health and safety, that is traditionally included within a state's police power, the party alleging preemption bears "the considerable burden of overcoming" the presumption that Congress does not intend to preempt the state law. De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 814, 117 S.Ct. 1747, 138 L.Ed.2d 21 (1997). This is true even when the state law in question is a revenue-raising measure, as opposed to a regulatory measure. Id. "Thus, when the text of a pre-emption clause is susceptible of more than one plausible reading, courts ordinarily `accept the reading that disfavors pre-emption.'" Altria Grp., Inc., 555 U.S. at 77, 129 S.Ct. 538 (quoting Bates v. Dow Agrosciences LLC, 544 U.S. 431, 449, 125 S.Ct. 1788, 161 L.Ed.2d 687 (2005)).
FEHBA's preemption provision reads, in relevant part: "No tax, fee, or other monetary payment may be imposed, directly or indirectly, on a carrier ... by any State ... with respect to any payment made from the Fund." 5 U.S.C. § 8909(f)(1). Thus, the provision preempts any (1) tax, fee, or other monetary payment, (2) imposed by a state, (3) directly or indirectly on a carrier, (4) with respect to any payment made from the fund.
Although it is undisputed that the surcharge is a "tax, fee, or other monetary payment" within the meaning of the statute, the Hospitals contend that the surcharge is indirectly imposed on the FEHBA and TRICARE carriers when the Hospitals pass the surcharge on to the carriers via higher prices for various services.
The American Heritage Dictionary defines "indirect" as "[n]ot directly planned for; secondary." The American Heritage Dictionary of the English Language 894 (5th ed.2011). If the surcharge causes the Hospitals to increase their prices,
Next, DHS argues that the Hospitals' interpretation of "with respect to any payment made from the fund" is impermissibly broad. The American Heritage Dictionary defines the idiom "with/in respect to" as "[i]n reference or relation to; concerning." American Heritage Dictionary of the English Language 1495 (5th ed.2011). Although the surcharge does not explicitly reference payments from the fund, the surcharge is related to payments from the fund. This is particularly true in the case of experience-rated FEHBA carriers. If the surcharge increases the amount that the Hospitals charge experience-rated FEHBA carriers, it also necessarily increases the amount of reimbursement that those experience-rated carriers will seek from the FEHBA Fund on a checks-presented basis.
But, despite the fact that the language of FEHBA's preemption provision is broad and, arguably, implicates taxes and fees similar to the surcharge at issue
That the Hospitals voluntarily choose to pass on the cost of the surcharge to FEHBA and TRICARE carriers via increased prices does not mean that the State of Minnesota is imposing the surcharge on the carriers. In fact, no one is "imposing" the surcharge on the carriers at all. The rates paid by FEHBA and TRICARE carriers are the product of negotiated contracts between the carriers and service providers. The decision of the Hospitals to pass on the cost of the surcharge to the carriers does not have the force of law and is not compulsory. Ultimately, the carriers could either refuse to pay the increased prices or negotiate better rates with the Hospitals.
Because the carriers are not compelled by the State of Minnesota to pay the surcharge, FEHBA's preemption provision does not apply. This interpretation not only gives effect to the plain meaning of the word "impose," it also makes sense within the context of the statute, is consistent with the decisions of federal courts that have examined FEHBA preemption, and comports with federal case law in analogous situations.
First, the plain meaning of "impose" makes sense within the statutory context. If "impose" does not carry its plain and ordinary meaning and can encompass the voluntary passing on of taxes, fees, and other monetary payments, then the State cannot control which taxes and fees are preempted and which are not.
In this case, for instance, the Hospitals made a voluntary, unilateral choice to pass on the full cost of the surcharge to the carriers. But it is also possible to envision a situation in which the Hospitals make a voluntary, unilateral choice to internalize the cost of the surcharge by reducing their profit margins. Under the Hospitals' interpretation of the preemption provision, the Hospitals' decision to either pass on or internalize the cost of the surcharge determines whether the surcharge is preempted. If the cost is passed on, the surcharge is preempted; if the cost is internalized, the surcharge is not preempted.
This scenario not only ignores the plain meaning of "impose," which requires that the tax or fee imposed be compulsory, but also creates an untenable situation in which a State cannot predict whether, and under what circumstances, its laws are preempted. Rather, the State would be at the mercy of private parties who would decide when, and whether, a tax or fee is preempted based solely on whether the tax is passed along to carriers or internalized by providers.
Additionally, the Hospitals' interpretation would lead to a slippery slope. Under the Hospitals' view of "impose," a tax or fee is preempted any time that it can be shown to increase the costs of a FEHBA carrier. But any number of taxes and fees can increase the costs of FEHBA carriers, from sales taxes on medical equipment to taxes and fees on the trucks that transport medical supplies. If we were to accept the Hospitals' view of FEHBA preemption, the only limit on preemption would be the creativity of the accountants who attempt
Second, our interpretation is consistent with the Second Circuit's ruling in Travelers, which held that a New York statute requiring hospitals to collect a surcharge from private insurance carriers, including FEHBA carriers, was preempted. 14 F.3d at 715. The Second Circuit noted that there was no dispute regarding whether the surcharge was a tax, fee, or other monetary payment imposed on a carrier because the law expressly provided that hospitals were required to collect the surcharge from the FEHBA carriers.
In fact, the New York law at issue in Travelers is an excellent example of what the "indirect imposition" of a tax or fee can look like under the plain meaning of "impose." The New York law acted exclusively on hospitals, but it required those hospitals to pass on a cost, in that case a surcharge, to FEHBA carriers by requiring the hospitals to collect the surcharge from the FEHBA carriers. Travelers Ins. Co., 14 F.3d at 712. Consequently, New York imposed a tax, fee, or other monetary payment on the FEHBA carriers, but it was doing so indirectly by using the hospitals as a conduit for the tax.
Third, our interpretation of "impose" is consistent with analogous federal case law cited by the Hospitals. Aside from their reliance on Northwest Airlines, Inc. v. County of Kent, Michigan, 510 U.S. 355, 114 S.Ct. 855, 127 L.Ed.2d 183 (1994), which is misplaced, see supra at n. 5, the Hospitals also cite several other regulatory decisions in which the United States Supreme Court held that various state laws were preempted. The Hospitals argue that these cases stand for the proposition that a state cannot avoid federal preemption by regulating another entity in the same supply chain. But in each of the cases cited by the Hospitals, the preempted regulation required compliance from the entity that Congress sought to shelter from regulation.
For example, in American Trucking Associations, Inc. v. City of Los Angeles, the Supreme Court held that several regulations promulgated by the Port of Los Angeles were preempted by a federal law that prohibited state regulation of motor
In summary, the plain language of 5 U.S.C. § 8909(f)(1) only preempts taxes, fees, and other monetary payments that are imposed, either directly or indirectly, on carriers. To impose a tax, fee, or monetary payment means to make it compulsory. In this instance, the State of Minnesota has not imposed the surcharge on FEHBA or TRICARE carriers because those carriers are never compelled by the State to pay the surcharge. Instead, to the extent that the economic burden of the surcharge is borne by the carriers, it is because the Hospitals have voluntarily chosen to pass on the cost of the surcharge to the carriers, and the carriers have voluntarily chosen to pay the cost of the surcharge as part of their agreements with the Hospitals. As a result, the surcharge found in Minn.Stat. § 256.9657, subd. 2, is not preempted by 5 U.S.C. § 8909(f)(1).
For these reasons, we affirm the decision of the court of appeals.
Affirmed.
McBRIDE, J., Acting Justice
LILLEHAUG, HUDSON, and CHUTICH, JJ., took no part in the consideration or decision of this case.
But Northwest Airlines is not as useful as the Hospitals suggest. Northwest Airlines held that certain fees imposed by an airport authority on airlines were preempted by a federal statute banning fees or other charges imposed, either directly or indirectly, on "`persons traveling in air commerce or on the carriage of persons traveling in air commerce.'" 510 U.S. at 365, 114 S.Ct. 855 (quoting 49 U.S.C. § 1513(a)). Although the Court concluded that the fees in question were preempted, it did not specify whether the pre-emption was imposed indirectly on "persons traveling in air commerce" or "on the carriage of persons traveling in air commerce." See id.
Given the structure of the fees, it is more likely that the Court characterized the fees as charges imposed directly on the "carriage of persons traveling in air commerce." In fact, the Fourth Circuit rejected an argument that attempted to analogize the statute in Northwest Airlines to the FEHBA preemption provision for this very reason. See United States v. West Virginia, 339 F.3d 212, 218 (4th Cir. 2003). Northwest Airlines does not clearly deal with a statute that was preempted because it "indirectly" imposed fees on a carrier. As a result, Northwest Airlines is unhelpful in this case.
Although DHS is correct that the Hospitals could have chosen to reduce profits rather than pass on the surcharge and that the Hospitals could decide to maintain the same prices in the absence of the surcharge, there is clear evidence that the Hospitals in this case made a conscious, deliberate decision to pass the expense of the surcharge on to the FEHBA and TRICARE carriers. Additionally, the ALJ found that the surcharge was passed on and we choose to defer to the ALJ's findings of fact in this case. See Quinn Distrib. Co., 288 Minn. at 448, 181 N.W.2d at 699.
The Minnesota Tax Court's decision in Healthpartners, Inc. v. Commissioner of Revenue also is distinguishable. No. 6925, 1999 WL 123289 (Minn. T.C. Mar. 4, 1999). In Healthpartners, the tax was imposed directly on a staff-model health plan that participated in FEHBA as a carrier. Id. at *6. As a result, the carrier, in that case also the provider, was required to pay the tax and the tax was imposed on the carrier itself. Id. Consequently, the tax court noted that the "tax is incontrovertibly a tax, and is imposed upon the `carrier' of the insurance." Id.
