LOUIS W. SULLIVAN, SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL., PETITIONERS V. SANDRA EVERHART, ET AL. No. 88-1323 In The Supreme Court Of The United States October Term, 1988 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Tenth Circuit Reply Memorandum For The United States Respondents do not deny that the decision of the United States Court of Appeals for the Tenth Circuit in this case conflicts with the opinions of the Third and Eighth Circuits upholding the Secretary's "netting" regulations, 20 C.F.R. 404.504, 416.538. Nor do they deny that this case is worthy of review by this Court. Instead respondents urge summary affirmance (Br. in Opp. 7). In support of that suggestion, however, respondents merely repeat the Tenth Circuit's erroneous analysis of the statutory provisions governing payment error correction, and ignore the far-reaching consequences of the court's ruling on the administration of the Title II and Title XVI benefits programs. We have explained more fully in our petition why the Tenth Circuit's decision is wrong and why the question presented is plainly substantial. Accordingly, only a brief reply is warranted. 1. Respondents reiterate (Br. in Opp. 7) the Tenth Circuit's conclusion that the "plain and unequivocal language of the waiver statute" forbids application of the netting methodology prior to consideration of waiver. As we explain in the petition (at 11-12 & n.7), however, there is nothing in the history of these enactments to suggest that the terms "adjustment or recovery" in Sections 204(b) and 1631(b)(1)(B) were intended to refer to offsets against past underpayments, and much to suggest otherwise. The evolution of the statutory language indicates that the terms "adjustment or recovery" refer only to specified measures the Secretary was authorized take to collect excess amounts mistakenly paid out -- that is, to an "adjustment" of future benefit payments or a "recovery" in the form of a legal action demanding a refund from the recipient's estate or from assets in the recipient's possession. The current version of the waiver provisions buttresses this view by describing "adjustment" as an "appropriate adjustment() in future payments to such individual" (42 U.S.C. 1383(b)(1)(A) (Supp. IV 1986) (emphasis supplied)), and "recovery" as the requirement that "such overpaid person or his estate * * * refund the amount in excess of the correct amount * * *" (42 U.S.C. 404(a)(1)(A) (Supp. IV 1986)). Moreover, like the court of appeals, the Brief in Opposition fails to give the proper degree of deference to the Secretary's construction of the meaning of terms appearing in the waiver provisions -- an interpretation that fully takes into account the overall structure of the sections governing payment error correction. As respondents note (Br. in Opp. 8), the court of appeals relied on the statute's "distinct treatment for overpayments and underpayments" -- that is, the provision for automatic reimbursement of shortfalls, as opposed to the requirement of a waiver inquiry prior to recovery of excesses -- to justify its rule that the two types of error must be strictly segregated on a monthly basis. But, we have already pointed out why that reliance is misplaced (Pet. 10-13). The texts of Sections 204 and 1631(b)(1) do not use the terms "underpayment" or "overpayment," and do not require the Secretary to consider waiver before correcting every error made in one or more months. On the contrary, the statute directs the Secretary to determine whether "more or less" than the correct amount of benefits has been paid, and places no restrictions on the method by which the determination is to be made. The term "more or less" is not defined in any provision of the Social Security Act, and the Secretary is not limited to corrections of errors on a monthly basis. In short, contrary to respondents' and the court of appeals' assertion, there are no "mandatory statutory provisions" that prohibit the Secretary from using the common business method of offset (Br. in Opp. 9). It is not the discovery of an "overpayment" in one or more months that triggers the Secretary's obligation to consider a waiver; rather, it is the Secretary's attempt to seek adjustment or recovery -- a step the Secretary cannot take until it is determined that "more * * * than the correct amount of payment has been made." The plain language of the provisions authorizing the Secretary's determination of error, Sections 204(a) and 1631(b)(1)(A), therefore clearly permits the Secretary to use the netting method. /1/ 2. Respondents also fail to address our contention (Pet. 14) that the Secretary's interpretation of the waiver provisions enacted by Congress is not only permissible, but is more reasonable than the Tenth Circuit's construction. The Secretary's practice of aggregating all errors made in the past assures that subsistence beneficiaries always receive an opportunity for a waiver hearing before any affirmative recovery is attempted. At the same time, it avoids requiring the Secretary to overpay thousands of individuals who have received all the benefits to which they are entitled. In contrast, the Tenth Circuit's requirement that the Secretary keep a separate account of all underpayments and overpayments not only would mandate the disbursement of much larger amounts to all previously netted beneficiaries, but it would have other unavoidable consequences that respondents choose to ignore or attempt to minimize by misrepresenting statements made by HSS officials during the course of litigation. /2/ Most notably, respondents' suggestion (Br. in Opp. 13-14) that the invalidation of netting will entail nothing more than the obligation to list an additional number on a notice form is refuted by our account (Pet. 19) of how separate accounting will create a large, new class of beneficiaries with outstanding overpayments. Respondents assert that, because only a small percentage of beneficiaries notified of outstanding overpayments request forgiveness, the creation of such a new class of beneficiaries will not significantly increase the agency's workload (Br. in Opp. 14). /3/ However, even if beneficiaries from whom recovery is sought continue to request waivers at the same rate, HHS can still expect to be deluged with more than 10,000 new applications for forgiveness requiring an intensive and detailed case-by-case investigation and a hearing. In any event, the processing of additional waiver requests is only one of the inevitable administrative effects of the court of appeals' separate accounting requirement. Respondents fail to discuss the consequences that are of greatest concern to an already overburdened agency -- the paperwork and time required to process, monitor, and collect overpayments that do not qualify for waiver. And respondents themselves point out that fully one fifth of the newly created outstanding debt that the Secretary is entitled to recoup will never be collected. See Br. in Opp. 14. This further compounds the costs to the government of an unnecessary revision in its established method for correcting payment errors. For the foregoing reasons and those given in the petition, it is respectfully submitted that the petition for a writ of certiorari should be granted. WILLIAM C. BRYSON Acting Solicitor General MAY 1989 /1/ Respondents' contention (Br. in Opp. 10-12) that this Court's decision in Califano v. Yamasaki, 442 U.S. 682 (1979) is incompatible with the use of the netting methodology turns entirely on the erroneous assumption that the offsetting of past excess payments against past underpayments is a form of "adjustment or recovery" that must be preceded by an opportunity for a hearing. But the Yamasaki Court, which ruled that computational disputes concerning the accuracy of the Secretary's determination of past errors need not be resolved in a face-to-face hearing, placed no restrictions on the method the Secretary could use to compute a past error. Respondents also misrepresent the plain terms of the netting regulations in asserting (Br. in Opp. 12) that they create an open-ended netting period that is subject to manipulation by the Secretary to "minimize the funds available to beneficiaries for waiver." The period over which errors can be taken into account is the very opposite of "open-ended": it closes with "the month the initial determination of overpayment or underpayment is made." 20 C.F.R. 416.538; see also Pet. 5. Thus, once the Secretary discovers that there has been a mistake in a monthly payment, he is not permitted to hold open the netting period to offset that error against future shortfalls or excesses. He can only look backwards to the "first month for which there is a difference" between the amount paid and the correct amount due. /2/ Respondents claim (Br. in Opp. 13) that the October 1987 estimate by the General Accounting Office of the magnitude of the average underpayment, cited in the petition (at 19), contradicts a statement made by an HHS attorney, Karen Wilson, in an affidavit filed earlier in 1987, to the effect that the Secretary has no record of the amounts of the component monthly errors that are added together by netting. These two statements, however, refer to entirely different matters. The number provided in the GAO Report (see Pet. 17 n.12) represents the average of all final underpayments that the Secretary is required to reimburse. It takes into account all "pure" underpayments as well as the far smaller number of underpayments that result from netting of mixed errors. The figure was cited in the petition to provide a rough estimate of the magnitude of the new set of underpayment errors that the Secretary will be required to reimburse separately if netting is prohibited. Because the Secretary must keep records of the amounts owed and repaid to individual beneficiaries, the Secretary has ready access to the information referred to in the GAO report. The same is not true of the information described by Ms. Wilson, since the Secretary has no reason to keep track of the component monthly errors that go into the computation of a net error amount. Respondents also attempt (Br. in Opp. 12) to cast doubt on the Secretary's estimate (Pet. 17) of the number of beneficiaries netted yearly by adducing a purportedly contradictory statement by Jack Gallagher, an HHS official, that there is no computer method by which beneficiaries whose errors have been netted can be individually identified. Once again, there is no inconsistency. The 300,000 estimate was arrived at by a statistical sampling method, not by searching a computer file for the name of every beneficiary to whom netting had been applied. As Mr. Gallagher stated in his affidavit to the district court, the task of producing such a list of names -- which is very different from estimating an overall number of recipients with past "mixed" errors -- is one the HHS computer cannot be programmed to carry out. /3/ The invalidation of netting may well generate a higher percentage of waiver requests by creating a greater incentive to seek forgiveness. As the petition points out (at 18 & n.13), separate accounting will lead to an increase in the amount owed to the government by those beneficiaries whose past overpayments would otherwise have been reduced by offset. Because, for this group, the obligation to repay will become more onerous than it would have been after netting, it is reasonable to expect that these beneficiaries will request waivers of recoupment more frequently.