The Service's positions, answered
The Service's letters and examination reports rest on fourteen positions. Each is answered below from the statute's text, from Tri-State, from the instruments with their exhibit identifiers, and from the United States' own representations. None survives the public record of this industry, which is the one industry whose operations the orders named, counted and conditioned in the orders' own text.
1. No orders in effect
There were no government orders related to COVID-19 in effect during the quarter which could have fully or partially suspended your trade or business.
For every quarter, the quarters section lists the orders in force on the quarter's first and last day, by issuer, date and operative clause, with exhibit identifiers. For the third quarter of 2021 alone the list runs to the federal Healthcare Emergency Temporary Standard and its inspection and emphasis directives (Ex. SEC-01-001; Ex. SEC-01-002; Ex. SEC-01-003), the hospital reporting condition of participation (Ex. SEC-01-004), the section 1135 waiver terms under the renewed emergency (Ex. SEC-01-010; Ex. FED-016), the conveyance and entry orders (Ex. FED-020; Ex. FED-207), the workforce vaccination orders of thirteen jurisdictions with deadlines inside or immediately after the quarter (Ex. CA-030; Ex. WA-077; Ex. NY-071; Ex. NJ-056; Ex. SEC-01-078; Ex. RI-072; Maine's emergency rule of August 12, 2021; Ex. OR-046; Ex. CO-055; Ex. ECO-B-056; Ex. DE-047; Ex. NM-071; Ex. DC-075), Pennsylvania's reduction order to August 23 and its reporting amendment of August 13 (Ex. PA-025; Ex. PA-041), Washington's Proclamation 20-24.2 (Ex. WA-049), the visitor and infection-prevention orders of California, New York, Oregon, Washington, Massachusetts and Connecticut (Ex. SEC-01-060; Ex. NY-073; Ex. NY-074; Ex. SEC-01-110; Ex. WA-078; Ex. MA-050; Ex. CT-052), the hospital-capacity orders of Tennessee, Alabama, Nebraska, Indiana and Rhode Island and Louisiana's order on surge-transfer coverage (Ex. SEC-01-075; Ex. AL-052; Ex. NE-068; Ex. IN-071; Ex. RI-058; Louisiana's Emergency Rule 46), and the crisis standards of care of Idaho and Alaska (Ex. SEC-01-100; Ex. AK-031).137 A form sentence that no orders were in effect is not the determination the United States described to the District Court:
That is done on a case-by-case basis.Doc. 44 at 30 n.7
The sentence describes a quarter that did not occur, and the Service's records, whatever they contain, do not contain the Federal Register.138
2. Designated essential and open
The employer operated an essential business and remained open.
The word "essential" is not in the statute. Every hospital was designated essential, and every hospital was ordered to stop performing its elective and non-urgent procedures, to hold beds empty, to bar visitors and to report daily; the designation permitted the emergency department to operate and exempted no service line from the orders that closed it.139 The Notice's own Example 4 disposes of the position in this industry's own terms. It begins: "Employer H, a hospital, is considered to be operating an essential business under a governmental order with respect to its emergency department, intensive care, and other services for conditions requiring urgent medical care." It continues: "However, the governmental order treats Employer H's elective and non-urgent medical procedures as non-essential business operations and prevents Employer H from performing these services." And it concludes: "Although Employer H is an essential business, Employer H is considered to have a partial suspension of operations."140 The United States told the District Court the same thing:
An employer could be considered to have a partial suspension due to the governmental order if it was required to suspend certain operations for certain purposes.Doc. 44 at 15
A hospital that "remained open" under an order that fixed which of its services it could perform, how many of its beds it could fill and whom it could admit through its doors was partially suspended by that order, and the Service is bound by its own example to say so.141
3. Orders directed to the public
Stay-at-home orders directed to the public are not considered; only orders directed at business operations count.
The statute says nothing of the source or addressee of the order; it asks whether the order limited "commerce, travel, or group meetings." The Notice's own list of qualifying orders includes "A State's emergency proclamation that residents must shelter in place" and "An order from a local official imposing a curfew on residents," both addressed to the public, and the United States quoted that list to the District Court as the statute's meaning and told the Ninth Circuit that a third-party order counts:
A business may be suspended "due to" a government order addressing a third party.Br. for Appellees at 41
In this industry the position has no purchase at all, because the orders were directed at hospital operations in terms: "all licensed health care facilities shall postpone all surgeries and procedures" (Ex. TX-004); "all 'elective' surgeries performed on adults ... are suspended in the State" (Ex. NJ-006); "I hereby prohibit all hospitals ... from providing health care services, procedures and surgeries that, if delayed, are not anticipated to cause harm to the patient within the next three months" (Ex. WA-015); "the hospital must report information in accordance with a frequency, and in a standardized format, as specified by the Secretary" (Ex. SEC-01-004); "this section applies to all settings where any employee provides healthcare services" (Ex. SEC-01-001); "Covered entities shall continuously require personnel to be fully vaccinated against COVID-19, with the first dose for current personnel received by September 27, 2021 for general hospitals" (Ex. NY-071).142 The position rewrites the statute and misdescribes the orders.
4. Comparable operations through telework
The employer could have continued comparable operations through telework.
"Comparable operations" and "telework" are not in the statute; Tri-State defines a partial suspension as a temporary delay, interruption or termination of a portion of the business.143 The Notice's own factor (3) answers the position for this industry: where "the physical work space" is "so critical" that central tasks cannot be performed remotely, "this factor alone indicates that the employer is not able to continue comparable operations."144 An operating room, an intensive care unit, an emergency department, an imaging suite and a labor and delivery floor are that work space. Q&A-15 provides that where "the closure of the workplace causes the employer to suspend business operations for certain purposes, but not others, it may be considered to have a partial suspension of operations due to the governmental order," and its Example 3 treats a laboratory that "cannot continue in a comparable manner" as partially suspended although its modeling staff teleworked; the surgical, procedural, diagnostic and inpatient operations of a hospital are that laboratory.145 Telehealth was the modification the orders compelled for the outpatient function, under federal terms the Office for Civil Rights and the DEA set (Ex. FED-194; Ex. AGY-FED-HEALTH-OTHER-001), and a compelled modification of a more than nominal portion is a partial suspension, which is what Q&A-17 also says.146 A hospital whose surgical schedule was cancelled for six to ten weeks did not continue "comparable operations" by video visit; it continued the portion of its operations the orders left it. The position substitutes a word Congress did not write for the one it did.
5. Orders on customers, not the employer
The orders affected the employer's customers, not the employer (Q&A-13).
Q&A-13 addresses an employer that suspends operations because of "a reduction in demand." This analysis relies on no reduction in demand. It relies on orders that told hospitals which procedures they could perform, how many beds they had to hold, whom they could admit, what they had to report, how they had to screen, what they could buy and whom they could employ, and it identifies those orders as orders limiting commerce, travel and group meetings addressed to hospitals by name.147 Where the analysis relies on orders on counterparties, they are the nursing-home admission and visitation orders that governed every discharge, the Defense Production Act rules that governed every purchase of protective equipment, and the stay-at-home orders that confined the patients an emergency department serves, each an order limiting commerce under the statute's text, Q&A-12's logic and the United States' admission that a third-party order counts.148 Q&A-13 describes an employer that "responds to the lack of demand by suspending some or all of its operations." It does not describe a hospital whose Governor cancelled its surgeries, and the Service's invocation of it against this industry misdescribes both the orders and the industry.
6. Voluntary measures
The employer's measures were voluntary (Q&A-14).
A surgical schedule cancelled because GA-09 commanded it, a bed reserve held because GA-19 commanded it, a visitor turned away because Executive Order 2020-7 commanded it, a daily census reported because 42 C.F.R. § 482.42(e) commanded it, and an unvaccinated nurse placed on leave on September 27, 2021 because 10 NYCRR § 2.61 commanded it are not voluntary.149 Tri-State decided the point on a hospital's facts: the United States argued that the hospital would have taken the same steps regardless, and the court, taking the hospital's allegations as true, recited that "The Proclamation required Plaintiff to only employ vaccinated individuals" and that the changes "were not voluntary," held that the hospital "alleged sufficient facts that the interruption was caused by the Proclamation," and held that "the required protocols and procedures to comply with the Proclamation" were the order's effects, not the disease's.150 Q&A-14 describes an employer that closes without any order; every modification described here is traced to an order with an exhibit identifier. Where a health system adopted a systemwide policy to comply with the orders of the jurisdictions that bound it, Q&A-20 makes it eligible "with respect to all of its operations in all locations."151 A modification traced to an order with an exhibit identifier is not voluntary, and the position that it was describes an employer this analysis does not address.
Q&A-14 reaches, by its own terms, only a suspension "not due to a governmental order," and the United States and the District Court have defined the excluded employer as one "not being ordered to do so."152 No hospital in Texas, New York, Ohio, Washington, New Jersey, Florida or New Hampshire answered that description in any of the six quarters. The elective-procedure, capacity, visitation and reporting orders permitted operation only on conditions with the force of law (Ex. TX-004; Ex. TX-009; Ex. NJ-016; Ex. WA-049; New York's reopening orders; Ex. OH-019; Ex. SEC-01-065; Ex. NH-051), each behind a statute that punished its violation (Ex. DUT-TX-012; Ex. DUT-NJ-006; Ex. LAW-340; Ex. DUT-NY-001; Ex. DUT-NY-002; Ex. DUT-OH-004; Ex. DUT-FL-008; Ex. DUT-NH-010). The standing statutes commanded the same conduct independently: "Each person shall act responsibly to prevent and control communicable disease" (Ex. DUT-TX-001), and each employer "shall furnish to each of his employees employment and a place of employment which are free from recognized hazards" (Ex. DUT-FED-001), with the State safe-workplace statutes beside the federal clause (Ex. DUT-TX-013) and the conditions of participation over every hospital (Ex. DUT-FED-024). The legislatures of Texas, Florida and New Hampshire then fixed the standard of care as compliance with governmental standards, guidance and protocols, in Texas for every action commenced on or after March 13, 2020 (Ex. DUT-TX-015; Ex. DUT-FL-012; Ex. DUT-NH-014). The safe-workplace statute had no COVID-19 content until the health authorities said what a safe hospital required; the screening, distancing, isolation rooms, protective equipment and face coverings of the exposure-control regime were taken because those directives defined the duty and would not have been taken without them. "Due to" is but-for causation, and the causation here runs from the command to the measure without an intervening choice.153 The Notice's own words say the same: a modification "required by a governmental order as a condition of reopening" is a partial suspension due to the order.154 A statute that commands conduct is an order from an appropriate governmental authority, and the source of the command is irrelevant; the Service's premise, that no command reached the employer, fails wherever one did, which in this industry is every State and every quarter.
7. The ten percent figure as a floor
The portion of the business affected was not more than nominal (the 10 percent figure applied as a floor).
The ten percent figure is, in the United States' words, "not determinative," "[e]ffectively ... a safe harbor," "not an eligibility requirement," "a quintessential safe harbor," "a safe harbor rather than a hard floor"; the District Court held it "is not an exclusionary cut-off point"; and Tri-State held that the Notice "provides a method for the test to be met not as a requirement to meet the test" and that reading it as a requirement "would read requirements into the statute that do not exist."155 The showing for this industry exceeds the safe harbor many times over on the orders' own terms: the elective and non-urgent surgical and procedural line that more than thirty States terminated is the largest service line of every general hospital; Texas's reserve took fifteen percent of every hospital's capacity out of ordinary use for four and a half months and ten percent for the six months that followed, by the orders' own arithmetic; Pennsylvania's order cut elective procedures by fifty percent by its own terms; Kentucky's third phase capped inpatient procedures at fifty percent of pre-shutdown volume by its own terms; and Tri-State's hospital alleged that the cancellations "resulted in approximately $4.6 million less than anticipated income," a showing the court found sufficient.156 The position applies as a floor a figure the United States has told two federal courts is not one.
8. Modifications with a nominal effect
The required modifications (masks, gloves, spacing, screening) had only a nominal effect on operations (Q&A-18).
The modifications described here are cancelled surgeries, reserved beds, barred visitors, converted clinics, isolation rooms held empty, allocated supplies, daily reporting on pain of termination, mandatory medical removal of exposed staff, and the separation of unvaccinated workers, and the face-covering and screening orders of 2020 and 2021 are treated as what they are: workplace infection-prevention and exposure-control requirements, imposed by appropriate governmental authorities, that conditioned every entry to every hospital. Q&A-18 itself provides that a modification "that results in a reduction in an employer's ability to provide goods or services in the normal course of the employer's business of not less than 10 percent will be deemed to have more than a nominal effect," and a hospital whose elective line was terminated, whose beds were reserved by percentage and whose visitors were barred reduced its ability to provide services in the normal course by far more than that figure on the orders' own terms. The United States told the District Court as much of the smallest control in the regime:
Employees having to wear face masks may impact business operations.Doc. 44 at 30
Tri-State held that "the required protocols and procedures to comply with the Proclamation" were suspensions the order caused, on a record of screening, distancing, isolation, testing and quarantine protocols, and refused the argument that they were nominal.157 The federal Healthcare Emergency Temporary Standard's written plan, airborne infection isolation rooms, barriers, ventilation, medical removal and paid leave are not a modification with a nominal effect; they are a federal regulation of every hospital's operation enforced by citation and inspection (Ex. SEC-01-001; Ex. SEC-01-002; Ex. SEC-01-003). The position mistakes one control in a regime for the whole of the regime, and applies to the whole a sentence the United States has represented carries no force of law.158
9. A declaration of emergency is not an order
A declaration of emergency is not an order (Q&A-10).
This analysis treats no bare declaration as a suspending order. The federal public health emergency and the President's national emergency are treated as the predicates of the section 1135 waivers, the reporting condition of participation and the Defense Production Act rules, each of which is an order with operative terms (Ex. SEC-01-010; Ex. SEC-01-004; Ex. SEC-01-013).159 Where a State emergency declaration is cited, it is cited as the instrument under which the elective-procedure, capacity, visitation and vaccination orders issued and were continued, or as proof of a period, which the Notice's own text allows; where an emergency instrument itself carried operative hospital terms, as Tennessee's Executive Order 83, Alabama's proclamation of August 13, 2021 and Iowa's proclamations did, it is relied on for those terms (Ex. SEC-01-075; Ex. AL-052; Ex. IA-011).160 The position answers an argument this analysis does not make.
10. Supply-chain effects too attenuated
The supplier was not itself closed by order; supply-chain effects are too attenuated (AM 2023-005).
Chief Counsel memoranda "may not be used or cited as precedent," by their own legend, which Tri-State quoted in declining to rely on the Chief Counsel memorandum the United States offered there.161 The supply chain of this industry was not attenuated; it was federally allocated. FEMA's temporary final rule placed respirators, masks, gloves and gowns under priority and allocation from April 7, 2020 to June 30, 2021, HHS designated them scarce materials through November 15, 2021, and the State resumption orders forbade a hospital that resumed elective procedures to draw on public stockpiles (Ex. SEC-01-013; Ex. FED-077; Ex. FED-078; Ex. FED-074; Ex. ECO-A-071; Ex. AZ-015; Ex. SEC-01-065).162 The nursing homes that receive a hospital's discharges were under CMS's visitation, testing and vaccination rules and the States' admission orders on every day (Ex. FED-156; Ex. FED-094; Ex. NJ-064; the Michigan MDHHS order of May 21, 2021). The United States has described the supplier rule to both courts in terms that exclude the position:
[The supplier rule] never even mentions a "physical[ ] clos[ure]" order against the supplier.Br. for Appellees at 41 n.5
[An employer is eligible where its operations are suspended] because of the supplier's inability to deliver.Doc. 44 at 13 n.3
Causation is but-for on the United States' own agreed definition: absent the allocation rule, no law fixed the hospital's protective-equipment market; absent the admission orders, no law delayed the discharge.163 The position describes an attenuated chain this analysis does not trace; a supply allocated by federal rule is not a supply-chain effect, and a Chief Counsel memorandum that cannot be cited as precedent is not the statute.164
11. Orders lifted before the quarter
The orders had lifted before the quarter began; any effect was a lingering effect.
For the third quarter of 2021 the orders had not lifted: the third-quarter inventory lists, with dates, the orders in force on July 1 and September 30, 2021, from the federal standard and the reporting condition of participation to the thirteen vaccination orders, Pennsylvania's reduction order, Washington's Proclamation 20-24.2 and the crisis standards of Idaho and Alaska, and the paragraph that follows it names the expired instruments on which the analysis does not rest. Where the position means that a suspension compelled by an order that expired on June 30 ended at midnight, it misreads the clause, which asks whether the operation "is fully or partially suspended during the calendar quarter," and it contradicts Tri-State's definition of a suspension as a "delay," Q&A-22's whole-quarter rule and Q&A-16's transition rule.165 A hospital whose surgical schedule was cancelled by order in March 2020, restored on conditions between May and July 2020, cut again by order in the winter of 2020-21 and restored again between January and April 2021 was performing the backlog those orders created in every quarter that followed, and the interconnected-economy section states the arithmetic from the orders' own step dates. The position mistakes the date an order lapsed for the date the suspension it compelled ended; the clause asks about the second.
12. No decline in gross receipts
The employer did not experience the required decline in gross receipts.
The gross-receipts prong is not relied on. The statute makes an employer eligible on either prong, and the United States admitted in Tri-State that the gross-receipts test is "another method to qualify," on which the court held "the fact an employer can be eligible and affected without partial or full suspension is reasonable."166 The suspension prong asks about operations, not revenue, and it is satisfied in every quarter. The position answers a prong this analysis does not invoke; Congress joined the two prongs with "or."
13. Guidance, recommendations or best practices
The instruments relied on are guidance, recommendations or best practices, not orders.
Every instrument this analysis relies on as a suspending order is an order, proclamation, rule, regulation, directive, statute or administrative order with the force of law, issued under a recited statutory power and enforced by penalty, licensure, termination from Medicare, citation or contract.167 The CMS recommendations of March 18, April 7 and April 19, 2020 are treated as recommendations, and the instruments cited are the State orders that converted them into law by incorporation, as Utah's order of March 23, 2020 did in terms ("in accordance with version 3.15.20 of the CMS Adult Elective Surgery and Procedures Recommendations"), and the survey standard CMS enforced under the infection-control condition of participation (Ex. SEC-01-006; Ex. FED-165).168 The North Carolina Secretary's letter of March 20, 2020 is treated as a request, and the mandatory layer in North Carolina is the stay-at-home and visitation orders (Ex. NC-068).169 The Notice itself provides that whether an instrument is a governmental order "is determined without regard to the level of enforcement."170 An instrument enforced by fine, licensure, Medicare termination or OSHA citation is not a recommendation, and the position that it is misdescribes every instrument this analysis names.
14. The ordinary meaning of "order"
"Order" must be given its ordinary meaning.
Agreed. An "order" is "An authoritative indication to be obeyed; a command or direction," and the United States agreed in Tri-State that the clause is read by "plain meaning."171 Every instrument in the findings below is a command from a competent authority to hospitals, or to those on whom hospitals depend, to do or refrain from doing something on pain of sanction: "shall postpone," "are suspended," "I hereby prohibit," "must report," "shall reduce by fifty percent (50%)," "shall continuously require personnel to be fully vaccinated," "this section applies to all settings." That is the ordinary meaning, and it is satisfied.
The Service is free to disagree about the weight of these instruments. It is not free to say they did not exist.