NOVA v. Veterans Affairs: Rejecting Agency Deference and Protecting Health Benefits for Veterans

The following is a guest post from Logan Moore. Logan is a 3L at the University of Missouri School of Law and a member of our Veterans Law Clinic.  Under the leadership of Prof. Angela Drake, our clinic filed an amicus brief in this important new Federal Circuit case. — Dennis

by Logan Moore 

I. Introduction

Veterans are typically entitled to benefits for service-connected disabilities. The Department of Veterans Affairs (VA) has adopted a rating schedule, divided into different diagnostic codes (DCs) for various symptoms or conditions, to evaluate how an injury impairs a veteran’s earning capacity.^[1] The VA recently amended its diagnostic code for claims related to prosthetic knee replacements (DC 5055) to clarify that the criteria apply to “total [knee] replacements only.”[2] The amendment resolved ambiguity as to whether DC 5055 also covered partial knee replacements. For claims filed under DC 5055 on or after February 7, 2021, the new, seemingly unambiguous rating criteria will be applied. For pending claims filed before February 7, 2021, however, the old, ambiguous rating criteria will be applied if more favorable to the veteran.[3] Therefore, even though the VA formally amended its rating schedule almost two years ago, courts’ interpretation of the “old” DC 5055 still has a meaningful impact on thousands of pending claims filed before February 7, 2021.

The National Organization of Veterans’ Advocates (“NOVA”) petitioned the Federal Circuit to review VA’s interpretation of the prior DC 5055 language. Specifically, VA set out its own interpretation of the diagnostic code in 2015 – in the “Knee Replacement Guidance” – and again in 2016 – in the “Knee Replacement Manual Provision.” Thus, in National Organization of Veterans’ Advocates v. Secretary of Veterans Affairs (“NOVA 2022”),[4] the Federal Circuit faced several important questions about DC 5055, including (1) whether the Knee Replacement Guidance or the Knee Replacement Manual Provision constitutes the “final agency action” reviewable by the Federal Circuit; (2) whether DC 5055 was ambiguous at the time of VA’s guidance; (3) whether Auer agency deference applied to VA’s interpretation;[5] and (4) whether the Gardner pro-veterans canon required any doubts to be resolved in NOVA’s favor.[6]

NOVA 2022 provides some clarity on two principles that are often in conflict in veterans’ law cases—the general rule of deference to an agency’s interpretation and a pro-veteran canon to resolve all doubt in favor of the veteran. And its holding gives important insight on how adjudicators should analyze disability claims under DC 5055 for claims filed before February 7, 2021.

Ultimately, the NOVA 2022 majority held: (1) the Knee Replacement Guidance published in July 2015 was the “final agency action” subject to the court’s review; (2) at the time of this final agency action, DC 5055 was ambiguous as to whether it covered partial knee replacements; (3) the Knee Replacement Guidance was not entitled to Auer deference as it was inconsistent with a vast majority of prior Board decisions; and (4) the petitioner’s interpretation was entitled to the pro-veteran presumption because the language of DC 5055 did not unambiguously support the Secretary’s argument.

With this preview in mind, it is helpful to briefly discuss a prior Federal Circuit decision regarding VA’s “Knee Replacement Guidance”—Hudgens v. McDonald, 823 F.3d 630 (Fed. Cir. 2016).[7]

II. Hudgens v. McDonald

Michael Hudgens injured his knee while serving on active duty in the United States Army. In 2003, he had partial knee replacement surgery, and, in 2006, he sought benefits from the VA for his injury. When he was eventually given a 0% disability rating for right knee instability, he appealed to the Board of Veterans’ Appeals (“Board”). At the time of Mr. Hudgens’s claim and appeal, DC 5055 provided the following guidance for prosthetic replacement of the knee joint:

For 1 year following implantation of prosthesis ……………… 100 [% disability rating].

With chronic residuals consisting of severe painful motion or weakness in the affected extremity …………….. 60 [% disability rating].

With intermediate degrees of residual weakness, pain or limitation of motion rate by analogy to diagnostic codes 5256, 5261, or 5262.

Minimum rating …………….. 30 [% disability rating].

Both the Board and the United States Court of Appeals for Veterans Claims (“CAVC”) denied Mr. Hudgens’s claim on the grounds that DC 5055 applied only to total knee replacements. Mr. Hudgens ultimately appealed to the Federal Circuit.

Prior to the court’s consideration of Mr. Hudgens’s case, the majority of the Board’s decisions regarding DC 5055 found that the regulation did apply to partial knee replacements.^[8] But in July 2015, just before final briefs were due to the Federal Circuit in Mr. Hudgens’s case, the VA published an informal rule (the “Knee Replacement Guidance”) to clarify that the language of DC 5055 “refers to replacement of the joint as a whole.”^[9] Thus, the Hudgens court was tasked with addressing the confusion surrounding DC 5055’s coverage.

In Hudgens, the Federal Circuit ultimately held that (1) DC 5055 was ambiguous ­– it did not expressly state that it applied to only full knee replacements, and the majority of Board decisions regarding DC 5055 found that it actually covered partial replacements, (2) Auer deference did not require acceptance of the VA’s interpretation in the Knee Replacement Guidance – it is the Veterans Court’s “stated practice” to look to Board decisions for guidance and the Knee Replacement Guidance conflicted with numerous prior Board rulings,^[10] and (3) the pro-veteran presumption applied. Therefore, the Federal Circuit ultimately held that DC 5055 covered partial knee replacements.

III. NOVA 2022

Fast-forward a little more than six years, and the National Organization of Veterans’ Advocates (“NOVA”) petitioned the Federal Circuit to review the VA’s updated interpretation of DCs 5055.^[11]

III.A. VA’s Post-Hudgens Amendment to DC 5055

Six months after Hudgens, the VA directed regional office (“RO”) adjudicators “to not evaluate under DC 5055 any claims for partial knee replacements filed and decided on or after July 16, 2015” (Knee Replacement Manual Provision).^[12] And in 2020, the VA amended DC 5055 following notice-and-comment to “clarify [its] intent to provide a minimum evaluation following only total joint replacement.”^[13] The amended regulation provides, in relevant part:

Prosthetic replacement of knee joint: … Minimum evaluation, total replacement only ……………….. 30 [% disability rating].

In addition, a note was added to the rating schedule to emphasize that “prosthetic replacement” in DC 5055 “means a total replacement of the named joint.”^[14]

III.B. Jurisdictional Question

The Federal Circuit first briefly resolved the jurisdictional question: which VA instruction – the Knee Replacement Guidance or the Knee Replacement Manual Provision – constituted the final agency action subject to the court’s review? The court acknowledged that “Manual [P]rovisions that merely republish prior agency interpretations or restate existing law are not reviewable” in the Federal Circuit. Because the Knee Replacement Guidance “predates the Knee Replacement Manual Provision, and the Manual provision makes no substantive change to the Guidance,” the NOVA 2022 court held that the July 2015 Knee Replacement Guidance was the reviewable agency action.

III.C. Whether “Old” DC 5055 Covers Partial Knee Replacements After VA’s Knee Replacement Guidance

With the jurisdiction question answered, the court turned to address whether the VA’s interpretation of DC 5055 in its Knee Replacement Guidance was “arbitrary and capricious” or contrary to law.^[15] The court noted that it must look to the text of DC 5055 “on the date the VA promulgated the Knee Replacement Guidance” because the court’s evaluation is whether the Guidance constitutes a valid interpretation of the code. The court followed Hudgens and concluded that the version of DC 5055 that existed when the VA promulgated the Knee Replacement Guidance is ambiguous.

Similar to Hudgens, the Federal Circuit then considered whether Auer deference or the Gardner pro-veteran presumption applied in this case. The court ultimately held that the prior conflicting Board decisions still precluded application of the Auer deference because “no relevant law or facts [had] changed since [its] decision in Hudgens.” Notably, since Hudgens, the Supreme Court reinforced the limits of the Auer doctrine. Specifically, in Kisor the Court provided that Auer deference is not appropriate where the agency interpretation “creates an unfair surprise” that upends reliance by regulated parties.^[16]

According to the Federal Circuit, the Knee Replacement Guidance created unfair surprise because (1) Board decisions provide persuasive authority to the CAVC, (2) the vast majority of Board decisions prior to the Guidance applied DC 5055 to partial replacements, and thus (3) the prior Board interpretations may have “engender[ed] reliance interests that foreclose” Auer deference. Therefore, the NOVA 2022 court concluded that Hudgens still controlled its decision and the Knee Replacement Guidance did not qualify for deference.

Finally, under the pro-veteran canon of construction, the Federal Circuit determined that it must defer to NOVA’s interpretation of DC 5055. In Hudgens, the court held that “even if the government’s asserted interpretation of DC 5055 is plausible, it would be appropriate under the pro-veteran canon only if the regulatory language unambiguously supported the government’s interpretation.” And as the NOVA 2022 court explained, the text of DC 5055 at the time of the Knee Replacement Guidance was certainly ambiguous and thus any doubt should be resolved in favor of petitioners.

IV. Conclusion

There remain thousands of pending veteran disability benefit claims filed before the VA recently amended some of its rating criteria—including DC 5055. The Federal Circuit’s holding in NOVA 2022 provides important guidance to adjudicators charged with applying the old DC 5055 language to a veteran’s pre-2021 claim.

= = =

^[1] 38 C.F.R. § 4.1.

[2] DC 5055 can be found at 38 C.F.R. § 4.71a.

[3] Under the “pro-veteran canon,” ambiguous VA regulations are interpreted in a manor favorable to the veteran.

[4] Nat’l. Org. of Veterans’ Advocates, Inc. v. Secretary of Veterans Affairs, 48 F.4th 1307, 1310 (Fed. Cir. 2022).

[5] Under Auer v. Robbins, an agency’s interpretation of its own regulation is controlling unless the interpretation is “plainly erroneous or inconsistent with the regulation.” 519 U.S. 452, 461 (1997).

[6] Under Brown v. Gardner, “interpretive doubt is to be resolved in the veteran’s favor.” 513 U.S. 115, 118 (1994).

[7] Hudgens v. McDonald, 823 F.3d 630 (Fed. Cir. 2016).

^[8] To this point, 11 out of 14 relevant Board decisions found that DC 5055 was applicable to both full and partial knee replacements. Id. at 637.

^[9] Agency Interpretation of Prosthetic Replacement of a Joint, 80 Fed. Reg. 42042 (July 16, 2015).

^[10] The Supreme Court has clarified that Auer deference is unwarranted where “the agency’s interpretation conflicts with a prior interpretation.” Christopher v. Smithkline Beecham Corp., 567 U.S. 142, 155 (2012).

^[11] Nat’l. Org. of Veterans’ Advocates, Inc. v. Secretary of Veterans Affairs, 48 F.4th 1307, 1310 (Fed. Cir. 2022).

^[12] See VA Adjudication Procedures Manual M21-1 Section III.iv.4.A.6.a (“Knee Replacement Manual Provision”).

^[13] Schedule for Rating Disabilities: Musculoskeletal System and Muscle Injuries, 85 Fed. Reg. 76453, 76456 (Nov. 30, 2020).

^[14] 38 C.F.R § 4.71a.

^[15] Under the Administrative Procedure Act (“APA”), a court should “hold unlawful and set aside agency action” that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” or is promulgated “without observance of procedure required by law.” 5 U.S.C. § 706(2)(A), (D).

^[16] Kisor v. Wilkie, 139 S. Ct. 2400, 2418 (2019).