Emanuel Medical Center, Turlock, California v. Sebelius

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
EMANUEL MEDICAL CENTER, INC.
et al.,
Plaintiffs,
v.
Civil Action No. 12-1962 (GK)
KATHLEEN SEBELIUS,
Secretary of the United
States Department of Health
and Human Services,
Defendant.
MEMORANDUM OPINION
Plaintiffs are two hospitals, Emanuel Medical Center
("Emanuel") and Merced Community Medical Center ( "Merced" )
(collectively, "Plaintiffs" or "Providers"). They bring this
action against Kathleen Sebelius in her official capacity as
Secretary of the Department of Health and Human Services
("Defendant" or "Secretary"), pursuant to Title XVIII of the
Social Security Act, 42 U.S.C. §§ 1395 et seq. ("the Medicare
Act") . Plaintiffs seek judicial review of a final agency
decision that the Provider Reimbursement Review Board ("PRRB" or
"Board") did not have jurisdiction over Providers' appeals.
This matter is before the Court on Plaintiffs' Motion for
Summary Judgment [Dkt. No. 17] and Defendant's Motion for
Partial Summary Judgment and for Partial Remand [Dkt. No. 22] .
Upon consideration of the briefs, the administrative record, and
the entire record herein 1 and for the reasons stated below 1
Plaintiff's Motion for Summary Judgment is granted in part and
denied in part and Defendant's Motion for Partial Summary
Judgment and for Partial Remand is granted.
I . BACKGROUND
A. Statutory and Regulatory Framework
1. The Medicare Program
Title XVIII of the Social Security Act established the
Medicare program/ which provides medical care for the elderly
and disabled. 42 U.S. C. § 13 95 et seq. i see also Kaiser Found.
Hosps. v. Sebelius 1 708 F.3d 226 1 227 (D.C. Cir. 2013) (citation
omitted) The Medicare program is administered by the Secretary
through the Center for Medicare and Medicaid Services ( "CMS 11 ) •
Ark. Dep 1 t of Health & Human Servs. v. Ahlborn 1 547 U.S. 268 1
275 (2006) .
Medicare providers enter into written agreements with the
Secretary to provide services to eligible individuals. 42 U.S.C.
§ 1935cc. Fiscal intermediaries/ private companies that process
payments on behalf of CMS 1 make interim payments to providers/
subject to subsequent adjustments. Id. § 1395h.
To calculate these adjustments/ providers are required to
submit an annual cost report to their fiscal intermediary
identifying the costs incurred during the course of each fiscal
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year. 42 C.F.R. §§ 413.20, 413.24; see also Sebelius v. Auburn
Reg'l Med. Ctr., 133 S. Ct. 817, 822 (2013) ("At the end of each
year, providers participating in Medicare submit cost reports to
contractors acting on behalf of HHS known as fiscal
intermediaries") Fiscal intermediaries then analyze and audit
the cost report and inform the provider of the amount of total
Medicare reimbursement to which they are entitled, which is
referred to as the Notice of Program Reimbursement ( "NPR") . 42
C.F.R. § 405.1803; see also Regions Hosp. v. Shalala, 522 U.S.
4 4 8 1 4 52 ( 19 9 8 ) •
If a provider is dissatisfied with the intermediary's
determination of its NPR, it has 180 days to request a hearing
before the PRRB. 42 U.S.C. § 1395oo(a). Review of an initial NPR
is comprehensive and may include any item contained in the
original cost report. Id. § 1395oo(d); Bethesda Hospital Ass'n
v. Bowen, 485 U.S. 399, 405-06 (1988) (noting that statutory
language allows the Board "to review and revise a cost report
with respect to matters not contested before the fiscal
intermediary") . The Board can affirm, modify, or reverse the
fiscal intermediary's award; the Secretary in turn may affirm,
modify, or reverse the PRRB's decision. See 42 U.S.C. § 1395oo
(d)-(f).
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The Medicare regulations permit a fiscal intermediary to
reopen a provider's cost report "with respect to findings on
matters at issue" wi~hin three years. 42 C. F. R. § 405.1885 (a) . 2
The intermediary can reopen the cost report either on its own
motion, at the request of the provider, or at the request of the
CMS Administrator. Id.
After the intermediary reopens and revises the cost report,
the revised NPR is considered a "separate and distinct
determination or decision." Id. § 405.1889. The provider can
then appeal the revised NPR to the PRRB within 180 days. Id.
§§ 405.1889, 405.1835(a). Unlike the comprehensive review of an
initial NPR, however, the Board's jurisdiction over a revised
NPR is limited to "the specific issues revised on reopening."
HCA Health Servs. of Okla., Inc. v. Shalala, 27 F.3d 614, 615
(D. C. Cir. 1994) (upholding Secretary's interpretation of
reopening regulations as reasonable) .
Within sixty days of notice of a final decision of the PRRB
or the Secretary, a provider is entitled to file a civil action
in the United States District Court for the District of Columbia
to seek judicial review of that decision. 42 U.S.C. § 1395oo(f);
42 C.F.R. § 405.1877.
2
Because all of the relevant events in this case occurred before
2008, the Court will evaluate the providers' claims under the
pre-2008 regulations. All citations are to those regulations
unless otherwise noted.
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2. Disproportionate Share Hospital Adjustment
Part E of the Medicare statute sets out "Miscellaneous
Provisions I/ including a prospective payment system for
reimbursing hospitals that provide certain inpatient hospital
services. 42 U.S. C. § 13 95ww (d) ; see also Ne. Hosp. Corp. v.
Sebelius, 657 F.3d 1, 3 (D.C. Cir. 2011). A hospital is
reimbursed for each day spent treating a Medicaid patient, and
receives additional funds if it is eligible for various
hospital-specific adjustments. See 42 U.S.C. § 1395ww(d) (5);
Cookeville Reg'l Med. Ctr. v. Leavitt, 531 F.3d 844, 846 (D.C.
Cir. 20.08).
The adjustment at issue in this case is the
Disproportionate Share Hospital ( "DSH 11 ) adjustment, under which
the government gives additional funds to hospitals that "serve[]
a significantly disproportionate number of low-income patients.``
42 U.S.C. § 1395ww(d) (5) (F) (i) (I). This adjustment is "made
because hospitals with an unusually high percentage of low-
income patients generally have higher per-patient costs; such
hospitals, Congress therefore found, should receive higher
reimbursement rates. 11
Auburn Reg' l, 133 S. Ct. at 822; see also
Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d
914, 916 (D.C. Cir. 2013) (citation omitted).
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Whether a hospital qualifies for this adjustment, and the
amount of the adjustment the hospital receives, depends on the
hospital's "disproportionate patient percentage" ("DPP"). 42
U.S.C. § 1395ww(d) (5) (F) (v); Ne. Hosp. Corp., 657 F.3d at 3. The
DPP "is not the actual percentage of low-income patients served;
rather, it is an indirect, proxy measure for low income."
Catholic Health Initiatives, 718 F.3d at 916.
The DPP, as defined by the Medicare statute, is calculated
by adding together two fractions: the SSI fraction. In sum, the
Medicaid fraction. 42 U.S.C. § 1395ww(d)95) (vi); Metro. Hosp. v.
Dep't of Health & Human Servs., 712 F.3d 248, 251 (6th Cir.
2013). The basic unit of measurement for both fractions is the
hospital's "patient days." Metro Hosp., 712 F.3d at 251.
The SSI fraction, also known as the "Medicare fraction,"
"measures· the portion of a hospital's Medicare-entitled patient
population that is also entitled to [Supplemental Security
Income ("SSI")], a cash benefit provided to low-income elderly,
blind, or disabled individuals." Id.; see also Auburn Reg'l, 133
s. Ct. at 822.
The SSI fraction for a given period consists of the number
of patient days attributable to patients entitled to both
Medicare Part A benefits and SSI benefits divided by the number
of patient days attributable to patients entitled to Medicare
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Part A benefits but not SSI benefits. 41 u.s.c.
§ 1395ww(d) (5) (vi) (I). The Secretary receives data from the
Social Security Administration to calculate the SSI fraction and
provides the fraction to the intermediary. Auburn Reg'l, 133 St.
Ct. at 822; 42 C.F.R. § 12.106(b) (2), (3).
The Medicaid fraction "measures the proportion of a
hospital's total patient population that is Medicaid-eligible,
with the caveat of excluding patients who are also entitled to
Medicare benefits." Metro Hosp., 712 F.3d at 251. The Medicaid
fraction for a given period consists of the number of patient
days attributable to patients eligible for a state Medicaid plan
but not entitled to Medicare Part A benefits, divided by the
total number of patient days in that period. 42 U.S.C.
§ 1395ww(d) (5) (vi) (II) . 3 The Medicaid fraction is calculated by
the intermediary. 42 C.F.R. § 412.106(b) (4).
The intermediary then adds the SSI fraction and the
Medicaid fraction and that sum, expressed as a percentage, is
the hospital's DPP for that period. Id. § 412.106 (b) (5). The
higher the DPP, the higher the rate at which the hospital is
reimbursed. Catholic Health Initiatives, 718 F.3d at 916 ("[A]
3
Medicaid is a separate program from Medicare. It is "a jointly
funded, federal-state program that provides health care to
indigent persons who are aged, blind, or disabled, or members of
families with dependent children." See Univ. of Kansas Hosp.
Auth. v. Sebelius, 953 F. Supp. 2d 180, 183 n.1 (D.D.C. 2013)
(citing 42 U.S.C. § 1396 et seq.).
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higher DPP means greater reimbursements because the hospital is
serving more low-income patients."); Metro. Hosp., 712 F.3d at
251 ("A higher DPP produces a higher adjustment percentage,
which in turn produces a larger adjustment payment.") (citation
omitted) .
B. Factual and Procedural History
Plaintiffs are two hospitals located in California.
Administrative Record ( "AR" ) 80-81. It is undisputed that
Plaintiffs are "providers of services" participating in the
Medicare program. This case concerns three cost reports:
Merced's cost reports for fiscal year 1991 and 1992 and
Emanuel's cost report for fiscal year 1992.
1. Merced's Cost Report for Fiscal Year 1992
On August 23, 1994, Merced received its NPR from its fiscal
intermediary for fiscal year 1992. AR 27-28. It included a DSH
adjustment of $1,576,346. AR 30. On November 5, 1996, Merced
requested that its intermediary reopen that cost report "to
include the submitted information in its determination of the
revised Disproportionate Share Calculation." AR 32. It sought to
increase its DSH adjustment by an additional $1,075,578. Id.
On February 5, 1997, the intermediary notified Merced that
it was reopening Merced's cost report for fiscal year 1992 "[t]o
agree Medi-Cal days to those audited by the State, and to
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recompute DSH accordingly." AR 44. On its adjustment report, the
intermediary described the purpose of the adjustment as: "TO
AGREE MEDI-CAL DAYS TO AUDITED DATA" and "TO CORRECT DSH TO BE
BASED ON AUDITED MEDI-CAL & TOTAL DAYS, & FEDERAL DRG PAYMENTS."
AR 46. The intermediary increased Merced's DSH adjustment by the
amount Merced had requested, $1,075,578. Id. The revised NPR was
issued on March 10, 1997. AR 652. 4
On September 8, 1997, Merced appealed its revised NPR for
fiscal year 1992 to the PRRB. AR 655-56. Among other things, it
argued that "the Supplemental Security Income (SSI) ratio used
in determining the Disproportionate Share Payment was incorrect"
and that "the Medi-Cal ratio used in determining the
Disproportionate Share Payment was incorrect." AR 655.
2. Emanuel's Cost Report for Fiscal Year 1992
On October 6, 1995, Emanuel's fiscal intermediary reopened
Emanuel's cost report for fiscal year 1992. AR 347-48. The
notice of reopening states that it was reopened "TO REVISE THE
DISPROPORTIONATE SHARE ADJUSTMENT AND TO UPDATE THE SETTLEMENT,
IF APPLICABLE." AR 347. The adjustment report showed an increase
in Emanuel's DSH adjustment from $1,315, 799 to $1,388, 806. AR
353.
4
The Court notes that Merced received the entire additional
amount it sought in its request for reopening.
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•·
On November 9, 1995, Emanuel appealed its revised NPR for
fiscal year 1992 to the PRRB. AR 350-51. It alleged that the DSH
adjustment was understated because "determination of the number
of patient days relating to patients entitled to both Medicare
Part A coverage and Supplemental Security Income (SSI) benefits
was understated" and "[t] he ratio of Medi-Cal days to total
patient days was in error." AR 351 (emphasis in original).
3. Merced's Cost Report for Fiscal Year 1991
On April 30, 1999, Merced's fiscal intermediary reopened
Merced's cost report for the fiscal year ending 1991 on its own
motion and increased Merced's DSH adjustment. AR 631-32. The
revised NPR increased the DSH adjustment from $1,353,189 to
$2,508,403, and described the adjustment as "incorporat[ing] the
Medi-Cal audited days." AR 637.
On October 14, 1999, Merced appealed its revised NPR for
fiscal year 1991 to the PRRB. AR 634-35. Again, Merced argued
that "the Supplemental Security Income (SSI) ratio used in
determining the Disproportionate Share Payment was incorrect"
and that "the Medi-Cal ratio used in determining the
Disproportionate Share Payment was incorrect." AR 635-35.
4. SSI Group Appeal
On October 7, 1996, two providers requested a group appeal
before the PRRB to address the common issue of " [w] hether the
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SSI percentage (proxy) used to compute Medicare Disproportionate
Share (DSH) Payments has been determined in accordance with the
Medicare statutes [sic] . " AR 1254. The group appeal was given
the Case No. 97-0021G, and eventually grew to include nine
hospitals seeking review of the SSI fraction used in 26 cost
reports (hereinafter, "SSI Group Appeal"). AR 3-5, 1161.
On December 9, 1996, Emanuel requested that the Board
transfer the "SSI percentage issue" from its appeal of its
revised NPR for fiscal year 1992 to the SSI Group Appeal. AR
362. The issue was transferred on July 31, 1997. AR 930.
On April 1, 1998, Merced requested that the Board transfer
"the SSI Percentage issue" from its appeal of its revised NPR
for fiscal year 1992 to the SSI Group Appeal. AR 1144. The issue
was transferred on that date. AR 930.
On October 27, 2000, Merced requested that the Board
transfer "the SSI ratio issue" from its appeal of its revised
NPR for fiscal year 1991 to the SSI Group Appeal. AR 1169.
On January 23, 2004, an intermediary challenged the Board's
jurisdiction to hear six of the appeals that had been
consolidated in the SSI Group Appeal. AR 1104-1109. The Board's
jurisdiction over the three appeals at issue in this case was
not raised at that time. On June 1, 2004, the providers
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responded that they were "in the process of researching the
challenges and providing a response." AR 924.
on: March 31, 2008, Judge John Bates, in a different case,
upheld the PRRB' s determination that CMS had been erroneously
calculating the SSI fractions used in calculating provider's DSH
adjustments. Baystate, 545 F. Supp. 2d at 57-58; see also Auburn
Reg'l, · 133 S. Ct. at 822-23 (discussing Baystate case). He
remanded the case to the Secretary for appropriate action.
Baystate, 545 F. Supp. 2d at 58.
In response, the CMS Administrator issued CMS Ruling 1498-R
on April 28, 2010. CMS Ruling No. CMS-1498-R, 2010 WL 3492477
(Apr. 28, 2010). The Administrator directed CMS and the Medicare
contractors to "take the steps necessary to apply a suitably
revised data matching process in determining the SSI fraction,
and recalculating the DSH payment adjustment, for each properly
pending claim on the SSI fraction data matching process issue
that is remanded by an administrative appeals tribunal and is
found to qualify for relief under this Ruling." Id. at *3. It is
undisputed that the SSI Group Appeal presented a "pending claim
on the SSI fraction data matching process issue." Id.
On March 9, 2012, the Board wrote a letter to the SSI Group
Appeal members asking for jurisdictional documentation regarding
the six previously-challenged appeals and also requesting
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jurisdictional documentation for fourteen other appeals that had
joined the SSI Group Appeal. AR 906-909. Among other things, it
request·ed jurisdictional documentation from providers appealing
from revised NPRs, including Merced for fiscal year 1991 and
Emanuel for fiscal year 1992. AR 907. On August 8, 2012, the
Board asked for similar jurisdictional documentation from Merced
for fiscal year 1992 because that appeal was also from a revised
NPR. AR 64-65.
On July 30, 2012, the PRRB issued its first jurisdictional
decision, in which it addressed its jurisdiction over the six
appeals challenged by the intermediary in 2004. These six
appeals did not include the appeals at issue in this case. AR
66-72. The Board noted that the providers could not show that
the SSI fraction had been adjusted in their original NPRs. AR
70-71. However, because the providers were appealing from
original NPRs, not revised NPRs, the Board concludes that it had
jurisdiction over any issue, even if that issue had not been
included in the original NPR or decided against the provider by
the intermediary. Id. (citing Bethesda, 485 U.S. at 404). Thus,
the Board concluded that an adjustment to the SSI fraction was
"not a prerequisite to the appeal" of original NPRs. AR 72.
On October 5, 2012, the Board issued its second
jurisdictional decision, which is the decision at issue in this
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case. AR 22-24 ("Jurisdictional Decision") . The Board held that
it did not have jurisdiction over four appeals from revised
NPRs, including Emanuel's appeal for fiscal year 1992 and
Merced's appeals for fiscal years 1991 and 1992. Id. The Board
reasoned that it did "not have jurisdiction over these four
Providers because the Providers are appealing from revised
[NPRs] which did not specifically adjust the SSI% issue." AR 22.
5. Judicial Review
As permitted by 42 U.S. C. § 13 95oo (f) , Plaintiffs timely
filed this Complaint challenging the Board's Jurisdictional
Decision on December 6, 2012 [Dkt. No. 1]. On May 31, 2013,
Plaintiffs filed their Motion for Summary Judgment ("Pls.'
Mot.") [Dkt. No. 17] . On July 16, 3013, Defendant filed her
Motion for Partial Summary Judgment and Partial Remand, and
Opposition to Plaintiffs' Motion ("Def.'s Opp'n") [Dkt. Nos. 22,
23] . Plaintiffs then filed their Opposition and Reply on August
30, 2013 ("Pls.' Reply") [Dkt. Nos. 27, 28], and Defendant filed
her Reply on November 6, 2 013 [Dkt. No. 31] ("De f. 's Reply") .
The administrative record was filed on July 24, 2013 [Dkt No.
26], and this matter is now ripe for review.
6. Secretary's Stipulation
In the Secretary's Motion, she included newly-discovered
evidence that Emanuel's SSI fraction was changed in its revised
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NPR for fiscal year 1992. Def. 's Opp' n at 30-31 (discussing a
1995 letter to Emanuel stating that the wrong SSI percentage had
been used in the original NPR) On that basis, she concedes that
Emanuel's SSI fraction was adjusted in its revised NPR.
Moreover, Emanuel's appeal of its revised NPR challenged its
intermediary's determination of "the number of patient days
relating to both Medicare Part A coverage and Supplemental
Security Income (SSI) benefits." AR 351 (emphasis in original) .
For these reasons, the Secretary is now conceding that Emanuel
filed a timely appeal of an issue reopened and adjusted in its
revised NPR, and, therefore, the Board had jurisdiction over
Emanuel's appeal. Def.'s Opp'n at 30.
The Secretary requests a remand of Emanuel's appeal to the
agency so that the agency can grant Emanuel's requested relief:
"a remand to the Intermediary in accordance with CMS Ruling CMS-
1498-R." Def. 's Opp'n at 30 (quoting Complaint at 9). Because
the agency has not yet addressed the merits of Emanuel's appeal,
this Court does not have jurisdiction over the merits and remand
is the appropriate course of action. Palisades Gen. Hosp. Inc.
v. Leavitt, 426 F.3d 400, 403 (D.C. Cir. 2005) (holding that
district court's jurisdiction was "only to vacate the
Secretary's decision and to remand for further action
consistent with its opinion"); PPG Indus., Inc. v. United
------------~---------------------
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States, 52 F.3d 363, 366 (noting that agency can reopen
proceedings to take new evidence after reviewing court has found
agency's original findings invalid).
Therefore, the Court remands Emanuel's appeal of its
revised NPR for fiscal year 1992 to the agency for action
consistent with this opinion, and will now turn to the Board's
decision that it lacked jurisdiction over Merced's appeals for
fiscal years 1991 and 1992.
II. STANDARD OF REVIEW
The Medicare Act provides for judicial review of a final
decision made by the PRRB or the Secretary. 42 u.s.c.
§ 1395oo (f) (1) . It instructs the reviewing court to apply the
provisions of the Administrative Procedure Act ( "APA") , which
instructs the courts to be "highly deferential" in their review
of agency action. Bloch v. Powell, 348 F.3d 1060, 1070 (D.C.
Cir. 2003) (citations and internal quotation marks omitted).
Under the APA, an agency decision is set aside only if it
is "arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law" and its factual findings are only
overturned if "unsupported by substantial evidence." 5 U.S. C.
§ 706 (2) (A), (E); see also Murray Energy Corp. v. F.E.R.C., 629
F.3d 231, 235 (D.C. Cir. 2011) (quotation and citation omitted).
"[A] lthough the Board's adherence to Medicare regulations is
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reviewable under the arbitrary and capricious standard, and the
sufficiency of the Board's record is reviewable under the
substantial evidence standard, the two standards involve the
same level of scrutiny." Mem. Hosp./Adair Cty. Health Ctr. Inc.
v. Bowen, 829 F.2d 111, 117 (D.C. Cir. 1987).
The arbitrary and capricious standard is satisfied if the
agency has "considered the factors relevant to its decision and
articulated a rational connection between the facts found and
the choice made." In re Polar Bear Endangered Species Act
Listing & 4 (d) Rule Litig., 709 F.3d 1, 8 (D.C. Cir. 2013)
(quoting Keating v. F.E.R.C., 569 F.3d 427, 433 (D.C. Cir.
2009)).
III. ANALYSIS
A. The Secretary's Issue-Specific Interpretation of the
Reopening Regulations Is Reasonable and Entitled to
Deference
The parties agree that our Court of Appeals' decision in
HCA Health Services of Oklahoma v. Shalala, 27 F.3d 614 (D.C.
Cir. 1994), is the appropriate starting point. In HCA, an
intermediary reopened a hospital's NPR on five specific issues.
Id. at 616. The hospital then sought to appeal its
intermediary's decision on those issues to the Board, as well as
an additional issue "which had been decided in the original NPR
but never revisited since." Id. The Board concluded that it did
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not have jurisdiction over the hospital's appeal of that
additional issue because its jurisdiction was limited to
reviewing only the specific issues adjusted by the revised NPR.
Id.
In reviewing the Board's conclusion, the Court· of Appeals
analyzed the Secretary's uissue-specific" interpretation of its
reopening regulations under Chevron U.S.A. Inc. v. Natural Res.
Def. Council, Inc., 467 U.S. 837, 843-45 (1984). HCA, 27 F.3d at
617 (summarizing Chevron framework). Chevron requires a two-step
analysis. The court must first determine whether ucongress has
directly spoken to the precise question at issue." Chevron, 467
U.S. at 842. If Congress has not, the court will then defer to
the agency's interpretation of the regulations if it uis based
on a permissible construction of the statute." Id.
Applying this framework, the HCA Court first examined the
Medicare statute to see if Congress had udirectly spoken" to the
scope of the Board's jurisdiction over revised NPRs. HCA, 27
F.3d at 617-19. The Court of Appeals concluded that Congress had
not addressed the issue because the statute did unot
specifically address either reopenings of an NPR by an
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intermediary or review of such a reopening by the Board [.] " Id.
at 619. 5
The Court of Appeals then turned to the second step of the
Chevron framework and evaluated whether the agency's
interpretation of the regulations was permissible. It observed:
In light of the explicit language in 42 C.F.R.
§ 405.1885 limiting reopenings to "findings on matters
at issue in [the original NPR]" and in 42 C.F.R.
§ 405.1889 characterizing revisions as "separate and
distinct determination [s]" for purposes of Board
appeals, we do not think it impermissible for the
Secretary to interpret the "intermediary
determination" on reopening as limited to the
particular matters revisited on the second go-round.
Id. at 620. The Court of Appeals also noted that the Secretary's
interpretation of the reopening regulations was "particularly
persuasive" because it preserved the statute's 180-day time
period for filing appeals from the intermediary's original NPR.
Id. at 620-21.
Based on this application of the Chevron framework, the
Court of Appeals upheld the agency's interpretation of its
regulations to deny the Board jurisdiction over appeals from
revised NPRs that raised issues that were not the "subject of
5
Merced argues that "Congress has made its intent clear" that a
provider's DSH adjustment is one issue and cannot be subdivided.
Pls. ' Reply at 5. The HCA Court's holding that the Medicare
statute does not address reopenings of NPRs binds this Court and
forecloses Merced's argument. HCA, 27 F.3d at 619 (concluding
that Medicare statute does not "address either reopenings of an
NPR by an intermediary or review of such a reopening by the
Board").
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the reopening." Id. at 622 ("Given that no specific statutory
provision governs reopenings, and that the Secretary's
interpretation of the reopening regulations is a permissible
reading of the regulatory language and implements the statutory
time restriction on appeals from an intermediary's determination
of the amount of total program reimbursement, we uphold the
Board's determination that it lacked jurisdiction to review cost
items that were not the subject of the reopening.").
The HCA decision remains the law in this Circuit, 6 and the
Secretary's issue-specific interpretation of the regulations has
been upheld by all other Circuits to address it. See Hennepin
Cnty. Med. Ctr. v. Shalala, 81 F.3d 743, 749 (8th Cir. 1996)
("The reopening regulation has been in place for many years and
is in accord with the agency's authority under the Medicare
Act."); French Hosp. Med. Ctr. v. Shalala, 89 F.3d 1411, 1420
(9th Cir. 1996) ("Limiting the PRRB' s scope of review to issues
the fiscal intermediary reconsidered upon reopening the NPR is
6
Merced argues that the concurring opinions written by Justices
Scalia, Roberts, and Alito in Decker v. Nw. Envtl. Def. Ctr.,
133 S. Ct. 1326, 1341 (2013), invite this Court to re-evaluate
the Secretary's interpretation of her regulations with less
deference. Pls.' Reply at 17-18. The majority opinion of the
Decker Court reaffirmed that an agency's interpretation was
entitled to deference. Id. at 1337. Therefore, nothing in
Decker's concurrences undermines the binding determination of
our Court of Appeals in HCA that the Secretary's issue-specific
interpretation of her regulations is reasonable and entitled to
deference.
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consistent with the Medicare regulation governing the treatment
of reopenings or revisions on appeal.") ; Edgewater Hosp. , Inc.
v. Bowen, 857 F.2d 1123, 1134 (7th Cir. 1988).
Thus, it is clear that in this Circuit, as well as in the
three others that have addressed the issue, the Secretary's
"issue-specific" interpretation of her NPR reopening regulations
is reasonable and entitled to substantial deference.
B. The Board's Jurisdictional Decision Is Not Arbitrary
or Capricious
In its Jurisdictional Decision, the Board began its
analysis with the HCA decision, reiterating that its
jurisdiction over revised NPRs was limited to "specific issues
revisited on reopening." AR 23 (citing HCA, 27 F.3d 614). The
Board then found that Merced had failed to "submit the
documentation to show that the revised NPRs specifically
adjusted" Merced's SSI fractions. AR 23. Consequently, the Board
concluded that it lacked jurisdiction over Merced's appeals of
the SSI fractions used in their revised NPRs. Id.
All of the record evidence fully supports the Board's
conclusion that the SSI fraction was not adjusted, and Merced
has identified no evidence to the contrary. For both fiscal
years at issue, the intermediary's reopening documents show that
Merced's cost reports for fiscal year 1991 and 1992 were
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reopened to include additional "Medi-Cal Days." AR 46 (reopening
"to correct DSH to be based on Audited Medi-Cal & Total Days &
Federal DRG Payments") ; AR 63 7 (reopening "to modify the DSH
adjustment to incorporate the Medi-Cal audited days") . 7
As discussed above, the Medicaid fraction requires
calculating the number of patient days made up of patients
eligible for a state Medicaid plan, such as Medi-Cal. See 42
U.S.C. § 1395ww(d) (5) (F) (vi) (II); see also Banner Health v.
Sebelius, 715 F. Supp. 2d 142, 156 (D.D.C. 2010) ("[F]or a
patient to be 'eligible for medical assistance under a State
plan approved under [Medicaid] , ' 42 u.s.c.
§ 1395ww(d) (5) (F) (vi) (II), the patient must be eligible for
Medicaid payment under the approved State Medicaid plan.") . The
SSI fraction, however, does not include state Medicaid patient
days, but considers only individuals entitled to Medicare
benefits and SSI benefits. Id. § 1395ww(d) (5) (F) (vi) (I); see
also Metro Hosp., 712 F.3d at 262-63 (finding it "clear from the
statute" that the two fractions are "exclusive of one another,"
and, thus, that the statute should be interpreted to avoid
"double-counting" patient days by including them in both
7
Medi-Cal is the Medicaid program offered by California. See
Grossmont Hosp. Corp. v. Sebelius, 903 F. Supp. 2d 39, 45
(D.D.C. 2012) ("California participates in the Medicaid program
by operating a State program commonly known as Medi-Cal."); see
also Cal. Welf. & Inst. Code § 14000.4.
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fractions of the DPP) . The addition of Medicaid patient days
would have no effect on the SSI fraction and the Board's
conclusion that the SSI fractions were not adjusted is amply
supported by the evidence in the record. 8
Merced argues that the Board's conclusion was arbitrary or
capricious for a number of reasons. The Court . will briefly
address them in turn. 9
8
Merced argues that the only evidence that the SSI fraction was
adjusted would be in the "sole possession" of the agency, and
that requiring providers to identify that information puts them
in a "Catch-22." Pls.' Mot. at 25. Unlike Atlanta College of
Med. & Dental Careers, Inc. v. Riley, 987 F.2d 821, 831 (D.C.
Cir. 1993) , the agency has not requested documents from Merced
to which Merced does not have access. Rather, the relevant
documents are in the record and simply do not support a finding
that the SSI fraction was reconsidered or adjusted. See Baptist
Mem'l Hosp. v. Sebelius, 765 F. Supp. 2d 20, 30-31 (D.D.C. 2011)
(upholding Board's determination that it did not have
jurisdiction over provider's appeal when "appeal provided no
document trail demonstrating that it specifically raised the
exclusion of expansion waiver days"), aff'd sub nom. Baptist
Mem'l Hosp., Inc. v. Sebelius, No. 11-5112, 2012 WL 1859132
(D.C. Cir. May 14, 2012).
9
As a preliminary matter, Merced argues that the Secretary is
estopped from denying jurisdiction over Merced's appeals because
the "intermediary's stipulation that there are no jurisdictional
impediments to an appeal on the SSI fraction amounts to an
admission that the SSI fraction was reconsidered in the
reopening." Pls.' Mot. at 24; Pls.' Reply at 19. Even if the
intermediary had made such a stipulation, the intermediary's
assertion would not bind the Secretary. As our Court of Appeals
has stated, "the intermediary's position is not the Secretary's
it is the Board's interpretation that matters." Appalachian
Reg'l Healthcare, Inc. v. Shalala, 131 F.3d 1050, 1053 n.4 (D.C.
Cir. 1997) (emphasis added); see also Medcenter One Health Sys.
v. Sebelius, 635 F.3d 348, 351 (8th Cir. 2011) (" [T]he
intermediary's position before the PRRB does not bind HHS, which
was not a party to the PRRB proceedings."). Thus, any concession
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First, Merced argues that even if its SSI fractions were
not modified on reopening, they were reconsidered when the
intermediary recalculated Merced's DSH adjustment. It insists
that this Court must thus decide the question left open in HCA:
"whether a cost item must be modified on reopening or need only
be reconsidered on reopening in order to become appealable to
the Board." HCA, 27 F.3d at 621.
The Court need not resolve this open question because there
is no evidence that the SSI fraction used in Merced's NPRs was
reconsidered in either fiscal year 1991 or 1992. Id.; see also
French Hosp. Med. Ctr. v. Shalala, 89 F.3d 1411, 1419-20 (9th
Cir. 1996) (finding that no jurisdiction existed over appeal
where intermediary "neither reconsidered the [routine cost
limits] components nor adjusted them").
Merced's fiscal intermediary reopened and adjusted Merced's
cost report for fiscal year 1991 on its own initiative in order
to incorporate Medi-Cal audited days. AR 631-32, 637. This is
identical to the situation in HCA, where "[t]he reopening
was initiated solely by the intermediary and the intermediary's
notices of reopening made no reference whatsoever to the cost
items which the provider now wishes to add to its hearing before
the Board." HCA, 27 F.3d at 621.
by the intermediary about these appeals has no effect on the
appropriateness of the Board's determination in this case.
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Merced requested that its intermediary reopen its cost
report for fiscal year 1992 "to include the submitted
information in its determination of the revised Disproportionate
Share Calculation.`` AR 32. In the "submitted information,``
Merced included documents supporting its claim for additional
Medi-Cal days, which were to be included in the Medicaid
fraction. AR 36-38. It also submitted a worksheet recalculating
its DSH adjustment using the same SSI fraction as its original
NPR. AR 33, 35. Thus, there is no evidence that the intermediary
reconsidered the SSI fraction when it reopened Merced's NPR for
either . fiscal year 1991 or 1992. 10 See Little Company of Mary
Hospital v. Sebelius, 587 F.3d 849, 855-56 (7th Cir. 2009)
(upholding Board's determination that it lacked jurisdiction
over appeals of revised NPR where there was no evidence that
intermediary had taken any "affirmative action sufficient to
consider the issue reopened 11
)
Second, in an effort to compensate for its failure to show
that the intermediary reconsidered its SSI fraction, Merced
argues that a change to any element of the DSH adjustment
10
Moreover, the specific language of the revised NPRs
contradicts Merced's assertion that "the issue revisited on
reopening was 'the DSH payment,' not some more narrow aspect of
the DSH calculation. Pls.' Mot. at 16. Because it misconstrues
11
the record, Merced's argument that it is entitled to broad
appellate rights based on the broad language in the NPRs lacks
merit.
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requires recalculation of the entire DSH adjustment. This
recalculation, Merced insists, requires the intermediary to
"revisit" all of the other elements that make up the DSH
adjustment, making all of those elements appealable to the
Board. Pls.' Mot. at 14, 25.
Merced identifies no authority that supports its argument. 11
Indeed, a number of courts have rejected this approach and held
that revision of one element of a larger calculation does not
mean that all of the other elements of that calculation were
"reconsidered." See Anaheim Mem'l Hosp. v. Shalala, 130 F.3d
845, 851 (9th Cir. 1997) (upholding Secretary's conclusion that
reopening a cost report to apply a routine cost limit ("RCL") to
one cost item does not give the Board jurisdiction to hear
challenges to other components of the RCL) ; French Hosp., 89
F.3d at 1421-22 (rejecting argument that "mere application" of
RCL constitutes either reconsideration or adjustment of RCL);
Baptist Memorial Hosp. v. Sebelius, 768 F. Supp. 2d 295, 300-01
(D.D.C. 2011) (upholding Secretary's conclusion that Board's
11
The one case cited by Merced, Zia Hospice, Inc. v. Sebelius,
723 F. Supp. 2d 1347, 1354 (D.N.M. 2010), is distinguishable for
a number of reasons. The Court will only note the most
significant distinction it was undisputed in Zia that the
issue the provider wished to appeal to the Board was the "only
item reconsidered, revisited, or reviewed" when the provider's
cost report was reopened. Id. Because it was undisputed that the
issue was reconsidered on reopening, Zia provides no guidance in
this case.
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jurisdiction was limited to cost items exceeding the RCL that
had been affected by revised NPR) .
Merced tries to distinguish these cases by arguing that the
RCLs affect "almost every cost item a provider would submit for
reimbursement," whereas the DSH adjustment is only "one
calculation, with one purpose." Pls.' Reply at 21. This argument
is unpersuasive. The DSH adjustment, like the RCL, involves
numerous pieces of data and several distinct calculations. See
42 U.S.C. § 1395ww(d) (5) (setting out the DSH adjustment in 12
sections and over 50 subsections); see also Catholic Health
Initiatives, 718 F.3d at 916-17 (describing language of DPP as
"downright byzantine" and "not easily discernible") . Thus, this
Court is not persuaded that the recalculation of one element of
the DSH adjustment means that all of the other elements have
been "reconsidered."
In sum, Merced has not identified evidence that the SSI
fraction was actually reconsidered when its cost reports for
fiscal year 1991 and 1992 were reopened, nor has it persuaded
the Court that any change to a DSH adjustment is sufficient to
establish that all of the elements of the DSH adjustment have
been reconsidered. Therefore, Merced has failed to establish
that its appeals are meaningfully distinguishable from those in
HCA.
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Third, Merced argues that the Secretary's application of
her issue-specific standard to the issue of DSH adjustments is
so inconsistent as to make it arbitrary and capricious. Merced
is correct that " [a] n agency must treat similar cases in a
similar manner unless it can provide a legitimate reason for
failing to do so." Indep. Petroleum Ass'n of America v. Babbitt,
92 F.3d 1248, 1258 (D.C. Cir. 1996). However, Merced has failed
to identify any significant evidence of inconsistency. P. I .A.
Michigan City Inc. v. Thompson, 292 F.3d 820, 826 (D.C. Cir.
2002) (noting that "an appellant complaining of inconsistency
and capriciousness in the agency's explanation of its treatment
[must] ·bring before the reviewing court sufficient particulars
of how the appellant was situated, how the allegedly favored
party was situated, and how such similarities as may exist
dictate similar treatment and how such dissimilarities as may
exist ~re irrelevant or outweighed").
Neither the agency decisions 12 nor the sub-regulatory
guidelines issued by the agency13 cited by Merced establish that
12
The first Board decision cited by Merced was reversed by the
CMS Administrator, who noted that the only issue "open for
appeal" was the issue "decided pursuant to the ·revised NPR."
Cmty. Hosp. of the Monterey Peninsula v. Blue Cross Blue Shield
Assoc., 2006 WL 1684658, at *3 (H.C.F.A. Admin. Dec. Mar. 15,
2006) (reversing Cmty. Hosp. of the Monterey Peninsula v. Blue
Cross Blue Shield Assoc., Case No. 01-2940, 2006 WL 752462
(P.R.R.B. Jan. 19, 2006). The other two Board decisions cited by
Merced, Alina 95 Medicare DSH Medicaid Eligible Patient Days
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the agency has acted inconsistently in its application of the
reopening regulations to DSH adjustments. Merced has failed to
identify any meaningful example of a "similar case" not being
resolved "in a similar manner" and has thus failed to establish
that the agency's treatment of this issue is so inconsistent as
to make it arbitrary and capricious. Indep. Petroleum, 92 F.3d
at 1258.
Based on the above analysis, the Court concludes that the
agency "considered the factors relevant to its decision and
articulated a rational connection between the facts found and
the choice made." In re Polar Bear Litig., 709 F.3d at 8
(quotation and citation omitted). Thus, the Board's decision was
Group, Case No. 02-2262G, and Legacy Emanuel Hospital and Health
Center, Case No. 06-1702, are unpublished and were never
submitted to the Court.
As to the Board's treatment of Community Hospital of
Monterey Peninsula ("CHOMP") 's appeal in the SSI Group Appeal,
the Board reversed its jurisdictional decision once it
discovered that CHOMP's initial NPR did not include a DSH
adjustment. AR 7-8. This is materially different from Merced's
appeals, where its entitlement to a DSH adjustment was not in
question and its SSI fractions were simply reapplied in its
revised NPRs.
13
The portion of the Provider Reimbursement Manual cited by
Merced does not "instruct[] intermediaries and providers to
consider the DSH adjustment as a single issue," as Merced
suggests. Pls.' Reply at 13. It describes the item that should
be included on a line of a particular form -- it does not state
that each entry on that form must be treated as an indivisible
issue. CMS, Provider Reimbursement Manual Chapter 24 § 2418 .1
(setting out directions for completing the Health Care Complex
Cost Report Form HCFA 2552-89).
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not "arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law." 5 U.S.C. § 706(2) (A).
V. CONCLUSION
For the foregoing reasons, Plaintiff's Motion for Summary
Judgment is granted in part and denied in part and Defendant's
Motion ·for Partial Summary Judgment and for Partial Remand is
granted. Emanuel, s appeal of its revised NPR for fiscal year
1992 shall be remanded to the agency for appropriate resolution.
An Order shall accompany this Memorandum Opinion.
April 17, 2014
United States District Judge
Copies to: attorneys on record via ECF
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