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Saint Francis Medical Center v. Azar

United States Court of Appeals, District of Columbia Circuit

June 29, 2018

Saint Francis Medical Center, et al., Appellants
Alex M. Azar II, Secretary of Health and Human Services, Appellee

          Argued February 12, 2018

          Appeal from the United States District Court for the District of Columbia (No. 1:15-cv-01659)

          Edgar C. Morrison, Jr. argued the cause for appellants. With him on the briefs were Stephen A. Calhoun, Tim S. Leonard, and Barron P. Bogatto.

          Melissa N. Patterson, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Chad A. Readler, Acting Assistant Attorney General, Jessie K. Liu, U.S. Attorney, and Michael S. Raab, Attorney.

          Before: Garland, Chief Judge, and Kavanaugh and Katsas, Circuit Judges.



         In 2013, the Secretary of Health and Human Services promulgated a regulation that bars hospitals from seeking additional Medicare payments by challenging factual determinations that are relevant to the payment year at issue, but that were made many years earlier. By its terms, the 2013 regulation applies only to reopenings, which are proceedings through which various administrative actors within HHS may reconsider their own prior decisions. We consider whether the regulation also applies to appeals from one set of administrative actors to another.



         The Medicare program provides federally-funded health insurance to qualifying elderly and disabled individuals. 42 U.S.C. § 1395 et seq. As originally enacted, Medicare paid hospitals for any "reasonable costs" of providing covered services to beneficiaries. See Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1227 (D.C. Cir. 1994). In 1983, however, Congress created a new Prospective Payment System, under which hospitals are paid a fixed amount for each beneficiary treated, regardless of their actual costs. See id.

         Prospective payment amounts are determined annually, under a statutory formula that depends in part on base rates known as "standardized amounts." See 42 U.S.C. § 1395ww(d)(2)(C). In turn, the standardized amounts depend in part on the "allowable operating costs per discharge of inpatient hospital services." See id. § 1395ww(d)(2)(A). Although prospective payment amounts are adjusted over time in various ways, the standardized amounts themselves are not. See id. § 1395ww(d)(3). Those amounts were calculated in 1983, based on hospitals' cost-reporting data from 1981. See Prospective Payments for Medicare Inpatient Hospital Services, 48 Fed. Reg. 39, 752, 39, 763-67 (Sept. 1, 1983). To this day, therefore, Medicare payments for inpatient services depend in part on factual determinations derived from 1981 data and embedded in 1983 calculations, including the calculation of "allowable operating costs per discharge."

         In the first instance, decisions about how much to pay individual hospitals are made by fiscal intermediaries (now called "Medicare administrative contractors") acting on behalf of the Centers for Medicare & Medicaid Services ("CMS"), the component within HHS that administers Medicare for the Secretary. See 42 U.S.C. § 1395h; Sebelius v. Auburn Reg'l Med. Ctr., 568 U.S. 145, 150 (2013). At the end of every year, participating hospitals submit a cost report to an intermediary, which reviews the report, determines appropriate payments for the services rendered, and then issues a Notice of Program Reimbursement. See id.

         A dissatisfied hospital has two ways to challenge such an annual reimbursement decision. First, under the Medicare Act, the hospital may appeal as of right to the Provider Reimbursement Review Board ("PRRB" or "Board"), an administrative tribunal appointed by the Secretary, within 180 days of receiving notice of the fiscal intermediary's final decision. 42 U.S.C. § 1395oo(a)(3). After an adverse PRRB decision, a hospital may seek further review by the Secretary and then by a federal district court. See id. § 1395oo(f)(1). Second, under HHS regulations, a hospital may request the "reopening" of a "Secretary determination, a contractor determination, or a decision by a reviewing entity." 42 C.F.R. § 405.1885(a)(1). Such a request must be received "no later than 3 years after the date of the determination or decision that is the subject of the requested reopening." Id. § 405.1885(b)(2)(i). Reopenings are considered by the entity whose decision is at issue. See id. § 405.1885(a)(1). The decision whether to reopen is purely discretionary, and it thus "is not subject to further administrative review or judicial review." Id. § 405.1885(a)(6).


         A recurring issue under this scheme has been whether a hospital, in the course of pursuing a timely-filed reopening or PRRB appeal, may contest so-called "predicate facts"-factual determinations that are relevant to the payment year at issue, but that were made in earlier years. The Secretary has argued that the three-year limitations period in the reopening regulation bars hospitals from challenging-in either reopenings or appeals to the PRRB-any predicate facts determined more than three years before the reopening or the appeal was begun.

         We addressed such a contention in Kaiser Foundation Hospitals v. Sebelius, 708 F.3d 226 (D.C. Cir. 2013). Although Kaiser involved an appeal to the PRRB, we rejected the Secretary's argument under the plain terms of the reopening regulations in effect at the time. We reasoned that the "determination of an intermediary" subject to reopening was the bottom-line "determination of the amount of total reimbursement." Id. at 230-31 (quoting 42 C.F.R. §§ 405.1801(a), .1885(a) (2001)). We further reasoned that reopenings examined only "findings on matters at issue," a term that we construed to mean findings as relevant to the payment year for which the hospital was seeking additional reimbursement. Id. at 231-32 (quoting 42 C.F.R. § 405.1885(a) (2001)). We therefore held that "the reopening regulation allows for modification of predicate facts in closed years provided that the change will only impact the total reimbursement determination in open years." Id. at 232-33.

         In response to Kaiser, the Secretary promulgated the 2013 amendments to the reopening regulation directly at issue here. Provider Reimbursement Determinations and Appeals, 78 Fed. Reg. 74, 826, 75, 162-69 (Dec. 10, 2013). The amended regulation provides that a decision may be reopened "with respect to specific findings on matters at issue"-a term now defined to "include a predicate fact" that was "first determined for a cost reporting period that predates the period at issue." 42 C.F.R. ยง 405.1885(a)(1), (a)(1)(iii). Moreover, the regulation now provides that the three-year limitations period for seeking a reopening "applies to, and is calculated separately for, each specific finding on a matter at ...

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