EMANUEL MEDICAL CENTER, TURLOCK, CALIFORNIA et al v. SEBELIUS

Filing 33

MEMORANDUM OPINION to the Order on the Motions for Summary Judgment. Signed by Judge Gladys Kessler on 4/17/14. (CL, )

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
("Emanuel")

are

and

two

Merced

hospitals,
Community

(collectively,

"Plaintiffs"

action

Kathleen Sebelius

against

Secretary

of

("Defendant"

the
or

Department

Plaintiffs

Health

§§

judicial

to

( "Merced" )

Center
They

and

Title

of

bring

this

capacity as

Human

1395 et seq.
review

Center

Medical

in her official

pursuant

42 U.S.C.

seek

Medical

"Providers").

of

"Secretary"),

Social Security Act,
Act") .

or

Emanuel

XVIII

Services
of

the

("the Medicare
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'
Summary

Judgment

[Dkt.

No.

17]

and

Defendant's

Partial Summary Judgment and for Partial Remand

Motion for
Motion

[Dkt.

No.

for
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

Act

established

Judgment and for Partial Remand is granted.
I .

BACKGROUND

A.

Statutory and Regulatory Framework
1.

Title

The Medicare Program

XVIII

Medicare program/
and disabled.

of

the

Social

which provides medical

42 U.S. C.

13 95 et seq.

§

Hosps. v. Sebelius 1 708 F.3d 226
omitted)

Security

1

227

i

care

for

the elderly

see also Kaiser Found.

(D.C. Cir. 2013)

(citation

The Medicare program is administered by the Secretary

through the Center for Medicare and Medicaid Services
Ark.

the

Dep 1 t

of Health

&

Human Servs.

v.

Ahlborn 1

( "CMS 11 )

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/

payments on behalf of CMS 1

private companies that process

make interim payments to providers/

subject to subsequent adjustments. Id.
To calculate these adjustments/
submit

an

annual

cost

report

to

§

1395h.

providers are required to
their

fiscal

intermediary

identifying the costs incurred during the course of each fiscal
-2-

year.

42

C.F.R.

413.20,

§§

Reg'l Med. Ctr.,

413.24;

133 S. Ct. 817,

see also Sebelius v.

822

(2013)

Auburn

("At the end of each

year, providers participating in Medicare submit cost reports to
contractors

acting

intermediaries")

on

behalf

Fiscal

of

intermediaries

as

known

HHS

then analyze

fiscal

and audit

the cost report and inform the provider of the amount of total
Medicare

reimbursement

referred to as
C.F.R.

4 4 8 1 4 52
If

a

provider

comprehensive

original

cost

Bowen,

language
with

is

dissatisfied

and

may

report.

Id.

485
allows

respect

intermediary") .
fiscal

entitled,

v.

which

is

( "NPR") .

42

Shalala,

522 U.S.

U.S.

399,

the Board
to
The

§

the

intermediary's

1395oo(a). Review of an initial NPR

include
§

any

1395oo(d);

405-06

(1988)

item

contained

not
can

(noting

contested
affirm,

the

-3-

the

that

before

modify,

or

statutory

cost

report

the

fiscal

reverse

the

Secretary in turn may affirm,

or reverse the PRRB's decision.

(d)-(f).

in

Bethesda Hospital Ass'n

"to review and revise a

matters
Board

with

it has 180 days to request a hearing

intermediary's award;

modify,

are

( 19 9 8 ) •

before the PRRB. 42 U.S.C.

v.

they

see also Regions Hosp.

determination of its NPR,

is

which

the Notice of Program Reimbursement

405.1803;

§

to

See 42 U.S.C.

§

1395oo

The Medicare
reopen a

regulations permit

provider's

cost

report

a

fiscal

intermediary to

"with respect

matters at issue" wi~hin three years.

42 C. F. R.

to

findings

on

§ 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

determination

considered

Id.

§§ 405.1889,

405.1835(a). Unlike the comprehensive review of an

HCA Health Servs.
Cir.

§

the Board's

The

distinct

the revised NPR to the PRRB within 180 days.

NPR is limited to

405.1889.

and

then appeal

however,

Id.

"separate

can

(D. C.

decision."

a

provider

initial NPR,

or

is

jurisdiction over a

revised

"the specific issues revised on reopening."
of Okla.,

1994)

Inc.

(upholding

v.

Shalala,

Secretary's

27 F.3d 614,

615

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.
42 C.F.R.

§

§

1395oo(f);

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.
-4-

2.
Part

Disproportionate Share Hospital Adjustment

E

Provisions

of

reimbursing

U.S. C.

657

that

provide

13 95ww (d) ;

§

F.3d

statute

1,

sets

prospective

a

hospitals

42

Sebelius,

Medicare

including

I/

services.

the

3

(D.C.

also

Cir.

additional

hospital-specific

funds

if

Cookeville Reg'l Med.

Ctr.

v.

is

See

adjustments.

it

42

Leavitt,

system

inpatient
Ne.

2011).

reimbursed for each day spent treating a
receives

"Miscellaneous

payment

certain

see

out

Hosp.
A

for

hospital
Corp.

v.

hospital

is

Medicaid patient,
eligible
U.S.C.

§

for

and

various

1395ww(d) (5);

531 F.3d 844,

846

(D.C.

case

is

the

Cir. 20.08).
The

adjustment

issue

at

Disproportionate Share Hospital

in

( "DSH 11

this

adjustment,

)

under which

the government gives additional funds to hospitals that "serve[]
a significantly disproportionate number of low-income
42

U.S.C.

because
income

§

1395ww(d) (5) (F) (i) (I).

hospitals
patients

hospitals,

with

an

generally

unusually

11

have

found,

Auburn Reg' l,

Catholic

Health

Initiatives

914, 916

(D.C. Cir. 2013)

Iowa

adjustment

high

higher

therefore

Congress

reimbursement rates.

This

should
Ct.

v.

(citation omitted).

-5-

is

percentage

per-patient

133 S.
Corp.

patients.~~

"made

of

low-

costs;

such

receive
at 822;

Sebelius,

higher
see also

718

F.3d

Whether a hospital qualifies for this adjustment,
amount of the adjustment the hospital receives,
hospital's
U.S.C.

§

"disproportionate

patient

and the

depends on the
("DPP").

percentage"

42

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.
Medicaid fraction.
Dep't

of Health

42 U.S.C.

§

1395ww(d)95) (vi); Metro. Hosp. v.

Human Servs.,

&

In sum, the

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
Income

that

("SSI")],

is

also

entitled

to

[Supplemental

Security

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
-6-

entitled to Medicare

Part
§

benefits

A

not

but

1395ww(d) (5) (vi) (I).

The

benefits.

SSI

Secretary

receives

u.s.c.

41

data

from

the

Social Security Administration to calculate the SSI fraction and
provides the fraction to the intermediary. Auburn Reg'l,
Ct. at 822; 42 C.F.R.
The

Medicaid

hospital's

total

§

12.106(b) (2),

fraction

patient

(3).

"measures

population

133 St.

the

that

proportion

is

of

a

Medicaid-eligible,

with the caveat of excluding patients who are also entitled to
Medicare benefits."
fraction

for

a

Metro Hosp.,

712

F.3d at 251.

given period consists of

the

The Medicaid

number of patient

days attributable to patients eligible for a state Medicaid plan
but

not

total
§

entitled

number

to

of

Medicare

patient

days

in

that

The

intermediary

Medicaid fraction
the

hospital's

higher

the

reimbursed.

DPP,

DPP
the

for

is

42

U.S.C.

calculated by

412.106(b) (4).

§

then

and that

divided by the

period.

1395ww(d) (5) (vi) (II) . 3 The Medicaid fraction

the intermediary. 42 C.F.R.

3

Part A benefits,

adds
sum,

that

the

fraction

expressed as

period.

higher the

SSI

rate

Id.
at

Catholic Health Initiatives,

§

a

the

percentage,

412.106 (b) (5).

which the
718

and

The

hospital

F.3d at

916

is

is

("[A]

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.).
-7-

higher DPP means greater reimbursements because the hospital is
serving more low-income patients."); Metro.
251

("A

higher

DPP

produces

a

higher

Hosp.,

712 F. 3d at

adjustment

percentage,

which in turn produces a larger adjustment payment.")

(citation

omitted) .
B.

Factual and Procedural History

Plaintiffs
Administrative
Plaintiffs

are

are

two

Record

hospitals

( "AR" )

"providers

Medicare

program.

Merced's

cost

reports

It

80-81.

of

services"

case

This

concerns

for

fiscal

in

located
is

California.

undisputed

participating
three

year

cost

1991

and

that

in

the

reports:
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.
adjustment

of

requested

that

$1,576,346.
its

AR 30.

intermediary

It included a DSH

On November
reopen

that

5,
cost

1996,

Merced

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
-8-

by

the

State,

and

to

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,
argued that

"the Supplemental Security Income

(SSI)

it

ratio used

in determining the Disproportionate Share Payment was incorrect"
and

that

"the

Medi-Cal

ratio

used

determining

in

the

Disproportionate Share Payment was incorrect." AR 655.
2.

Emanuel's Cost Report for Fiscal Year 1992

On October 6,
Emanuel's

cost

1995,

report

Emanuel's fiscal intermediary reopened

for

fiscal

year

AR

1992.

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
amount it sought in its request for reopening.
-9-

entire

additional

•·

On November 9,

Emanuel appealed its revised NPR for

1995,

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)

was

days

understated"

and

"[t] he

ratio

of

Medi-Cal

benefits
to

total

patient days was in error." AR 351 (emphasis in original).
3.

Merced's Cost Report for Fiscal Year 1991

On April

30,

Merced's

1999,

fiscal

intermediary reopened

Merced's cost report for the fiscal year ending 1991 on its own
motion

and

revised

NPR

$2,508,403,

increased Merced's
increased

the

DSH adjustment.

DSH

adjustment

AR

from

631-32.

$1,353,189

The
to

and described the adjustment as "incorporat[ing] the

Medi-Cal audited days." AR 637.
On October 14,

1999,

Merced appealed its

fiscal year 1991 to the PRRB.
that

"the

Supplemental

determining

the

and

"the

that

AR 634-35.

Security

Disproportionate
Medi-Cal

ratio

Income
Share
used

revised NPR for

Again,
(SSI)

ratio

Payment
in

Merced argued

was

used

in

incorrect"

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
-10-

" [w] hether the

SSI percentage (proxy) used to compute Medicare Disproportionate
Share

(DSH)

Payments has been determined in accordance with the

Medicare statutes
the

Case

No.

hospitals

[sic] . " AR 1254.

97-0021G,

and

seeking review of

The group appeal was given

eventually
the SSI

grew

to

include

nine

fraction used in 26

cost

reports (hereinafter, "SSI Group Appeal"). AR 3-5, 1161.
On
transfer

December
the

9,

"SSI

1996,

Emanuel

percentage

revised NPR for fiscal

issue"

requested
from

its

that

the

appeal

Board
of

its

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

transfer "the SSI ratio issue"

requested

that

the

Board

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

-11-

1,

2004,

the

providers

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
remanded

S.

Ct.

822-23

case

the

at
to

the

(discussing

Secretary

for

Baystate

case).

appropriate

He

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

revised data matching process in determining the SSI
and recalculating the DSH payment adjustment,
pending claim on the SSI
that

is

a

suitably
fraction,

for each properly

fraction data matching process

remanded by an administrative appeals tribunal

issue
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

-12-

and

also

requesting

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,

Emanuel

for

fiscal

including Merced for
year 1992.

year

On August

AR 907.

fiscal

8,

1991

and

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,
decision,
appeals

2012,

the PRRB issued its first jurisdictional

in which it addressed its jurisdiction over the six
challenged

by

the

intermediary

in

2004.

These

six

appeals did not include the appeals at issue in this case. AR
66-72.
the SSI
70-71.

The Board noted that the providers could not show that
fraction had been adjusted in their original NPRs.
However,

because

the

providers

were

appealing

AR

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
-13-

case. AR 22-24
it

did

NPRs,

not

("Jurisdictional Decision") . The Board held that

have

including

jurisdiction over
Emanuel's

appeal

four
for

appeals
fiscal

from

year

Merced's appeals for fiscal years 1991 and 1992.
reasoned

that

Providers

it

did

because

"not

the

have

Providers

are

1992

Id.

jurisdiction over
appealing

revised
and

The Board
these

from

four

revised

[NPRs] which did not specifically adjust the SSI% issue." AR 22.
5.

As
filed

Judicial Review

permitted by 42
this

Complaint

U.S. C.

challenging

Decision on December 6,

2012

Plaintiffs

Motion

filed

Mot.")

[Dkt.

Motion

for

No.

their
17] .

Partial

13 95oo (f) ,

§

the

[Dkt.
for

On July 16,

Summary

Judgment

Plaintiffs

Board's

No.

1].

Summary
3013,

Jurisdictional

On May 31,
Judgment

Defendant

and

timely

Partial

Opposition to Plaintiffs' Motion ("Def.'s Opp'n")

2013,
("Pls.'

filed

her

Remand,

and

[Dkt. Nos. 22,

23] . Plaintiffs then filed their Opposition and Reply on August
30, 2013

("Pls.' Reply")

her Reply on November 6,

[Dkt. Nos. 27, 28], and Defendant filed
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.

In

the

Secretary's Stipulation

Secretary's

Motion,

she

included

newly-discovered

evidence that Emanuel's SSI fraction was changed in its revised
-14-

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)
Emanuel's

SSI

Moreover,

fraction

Emanuel's

intermediary's
relating

to

was

appeal

Security Income

Medicare

(SSI)

For these reasons,

adjusted

of

determination

both

On that basis, she concedes that

its
of

in

revised NPR

"the

Part

its

A

number

coverage

benefits." AR 351

revised

NPR.

challenged

of

patient

and

its
days

Supplemental

(emphasis in original) .

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 CMS1498-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.

v.

Cir.

Leavitt,

district

F.3d 400,

court's

Secretary's
consistent

426

(D.C.

jurisdiction

decision
with

403

its

and
opinion");
-15-

was
to
PPG

2005)

remand

for

Indus.,

Inc.

(holding that
vacate

to

"only

Hosp.

further
Inc.

v.

the

action
United

------------~---------------------

States,

52

F.3d

363,

(noting

366

that

agency

can

reopen

proceedings to take new evidence after reviewing court has found
agency's original findings invalid).
Therefore,
revised

NPR

the

for

Court

fiscal

remands

year

1992

consistent with this opinion,
decision that

it

Emanuel's
to

the

appeal

agency

of

for

its

action

and will now turn to the Board's

lacked jurisdiction over Merced's appeals

for

fiscal years 1991 and 1992.

II.

STANDARD OF REVIEW
The Medicare Act

decision
§

made

by

1395oo (f) (1) .

provisions

of

It

provides

the

instructs

judicial

or

PRRB

for

the

review of

court

Administrative

the

reviewing
Procedure

Act

instructs the courts to be "highly deferential"
of

agency

action.

Cir. 2003)

Bloch v.

is "arbitrary,

if

706 (2) (A),

F.3d 231,

F.3d

( "APA") ,

the

which

in their review
1060,

1070

(D.C.

an agency decision is set aside only if it

capricious,

an abuse of discretion,

in accordance with law"

overturned
§

348

apply

(citations and internal quotation marks omitted).

Under the APA,

not

Powell,

to

final

u.s.c.

42

Secretary.

the

a

(E);

235

"[A] lthough

"unsupported

by

factual

substantial

findings

evidence."

see also Murray Energy Corp. v.

(D.C. Cir.

the

and its

Board's

2011)

or otherwise
are only
5

U.S. C.

F.E.R.C.,

629

(quotation and citation omitted).

adherence
-16-

to

Medicare

regulations

is

reviewable under the arbitrary and capricious standard, and the
sufficiency

of

the

substantial

evidence

Board's

record

standard,

the

is

reviewable

two

standards

under

the

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
the

choice

Listing
(quoting

&

rational

made."

In

4 (d)

Rule

Keating

v.

connection between the
re

Polar

Litig.,

Bear

Endangered

F.3d

1,

709

F.E.R.C.,

facts

569

F.3d

8

(D.C.

427,

433

found and

Species
Cir.

Act
2013)

(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'
HCA Health Services of Oklahoma v.
Cir.

1994),

is

the

appropriate

Shalala,

starting

decision in

27 F.3d 614
point.

In

(D.C.

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
-17-

not

have

jurisdiction

additional

issue

over

because

the

its

hospital's

jurisdiction

appeal
was

of

that

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,
U.S. at 842.

If Congress has not,

467

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

specifically

the

address

issue
either

because

the

reopenings

-18-

statute
of

an

unot

did
NPR

by

an

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

agency's

the

whether

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
persuasive"

of

the

because

reopening

it

regulations

preserved

the

was

"particularly

statute's

180-day

time

period for filing appeals from the intermediary's original NPR.
Id. at 620-21.
Based on
Court

of

this

Appeals

regulations

to

application of
upheld

deny

the

the
Board

the

agency's

Chevron

framework,

interpretation

jurisdiction over

revised NPRs that raised issues that were not the
5

of

appeals

the
its
from

"subject of

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").
-19-

the reopening."
provision

Id.

at

governs

interpretation

of

622

("Given that no specific statutory

reopenings,
the

and

reopening

that

Secretary's

the

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.
Cnty.

Med.

Ctr.

v.

Shalala,

81 F.3d 743,

749

See Hennepin

(8th Cir.

1996)

("The reopening regulation has been in place for many years and
is

in

Act.");

accord

French Hosp.

(9th Cir. 1996)
the fiscal
6

with

the

agency's

Med.

Ctr.

v.

authority
Shalala,

under

the

Medicare

89 F.3d 1411,

1420

("Limiting the PRRB' s scope of review to issues

intermediary reconsidered upon reopening the NPR is

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.
-20-

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,
three

it is clear that in this Circuit, as well as in the

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
or Capricious

In

its

analysis

Jurisdictional

with

the

HCA

Decision

the

Decision,

Is

Not Arbitrary

Board

began
that

reiterating

decision,

its
its

jurisdiction over revised NPRs was limited to "specific issues
revisited on reopening." AR 23
Board

then

found

documentation

to

that
show

(citing HCA,

Merced

had

the

that

27 F.3d 614).

failed

revised

to

"submit

NPRs

The
the

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

conclusion that
has

identified

record
the SSI

no

evidence

fully

supports

fraction was not adjusted,

evidence

to

the

contrary.

For

the

Board's

and Merced
both

fiscal

years at issue, the intermediary's reopening documents show that
Merced's

cost

reports

for

fiscal
-21-

year

1991

and

1992

were

reopened to include additional "Medi-Cal Days." AR 46 (reopening
"to correct DSH to be based on Audited Medi-Cal
Federal

DRG Payments") ;

AR 63 7

(reopening

&

Total Days

&

"to modify the DSH

adjustment to incorporate the Medi-Cal audited days") . 7
As

discussed

calculating

the

number

eligible for a
U.S.C.

Sebelius,

§

715
to be

plan

the

of

Medicaid

patient

days

state Medicaid plan,

1395ww(d) (5) (F) (vi) (II);

§

patient

above,

F.

Supp.

2d

'eligible

approved

142,

1395ww(d) (5) (F) (vi) (II),

made

up

see

also

156

Banner

(D.D.C.

2010)

assistance

patients

patient

must

See 42

Health

a

State

u.s.c.

42
be

v.

("[F]or

under a

[Medicaid] , '

the

of

such as Medi-Cal.

for medical

under

requires

fraction

eligible

for

Medicaid payment under the approved State Medicaid plan.") . The
SSI fraction,
days,

but

benefits

however,

considers

and

SSI

does not include state Medicaid patient
only

individuals

benefits.

Id.

§

entitled

to

Medicare

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

"double-counting"
7

the

statute

patient

should

days

by

be

interpreted

including

them

to
in

avoid
both

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.
-22-

fractions
would

of

have

the DPP) .
no

conclusion that

effect
the

The
on

SSI

addition of Medicaid patient days
the

SSI

fractions

fraction
were not

and

the

Board's

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
-23-

First,
not

Merced argues that even if its SSI

modified

intermediary

on

reopening,

they

recalculated Merced's

were
DSH

fractions were

reconsidered
adjustment.

when
It

the

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.
French Hosp.
Cir.
where

1996)

Med.

Ctr.

(finding

intermediary

v.

that

Shalala,
no

89 F.3d 1411,

Id.;

see also

1419-20

(9th

jurisdiction existed over appeal

"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.
-24-

Merced
report

requested

for

that

fiscal

its

year

intermediary

1992

"to

reopen

include

its

cost

submitted

the

information in its determination of the revised Disproportionate
Share

AR

Calculation.~~

32.

Merced included documents
Medi-Cal

days,

which

fraction. AR 36-38.

In

the

"submitted

supporting

were

to

be

its

information,~~

claim for

included

in

additional

the

Medicaid

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
year 1991 or 1992. 10 See Little Company of Mary

either . fiscal
Hospital

v.

(upholding

Sebelius,
Board's

587

F.3d

determination

849,

855-56

that

it

(7th

lacked

Cir.

2009)

jurisdiction

over appeals of revised NPR where there was no evidence that
intermediary

had

taken

any

consider the issue reopened
Second,
that
argues

the

action

sufficient

to

)

in an effort to compensate for its failure to show

intermediary

that

11

"affirmative

a

change

reconsidered
to

any

its

element

10

SSI
of

fraction,

the

DSH

Merced

adjustment

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
the record, Merced's argument that it is entitled to broad
appellate rights based on the broad language in the NPRs lacks
merit.
11

-25-

requires

recalculation

recalculation,

Merced

"revisit"

of

all

adjustment,

of

insists,

the

making

the

other

all

of

entire

DSH

requires

elements

those

adjustment.

the

that

elements

This

intermediary
make

up

to

the

DSH

to

the

appealable

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
"reconsidered."
845,

851

See Anaheim Mem'l

(9th Cir.

1997)

Hosp.

v.

calculation were

Shalala,

cost

item does

challenges

not

give

the

to other components of

Board
the

("RCL") to

jurisdiction

RCL) ;

to

(rejecting argument that

RCL

either reconsideration or adjustment

11

2011)

(upholding

Secretary's

89

"mere application" of
of

Baptist Memorial Hosp. v. Sebelius, 768 F. Supp. 2d 295,
(D.D.C.

hear

French Hosp.,

F. 3d at 1421-22
constitutes

F.3d

(upholding Secretary's conclusion that

reopening a cost report to apply a routine cost limit
one

130

conclusion

that

RCL);
300-01

Board's

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.
-26-

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

"one

only

is

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.
42 U.S.C.
sections

§

and

Initiatives,

1395ww(d) (5)
over

50

See

(setting out the DSH adjustment in 12

subsections);

718 F.3d at 916-17

see

also

Catholic

Health

(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,
fraction

was

Merced has not

identified evidence

actually reconsidered when

fiscal year 1991 and 1992 were reopened,

its

cost

that

the

SSI

reports

for

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.
-27-

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.
is

correct

similar

that

manner

" [a] n

agency

unless

it

can

must

treat

provide

a

similar

Merced

cases

legitimate

in

reason

a

for

failing to do so." Indep. Petroleum Ass'n of America v. Babbitt,
92 F.3d 1248,

to

identify

Michigan

(D.C.

1258

any

significant

City

Inc.

v.

(noting

2002)

Cir.

that

"an

1996). However,

evidence

Thompson,

inconsistency.

F.3d

292

appellant

of

Merced has failed

820,

complaining

826

of

P. I .A.

(D.C.

Cir.

inconsistency

and capriciousness in the agency's explanation of its treatment
[must] ·bring before
of

how

party

the
was

dictate
exist

appellant
situated,

similar

~re

the

reviewing

was
and

treatment

court

situated,
how

such

and

how

how

sufficient
the

particulars

allegedly

similarities

as

favored

may

such dissimilarities

exist
as

may

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
-28-

the

agency has

acted

inconsistently in its

reopening regulations to DSH adjustments.
identify any meaningful

example of

a

application of

the

Merced has failed to

"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,
agency

"considered

articulated

a

the

made."

choice

the

rational
In

factors

the Court concludes that the
relevant

to

connection between the
re

Polar

Bear

(quotation and citation omitted). Thus,

Litig.,

its

decision

facts
709

and

found
F. 3d

at

and
8

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).
-29-

not "arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law." 5 U.S.C.
V.

§

706(2) (A).

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
granted.

Emanuel, s

Summary Judgment
appeal

of

its

and for Partial Remand is

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

-30-