Greenbrier Hospital, L.L.C. v. United States Department of Health and Human Services

Filing 39

ORDER & REASONS that Plaintiff Greenbrier Hospital, LLC's 19 Motion for Summary Judgment is DENIED and Defendant's 24 Motion for Summary Judgment is GRANTED, and Greenbrier's claims are dismissed with prejudice. Signed by Judge Eldon E. Fallon on 2/25/19. (dno)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
GREENBRIER HOSPITAL, LLC

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VERSUS
ALEX M. AZAR, in his official capacity
as Secretary of Health and Human Services

CIVIL ACTION
NO. 17-6420
SECTION “L” (3)

ORDER AND REASONS
Before the Court are cross-motions for summary judgment. Having considered the
parties’ briefs and the applicable law, the Court now issues this Order and Reasons.
I.

BACKGROUND
Plaintiff Greenbrier Hospital, LLC (“Greenbrier”), a Medicare-certified inpatient

psychiatric facility in Covington, Louisiana, seeks judicial review of a decision from the
Administrator of the Centers for Medicare and Medicaid Services (“CMS”). Greenbrier contends
that the Administrator applied the wrong legal standard in determining the appropriate
reimbursement rate for its cost report beginning on January 1, 2008.
1. Structure of Medicare Reimbursement
CMS is the operating component of the Department of Health and Human Services charged
with administering the Medicare program. CMS pays hospitals participating in the Medicare
program through a fiscal intermediary or Medicare Administrative Contractor (MAC). Inpatient
psychiatric facilities (IPFs) like Greenbrier are required to file annual cost reports (an accounting
of its operating and capital-related costs that should be allocated to Medicare) with their
responsible MAC. The cost report is reviewed and subject to audit by the MAC, which then issues
a Notice of Program Reimbursement (NPR) reflecting the final determination of the total amount
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due to the provider. The MAC’s decision may be appealed to the Provider Reimbursement Review
Board (PRRB), and the Administrator of CMS may, at its own option, review the PRRB’s decision.
2. Regulatory Background
The Tax Equity and Fiscal Responsibility Act (“TEFRA”) of 1982 exempted IPFs from
the payment methodologies that applied to ordinary hospitals. IPFs, therefore, were paid on a
“reasonable cost” basis. In 1999, Congress passed the SCHIP Balanced Budget Reform Act, which
required the Secretary to develop and implement a per diem prospective payment system for IPFs
(“IPF-PPS”). The Secretary issued a final rule establishing the IPF-PPS in November 2004. The
final rule provided for a three-year transition period, during which the IPF would receive blended
payments comprised of an increasing percentage of the PPS rate and a decreasing percentage of
the TEFRA rate each year.
Due to a clerical error, when CMS issued the final rule for the transition period, it
incorrectly used summertime dates. The rule published on November 15, 2004 provided:
§ 412.426
Transition period.
(a) Duration of transition period and composition of the blended transition
payment. Except as provided in paragraph (c) of this section, for cost
reporting periods beginning on or after January 1, 2005 through June 30,
2008, an inpatient psychiatric facility receives a payment comprised of a
blend of the estimated Federal per diem payment amount, as specified in §
412.424(c) and a facility-specific payment as specified under paragraph (b).
(1) For cost reporting periods beginning on or after January 1, 2005 and
on or before June 30, 2006, payment is based on 75 percent of the
facility-specific payment and 25 percent is based on the Federal per
diem payment amount.
(2) For cost reporting periods beginning on or after July 1, 2006 and on
or before June 30, 2007, payment is based on 50 percent of the
facility-specific payment and 50 percent is based on the Federal per
diem payment amount.
(3) For cost reporting periods beginning on or after July 1, 2007 and on
or before June 30, 2008, payment is based on 25 percent of the
facility-specific payment and 75 percent is based on the Federal per
diem payment amount.

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(4) For cost reporting periods beginning on or after July 1, 2008, payment
is based entirely on the Federal per diem payment amount.
69 Fed. Reg. 66922, 66980 (emphasis added).
To fix this clerical error, CMS published a “correction of final rule” in the Federal Register
on April 1, 2005. The purpose of the correction was to “conform[] the regulation text to the actual
policy” that was “clear from the discussion in the preamble” of the rule in the Federal Register
publication. 70 Fed. Reg. 16724, 16726. The correction made the following changes:
§ 412.426
[Corrected]
a. In paragraph (a) introductory text, “June 30, 2008” is corrected to “January
1, 2008”
b. In paragraph (a)(1), “June 30, 2006” is corrected to “January 1, 2006”
c. In paragraph (a)(2), “July 1, 2006” is corrected to “January 1, 2006” and
“June 30, 2007” is corrected to “January 1, 2007”
d. In paragraph (a)(3), “July 1, 2007” is corrected to “January 1, 2007” and
“June 30, 2008” is corrected to “January 1, 2008”
e. In paragraph (a)(4), “July 1, 2008” is corrected to “January 1, 2008”
70 Fed. Reg. 16724, 16728.
With the corrections, (a)(3) and (a)(4) would read as follows:
(a)(3) For cost reporting periods beginning on or after January 1, 2007 and on or
before January 1, 2008, payment is based on 25 percent of the facilityspecific amount and 75 percent is based on the Federal per diem payment
amount.
(a)(4) For cost reporting periods beginning on or after January 1, 2008, payment
is based entirely on the Federal per diem payment amount.
Under the corrected final rule, a cost report beginning “on” January 1, 2008 falls under
both (a)(3), providing for 25% TEFRA and 75% Federal per diem, and (a)(4), providing for 100%
Federal per diem.
To make matters more confusing, a second clerical error was discovered. The Office of the
Federal Register failed to include the corrected version of (a)(4) in the 2005 edition of the Code of

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Federal Regulations (“CFR”). So, unlike the corrected final rule published in the Federal Register,
the 2005 CFR did not include the overlapping use of January 1, 2008; thus, a cost report beginning
on January 1, 2008 would only fall under (a)(3):
(a)(3) For cost reporting periods beginning on or after January 1, 2007 and on or
before January 1, 2008, payment is based on 25 percent of the facilityspecific amount and 75 percent is based on the Federal per diem payment
amount.
(a)(4) For cost reporting periods beginning on or after July 1, 2008, payment is
based entirely on the Federal per diem payment amount.
See 42 C.F.R. § 412.426 (2005).
In an attempt to clarify this matter, CMS later published tables in the Federal Register in
2006, 2007, and 2008 (the “Preamble Tables”) that showed that cost reports beginning on January
1, 2008 would be reimbursed at the full Federal per diem amount, rather than the third-year
transition blend:

CMS reiterated this policy several times. See R. Doc. 23 at 261 (Change Request 3541,
issued December 1, 2004); R. Doc. 23 at 275 (Change Request 5619, issued May 25, 2007, stating
“The IPF PPS transition blend percentage for cost reporting periods beginning on or after January
1, 2007, but before January 1, 2008, is 75 percent PPS and 25 percent TEFRA. The transition blend
percentage for cost reporting periods beginning on or after January 1, 2008 is 100 percent PPS.”);
R. Doc. 23 at 298 (CMS’s Provider Reimbursement Manual, issued August 2006, instructing IPF
providers to enter “75 percent for cost reporting periods beginning on or after January 1, 2007 but
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prior to January 1, 2008” and “100 percent [i.e., full Federal per diem] … for cost reporting periods
beginning on or after January 1, 2008”) (emphasis added); R. Doc. 23 at 282 (“The transition blend
percentage for cost reporting periods beginning on or after January 1, 2008 is 100 percent PPS”);
R. Doc. 23 at 288 (“For cost reporting periods beginning on or after January 1, 2008, payments
will be 100 percent PPS”).
CMS formally revised the regulation as published in the CFR in 2011. The 2011 Final Rule
revised (a)(3) so that year three of the transition period applied only to cost reports beginning
before – not on – January 1, 2008. 76 Fed. Reg. 4998, 5022 (January 27, 2011). The 2011 Final
Rule also changed the erroneous “July 1, 2008” language in (a)(4) to “January 1, 2008” to reflect
the 2005 Federal Register correction. Thus, under the 2011 Final Rule, a cost report beginning on
January 1, 2008 could only be subject to the full Federal per diem amount under (a)(4). CMS
explained:
This correction does not represent a change in policy. Rather, it is a correction to
conform the regulation text to our policy, which was established in our final rule
that appeared in the Federal Register on November 15, 2004 (69 FR 66980) (which
was subsequently corrected on April 1, 2005 (70 FR 16729)). It is clear that the
current regulation text is incorrect … Because our regulation text does not
accurately reflect our actual policy, we are proposing this correction.
76 Fed. Reg. 26432, 26460 (May 6, 2011).
3. Procedural History
The issue here is whether Greenbrier is eligible for the third-year transition rate for its cost
report beginning on January 1, 2008. The MAC relied on the Preamble Tables and reimbursed
Greenbrier at the 100% Federal per diem rate. Greenbrier sought review from the PRRB, which
held that Greenbrier should have been reimbursed according to the third-year transition rate, which
was 75% Federal per diem and 25% TEFRA.

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The CMS Administrator, however, elected to review the PRRB’s decision. The
Administrator reversed the PRRB and held that (1) Greenbrier should have been reimbursed at the
full Federal per diem rate and (2) the 2011 amendment to § 412.426 did not effect a substantive
change and was not retroactive rulemaking:
Taken as a whole, the language describing the IPF-PPS transition served as notice
of CMS’ policy established in the November 15, 2004 IPF PPS final rule, even if
technical inconsistencies existed between the regulation text and the preamble
language before technical corrections were issued on May 6, 2011 … The effect of
the May 2011 correcting amendment was not to substantively change the final rule,
but rather to correct the inadvertent error of the regulatory text so that it was
consistent with CMS’ intent as expressed in the preamble to the rule.
The Administrator’s decision constitutes the final administrative decision issued by the
U.S. Department of Health and Human Services.
II.

PRESENT MOTIONS

1. Greenbrier’s Motion for Summary Judgment
Greenbrier moves for summary judgment reversing the Administrator’s decision or,
alternatively, vacating the decision and remanding the action for further proceedings. Greenbrier
argues that the Administrator erroneously looked beyond the plain meaning of the regulation in
effect when the disputed report was submitted. The regulation, as published in the CFR at the time,
stated that cost reports beginning on January 1, 2008 were entitled to a third-year rate. Greenbrier
argues that the Administrator cannot apply a self-described “policy” that was inconsistent with the
plain text of an unambiguous regulation. Greenbrier further argues that the agency cannot
retroactively apply the 2011 amended language to the disputed cost report.
2. CMS’s Opposition/Cross Motion for Summary Judgment
CMS moves for summary judgment dismissing Greenbrier’s claims with prejudice,
arguing that the regulation was ambiguous and the Administrator reasonably interpreted its own
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ambiguous regulation in denying Greenbrier the third-year transition rate for the disputed report.
CMS contends that the corrected rule published in the 2005 Federal Register was ambiguous,
because it used January 1, 2008 as both a possible trigger date for a third-year blended rate under
(a)(3) and a mandatory date for a 100% Federal per diem rate under (a)(4), and the Administrator
reasonably interpreted and applied the regulation.
III.

LAW AND ANALYSIS
Judicial review of CMS’s decision is limited by the Administrative Procedure Act, 5 U.S.C.

§ 706, (“APA”). Under the APA, the Court must uphold an agency’s actions, findings, and
conclusions unless they are “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). “Arbitrary and capricious review focuses on whether
an agency articulated a rational connection between the facts found and the decision made.”
ExxonMobil Pipeline Co. v. U.S. Dep’t of Transp., 867 F.3d 564, 571 (5th Cir. 2017) (quoting
Pension Benefit Guar. Corp. v. Wilson N. Jones Mem’l Hosp., 374 F.3d 362, 366 (5th Cir. 2004)).
The Fifth Circuit “will defer to an agency’s reasonable interpretation of its own regulations when
the text of the regulation is ambiguous.” Delek Refining, Ltd. v. OSHRC, 845 F.3d 170, 175 (5th
Cir. 2016). “In situations in which the meaning of regulatory language is not free from doubt, the
reviewing court should give effect to the agency’s interpretation so long as it is reasonable,” and
it “sensibly conforms to the purpose and wording of the regulations.” Martin v. Occupational
Safety & Health Review Comm’n, 499 U.S. 144, 151 (1991) (alterations omitted). If the regulation
is not ambiguous, no deference is owed. Delek Refining, Ltd., 845 F.3d at 175.
Greenbrier primarily relies on the erroneous version of the regulation published in the CFR
to argue that the regulation is unambiguous and no deference is owed. Publication in the Federal
Register “creates a rebuttable presumption … that the copy contained in the Federal Register is a

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true copy of the original.” 44 U.S.C. § 1507. The CFR “is the permanent publication of rules but
publication there does not affect the validity of the rule so long as the rule was originally contained
in the Federal Register. The CFR in each volume explains that the CFR is part of the total Federal
Register System and the CFR and Federal Register must be used together.” Charles Alan Wright
& Charles H. Koch, Jr., 32 Federal Practice & Procedure § 8185 (2006). The Court declines to
apply the erroneous text published in the CFR that, due to a clerical error, differed from the text
of the corrected final rule published in the Federal Register.
Under the corrected final rule published in the Federal Register, a cost report beginning on
January 1, 2008 fell under both (a)(3)’s third-year rate and (a)(4)’s 100% Federal per diem rate.
The two are mutually exclusive – a provider cannot receive both a third-year rate and a 100%
Federal per diem rate for the same cost report. Because January 1, 2008 was included in both (a)(3)
and (a)(4), the regulation is ambiguous.
The Administrator reasonably interpreted and applied the ambiguous regulation in denying
Greenbrier the third-year rate. “It is well established that an agency’s interpretation need not be
the only possible reading of a regulation – or even the best one – to prevail.” Decker v. Northwest
Environmental Defense Center, 568 U.S. 597, 613 (2013). It need only be one that is not “plainly
erroneous or inconsistent with the regulation.” Id.
Although the corrected final rule used January 1, 2008 as both a trigger for a third-year
rate under (a)(3) and a trigger for 100% Federal per diem payment in (a)(4), CMS published
Preamble Tables in the Federal Register clarifying that a cost report beginning on or after January
1, 2008 would be subject to 100% Federal per diem on three occasions. See 71 Fed. Reg. 27040,
27042 (May 9, 2006); 72 Fed. Reg. 25602, 25603 (May 4, 2007); 73 Fed. Reg. 25709, 25711 (May

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7, 2008). This policy was reiterated several other times in print, and these statements were
promulgated for IPFs before Greenbrier submitted its disputed report.
Select Specialty Hosp.-Akron, LLC v. Sebelius, 820 F. Supp. 2d 13 (D.D.C. 2011) also
involved a discrepancy between a statement of agency policy in the Federal Register and technical
inconsistencies in the language published in the CFR. There, the court held that “the preamble
language serves as evidence of CMS’s contemporaneous understanding of the final rule, even if
technical inconsistencies existed between the final rule language and the preamble language before
the correcting amendment was issued.” Id. at 25; see also Wiggins Bros., Inc. v. Dep’t of Energy,
667 F.2d 77 (Temp. Emer. Ct. App. 1981) (Preamble to a regulation “should be considered in
construing the regulation and determining the meaning of the regulation”). The Administrator thus
reasonably relied on the Preamble Tables and other clear statements of agency policy in
interpreting and applying the ambiguous regulation.
IV.

CONCLUSION
Because the Administrator reasonably interpreted and applied its own regulation in denying

Greenbrier the third-year transition rate for its January 1, 2008 cost report, Greenbrier’s motion
for summary judgment, R. Doc. 19, is hereby DENIED. CMS’s cross-motion for summary
judgment., R. Doc. 24, is hereby GRANTED, and Greenbrier’s claims are dismissed with
prejudice.

New Orleans, Louisiana, this 25th day of February, 2019.

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UNITED STATES DISTRICT COURT JUDGE

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