William Beaumont Hospital - Royal Oak v. Burwell

Filing 38

OPINION AND ORDER GRANTING PLAINTIFFS 33 RENEWED MOTION FOR JUDGMENT, DENYING DEFENDANTS 34 RENEWED MOTION FOR JUDGMENT, AND REMANDING THE CASE TO THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Signed by District Judge Robert H. Cleland. (LWag)

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UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
______________________________________________________________________
WILLIAM BEAUMONT HOSPITAL ꟷ
ROYAL OAK,
Plaintiff,
v.

Case No. 16-13528

THOMAS E. PRICE, Secretary, Department
of Health and Human Services,
Defendant.
__________________________________/
OPINION AND ORDER GRANTING PLAINTIFF’S RENEWED MOTION FOR
JUDGMENT, DENYING DEFENDANT’S RENEWED MOTION FOR JUDGMENT, AND
REMANDING THE CASE TO THE DEPARTMENT OF HEALTH AND HUMAN
SERVICES
Plaintiff William Beaumont Hospital – Royal Oak sues Defendant Thomas E.
Price, Secretary of the Department of Health and Human Services, to receive
reimbursement through Medicare for nursing school education costs. (ECF No. 1.)
Plaintiff claims that Defendant’s decision to withhold payment to Plaintiff was arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law or
unsupported by substantial evidence under the Administrative Procedure Act (“APA”). 5
U.S.C. § 706(2)(A), (E). (Id., PageID.11-13, ¶¶ 56-67.) The court finds a hearing
unnecessary. E.D. Mich. L.R. 7.1(f)(2). For the reasons provided below, the court will
grant Plaintiff’s motion for judgment and deny Defendant’s motion for judgment. 1 The
case will be remanded to the Department of Health and Human Services.

1

The court will also order that the name of Defendant Secretary be changed on
the docket. The currently listed name is Thomas E. Price. However, the Secretary is

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I. BACKGROUND
The court detailed the facts of this case in its March 29, 2018 order denying
without prejudice Plaintiff’s and Defendant’s prior motions for judgment. (ECF No. 22.)
The court will not repeat those facts verbatim but will provide a general overview and
discuss the facts that are most relevant.
Plaintiff, a hospital in Royal Oak, Michigan, provided education and training
opportunities to nursing students. The Medicare system compensates Plaintiff for
expenses incurred in training nursing students. Health-care providers such as Plaintiff
receive reimbursement for “the clinical training of students enrolled in an approved
nursing or allied health education program that is not operated by the provider.” 42
C.F.R. § 413.85(g).
Regulations detail the requirements of receiving Medicare payments. Those
regulations lie at the heart of the current dispute. “The principles of cost reimbursement
require that providers maintain sufficient financial records and statistical data for the
proper determination of costs payable.” 42 C.F.R. § 413.20(a). In order to receive
compensation, a provider must supply “adequate cost data” that is “based on [its]
financial and statistical records” and is “capable of verification by qualified auditors.” 42
C.F.R. § 413.24(a). In addition:
Adequate cost information must be obtained from the provider's records to
support payments made for services furnished to beneficiaries. The
requirement of adequacy of data implies that the data be accurate and in
sufficient detail to accomplish the purposes for which it is intended.
Adequate data capable of being audited is consistent with good business
concepts and effective and efficient management of any organization,
now Alex M. Azar II. Both parties list Secretary Azar as Defendant in their motions.
(ECF No. 33, PageID.1421; ECF No. 34, PageID.1456.)
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whether it is operated for profit or on a nonprofit basis. It is a reasonable
expectation on the part of any agency paying for services on a costreimbursement basis. In order to provide the required cost data and not
impair comparability, financial and statistical records should be maintained
in a manner consistent from one period to another. However, a proper
regard for consistency need not preclude a desirable change in
accounting procedures if there is reason to effect such change.
42 C.F.R. § 413.24(c). Plaintiff is required to provide adequate proof of the costs that
were incurred only because Plaintiff trained nursing students. Medicare Program;
Payment for Nursing and Allied Health Education, 66 Fed. Reg. 3358-01, 3368-69 (Jan.
12, 2001). Stated another way, Plaintiff cannot receive compensation for expenses
Plaintiff would have incurred regardless of the training. Id.
From 1988 through 2004, Plaintiff provided information of nursing student
expenses in satisfaction of the “adequate cost data” requirement. 42 C.F.R. § 413.24(a).
However, in 2010, Plaintiff was notified by an agency representative tasked with
reviewing Plaintiff’s initial request for compensation, called a Medicare Administrative
Contractor (“MAC”), that no reimbursement would be given for the 2005 and 2006 fiscal
years.
Plaintiff contested that finding internally at the Department of Health and Human
Services. The first appeal, before the Provider Reimbursement Review Board (“Board”),
was successful for Plaintiff. The Board conducted an evidentiary hearing and found that
the MAC improperly demanded contemporaneous “time studies.” (ECF No. 8,
PageID.153.) The Board reasoned that time studies were not included in the “adequate
cost data” requirement and “the first time the Medicare Contractor requested time
studies from Beaumont was in 2010, well after the close of the fiscal years at issue.”
(Id.) The Board went on to detail Plaintiff’s evidence of expenses, ultimately concluding

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that Plaintiff was owed $361,001 for 2005 and $496,835 for 2006, and was owed up to
$50,000 per year for administrative and clerical support staff. (Id., PageID.152-54.) The
Board noted that these expense amounts were conservative. (Id.)
The Board’s decision was appealed to the last level of internal agency review,
the Administrator for the Centers for Medicare and Medicaid Services (“CMS”). The
Administrator found that Plaintiff had not provided documentation that the MAC had
requested, that Plaintiff had presented evidence that was not contemporaneous to fiscal
years 2005 and 2006, that Plaintiff had not provided adequate job descriptions of
Plaintiff’s employees, and that the use of time studies was “an obvious tool” to calculate
costs and disagreed with the Board’s decision that time studies were not required. (Id.,
PageID.114-16.) The Administrator reversed the Board. (Id.) Plaintiff was again left with
no compensation.
Plaintiff filed the instant lawsuit in 2016. (ECF No. 1.) Plaintiff challenged the
agency’s final decision to deny Plaintiff’s requested Medicare reimbursements. From
May 2017 to August 2017, the parties briefed cross-motions for judgment pursuant to
Federal Rule of Civil Procedure 52(a)(1). (ECF Nos. 15, 17, 18, 21.) The court issued
an opinion on March 29, 2018, which found that Defendant’s interpretation of the
relevant Medicare regulations, requiring that Plaintiff provide “contemporaneous
records” which had never been previously asked for, was not entitled to deference
under Auer v. Robbins, 519 U.S. 452, 461–62 (1997). The court did not go on to reach a
final decision in the case due to the parties’ inadequate briefing.

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The parties attempted to reconcile their differences and settle but were unable to
reach an accord. Plaintiff and Defendant have now renewed their motions for judgment.
(ECF Nos. 33, 34.)
II. STANDARD
The parties submitted a joint statement on the standard of review in this action.
(ECF No. 13.) They agree that because Beaumont seeks judicial review of a final
agency decision by the Secretary of the Department of Health and Human Services, the
court’s review is governed by 42 U.S.C. § 1395oo(f)(1). Under that provision, the court
reviews the Secretary’s decision in accordance with the APA.
Under the APA, a “reviewing court shall . . . hold unlawful and set aside agency
action, findings, and conclusions found to be — (A) arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law,” or “(E) unsupported by substantial
evidence in a case . . . reviewed on the record of an agency hearing provided by
statute[.]” 5 U.S.C. § 706(2)(A), (E). Plaintiff seeks relief under both “arbitrary and
capricious” and “substantial evidence” review. (ECF No. 1, PageID.12, ¶ 61.)
The court’s analysis under an “arbitrary and capricious” standard is a narrow one.
Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
43 (1983). The court “is not to substitute its judgement for that of the agency.” Id. The
agency, however, must still “examine the relevant data and articulate a satisfactory
explanation for its action including a rational connection between the facts found and
the choice made.” Id. (quotations omitted). For instance, “[a]n agency decision is
‘arbitrary and capricious’ when the agency . . . has relied on factors which Congress had
not intended it to consider, entirely failed to consider an important aspect of the

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problem, offered an explanation for its decision that runs counter to the evidence before
the agency, or is so implausible that it could not be ascribed to a difference in view or
the product of agency expertise.” Kentukians for the Commonwealth v. U.S. Army Corps
of Engineers, 746 F.3d 698, 706 (6th Cir. 2014) (citations omitted).
Under “substantial evidence” review, the court will accept agency findings if there
is “such relevant evidence as a reasonable mind might accept as adequate to support a
conclusion.” Richardson v. Perales, 402 U.S. 389, 401 (1971) (quotations omitted).
III. DISCUSSION
The court finds itself in the dense thicket of administrative healthcare law. The
administrative record spans hundreds of pages and the parties have now submitted a
total of eight briefs. From the court’s review of the agency decisions, the administrative
record, and the parties’ arguments, the court finds several seminal facts that are
determinative in this dispute.
First, Plaintiff had complied with the regulations requiring “adequate cost data” for
seventeen years prior to 2005 using what amounts to the same type of records it had
provided Defendant in 2005 and 2006. 42 C.F.R. § 413.24(a). The court ruled in March
2018 that “[f]or 17 years, [Defendant] deemed, either affirmatively or by implication, that
the information supplied by [Plaintiff] constituted ‘adequate cost data’ [under 42 C.F.R. §
413.24(a)] such that [Plaintiff] was entitled to pass-through reimbursement [for the
training costs of prospective nurses].” (ECF No. 22, PageID.1378.) Plaintiff’s Director of
Reimbursement testified that Plaintiff was “paid by Medicare for [the] pass-through costs
since 1988.” (ECF No. 8, PageID.250.) Defendant has admitted that “[Plaintiff’s] cost
reports from 1989 to 2004 [were] settled and that pass-through costs for nurse clinical

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training were allowed for each year from 1989 to 2004.” (ECF No. 17, PageID.1266, ¶
32.) The MAC’s cost report specialist, who was actively involved in this dispute on
behalf of Defendant, was asked directly: “So [Plaintiff] gives [Defendant] what they’ve
always had, and now the auditors in 2010 say this [documentation] is not adequate.
Right?” (ECF No. 8, PageID.321-22, 339.) The specialist responded: “Yeah.” (Id.,
PageID.339.) The Chairman of the Board, employed by Defendant to oversee Medicare
reimbursement disputes, synthesized the evidence and said Plaintiff “just went on [its]
merry way doing whatever [it] did in the past, and no one [representing the agency] said
anything to [Plaintiff].” (Id., PageID.350-51.) Defendant presents no substantial
argument in opposition.
Second, Plaintiff provided the agency with contemporaneous records for 2005
and 2006. Plaintiff compiled extensive data sheets containing student names, the
students’ nursing schools, the students’ course instructors and contact information, the
semester in which the students performed clinical training, the course numbers at the
nursing schools, the dates that the students received their clinical training, the hours per
day that students received clinical training, the units within Plaintiff’s hospital where
students received clinical training, and the nurse managers of each unit. (ECF No. 8-1,
PageID.536-92.) The employee who entered this information for Plaintiff was asked
directly: “[D]id you input the data into the database in 2005 and 2006?” (ECF No. 8,
PageID.268.) The employee responded: “Yes, that is correct.” (Id.) The employee then
explicitly confirmed that the data was compiled “contemporaneous to when the students
were in the program.” (Id.) Defendant admits that Plaintiff’s submission of

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contemporaneous records is consistent with record testimony and offers no substantive
evidence to the contrary. (ECF No. 17, PageID.1268, ¶ 39.)
Third, the MAC, as affirmed by the Administrator, sought out and demanded
contemporaneous time studies to prove the nursing student expenses for 2005 and
2006. The court ruled in its March 2018 opinion that Plaintiff “was asked in 2010 to
provide documentary information, contemporaneous with the events of years earlier,
and of a kind it had never before been asked to provide.” (ECF No. 22, PageID.1376.)
Plaintiff’s Manager of Nursing Education and Research Department testified that in
2010, she was questioned by one of Defendant’s representatives at a MAC about
reimbursements in 2005 and 2006. (ECF No. 8, PageID.293.) The manager was able to
answer questions about student absences, but was unexpectedly asked “whether or not
[Plaintiff] kept any time records before 2010?” (Id.) The manager testified that it was “the
first time” being asked for time studies. (Id., PageID.294.) The MAC’s cost report
specialist, representing the MAC and Defendant’s stance on the issue, testified that
Plaintiff’s documentation was inadequate and said that “if [Plaintiff] had a time study . . .
that time study would [and] should be verifiable.” (Id., PageID.324.)
The MAC defended the agency’s decision before the Board by “contend[ing] that
[Plaintiff] did not provide complete time sheets that were contemporaneous with the
period under appeal.” (Id., PageID.152.) The Board continued to find that “it is
unreasonable for the [MAC] to require Beaumont to have time studies . . . and not
accept alternative documentation.” (Id.) The Administrator in no way contested this
finding, and in fact went further and explicitly disagreed with the Board’s ruling regarding
contemporaneous time studies. (Id., PageID.115-16 (“The Board disagreed with the

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MAC’s contention that [Plaintiff] did not provide time studies that were
contemporaneous with the period under appeal. The Administrator does not agree.”).)
The Administrator reasoned that “time studies are an obvious tool,” on the way to
finding that Plaintiff had not met its burden of proving its training costs. (Id.,
PageID.116.)
Fourth, Plaintiff attempted to comply with the agency’s new-found demand for
time studies by constructing data from other years and employee testimony and
experience, which the agency then claimed was not contemporaneous and insufficient
to establish “adequate cost data.” 42 C.F.R. § 413.24(a). Nurses who trained students
for Plaintiff established an estimate that they worked “no less than 1.5 hours per 8-hour
shift training nursing students . . . over and above the nurses’ regular responsibilities on
a shift.” (ECF No. 22, PageID.1369-70 (The court’s March 2018 opinion explaining
uncontested facts).) That number was then used to calculate the final reimbursement
amounts requested, $414,826 for 2005 and $550,600 for 2006. (Id.; ECF No. 8,
PageID.243.) Plaintiff’s contemporaneous records were used to tabulate the total
number of student hours spent at Plaintiff’s hospital. (ECF No. 8, PageID.243 (testimony
of Plaintiff’s Director of Reimbursement who performed the calculations); ECF No. 8-1,
PageID.533-34, 594-95 (2005 and 2006 Cost Reports).) Then, the number of student
hours was converted to days. (ECF No. 8, PageID.243.) The 1.5-hour estimate was
multiplied by the total number of days to calculate time spent. (Id.) Finally, time spent
was multiplied by nurse-educator salaries, computed using 2005 and 2006 data, to
come to final amounts. (Id., PageID.246-47 (testimony on the analysis and confirmation

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of employee title and seniority); ECF No. 8-1, PageID.596-99 (2005 and 2006 Nursing
Payroll Structure sheets).)
A member of Plaintiff’s Administrative Management Team, who also provided
clinical training to nursing students, testified that she met with a group of other clinical
nurse trainers and “looked at all the different tasks that a nurse working a unit with a
student nurse . . . would be doing . . . we listed [them] and we came up with . . . how
much time would it take for these tasks.” (ECF No. 8, PageID.302-03.) The nurse
continued: “[W]e really felt that the hour and a half time frame that we could
conservatively say, and . . . without a doubt, the nurses spend . . . with that student
nurse going through, teaching, educating, answering questions.” (Id.) The nurse
explained in detail specific tasks nurse trainers were asked to perform and how much
time each task would take. Examples include discussing morning reports for at least
seven to ten minutes, discussing morning medications given to patients for at least
twenty minutes, and discussing physical assessments of patients for fifteen to twenty
minutes. (Id., PageID.307, 308.) Five registered nurses, employed by Plaintiff in 2005
and 2006 to train nursing students, submitted affidavits estimating “an average of at
least 1.5 hours per day” spent educating students. (ECF No. 8-1, PageID.527-31.)
Plaintiff relied on a similar synthesis of testimony, experiences, estimates, and data
analysis to conclude that $50,000 for both 2005 and 2006 was expended for hiring
administrative and clerical support staff, used to coordinate clinical programs for nursing
students. (ECF No. 8, PageID.1195-96 (Manager of Plaintiff’s Nursing Education
Department explaining how the $50,000 amount was tabulated); see also id.,
PageID.135 (the Board citing the record and describing the estimate as “conservative”).)

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Plaintiff also pointed out that it began collecting contemporaneous time studies
from 2010 to 2012 after the agency demanded time studies for 2005 and 2006. (ECF
No. 15-1, PageID.1237-49.) The time studies for years following 2006 yielded a higher
number of hours spent per day by nurses training students than the amounts sought for
2005 and 2006, despite the fact that there is no evidence that the operation and
expenditures of Plaintiff’s nurse training program changed in any substantial degree.
(ECF No. 8, PageID.153 (the Board describing calculations to reach higher hours-perday amounts for 2010 to 2012); ECF No. 17, PageID.1278, ¶ 98 (Defendant admitting
that “the inference [of higher hours-per-day training] is consistent with the document,”
but denying relevance).) This confirmed the characterization of Plaintiff’s 1.5 hours
calculation as conservative.
Nonetheless, the Administrator rejected the entirety of Plaintiff’s evidence that
was amassed in response to the agency’s demand for contemporaneous time studies.
The Administrator ruled categorically that Plaintiff failed to “keep contemporaneous
records capable of being verified and audited.” (ECF No. 8, PageID.115.) Specifically,
the Administrator found that “the 1.5 hours per day that the nursing staff devoted to
clinical training of nursing students was an estimate and that [Plaintiff] did not track the
time nurses spent.” (Id.)
Fifth, Plaintiff was informed by the agency of the new time-studies requirement
only in 2010, at least four years after the relevant records were supposed to be
gathered and presented. A member of Plaintiff’s Administrative Management Team who
helped develop Plaintiff’s cost estimates as a substitute for contemporaneous time
sheets was asked whether “anyone affiliated with Medicare . . . asked for time records

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at any time before 2010.” (Id., PageID.303.) Plaintiff’s employee responded: “No, I am
not aware of that.” (Id.) Plaintiff’s Manager of Nursing Education and Research
Department was asked: “Are you aware of any [MAC] or anyone affiliated with Medicare
asking [Plaintiff] to keep any time records relating to clinical nursing education before
2010?” (Id., 293-94.) The manager replied: “No, sir. That’s the first time this situation
has ever arose.” (Id., PageID.294.) The Board, in its decision granting Plaintiff
reimbursement, noted that “the first time the [MAC] requested time studies from
[Plaintiff] was in 2010, well after the fiscal years at issue,” and found that the agency’s
requirement that Plaintiff have complete time studies years later was unreasonable. (Id.,
PageID.133.) The Administrator included no analysis refuting this finding and instead
denied reimbursement, reasoning that Plaintiff lacked time studies and relied on noncontemporaneous information to produce sufficiently detailed data equivalent to time
studies. (Id., PageID.115-16.)
Sixth, after Plaintiff was made aware that contemporaneous time sheets were de
facto mandated in order to receive Medicare compensation in 2010, Plaintiff complied
adequately and fully. Plaintiff submitted time studies in order to receive compensation
for nursing student training from 2010 to the last year of the administrative record, 2012.
(ECF No. 15-1, PageID.1237-49; ECF No. 17, PageID.1278, ¶ 97.) Plaintiff’s Director of
Corporate Reimbursement submitted an affidavit stating that the agency approved
Plaintiff’s request for costs for the years 2010 to 2012. (ECF No. 15-1, PageID.1235.)

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Although the agency’s approval is not itself in the administrative record, Defendant
admits this to be the case. 2 (ECF No. 17, PageID.1279, ¶ 99.)
i. Time Studies and Plaintiff’s Contemporaneous and Non-Contemporaneous
Records
With all these facts in mind, the court finds that the agency’s decision to withhold
payment to Plaintiff for the 2005 and 2006 fiscal years arbitrary, capricious, and
“otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).
The court has found that the agency’s interpretation of its own regulations was
due no deference, as it effectively inserted into Medicare regulations requiring
“adequate cost data” for nurse training compensation a “contemporaneous” element for
the acceptability of time studies and equivalent documentation. 42 C.F.R. § 413.24(a).
(ECF No. 22.) The court reasoned that the Administrator’s decision to deny
compensation, due to Plaintiff’s attempt to reconstruct records equivalent in detail and
substance to time sheets because they were not contemporaneous, was detached from
any reference to “the text of the regulations, [was] contrary to [Defendant’s]
longstanding practice, and—unless voided—would result in . . . unfair surprise.” (ECF
No. 22, PageID.1377 (citations removed).) When an agency is not given deference, the

2

The court finds consideration of subsequent approvals by the agency, after
Plaintiff began using time sheets, informative and non-prejudicial to the agency. The
Sixth Circuit, upon review of administrative law cases, found that “a reviewing court may
consider materials supplementary to the administrative record in order to determine the
adequacy of the government’s decision, even when the court’s scope of review is
limited to the administrative record.” United States v. Akzo Coatings of Am., Inc., 949
F.2d 1409, 1427 (6th Cir. 1991). Approvals for the years 2010 to 2012 do not concern
the intricate details of Plaintiff’s 2005 and 2006 requests for reimbursement. They do
not serve to second-guess the agency’s decision in a de novo review, but merely
confirm a well-evidenced theory that the agency denied cost reimbursements to Plaintiff
for fiscal years 2005 and 2006 because Plaintiff lacked contemporaneous time sheets.
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court should accept the agency’s interpretation of its own regulations only “to the extent
it has the ‘power to persuade.’” Kisor v. Wilkie, 139 S.Ct. 2400, 2414 (2019) (quoting
Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 159 (2012)). The court
considers, as it may do with any party, “the thoroughness evident in [the agency’s]
consideration, the validity of its reasoning, its consistency with earlier and later
pronouncements, and all those factors which give it power to persuade.” Christopher,
567 U.S. at 159 (quoting United States v. Mead Corp., 533 U.S. 218, 228 (2001).
As the Supreme Court reasoned in the Court’s recent decision on administrative
deference, Kisor v. Wilkie, 139 S.Ct. 2400 (Roberts, C.J.), the list of factors a court must
consider in determining deference and the factors a court considers in being persuaded
“have much in common.” Id. at 2424. In fact, the Chief Justice, as the deciding vote in
the case, found that “cases in which Auer deference is warranted largely overlap with
the cases in which it would be unreasonable for a court not to be persuaded.” Id. at
2425. Conversely, cases in which deference is not warranted largely overlap with cases
in which the agency’s interpretations are not persuasive. That is the case here.
Defendant approved Plaintiff’s filings of cost data for seventeen years without
issue. (ECF No. 8, PageID.321-22, 339; ECF No. 17, PageID.1266, ¶ 32.) Defendant
then, in hindsight—the court pauses briefly to note the lack of contemporaneity in
Defendant’s action here—scored Plaintiff’s submissions for lacking time studies, and
being bereft of contemporaneous data to compensate for a lack of time studies.
Assuming that the agency had “thoroughly considered” Plaintiff’s cost data for
seventeen years, it is completely reasonable for Plaintiff to assume that “adequate cost
data” requirements did not include the need to provide contemporaneous time studies

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or contemporaneous information equivalent to time studies. Christopher, 567 U.S. at
159; 42 C.F.R. § 413.24(a). Defendant’s strong protests against this finding
notwithstanding, Defendant is unable to explain how it found Plaintiff’s cost data
information to be adequate for almost two decades only now to claim that the
information was clearly inadequate, apparently all along. Unless Defendant intends to
say that the agency itself was serially in violation of its own regulations over the course
of seventeen years (twenty-two if one considers that Defendant notified Plaintiff directly
only in 2010), it is very hard for the court to accept the claim that Plaintiff was violating
regulations in 2005 and 2006.
The agency’s change of heart, at least four years after the fact, is patently
inconsistent with “earlier . . . pronouncements” regarding Plaintiff’s compliance. 3
Christopher, 567 U.S. at 159. Defendant has presented no ruling or decision that
contradicted its years of established practice of interpreting Plaintiff’s filings as
“adequate cost data.” 42 C.F.R. § 413.24(a). Instead, the evidence shows that

3

Affirming an application for reimbursement as containing “adequate cost data,”
which is the agency’s tasked responsibility, is a position and a pronouncement
regarding Plaintiff’s compliance, especially considering the fact that Medicare
reimbursement regulations explicitly contemplate MACs, who make initial decisions on
reimbursement, as “important source[s] of consultative assistance to providers.” 42
C.F.R. § 413.24(a); 42 C.F.R. § 413.20(b). Documentation from the agency accepting
Plaintiff’s cost data is a “formal declaration of opinion,” under the definition of
“pronouncement.” Similarly, the agency’s denial of compensation for the 2005 and 2006
fiscal years are positions that must be compared to prior and subsequent positions. The
Supreme Court by no means rejected this finding in Thomas Jefferson Univ. v. Shalala,
515 U.S. 504, 515 (1994), as Defendant claims. Shalala merely states that an agency
may change its mind on the construction of a regulation and not be barred from
receiving deference. While the Court has subsequently pared back deference when “an
agency construction conflict[s] with a prior one,” the Shalala decision has nothing to do
with whether prior agency action constitutes a “pronouncement” in terms of persuasion
analysis. Kisor, 139 S.Ct. at 2418. The court ruled in March 2018 that Defendant’s
interpretation of Medicare regulations is due no deference. See infra note 4.
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Defendant approved Plaintiff’s applications for reimbursement without major concern.
(ECF No. 8, PageID.321-22, 339; ECF No. 17, PageID.1266, ¶ 32.) Even beyond
Defendant’s interpretation with specific regard to Plaintiff’s own documentation,
Defendant has presented no agency interpretation or application, before 2005 or since,
that explicitly requires providers to supply contemporaneous time studies to prove nurse
training costs. Instead, Defendant has pointed to guidelines that required documentation
of reasonable costs, capable of being audited, and agency decisions requiring other
regulated entities to provide other types of contemporaneous documentation in different
and unique factual scenarios. 4 Centers for Medicare & Medicaid Services, The Provider
Reimbursement Manual § 2304 (2014); Doctor’s Hospital v. Blue Cross Blue Shield
Association/CGS Administrators, LLC, 2012 WL 6625076 (Dept. of Health and Human
Serv. Sep. 11, 2012) (an unpublished final decision concerning Medicare
reimbursement for patient bad debts); Parkland Memorial Hospital v. Blue Cross Blue
Shield Association/Blue Cross Blue Shield of Texas (Dept. of Health and Human Serv.
Nov. 29, 1993) (a final agency decision excluded from online legal databases, included
on page 784 of Commerce Clearing House, Inc.’s Medicare and Medicaid Guide, New
Developments, December 1993 to June 1994, and involving bad debt reimbursement);

4

Defendant also appears to be continuing to contest the court’s March 2018
decision denying Auer deference. Defendant asserts that the evidence presented in this
case is “inapposite to the ‘unfair surprise’ argument in Christopher v. SmithKline
Beecham Corp., 567 U.S. 142 (2012),” a decision on which the court relied to deny
deference. (ECF No. 34, PageID.1473; ECF No. 22, PageID.1375 (“The court here
agrees with [Plaintiff] that, under the reasoning of SmithKline, [Defendant’s]
interpretation of its regulations in this case . . . are due no deference.”).) The time to
move for reconsideration has passed. E.D. Mich. L.R. 7.1(h) (“A motion for . . .
reconsideration must be filed within 14 days after entry of the judgment or order.”).
Defendant is expected to focus arguments on those relevant to the remaining questions
at issue.
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In Home Health, Inc. v. Blue Cross Blue Shield of California, Iowa, Illinois, and
Wisconsin, 1996 WL 887661 (Aug. 4, 1996) (an unpublished final decision regarding
Medicare reimbursement for home health services).
None of these sources contained: 1) a requirement for contemporaneous time
studies by providers attempting to receive compensation for nurse training costs; 2)
findings that contemporaneous information such as student rosters and attendance
information was wholly inadequate; or 3) rulings that cost calculations through detailed
and well-supported testimony and reconstructed data analysis are barred from
consideration because they are not purely contemporaneous. 5 If courts were to accept
the agency’s contention that Plaintiff should have rummaged through these guidance
documents and off-topic internal decisions to infer such affirmative rulings in the context
of the agency’s acceptance of Plaintiff’s cost data for seventeen years, the consistency
and predictability of administrative rule of law would be substantially undermined.
Further, the agency does not provide other “factors which give it the power to
persuade.” Christopher, 567 U.S. at 159. A textual analysis of the regulations does not
yield a requirement for time studies or a requirement for entirely contemporaneous
information. Title 42 C.F.R. § 413.20(a) requires that “providers maintain sufficient
financial records and statistical data for the proper determination of costs payable.” Id.

5

Defendant urges the court that agency sources prove some contemporaneous
information was required under Medicare regulations. Even if the court were to accept
the agency’s contention based on unpublished and scattered internal adjudications, it is
irrelevant. It is undisputed that Plaintiff did provide contemporaneous records in 2005
and 2006. (ECF No. 8-1, PageID.536-92; ECF No. 17, PageID.1268, ¶ 39.) The agency
imposed new requirements years after the fact that rendered Plaintiff’s original
contemporaneous information inadequate, and then objected when Plaintiff attempted
to satisfy the agency’s demands with extensive and apparently accurate noncontemporaneous evidence.
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(emphasis added). Title 42 C.F.R. § 413.24(a) states that “[p]roviders receiving payment
on the basis of reimbursable cost must provide adequate cost data. This must be based
on their financial and statistical records which must be capable of verification by
qualified auditors.” In section (c), 42 C.F.R. § 413.24 provides specifics for what
constitutes adequate cost information:
Adequate cost information must be obtained from the provider's records to
support payments made for services furnished to beneficiaries. The
requirement of adequacy of data implies that the data be accurate and in
sufficient detail to accomplish the purposes for which it is intended.
Adequate data capable of being audited is consistent with good business
concepts and effective and efficient management of any organization,
whether it is operated for profit or on a nonprofit basis. It is a reasonable
expectation on the part of any agency paying for services on a costreimbursement basis. In order to provide the required cost data and not
impair comparability, financial and statistical records should be maintained
in a manner consistent from one period to another. However, a proper
regard for consistency need not preclude a desirable change in
accounting procedures if there is reason to effect such change.
Noticeably, nowhere in the text of the regulations at issue is there a mention of
time studies, nor is there a blanket ban on non-contemporaneous information. While
Plaintiff was required to maintain and provide accurate and auditable financial data and
statistics, there is no indication in the regulatory text that the information Plaintiff did
provide: data sheets containing student names, the students’ nursing schools, the
students’ course instructors and contact information, the semester in which the students
performed clinical training, the course numbers at the nursing schools, the dates that
the students received their clinical training, the hours per day that students received
clinical training, the units within Plaintiff’s hospital where students received clinical
training, and the nurse managers of each unit, supplemented by testimony and
affidavits by clinical nurses detailing to the minute the extent and nature of supervisory

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responsibilities, the uncontested salaries of nurse practitioners and administrative and
clerical support staff, data analytics comparing student hours and employee hours, and
subsequent time studies, were all inadequate under Medicare regulations.
The regulations compelling Plaintiff to “maintain” “adequate” records, in their
plain meaning, require Plaintiff “to keep in an existing state” records that are “sufficient”
to be audited and proven accurate. Maintain, Merriam-Webster Dictionary (last visited
April 3, 2020), https://www.merriam-webster.com/dictionary/maintain; Adequate,
Merriam-Webster Dictionary (last visited April 3, 2020), https://www.merriamwebster.com/dictionary/adequate; Kisor, 139 S.Ct. at 2419 (requiring that courts use
“traditional methods of interpretation to any [regulation], and must enforce the plain
meaning those methods uncover,” even in instances of deference); Summit Petroleum
Corp. v. E.P.A., 690 F.3d 733, 744 (6th Cir. 2012) (performing regulatory interpretation
according to “the plain meaning of the text”). This interpretation largely conforms to
explanations in the regulations themselves, which state that “the requirement of
adequacy of data implies that the data be accurate and in sufficient detail to accomplish
the purposes for which it is intended.” 42 C.F.R. § 413.24(c). The court sees no reason
to conclude that the only way to satisfy the “adequate cost” requirement is through
contemporaneous time studies and not through other contemporaneous records,
supplemented by non-contemporaneous testimony, analysis, and time studies.
Additionally, the regulations specifically request consistency in reporting year to
year. “[F]inancial and statistical records should be maintained in a manner consistent
from one period to another.” 42 C.F.R. § 413.24(c). Here, Defendant’s post hoc
requirement for contemporaneous time sheets upset seventeen years of consistent

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reporting practice on the part of Plaintiff. Although change in accounting procedures is
not precluded “if there is reason to effect such change,” the evidence on the record
shows that the agency did not notify Plaintiff of a change of procedure when Plaintiff
sought reimbursement in 2005 and 2006 and did so only in retrospect years later. 42
C.F.R. § 413.24(c).
Defendant points to no binding precedent in conflict with the court’s textual
interpretation. In fact, from the court’s research, neither the Sixth Circuit nor the
Supreme Court have interpreted the meaning of “adequate cost data” in the context of
42 C.F.R. § 413.24(a).
Administrative agencies must abide by their regulations. “It is an elemental
principle of administrative law that agencies are bound to follow their own regulations.”
Meister v. U.S. Dept. of Agric., 623 F.3d 363, 371 (6th Cir. 2010) (finding that a Forest
Service land and resource management plan was arbitrary and capricious for violating
Forest Service regulations); see also Clark Reg’l Med. Center v. U.S. Dept. of Health
and Human Servs., 314 F.3d 241, 249 (6th Cir. 2002) (holding that the Department of
Health and Human Service’s denial of Medicare reimbursement, in violation of the
agency’s own regulations, was arbitrary and capricious). Here, Medicare regulations
requiring healthcare providers to supply “adequate cost data” for expenses incurred in
training nursing students did not include requirements that providers use time studies or
contemporaneous records equivalent to time studies. 42 C.F.R. § 413.24(a). The
Administrator’s decision to deny Medicare reimbursement due to Plaintiff’s lack of time
studies or contemporaneous information equivalent to time studies was arbitrary,
capricious, and “not in accordance with law.” 5 U.S.C. § 706(2)(A). (ECF No. 8,

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PageID.115-16 (The Administrator’s decision: “[Plaintiff] was unable to locate and
provide all of the MAC’s requested records to substantiate the claimed pass-through
costs;” “[Plaintiff] did not keep contemporaneous records capable of being verified and
audited;” “The Board disagreed with the MAC’s contention that [Plaintiff] did not provide
time studies that were contemporaneous with the period under appeal. The
Administrator does not agree.”).)
ii. Plaintiff’s Job Descriptions
To the extent the Administrator’s decision relied on Plaintiff’s failure to provide
job descriptions of Plaintiff’s administrative and clerical support staff, the court finds
such reliance arbitrary and capricious. The Administrator mentioned in one cursory
sentence that Plaintiff’s calculation of expenses for its administrative and clerical
support staff was flawed because “the documentary record does not include any job
descriptions or other evidence setting forth the roles and responsibilities of those
employed in the nursing education department during time periods under appeal.” (ECF
No. 8, PageID.116.)
The administrative record shows the opposite. The manager of Plaintiff’s
Department of Nursing Education and Research provided extensive testimony regarding
such job descriptions as they were “from 2005 to 2006.” (Id., PageID.277.) For example,
the manager described how employees worked in “the placement part of the [nurse
training] process.” (Id., PageID.278.) “[U]niversities mailed [Plaintiff] requests on paper
of classes and students, and gave [Plaintiff] the information as far as the nursing
curriculum.” (Id., PageID.278.) The universities “would send [Plaintiff] that [information],
requesting areas or requested levels and . . . [t]hen we [employees at the Nursing

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Education and Research Department] would communicate via mail with the universities
and send accept or deny [responses] or changes, make phone calls if there were
questions about their placement requests, and communicate with the schools to accept,
deny, or place.” (Id., PageID.278.) The manager further described additional tasks, such
as preparing for nursing student orientation, conducting nursing student orientation,
registering nursing students and performing background checks, coordinating the
rotations for each student, meeting with students to ensure compliance with agreements
and patient confidentiality, and investigating incidents at the hospital involving a nursing
student, amongst many other roles. (Id., PageID.278, 280 (describing orientation
preparation and management); id., PageID.280-81 (discussing student registration,
preparing and completing required forms, and confirming background checks); id.,
PageID.278, 281 (explaining responsibilities coordinating unit rotations within the
hospital); id., PageID.282 (describing investigation and reporting requirements).)
Plaintiff also provided a detailed formal description of the job responsibilities of a
Director of Nursing Education and a Manager of Nursing Education and Research,
albeit assembled in 2013. (ECF No. 8-1, PageID.458-62.) The agency citied no record
evidence to indicate how formal job descriptions in 2013 differed in any substantial
degree from those in 2005 and 2006, or why such differences were lacking enough to
justify denying Plaintiff any reimbursement. (ECF No. 8, PageID.115.) Notably, the
Board had no trouble finding that “[Plaintiff] provided a job description for each of these
employees.” (Id., PageID.135.)
To claim that that Plaintiff failed to provide proof of job descriptions, and to further
suggest that this information may make Plaintiff’s entire proof of costs for 2005 and

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2006 inadequate is “so implausible that it could not be ascribed to a difference in view
or the product of agency expertise” and is a decision “that runs counter to the evidence
before the agency.” 42 C.F.R. § 413.24(a); Kentukians for the Commonwealth, 746
F.3d at 706. A decision based on Plaintiff’s proof of job descriptions alone would be
arbitrary and capricious and a violation of the APA. Kentukians for the Commonwealth,
746 F.3d at 706; 5 U.S.C. § 706(2)(A).
iii. Consistency and Reliance Interests
Even if the agency had properly found Plaintiff’s evidence on job descriptions to
be lacking, the agency would still have “failed to consider an important aspect of the
problem,” namely consistency in reporting and reliance. Kentukians for the
Commonwealth, 746 F.3d at 706. As the court mentioned in its March 2018 opinion,
Medicare reimbursement regulations explicitly consider consistency in the manner of
reporting nurse training costs year to year. (ECF No. 22, PageID.1376.) “In order to
provide the required cost data and not impair compatibility, financial and statistical
records should be maintained in a manner consistent from one period to another.” (Id.
(emphasis in original) (quoting 42 C.F.R. § 413.24(c)).) In accordance with the
regulation, Plaintiff maintained the same records consistently over the course of many
years and was given positive responses by the agency. It was the agency, not Plaintiff,
who retroactively demanded performance in 2005 and 2006 inconsistent from the
previous seventeen years. Although the regulations also say that “a proper regard for
consistency need not preclude a desirable change in accounting procedures if there is
reason to effect such change,” the agency here did not provide any reason to effect any
known change upon Plaintiff’s reporting requirements in 2005 and 2006. 42 C.F.R. §

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413.24(c). The agency denied compensation years after the fact in 2010 with post hoc
rationalizations never before given to Plaintiff. Consistency in reporting, as demanded in
Medicare regulations, was wrongfully ignored by the agency. Kentukians for the
Commonwealth, 746 F.3d at 706.
Further, the regulations also contemplate providers such as Plaintiff relying on
past decisions of MACs. Title 42 C.F.R. § 413.20(c) states that “[i]n the interpretation
and application of the principles of reimbursement, [MACs] will be an important source
of consultative assistance to providers.” The agency should have considered the fact
that MACs had provided Plaintiff with valuable “consultative assistance” by approving
Plaintiff’s consistent cost reporting for seventeen years prior to 2005. Id. In fact, it is
possible that ignoring the findings of past reviews by MACs would itself conflict with
Medicare regulations. The consistency of prior MAC approvals should have been
considered by the agency and was not. Kentukians for the Commonwealth, 746 F.3d at
706.
These findings are supported further by the general principle that effective and
efficient regulatory regimes rely on predictable and well-understood rules. See, e.g.,
Rule of Law, Black’s Law Dictionary (11th ed. 2019) (emphasis added) (“The
supremacy of regular as opposed to arbitrary power.”); Boys Markets, Inc. v. Retail
Clerks Union, Local 770, 398 U.S. 235, 240 (1970) (“We fully recognize that important
policy considerations militate in favor of continuity and predictability in the law.”); Kimble
v. Marvel Entm’t, LLC, 135 S.Ct. 2401, 2409 (2015) (citations removed) (finding that the
importance of predictability and respect for reliance interests, in the context of judicial
decisions and stare decisis, is a “foundation stone of the rule of law”). The APA is

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structured to ensure predictability and protect reliance interests, with requirements of
notice and comment before final rulemaking and prohibitions on arbitrary and capricious
conduct. 5 U.S.C. § 706(2)(A) (statute allowing judicial review of arbitrary and capricious
agency action); Kisor, 139 S.Ct. at 2414 (citation removed) (denying deference to
agency interpretations where the interpretation would “create [an] unfair surprise to
regulated parties”); Perez v. Mortgage Bankers Ass’n, 575 U.S. 92, 96 (2015) (citing 5
U.S.C. § 553) (describing detailed requirements of notice, comment, and justification for
an agency’s preferred interpretation of a statute carry the force of law); F.C.C. v. Fox
Television Stations, Inc., 556 U.S. 502, 515 (2009) (analyzing an agency decision under
arbitrary and capricious review: “[a]n agency may not, for example, depart from a prior
policy sub silento” and may be required to provide a “detailed justification” when “its
prior policy has engendered serious reliance interests”); Wong Yang Sung v. McGrath,
339 U.S. 33, 37 (1950), superseded by statute on other grounds, 8 U.S.C. § 1101
(describing, soon after enaction of the APA, how the APA was created after “[t]he
conviction developed, particularly within the legal profession, that [administrative] power
was not sufficiently safeguarded and sometimes put to arbitrary and biased use” without
expectation or understanding).
Here, the agency’s apparent disregard for years of reliance interest not only
undermines Plaintiff’s ability to plan for its nursing education programs, it increases the
risk and uncertainty of regulated parties in the industry as a whole. Without some
degree of respect for the status quo and providers’ past expectations, it is hard to see
how the agency can effectively implement its weighty responsibilities in administering
the nation’s Medicare system, including the support of nurse training programs. The

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agency should have contemplated how its decision would affect reliance interests. By
declining to do so, the agency “failed to consider an important aspect of the problem.”
Kentukians for the Commonwealth, 746 F.3d at 706.
iv. Remedy
Having found Defendant’s decision to deny Plaintiff Medicare reimbursement for
nurse training costs for fiscal years 2005 and 2006 arbitrary, capricious, and “otherwise
not in accordance with law,” the remaining issue is remedy. 5 U.S.C. § 706(2)(A).
Plaintiff argues that the court should jump into the deep end of the administrative pool
and grant an exact monetary award in its favor. It is true, as Plaintiff points out, that the
Board provided detailed reasoning and what appears to be a reasonable calculation for
compensation. Nonetheless, it is not the role or expertise of the court to analyze
complex Medicare compensation data and determine reasonable reimbursement
amounts. Florida Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985) (“The reviewing
court [of an agency decision] is not generally empowered to conduct a de novo inquiry
into the matter being reviewed and to reach its own conclusions based on such an
inquiry.”). Congress delegated that duty to Defendant and the Department of Health and
Human Services. Thus, the court will remand the case with guidance from this opinion
to the Department of Health and Human Services for further determination.
“It is well settled that when an agency makes an error of law in its administrative
proceedings, a reviewing court should remand the case to the agency so that the
agency may take further action consistent with the correct legal standards.” Cissell Mfg.
Co. v. U.S. Dept. of Labor, 101 F.3d 1132, 1136 (6th Cir. 1996); Coalition for Gov’t
Procurement v. Fed. Prison Indus., 365 F.3d 435, 473 (6th Cir. 2004). Plaintiff was not

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required to provide time studies or contemporaneous data equivalent to time studies to
prove “adequate cost data” under Medicare regulations. 42 C.F.R. § 413.24(a). The
agency’s interpretation of law was incorrect. On remand, the agency will be given the
opportunity to consider Plaintiff’s proffered evidence and determine the extent of
compensation Plaintiff is owed without applying a faulty legal standard. The agency
must consider all of Plaintiff’s evidence, including Plaintiff’s contemporaneous records,
such as student rosters, and Plaintiff’s non-contemporaneous testimony, data analysis,
and time studies, in deciding whether Plaintiff has provided adequate cost data for fiscal
years 2005 and 2006.
There is an exception to the general rule that errors of law require remand to the
agency. The court should not remand if “it is crystal-clear that the [agency’s] error
renders a remand an unnecessary formality,” in that a remand “would do little more than
duplicate a process already undertaken.” Coalition for Gov’t Procurement, 365 F.3d
473-74 (quoting NLRB v. Food Store Employees Union, 417 U.S. 1, 8 (1974)). Upon
remand, the agency will have to consider the full body of the evidence Plaintiff gathered
in support of 2005 and 2006 cost data. The agency cannot require time studies or
ignore substantial evidence supporting some level compensation simply because
Plaintiff did not gather the evidence contemporaneous to the years at issue. Because of
the agency’s failure to follow these requirements in its initial review, remand would not
“duplicate a process already undertaken” and would not be an “unnecessary formality.”
Coalition for Gov’t Procurement, 365 F.3d 473-74.
“If the record before the agency does not support the agency action, if the
agency has not considered all relevant factors, or if the reviewing court simply cannot

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evaluate the challenged agency action on the basis of the record before it, the proper
course, except in rare circumstances, is to remand to the agency for additional
investigation or explanation.” Florida Power & Light Co., 470 U.S. at 744; see also Nat’l
Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 657 (2007) (“[I]f the
EPA’s action was arbitrary and capricious . . . the proper course would have been to
remand to the Agency for clarification of its reasoning.”). To the extent the agency relied
on an alleged failure on the part of Plaintiff to provide job descriptions for its employees,
the agency’s decision was arbitrary and capricious. The agency must reconsider
Plaintiff’s evidence without this unsubstantiated conclusion. In contrast, the agency
failed to consider the important factors of consistency in reporting and Plaintiff’s reliance
interests. On remand, the agency must take up these issues.
v. “Substantial Evidence” Review
Plaintiff also seeks relief under the APA’s “substantial evidence” standard. 5 U.S.C.
§ 706(2)(E). With the court already finding the agency’s decision to be arbitrary and
capricious and remanding the case to the agency, the court will not review the agency’s
decision under the alternative analysis of “substantial evidence.” Richardson, 402 U.S.
at 401sss. Plaintiff itself argues that the court should not apply the “substantial
evidence” standard. (E.g. ECF No. 35, PageID.1545 (“[Defendant’s] request for
‘substantial evidence review’ of the agency’s so-called ‘factual findings’ is unfounded.”)
The court will accept Plaintiff’s suggestion and will not analyze the issue further.

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IV. CONCLUSION
Defendant, acting as secretary for the Department of Health and Human Services,
improperly denied Plaintiff Medicare reimbursement for nurse training expenses. The
agency decision was arbitrary and capricious. The regulatory interpretation relied on to
deny Plaintiff reimbursement was erroneous. Plaintiff was not required to provide the
agency time studies or purely contemporaneous records sufficient to replace time
studies. Further, the agency improperly considered Plaintiff’s evidence of job
descriptions lacking and failed to consider the consistency of Plaintiff’s cost filings over
the course of seventeen years, as well as Plaintiff’s reliance interests. The court will
remand the case to the Department of Health and Human Services for proper
adjudication in conformity with this opinion. Accordingly,
IT IS ORDERED that Plaintiff William Beaumont Hospital – Royal Oak’s
“Renewed Motion for Judgment” (ECF No. 33) is GRANTED.
IT IS FURTHER ORDERED that Defendant Thomas E. Price’s “Renewed CrossMotion for Judgment” (ECF No. 34) is DENIED.
IT IS FURTHER ORDERED that this case is REMANDED to the Department of
Health and Human Services for further proceedings consistent with this opinion.
Lastly, IT IS ORDERED that the name of Defendant Secretary is changed on the
docket from Thomas E. Price to Alex M. Azar II.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: April 20, 2020

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I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, April 20, 2020, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]
S:\Cleland\Cleland\JUDGE'S DESK\C2 ORDERS\16-13528.BEAUMONT.CrossMotionsforJudgment.RMK.RHC.6.docx

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