F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
OCT 20 2003
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
BARTLETT MEMORIAL MEDICAL
CENTER, INC.; COMANCHE
COUNTY HOSPITAL AUTHORITY,
d/b/a Comanche County Memorial
Hospital; HILLCREST MEDICAL
CENTER; SSM MISSION HILL
CORPORATION, d/b/a Mission Hill
Memorial Hospital; MIDAMERICA
HEALTH CARE, INC., d/b/a Shawnee
Regional Hospital; PAULS VALLEY
GENERAL HOSPITAL; SISTERS OF
SORROWFUL MOTHER – ST. JOHN
MINISTRY CORPORATION, d/b/a
St. John Medical Center;
Nos. 02-6142, 02-6152
UNIVERSITY HOSPITALS
AUTHORITY, d/b/a University
Hospital,
Plaintiffs - Appellees/Cross-
Appellants,
v.
TOMMY G. THOMPSON, Secretary,
Department of Health and Human
Services,
Defendant - Appellant/Cross-
Appellee.
Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. 00-CV-1277-A)
Anne Murphy, Attorney, Appellate Staff Civil Division, United States Department
of Justice, Washington, D.C. (Robert D. McCallum, Jr., Assistant Attorney
General, United States Department of Justice, Washington, D.C., Robert G.
McCampbell, United States Attorney, Oklahoma City, Oklahoma, and Anthony J.
Steinmeyer, Attorney, Appellate Staff Civil Division, United States Department of
Justice, Washington, D.C., with her on the briefs) for Defendant-Appellant/Cross-
Appellee.
Sanford E. Pitler, Bennett, Bigelow & Leedom, P.S., Seattle, Washington (Lisa
Dobson Gould, Bennett Bigelow & Leedom, P.S., Seattle, Washington, with him
on the briefs) for Plaintiffs-Appellees/Cross-Appellants.
Before EBEL and BRISCOE, Circuit Judges, and SHADUR, * Senior District
Judge.
EBEL, Circuit Judge.
The Medicare Act, 42 U.S.C. §§ 1395 et seq., contains a “disproportionate
share hospital” (DSH) provision which permits additional reimbursement to
hospitals that handle a disproportionate share of low-income patients. In the mid-
1990s, many hospitals, including Plaintiffs, sued the Secretary 1 of Health and
Human Services (HHS), claiming that his regulations improperly interpreted this
*
Honorable Milton I. Shadur, Senior District Court Judge, Northern District
of Illinois, sitting by designation.
1
Donna Shalala was the Secretary of Health and Human Services from 1993
to 2001, the period in which many of the events underlying this lawsuit occurred
and in which this action was filed. In 2001, Shalala was replaced by Tommy G.
Thompson, who has accordingly been substituted as the defendant in this action.
For the sake of simplicity, we refer throughout this opinion to the defendant in
this case as “the Secretary” and use the masculine pronoun.
-2-
provision, resulting in lower payments to hospitals. This litigation was
successful, and on February 27, 1997, the Secretary issued Ruling 97-2, which
purported to change the Secretary’s interpretation of the DSH provision to comply
with these court rulings. The Secretary instructed, however, that the new
interpretation would only be applied prospectively and that no cost reports from
previous years would be reopened for recalculation under the new rule.
Unhappy with the prospective nature of the Secretary’s ruling, the Plaintiff
Hospitals in this case sought to have cost reports from the early 1990s reopened
and adjusted to reflect the new interpretation. Their requests were denied because
of Ruling 97-2’s instruction that reports could not be reopened with respect to the
DSH reimbursement. Plaintiffs unsuccessfully sought to appeal within the
agency, which held it had no authority to review a denial of a request for
reopening. Plaintiffs then sought judicial review in the Western District of
Oklahoma to challenge the validity of Ruling 97-2. Over the Secretary’s
objection, the district court found jurisdiction to hear the case under the
mandamus statute, 28 U.S.C. § 1361. It ordered that some of the reports be
reopened and that others be considered for reopening.
The Secretary now appeals, asserting that the district court erred in finding
mandamus jurisdiction, and the Secretary argues there is no other jurisdictional
-3-
basis to hear these claims. Plaintiffs cross-appeal, primarily contending that the
district court should also have found federal question jurisdiction.
Because we find that the Secretary did not owe any clear, non-discretionary
duty to Plaintiffs, we hold that mandamus jurisdiction does not lie; however,
because we find this case falls into a narrow exception created by Bowen v.
Michigan Academy of Family Physicians, 476 U.S. 667 (1986), we find that
federal question jurisdiction does lie. Nevertheless, exercising our federal
question jurisdiction, we REVERSE the district court’s grant of summary
judgment to Plaintiffs—and its denial of summary judgment to the
Secretary—because we determine that Plaintiffs cannot prevail as a matter of law
on any of their claims.
I. BACKGROUND
Plaintiffs are or operate Oklahoma for-profit, not-for-profit or public
hospitals that participate in the Medicare and Medicaid programs. The Health
Care Financing Authority (“HCFA”) (now called the Center for Medicare and
Medicaid Services), is the agency of HHS responsible for administering the
Medicare program.
Some of the hospital services provided by Plaintiffs are covered by
Medicare. At the close of each fiscal year, Plaintiffs file a “cost report” with a
-4-
fiscal intermediary to determine their entitlement to Medicare reimbursement. 42
C.F.R. §§ 413.20(b). A fiscal intermediary is generally a private insurance
company (in this case, BlueCross BlueShield of Oklahoma) that acts as a claims
processor for Medicare claims. The intermediary analyzes and audits the cost
report and issues a notice of program reimbursement (NPR) that gives the hospital
a final determination of the amount of its Medicare reimbursement for the given
year. Id. § 405.1803.
Once a hospital has received an NPR from its fiscal intermediary, it has two
ways to contest the amount of reimbursement. First, it may file an appeal with the
Provider Reimbursement Review Board (“PRRB” or “Board”). 42 U.S.C.
§ 1395oo(a). An appeal to the PRRB must be filed within 180 days of the receipt
of the NPR, id. § 1395oo(a)(3), and any final decision of the PRRB is subject to
judicial review, id. § 1395oo(f)(1).
Second, the fiscal intermediary may reopen the NPR. 42 C.F.R.
§ 405.1885. 2 It is this reopening provision that is primarily at issue in this case.
2
In 1997, 42 C.F.R. § 405.1885 provided in relevant part:
Reopening a determination or decision.
(a) A determination of an intermediary . . . may be reopened with respect
to findings on matters at issue in such determination . . . by such
intermediary officer . . . either on motion of such intermediary
officer . . . or on the motion of the provider affected by such
(continued...)
-5-
There are two separate ways reopening may occur. First, within three years of the
issuance of the NPR, the hospital may request that the fiscal intermediary reopen
the NPR. Id. § 405.1885(a). The fiscal intermediary has exclusive jurisdiction
over this decision, and a denial of reopening may not be reviewed by the PRRB or
the federal courts. Id. § 405.1885(c); Your Home Visiting Nurse Servs. v.
Shalala, 525 U.S. 449, 452-56 (1999). Second, if within three years of the
issuance of an NPR, the HCFA notifies the intermediary that its initial
2
(...continued)
determination . . . to revise any matter in issue at any such
proceedings. Any such request to reopen must be made within 3
years of the date of the notice of the intermediary . . . decision . . . .
No such determination or decision may be reopened after such 3-year
period except as provided in paragraphs (d) [fraudulent
determinations or decisions] and (e) [determinations or decisions
issued prior to 1972] of this section.
(b) A determination . . . rendered by the intermediary shall be reopened
and revised by the intermediary if, within the aforementioned 3-year
period, the Health Care Financing Administration notifies the
intermediary that such determination or decision is inconsistent with
the applicable law, regulations, or general instructions issued by the
Health Care Financing Administration in accordance with the
Secretary’s agreement with the intermediary.
(c) Jurisdiction for reopening a determination or decision rests
exclusively with that administrative body that rendered the last
determination or decision.
....
This regulation was amended in August 2002 in light of circuit court
decisions unfavorable to the Secretary.
-6-
determination “is inconsistent with the applicable law, regulations, or general
instructions issued by the [HCFA],” the intermediary must reopen and revise the
NPR. Id. § 405.1885(b). These two procedures are respectively referred to as
“discretionary reopening” and “mandatory reopening.”
In the early 1990s, one component of Plaintiffs’ reimbursement was based
on the Medicare Act’s “disproportionate share hospital” (DSH) provision, which
permits more recovery for hospitals handling a disproportionate share of low-
income patients. 42 U.S.C. § 1395ww(d)(5)(F)(i). Despite clear instruction from
Congress in 1986 that DSH reimbursement should be based on days for which the
patient was eligible for state Medicaid assistance, see id.
§ 1395ww(d)(5)(F)(vi)(II), the Secretary’s regulations permitted recovery under
this provision only for days for which the patient was entitled to state Medicaid
assistance. 42 C.F.R. § 412.106(b)(4). Between 1994 and 1996, the Fourth,
Sixth, Eighth and Ninth Circuits addressed this issue and held that the Secretary’s
interpretation was inconsistent with the Medicare statute. Cabell Huntington
Hosp., Inc. v. Shalala, 101 F.3d 984, 991 (4th Cir. 1996); Legacy Emanuel Hosp.
& Health Ctr. v. Shalala, 97 F.3d 1261, 1266 (9th Cir. 1996); Deaconess Health
Servs. Corp. v. Shalala, 83 F.3d 1041, 1041 (8th Cir. 1996); Jewish Hosp., Inc. v.
Sec’y of Health & Human Servs., 19 F.3d 270, 272 (6th Cir. 1994); see also
-7-
Incarnate Word Health Servs. v. Shalala, No. 3:95-CV-0851-R, 1997 WL 446463,
at *1 (N.D. Tex. July 25, 1997).
Because their DSH reimbursement prior to these decisions had been
calculated based on the Secretary’s interpretation, Plaintiffs initiated two courses
of litigation. The first course of litigation mimicked the suits decided by the
Fourth, Sixth, Eighth and Ninth Circuits and involved seven of the eight Plaintiffs
named in this case. In that litigation, the plaintiffs challenged the DSH
reimbursement in NPRs which had been issued to them within the preceding 180
days. Because the plaintiffs in that case acted within the 180-day window, they
were able to appeal those NPRs to the PRRB. 42 U.S.C. § 1395oo. The PRRB
denied their appeals, and they sought judicial review in the Western District of
Oklahoma. See Anadarko Municipal Hosp. v. Shalala, No. CIV-97-288-A, 1998
WL 34007421 (W.D. Okla. Apr. 13, 1998). On April 13, 1998, that court
followed the Courts of Appeals that had previously decided the issue and
invalidated the Secretary’s DSH regulation, 42 C.F.R. § 412.106(b)(4), as
inconsistent with the Medicare statute. Anadarko, No. CIV-97-288-A, 1998 WL
34007421, at *5. It held that the Secretary’s regulation was void ab initio,
ordered that the HCFA recalculate the DSH reimbursement for the challenged
NPRs, and ordered that the Secretary apprise the Court every three months
regarding its rescission of the challenged regulation. Id. at *7. The Secretary did
-8-
not challenge this decision on appeal and initiated efforts to revise the invalid
regulation through rulemaking.
The second track of litigation culminated in the instant case. The Plaintiffs
sought review of fifteen NPRs that were fewer than three years old but that could
not be appealed directly to the PRRB because more than 180 days had passed
since their issuance. 3 With respect to these NPRs, Plaintiffs filed requests for
discretionary reopening under § 405.1885(a) with the fiscal intermediary between
June 13, 1996 and May 1, 1998.
On February 27, 1997, during the time the Plaintiffs were filing these
requests for reopening, but before the fiscal intermediary had ruled on any of the
requests, the Secretary issued Ruling 97-2. Ruling 97-2 stated that the Secretary
would prospectively change his interpretation of the DSH provision to accord
with the decisions of the Courts of Appeals that had reached the issue. The new
interpretation would apply to any NPRs for which there were appeals pending
before the PRRB, but no NPRs would be reopened on the basis of this changed
interpretation. 4 Thus, none of the NPRs challenged in the instant case were
The fiscal intermediary issued these fifteen NPRs between June 18, 1993,
3
and May 12, 1995.
4
Ruling 97-2 reads in relevant part:
This Ruling states the policy of the Health Care Financing
Administration concerning the determination to change its interpretation of
(continued...)
-9-
4
(...continued)
[the statutory DSH provision and the DSH regulation] to follow the
holdings of the United States Courts of Appeals for the Fourth, Sixth,
Eighth and Ninth Circuits. Under the new interpretation, the Medicare
disproportionate share adjustment under the hospital inpatient prospective
payment system will be calculated to include all inpatient hospital days of
service for patients who were eligible on that day for medical assistance
under a State Medicaid plan in the Medicaid fraction, whether or not the
hospital received payment for those inpatient hospital services.
...
In implementing the calculation of the Medicaid fraction, HCFA
interpreted the statutory language to include as Medicaid patient days only
those days for which the hospital received Medicaid payment for inpatient
hospital services. This interpretation has been considered by the courts of
appeals in four judicial circuits. . . . In each of the cases, the court
declined to uphold HCFA’s interpretation, reasoning that the statutory
language “eligible for Medicaid assistance” would include days on which
the patient meets Medicaid eligibility criteria regardless of whether
payment is made.
Although HCFA believes that its longstanding interpretation of the
statutory language was a permissible reading of the statutory language,
HCFA recognizes that as a result of the adverse court rulings, this
interpretation is contrary to the applicable law in four judicial circuits.
In order to ensure national uniformity in calculation of DSH
adjustments, HCFA has determined that, on a prospective basis, HCFA will
count in the Medicaid fraction the number of days of inpatient hospital
services for patients eligible for Medicaid on that day, whether or not the
hospital received payment for those inpatient hospital services. . . .
We will not reopen settled cost reports based on this issue. For
hospital cost reports that are settled by fiscal intermediaries on or after the
effective date of this ruling, these days may be included. For hospital cost
reports which have been settled prior to the effective date of this ruling, but
(continued...)
- 10 -
eligible for reopening under Ruling 97-2 because none had been timely appealed
to the PRRB.
Accordingly, on January 27, 2000, the fiscal intermediary denied Plaintiffs’
requests for discretionary reopening, citing Ruling 97-2. The Plaintiffs sought to
appeal this denial to the PRRB, challenging the validity of Ruling 97-2. Applying
Supreme Court precedent, however, the PRRB declined jurisdiction to hear these
appeals because the decision to reopen rests within the exclusive jurisdiction of
the fiscal intermediary. The PRRB held that the Plaintiffs’ challenge to the
legality of Ruling 97-2 was no different than a challenge to an intermediary’s
discretionary denial of a request to reopen, which is not appealable. The PRRB’s
decision was issued to Plaintiffs and informed them of their rights to seek judicial
review of its decision under 42 U.S.C. § 1395oo(f)(1) and 42 C.F.R. § 405.1875
and 1877.
Before the district court, Plaintiffs sought to challenge Ruling 97-2’s
instruction forbidding fiscal intermediaries to reopen NPRs, as well as the fiscal
intermediary’s denial of reopening. With respect to discretionary reopening under
§ 405.1885(a), they argued that Ruling 97-2 denied the fiscal intermediary its
4
(...continued)
for which the hospital has a jurisdictionally proper appeal pending on this
issue pursuant to either 42 C.F.R. § 405.1811 or 42 C.F.R. § 405.1835,
these days may be included for purposes of resolving the appeal.
- 11 -
regulatory discretion to reopen NPRs within three years of issuance. With respect
to mandatory reopening under § 405.1885(b), they argued that Ruling 97-2
constituted notice to the fiscal intermediaries that the NPRs had been decided
inconsistently with the applicable law, thus triggering the intermediaries’ duties
to reopen and revise. The Secretary moved to dismiss on the grounds that the
district court lacked subject matter jurisdiction to hear the case.
Plaintiffs asserted three grounds for jurisdiction before the district
court—jurisdiction under the Medicare statute (42 U.S.C. § 1395oo(f)(1)), federal
question jurisdiction under 28 U.S.C. § 1331, and mandamus jurisdiction under 28
U.S.C. § 1361. The district court found that jurisdiction was not proper under the
Medicare statute or under § 1331, but found that the requirements of mandamus
jurisdiction were satisfied. It granted Plaintiffs’ motion for summary judgment
and ordered the fiscal intermediary to reopen the six NPRs that fell within the
time period for mandatory reopening. Bartlett Mem’l Med. Ctr. v. Thompson,
171 F. Supp. 2d 1215, 1225-26 (W.D. Okla. 2001). On cross-motions to amend
the judgment under Rule 59, the district court further required that the fiscal
intermediary exercise its discretion to determine whether the remaining nine
NPRs should be reopened, without regard to Ruling 97-2 or any contrary
instruction by the Secretary. Bartlett Mem’l Med. Ctr. v. Thompson, No. CIV-00-
- 12 -
1277-A, at 7-8 (W.D. Okla. Mar. 6, 2002) (order granting in part Plaintiffs’
motion to amend judgment).
On appeal, the Secretary asserts the district court incorrectly found
mandamus jurisdiction. On cross-appeal, Plaintiffs assert that the district court
should have also found federal question jurisdiction and that the district court
should have required mandatory reopening with respect to the final nine NPRs.
Plaintiffs no longer maintain that jurisdiction is appropriate under the Medicare
statute.
II. DISCUSSION
The parties have filed cross-appeals from the district court’s resolution of
Defendant’s Motion to Dismiss and both parties’ Motions for Summary Judgment.
We exercise jurisdiction over these appeals under 28 U.S.C. § 1291 and
REVERSE the judgment of the district court. We find that the requirements of
mandamus jurisdiction were not satisfied, that the requirements of federal
question jurisdiction were satisfied, and that Plaintiffs cannot prevail on their
claims.
A. Mandamus Jurisdiction
The Medicare Act incorporates 42 U.S.C. § 405(h), which states:
No action against the United States, the [Commissioner of Social Security],
or any officer or employee thereof shall be brought under section 1331
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[federal question jurisdiction] or 1346 [United States as defendant] of Title
28 to recover on any claim arising under this subchapter.
42 U.S.C. §§ 405(h) (incorporated into the Medicare Act via 42 U.S.C. § 1395ii).
Section 405(h) does not, however, explicitly bar mandamus jurisdiction under 28
U.S.C. § 1361 for Medicare claims. The Supreme Court has thus far declined to
decide whether mandamus jurisdiction is available for claims arising under the
Medicare Act, Your Home, 525 U.S. at 456; Heckler v. Ringer, 466 U.S. 602, 616
(1984), but this Court has held that such jurisdiction is available if a suit, rather
than seeking a right to benefits, requests “a procedure through which the right to
benefits can be contested.” Dockstader v. Miller, 719 F.2d 327, 329 (10th Cir.
1983). Because we conclude that Plaintiffs are challenging “a procedure through
which the right to benefits can be contested,” we find that Dockstader permits the
consideration of mandamus jurisdiction in this case.
Mandamus relief is available to “a plaintiff only if he has exhausted all
other avenues of relief and only if the defendant owes him a clear
nondiscretionary duty.” Ringer, 466 U.S. at 616; Cordoba v. Massanari, 256 F.3d
1044, 1047 (10th Cir. 2001). 5 We conclude that, although Plaintiffs satisfy the
5
The mandamus statute states:
The district courts shall have original jurisdiction of any action in the
nature of mandamus to compel an officer or employee of the United States
or any agency thereof to perform a duty owed to the Plaintiff.
(continued...)
- 14 -
exhaustion requirement, they have failed to demonstrate that the Secretary owed
them a clear, non-discretionary duty. Thus, mandamus jurisdiction cannot lie. 6
1. Exhaustion
The only issue contested by the parties with respect to exhaustion is
whether Plaintiffs’ failure to file appeals with the PRRB within 180 days of
receiving the NPRs challenged in this case necessarily means that they failed to
exhaust all of their administrative remedies. The resolution of this question
depends on whether Plaintiffs, through this court action, are contesting the
intermediary’s application of Ruling 97-2 to their requests for reopening, or if, as
the Secretary argues, they are really challenging the calculation of their DSH
reimbursement. If they are challenging the application of Ruling 97-2, then they
would never have had an opportunity to appeal that issue to the PRRB within 180
days of their NPRs because Ruling 97-2 was not issued until after that 180-day
(...continued)
5
28 U.S.C. § 1361.
6
The district court’s opinion pointed out another issue with respect to
mandamus jurisdiction: “the fiscal intermediary is not a party to this action.”
Bartlett Mem’l Med. Ctr., 171 F. Supp. 2d at 1224. It concluded that this was not
a problem, however, because the fiscal intermediaries are “agents of the
Secretary” and could therefore be bound by a judgment against the Secretary. Id.
(quoting Monmouth Med. Ctr. v. Thompson, 257 F.3d 807, 813 (D.C. Cir. 2001)
(“The intermediaries are agents of the Secretary charged with the relevant duties
under the Medicare Act and its regulations, and, as such, they may properly be
bound by a writ of mandamus against the Secretary.”)). The parties do not raise
this issue on appeal.
- 15 -
time period had expired; however, if they are directly challenging the DSH
calculation, they would have had the opportunity to perfect that appeal within 180
days of the issuance of their NPRs.
We find that Plaintiffs are challenging the application of Ruling 97-2 to
their requests for reopening and thus they had no available administrative
remedies which were unexhausted. The Secretary’s regulations create the
administrative remedy of reopening, which Plaintiffs were entitled to pursue.
Plaintiffs argue that the Secretary, through Ruling 97-2, unlawfully denied them
access to that remedy by denying the fiscal intermediary its regulatory discretion
under § 405.1885(a) to reopen NPRs within three years of issuance. They also
argue that Ruling 97-2 triggered the fiscal intermediary’s duty under
§ 405.1885(b) to reopen NPRs once the HCFA informs them that their
determinations were contrary to law. These challenges could not have been made
prior to the time that Ruling 97-2 was applied to Plaintiffs’ requests for
reopening.
The Secretary’s argument that Plaintiffs are only trying to obtain judicial
review of the DSH calculation in the NPRs is nonsensical because Plaintiffs
already litigated that issue in another case and won. Anadarko held the
Secretary’s DSH regulation void ab initio—thus, there is no question that if the
instant NPRs can be reopened, they should be recalculated. Plaintiffs had no need
- 16 -
for the district court to make that same determination in this case, and indeed it
did not. The district court in this case nowhere required that the DSH
reimbursement be calculated in a particular way. It ordered only that Plaintiffs’
NPRs be reopened in accordance with the regulations.
Given that Plaintiffs are in fact challenging Ruling 97-2 and not the DSH
calculation, they have clearly exhausted their administrative remedies. They
timely filed requests for reopening pursuant to 42 C.F.R. § 405.1885(a) and then
attempted to have the PRRB review the intermediary’s application of Ruling 97-2.
Once the PRRB declined jurisdiction, Plaintiffs had no other alternatives for
agency review and timely filed this action in the district court. Contrary to the
Secretary’s suggestions, it would have been impossible for Plaintiffs to have
resolved this issue through an initial appeal to the PRRB within 180 days after the
issuance of the NPRs at issue because Ruling 97-2 was not in effect or applied to
them until after the 180-day window for appeal had passed. 42 U.S.C.
§ 1395oo(f)(a)(1); see Monmouth Med. Ctr. v. Thompson, 257 F.3d 807, 815
(D.C. Cir. 2001) (“The Secretary argues that the hospitals have failed to exhaust
their remedies, because they failed to file proper appeals of their NPRs under
§ 1395oo(a). But that fact is hardly relevant here. The question is whether they
have done all they can to vindicate their right to reopening. We have already
shown above how all other avenues of relief are either foreclosed or futile.”);
- 17 -
Your Home Visiting Nurse Servs., Inc. v. Sec’y of Health & Human Servs., 132
F.3d 1135, 1141 (6th Cir. 1997), aff’d on other grounds, 525 U.S. 449, 456-57
(1999) (“Your Home’s failure to appeal the initial determination would preclude
mandamus review of that determination, but does not preclude review of a
decision not to reopen. Your Home has exhausted all available remedies with
respect to its claim that Blue Cross improperly denied its request to reopen.”).
Finally, the policies behind exhaustion have been satisfied in this case.
Exhaustion is generally required as a matter of preventing premature
interference with agency processes, so that the agency may function
efficiently and so that it may have an opportunity to correct its own errors,
to afford the parties and the courts the benefit of its experience and
expertise, and to compile a record which is adequate for judicial review.
Weinberger v. Salfi, 422 U.S. 749, 765 (1975). Each of these policies has been
fulfilled in this situation, supporting our conclusion that Plaintiffs have exhausted
their claims.
2. Clear Non-Discretionary Duty
The second requirement for mandamus jurisdiction is that the defendant
owe the plaintiff a clear, non-discretionary duty. In this case, the Plaintiffs allege
two distinct non-discretionary duties as the basis for mandamus jurisdiction.
First, they allege that the fiscal intermediary had a duty to reopen the cost reports
under 42 C.F.R. § 405.1885(b) (mandatory reopening) when it was notified by the
Secretary that the NPRs were decided inconsistently with the applicable law.
- 18 -
Second, they allege that the Secretary had a duty under 42 C.F.R. § 405.1885(a)
(discretionary reopening) to allow the fiscal intermediaries to exercise their
discretion in deciding whether to reopen the NPRs without the interference of
Ruling 97-2. We find that both of these arguments fail and that neither the
Secretary nor the fiscal intermediaries owed the Plaintiffs a clear, non-
discretionary duty under the mandatory or discretionary reopening regulations.
a. Mandatory Reopening
The Plaintiffs’ first argument for a clear, non-discretionary duty is based on
the “mandatory reopening” provision—42 C.F.R. § 405.1885(b). This provision
states that:
A determination or a hearing decision rendered by the intermediary shall be
reopened and revised by the intermediary if, within the aforementioned 3-
year period, the Health Care Financing Administration notifies the
intermediary that such determination or decision is inconsistent with the
applicable law, regulations, or general instructions issued by the Health
Care Financing Administration in accordance with the Secretary’s
agreement with the intermediary.
Id. (emphasis added). Plaintiffs argue that the Secretary 7 notified the
intermediaries that the instant NPRs were “inconsistent with the applicable law”
on two separate occasions: 1) when the Secretary issued Ruling 97-2, and 2) when
the district court issued its order in Anadarko Municipal Hosp. v. Shalala, No.
Because the HCFA is the Secretary’s agent, they are interchangeable for
7
purposes of this section. See generally 42 C.F.R. ch. IV, subch. A, pt. 400.
- 19 -
CIV-97-288-A, 1998 WL 34007421 (W.D. Okla. Apr. 13, 1998). Thus, argue
Plaintiffs, after receiving this notification, the intermediaries owed Plaintiffs a
clear, non-discretionary duty to reopen and revise the NPRs. In response, the
Secretary argues that the NPRs were not “inconsistent with the applicable law”
and, even if they were, the Secretary never notified the intermediaries that they
were. Thus, the intermediaries had no duty to reopen and revise.
We find that neither Ruling 97-2 nor the Anadarko decision constituted
notification under § 405.1885(b). Therefore, the fiscal intermediaries had no
clear, non-discretionary duty to reopen.
i. Notification Via Ruling 97-2
Plaintiffs allege that Ruling 97-2 constituted notification to the
intermediaries that the instant NPRs were “inconsistent with the applicable law”
and must be reopened and revised in accordance with § 405.1885(b). We hold
that this Ruling did not constitute notification under subsection 1885(b). The
language of Ruling 97-2 clearly evinces both the Secretary’s belief that his prior
interpretation of the DSH provision was not inconsistent with the applicable law
and his intent that no NPRs be reopened on that basis.
First, the Ruling nowhere uses the phrase “inconsistent with the applicable
law.” See Monmouth, 257 F.3d at 813 (the Secretary “studiously avoided” using
the language “inconsistent with the applicable law” in Ruling 97-2 to avoid
- 20 -
notification to the intermediaries under (b)). Instead, the Ruling merely concedes
that the Secretary’s interpretation was “contrary to the applicable law in four
judicial circuits.” Ruling 97-2 (emphasis added).
Second, the Ruling clearly asserts the Secretary’s belief that his DSH
regulation was a permissible interpretation of the applicable statute and that the
purpose of changing his interpretation was to ensure national uniformity in
calculation of DSH reimbursement, not a concession that his prior interpretation
was inconsistent with the applicable law.
Third, Ruling 97-2, rather than notifying the fiscal intermediary to reopen
and revise the challenged NPRs, expressly forbade it from doing so. Given the
unambiguous language of the Ruling, we cannot find that it constitutes the kind of
notification that would require mandatory reopening as contemplated by
§ 405.1885(b). 8
In so holding, we part company with the District of Columbia Circuit,
which held that Ruling 97-2 did constitute notification under § 405.1885(b).
Monmouth, 257 F.3d at 813-14. Although it observed as we do that the Ruling
8
The Secretary also argues at length that the NPRs at issue in this case were
not decided inconsistently with the applicable law of the Western District of
Oklahoma because at the time they were decided, the Secretary’s regulation was
“the applicable law” in that jurisdiction. Because we conclude that, regardless of
whether the decisions were inconsistent with the applicable law, the Secretary
never notified the fiscal intermediaries that they were, we do not resolve this
issue.
- 21 -
“studiously avoid[s] using the magic words ‘inconsistent with the applicable law,’
and instead call[s] the earlier interpretation ‘contrary to the applicable law in four
judicial circuits,’” id., the D.C. Circuit nevertheless went on to find that Ruling
97-2 implicitly notified the intermediaries that the prior interpretation was
“inconsistent with the applicable law” because it was issued as an interpretive
ruling without notice and comment. Id.
Monmouth reasons as follows. First, it observes that if Ruling 97-2
effected a substantive legal change, notice and comment rulemaking would have
been required for its promulgation. Id. at 813-14; see 42 U.S.C. § 1395hh(a)
(stating that “[n]o rule, requirement, or other statement of policy (other than a
national coverage determination) that establishes or changes a substantive legal
standard” may take effect unless it is promulgated consistently with that
subchapter); id. § 1395hh(b)(1). The D.C. Circuit then concluded that because
Ruling 97-2 changed a substantive legal standard, it failed to satisfy the notice
and comment requirements of § 1395hh(b).
However, even if the D.C. Circuit were correct so far in its analysis (which
we do not have to resolve in this case), we do not agree with how the Court
proceeds from that point to the conclusion that the Secretary had given the notice
of invalidity required for mandatory reopening under 42 C.F.R. § 405.1885(b).
One would have assumed that the logical conclusion from the D.C. Circuit’s
- 22 -
reasoning to this point would be to hold that Ruling 97-2 was invalid because of
its failure to comply with notice and comment procedures. Instead, however, the
Court peculiarly concluded that notice and comment was not required for Ruling
97-2. It reached this conclusion by finding that Ruling 97-2, in fact did not effect
a substantive legal change—because instead of changing the prior regulation,
Ruling 97-2 merely conceded that the prior regulation was a nullity.
Finally, the D.C. Circuit concluded, Ruling 97-2’s implicit admission that
the prior regulation was a nullity constituted notification to the intermediaries that
their decisions under the prior regulation were “inconsistent with the applicable
law” and triggered their duty to reopen under § 405.1885(b). Monmouth, 257
F.3d at 814 (“Concluding that the Secretary did in fact give notice of the
interpretation’s inconsistency with applicable law, we also find that § 405.1885(b)
imposed a clear duty on intermediaries to reopen DSH payment determinations for
the hospitals.”).
We find this reasoning unsound because it makes assumptions about the
premises and intended effect of Ruling 97-2 that do not comport with fact or with
the clear intention of the Secretary. Unlike the D.C. Circuit, we believe the
concept of “notification” requires some level of intent by the Secretary. The
Medicare Act provides no statutory right to reopen—the reopening regulations
exist merely at the grace of the Secretary, and the Secretary has complete
- 23 -
discretion as to when to employ the mandatory reopening regulation. 42 U.S.C.
§ 1395ff(b)(1)(G) (“The Secretary may reopen or revise any initial determination
or reconsidered determination described in this subsection under guidelines
established by the Secretary in regulations.”). Because it is purely at the
Secretary’s discretion to issue a notification requiring mandatory reopening, we
cannot follow the D.C. Circuit’s lead and eradicate that discretion by holding that
the Secretary may inadvertently notify the intermediaries to reopen and revise
NPRs, contrary to his own clearly expressed intent not to allow reopening.
ii. Notification via the Anadarko decision
Plaintiffs also contend that the intermediaries were notified by the
Secretary that their prior decisions were inconsistent with the applicable law
when the District Court for the Western District of Oklahoma ordered the
Secretary to revise the NPRs at issue in Anadarko. We hold that this order does
not constitute notification under § 405.1885(b).
In Anadarko Municipal Hosp. v. Shalala, No. CIV-97-288-A, 1998 WL
34007421 (W.D. Okla. Apr. 13, 1998), the Western District of Oklahoma held
that the Secretary’s regulation interpreting the statutory DSH provision was
invalid ab initio and ordered him to recalculate the DSH reimbursement in the
NPRs at issue in that case. Id. at *7. All of those NPRs had been appealed within
180 days to the PRRB and then timely appealed in federal court—and therefore
- 24 -
none needed to be reopened under the reopening regulation. Plaintiffs argue that
the district court’s order constituted notification that the intermediary’s prior
decisions were inconsistent with the applicable law and necessitated mandatory
reopening.
We disagree. First, Anadarko was a decision issued by the district court
and therefore cannot constitute notification by the HCFA or by the Secretary, as
required under § 1885(b). See 42 C.F.R. § 405.1885(b) (stating that an NPR must
be reopened if “the Health Care Financing Administration notifies the
intermediary . . .”) (emphasis added).
Second, the district court in Anadarko expressly refused to address the
issue of reopening. After the court had issued its first order invalidating the
Secretary’s regulation, the Anadarko plaintiffs moved to enforce that judgment by
asking the court to order the Secretary to withdraw Ruling 97-2. The court
refused this request, stating that “this issue as it relates to reopening of finalized
cost reports is not before this Court.” Anadarko Municipal Hosp. v. Shalala, No.
CIV-97-288-A, at 3 (W.D. Okla. Nov. 2, 1998) (order denying motion to enforce
judgment). Indeed, the court in Anadarko concluded that “HCFA Ruling 97-2
does not recognize that its prior interpretation was invalid.” Id. For these
reasons, the Anadarko orders simply cannot constitute notification under
§ 405.1885(b).
- 25 -
Plaintiffs also contend that the Secretary was required to notify the
intermediaries of the Anadarko decision in order to effectuate the court’s
judgment in that case and that the “Secretary’s own regulations and policy
manuals create a duty to inform intermediaries of the applicable laws to which
they are bound.” Assuming that the Secretary has a duty to inform the
intermediaries regarding the applicable law, that duty can apply only
prospectively. Plaintiffs point to no provision in the regulations that indicates the
Secretary is ever required to order reopening.
For these reasons, we conclude that the Secretary never notified the
intermediaries that their decisions were inconsistent with the applicable law.
Thus, the mandatory reopening provision creates no clear, non-discretionary duty
that would satisfy the requirements of mandamus jurisdiction.
b. Discretionary Reopening
Plaintiffs also argue that, under the discretionary reopening regulation, the
Secretary had a clear, non-discretionary duty to refrain from interfering with the
fiscal intermediary’s discretion in deciding whether to reopen the challenged
NPRs. The discretionary reopening provision states:
(a) A determination of an intermediary . . . may be reopened with respect
to findings on matters at issue in such determination . . . by such
intermediary officer . . . either on motion of such intermediary
officer . . . or on the motion of the provider affected by such
determination . . . to revise any matter in issue at any such
proceedings. Any such request to reopen must be made within 3
- 26 -
years of the date of the notice of the intermediary . . . . No such
determination or decision may be reopened after such 3-year period
except as provided in paragraphs (d) [fraudulent determinations or
decisions] and (e) [determinations or decisions issued prior to 1972]
of this section.
...
(c) Jurisdiction for reopening a determination or decision rests
exclusively with that administrative body that rendered the last
determination or decision.
42 C.F.R. § 405.1885 (emphasis added).
In Ruling 97-2, the Secretary adopted a new prospective interpretation of
its DSH rule and forbade the reopening of NPRs by intermediaries on the basis of
this new interpretation. Plaintiffs argue that in this respect Ruling 97-2 violated
the Secretary’s clear, non-discretionary duty to allow the fiscal intermediaries to
exercise their discretion to reopen NPRs without instruction from the Secretary.
Plaintiffs believe this duty is found in § 405.1885(c), which states that
jurisdiction for reopening rests exclusively with the fiscal intermediary. Because
we give significant discretion to agency interpretations of their own regulations,
we conclude that § 405.1885(c) does not create a clear, non-discretionary duty for
the Secretary to leave the substantive law governing the decision to reopen
exclusively up to the fiscal intermediaries.
The Secretary argues that he has never interpreted 42 C.F.R. § 405.1885(c)
“as freeing the fiscal intermediary from its obligation to follow the law,
- 27 -
including, in this case, the Secretary’s acquiescence ruling. On the contrary, the
Secretary has interpreted 42 C.F.R. § 405.1885(c) as a prohibition upon
administrative review of the fiscal intermediary’s determination with respect to
reopening.” We may invalidate this interpretation only if it is “plainly erroneous
or inconsistent with the regulation.” Thomas Jefferson Univ. v. Shalala, 512 U.S.
504, 512 (1994) (internal quotation marks and citation omitted).
We believe the Secretary’s interpretation is permissible. The provision in
question does not say that the fiscal intermediary has exclusive discretion to
decide whether to reopen. It says the fiscal intermediary has exclusive
jurisdiction over the reopening decision. These two concepts are distinct.
“Discretion” means “a power or right conferred upon [public functionaries] by
law of acting officially in certain circumstances, according to the dictates of their
own judgment and conscience, uncontrolled by the judgment or conscience of
others.” Black’s Law Dictionary at 419 (5th ed. 1979). Nowhere does the
regulation indicate that the intermediary has unfettered discretion to decide
reopenings. “Jurisdiction,” on the other hand, means the “[p]ower and authority
of a court to hear and determine a judicial proceeding.” Id. at 766. Thus, while
the fiscal intermediary may have been the only entity with the power and authority
to render a decision on the request for reopening, it does not necessarily follow
- 28 -
that it had unfettered discretion to disregard substantive principles established by
the Secretary in reaching a particular decision on the matter.
This distinction distinguishes this case from United States ex rel. Accardi
v. Shaughnessy, 347 U.S. 260 (1954), on which the district court relied. In
Accardi, the Board of Immigration Appeals was instructed by regulation that “‘in
considering and determining . . . appeals, [it] shall exercise such discretion and
power conferred upon the Attorney General by law . . . .” Id. at 266 (emphasis
added). The Supreme Court thus held that the Attorney General could not
interfere with the exercise of the Board’s discretion because
[i]n unequivocal terms the regulations delegate to the Board discretionary
authority as broad as the statute confers on the Attorney General; the scope
of the Attorney General’s discretion became the yardstick of the Board’s.
And if the word “discretion” means anything in a statutory or
administrative grant of power, it means that the recipient must exercise his
authority according to his own understanding and conscience. . . . In short,
as long as the regulations remain operative, the Attorney General denies
himself the right to sidestep the Board or dictate its decision in any manner.
Id. at 266-67. We agree with the Secretary’s position that “[u]nlike the complete
delegation of discretionary authority in Accardi, the . . . delegation of authority to
the fiscal intermediary in the reopening regulation is limited to specifying a forum
for reopening claims and to providing that the fiscal intermediary’s resolution of
those claims should be unreviewable by the PRRB.”
Under this interpretation of the regulation, the Secretary would not be
prevented from issuing a general ruling proscribing reopening on a particular
- 29 -
issue, and the fiscal intermediary would be obliged to comply with the Secretary’s
substantive rule. The Secretary owed Plaintiffs no clear, non-discretionary duty
not to pass rulings that would bind intermediaries to particular substantive
principles on particular reopening requests. Thus, mandamus jurisdiction cannot
be found on this basis.
Further, we note that, even if Ruling 97-2 had merely announced the
Secretary’s new interpretation of the DSH rule and stated that the Ruling would
only be applied prospectively, without specifically forbidding the intermediaries
to reopen, the intermediaries could not have reopened and revised without
violating their duty to comply with the agency’s law.
* * *
In sum, Plaintiffs are not entitled to mandamus jurisdiction because they
have failed to show that the Secretary owed them a clear, non-discretionary duty
under the mandatory or discretionary reopening regulations.
III. FEDERAL QUESTION JURISDICTION
On cross-appeal, Plaintiffs assert that the district court should also have
found federal question jurisdiction under 28 U.S.C. § 1331. Because we conclude
that this case falls into the narrow exception created in Bowen v. Michigan
- 30 -
Academy of Family Physicians, 476 U.S. 667 (1986), we find that federal
question jurisdiction is available in this case.
The Medicare Act incorporates 42 U.S.C. § 405(h), which provides that
“[n]o action against the United States, the Secretary, or any officer or employee
thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any
claim arising under this subchapter.” See 42 U.S.C. § 1395ii. While § 405(h)
appears to create an absolute ban on federal question jurisdiction for any claim
related to Medicare, the Supreme Court has interpreted it otherwise. In Michigan
Academy, the court found that while federal question jurisdiction did not exist for
challenges to benefit determinations, it did exist for “challenges to the validity of
the Secretary’s instructions and regulations.” 476 U.S. at 680. As discussed
throughout this opinion, the challenge in this case is to Plaintiffs’ right to
reopening, not to the actual benefits calculation by the intermediary.
Michigan Academy, however, has a significant factual distinction from the
instant case. The challenge in Michigan Academy was to a regulation under Part
B of the Medicare Act, whereas the instant case arises under Part A of the
Medicare Act. Unlike claims brought under Part A, claims brought under Part B
are not subject to review beyond that conducted by the relevant “carrier,” which is
the Part B counterpart of the Part A fiscal intermediary. Thus,
[s]ubject to an amount-in-controversy requirement, individuals aggrieved
by delayed or insufficient payment with respect to benefits payable under
- 31 -
Part B are afforded an “opportunity for fair hearing by the carrier,” 42
U.S.C. § 1395u(b)(3)(C) (emphasis added); in comparison, and subject to a
like amount-in-controversy requirement, a similarly aggrieved individual
under Part A is entitled “to a hearing thereon by the Secretary . . . and to
judicial review,” 42 U.S.C. § 1395ff(b)(1)(C), (b)(2).
Michigan Academy, 476 U.S. at 675. Concerned with the possibility that
claimants under Part B would be utterly prohibited from ever attacking any
regulation under Part B in federal court, the Court concluded that § 405(h) did not
bar federal jurisdiction over such claims. Id. at 678-81.
As Michigan Academy’s analysis indicates, a similar exception for a claim
arising under Part A is highly unlikely because of the panoply of opportunities for
review that Part A provides to claimants. Providers dissatisfied with initial
determinations by fiscal intermediaries may appeal to the PRRB and then to the
federal courts. If they do not directly appeal, they may also petition the fiscal
intermediary for reopening. Claimants under Part B have no such options.
Nevertheless, because of the unusual nature of the claims in this case, we believe
a Michigan Academy exception is warranted.
In Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1 (2000),
the Supreme Court applied Michigan Academy in a case arising under Part A of
Medicare. The Court stated:
[I]t is more plausible to read Michigan Academy as holding that § 1395ii
does not apply § 405(h) where application of § 405(h) would not simply
channel review through the agency, but would mean no review at all. And
- 32 -
contrary to Justice Scalia’s suggestion, that single rule applies to Medicare
Part A as much as to Medicare Part B.
Illinois Council, 529 U.S. at 19 (citation omitted).
As in Michigan Academy, the Plaintiffs in this case challenge the validity
of a rule promulgated by the Secretary—in this case Ruling 97-2. While a typical
rule would likely apply to the fiscal intermediary’s original determination of
benefits, and thus could be challenged by appeal to the PRRB, the challenged
portion of Ruling 97-2 applies only to a request for reopening. Once the
reopening is denied by the fiscal intermediary—under what the Plaintiffs allege is
an invalid rule—they have no recourse to challenge the rule. Thus, there is no
conceivable set of circumstances that could have permitted Plaintiffs to challenge
the validity of Ruling 97-2 within the procedures provided by the agency. This
constitutes the “no review at all” that Illinois Council held justified federal
question jurisdiction.
Although Illinois Council ultimately denied federal question jurisdiction to
the plaintiffs in that case, the facts of that case are distinguishable from those of
the instant case. In contrast to Plaintiffs in this case, the plaintiffs in Illinois
Council had failed even to attempt to vindicate their complaints through a host of
available agency procedures. Id. at 20-21. Although the Illinois Council
plaintiffs raised a number of complaints regarding the effectiveness of the agency
procedures as a practical matter, the Court held this was not the type of
- 33 -
“unavailability of review” required to bypass § 405(h). In this case, however,
Plaintiffs challenged Ruling 97-2 at the earliest opportunity, and the PRRB
declared it had no jurisdiction over the challenge, leaving Plaintiffs no remaining
avenues through which to pursue their claims before the agency. Thus, Plaintiffs
effectively received “no review at all” on their challenge to Ruling 97-2 and
should be permitted to bring their challenge before this court. Because of this
unique situation, we conclude that we may exercise federal question jurisdiction
over this case under Michigan Academy.
IV. MERITS
Having granted federal question jurisdiction, however, we reverse the
district court’s grant of summary judgment for the Plaintiffs because they have
failed to state a claim on which they can succeed.
Plaintiffs first contend that Ruling 97-2 and/or the Anadarko decision
constituted notification to the intermediaries that required mandatory reopening.
As discussed at length above, we find that neither of these constituted such
notification. Thus, Plaintiffs cannot prove that they were entitled to mandatory
reopening.
Second, Plaintiffs contend that Ruling 97-2 impermissibly interfered with
the discretionary reopening regulation. Again, as discussed at length above, we
- 34 -
do not find that to be the case either. Although the fiscal intermediary has
exclusive jurisdiction to reopen, it does not likewise have exclusive discretion to
make that determination. The fiscal intermediary is bound by the instructions of
the Secretary, who has complete discretion to determine what HHS’s policy will
be with respect to reopening on various substantive issues. Thus, Ruling 97-2 did
not unlawfully interfere with the discretion of the fiscal intermediaries by
forbidding reopening of the NPRs on the DSH issue.
Finally, Plaintiffs cross-appeal the district court’s failure to require
mandatory reopening of all of the contested NPRs, failure to require reopening on
their challenges to calculations based on paid days, and failure to award
pre-judgment interest. Because we find that neither mandatory nor discretionary
reopening was required with respect to any of the NPRs and that the Plaintiffs
prevail on none of their claims, we deem these issues moot.
Thus, the Secretary is entitled to summary judgment on all claims.
* * *
For the foregoing reasons, we REVERSE the judgment of the district court
and REMAND for further proceedings in accordance with this opinion.
- 35 -
No. 02-6142, Bartlett Mem'l Med. Center v. Thompson
BRISCOE, Circuit Judge, concurring and dissenting:
I concur in part and dissent in part. With respect to the issue of mandamus
jurisdiction discussed in Part II of the majority opinion, I agree that we can
consider mandamus jurisdiction in this case, that plaintiffs have exhausted their
administrative remedies, and that the decision in Anadarko Municipal Hospital v.
Shalala, 1998 WL 34007421 (W.D. Okla. Apr. 13, 1998), did not impose a clear,
non-discretionary duty on the fiscal intermediary to reopen and revise the notices
of program reimbursement (NPRs) at issue in this case. 1 I disagree, however, that
the fiscal intermediary did not have a duty to reopen under 42 C.F.R. §
405.1885(b) in light of Ruling 97-2. Instead, I would adopt the position
announced by the United States Court of Appeals for the District of Columbia in
Monmouth Medical Center v. Thompson, 257 F.3d 807 (D.C. Cir. 2001), and
conclude that the fiscal intermediary has a clear, non-discretionary duty to reopen
the NPRs at issue in light of Ruling 97-2. I also believe, contrary to the majority,
that mandamus jurisdiction exists because of clear, non-discretionary duties on
the part of the Secretary and the fiscal intermediary regarding the plaintiffs’
requests for discretionary reopening under 42 C.F.R. § 405.1885(a). Finally, with
1
It should be noted the Secretary concedes that those plaintiffs who were
parties to the Anadarko case are entitled to have their NPRs reopened regardless
of whether Ruling 97-2 triggered § 405.1885(b) (since the district court in
Anadarko struck down the Secretary’s regulations implementing the DSH
adjustment). See Aplt. Br. at 37.
respect to Parts III and IV of the majority opinion, I agree that federal question
jurisdiction exists over this matter, but disagree that there is no merit to plaintiffs’
claims.
Mandamus jurisdiction
“Applicable law” under § 405.1885(b)
Before outlining my disagreements with the majority’s conclusion that we
lack mandamus jurisdiction, it is necessary to address a threshold argument
asserted by the Secretary. The Secretary argues that the district court erred in
holding “that Ruling 97-2 gave the fiscal intermediary notice that the hospitals’
DSH payments had been determined inconsistently with the applicable law within
the meaning of the regulation.” Aplt. Br. at 30. According to the Secretary, none
of the decisions from the four circuits overturning his interpretation of the DSH
adjustment were binding in the Tenth Circuit. In other words, he argues,
“[b]efore the effective date of Ruling 97-2, the ‘applicable law’ [in the Tenth
Circuit] on the DSH question, for purposes of determining the hospitals’ DSH
payment amounts, consisted of [his] DSH regulation.” Id. at 35. Thus, the
Secretary argues, because “[i]t is undisputed that all of the cost reports at issue
here were settled under the regulation,” the district court “erred in holding that
the hospitals’ cost reports had been settled in a legally incorrect manner.” Id.
-2-
It appears that the Secretary is attempting to read the mandatory reopening
regulation, § 405.1885(b), as requiring an intermediary to reopen only if an NPR
was erroneous at the time it was issued. In other words, the Secretary wants to
focus on the state of the law at the time an NPR was initially decided by the fiscal
intermediary. Applying that rationale to the facts of this case, the Secretary
asserts that at the time the NPRs at issue were decided by the intermediary, they
were consistent with Tenth Circuit law (i.e., there were no Tenth Circuit cases on
point so the law was defined by the Secretary’s regulations interpreting the DSH).
In my view, § 405.1885(b) is broader in scope than suggested by the
Secretary. Although an agency’s interpretation of its own regulations is generally
given controlling weight, we are not bound to do so if the agency’s interpretation
is “plainly erroneous or inconsistent with the regulation.” Mission Group Kan.,
Inc. v. Riley, 146 F.3d 775, 780 (10th Cir. 1998) (internal quotations omitted).
Section 405.1885(b) provides that an NPR “shall be reopened and revised by the
intermediary if . . . [CMMS] notifies the intermediary that such determination or
decision is inconsistent with the applicable law, regulations, or general
instructions issued by . . . [CMMS].” 42 C.F.R. § 405.1885(b) (emphasis added).
The regulation’s use of the word “is,” rather than the word “was,” belies the
Secretary’s proposed interpretation. More specifically, the use of the word “is”
indicates that reopening will be triggered if, at the time the Secretary reviews an
-3-
NPR, it is inconsistent with applicable law. If the regulation had used the word
“was,” reopening would be limited to situations where the NPR was inconsistent
with applicable law when issued. In sum, a plain reading of the language
indicates the regulation is broad enough to encompass situations, such as the one
presented here, where an NPR when issued was consistent with the Secretary’s
regulations or instructions, but ultimately proved to be inconsistent with the
applicable law, regulations, or general instructions as determined by the
Secretary.
Duty to reopen under § 405.1885(b)
According to the majority, Ruling 97-2 “did not constitute notification
under subsection 1885(b)” because its language “clearly evinces both the
Secretary’s belief that his prior interpretation of the DSH provision was not
inconsistent with the applicable law and his intent that no NPRs be reopened on
that basis.” Maj. Op. at 20. For the reasons that follow, I conclude that Ruling
97-2 did, in fact, require the intermediary to reopen under § 405.1885(b).
Ruling 97-2 was issued by the Secretary without the benefit of notice and
comment. The result is two-fold. First, the relative informality of the ruling, in
combination with the existence of a prior interpretation on the same subject,
raises questions about the validity of the ruling. Second, assuming the validity of
-4-
the ruling, the informality by which it was issued means the ruling is not entitled
to Chevron-type deference by this court. See Tax & Accounting Software Corp.
v. United States, 301 F.3d 1254, 1260 (10th Cir. 2002) (citing Christensen v.
Harris County, 529 U.S. 576, 587 (2000)). Instead, the positions announced
therein by the Secretary are entitled to respect only to the extent they have the
“power to persuade.” Christensen, 529 U.S. at 589.
It is uncontroverted that at the time Ruling 97-2 was issued, the Secretary
had in place an existing interpretation of the DSH provision of the Medicare Act.
Significantly, Ruling 97-2 “purports to change [that] existing interpretation.”
Monmouth, 257 F.3d at 813. Under Tenth Circuit law, “altering an interpretive
rule (interpreting an agency regulation) requires notice and opportunity for
comment unless, of course, the original interpretation was invalid and therefore a
nullity.” Id. at 814; see Rocky Mountain Helicopters, Inc. v. Federal Aviation
Admin., 971 F.2d 544, 547 (10th Cir. 1992) (suggesting that “a change in existing
law, policy, or practice” would have to meet APA procedural requirements);
Knutzen v. Eben Ezer Lutheran Hous. Center, 815 F.2d 1343, 1351 and n.6 (10th
Cir. 1987) (noting courts have consistently required that agencies publish their
rules and policy statements only if they constitute a change in existing law,
policy, or practice); Dimension Fin. Corp. v. Bd. of Governors of Fed. Reserve
Sys., 744 F.2d 1402, 1409 (10th Cir. 1984) (suggesting a “procedural notice
-5-
requirement” exists when an agency radically changes its position on statutory
construction). 2
Because it is uncontroverted that Ruling 97-2 was not the product of notice
and comment rulemaking, we are left with two possible outcomes – either Ruling
97-2 is unlawful and thus invalid, or the Secretary’s prior interpretation was
invalid. 3 According to the majority, the most logical outcome is that Ruling 97-2
is invalid. While that might be true in normal circumstances, such a conclusion in
this case would ignore entirely the long and troubled history of the Secretary’s
prior interpretation of the DSH adjustment. It is well established that the
Secretary has been “hostile from the start to the very idea of making the [DSH]
payments” mandated by Congress. Cabell Huntington Hosp., Inc. v. Shalala, 101
F.3d 984, 990 (4th Cir. 1996). Further, as noted in the background section of the
majority opinion, the Secretary’s prior interpretation spawned numerous lawsuits,
all of which were resolved against the Secretary on the grounds that the prior
2
Admittedly, the Tenth Circuit has “not had opportunity to decide whether
the Medicare Act requirement of notice and comment for changes [of] a
substantive legal standard creates a more stringent obligation [than does the APA]
or whether it somehow changes the dividing line between legislative and
interpretive rules.” Monmouth, 257 F.3d at 814 (internal quotations omitted).
Nevertheless, I agree with the Monmouth court that it is unnecessary “to explore
the possibility of a distinction here, as [Ruling] 97-2 appears to have none of the
indicia that would lead [me] to think it a legislative rule under the APA.” Id.
3
The majority suggests this analysis is unimportant to the outcome of the
appeal. See Maj. Op. at 22 (“we do not have to resolve [the issue] in this case”).
-6-
interpretation was invalid. E.g., Id. at 990-91; Legacy Emanuel Hosp. & Health
Center v. Shalala, 97 F.3d 1261, 1266 (9th Cir. 1996); Deaconess Health Servs.
Corp. v. Shalala, 83 F.3d 1041, 1041 (8th Cir. 1996); Jewish Hosp., Inc. v. Sec’y
of Health & Human Servs., 19 F.3d 270, 272 (6th Cir. 1994). In short, courts in
at least 25 of the 50 states had declared the Secretary's prior interpretation
invalid. Given this history, I agree with the D.C. Circuit that, rather than
invalidating Ruling 97-2, the more logical result is to conclude that Ruling 97-2
was the Secretary’s way of “conced[ing] the invalidity [of the prior interpretation]
nationally.” Monmouth, 257 F.3d at 814; see Aplt. Br. at 29 (effectively
acknowledging that Ruling 97-2 was intended “to acquiesce in [the] adverse
decisions from the courts of appeals”).
Having concluded that Ruling 97-2 amounted to a concession of the
invalidity of the Secretary’s prior interpretation of the DSH adjustment, I agree
with the D.C. Circuit “that the Secretary,” by way of Ruling 97-2, “did in fact
give notice of the [prior] interpretation’s inconsistency with applicable law.”
Monmouth, 257 F.3d at 814 (emphasis in original). In turn, I also agree “that §
405.1885(b) imposed a clear duty on intermediaries to reopen DSH payment
determinations.” Id.
It is true that the Secretary has strenuously attempted to prevent Ruling 97-
2 from triggering § 405.1885(b). As noted by the majority, Ruling 97-2 “nowhere
-7-
uses the phrase ‘inconsistent with the applicable law,’” and instead “merely
concedes that the Secretary’s interpretation was ‘contrary to the applicable law in
four judicial circuits.’” Maj. Op. at 21 (quoting Ruling 97-2). Likewise, Ruling
97-2 “asserts the Secretary’s belief that his DSH regulation was a permissible
interpretation of the applicable statute and that the purpose of changing his
interpretation was to ensure national uniformity in calculation of DSH
reimbursement, not a concession that his prior interpretation was inconsistent
with the applicable law.” Id. at 21. Lastly, Ruling 97-2 expressly forbids the
fiscal intermediary from reopening and revising the challenged NPRs.
Unlike the majority, which defers completely to these statements with no
mention of Skidmore v. Swift & Co., 323 U.S. 134 (1944), or other controlling
standards, I find the quoted statements unpersuasive. In particular, the statements
in my view are simply a continuation of the Secretary’s long history of resisting
the DSH payments mandated by Congress in the Medicare Act. Indeed, I believe
the statements are an attempt by the Secretary to finally bring his interpretation in
line with Congressional intent and end a succession of litigation defeats, while at
the same time prevent hospitals, such at the plaintiffs in this case, from
recovering the amounts properly due them under the DSH provisions. Thus, I
agree with the D.C. Circuit that the statements are “simply inapplicable” and
without effect. Monmouth, 257 F.3d at 815.
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Finally, and relatedly, I take issue with the majority’s discussion of “the
concept of ‘notification’” under § 405.1885(b). See Maj. Op. at 23. At the time
Ruling 97-2 was issued, § 405.1885(b) stated that “[a] determination . . . rendered
by the intermediary shall be reopened and revised . . . if . . . the [Secretary]
notifies the intermediary that such determination or decision is inconsistent with
the applicable law.” Because Ruling 97-2 amounts to notification by the
Secretary that the NPRs at issue were decided by the intermediary under an
invalid interpretation of the DSH provision, § 405.1885(b) automatically imposed
a duty on the intermediary to reopen those NPRs. Whether the Secretary was
actually desirous of having the NPRs at issue reopened is irrelevant (and, as
outlined above, the Secretary’s statements on that point carry no weight under
Skidmore).
Discretionary reopening under § 405.1885(a)
I generally agree with the majority that the Secretary owes “no clear, non-
discretionary duty not to pass rulings that would bind intermediaries to particular
substantive principles on particular reopening requests” under § 405.1885(a).
Maj. Op. at 30. Nevertheless, I would conclude that plaintiffs’ claim for
discretionary reopening under § 405.1885(a) implicates two distinct non-
discretionary duties. First, I believe the Secretary, in passing any such rulings
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regarding reopening, has a clear, non-discretionary duty to comply with federal
law in general, and the Medicare Act in particular. In other words, the Secretary
must refrain from imposing improper and unenforceable restrictions on fiscal
intermediaries in deciding reopening requests. Second, I believe that
§ 405.1885(a) imposes on fiscal intermediaries a duty to comply with the
applicable law in deciding reopening requests. See generally Monmouth, 257
F.3d at 813 (concluding intermediaries, as agents of the Secretary, “may properly
be bound by a writ of mandamus against the Secretary”).
Having concluded the language of Ruling 97-2 prohibiting fiscal
intermediaries from reopening and revising NPRs is without effect, I believe that
both of the above-outlined non-discretionary duties were violated. In turn, I
conclude mandamus jurisdiction would also lie on this basis.
Merits
For the reasons outlined above in my discussion of mandamus jurisdiction,
I disagree with the conclusion in Part IV of the majority opinion that plaintiffs
“have failed to state a claim on which they can succeed.” Maj. Op. at 34. With
one exception, I would affirm the district court’s grant of summary judgment in
favor of plaintiffs on their mandatory and discretionary reopening claims.
The one exception concerns plaintiffs’ claim that the Secretary acted
illegally in forbidding intermediaries from reopening an NPR on the basis of
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Medicaid-eligible paid days that were improperly excluded from its calculation.
The district court did not address the “paid days” issue in its October 22, 2001,
order granting summary judgment in favor of plaintiffs. The district court did,
however, address the “paid days” issue in its March 6, 2002, order addressing the
parties’ Rule 59 motions:
Plaintiffs contend the Court erred in failing to address their
contention that the NPRs for which reopening has been requested
were improperly calculated on another basis, that is that the fiscal
intermediary failed to include paid days as well as unpaid days.
Plaintiffs contend that the Secretary’s regulations have always
provided for reimbursement for paid days, and therefore, the
reopening prohibition in Ruling 97-2 should not have been extended
by the Secretary to cover challenges to calculations of Medicaid-paid
days. In light of the above ruling and the October 22, 2002 Order,
the Court need not address this contention.
App. at 76-77.
The question is what the district court intended by the above-quoted
language. In its March 6, 2002, order, the court ordered the fiscal intermediary to
reconsider whether nine of the NPRs at issue were subject to discretionary
reopening. Perhaps the district court believed the intermediary’s reconsideration
necessarily would include consideration of the “paid days” issue. However,
according to plaintiffs, all six of the NPRs that the court concluded were subject
to mandatory reopening also contained “paid days” issues. Because there was no
direction by the district court to the intermediary to address the “paid days” issue
in these NPRs, it appears likely that the issue will be overlooked, or at least left
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unresolved, by the intermediary. It is also possible, given language in the court’s
October 22, 2001, order, that the district court concluded it had no jurisdiction
over the “paid days” issue. See id. at 44. In light of these vagaries in the order,
and because the precise underlying facts relevant to the “paid days” issue are
difficult to discern from the limited record on appeal, I would remand the case to
the district court for clarification of how it intended to resolve the “paid days”
issue.
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