FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
TENTH CIRCUIT June 23, 2011
Elisabeth A. Shumaker
Clerk of Court
HOSPICE OF NEW MEXICO, LLC, a
New Mexico corporation,
Plaintiff-Appellee/Cross-Appellant,
v. Nos. 10-2136 & 10-2168
(D. N.M.)
KATHLEEN SEBELIUS, Secretary of the (D.C. No. 1:09-CV-00145-RB-LFG)
United States Department of Health and
Human Services,
Defendant-Appellant/Cross-
Appellee.
ORDER AND JUDGMENT*
Before O'BRIEN, HOLLOWAY, and GORSUCH, Circuit Judges.
The district court decided 42 C.F.R. § 418.309(b), the United States Department of
Health and Human Services’ (HHS) regulation implementing an annual cap on payments
to hospice providers, is contrary to the plain language in 42 U.S.C. § 1395f(i)(2)(A) and
remanded the case to HHS for it to recalculate payment obligations in a manner
*
This order and judgment is an unpublished decision, not binding precedent. 10th
Cir. R. 32.1(A). Citation to unpublished decisions is not prohibited. Fed. R. App. 32.1.
It is appropriate as it relates to law of the case, issue preclusion and claim preclusion.
Unpublished decisions may also be cited for their persuasive value. 10th Cir. R. 32.1(A).
Citation to an order and judgment must be accompanied by an appropriate parenthetical
notation B (unpublished). Id.
compatible with the statute. The HHS appealed from its decision. Hospice of New
Mexico (Hospice), a hospice care provider, cross-appealed from the district court’s
remand to HHS, claiming the proper relief was the return, with interest, of all repayments
it made to HHS pursuant to unlawful demands. While these appeals were pending, the
Fifth and Ninth Circuits, like the district court, determined 42 C.F.R. § 418.309(b) is not
faithful to 42 U.S.C. § 1395f(i)(2)(A)’s requirement that a hospice care provider’s annual
cap “reflect the proportion of hospice care that [its hospice patients were] provided in a
previous or subsequent accounting year . . . .” See Lion Health Servs., Inc., v. Sebelius,
635 F.3d 693 (5th Cir. 2011); Los Angeles Haven Hospice, Inc. v. Sebelius, No. 09-
56391, -- F.3d -- (9th Cir. Mar. 15, 2011). HHS has thrown in the towel and now moves
to withdraw its appeal and all other appeals pending in this Court on that issue. Hospice,
on the other hand, wants its cross-appeal decided. We GRANT HHS’s motion to
withdraw its appeal (10-2136) and AFFIRM the district court’s remand.
I. BACKGROUND
In 1982, Congress expanded the Medicare Act to include hospice care for
terminally ill beneficiaries. See Tax Equity and Fiscal Responsibility Act of 1982, Pub.L.
97-248, § 122, 96 Stat. 356, 364. To classify as “terminally ill,” an individual’s
“attending physician” and the hospice medical director must certify the individual’s life
expectancy is six months or less. See 42 U.S.C. §§ 1395f(a)(7), 1395x(dd)(3)(A). As
long as the terminally ill status is certified, the Medicare Act allows the individual to
receive hospice care.
Hospice care providers, however, are subject to a statutory cap on the payments
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they may receive from Medicare in a fiscal year, which begins on November 1 and ends
on October 31. 42 U.S.C. § 1395f(i)(2) provides:
(A) The amount of payment made under this part for hospice care provided
by (or under arrangements made by) a hospice program for an accounting
year may not exceed the “cap amount” for the year (computed under
subparagraph (B)1) multiplied by the number of medicare beneficiaries in
the hospice program in that year (determined under subparagraph (C)).
....
(C) For purposes of subparagraph (A), the “number of medicare
beneficiaries” in a hospice program in an accounting year is equal to the
number of individuals who have made an election under subsection (d) of
this section with respect to the hospice program and have been provided
hospice care by (or under arrangements made by) the hospice program
under this part in the accounting year, such number reduced to reflect the
proportion of hospice care that each such individual was provided in a
previous or subsequent accounting year or under a plan of care established
by another hospice program.
42 U.S.C. § 1395f(i)(2) (emphasis added). In contrast, the implementing regulation, 42
C.F.R. § 418.309 states in relevant part:
For purposes of [the cap amount] calculation, the number of Medicare
beneficiaries includes-
(1) Those Medicare beneficiaries who have not previously been included in
the calculation of any hospice cap and who have filed an election to receive
hospice care, in accordance with § 418.24, from the hospice during the
period beginning on September 28 (35 days before the beginning of the cap
period) and ending on September 27 (35 days before the end of the cap
period) . . . .
42 C.F.R. § 418.309(b). As a result, even though a patient’s hospice care may span more
than one fiscal year and the statute requires in those instances that the patient’s care be
1
The statute requires an annual recalculation of the individual patient “cap
amount” based on changes in the Consumer Price Index. See 42 U.S.C. § 1395f(i)(2)(B).
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proportioned in determining the annual cap, the regulation allocates the entire cap amount
to a single fiscal year based upon the date on which the patient elects hospice care. The
sole benefit of this approach is administrative convenience.
Throughout the year, Medicare payments are calculated and paid by a Medicare
contractor, a fiscal “intermediary,” upon submission by the hospice care provider. See 42
U.S.C. §§ 1395g(a) & (g)(e)(3); see also 42 C.F.R. §§ 413.64(b), 418.302(d)-(e). At the
close of each fiscal year, the intermediary calculates the hospice care provider’s
aggregate cap amount for that fiscal year. See 42 C.F.R. § 418.308(c). If the provider’s
total reimbursement payments do not exceed its fiscal cap, the provider owes nothing.
However, if the total reimbursements for that fiscal year exceed the statutory cap, the
intermediary sends the provider a demand for reimbursement of the amount in excess of
the aggregate cap. See 42 C.F.R. § 418.308(d).
Hospice is a Medicare-certified hospice care provider. In April 2008, a fiscal
intermediary, applying the formula outlined in 42 C.F.R. § 418.309, sent Hospice a letter
stating it had exceeded its 2006 fiscal cap by $793,934.00. Hospice reimbursed Medicare
as required but filed an administrative appeal challenging 42 C.F.R. § 418.309 as
contrary to the terms of 42 U.S.C. § 1395f(i)(2)(A). In May 2009, while the initial action
was pending, Hospice received a notice stating it had exceeded the annual cap for fiscal
year 2007 by $1,010,593.00. Because that figure was also determined under 42 C.F.R. §
418.309, Hospice made partial payment and again appealed.
A challenge to an intermediary’s demand for reimbursement over $10,000.00
begins by filing a claim with the Provider Reimbursement Review Board (the “PRRB”).
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See 42 U.S.C. § 1395oo(a). But because the PRRB lacks the authority to declare HHS
regulations invalid, see Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 406 (1988), the
PRRB authorized Hospice to proceed with judicial review in federal district court; such
review is governed by the Administrative Procedure Act, 5 U.S.C. § 701 et seq. (the
“APA”). See id. § 1395oo(f)(1); 42 C.F.R. § 405.1842.
After filing its claim in the district court, Hospice moved for summary judgment
arguing 42 U.S.C. § 1395f(i)(2) required HHS to calculate the annual cap using a
proportional method allocating patients by a strict mathematical formula and therefore 42
C.F.R. § 418.309, which allows a one-time allocation, was contrary to the statute. The
district court agreed. Hospice of New Mexico v. Sebelius, 691 F. Supp. 2d 1275, 1292
(D.N.M. 2010) (concluding the regulation introduced a calculation method which did not
reflect proportionality). Accordingly, the court granted Hospice summary judgment and
remanded to HHS for a recalculation of Hospice’s liability in accordance with the statute
with instruction to repay Hospice any overpayment plus interest resulting from the new
calculation. Id. at 1282, 1287, 1293, 1295.
The court denied Hospice’s request for an order directing HHS to return all
monies Hospice paid to HHS for the years 2006 and 2007 with interest, writing:
Granting [Hospice’s] request for monetary relief would be extremely
difficult for this Court and likely require extensive fact-finding and
hearings. The Court has no information before it indicating that Hospice is
entitled to a return of all, or any, of the payments it made to HHS for fiscal
years 2006 and 2007. Even using a fractional method of calculation to
determine [Hospice’s] statutory reimbursement cap, it is possible that
[Hospice] exceeded its cap for fiscal years 2006 and 2007 and HHS is
entitled to a repayment of some of the Medicare benefits it paid out to
Hospice of New Mexico. HHS is clearly better suited to performing these
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complex calculations than this Court.
The Court has only found that 42 C.F.R. § 418.309(b)(1) is invalid and
[Hospice] would be better off under a fractional calculation as required by
the statute. The Court was only asked by the PRRB to review the validity
of the regulation. Having accomplished this task, the Court is confident
that the agency will be able to determine whether Hospice . . . is entitled to
a monetary award, and if so, the amount of that award. Therefore, the
Court denies [Hospice’s] request that HHS return to Hospice . . ., with
interest, all monies Hospice . . . has paid toward the 2006 and 2007
repayment demands. However, HHS must recalculate [Hospice’s]
reimbursement caps for fiscal years 2006 and 2007 using a fractional
method of calculation as required by the statute and return any monies
overpaid to HHS by Hospice . . . for these years. Conversely, if under the
recalculated reimbursement caps, Hospice . . . is found to have exceeded its
annual cap for either of these years and to still owe money to HHS beyond
what it has already repaid, then HHS may issue a modified repayment
demand.
Hospice of New Mexico, 691 F. Supp.2d at 1294.
Hospice moved to alter or amend the judgment requesting a return of all monies
HHS previously collected from Hospice, with interest, prior to HHS recalculating
Hospice’s annual caps for 2006 and 2007. The motion was denied. The court explained
its jurisdiction was limited (by 42 U.S.C. § 1395oo(f)) to deciding the validity of 42
C.F.R. § 418.309(b)(1). Under § 1395oo(f)(2) when a “provider seeks judicial review
pursuant to paragraph (1), the amount in controversy shall be subject to annual interest . .
., to be awarded by the reviewing court to the prevailing party.” (emphasis added). The
court concluded the amount in controversy was Hospice’s overpayments, not something
more. Since Hospice would still be required to pay any amounts above a properly
calculated cap, the “amount in controversy” could not be determined until any
overpayments have been determined according to the statute. If Hospice has made
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overpayments, it would be entitled to interest on any monies overpaid. The district court
also noted that, because the interest accumulates, HHS had an incentive to conform its
conduct to the court’s order.
II. DISCUSSION
Because we grant HHS’s motion to withdraw its appeal, we are left to decide only
Hospice’s cross-appeal.2 Hospice argues the court exceeded its authority under the APA
by requiring HHS to recalculate Hospice’s annual cap in accordance with the statute.
Specifically, it asserts that once the district court declared the regulation invalid, it was
required to set aside the regulation and order HHS to return any monies, with interest,
paid pursuant to the illegal demand. In other words, Hospice argues HHS must rescind
the current regulation, properly promulgate a new regulation, calculate overpayments to
Hospice under an enforceable regulation and then make a demand for payment; all before
2
HHS claims we need not reach the merits of Hospice’s cross-appeal because the
order remanding to the agency is not a final order under 28 U.S.C. § 1291. We have
jurisdiction “of appeals from all final decisions of the district courts of the United States.”
28 U.S.C. § 1291. “In considering whether the judgment constitutes a ‘final decision’
under § 1291, the label used to describe the judicial demand is not controlling [], we must
analyze the substance of the district court’s decision, not its label or form.” Graham v.
Hartford Life & Accident Ins. Co., 501 F.3d 1153, 1157 (10th Cir. 2007) (quotations and
citation omitted). “A final decision is one that ends the litigation on the merits and leaves
nothing for the court to do but execute the judgment.” Rekstad v. First Bank Sys., 238
F.3d 1259, 1261 (10th Cir. 2001) (quotations omitted). “In the administrative context, a
remand order is ‘generally considered a nonfinal decision . . . not subject to immediate
review in the court of appeals.’” Id. (quoting Baca-Prieto v. Guigni, 95 F. 3d 1006, 1008
(10th Cir. 1996)). However, “[t]he decision should be made on a case-by-case basis
applying well-settled principles governing ‘final decisions.’” Id. at 1263. In this
instance, the district court clearly decided the merits of the case and determined the
contours of the payment calculations. Once HHS makes these calculations, Hospice can
appeal any dispute to the PRRB. Therefore, the district court’s decision left no more for
the court to do and was final.
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it can collect (or retain) any payments for 2006 or 2007.
Hospice contends the district court’s order “places the district court in the
improper position of dictating next steps by the agency.” (Hospice Br. at 50.) In support
of this argument it cites to one inapposite case from another circuit. See Harmon v.
Thornburgh, 878 F.2d 484, 495 (D.C. Cir. 1989). In Harmon, the court considered
whether an injunction precluding drug testing of employees should include or exclude
certain employee classifications. The court stated, “[c]ourts ordinarily do not attempt,
even with the assistance of agency counsel, to fashion a valid regulation from the
remnants of the old rule.” (Id. at 494). In this case, the court merely interpreted the
regulation as contrary to the plain meaning of the statute. It made no attempt “to fashion
a valid regulation.” In fact, Harmon specifically observed, “[w]hen a court finds that an
agency regulation is invalid in substantial part, and that the invalid portion cannot be
severed from the rest of the rule, its typical response is to vacate the rule and remand to
the agency.” Id. That is the precise action taken by the district court in this instance.
Hospice also claims the district court’s order allows HHS to recalculate its annual
cap before HHS properly adopts a regulation formed to the statute. That, Hospice claims,
denies it due process and violates the Medicare Act and the APA and will allow a cap
payment demand without a “final determination.” 3 (Hospice Br. at 51.)
The district court correctly rejected these arguments. “The fundamental
3
That concern is highly unlikely. On May 9, 2011, HHS published proposed
revisions to the hospice cap regulation and is in the process of receiving public comment.
See 76 Fed. Reg. 26806, 26810-12, 26814-17.
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requirement of [procedural] due process is the opportunity to be heard at a meaningful
time and in a meaningful manner.” Mathews v. Eldridge, 424 U.S. 319, 333 (1976)
(quotation omitted). The 2006 and 2007 demands (albeit unlawful) included a notice of a
final determination, Hospice objected and appealed. The district court determined the
merits of Hospice’s objection in its favor and remanded to the agency for recalculation,
as there was no definitive amount in controversy upon which interest could be computed.
The recalculated amounts will be subject to the same adequate procedures. In any event,
Hospice will be entitled to the return of any overpayments with interest.
Hospice’s most developed argument rests on public policy. Hospice contends “to
allow HHS to retain money collected unlawfully” removes any “deterrent against HHS
issuing demands it knows are unlawful.” (Hospice Br. at 52.) Hospice points to the fact
both the 2006 and 2007 demands were made after another district court had held the
regulation invalid. See Sojourn Care v. Leavitt, No. 07 cv 375 (N.D. Okla. Feb.13,
2008).
After testing the water, HHS has capitulated on the plain meaning of 42 U.S.C. §
1395f(i)(2). We trust its rule making will reflect those concessions. Despite Hospice’s
discourse, we are not willing to attribute bad faith to HHS. The district court did not
abuse its discretion for failing to impose what amounts to punitive sanctions against
HHS. Hospice agrees it will, in any event, be required to repay some amount under the
statute and a valid implementing regulation. Indeed, Hospice’s own recalculation of its
annual cap under the statute suggested it would owe approximately $200,000 more for
2006 than the amount it paid. Moreover, HHS has the right to appeal from a district court
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decision with which it disagrees and it capitulated promptly once two circuits agreed its
regulation was invalid.
“Generally speaking, a court . . . should remand a case to an agency for decision of
a matter that statutes place primarily in agency hands.” I.N.S. v. Ventura, 537 U.S. 12, 16
(2002). The court clearly and cogently explained why it could not determine the “amount
in controversy” under the relevant statute without a remand and ordered HHS to make the
factual findings for recalculation in accord with 42 U.S.C. § 1395f(i)(2). In these
circumstances, it is appropriate to remand the matter to the agency.
Our conclusion also finds support in Lion Health Services. In that case, the district
court ordered HHS to refund all payments from Lion to HHS under the invalid cap
calculations. However, the Fifth Circuit reversed, concluding the relief “was broader and
more burdensome than necessary to afford Lion full relief” and was, therefore, an abuse
of discretion. Lion Health Servs., 635 F.3d at 704. It reasoned:
Even using Lion’s proportional calculation method, it still owes a
substantial amount of refund to the Secretary for FY06 and FY07.
Additionally, the determination of the amount of refund owed to Lion is a
matter properly within the agency’s authority. Therefore, the district
court’s decision to order a full refund rather than remanding for
recalculation of the refund amount was an abuse of discretion.
Id. at 703-04. Similarly here, the district court’s order provides Hospice with full relief
noting, “[T]he prevailing party is entitled to recover interest only on the monies to which
it is ultimately entitled.” (R. Vol. 3 at 677) (emphasis added). And that is precisely what
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Hospice will receive.
AFFIRMED.
Entered by the Court:
Terrence L. O’Brien
United States Circuit Judge
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