United States Court of Appeals
For the First Circuit
No. 15-2408
MAINE MEDICAL CENTER ET AL.,
Plaintiffs, Appellees,
v.
SYLVIA M. BURWELL, SECRETARY,
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES,
Defendant, Appellant.
____________________
No. 15-2483
MAINE MEDICAL CENTER ET AL.,
Plaintiffs, Appellants,
v.
SYLVIA M. BURWELL, SECRETARY,
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES,
Defendant, Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Nancy Torresen, U.S. District Judge]
[Hon. John H. Rich, III, U.S. Magistrate Judge]
Before
Howard, Chief Judge,
Selya and Kayatta, Circuit Judges.
Stephanie R. Marcus, Attorney, Appellate Staff, Civil
Division, United States Department of Justice, with whom Benjamin
C. Mizer, Principal Deputy Assistant Attorney General, Civil
Division, Thomas E. Delahanty, II, United States Attorney, Andrew
K. Lizotte, Assistant United States Attorney, and Mark B. Stern,
Attorney, Appellate Staff, Civil Division, were on brief, for
defendant.
William H. Stiles, with whom Nora Lawrence Schmitt and Verrill
Dana, LLP were on brief, for plaintiffs.
October 27, 2016
SELYA, Circuit Judge. The system through which the
federal government reimburses hospitals for charity care is among
the most arcane known to man. A central feature of this system is
a provision through which hospitals receive so-called
disproportionate share payments (DSH payments). See 42 U.S.C.
§ 1395ww(d)(5)(F)(i)(I). These appeals involve a dispute between
the Secretary of Health and Human Services (the Secretary) and a
group of eight Maine hospitals1 about DSH payments for fiscal years
dating as far back as 1993.
After first clearing a jurisdictional hurdle, we hold
that the Secretary properly reopened the disputed years and
adequately demonstrated that the Hospitals had received
substantial overpayments of DSH funds. We further hold that the
myriad defenses to repayment asserted by the Hospitals lack force.
Accordingly, we reverse in part and affirm in part.
I. BACKGROUND
Putting these appeals in perspective requires a journey
into the "often surreal" Medicare reimbursement regime. See S.
Shore Hosp., Inc. v. Thompson, 308 F.3d 91, 94 (1st Cir. 2002).
Medicare has a noble purpose: it assists elderly and disabled
1
The eight hospitals (collectively, the Hospitals) are Maine
Medical Center, Central Maine Medical Center, Mid Coast Hospital,
Eastern Maine Medical Center, Mercy Hospital, Northern Maine
Medical Center, Southern Maine Medical Center, and Maine General
Medical Center.
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individuals in accessing health care. See 42 U.S.C. §§ 1395-
1395lll. This regime is administered by the Secretary through the
Centers for Medicare and Medicaid Services (CMS), which contracts
with fiscal intermediaries — often private health insurance
companies — to act as go-betweens for Medicare providers and CMS.
See 42 C.F.R. § 421.100.2
Initially, the federal government reimbursed hospitals
for the "reasonable cost" of treating Medicare patients. See,
e.g., R.I. Hosp. v. Leavitt, 548 F.3d 29, 39 (1st Cir. 2008). In
1983, however, Congress amended the program to incorporate a
prospective payment system through which hospitals are reimbursed
predetermined amounts for certain services. See 42 U.S.C.
§ 1395ww(d); R.I. Hosp., 548 F.3d at 39-40. Congress was
concerned, though, that the new payment system might disadvantage
hospitals that served disproportionate numbers of low-income
patients, so it created the DSH payment system to address this
concern. See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I); H.R. Rep. No. 98-
861, at 1356 (1984) (Conf. Rep.), as reprinted in 1984 U.S.C.C.A.N.
1445, 2044; S. Rep. No. 98-23, at 54 (1983), as reprinted in 1983
U.S.C.C.A.N. 143, 194.
2
Unless otherwise indicated, we refer throughout to the
version of the regulations in effect in 2003 (when the notices of
reopening that undergird these appeals were issued).
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The DSH payment protocol works this way. Hospitals that
serve a "significantly disproportionate number of low-income
patients" are known as disproportionate share hospitals (DSH
hospitals). 42 U.S.C. § 1395ww(d)(5)(F)(i)(I); see Catholic
Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 916 (D.C.
Cir. 2013). Those hospitals receive additional payments — known
as DSH payments or DSH adjustments — from the government. See
Catholic Health Initiatives, 718 F.3d at 916. Both a hospital's
eligibility for DSH payments and the amount of any such payment
depend in large part on the hospital's disproportionate patient
percentage (DPP). See 42 U.S.C. § 1395ww(d)(5)(F)(vi). Generally
speaking, the more low-income patients a hospital serves, the
higher its DPP and, thus, the higher its annual DSH payment. See
Catholic Health Initiatives, 718 F.3d at 916; Metro. Hosp. v. HHS,
712 F.3d 248, 251 (6th Cir. 2013). Nevertheless, this figure does
not correlate directly with "the actual percentage of low-income
patients served; rather, it is an indirect, proxy measure for low
income." Catholic Health Initiatives, 718 F.3d at 916.
To receive Medicare payments (including DSH
adjustments), a Medicare provider submits cost reports to an
intermediary at the end of each fiscal year. The intermediary
thereafter issues a notice of program reimbursement (NPR)
specifying the amount the provider is owed in reimbursements and
adjustments. See 42 C.F.R. §§ 405.1801(b)(1), 413.24(f), 421.100;
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see also MaineGen. Med. Ctr. v. Shalala, 205 F.3d 493, 494, 496
(1st Cir. 2000). The intermediary may reopen a cost report within
three years after issuing the NPR and, if necessary, issue a
revised NPR. See 42 C.F.R. § 405.1885(a)-(b). A provider may
appeal an intermediary's decision to the Provider Reimbursement
Review Board (the Board). See 42 U.S.C. § 1395oo(a)(1)(A)(i).
The Secretary has the option of reviewing Board decisions, and the
agency's final decision is subject to judicial review. See id.
§ 1395oo(f)(1).
In the case at hand, the Secretary maintains that the
Hospitals were overinclusive in their DSH payment calculations
because they included patient days for patients entitled to both
Medicare Part A and Medicaid but not supplemental security income
(SSI), known as non-SSI type 6 days. The inclusion of these days
dates back to at least 1997, when one of the plaintiffs (Central
Maine Medical Center) settled an administrative cost report
appeal. The settlement required the intermediary to include non-
SSI type 6 days in its DSH payment calculations. Following this
settlement and similar agreements between the intermediary and
other hospitals in the late 1990s, the intermediary began telling
all Maine hospitals to include such days in their cost reports.
In 2003, the intermediary changed its tune and reopened
numerous cost reports to reassess DSH payments. After several
meetings between the Hospitals, the intermediary, and CMS, CMS
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remained unconvinced that non-SSI type 6 days should be included
in the DSH payment calculation. Accordingly, the intermediary
recouped from the Hospitals approximately $22 million in alleged
overpayments.
The Hospitals did not go quietly into this bleak night:
they challenged the intermediary's action before the Board. Their
challenge bore fruit. The Board, finding many of the notices of
reopening to be ineffectual, ordered the intermediary to restore
approximately $17 million to the Hospitals.
The Hospitals' victory was short-lived. The Secretary
elected to review the Board's decision and reversed. Displeased,
the Hospitals sought judicial review. See 42 U.S.C.
§ 1395oo(f)(1). Following cross-motions for judgment on the
administrative record, the district court3 held that some notices
of reopening were fatally flawed and that settlement agreements
barred the intermediary from reopening certain cost reports.
Neither side was completely satisfied with the district court's
ruling, and these cross-appeals ensued.
II. JURISDICTION
At the outset, a jurisdictional question looms. The
parties jointly assure us that we have jurisdiction under 28 U.S.C.
3For ease in exposition, we do not distinguish between the
district judge and the magistrate judge but, rather, take an
institutional view and refer throughout to the district court.
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§ 1291, which permits us to review "appeals from all final
decisions of the district courts." Notwithstanding their shared
assurance, we have an independent obligation to confirm our
jurisdiction to hear this dispute. See Anversa v. Partners
Healthcare Sys., Inc., ___ F.3d ___, ___ n.5 (1st Cir. 2016) [No.
15-1897, slip op. at 15 n.5].
The district court's initial decision inspires some
cause for concern: it directed the parties to inform the court
which settlement agreements purported to be "full and final
settlements of the issues raised concerning the cost reports for
the years at issue." It went on to provide that if the parties
disagreed about which settlement agreements satisfied this
standard, the court would establish a dispute-resolution
procedure. The parties could not agree on an answer to the
question the court had posed. Instead, they jointly petitioned
the court to amend its decision and leave the matter unresolved.
The court acquiesced to the parties' suggestion that it did not
need to answer the question "at this point" and simply removed the
requirement from its decision.
A related matter also may bear on the jurisdictional
issue. After the district court handed down its initial decision,
the Hospitals requested the payment of interest on the amounts due
under the court's decision. The court denied the Hospitals'
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request without prejudice because the precise amounts owed to the
Hospitals had not yet been determined.
We begin the probe into our subject-matter jurisdiction
with first principles. As a general matter, a final decision is
one "that disposes of all claims against all parties." Bos. Prop.
Exch. Transfer Co. v. Iantosca, 720 F.3d 1, 6 (1st Cir. 2013).
The decision in this case does not satisfy that general rule; it
leaves open the identification of the fiscal years to which the
decision applies, as well as the question of interest.
Here, however, the general rule does not apply because
this is not an appeal from a garden-variety civil judgment.
Rather, it is an appeal taken from the district court's review of
agency action.
This is a critically important distinction because "when
a court reviewing agency action determines that an agency made an
error of law, the court's inquiry is at an end: the case must be
remanded to the agency for further action consistent with the
corrected legal standards." County of Los Angeles v. Shalala, 192
F.3d 1005, 1011 (D.C. Cir. 1999) (quoting PPG Indus., Inc. v.
United States, 52 F.3d 363, 365 (D.C. Cir. 1995)); see Hosp. Ass'n
of R.I. v. Sec'y of HHS, 820 F.2d 533, 538 (1st Cir. 1987) (stating
that "it is the Secretary who must first apply" the applicable law
to the facts). Thus, the court below had gone as far as it could
go: even if it had intended to resolve other issues at a later
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date, it lacked any authority to do so.4 Consistent with the
limits of the district court's authority, we construe its decision
as a remand to the agency. See County of Los Angeles, 192 F.3d at
1012.
Even so, a remand order is not usually considered a final
decision. See Glob. NAPs, Inc. v. Mass. Dep't of Telecomms. &
Energy, 427 F.3d 34, 41 (1st Cir. 2005). There is an exception,
though, for cases "where the agency to which the case is remanded
seeks to appeal and it would have no opportunity to appeal after
the proceedings on remand." County of Los Angeles, 192 F.3d at
1012 (quoting Occidental Petrol. Corp. v. SEC, 873 F.2d 325, 330
(D.C. Cir. 1989)). This is such a case: the Secretary will have
to conduct further proceedings pursuant to the remand order and,
unless the Hospitals appeal the outcome of those further
proceedings, the district court's ruling will escape review. See
id.
To be sure, a district court's failure to award or
withhold interest may in some circumstances prevent its decision
4
In all events, the administrative record does not contain
all of the documentation needed to permit a determination as to
which settlement agreements were full and final settlements of the
issues raised concerning the cost reports for the years at issue.
Ideally, the agency — not the district court — should be the body
to augment the record. See Camp v. Pitts, 411 U.S. 138, 142 (1973)
(per curiam) (explaining that "the focal point for judicial review
should be the administrative record already in existence, not some
new record made initially in the reviewing court").
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on the merits from being a final judgment. See Comm'l Union Ins.
Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 37 & n.3 (1st Cir.
2000). But in this case, the district court's refusal to pass
upon the Hospitals' request for interest does not alter our
analysis. Since the district court had to remand to the agency to
determine the precise amounts due to the Hospitals, an award of
interest would have been premature. See Palisades Gen. Hosp. Inc.
v. Leavitt, 426 F.3d 400, 403 (D.C. Cir. 2005) (holding that
district court lacked authority to order specific relief because
it had jurisdiction only to vacate agency's decision, and then had
to remand).
We conclude that we have jurisdiction to hear and
determine these appeals. Consequently, we proceed to the merits.
III. STANDARDS OF REVIEW
We review the judgment of the district court de novo.
See Doe v. Leavitt, 552 F.3d 75, 78 (1st Cir. 2009). Given the
nature of the case, we — like the court below — are obliged to
apply familiar principles of administrative law. See Assoc'd
Fisheries of Me., Inc. v. Daley, 127 F.3d 104, 109 (1st Cir. 1997).
The most basic of these tenets is that a court will
disturb an agency's decision only if that decision is "arbitrary,
capricious, an abuse of discretion," "otherwise not in accordance
with law," or "unsupported by substantial evidence in the
administrative record." S. Shore Hosp., 308 F.3d at 97 (citations
- 11 -
omitted). Atop this tenet lies a "further gloss." Id. When
Congress has spoken directly on a particular issue and the
traditional tools of statutory interpretation reveal that
congressional intent is clear, an inquiring court must give effect
to Congress's intent. See Chevron U.S.A., Inc. v. Nat. Res. Def.
Council, Inc., 467 U.S. 837, 842-43 & n.9 (1984). If Congress did
not directly address the issue, the question reduces to whether
the agency's view is based on a permissible construction of the
statute. See id. at 843. Particular deference is owed to the
agency's interpretation of its own regulations when Congress has
entrusted the agency with rulemaking authority. See S. Shore
Hosp., 308 F.3d at 97. That deference is most pronounced when the
issue involves "a complex and highly technical regulatory
program," such as Medicare, "in which the identification and
classification of relevant criteria necessarily require
significant expertise and entail the exercise of judgment grounded
in policy concerns." Id. (quoting Thomas Jefferson Univ. v.
Shalala, 512 U.S. 504, 512 (1994)).
IV. THE SECRETARY'S APPEAL
The Secretary claims that the district court erred both
by holding certain notices of reopening invalid and by holding
that settlement agreements barred the reopening of certain cost
reports. We put these claims in context and then explain why we
accept them.
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A. Validity of Notices of Reopening.
We start with the validity of the notices of reopening.5
To initiate a cost report reopening, the intermediary must give a
hospital written notice. See 42 C.F.R. § 405.1887(a). At that
point, the hospital "shall be allowed a reasonable period of time
in which to present any additional evidence or argument in support
of [its] position." Id. § 405.1887(b). In this instance, the
district court ruled that certain notices of reopening were invalid
because they failed to comply with the Medicare Provider
Reimbursement Manual, CMS Pub. 15-1, Section 2932 (PRM). This
ruling illuminates a lack of congruence between the regulations
and the PRM. On the one hand, the regulations simply require
"written notice" to all parties and allowance of "a reasonable
period of time in which to present any additional evidence or
argument in support of [the party's] position." 42 C.F.R.
§ 405.1887(a)-(b). On the other hand, the PRM goes further: it
requires that the notice advise the provider "as to the
circumstances surrounding the reopening, i.e., why it was
necessary to take such action, and [notify the provider of its]
opportunity to comment, object, or submit evidence in rebuttal."
PRM § 2932(A).
5 We limit our discussion under this heading to the district
court's rationale for invalidity. The Hospitals' other arguments
for invalidity, rejected by the district court, are discussed infra
in connection with our discussion of the Hospitals' appeal.
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Here, the written notices sent by the intermediary were
terse. They stated:
The above referenced Medicare cost report is reopened to
address the following issue:
To review and correct the disproportionate
share hospital (DSH) payment calculation in
accordance with section 1886(d)(5)(F) [of] the
Social Security Act and 42 CFR 412.106.
Please contact me at . . . if you have any questions
regarding this reopening.
The Hospitals do not seriously argue that the notices failed to
satisfy the plain language of the regulation. They do argue,
however — and the district court found — that the notices did not
satisfy the more elaborate criteria limned in the PRM: although
the notices advised the Hospitals of the circumstances surrounding
the reopening by identifying DSH payments as the relevant issue,
they failed to furnish any additional detail and did not offer the
Hospitals the opportunity to comment, object, or submit evidence
in rebuttal.
Essentially, the Secretary makes two arguments. First,
she says that the notices substantially complied with the demands
of the PRM. Second, she says that even if they did not, they
complied with the regulation — and no more was exigible.
The second of these arguments is dispositive. The
regulation itself does not require that a notice of reopening
include advice about the opportunity to present evidence and
arguments. The regulation controls: as we said in an earlier case
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discussing the PRM, the PRM is nothing more than an interpretive
guide and, as such, "interpretive guides generally do not have the
force of law."6 S. Shore Hosp., 308 F.3d at 103; accord Shalala
v. Guernsey Mem'l Hosp., 514 U.S. 87, 99 (1995) (concluding that
the PRM does not have the force and effect of law).
B. Effect of Settlement Agreements.
This brings us to the Secretary's contention that the
settlement agreements present no barrier to the cost report
reopenings in this case. This contention rests on solid ground:
the regulations make pellucid that an intermediary lacks the
authority to make payments that are not authorized by Medicare.
See 42 C.F.R. § 421.100(a)(1)(ii) (directing intermediary to
ensure "that it makes payments only for services that are
. . . [c]overed under Medicare"). We see no reason why an
intermediary would have any greater authority when entering into
6Because we agree with the Secretary that the PRM did not
bind her, we need not decide whether she substantially complied
with its notice requirements. We note, though, that the Hospitals
do not appear to have suffered any prejudice because the notices
failed to comport fully with the PRM's guidance. The Hospitals'
representatives attended numerous meetings to discuss the DSH
adjustments and took full advantage of ample opportunities to
present their side of the story. This alone suggests that the
Secretary may well have substantially complied with the notice
provisions of the PRM. See, e.g., Boateng v. InterAm. Univ., Inc.,
210 F.3d 56, 61 (1st Cir. 2000) (finding substantial compliance
where error was harmless); In re Hollingsworth & Whitney Co., 242
F. 753, 760-61 (1st Cir. 1917) (finding substantial compliance
where parties were not denied the opportunity to present the merits
of their case in any material respect).
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a settlement agreement or administrative resolution.7 The fact
that the Secretary was not a party to the settlement agreements
reinforces this conclusion. See Howard Young Med. Ctr., Inc. v.
Shalala, 207 F.3d 437, 443 (7th Cir. 2000) (holding Secretary not
bound by stipulation entered into by intermediary); Appalachian
Reg'l Healthcare, Inc. v. Shalala, 131 F.3d 1050, 1053 n.4 (D.C.
Cir. 1997) (holding Secretary not bound by intermediary's
statements before the Board).
We acknowledge that the intermediary represented to at
least one hospital (Central Maine Medical Center) that it had the
authority to enter into a settlement that included non-SSI type 6
days. Such a representation, however, cannot cloak the
intermediary with authority that it does not have. Cf. Sheinkopf
v. Stone, 927 F.2d 1259, 1269 (1st Cir. 1991) (recognizing that,
under doctrine of apparent authority, agent's own words are
insufficient to bind principal). The Supreme Court has made it
7
Before the agency, the Hospitals advanced a more nuanced
argument: that the settlement agreements barred the intermediary
from reopening the cost reports under its permissive reopening
authority, meaning that CMS had to follow the mandatory reopening
protocols if it did not want to comply with the agreements. See
42 C.F.R. § 405.1885(a)-(b). This nuanced argument was mentioned
only briefly in the district court and evaporated entirely on
appeal. Consequently, we treat it as waived. See United States
v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990). For the sake of
completeness, though, we note that the settlement agreements do
not seem to bar the intermediary from reopening under its
permissive authority; they appear only to require the intermediary
to issue revised NPRs, without discussion of whether the revised
NPRs could be reopened.
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nose-on-the-face plain that "anyone entering into an arrangement
with the Government takes the risk of having accurately ascertained
that he who purports to act for the Government stays within the
bounds of his authority." Fed. Crop Ins. Corp. v. Merrill, 332
U.S. 380, 384 (1947); see United States v. Flemmi, 225 F.3d 78, 85
(1st Cir. 2000) (noting that "doctrines such as estoppel and
apparent authority are not available to bind the federal
sovereign"). Here, the Hospitals accepted public funds knowing
(or, at least, being fully charged with knowledge of) the
limitations of intermediaries; and any attempt by the Hospitals to
claim that they reasonably relied on the intermediary's extra-
legal representations would be empty.8 See Heckler v. Cmty. Health
Servs., 467 U.S. 51, 64-65 (1984); Faith Hosp. Ass'n v. Blue Cross
Hosp. Serv., 537 F.2d 294, 295 (8th Cir. 1976) (per curiam); see
also Madison Gen. Hosp., Inc. v. United States, No. 141-85 C, 1986
WL 66215, at *2-3 (Cl. Ct. Sept. 19, 1986) (holding that a
settlement agreement between a hospital and an intermediary did
not bind the government when the intermediary lacked authority to
settle the claim).
8
Knowing the circumscribed authority of intermediaries, the
utter lack of any documentation concerning the intermediary's
purported authority to include previously excluded days in DSH
computations should have constituted a flashing red light, easily
visible to the Hospitals.
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This ends our analysis of the Secretary's appeal. The
short of it is that we find her arguments largely persuasive. We
therefore proceed to the Hospitals' appeal. As we undertake that
task, we are cognizant that unless the Hospitals prevail, the
Secretary will be entitled to the relief that she seeks.
V. THE HOSPITALS' APPEAL
In their appeal, the Hospitals advance three main lines
of argument. They begin with the proposition that the reopening
notices were invalid because they failed to comply with mandatory
reopening provisions contained in the regulations. As a fallback,
the Hospitals say that even if the notices of reopening were valid,
non-SSI type 6 days were properly included in DSH calculations.
Finally, the Hospitals suggest that they should either be held
harmless or absolved as without fault for including non-SSI type
6 days in their DSH calculations. We examine each line of argument
in turn.
A. Effect of Mandatory Reopening Provisions.
The Hospitals assert that the notices of reopening were
invalid for a reason different from those identified by the
district court. Their view has morphed over time, see supra note
7; but as expressed here, their assertion seems to be that the
mandatory reopening provisions of 42 C.F.R. § 405.1885(b) must
always be complied with, and those provisions were flouted because
there was no documentation of CMS's instruction to the intermediary
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to reopen the cost reports. The Secretary demurs, asserting that
compliance with the mandatory reopening provisions does not
constitute the exclusive method for reopening and that, under the
circumstances of this case, the intermediary was at liberty to
reopen the cost reports without a written directive from CMS. The
district court agreed with the Secretary's conclusion, and so do
we.
It is clear that the regulations allow an intermediary
to reopen its own determination. See 42 C.F.R. § 405.1885(a)
(explaining that "[a] determination of an intermediary . . . may
be reopened . . . by such intermediary . . . either on motion of
such intermediary . . . or on the motion of the provider"). The
regulations also make clear that CMS (acting for the Secretary)
has the authority to direct an intermediary to reopen a
determination. See id. § 405.1885(b)(1) ("An intermediary
determination . . . must be reopened and revised by the
intermediary if . . . CMS— (i) Provides notice to the intermediary
that the intermediary determination . . . is inconsistent with the
applicable law . . . ; and (ii) Explicitly directs the intermediary
to reopen and revise . . . .").
Here, the record indicates that CMS instructed the
intermediary to reopen the cost reports, but did not issue a
written directive to that effect. Rather, the instruction appears
to have taken place orally and informally. The Hospitals' argument
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is that, under 42 C.F.R. § 405.1885(b)(1), a written directive
from CMS was a condition precedent to reopening. We find this
wooden reading of the regulation insupportable: it would nullify
an intermediary's power to reopen if CMS advises it to reopen only
in a casual conversation, and that dilution of the intermediary's
power would serve no useful purpose. Indeed, it would pay
obeisance to formalism for formalism's sake.
The more logical reading of the regulation is that it
simply makes clear the power structure in play: CMS trumps the
intermediary. Should an intermediary and CMS disagree about the
need for reopening, CMS may force the intermediary's hand. Such
a situation did not occur here because the intermediary reopened
the cost reports as CMS desired. Accordingly, any failure to
comply with the mandatory reopening provisions did not abrogate
the notices of reopening.
B. Treatment of Non-SSI Type 6 Days.
We turn next to the Hospitals' contention that the
statutory scheme permits providers to include in DSH calculations
all patients eligible for either Medicare or Medicaid, whether or
not those patients are entitled to SSI. Like the agency and the
district court, we reject this contention.
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The DPP is the sum of two fractions: the Medicare
fraction and the Medicaid fraction.9 See 42 U.S.C.
§ 1395ww(d)(5)(F)(vi); Catholic Health Initiatives, 718 F.3d at
916. For the Medicare fraction, the numerator is the number of
patient days for patients who were entitled to both Medicare Part
A and SSI benefits. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I); see
also Metro. Hosp., 712 F.3d at 251; 42 C.F.R. § 412.106(b)(2).
The denominator is the number of patient days for patients entitled
9 The statute provides in pertinent part:
the term "disproportionate patient percentage" means,
with respect to a cost reporting period of a hospital,
the sum of--
(I) the fraction (expressed as a percentage), the
numerator of which is the number of such hospital's
patient days for such period which were made up of
patients who (for such days) were entitled to benefits
under part A of this subchapter and were entitled to
supplementary security income benefits (excluding any
State supplementation) under subchapter XVI of this
chapter, and the denominator of which is the number of
such hospital's patient days for such fiscal year which
were made up of patients who (for such days) were
entitled to benefits under part A of this subchapter,
and
(II) the fraction (expressed as a percentage), the
numerator of which is the number of the hospital's
patient days for such period which consist of patients
who (for such days) were eligible for medical assistance
under a State plan approved under subchapter XIX of this
chapter, but who were not entitled to benefits under
part A of this subchapter, and the denominator of which
is the total number of the hospital's patient days for
such period.
42 U.S.C. § 1395ww(d)(5)(F)(vi) (emphasis added).
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to Part A benefits. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). For
the Medicaid fraction, the numerator is the number of patient days
for patients who were eligible for coverage under a federally
approved state Medicaid plan but who were ineligible for Medicare
Part A coverage. See id. § 1395ww(d)(5)(F)(vi)(II); see also
Metro. Hosp., 712 F.3d at 251; 42 C.F.R. § 412.106(b)(4). The
denominator is the total number of patient days. See 42 U.S.C.
§ 1395ww(d)(5)(F)(vi)(II).
This taxonomy, as the Secretary interprets it, excludes
patients who are entitled to both Medicare Part A and Medicaid,
but not entitled to SSI. The Secretary reasons that a patient
must be eligible for SSI to be included in the Medicare fraction
numerator and must be ineligible for Medicare Part A to be included
in the Medicaid fraction numerator. The Hospitals take issue with
this reasoning, insisting that all Medicaid- and Medicare-eligible
patient days, including non-SSI type 6 days, should be included in
the DSH calculation.
Our resolution of these dueling interpretations is
guided by the Supreme Court's landmark decision in Chevron. Where
applicable, Chevron requires a two-step approach. See 467 U.S. at
842-43. At step one, an inquiring court must determine whether
Congress has spoken clearly and, if so, must give effect to
Congress's intent. See id. Step two is necessary only if
Congress's intent is unclear: in that event, the question reduces
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to whether the agency's view is based on a permissible
interpretation of the statute. See id. at 843.
Here, we need not go beyond step one. The language of
the controlling statute is unambiguous, and the Secretary's
interpretation of the statute faithfully tracks its plain
language.
The Hospitals nonetheless point out that in a Chevron
step one analysis, courts must apply the traditional rules of
statutory interpretation. See id. at 843 & n.9. These rules
include the canon that statutes should be construed to avoid absurd
results. See Stornawaye Fin. Corp. v. Hill (In re Hill), 562 F.3d
29, 32 (1st Cir. 2009). Seizing on this canon, the Hospitals argue
that excluding certain low-income patients from the DSH
calculation is absurd because the purpose of the figure is to
compensate hospitals for providing services to disproportionately
large populations of low-income patients.
Although the kind of line-drawing that is often
necessary in our administrative state may occasionally be
unsatisfying at the edges, that discomfiture does not make a rule
absurd. See, e.g., Sprandel v. Sec'y of HHS, 838 F.2d 23, 27 (1st
Cir. 1988) (per curiam). Absurdity, like beauty, sometimes lies
in the eye of the beholder. So it is here: given that the DSH
calculation is merely a proxy for low-income patients rather than
a reimbursement scheme designed to compensate hospitals for care
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administered to specific patients, see Catholic Health
Initiatives, 718 F.3d at 916, we do not consider the exclusion of
certain low-income patients to be absurd. While the rules for
Medicare reimbursement may seem inscrutable at times, Congress's
intent with regard to this provision is transparently clear. Thus,
the Secretary's reading of the provision is unimpugnable and our
analysis can stop at Chevron step one. See 467 U.S. at 842 (stating
that "[i]f the intent of Congress is clear, that is the end of the
matter").
Even if a Chevron step two analysis were required, the
result would be the same: it is crystal clear that the Secretary's
interpretation would certainly be permissible under Chevron step
two. The Hospitals' argument rests upon the supposition that
Congress must have intended to include in the DSH calculation all
patients eligible for either Medicare or Medicaid. But the
authorities on which they rely for that supposition, see Jewish
Hosp., Inc. v. Sec'y of HHS, 19 F.3d 270 (6th Cir. 1994); Edgewater
Med. Ctr. v. Blue Cross & Blue Shield Ass'n/Blue Cross & Blue
Shield of Ill., 2000 WL 1146601 (HCFA Admin. June 19, 2000), lend
no support.
To be sure, the Jewish Hospital court stated that
"Congress intended to include all days attributable to Medicaid
beneficiaries in the proxy." 19 F.3d at 276. The context of the
case reveals, however, that the Sixth Circuit's analysis was
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focused on the meaning of the words "eligible for" medical
assistance and "entitled to" benefits, 42 U.S.C.
§ 1395ww(d)(5)(F), without reference to SSI status. See Jewish
Hosp., 19 F.3d at 274-76; see also Metro. Hosp., 712 F.3d at 259
(limiting decision in Jewish Hosp.).
So, too, the Secretary's decision in Edgewater explains
that one apparent purpose of the two fractions that compose the
DPP is to prevent double counting of patient days. See 2000 WL
1146601, at *5 n.17. Again, the Secretary was considering the
"eligible for" versus "entitled to" dichotomy addressed in Jewish
Hospital. See id. at *4-5. The decision simply did not consider
the possibility that a patient could be eligible for Medicare and
Medicaid but ineligible for SSI. See id. at *4. And to the extent
the decision is applicable at all, it is more helpful to the
Secretary than to the Hospitals: it recognizes that the plain
language of the statute excludes from the Medicaid fraction
individuals who are eligible for Medicare Part A. See id. (noting
that "the statutory phrase in the Medicaid proxy 'but who were not
entitled to benefits under Medicare Part A of this title'
forecloses the inclusion of the days at issue in this case in the
numerator of the Medicaid proxy" (quoting 42 U.S.C.
§ 1395ww(d)(5)(F)(vi)(II))).
The Hospitals argue that these two decisions require us
to hold that an interpretation of the statutory provision that
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does not count a particular low-income patient at all must be an
unreasonable synthesis of congressional intent. But — as we have
shown — the authorities upon which the Hospitals rely do not
support, let alone require, such a view, and we refuse to take
such a gargantuan leap. We believe that the Secretary, at the
very least, acted permissibly in adhering to the plain language of
the statute, which is typically the best evidence of Congress's
intent. See Metro. Hosp., 712 F.3d at 269 (stating that the
"exclusion of at least some dual-eligible patient days
. . . appears to be inevitable based on" the statute's structure).
C. Confession and Avoidance.
In a last-ditch effort to stem the tide, the Hospitals
attempt to confess and avoid. This attempt takes two forms.
First, the Hospitals claim that, even if their DSH
calculations were incorrect, they should be held harmless from any
obligation to refund overpayments. This claim rests on a program
memorandum issued by the Secretary, see Program Memorandum HCFA-
Pub. 60A, No. A-99-62 (Dec. 1, 1999) (PM A-99-62), which instructed
intermediaries to refrain from recouping "the portion of Medicare
DSH adjustment payments previously made to hospitals attributable
to the erroneous inclusion of general assistance or other State-
only health program, charity care, Medicaid DSH, and/or ineligible
waiver or demonstration population days in the Medicaid days factor
used in the Medicare DSH formula." The Secretary argued below —
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and the district court found — that this hold-harmless provision
does not extend to the obligation to refund DSH overpayments based
on non-SSI type 6 days. We agree.
Read in context, PM A-99-62 plainly concerns a different
DSH calculation issue. Historically, "hospitals and
Intermediaries [had] relied, for the most part, on Medicaid days
data obtained from State Medicaid agencies to compute Medicare DSH
payments and . . . some of those agencies commingled the types of
otherwise ineligible days . . . with Medicaid Title XIX days." PM
A-99-62. Seen in this light, the hold-harmless provision in PM A-
99-62 must refer to the calculation of Medicaid-eligible patient
days, not to whether Medicaid- and Medicare-eligible patients who
were not entitled to SSI could be included in the DSH calculation.
Nor can there be any legitimate doubt about the sweep of
the hold-harmless provision. PM A-99-62 itself states that it "is
not intended to hold hospitals harmless for any other aspect of
the calculation of Medicare DSH payments or any other Medicare
payments."
In yet another effort to confess and avoid, the Hospitals
attempt to skirt liability by insisting that they should be excused
as being "without fault" for collecting DSH overpayments because
they reasonably relied on the incorrect advice of their
intermediary. See 42 U.S.C. § 1395gg. The Secretary rejoins that
the statute on which the Hospitals rely, 42 U.S.C. § 1395gg, does
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not apply to DSH overpayments because they are aggregate payments
as opposed to reimbursement for services provided on behalf of a
specific patient. We agree with the district court that the
Secretary's argument carries the day.
Section 1395gg sets forth a framework for recovering
overpayments made to or on behalf of individuals. As part of this
scheme, Section 1395gg(b) authorizes the Secretary to recoup
overpayments from individuals and providers when the overpayments
were made "for items or services furnished an individual." Section
1395gg(c) carves out an exception: it provides that overpayments
made "with respect to an individual who is without fault" should
not be recouped if doing so "would defeat the purposes of [Social
Security] or [Medicare] or would be against equity and good
conscience." Congress's repeated references to "individuals" in
the text of the statute convince us that the "without fault"
language in Section 1395gg(c) does not apply to DSH payments, the
calculation of which does involve individual patient days but only
as a means of evaluating a provider's patient population income
level. See Visiting Nurses Ass'n of Sw. Ind., Inc. v. Shalala,
213 F.3d 352, 357 (7th Cir. 2000) ("Because the only adjustment
contemplated by § 1395gg(b) is an adjustment of payments to
individuals, no waiver under § 1395gg(c) is possible for these
providers."); see also Medicare Program; "Without Fault" and
Waiver of Recovery from an Individual as it Applies to Medicare
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Overpayment Liability, 63 Fed. Reg. 14,506, 14,510 (Mar. 25, 1998)
("[T]he without fault provisions under [42 U.S.C. § 1395gg] do not
extend to aggregate overpayment issues, such as Medicare cost
report errors, because liability for an individual claim cannot be
shifted to a specific individual.").
The Hospitals make one final argument. They protest
that during meetings at which the Hospitals, CMS, and the
intermediary were all represented, the attendees discussed whether
the Hospitals satisfied the "without fault" requirements and
agreed that the provision applied. But even if this is an accurate
depiction of the parties' negotiations, it does not preclude the
Secretary from asserting a different view now. In the absence of
detrimental reliance — and we see none here — the Secretary is not
foreclosed from changing a position that she has come to conclude
is rooted in a mistaken interpretation of the statutory scheme.
See Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417 (1993).
VI. CONCLUSION
We need go no further. For the reasons elucidated above,
we reverse the judgment of the district court as to the cost
reports for which the Board and the district court found that the
notices provided to specific plaintiffs were inadequate and as to
the cost reports for providers and years covered by written
settlement agreements entered into by individual providers and the
intermediary. As to all other plaintiffs and cost years, we affirm
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the district court's entry of judgment for the Secretary. All
parties shall bear their own costs.
Reversed in part, affirmed in part, and remanded with instructions
to enter judgment in favor of the Secretary.
- 30 -
Maine Medical Center v. Burwell
Court: Court of Appeals for the First Circuit
Date filed: 2016-10-27
Citations: 841 F.3d 10, 2016 WL 6310800
Copy CitationsCombined Opinion