Christ the King Manor, Inc. v. Secretary United States Department of Health & Human Services

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________

No. 16-1641
____________

CHRIST THE KING MANOR, INC., BALDOCK ASSOCIATES, d/b/a Baldock Health Center;
BONHAM NURSING CENTER; BRIARLEAF NURSING AND CONVALESCENT
CENTER, INC.; BROOKMONT HEALTH CARE CENTER, LLC; CATHEDRAL VILLAGE;
CPSR ASSOCIATES, LLC, d/b/a Mon Valley Care Center; ELLEN MEMORIAL HEALTH
CARE CENTER-HONESDALE, INC.; GREENLEAF NURSING AND CONVALESCENT
CENTER, INC.; HUMBERT LANE ASSOCIATES, d/b/a Humbert Lane Nursing and
Rehabilitation Center; KINKORA PYTHIAN HOME CORPORATION; KUTZTOWN
MANOR, INC.; PICKERING MANOR HOME; RHEEMS NURSING AND
REHABILITATION, LLC; SIEMON NURSING HOME, INC., d/b/a/Siemon’s Lakeview
Manor Estate; CARBON-SCHUYKILL COMMUNITY HOSPITAL, INC. d/b/a St. Luke’s
Miners Memorial Geriatric Center; SOUTHWESTERN GROUP, LTD, d/b/a Southwestern
Nursing Center; SUSQUEHANNA VALLEY NURSING AND REHABILITATION CENTER,
LLC; WINDSOR, INC., d/b/a Snyder Memorial Health Care Center; 890 WEATHERWOOD
LANE OPERATING COMPANY, LLC, d/b/a The Rehabilitation and Nursing Center at Greater
Pittsburgh; 4114 SCHAPER AVENUE OPERATING COMPANY, LLC, d/b/a Presque Isle
Rehabilitation & Nursing Center

v.

SECRETARY UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES;
ADMINISTRATOR OF THE CENTERS FOR MEDICARE & MEDICAID SERVICES;
FRANCIS MCCULLOUGH, in his official capacity as Associate Regional Administrator-
Region II Division of Medicaid and Children’s Health Operations of the Centers for Medicare
and Medicaid Services (CMS)

Christ the King Manor, Inc.,
Baldock Associates, d/b/a Baldock Health Health Care Center,
Briarleaf Nursing and Convalescent Center, Inc.,
CPSR Associates, LLC, d/b/a Mon Valley Care Center;
Ellen Memorial Health Care Center-Honesdale, Inc.,
Greenleaf Nursing and Convalescent Center, Inc.,
Humbert Lane Associates, d/b/a Humbert Lane
Nursing and Rehabilitation Center,
Kinkora Pythian Home Corporation, Kutztown Manor, Inc.,
Pickering Manor Home, Rheems Nursing and Rehabilitation, LLC,
 Siemon Nursing Home, Inc., d/b/a Siemon’s Lakeview Manor,
Carbon-Schuylkill Community Hospital, Inc., d/b/a St. Luke’s
Miners’s Memorial Geriatric Center, Susquehanna Valley
Nursing and Rehabilitation Center, LLC, 890 Weatherwood
Lane Operating Company, LLC, d/b/a Rehabilitation
and Nursing Center in Greater Pittsburgh, 4114 Schaper
Avenue Operating Company, LLC, d/b/a Presque Isle Rehabilitation
& Nursing Center,
Appellants
____________

On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. No. 1-14-cv-01809)
District Judge: Honorable John E. Jones, III
____________

Argued November 2, 2016

Before: HARDIMAN and SCIRICA, Circuit Judges,
and ROSENTHAL,* District Judge.

(Filed: December 12, 2016)

Daniel K. Natirboff [Argued]
Glenn A. Parno
Capozzi Adler
1200 Camp Hill Bypass
Suite 205
Camp Hill, PA 17011
Counsel for Plaintiffs-Appellants

Alisa B. Klein
Jeffrey E. Sandberg [Argued]
United States Department of Justice
Civil Division
950 Pennsylvania Avenue, N.W.
Washington, DC 20530
Counsel for Defendants-Appellees

*
The Honorable Lee H. Rosenthal, Chief United States District Judge for the
Southern District of Texas, sitting by designation.

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 ____________

OPINION**
____________

ROSENTHAL, District Judge.

In 2008, the Department of Health and Human Services approved an amendment

to Pennsylvania’s Medicaid plan for reimbursing private nursing homes for patient care

provided in 2008 and 2009. The amendment reduced the payments from what they

otherwise would have been. The nursing homes sued, challenging the amendment’s

approval and seeking an order requiring adherence to the prior year’s plan-reimbursement

formula. The District Court affirmed the Secretary’s approval of the 2008 plan

amendment. This is the second of two appeals resulting from that plan amendment.

The first appeal required the panel to decide a substantive challenge to the

amendment. The panel found that the agency’s approval was arbitrary and capricious

because the Secretary had failed to explain it adequately. The plan had been in effect for

a year when the panel reversed and remanded to the District Court. After the panel

remand, the agency reopened proceedings, reconsidered its determination, and in 2014

again approved the 2008 plan amendment. The nursing homes went back to the District

Court, which approved the agency’s redetermination. This second appeal followed,

raising two issues, one procedural and one substantive.

The procedural issue requires us to decide the effect of the order from our Court

reversing the District Court’s judgment approving the agency’s 2008 action and
**
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.

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remanding to the District Court with instructions to enter “a declaratory judgment for

Plaintiffs, all in accordance with the opinion of this Court.” The nursing homes contend

that this Order and the District Court final judgment that followed precluded any further

agency action. The substantive issue requires us to decide whether, if the agency could

reconsider its earlier determination, that reconsideration had to be limited to the

predictive data relied on in the initial approval, or whether the agency could also consider

the data collected from actual experience with the amended plan from 2008 to 2009, the

year it had been in effect.

We find the agency’s reopening and reconsideration consistent with the first

panel’s mandate reversing and remanding to the District Court with instructions to issue a

judgment “in accordance with” the panel’s opinion. We find the agency’s reliance on the

actual-experience data accumulated after the original determination consistent with the

case law and with common sense. Finding no error, we will affirm the judgment of the

District Court.

I.

Medicaid and Medicare are “cooperative federal-state program[s] under which the

federal government furnishes funding to states for the purpose of providing medical

assistance to eligible low-income persons.” Pennsylvania Pharmacists Ass’n v.

Houstoun, 283 F.3d 531, 533 (3d Cir. 2002) (en banc). To qualify for federal funding, a

participating state must submit a plan for medical assistance and any proposed plan

amendment to the Secretary of Health and Human Services, through the Centers for

Medicare and Medicaid Services (“CMS”). 42 U.S.C. § 1396a(a); 42 C.F.R. § 430.10.

4
That plan must detail the state’s program and show its compliance with the Medicaid Act.

42 U.S.C. § 1396a(a); 42 C.F.R. § 430.10; see Christ the King Manor, Inc. v. Sec’y U.S.

Dep’t of Health & Human Servs. (“Christ the King I”), 730 F.3d 291, 297 (3d. Cir. 2013).

The Medicaid Act sets out procedures and criteria for rates to pay participating

providers. 42 U.S.C. § 1396a(a)(30)(A). Section 30(A) requires a state to “assure that

payments to providers produce four outcomes: (1) ‘efficiency,’ (2) ‘economy,’

(3) ‘quality of care,’ and (4) adequate access to providers by Medicaid beneficiaries.”

Pennsylvania Pharmacists Ass’n, 283 F.3d at 537 (quoting 42 U.S.C. § 1396a(a)(30)(A)).

CMS is required to review state plans and proposed plan amendments to ensure

compliance with § 30(A). Christ the King I, 730 F.3d at 297.

Pennsylvania uses a “case-mix rate” to determine how much Medicaid will

reimburse private nursing homes for the covered care they provide. Id. at 298. The case-

mix rate uses a formula to generate per-diem reimbursements for each nursing home. Id.

In June 2005, Pennsylvania’s Department of Public Welfare determined that

reimbursement rates had increased too much and too fast, and that absent corrective

action, there would not be enough money to reimburse nursing homes for the costs they

incurred. Id. To slow the rate increases, the Department proposed an annually

determined “budget adjustment factor,” abbreviated as BAF. Id. The BAF is a fraction

by which the case-mix rate is multiplied to determine the net-reimbursement rate. Id.

Although the Department portrayed the BAF as an interim measure to be applied in the

2005 to 2006 fiscal year, the BAF became a fixture in Pennsylvania’s reimbursement

5
formula. Id. The BAF was recalculated each year based on the Pennsylvania

legislature’s budget-allocation decisions.1 Id. at 298–99.

In 2008, Pennsylvania submitted the proposed plan amendment designated as

SPA 08-007 to CMS for approval. That amendment would adjust the BAF for fiscal year

2008 to 2009 to make the case-mix payment rate 9.109% lower than it would have been

using the existing plan. Id. at 301. CMS approved the proposed amendment in

December 2008. The new rates were retroactively applied to July 2008, the beginning of

the 2008 to 2009 fiscal year. Id. at 302. Fifty-three private nursing homes sued, alleging

that CMS had approved the amendment without considering its effect on the quality of

care, as § 30(A) required. Id. The nursing homes asked the District Court to order

Pennsylvania to reimburse them using the case-mix rate without the BAF decrease. Id.

The District Court entered summary judgment for the government defendants,

finding that CMS had reasonably determined that the plan amendment complied with

§ 30(A). Id. at 303. The nursing homes appealed. In Christ the King I, the panel

reversed because the Secretary had failed to “articulate a satisfactory explanation” for her

determination that the revised payment method would not adversely impact the quality of

care. Id. at 314. The panel remanded to the District Court “with instructions to enter a

declaratory judgment in favor of Plaintiffs on their claim that HHS’s approval of [the

amendment] was arbitrary and capricious under the APA.” Id. at 321. The panel’s

1
The case-mix rate was reduced by the percentage defined in that year’s BAF; the
2005 to 2006 rates were reduced by 4.878%, the 2006 to 2007 rates by 6.245%, and the
2007 to 2008 rates by 6.806%. Christ the King I, 730 F.3d at 299.

6
mandate added that the District Court was to enter “a declaratory judgment for Plaintiffs,

all in accordance with the opinion of this Court.”

The panel noted that it did not “imply that the payments Pennsylvania made to

providers during the 2008–09 fiscal year were in fact inconsistent with any of Section

30(A)’s requirements.” Id. at 314. The panel also noted that it did “not mean that

Plaintiffs will necessarily be entitled to a rate recalculation” or that “they should have

been paid in accordance with the previously approved state plan,” which had not used the

budget-adjustment factor. Id. at 314 n.25. The panel made clear that “[w]hen, as here,

‘the record before the agency does not support the agency action,’ the agency may be

afforded an opportunity ‘for additional investigation or explanation,’ upon which the

agency could lawfully base its action.” Id. (quoting Fla. Power & Light Co. v. Lorion,

470 U.S. 729, 744 (1985)).

Back at the District Court, the parties disagreed about how the Court should word

its judgment. The nursing homes proposed language expressly barring CMS from any

further review of the disapproved amendment. The government proposed language

expressly remanding the case to CMS for further consideration. The District Court

rejected both proposals. In December 2013, the District Court entered a judgment that

quoted the mandate from Christ the King I. The judgment read as follows:

Pursuant to the mandate of the United States Court of Appeals for the Third
Circuit issued on September 19, 2013, it is hereby ordered that:

Judgment is entered in favor of Plaintiffs on their claim that the Department
of Health and Human Service’s approval of SPA 08-007 was arbitrary and
capricious.

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 In May 2014, CMS informed Pennsylvania that the agency would reopen the

record and reconsider whether the amended repayment rates that had been in effect from

July 2008 through June 2009 were consistent with the Medicaid Act. CMS invited

Pennsylvania to submit evidence on the impact the rates had on the quality of care. In

August 2014, Pennsylvania submitted a letter explaining why the amended rates were

consistent with “efficiency, economy, quality of care and access to care.” The letter

included supporting data that showed the actual experience under the revised rates during

the year they were in effect before the panel decision issued. That data obviously did not

exist when CMS initially approved the plan amendment in December 2008. In December

2014, the Secretary, through CMS, issued a revised determination with a detailed

explanation concluding that the amendment’s payment method was consistent with the

quality-of-care requirement.

While CMS was reconsidering the amended rates, 21 of the original 53 nursing

homes went back to the District Court to ask for an injunction preventing CMS from

reconsidering the plan amendment. When the Secretary issued the revised determination

approving the amendment, the 21 nursing homes moved to set it aside as contrary to

Christ the King I. The nursing homes did not reprise their earlier substantive challenge to

the merits of the approval. Instead, they argued that Christ the King I precluded CMS

from reconsidering the plan amendment at all.

The District Court rejected the nursing homes’ arguments. It concluded that

Christ the King I had “explicitly license[d]” a “remand for further agency proceedings”

and that its own prior judgment was “best understood” as implicitly remanding to CMS

8
for further proceedings. Christ the King Manor, Inc. v. Burwell, 163 F. Supp. 3d. 123,

131–32 (M.D. Pa. 2016).

The nursing homes raised another argument before the District Court. They

contended that the agency’s redetermination was inconsistent with § 30(A) because it

relied on the data measuring the actual impact of the revised rates on the quality of care

in nursing homes during 2008 and 2009, instead of limiting what it considered to the

predictive data available in 2008, when the agency first reviewed the proposed plan

amendment. The nursing homes argued that to the extent the record allowed remand and

reconsideration, CMS was limited to using the predictive data available when it first

approved the revised reimbursement rates. The District Court rejected this argument and

found that the statute allowed using the later quality-of-care data from the year of actual

experience under the reduced payment rates. Id. at 133–35.

II.

This Court “appl[ies] de novo review to a district court’s grant of summary

judgment in a case brought under the APA, and in turn appl[ies] the applicable

standard of review to the underlying agency decision.” Pennsylvania Dep’t of Pub.

Welfare v. Sebelius, 674 F.3d 139, 146 (3d Cir. 2012) (internal quotation marks omitted).

“The underlying agency decision is reviewed under the APA, which requires courts to set

aside an agency decision that is ‘arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law,’ or that was conducted ‘without observance of procedure

required by law.’” Id. (quoting 5 U.S.C. § 706(2)(A) & (D)). “The scope of review

under the ‘arbitrary and capricious’ standard is narrow and a court is not to substitute its

9
judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm

Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). This Court exercises plenary review over

the District Court’s interpretation of the prior panel mandate. Kilbarr Corp. v. Business

Sys. Inc., 990 F.2d 83, 87–88 (3d Cir. 1993).

III.

The nursing homes argue that Christ the King I did not authorize the District Court

to allow the agency to reopen the proceedings, reconsider the proposed amendment, and

issue a redetermination. In Christ the King I, the panel found that the agency’s decision

was arbitrary and capricious. The panel mandate remanded the case to the District Court

“for entry of a declaratory judgment for Plaintiffs, all in accordance with the opinion of

this Court.” The panel’s opinion and mandate did not address further agency action after

the remand to the District Court. The District Court’s final judgment tracked the

mandate’s language.

When an appellate court “direct[s] the district court to act in accordance with [its]

opinion . . . the opinion becomes part of the mandate and must be considered together

with it.” In re Chambers Dev. Co., Inc., 148 F.3d 214, 224 (3d Cir. 1998) (internal

quotation marks omitted). The District Court followed this rule in holding that its final

judgment was “best understood as an implicit remand” to the agency for further

consideration. Christ the King Manor, Inc., 163 F. Supp. 3d. at 132.

We agree that the panel’s opinion and mandate in Christ the King I authorized the

District Court to allow the agency to reopen proceedings and issue a redetermination.

10
The panel held that the Secretary’s finding was arbitrary and capricious, but the panel

opinion stated that the holding did not:

mean that Plaintiffs will necessarily be entitled to a rate recalculation, and
we in no way suggest that they should have been paid in accordance with
the previously approved state plan, which did not involve the use of any
BAF for the 2008–09 fiscal year. When, as here, “the record before the
agency does not support the agency action,” the agency may be afforded an
opportunity “for additional investigation or explanation,” upon which the
agency could lawfully base its action. Fla. Power & Light Co., 470 U.S. at
744, 105 S.Ct. 1598. Cf. 42 U.S.C. § 1316(a)(4) (providing that, when a
court of appeals reviews a state’s appeal of an agency decision regarding a
state plan, the court “may remand the case to the Secretary to take further
evidence, and [she] may thereupon make new or modified findings of fact
and may modify [her] previous action”).

Christ the King I, 730 F.3d at 314 n.25. As the District Court noted, “if the panel did not

intend for there to be a remand for further agency proceedings, this footnote would be but

a gratuitous tease to HHS.” Christ the King Manor, Inc., 163 F. Supp. 3d at 131.

Other language from the panel opinion in Christ the King I also supports the

District Court’s ruling allowing further agency proceedings. The opinion stated, “[t]his

appeal provides an opportunity for [the plaintiffs] to obtain some measure of relief, since,

if the agency’s action was arbitrary or capricious under the APA, we must set that action

aside and require the agency to conform its action to federal law.” Christ the King I, 730

F.3d at 304 n.18. The opinion also cited Florida Power & Light Co. v. Lorion, which

sets out the well-settled principle that “[i]f the record before the agency does not support

the agency action, . . . the proper course, except in rare circumstances, is to remand to the

agency for additional investigation or explanation.” Id. (quoting 470 U.S. at 744).

11
 Established administrative law principles provide further support for allowing the

agency to reopen, reconsider, and redetermine the validity of the 2008 plan amendment.

See E.E.O.C. v. Kronos Inc., 694 F.3d 351, 361–62 (3d Cir. 2012), as amended (Nov. 15,

2012) (“When an appellate court does not issue specific instructions on how to proceed,

the question as to what further proceedings can be had consistent with the opinion of the

appellate court must be determined from the nature of the case and the pertinent statutory

provisions.”) (internal quotation marks omitted). Under the APA, a court may find an

agency’s action arbitrary and capricious, but the court is “not generally empowered to

conduct a de novo inquiry into the matter being reviewed and to reach its own

conclusions based on such an inquiry.” I.N.S. v. Orlando Ventura, 537 U.S. 12, 16

(2002) (quoting Fla. Power & Light Co., 470 U.S. at 744). And nothing in Christ the

King I indicates that this case was the “rare circumstance” precluding further agency

action contemplated by Florida Power & Light. 470 U.S. at 744; see Yusupov v. Att’y

Gen. of U.S., 650 F.3d 968, 993 (3d Cir. 2011) (finding a “rare circumstance” that did not

support agency remand when it had twice considered the record and there were no

additional facts or evidence that could be developed). Absent a rare circumstance, the

ordinary and proper course is for an appellate court’s remand to the district court to allow

the agency to conduct additional investigation or provide additional explanation. The

District Court did not err by allowing CMS to reopen the deliberations and issue a

redetermination.2

2
We need not address the nursing homes’ remaining arguments that reopening the
approval process was an unlawful exercise of the Secretary’s statutory or constitutional
12
 IV.

Because we hold that the agency’s further consideration was proper, we consider

whether the Secretary could reasonably rely on actual-experience data rather than only on

the predictive data used when the plan amendment was first approved in 2008. As a

threshold matter, the parties dispute whether this issue is properly before this Court. The

nursing homes first raised the issue in their summary judgment briefing before the

District Court, which found that the delay in raising the issue neither waived it nor caused

the agency unfair prejudice. Christ the King Manor, Inc., 163 F. Supp. 3d. at 133 n.8.

We agree. And in light of our disposition on the merits, the waiver argument is moot.

See United States v. Brown, 547 F. App’x 150, 152 n.2 (3d Cir. 2013) (“In light of our

disposition of the appeal on the merits, we need not decide the applicability of the waiver

provision.”).

As stated above, we review the agency’s decision under an arbitrary and

capricious standard. Under this standard, we “may not set aside an agency rule that is

rational, based on consideration of the relevant factors and within the scope of the

authority delegated to the agency by the statute.” Motor Vehicle Mfrs. Ass’n of U.S., Inc.,

436 at 42. We note that § 30(A) does not forbid considering the actual-experience data in

reopened proceedings, even if that data did not exist during the initial examination and

approval. Id. at 43 (“[A]n agency rule would be arbitrary and capricious if the agency

has relied on factors which Congress has not intended it to consider.”). Other provisions

authority or that the Secretary was required to appeal the District Court’s final judgment
following the first appeal in order to reopen the record and reconsider whether to approve
the amendment.
13
of the Medicaid Act reinforce the Secretary’s decision to use the actual-experience data

from 2008 to 2009 in the 2014 reexamination and redetermination. Under 42 U.S.C.

§ 1396n(f)(2), the Secretary may ask the State for “any additional information which is

needed in order to make a final determination with respect to the request.” The Secretary

did so here. After this Court held that the Secretary’s 2008 approval of the plan

amendment was insufficiently explained and therefore arbitrary and capricious, the

Secretary reopened the investigation and requested additional information from

Pennsylvania. The State submitted hundreds of pages of supporting documents,

including data showing that the reduced payments had not negatively impacted the

quality of care the nursing homes provided during the year the reduced rates had been in

effect. Nothing in § 1396n(f)(2) prohibits asking for or using that information. The

statute instead states that the Secretary may request “any additional information which is

needed” to approve or deny a proposed plan amendment.

The nursing homes conceded at oral argument that if the data showing the actual

effect of the amended plan reimbursement rates had shown a detrimental effect on the

quality of care due to the decrease in payments compared to what the amounts would

have been under the prior year’s reimbursement rates, their argument would be reversed.

The nursing homes would then flip sides to argue that the Secretary must consider the

recent actual-experience data. That says it all, or at least enough. The Secretary had the

power to seek more information under § 1396n(f)(2). She did not act arbitrarily and

capriciously by considering that information in the § 30(A) approval process.

14
 Common sense also supports the Secretary’s interpretation of § 30(A) to allow the

agency to consider the actual-experience data in reexamining the proposed plan

amendment. The Secretary need not blind herself to the more recent and accurate

available evidence of a challenged payment rate’s actual impact on the quality of care for

Medicaid beneficiaries. “To find the Secretary’s consideration of more recent data

impermissible would be a foray into judicial abstraction.” Christ the King Manor, Inc.,

163 F. Supp. 3d. at 137. The data showing the actual impact of the lower payments the

2008 plan amendment authorized is clearly more recent and more accurate than the

predictive data available in December 2008, when the agency first examined the

proposed change.3 It makes little sense for the Secretary to ignore the “answers to the

test.”

V.

The nursing homes also argue that the Secretary’s 160-day delay in reopening

approval proceedings after the District Court entered final judgment should result in

judgment in their favor. See 42 U.S.C. § 1316(a)(1) (“the Secretary . . . shall, not later

than 90 days after the date the plan is submitted to him, make a determination as to

whether it conforms to the requirements for approval . . . .”). Nothing in the statute

indicates that the 90-day timeline controls here, when a plan amendment is reexamined

3
Our holding is limited to the facts and circumstances of this case. We do not
hold that in the ordinary approval process, the agency can delay deciding a proposed plan
amendment’s compliance with § 30(A) until the amendment has been in effect for an
extended period and then consider the actual impact of the proposal. See 42 C.F.R.
§ 430.20 (noting the earliest effective date that a plan may be become effective after
review).
15
after judicial review and rejection. And, as the government notes, even if we found that

the statutory timeline did apply, under § 1396n(f)(2), a requested plan amendment is

deemed approved if not considered within that timeline. See 42 U.S.C. § 1396n(f)(2) (“A

request to the Secretary from a State for approval of a proposed State plan or plan

amendment . . . shall be deemed granted unless the Secretary, within 90 days after the

date of its submission to the Secretary,” denies the request in writing or requests “any

additional information which is needed” to make a final determination.). This argument

does not weigh in favor of reversal.

VI.

We will affirm the judgment of the District Court.

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