Baptist Memorial Hospital v. Sebelius

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 22, 2010 Decided April 30, 2010

No. 09-5248

BAPTIST MEMORIAL HOSPITAL,

APPELLANT

v.

KATHLEEN SEBELIUS, SECRETARY, DEPARTMENT OF HEALTH

AND HUMAN SERVICES,

APPELLEE

Appeals from the United States District Court

for the District of Columbia

(No. 1:02-cv-01919-PLF)

No. 09-5258

ST. AGNES MEDICAL CENTER,

APPELLANT

v.

KATHLEEN SEBELIUS, SECRETARY, U.S. DEPARTMENT OF

HEALTH AND HUMAN SERVICES,

APPELLEE

2

Appeal from the United States District Court

for the District of Columbia

(No. 1:06-cv-00820)

Leslie D. Alderman III argued the cause for appellant

Baptist Memorial Hospital. With him on the briefs was Kenneth

R. Marcus.

Thomas J. Weiss, pro hac vice, argued the cause for

appellant St. Agnes Medical Center.

Christine N. Kohl, Attorney, U.S. Department of Justice,

argued the cause for appellee. With her on the brief was

Anthony J. Steinmeyer, Assistant Director. Gerard Keating,

Attorney, U.S. Department of Health & Human Services, and R.

Craig Lawrence, Assistant U.S. Attorney, entered appearances.

Before: GINSBURG, TATEL, and GRIFFITH, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: In these consolidated cases, two

hospitals seek mandamus to compel the Secretary of Health and

Human Services to reopen final Medicare reimbursement

determinations regarding inpatient services provided by the

hospitals. Concluding that the Secretary had no clear duty to

reopen the payment decisions, the district court dismissed both

cases for lack of mandamus jurisdiction. We agree with the

district court on all counts and therefore affirm.

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I.

The central issue presented in these cases has been the

focus of extensive litigation culminating in two controlling

decisions from this court—In re Medicare Reimbursement

Litigation, 414 F.3d 7 (D.C. Cir. 2005), and Monmouth Medical

Center v. Thompson, 257 F.3d 807 (D.C. Cir. 2001). We

therefore provide only the following brief overview of the

applicable statutory and regulatory regime.

Under the Medicare Act, the Secretary of Health and

Human Services (HHS) reimburses hospitals for covered

inpatient services provided to Medicare beneficiaries. 42 U.S.C.

§ 1395ww. HHS administers these payments through the

Centers for Medicare and Medicaid Services, formerly the

Health Care Financing Administration (HCFA). To obtain

reimbursement, hospitals submit yearly cost reports to fiscal

intermediaries—typically private insurance companies acting on

behalf of the Secretary. After auditing the cost report, the

intermediary issues a Notice of Program Reimbursement (NPR),

in which it determines the amount owed to the hospital for the

cost reporting year at issue. 42 C.F.R. § 405.1803. Hospitals

can appeal that determination to the Provider Reimbursement

Review Board (“the Board”) and then to federal district court.

42 U.S.C. § 1395oo(a), (f).

Hospitals serving a disproportionately high number of low-

income Medicare patients receive increased reimbursements

known as “disproportionate share hospital” (DSH) adjustments.

Congress has set forth a formula for determining DSH

adjustments based, in part, on the number of days that a hospital

treated patients entitled to state Medicaid payments. Id.

§ 1395ww(d)(5)(F)(vi)(II). Previously, HCFA interpreted this

statutory formula to include only those days for which hospitals

actually received Medicaid payments—an interpretation that the

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Fourth, Sixth, Eighth, and Ninth Circuits struck down as

inconsistent with the Medicare Act. Cabell Huntington Hosp.,

Inc. v. Shalala, 101 F.3d 984 (4th Cir. 1996); Legacy Emanuel

Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261 (9th Cir. 1996);

Deaconess Health Servs. Corp. v. Shalala, 83 F.3d 1041 (8th

Cir. 1996) (per curiam); Jewish Hosp., Inc. v. Sec’y of Health &

Human Servs., 19 F.3d 270 (6th Cir. 1994). In 1997,

acknowledging that its prior interpretation was “contrary to the

applicable law in four judicial circuits,” HCFA issued Ruling

97-2, which instructed intermediaries to include all Medicaid-

eligible days in the DSH adjustment calculation, regardless of

whether the hospital actually received payments for those days.

Health Care Financing Administration Ruling 97-2 (Feb. 27,

1997) (“Ruling 97-2” or “HCFAR 97-2”).

The two cases before us involve the intersection of Ruling

97-2 and HHS regulations authorizing the reopening of

intermediary reimbursement determinations. Pursuant to 42

C.F.R. § 405.1885(a) (1997), as that regulation existed at all

relevant times, an intermediary’s reimbursement determination

“may be reopened” if the affected hospital moves to do so

“within 3 years of the date of the notice of the intermediary

determination.” Unlike NPR determinations themselves, an

intermediary’s decision whether to reopen a determination under

this provision is both discretionary and unreviewable. Your

Home Visiting Nurse Servs., Inc. v. Shalala, 525 U.S. 449, 452–

56 (1999). Additionally, 42 C.F.R. § 405.1885(b) (1997)—the

key provision at issue here—provides that a determination

rendered by the intermediary “shall be reopened and revised by

the intermediary if, within the aforementioned 3-year period,

[HCFA] notifies the intermediary that such determination or

decision is inconsistent with the applicable law, regulations, or

general instructions issued by [HCFA].”

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In Monmouth, the first of our two previous decisions

regarding this issue, we concluded that Ruling 97-2 constitutes

notice under section 405.1885(b) that HCFA’s former method of

calculating DSH adjustments was “inconsistent with the

applicable law.” 42 C.F.R. § 405.1885(b). Accordingly, we

held that because section 405.1885(b) speaks in mandatory

terms, it imposes a nondiscretionary duty on the Secretary,

enforceable through mandamus, to reopen NPRs decided within

the three years before the issuance of Ruling 97-2—

notwithstanding the fact that Ruling 97-2 itself states that the

agency “will not reopen settled cost reports based on this issue.”

See Monmouth, 257 F.3d at 814–15. Then, in In re Medicare,

we clarified that this clear duty to reopen applies to NPRs issued

during the three years prior to Ruling 97-2 even for hospitals

that had failed to appeal a cost report or request reopening:

“given that section 405.1885(b) does not require hospitals to file

anything at all to obtain relief, we see no basis for holding that

only those hospitals that appealed or sought section 405.1885(a)

reopening have a personal right to the reopening required by

section 405.1885(b).” In re Medicare, 414 F.3d at 11.

Relying on our decisions in Monmouth and In re Medicare,

the two hospitals in these consolidated appeals seek mandamus

to compel the Secretary (through her intermediaries) to reopen

their cost reports and apply the more favorable DSH calculation

adopted in Ruling 97-2. See 28 U.S.C. § 1361. The first

hospital, Baptist Memorial, challenges a 1993 NPR that

determined, pursuant to HCFA’s former eligible days

calculation, that it was ineligible for a DSH adjustment for its

FY 1991 cost report. In 1994, Baptist appealed that decision to

the Board. While that appeal was still pending, HCFA issued

Ruling 97-2. The Board then advised Baptist of the filing

schedule for the appeal and warned that its case would be

dismissed if Baptist missed the applicable deadlines. Despite

this reminder, Baptist failed to submit its “position papers” on

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time, and the Board consequently dismissed its appeal for want

of prosecution in 1998. Four years later, Baptist filed this

mandamus action in the U.S. District Court for the District of

Columbia, seeking an order compelling the Secretary to reopen

and correct the 1993 reimbursement determination pursuant to

the eligible but unpaid days calculation set forth in Ruling 97-2.

The second hospital before us, St. Agnes Medical Center,

challenges its intermediary’s 1992 NPR determination regarding

its FY 1990 cost report. In 1995, St. Agnes asked the

intermediary to reopen the cost report and provide a DSH

adjustment, but the intermediary rejected that request. St. Agnes

appealed that decision to the Board, and on June 4, 1997 (after

Ruling 97-2’s issuance), the parties settled, agreeing that the

intermediary would reopen St. Agnes’s cost report to apply a

DSH adjustment. After doing so and applying the former

eligible days calculation, however, the intermediary informed

St. Agnes that it failed to meet the qualifying threshold for an

adjustment. Then, in 1999, the Board dismissed St. Agnes’s

appeal on the ground that it lacked jurisdiction over that appeal

in view of Your Home Visiting Nurse Services, Inc. v. Shalala,

525 U.S. at 453, in which the Supreme Court held that the Board

lacks authority to review an intermediary’s refusal under section

405.1885(a) to reopen a reimbursement determination. Seven

years after the dismissal of its appeal, St. Agnes sought

mandamus relief in the district court.

The district court dismissed both mandamus actions for

lack of jurisdiction. Noting that the two hospitals sought

reopening of NPRs issued more than three years prior to Ruling

97-2’s issuance in 1997, the court concluded that neither

hospital could show that it had a clear right to relief or that the

Secretary had a nondiscretionary duty to act under the

regulation—prerequisites for mandamus jurisdiction. See

Power v. Barnhart, 292 F.3d 781, 784 (D.C. Cir. 2002)

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(outlining requirements for mandamus relief). In reaching this

conclusion, the district court also rejected the hospitals’

argument that they were entitled to mandamus relief because

they had jurisdictionally proper appeals pending when HCFA

issued Ruling 97-2. Baptist Mem’l Hosp. v. Johnson, 603 F.

Supp. 2d 40, 45–46 (D.D.C. 2009); St. Agnes Med. Ctr. v.

Sebelius, 628 F. Supp. 2d 78, 83–84 (D.D.C. 2009).

Baptist and St. Agnes appealed the denials of their

mandamus petitions. Because both cases require us to answer

the same principal question—whether section 405.1885(b)

mandates reopening of NPRs issued more than three years prior

to issuance of Ruling 97-2 where the hospitals had appeals

pending at that time—we consolidated the appeals.

II.

The Mandamus Act grants district courts original

jurisdiction over “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.” 28

U.S.C. § 1361. A court may grant mandamus relief “only if:

(1) the plaintiff has a clear right to relief; (2) the defendant has a

clear duty to act; and (3) there is no other adequate remedy

available to plaintiff.” Power, 292 F.3d at 784 (internal

quotation marks omitted). We review a district court’s

determination whether a plaintiff has satisfied these standards de

novo. In re Medicare, 414 F.3d at 10.

In Monmouth and In re Medicare, we held that the

Secretary had a clear duty to reopen the hospitals’ NPRs

pursuant to section 405.1885(b) because the notice of

inconsistency—i.e., Ruling 97-2—occurred within the three-

year period after the date of the challenged reimbursement

determinations. Baptist and St. Agnes concede, as they must,

8

that unlike the hospitals in Monmouth and In re Medicare, they

seek reopening of “intermediary determinations that were issued

before the three-year reopening window, as measured from the

issuance of HCFAR 97-2.” Appellants’ Br. 26. They

nonetheless contend that the district court erred in dismissing

their mandamus actions because Ruling 97-2’s “appeal

provision” imposes on the Secretary a nondiscretionary duty to

reopen their cost reports. The portion of Ruling 97-2 on which

the hospitals rely states:

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 [eligible but unpaid] days may be

included. For hospital cost reports which have been

settled prior to the effective date of this ruling, but for

which the hospital has a jurisdictionally proper appeal

pending on this issue pursuant to either 42 CFR

405.1811 or 42 CFR 405.1835, these [eligible but

unpaid] days may be included for purposes of

resolving the appeal.

Homing in on the last sentence of this paragraph, the hospitals

argue that Ruling 97-2 creates a mandatory duty to reopen their

cost reports because they had “jurisdictionally proper appeal[s]”

pending before the Board when HCFA issued the 1997 ruling.

In arguing that the appeal provision compels the Secretary

to reopen their cost reports, however, the hospitals lose sight of

the fact that under Monmouth and In re Medicare it is section

405.1885(b), not Ruling 97-2, that creates the obligation to

reopen. Ruling 97-2 merely serves as the notice of

inconsistency that triggers the Secretary’s duty to reopen and

revise NPR determinations. But that obligation—and thus the

clear duty to act required for mandamus relief—itself derives

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from section 405.1885(b)’s “shall be reopened” language. And

the scope of section 405.1885(b)’s mandate is clear: it expressly

limits the duty to reopen to cases in which HCFA provides a

notice of inconsistency to intermediaries within three years of

the NPR. Ruling 97-2’s appeal provision is therefore beside the

point, as it does nothing to alter section 405.1885(b)’s three-year

reopening limitation. See Monmouth, 257 F.3d at 814–15

(“[Section] 405.1885(b) impose[s] a clear duty on intermediaries

to reopen DSH payment determinations for the hospitals. The

portion of HCFAR 97-2 that conflicts with that duty is simply

inapplicable.”); see also 42 C.F.R. § 405.1885(a) (“No such

determination or decision may be reopened after such 3-year

period except as provided in paragraphs (d) and (e) of this

section.”).

As the district court explained, moreover, even if the appeal

provision had any effect here, that provision says only that

eligible but unpaid days “may” be included if a hospital has an

appeal pending on the issue: “While the above paragraph

[containing the appeal provision] plainly permitted the Secretary

and the Review Board to rely on HCFAR 97-2’s policy change

when settling appeals pending at the time HCFAR 97-2 was

issued, it does not require them to do so.” Baptist, 603 F. Supp.

2d at 46; see St. Agnes, 628 F. Supp. 2d at 83. The hospitals

respond that although the word “may” usually connotes a degree

of discretion, in this context it actually means “must” or “shall.”

But we agree with the district court that the most natural reading

of this provision is the one that is most obvious: “may” is

permissive rather than obligatory. The appeal provision

therefore cannot provide the “clear duty to act” necessary to

sustain the hospitals’ requests for mandamus relief. Power, 292

F.3d at 784 (internal quotation marks omitted).

Reinforcing this conclusion, the appeal provision specifies

that eligible but unpaid days may be included “for purposes of

10

resolving the appeal” under 42 C.F.R. §§ 405.1811 or 405.1835.

In other words, the appeal provision is just that: it pertains to the

resolution of appeals, not to the reopening of settled cost reports

under section 405.1885. Because neither Baptist nor St. Agnes

had any such appeal pending when it brought its mandamus

action in the district court, there is no extant appeal to

“resolv[e]” through application of the new eligible days

calculation.

Baptist and St. Agnes further contend that even if Ruling

97-2 creates no duty to reopen, the filing of their appeals tolled

the three-year reopening limitation. But because neither

hospital pressed this argument in the district court, they cannot

do so for the first time here. See Adams v. Rice, 531 F.3d 936,

945 (D.C. Cir. 2008) (refusing to consider argument never made

in district court).

III.

Having disposed of the principal argument shared by

Baptist and St. Agnes, we turn to the arguments unique to each

hospital.

Baptist Memorial

Baptist raises an alternative theory of mandamus relief

based on a 1994 policy memorandum HCFA issued in the wake

of the Sixth Circuit’s decision in Jewish Hospital v. Secretary of

Health & Human Services, 19 F.3d 270—the first of the four

circuit court decisions striking down the former eligible days

calculation as inconsistent with the Medicare Act. This “Sixth

Circuit Memorandum” informed the HCFA regional office of

the Jewish Hospital opinion and instructed it to apprise

intermediaries serving hospitals within the Sixth Circuit of the

resulting “change in policy concerning DSH calculations.”

Located within the jurisdiction of the Sixth Circuit, Baptist

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argues that the Sixth Circuit Memorandum constitutes a notice

of inconsistency for purposes of section 405.1885(b).

If, as Baptist alleges, the Sixth Circuit Memorandum

qualifies as proper notice of inconsistency, then it would indeed

trigger section 405.1885(b)’s duty to reopen. This is because

HCFA issued the memorandum in 1994—comfortably within

the three-year period following Baptist’s 1993 NPR. Although

it is unclear from the record whether HCFA ever conveyed the

new policy articulated in the Sixth Circuit Memorandum to

intermediaries (as required to qualify as notice under section

405.1885(b)), we need not decide whether the memo triggered a

“clear right to relief” or “duty to act” (the first two requirements

for mandamus relief) because Baptist has failed to show that

there was “no other adequate remedy available” (the third

requirement for mandamus relief). Power, 292 F.3d at 784

(internal quotation marks omitted).

Baptist filed its appeal with the Board just a few days after

the Sixth Circuit issued its decision in Jewish Hospital—

controlling authority directly supporting Baptist’s argument that

the intermediary should have calculated its DSH adjustment

using eligible but unpaid days. And while that appeal was

pending, HCFA issued the Sixth Circuit Memorandum, which

adopted Jewish Hospital as binding on intermediaries. Yet

instead of raising the Jewish Hospital decision in its appeal to

the Board and then, if necessary, seeking subsequent court

review pursuant to 42 U.S.C. § 1395oo(f), Baptist abandoned its

appeal altogether. As the district court rightly concluded,

Baptist has offered no “compelling reason for its failure to

pursue these avenues of relief.” Baptist, 603 F. Supp. 2d at 47;

see Heckler v. Ringer, 466 U.S. 602, 616 (1984) (“The common-

law writ of mandamus, as codified in 28 U.S.C. § 1361, is

intended to provide a remedy for a plaintiff only if he has

exhausted all other avenues of relief.”).

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Baptist insists that it did supply a valid reason for

abandoning its appeal: “the Hospital reasonably believed that it

was unnecessary for it to pursue its appeal of fiscal year 1991

before the [Board] because the Hospital was of the

understanding that the intermediary was required to unilaterally

reopen the cost report to make the DSH adjustment by

including” eligible but unpaid days. Appellants’ Br. 50 (internal

quotation marks omitted). But for purposes of mandamus

jurisdiction, the question is whether Baptist had an adequate

remedy. It did—the administrative appeal that it subsequently

abandoned. Even though this remedy may have been, in

Baptist’s view, redundant (because Baptist thought the

intermediary was obligated to reopen the NPR on its own

initiative), that hardly renders it inadequate. Having failed to

pursue the adequate remedy afforded by the administrative and

judicial appeal processes, Baptist cannot now seek to vindicate

its alleged right to relief through mandamus.

St. Agnes

St. Agnes’s alternative argument suffers from the same

flaw. It contends that once the intermediary reopened its cost

report pursuant to the 1997 settlement agreement, the

intermediary was obligated to include eligible but unpaid days

in the DSH calculation. According to St. Agnes, that obligation

derives from three sources: (1) Ruling 97-2; (2) the Ninth

Circuit’s decision in Legacy Emanuel Hospital & Health Center

v. Shalala, 97 F.3d 1261—the third in the quartet of circuit court

opinions striking down HCFA’s former eligible days

interpretation; and (3) the “Ninth Circuit Memorandum,” a

HCFA directive (analogous to the Sixth Circuit Memorandum

discussed above) instructing the regional office to notify fiscal

intermediaries serving hospitals in the Ninth Circuit, where St.

Agnes is located, of the Legacy Emanuel decision. When

calculating the DSH adjustment for the reopened cost report,

13

however, the intermediary, allegedly in violation of all three of

these authorities, used HCFA’s former eligible days calculation.

St. Agnes complains that it lacked any remedy for this violation

because “once the Board had dismissed [its appeal] for lack of

jurisdiction” pursuant to Your Home, it “was left without a

further avenue to obtain the benefit to which it was entitled

under the reopening.” Reply Br. 31.

Your Home, however, only barred St. Agnes from seeking

review of the intermediary’s refusal to reopen the FY 1990 cost

report; it did not prevent St. Agnes from challenging the

reimbursement determination made by the intermediary after the

intermediary reopened the cost report in 1997. As the Supreme

Court explained, “an intermediary’s affirmative decision to

reopen and revise a reimbursement determination ‘shall be

considered a separate and distinct determination’ to which the

regulations authorizing appeal to the Board are applicable.”

Your Home, 525 U.S. at 453 (quoting 42 C.F.R. § 405.1889).

Although St. Agnes’s intermediary may not have “revise[d]” the

DSH adjustment, the Ninth Circuit has interpreted the appeal

regulations as permitting Board review of “all matters the fiscal

intermediary had reconsidered upon reopening the cost report,”

not just those cost items modified on reopening. French Hosp.

Med. Ctr. v. Shalala, 89 F.3d 1411, 1420 (9th Cir. 1996); see

Edgewater Hosp., Inc. v. Bowen, 857 F.2d 1123, 1135 (7th Cir.

1989) (noting that an intermediary’s decision not to change

challenged cost items “itself was a reconsideration” subject to

appeal), amended by 866 F.2d 228 (7th Cir. 1989).

Yet St. Agnes made no effort to appeal the intermediary’s

1997 reimbursement determination to the Board, and it gives us

no persuasive reason to believe it could not have done so. Nor

did it take any other action to contest the implementation of the

settlement agreement until it filed its mandamus action in the

district court seven years later. Because St. Agnes, like Baptist,

14

failed to seek relief through available administrative and judicial

review procedures, it cannot do so now through mandamus.

IV.

For the foregoing reasons, we affirm the district court’s

dismissals of both mandamus actions.

So ordered.