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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 5, 2003 Decided January 30, 2004
No. 02-5350
ST. LUKE’S HOSPITAL,
APPELLANT
v.
TOMMY G. THOMPSON,
SECRETARY OFHEALTH AND HUMAN SERVICES,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 00cv01884)
Leslie Demaree Goldsmith argued the cause for appellant.
With her on the briefs was Harry R. Silver.
Paul E. Soeffing, Attorney, U.S. Department of Health and
Human Services, argued the cause for appellee. With him on
the brief were Peter D. Keisler, Assistant Attorney General;
Roscoe C. Howard Jr., U.S. Attorney; Anthony J. Stein-
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
meyer, Attorney, U.S. Department of Justice; Alex M. Azar
II, General Counsel, U.S. Department of Health and Human
Services; Robert P. Jaye, Acting Associate General Counsel;
and Henry R. Goldberg, Deputy Associate General Counsel
for Litigation.
Before: SENTELLE, ROGERS, and TATEL, Circuit Judges.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: A Pennsylvania hospital that treats
patients with renal disease asked the Secretary of Health and
Human Services to increase the rate at which the Medicare
program would reimburse it for each treatment. After dis-
covering an error in the hospital’s supporting documentation,
the Secretary denied the request, and the district court
rejected the hospital’s challenge to that ruling. Finding the
Secretary’s conclusion that the error left the hospital unable
to carry its burden of justifying a rate increase neither
arbitrary nor capricious, we affirm.
I.
Each year, the Secretary of Health and Human Services
establishes a prospective ‘‘composite rate’’ for various outpa-
tient treatments of end-stage renal disease (ESRD). See 48
Fed. Reg. 21,254 (May 11, 1983); see also 42 U.S.C.
§ 1395rr(b) (2000) (requiring such action by the Secretary).
The composite rate, which represents the approximate per-
treatment cost that the Secretary expects health-care provid-
ers to incur for various ESRD treatments, encourages effi-
ciency, for if a provider’s per-treatment cost falls below the
composite rate, then the difference represents a profit to the
provider. At the same time, the composite rate does not
establish an absolute ceiling; providers that experience per-
treatment costs above the composite rate may ask the Secre-
tary for an ‘‘exception.’’ 42 U.S.C. § 1395rr(b)(7). A provid-
er seeking an exception must ‘‘demonstrate[ ] with convincing
objective evidence that its total per treatment costs are
reasonable and allowable TTT, and that its per treatment costs
in excess of its payment rate are directly attributable to any
3
of the [listed] criteria.’’ 42 C.F.R. § 413.170(g) (1993).
‘‘Atypical service intensity (patient mix)’’ tops the list of
criteria. Id.
Pursuant to HHS’s Provider Reimbursement Manual
(PRM)—‘‘a compilation of interpretive rules published by
[HHS],’’ Appellee’s Br. at 5 n.5—providers must submit ex-
ception requests during 180–day periods that the Secretary
designates from time to time (or within 180 days of other
events not relevant here). PRM § 2720.2 (1993). Providers
submit requests to their ‘‘fiscal intermediaries,’’ i.e., private
organizations such as insurance companies. Id. § 2720. In-
termediaries have fifteen working days to review requests
and forward them to HHS with their recommendations. Id.
§ 2723. The HHS division responsible for initially reviewing
exception requests, the Centers for Medicare & Medicaid
Services (CMS), has sixty working days in which to deny
requests, or they are automatically approved. 42 U.S.C.
§ 1395rr(b)(7). Because this sixty-day period includes the
fifteen days that intermediaries have to review applications,
CMS actually has only forty-five working days in which to
complete its review.
Located in Bethlehem, Pennsylvania, appellant St. Luke’s
Hospital applied for an exception to the prevailing ESRD
composite rate, seeking reimbursement at a rate of $174.41
per treatment—$46.43 above the composite rate of $127.98.
St. Luke’s based its request on its asserted ‘‘atypical service
intensity,’’ claiming that it had to spend an abnormally high
amount of money on staff salaries because the population it
served was both atypically old and unusually likely to suffer
from acute conditions requiring intensive treatment. St.
Luke’s submitted its request on the last day of the relevant
180–day period.
After reviewing the hospital’s request, the fiscal intermedi-
ary forwarded it to CMS with a recommendation that it be
approved. CMS denied the request, however, citing two
problems: (1) St. Luke’s failed to explain why its per-
treatment cost for hemodialysis maintenance increased nine-
teen percent between 1992 and 1993, and (2) it provided no
4
explanation for why the number of hours that its nurses and
technicians worked tripled between 1993 and 1994. Because
of these deficiencies, CMS concluded that St. Luke’s failed to
present, as HHS regulations require, ‘‘convincing objective
evidence’’ showing not only that it met the listed criterion
(atypical patient mix), but also that this atypical mix caused
the hospital’s unusually high per-treatment costs. See 42
C.F.R. § 413.170(g).
St. Luke’s appealed CMS’s denial to the Provider Reim-
bursement Review Board (PRRB), the HHS division respon-
sible for reviewing CMS decisions. See 42 U.S.C. § 1395oo(a)
(2000). Reversing CMS’s denial and granting the hospital’s
requested exception, the PRRB ruled first that CMS had
improperly cited PRM section 2725.3E, which applies only
when a facility seeks an exception based on its status as an
‘‘isolated essential facility.’’ St. Luke’s made no claim to be
such a facility. As to the tripling of nurse and technician
hours, the PRRB stated that the hospital’s request contained
an ‘‘obvious’’ error: for each of three categories of workers—
registered nurses, licensed practical nurses, and technicians—
St. Luke’s reported the combined number of hours for all
three categories. Although the three groups of workers
actually worked a combined total of 37,983 hours during the
relevant year, St. Luke’s gave that number for each category,
making the total for the three categories appear three times
the actual figure and roughly three times what it had been in
other years. The PRRB concluded that because the correct
data appeared elsewhere in the hospital’s 690–page request
and were thus available to CMS, the agency erred in failing to
conduct ‘‘further review of the obvious error.’’ St. Luke’s
Hosp. v. Blue Cross & Blue Shield Ass’n, PRRB Hearing
Dec. No. 2000–D42, [2001–1 Transfer Binder] Medicare &
Medicaid Guide (CCH) ¶ 80,432, at 14 (Apr. 4, 2000), reprint-
ed in J.A. A70, A83. CMS must, the PRRB stated, ‘‘properly
review all information submitted. Observance of an obvious
error and not responding to it is patently wrong and unfair to
this Provider.’’ Id.
The CMS Administrator, pursuant to statutory authority,
see 42 U.S.C. § 1395oo(f)(1), decided on his own motion to
5
review the PRRB’s decision, which he reversed. According
to the Administrator, even if CMS had conducted further
review of the hospital’s ‘‘obvious’’ error, it would have been
unable to resolve the problem because contrary to the
PRRB’s contention, the hospital’s exception request nowhere
contained the correct number of total hours. The request
contained only the total number of nurses and technicians.
Although St. Luke’s suggested that CMS could have obtained
the hourly figures by multiplying the employee totals by
2080—the number of hours that HHS regulations assume
full-time employees work per year—the Administrator point-
ed out that even if CMS had done this extra work, there
would have been an unexplained discrepancy of approximately
2000 hours between the 1993 figures and the projected 1994
figures. In any event, the Administrator ruled, CMS has no
duty to perfect exception requests. HHS regulations ‘‘make
unequivocally clear that the Provider bears the burden of
proving to [CMS’s] satisfaction’’ that it deserves an exception.
St. Luke’s Hosp. v. Blue Cross & Blue Shield Ass’n, HCFA
Adm’r Dec., [2000–2 Transfer Binder] Medicare & Medicaid
Guide (CCH) ¶ 80,534, at 11 (June 2, 2002), reprinted in J.A.
A27. The Administrator also pointed out that although CMS
normally would have given St. Luke’s a chance to submit
additional information, it did not do so because the hospital
submitted its exception request on the last day of the 180–day
window, meaning that it could not have provided additional
data before the window closed. Id.; see also PRM § 2723.3A
(stating that a request for supplemental information does not
extend the original 180–day window).
St. Luke’s challenged the Administrator’s decision, which
represented the Secretary’s final determination, in the United
States District Court for the District of Columbia. See 42
U.S.C. § 1395oo(f)(1) (providing for such review). Granting
summary judgment for the Secretary, the district court ana-
lyzed the case much as the CMS Administrator had, although
unlike the Administrator the court addressed CMS’s improp-
er reliance on the PRM section that applies only to isolated-
facility exceptions. Deeming the citation to this section a
‘‘typographical error,’’ the court concluded that it did not
6
‘‘transform[ ] the plaintiff[’]s deficient request into something
else.’’ St. Luke’s Hosp. v. Thompson, 224 F. Supp. 2d 1, 10
(D.D.C. 2002).
St. Luke’s now appeals. ‘‘Because the district court en-
tered a summary judgment, we review its decision de novo
and therefore, in effect, review directly the decision of the
Secretary.’’ Lozowski v. Mineta, 292 F.3d 840, 845 (D.C. Cir.
2002). Employing familiar APA standards, we will set aside
the Secretary’s decision only if it is ‘‘arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.’’
5 U.S.C. § 706(2)(A) (2000); see also 42 U.S.C. § 1395oo(f)(1)
(providing that the APA standard applies in cases involving
denials of exception requests).
II.
We begin with the error in the hospital’s exception request.
As noted above, the request incorrectly stated that each of
three groups—the hospital’s registered nurses, licensed prac-
tical nurses, and technicians—worked 37,983 hours, for a total
of 113,949 hours. In fact, the three groups worked a com-
bined 37,983 hours; St. Luke’s accidentally listed the three-
group total for each group. CMS rejected the hospital’s
request because, among other things, the error left it unable
‘‘to properly evaluate the provider’s request for the additional
salary costs.’’
According to St. Luke’s, the error could not provide a basis
for denying the exception request because it had no effect on
CMS’s analysis. Not so, responds the Secretary: the incor-
rect data ‘‘affected subsequent calculations for total direct
service hours, average direct service hours per treatment,
and unit cost multipliers for FY 1993. These calculations are
made to determine if a facility qualifies for an exception.’’
Appellee’s Br. at 28 (citation omitted). Not only did St.
Luke’s fail to challenge this response in the district court,
which accepted the explanation, but it makes no reply to it
here. In any event, we think it perfectly reasonable for the
Secretary to require accurate staffing information from St.
7
Luke’s given that the hospital’s exception request rested
partly on high staffing costs.
St. Luke’s next argues that even if the error had signifi-
cance, it did not justify CMS’s rejection of the exception
request because the error was clear and the correct data
appeared elsewhere in the request. By failing to find that
data, St. Luke’s insists, CMS violated its PRM section 2724
obligation to review ‘‘all the information submitted.’’ Again,
the Secretary disagrees. Correcting the error, he argues,
would have required much more than simply substituting
hourly figures that appeared elsewhere in the request. Ac-
cording to the Secretary, fixing the mistake would have
required several steps. To begin with, CMS would have had
to recognize the error, something that the Secretary says was
harder than St. Luke’s believes. Although St. Luke’s insists
the error was ‘‘obvious,’’ the hospital, as the Secretary points
out, alerted neither the fiscal intermediary nor CMS to the
error at any time prior to CMS’s denial. The Secretary also
contends that even if CMS had recognized the error, it would
have had to find the correct employee figures elsewhere in
the exception request, verify their accuracy, and then multi-
ply the employee numbers by 2080 to obtain a total-hours
figure. Given the volume of requests that CMS must pro-
cess, each in only forty-five days, the Secretary argues that it
would be unreasonable to expect CMS to do this work for the
provider.
Resolution of this issue turns on what CMS can reasonably
be expected to do when exception requests contain some sort
of error. For three reasons, we agree with the Secretary
that, under the circumstances of this case, CMS had no
obligation to correct the hospital’s error.
First, HHS regulations, unchallenged by St. Luke’s, place
the burden on the provider to adduce ‘‘convincing objective
evidence’’ that it merits an exception. 42 C.F.R. § 413.170(g).
St. Luke’s has not explained how requiring CMS to discern
and then correct providers’ errors is consistent with this
burden of proof, or how evidence that is wrong could possibly
be ‘‘convincing.’’ Nor do we understand how we would
8
distinguish between errors that are obvious and those that
are not. Asked for some guidance at oral argument, counsel
was unable to suggest any principled basis for drawing such
distinctions.
Second, even if CMS had done the work that St. Luke’s
insists it should have, it still would have faced a 2000–hour, or
five percent, discrepancy between the 1993 figures and the
projected figures for 1994. Although the district court relied
on this discrepancy in granting summary judgment for the
Secretary, St. Luke’s failed to address the issue in this court
until its reply brief, at which point it says only that the
discrepancy may have represented the hospital’s plan to hire
one additional employee in the coming year. Yet St. Luke’s
did not offer this explanation (or any other) to CMS, meaning
that even if CMS had done the work that St. Luke’s says it
should have, the agency still would have faced a significant
unexplained discrepancy. In other words, St. Luke’s argues
not that CMS should have ignored obviously wrong data in
favor of accurate information, but that the agency should
have ignored obviously wrong data in favor of seemingly ‘‘less
wrong’’ information that it could have calculated from the
data it had. We find this argument unpersuasive.
Third, St. Luke’s failed to submit its exception request until
the very last day of the 180–day window, leaving no time for
CMS to request additional data. See PRM § 2723.3A (noting
that incomplete exception requests are returned to providers
with a letter stating that ‘‘[o]ur returning your exception
request does not extend the deadline by which you must
submit an exception request with all the required documenta-
tion’’). Defending its last-minute submission, St. Luke’s sim-
ply repeats—untenably given its burden of proof—that its
exception request contained all required information. St.
Luke’s also argues that it submitted its request so late
because the Secretary failed to provide adequate advance
notice of the 180–day window. Because St. Luke’s (again
waiting until the last minute) advances this argument only in
its reply brief, ‘‘we will not consider it.’’ A.J. McNulty & Co.
v. Sec’y of Labor, 283 F.3d 328, 338 (D.C. Cir. 2002). Finally,
St. Luke’s tells us that exception requests are complex, that
9
its request ‘‘clearly could not be properly compiled and sub-
mitted within weeks,’’ and that in fact ‘‘it took St. Luke’s
months to prepare a comprehensive request.’’ Appellant’s
Reply Br. at 16. But none of this explains the hospital’s
decision to wait until the 180th day. Had St. Luke’s taken
even three months to compile and submit its exception re-
quest, CMS would have had to complete its review a full
month before the 180–day window closed, giving St. Luke’s
plenty of time to submit whatever additional data CMS
wanted. By waiting until the last day, St. Luke’s essentially
gambled that its exception request would be error-free. Hav-
ing gambled and lost, it may not now shift the blame to CMS.
The hospital’s remaining arguments require little discus-
sion. It contends that CMS violated the agency’s PRM
section 2724 duty to review ‘‘all the information submitted.’’
In support of this argument, St. Luke’s points only to the fact
that CMS denied the request. As we have explained, that
denial hardly shows a lack of thorough review, since even a
thorough review of ‘‘all the information submitted’’ would
have yielded an unexplained 2000–hour discrepancy—a dis-
crepancy that by itself would have justified rejecting the
exception request.
Next, St. Luke’s argues that because the error appeared in
a document that it had previously filed with HHS, it would
have had to alter the document in order to correct the
mistake. As the Secretary points out, however, a procedure
exists for situations precisely like this one, allowing for the
filing of amended cost reports. ‘‘Not only did St. Luke’s fail
to avail itself of this procedure, it also neglected to explain or
even bring the error to CMS’s attention in its exception
request.’’ Appellee’s Br. at 28 n.16.
Nor do we see anything in the Secretary’s decision that
conflicts with Christ Hospital v. Blue Cross & Blue Shield
Ass’n, HCFA Adm’r Dec., [2000–12 Transfer Binder] Medi-
care & Medicaid Guide (CCH) ¶ 80,416 (Feb. 11, 2000), re-
printed in Appellant’s Br. at addendum 10. There, CMS,
10
then known as the Health Care Financing Administration
(HCFA), denied an exception request on the ground that
certain data were missing, stating that ‘‘[w]e did not recom-
pute the percentages for the patient characteristics TTT since
it is not HCFA’s responsibility to summarize the patient data
to make them meaningful.’’ Id., reprinted in Appellant’s Br.
at addendum 13. The Administrator reversed and remanded,
but not—as St. Luke’s suggests—on the ground that HCFA
should itself have undertaken any calculations. Rather, the
Administrator remanded because the supposedly missing data
were not in fact missing. ‘‘The Administrator finds and the
record reflects that the [data] were included in the Provider’s
ESRD exception request package. Therefore, the Adminis-
trator remands this case to afford HCFA the opportunity to
examine the data that the Provider furnishedTTTT’’ Id.
Since here the correct hourly figures were in fact unavailable,
Christ Hospital provides no support for the hospital’s charge
of inconsistency.
Finally, St. Luke’s contends that given the district court’s
willingness to excuse CMS’s erroneous reliance on PRM
section 2725.3E, the hospital’s mistake should also be ex-
cused. Like the district court, we disagree. While both
errors may have been ‘‘typographical,’’ the errors were very
different. The hospital’s error went to the heart of its case,
leaving it unable to carry its burden of presenting ‘‘convincing
objective evidence.’’ CMS simply made an error about the
proper legal basis for an otherwise unassailable decision.
Because CMS’s error ‘‘had no bearing on the procedure used
or the substance of the decision reached,’’ Mass. Trs. of E.
Gas & Fuel Assocs. v. United States, 377 U.S. 235, 248 (1964),
it provides no basis for vacating the Secretary’s decision.
III.
Having found nothing arbitrary or capricious in the Secre-
tary’s decision to reject the hospital’s exception request on
the ground that it contained a material error, we need not
consider St. Luke’s challenge to CMS’s other ground for
11
denying the request—the unexplained nineteen percent in-
crease in the hospital’s costs for one type of treatment.
The district court’s judgment is affirmed.
So ordered.