Emanuel Medical Center, Turlock, California v. Sebelius

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

EMANUEL MEDICAL CENTER, INC.

et al.,

Plaintiffs,

v.

Civil Action No. 12-1962 (GK)

KATHLEEN SEBELIUS,

Secretary of the United

States Department of Health

and Human Services,

Defendant.

MEMORANDUM OPINION

Plaintiffs are two hospitals, Emanuel Medical Center

("Emanuel") and Merced Community Medical Center ( "Merced" )

(collectively, "Plaintiffs" or "Providers"). They bring this

action against Kathleen Sebelius in her official capacity as

Secretary of the Department of Health and Human Services

("Defendant" or "Secretary"), pursuant to Title XVIII of the

Social Security Act, 42 U.S.C. §§ 1395 et seq. ("the Medicare

Act") . Plaintiffs seek judicial review of a final agency

decision that the Provider Reimbursement Review Board ("PRRB" or

"Board") did not have jurisdiction over Providers' appeals.

This matter is before the Court on Plaintiffs' Motion for

Summary Judgment [Dkt. No. 17] and Defendant's Motion for

Partial Summary Judgment and for Partial Remand [Dkt. No. 22] .

Upon consideration of the briefs, the administrative record, and

the entire record herein 1 and for the reasons stated below 1

Plaintiff's Motion for Summary Judgment is granted in part and

denied in part and Defendant's Motion for Partial Summary

Judgment and for Partial Remand is granted.

I . BACKGROUND

A. Statutory and Regulatory Framework

1. The Medicare Program

Title XVIII of the Social Security Act established the

Medicare program/ which provides medical care for the elderly

and disabled. 42 U.S. C. § 13 95 et seq. i see also Kaiser Found.

Hosps. v. Sebelius 1 708 F.3d 226 1 227 (D.C. Cir. 2013) (citation

omitted) The Medicare program is administered by the Secretary

through the Center for Medicare and Medicaid Services ( "CMS 11 ) •

Ark. Dep 1 t of Health & Human Servs. v. Ahlborn 1 547 U.S. 268 1

275 (2006) .

Medicare providers enter into written agreements with the

Secretary to provide services to eligible individuals. 42 U.S.C.

§ 1935cc. Fiscal intermediaries/ private companies that process

payments on behalf of CMS 1 make interim payments to providers/

subject to subsequent adjustments. Id. § 1395h.

To calculate these adjustments/ providers are required to

submit an annual cost report to their fiscal intermediary

identifying the costs incurred during the course of each fiscal

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year. 42 C.F.R. §§ 413.20, 413.24; see also Sebelius v. Auburn

Reg'l Med. Ctr., 133 S. Ct. 817, 822 (2013) ("At the end of each

year, providers participating in Medicare submit cost reports to

contractors acting on behalf of HHS known as fiscal

intermediaries") Fiscal intermediaries then analyze and audit

the cost report and inform the provider of the amount of total

Medicare reimbursement to which they are entitled, which is

referred to as the Notice of Program Reimbursement ( "NPR") . 42

C.F.R. § 405.1803; see also Regions Hosp. v. Shalala, 522 U.S.

4 4 8 1 4 52 ( 19 9 8 ) •

If a provider is dissatisfied with the intermediary's

determination of its NPR, it has 180 days to request a hearing

before the PRRB. 42 U.S.C. § 1395oo(a). Review of an initial NPR

is comprehensive and may include any item contained in the

original cost report. Id. § 1395oo(d); Bethesda Hospital Ass'n

v. Bowen, 485 U.S. 399, 405-06 (1988) (noting that statutory

language allows the Board "to review and revise a cost report

with respect to matters not contested before the fiscal

intermediary") . The Board can affirm, modify, or reverse the

fiscal intermediary's award; the Secretary in turn may affirm,

modify, or reverse the PRRB's decision. See 42 U.S.C. § 1395oo

(d)-(f).

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The Medicare regulations permit a fiscal intermediary to

reopen a provider's cost report "with respect to findings on

matters at issue" wi~hin three years. 42 C. F. R. § 405.1885 (a) . 2

The intermediary can reopen the cost report either on its own

motion, at the request of the provider, or at the request of the

CMS Administrator. Id.

After the intermediary reopens and revises the cost report,

the revised NPR is considered a "separate and distinct

determination or decision." Id. § 405.1889. The provider can

then appeal the revised NPR to the PRRB within 180 days. Id.

§§ 405.1889, 405.1835(a). Unlike the comprehensive review of an

initial NPR, however, the Board's jurisdiction over a revised

NPR is limited to "the specific issues revised on reopening."

HCA Health Servs. of Okla., Inc. v. Shalala, 27 F.3d 614, 615

(D. C. Cir. 1994) (upholding Secretary's interpretation of

reopening regulations as reasonable) .

Within sixty days of notice of a final decision of the PRRB

or the Secretary, a provider is entitled to file a civil action

in the United States District Court for the District of Columbia

to seek judicial review of that decision. 42 U.S.C. § 1395oo(f);

42 C.F.R. § 405.1877.

2

Because all of the relevant events in this case occurred before

2008, the Court will evaluate the providers' claims under the

pre-2008 regulations. All citations are to those regulations

unless otherwise noted.

-4-

2. Disproportionate Share Hospital Adjustment

Part E of the Medicare statute sets out "Miscellaneous

Provisions I/ including a prospective payment system for

reimbursing hospitals that provide certain inpatient hospital

services. 42 U.S. C. § 13 95ww (d) ; see also Ne. Hosp. Corp. v.

Sebelius, 657 F.3d 1, 3 (D.C. Cir. 2011). A hospital is

reimbursed for each day spent treating a Medicaid patient, and

receives additional funds if it is eligible for various

hospital-specific adjustments. See 42 U.S.C. § 1395ww(d) (5);

Cookeville Reg'l Med. Ctr. v. Leavitt, 531 F.3d 844, 846 (D.C.

Cir. 20.08).

The adjustment at issue in this case is the

Disproportionate Share Hospital ( "DSH 11 ) adjustment, under which

the government gives additional funds to hospitals that "serve[]

a significantly disproportionate number of low-income patients.~~

42 U.S.C. § 1395ww(d) (5) (F) (i) (I). This adjustment is "made

because hospitals with an unusually high percentage of low-

income patients generally have higher per-patient costs; such

hospitals, Congress therefore found, should receive higher

reimbursement rates. 11

Auburn Reg' l, 133 S. Ct. at 822; see also

Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d

914, 916 (D.C. Cir. 2013) (citation omitted).

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Whether a hospital qualifies for this adjustment, and the

amount of the adjustment the hospital receives, depends on the

hospital's "disproportionate patient percentage" ("DPP"). 42

U.S.C. § 1395ww(d) (5) (F) (v); Ne. Hosp. Corp., 657 F.3d at 3. The

DPP "is not 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.

The DPP, as defined by the Medicare statute, is calculated

by adding together two fractions: the SSI fraction. In sum, the

Medicaid fraction. 42 U.S.C. § 1395ww(d)95) (vi); Metro. Hosp. v.

Dep't of Health & Human Servs., 712 F.3d 248, 251 (6th Cir.

2013). The basic unit of measurement for both fractions is the

hospital's "patient days." Metro Hosp., 712 F.3d at 251.

The SSI fraction, also known as the "Medicare fraction,"

"measures· the portion of a hospital's Medicare-entitled patient

population that is also entitled to [Supplemental Security

Income ("SSI")], a cash benefit provided to low-income elderly,

blind, or disabled individuals." Id.; see also Auburn Reg'l, 133

s. Ct. at 822.

The SSI fraction for a given period consists of the number

of patient days attributable to patients entitled to both

Medicare Part A benefits and SSI benefits divided by the number

of patient days attributable to patients entitled to Medicare

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Part A benefits but not SSI benefits. 41 u.s.c.

§ 1395ww(d) (5) (vi) (I). The Secretary receives data from the

Social Security Administration to calculate the SSI fraction and

provides the fraction to the intermediary. Auburn Reg'l, 133 St.

Ct. at 822; 42 C.F.R. § 12.106(b) (2), (3).

The Medicaid fraction "measures the proportion of a

hospital's total patient population that is Medicaid-eligible,

with the caveat of excluding patients who are also entitled to

Medicare benefits." Metro Hosp., 712 F.3d at 251. The Medicaid

fraction for a given period consists of the number of patient

days attributable to patients eligible for a state Medicaid plan

but not entitled to Medicare Part A benefits, divided by the

total number of patient days in that period. 42 U.S.C.

§ 1395ww(d) (5) (vi) (II) . 3 The Medicaid fraction is calculated by

the intermediary. 42 C.F.R. § 412.106(b) (4).

The intermediary then adds the SSI fraction and the

Medicaid fraction and that sum, expressed as a percentage, is

the hospital's DPP for that period. Id. § 412.106 (b) (5). The

higher the DPP, the higher the rate at which the hospital is

reimbursed. Catholic Health Initiatives, 718 F.3d at 916 ("[A]

3

Medicaid is a separate program from Medicare. It is "a jointly

funded, federal-state program that provides health care to

indigent persons who are aged, blind, or disabled, or members of

families with dependent children." See Univ. of Kansas Hosp.

Auth. v. Sebelius, 953 F. Supp. 2d 180, 183 n.1 (D.D.C. 2013)

(citing 42 U.S.C. § 1396 et seq.).

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higher DPP means greater reimbursements because the hospital is

serving more low-income patients."); Metro. Hosp., 712 F. 3d at

251 ("A higher DPP produces a higher adjustment percentage,

which in turn produces a larger adjustment payment.") (citation

omitted) .

B. Factual and Procedural History

Plaintiffs are two hospitals located in California.

Administrative Record ( "AR" ) 80-81. It is undisputed that

Plaintiffs are "providers of services" participating in the

Medicare program. This case concerns three cost reports:

Merced's cost reports for fiscal year 1991 and 1992 and

Emanuel's cost report for fiscal year 1992.

1. Merced's Cost Report for Fiscal Year 1992

On August 23, 1994, Merced received its NPR from its fiscal

intermediary for fiscal year 1992. AR 27-28. It included a DSH

adjustment of $1,576,346. AR 30. On November 5, 1996, Merced

requested that its intermediary reopen that cost report "to

include the submitted information in its determination of the

revised Disproportionate Share Calculation." AR 32. It sought to

increase its DSH adjustment by an additional $1,075,578. Id.

On February 5, 1997, the intermediary notified Merced that

it was reopening Merced's cost report for fiscal year 1992 "[t]o

agree Medi-Cal days to those audited by the State, and to

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recompute DSH accordingly." AR 44. On its adjustment report, the

intermediary described the purpose of the adjustment as: "TO

AGREE MEDI-CAL DAYS TO AUDITED DATA" and "TO CORRECT DSH TO BE

BASED ON AUDITED MEDI-CAL & TOTAL DAYS, & FEDERAL DRG PAYMENTS."

AR 46. The intermediary increased Merced's DSH adjustment by the

amount Merced had requested, $1,075,578. Id. The revised NPR was

issued on March 10, 1997. AR 652. 4

On September 8, 1997, Merced appealed its revised NPR for

fiscal year 1992 to the PRRB. AR 655-56. Among other things, it

argued that "the Supplemental Security Income (SSI) ratio used

in determining the Disproportionate Share Payment was incorrect"

and that "the Medi-Cal ratio used in determining the

Disproportionate Share Payment was incorrect." AR 655.

2. Emanuel's Cost Report for Fiscal Year 1992

On October 6, 1995, Emanuel's fiscal intermediary reopened

Emanuel's cost report for fiscal year 1992. AR 347-48. The

notice of reopening states that it was reopened "TO REVISE THE

DISPROPORTIONATE SHARE ADJUSTMENT AND TO UPDATE THE SETTLEMENT,

IF APPLICABLE." AR 347. The adjustment report showed an increase

in Emanuel's DSH adjustment from $1,315, 799 to $1,388, 806. AR

353.

4

The Court notes that Merced received the entire additional

amount it sought in its request for reopening.

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•·

On November 9, 1995, Emanuel appealed its revised NPR for

fiscal year 1992 to the PRRB. AR 350-51. It alleged that the DSH

adjustment was understated because "determination of the number

of patient days relating to patients entitled to both Medicare

Part A coverage and Supplemental Security Income (SSI) benefits

was understated" and "[t] he ratio of Medi-Cal days to total

patient days was in error." AR 351 (emphasis in original).

3. Merced's Cost Report for Fiscal Year 1991

On April 30, 1999, Merced's fiscal intermediary reopened

Merced's cost report for the fiscal year ending 1991 on its own

motion and increased Merced's DSH adjustment. AR 631-32. The

revised NPR increased the DSH adjustment from $1,353,189 to

$2,508,403, and described the adjustment as "incorporat[ing] the

Medi-Cal audited days." AR 637.

On October 14, 1999, Merced appealed its revised NPR for

fiscal year 1991 to the PRRB. AR 634-35. Again, Merced argued

that "the Supplemental Security Income (SSI) ratio used in

determining the Disproportionate Share Payment was incorrect"

and that "the Medi-Cal ratio used in determining the

Disproportionate Share Payment was incorrect." AR 635-35.

4. SSI Group Appeal

On October 7, 1996, two providers requested a group appeal

before the PRRB to address the common issue of " [w] hether the

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SSI percentage (proxy) used to compute Medicare Disproportionate

Share (DSH) Payments has been determined in accordance with the

Medicare statutes [sic] . " AR 1254. The group appeal was given

the Case No. 97-0021G, and eventually grew to include nine

hospitals seeking review of the SSI fraction used in 26 cost

reports (hereinafter, "SSI Group Appeal"). AR 3-5, 1161.

On December 9, 1996, Emanuel requested that the Board

transfer the "SSI percentage issue" from its appeal of its

revised NPR for fiscal year 1992 to the SSI Group Appeal. AR

362. The issue was transferred on July 31, 1997. AR 930.

On April 1, 1998, Merced requested that the Board transfer

"the SSI Percentage issue" from its appeal of its revised NPR

for fiscal year 1992 to the SSI Group Appeal. AR 1144. The issue

was transferred on that date. AR 930.

On October 27, 2000, Merced requested that the Board

transfer "the SSI ratio issue" from its appeal of its revised

NPR for fiscal year 1991 to the SSI Group Appeal. AR 1169.

On January 23, 2004, an intermediary challenged the Board's

jurisdiction to hear six of the appeals that had been

consolidated in the SSI Group Appeal. AR 1104-1109. The Board's

jurisdiction over the three appeals at issue in this case was

not raised at that time. On June 1, 2004, the providers

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responded that they were "in the process of researching the

challenges and providing a response." AR 924.

on: March 31, 2008, Judge John Bates, in a different case,

upheld the PRRB' s determination that CMS had been erroneously

calculating the SSI fractions used in calculating provider's DSH

adjustments. Baystate, 545 F. Supp. 2d at 57-58; see also Auburn

Reg'l, · 133 S. Ct. at 822-23 (discussing Baystate case). He

remanded the case to the Secretary for appropriate action.

Baystate, 545 F. Supp. 2d at 58.

In response, the CMS Administrator issued CMS Ruling 1498-R

on April 28, 2010. CMS Ruling No. CMS-1498-R, 2010 WL 3492477

(Apr. 28, 2010). The Administrator directed CMS and the Medicare

contractors to "take the steps necessary to apply a suitably

revised data matching process in determining the SSI fraction,

and recalculating the DSH payment adjustment, for each properly

pending claim on the SSI fraction data matching process issue

that is remanded by an administrative appeals tribunal and is

found to qualify for relief under this Ruling." Id. at *3. It is

undisputed that the SSI Group Appeal presented a "pending claim

on the SSI fraction data matching process issue." Id.

On March 9, 2012, the Board wrote a letter to the SSI Group

Appeal members asking for jurisdictional documentation regarding

the six previously-challenged appeals and also requesting

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jurisdictional documentation for fourteen other appeals that had

joined the SSI Group Appeal. AR 906-909. Among other things, it

request·ed jurisdictional documentation from providers appealing

from revised NPRs, including Merced for fiscal year 1991 and

Emanuel for fiscal year 1992. AR 907. On August 8, 2012, the

Board asked for similar jurisdictional documentation from Merced

for fiscal year 1992 because that appeal was also from a revised

NPR. AR 64-65.

On July 30, 2012, the PRRB issued its first jurisdictional

decision, in which it addressed its jurisdiction over the six

appeals challenged by the intermediary in 2004. These six

appeals did not include the appeals at issue in this case. AR

66-72. The Board noted that the providers could not show that

the SSI fraction had been adjusted in their original NPRs. AR

70-71. However, because the providers were appealing from

original NPRs, not revised NPRs, the Board concludes that it had

jurisdiction over any issue, even if that issue had not been

included in the original NPR or decided against the provider by

the intermediary. Id. (citing Bethesda, 485 U.S. at 404). Thus,

the Board concluded that an adjustment to the SSI fraction was

"not a prerequisite to the appeal" of original NPRs. AR 72.

On October 5, 2012, the Board issued its second

jurisdictional decision, which is the decision at issue in this

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case. AR 22-24 ("Jurisdictional Decision") . The Board held that

it did not have jurisdiction over four appeals from revised

NPRs, including Emanuel's appeal for fiscal year 1992 and

Merced's appeals for fiscal years 1991 and 1992. Id. The Board

reasoned that it did "not have jurisdiction over these four

Providers because the Providers are appealing from revised

[NPRs] which did not specifically adjust the SSI% issue." AR 22.

5. Judicial Review

As permitted by 42 U.S. C. § 13 95oo (f) , Plaintiffs timely

filed this Complaint challenging the Board's Jurisdictional

Decision on December 6, 2012 [Dkt. No. 1]. On May 31, 2013,

Plaintiffs filed their Motion for Summary Judgment ("Pls.'

Mot.") [Dkt. No. 17] . On July 16, 3013, Defendant filed her

Motion for Partial Summary Judgment and Partial Remand, and

Opposition to Plaintiffs' Motion ("Def.'s Opp'n") [Dkt. Nos. 22,

23] . Plaintiffs then filed their Opposition and Reply on August

30, 2013 ("Pls.' Reply") [Dkt. Nos. 27, 28], and Defendant filed

her Reply on November 6, 2 013 [Dkt. No. 31] ("De f. 's Reply") .

The administrative record was filed on July 24, 2013 [Dkt No.

26], and this matter is now ripe for review.

6. Secretary's Stipulation

In the Secretary's Motion, she included newly-discovered

evidence that Emanuel's SSI fraction was changed in its revised

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NPR for fiscal year 1992. Def. 's Opp' n at 30-31 (discussing a

1995 letter to Emanuel stating that the wrong SSI percentage had

been used in the original NPR) On that basis, she concedes that

Emanuel's SSI fraction was adjusted in its revised NPR.

Moreover, Emanuel's appeal of its revised NPR challenged its

intermediary's determination of "the number of patient days

relating to both Medicare Part A coverage and Supplemental

Security Income (SSI) benefits." AR 351 (emphasis in original) .

For these reasons, the Secretary is now conceding that Emanuel

filed a timely appeal of an issue reopened and adjusted in its

revised NPR, and, therefore, the Board had jurisdiction over

Emanuel's appeal. Def.'s Opp'n at 30.

The Secretary requests a remand of Emanuel's appeal to the

agency so that the agency can grant Emanuel's requested relief:

"a remand to the Intermediary in accordance with CMS Ruling CMS-

1498-R." Def. 's Opp'n at 30 (quoting Complaint at 9). Because

the agency has not yet addressed the merits of Emanuel's appeal,

this Court does not have jurisdiction over the merits and remand

is the appropriate course of action. Palisades Gen. Hosp. Inc.

v. Leavitt, 426 F.3d 400, 403 (D.C. Cir. 2005) (holding that

district court's jurisdiction was "only to vacate the

Secretary's decision and to remand for further action

consistent with its opinion"); PPG Indus., Inc. v. United

------------~---------------------

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States, 52 F.3d 363, 366 (noting that agency can reopen

proceedings to take new evidence after reviewing court has found

agency's original findings invalid).

Therefore, the Court remands Emanuel's appeal of its

revised NPR for fiscal year 1992 to the agency for action

consistent with this opinion, and will now turn to the Board's

decision that it lacked jurisdiction over Merced's appeals for

fiscal years 1991 and 1992.

II. STANDARD OF REVIEW

The Medicare Act provides for judicial review of a final

decision made by the PRRB or the Secretary. 42 u.s.c.

§ 1395oo (f) (1) . It instructs the reviewing court to apply the

provisions of the Administrative Procedure Act ( "APA") , which

instructs the courts to be "highly deferential" in their review

of agency action. Bloch v. Powell, 348 F.3d 1060, 1070 (D.C.

Cir. 2003) (citations and internal quotation marks omitted).

Under the APA, an agency decision is set aside only if it

is "arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law" and its factual findings are only

overturned if "unsupported by substantial evidence." 5 U.S. C.

§ 706 (2) (A), (E); see also Murray Energy Corp. v. F.E.R.C., 629

F.3d 231, 235 (D.C. Cir. 2011) (quotation and citation omitted).

"[A] lthough the Board's adherence to Medicare regulations is

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reviewable under the arbitrary and capricious standard, and the

sufficiency of the Board's record is reviewable under the

substantial evidence standard, the two standards involve the

same level of scrutiny." Mem. Hosp./Adair Cty. Health Ctr. Inc.

v. Bowen, 829 F.2d 111, 117 (D.C. Cir. 1987).

The arbitrary and capricious standard is satisfied if the

agency has "considered the factors relevant to its decision and

articulated a rational connection between the facts found and

the choice made." In re Polar Bear Endangered Species Act

Listing & 4 (d) Rule Litig., 709 F.3d 1, 8 (D.C. Cir. 2013)

(quoting Keating v. F.E.R.C., 569 F.3d 427, 433 (D.C. Cir.

2009)).

III. ANALYSIS

A. The Secretary's Issue-Specific Interpretation of the

Reopening Regulations Is Reasonable and Entitled to

Deference

The parties agree that our Court of Appeals' decision in

HCA Health Services of Oklahoma v. Shalala, 27 F.3d 614 (D.C.

Cir. 1994), is the appropriate starting point. In HCA, an

intermediary reopened a hospital's NPR on five specific issues.

Id. at 616. The hospital then sought to appeal its

intermediary's decision on those issues to the Board, as well as

an additional issue "which had been decided in the original NPR

but never revisited since." Id. The Board concluded that it did

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not have jurisdiction over the hospital's appeal of that

additional issue because its jurisdiction was limited to

reviewing only the specific issues adjusted by the revised NPR.

Id.

In reviewing the Board's conclusion, the Court· of Appeals

analyzed the Secretary's uissue-specific" interpretation of its

reopening regulations under Chevron U.S.A. Inc. v. Natural Res.

Def. Council, Inc., 467 U.S. 837, 843-45 (1984). HCA, 27 F.3d at

617 (summarizing Chevron framework). Chevron requires a two-step

analysis. The court must first determine whether ucongress has

directly spoken to the precise question at issue." Chevron, 467

U.S. at 842. If Congress has not, the court will then defer to

the agency's interpretation of the regulations if it uis based

on a permissible construction of the statute." Id.

Applying this framework, the HCA Court first examined the

Medicare statute to see if Congress had udirectly spoken" to the

scope of the Board's jurisdiction over revised NPRs. HCA, 27

F.3d at 617-19. The Court of Appeals concluded that Congress had

not addressed the issue because the statute did unot

specifically address either reopenings of an NPR by an

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intermediary or review of such a reopening by the Board [.] " Id.

at 619. 5

The Court of Appeals then turned to the second step of the

Chevron framework and evaluated whether the agency's

interpretation of the regulations was permissible. It observed:

In light of the explicit language in 42 C.F.R.

§ 405.1885 limiting reopenings to "findings on matters

at issue in [the original NPR]" and in 42 C.F.R.

§ 405.1889 characterizing revisions as "separate and

distinct determination [s]" for purposes of Board

appeals, we do not think it impermissible for the

Secretary to interpret the "intermediary

determination" on reopening as limited to the

particular matters revisited on the second go-round.

Id. at 620. The Court of Appeals also noted that the Secretary's

interpretation of the reopening regulations was "particularly

persuasive" because it preserved the statute's 180-day time

period for filing appeals from the intermediary's original NPR.

Id. at 620-21.

Based on this application of the Chevron framework, the

Court of Appeals upheld the agency's interpretation of its

regulations to deny the Board jurisdiction over appeals from

revised NPRs that raised issues that were not the "subject of

5

Merced argues that "Congress has made its intent clear" that a

provider's DSH adjustment is one issue and cannot be subdivided.

Pls. ' Reply at 5. The HCA Court's holding that the Medicare

statute does not address reopenings of NPRs binds this Court and

forecloses Merced's argument. HCA, 27 F. 3d at 619 (concluding

that Medicare statute does not "address either reopenings of an

NPR by an intermediary or review of such a reopening by the

Board").

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the reopening." Id. at 622 ("Given that no specific statutory

provision governs reopenings, and that the Secretary's

interpretation of the reopening regulations is a permissible

reading of the regulatory language and implements the statutory

time restriction on appeals from an intermediary's determination

of the amount of total program reimbursement, we uphold the

Board's determination that it lacked jurisdiction to review cost

items that were not the subject of the reopening.").

The HCA decision remains the law in this Circuit, 6 and the

Secretary's issue-specific interpretation of the regulations has

been upheld by all other Circuits to address it. See Hennepin

Cnty. Med. Ctr. v. Shalala, 81 F.3d 743, 749 (8th Cir. 1996)

("The reopening regulation has been in place for many years and

is in accord with the agency's authority under the Medicare

Act."); French Hosp. Med. Ctr. v. Shalala, 89 F.3d 1411, 1420

(9th Cir. 1996) ("Limiting the PRRB' s scope of review to issues

the fiscal intermediary reconsidered upon reopening the NPR is

6

Merced argues that the concurring opinions written by Justices

Scalia, Roberts, and Alito in Decker v. Nw. Envtl. Def. Ctr.,

133 S. Ct. 1326, 1341 (2013), invite this Court to re-evaluate

the Secretary's interpretation of her regulations with less

deference. Pls.' Reply at 17-18. The majority opinion of the

Decker Court reaffirmed that an agency's interpretation was

entitled to deference. Id. at 1337. Therefore, nothing in

Decker's concurrences undermines the binding determination of

our Court of Appeals in HCA that the Secretary's issue-specific

interpretation of her regulations is reasonable and entitled to

deference.

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consistent with the Medicare regulation governing the treatment

of reopenings or revisions on appeal.") ; Edgewater Hosp. , Inc.

v. Bowen, 857 F.2d 1123, 1134 (7th Cir. 1988).

Thus, it is clear that in this Circuit, as well as in the

three others that have addressed the issue, the Secretary's

"issue-specific" interpretation of her NPR reopening regulations

is reasonable and entitled to substantial deference.

B. The Board's Jurisdictional Decision Is Not Arbitrary

or Capricious

In its Jurisdictional Decision, the Board began its

analysis with the HCA decision, reiterating that its

jurisdiction over revised NPRs was limited to "specific issues

revisited on reopening." AR 23 (citing HCA, 27 F.3d 614). The

Board then found that Merced had failed to "submit the

documentation to show that the revised NPRs specifically

adjusted" Merced's SSI fractions. AR 23. Consequently, the Board

concluded that it lacked jurisdiction over Merced's appeals of

the SSI fractions used in their revised NPRs. Id.

All of the record evidence fully supports the Board's

conclusion that the SSI fraction was not adjusted, and Merced

has identified no evidence to the contrary. For both fiscal

years at issue, the intermediary's reopening documents show that

Merced's cost reports for fiscal year 1991 and 1992 were

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reopened to include additional "Medi-Cal Days." AR 46 (reopening

"to correct DSH to be based on Audited Medi-Cal & Total Days &

Federal DRG Payments") ; AR 63 7 (reopening "to modify the DSH

adjustment to incorporate the Medi-Cal audited days") . 7

As discussed above, the Medicaid fraction requires

calculating the number of patient days made up of patients

eligible for a state Medicaid plan, such as Medi-Cal. See 42

U.S.C. § 1395ww(d) (5) (F) (vi) (II); see also Banner Health v.

Sebelius, 715 F. Supp. 2d 142, 156 (D.D.C. 2010) ("[F]or a

patient to be 'eligible for medical assistance under a State

plan approved under [Medicaid] , ' 42 u.s.c.

§ 1395ww(d) (5) (F) (vi) (II), the patient must be eligible for

Medicaid payment under the approved State Medicaid plan.") . The

SSI fraction, however, does not include state Medicaid patient

days, but considers only individuals entitled to Medicare

benefits and SSI benefits. Id. § 1395ww(d) (5) (F) (vi) (I); see

also Metro Hosp., 712 F.3d at 262-63 (finding it "clear from the

statute" that the two fractions are "exclusive of one another,"

and, thus, that the statute should be interpreted to avoid

"double-counting" patient days by including them in both

7

Medi-Cal is the Medicaid program offered by California. See

Grossmont Hosp. Corp. v. Sebelius, 903 F. Supp. 2d 39, 45

(D.D.C. 2012) ("California participates in the Medicaid program

by operating a State program commonly known as Medi-Cal."); see

also Cal. Welf. & Inst. Code § 14000.4.

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fractions of the DPP) . The addition of Medicaid patient days

would have no effect on the SSI fraction and the Board's

conclusion that the SSI fractions were not adjusted is amply

supported by the evidence in the record. 8

Merced argues that the Board's conclusion was arbitrary or

capricious for a number of reasons. The Court . will briefly

address them in turn. 9

8

Merced argues that the only evidence that the SSI fraction was

adjusted would be in the "sole possession" of the agency, and

that requiring providers to identify that information puts them

in a "Catch-22." Pls.' Mot. at 25. Unlike Atlanta College of

Med. & Dental Careers, Inc. v. Riley, 987 F.2d 821, 831 (D.C.

Cir. 1993) , the agency has not requested documents from Merced

to which Merced does not have access. Rather, the relevant

documents are in the record and simply do not support a finding

that the SSI fraction was reconsidered or adjusted. See Baptist

Mem'l Hosp. v. Sebelius, 765 F. Supp. 2d 20, 30-31 (D.D.C. 2011)

(upholding Board's determination that it did not have

jurisdiction over provider's appeal when "appeal provided no

document trail demonstrating that it specifically raised the

exclusion of expansion waiver days"), aff'd sub nom. Baptist

Mem'l Hosp., Inc. v. Sebelius, No. 11-5112, 2012 WL 1859132

(D.C. Cir. May 14, 2012).

9

As a preliminary matter, Merced argues that the Secretary is

estopped from denying jurisdiction over Merced's appeals because

the "intermediary's stipulation that there are no jurisdictional

impediments to an appeal on the SSI fraction amounts to an

admission that the SSI fraction was reconsidered in the

reopening." Pls.' Mot. at 24; Pls.' Reply at 19. Even if the

intermediary had made such a stipulation, the intermediary's

assertion would not bind the Secretary. As our Court of Appeals

has stated, "the intermediary's position is not the Secretary's

it is the Board's interpretation that matters." Appalachian

Reg'l Healthcare, Inc. v. Shalala, 131 F.3d 1050, 1053 n.4 (D.C.

Cir. 1997) (emphasis added); see also Medcenter One Health Sys.

v. Sebelius, 635 F.3d 348, 351 (8th Cir. 2011) (" [T]he

intermediary's position before the PRRB does not bind HHS, which

was not a party to the PRRB proceedings."). Thus, any concession

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First, Merced argues that even if its SSI fractions were

not modified on reopening, they were reconsidered when the

intermediary recalculated Merced's DSH adjustment. It insists

that this Court must thus decide the question left open in HCA:

"whether a cost item must be modified on reopening or need only

be reconsidered on reopening in order to become appealable to

the Board." HCA, 27 F.3d at 621.

The Court need not resolve this open question because there

is no evidence that the SSI fraction used in Merced's NPRs was

reconsidered in either fiscal year 1991 or 1992. Id.; see also

French Hosp. Med. Ctr. v. Shalala, 89 F.3d 1411, 1419-20 (9th

Cir. 1996) (finding that no jurisdiction existed over appeal

where intermediary "neither reconsidered the [routine cost

limits] components nor adjusted them").

Merced's fiscal intermediary reopened and adjusted Merced's

cost report for fiscal year 1991 on its own initiative in order

to incorporate Medi-Cal audited days. AR 631-32, 637. This is

identical to the situation in HCA, where "[t]he reopening

was initiated solely by the intermediary and the intermediary's

notices of reopening made no reference whatsoever to the cost

items which the provider now wishes to add to its hearing before

the Board." HCA, 27 F. 3d at 621.

by the intermediary about these appeals has no effect on the

appropriateness of the Board's determination in this case.

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Merced requested that its intermediary reopen its cost

report for fiscal year 1992 "to include the submitted

information in its determination of the revised Disproportionate

Share Calculation.~~ AR 32. In the "submitted information,~~

Merced included documents supporting its claim for additional

Medi-Cal days, which were to be included in the Medicaid

fraction. AR 36-38. It also submitted a worksheet recalculating

its DSH adjustment using the same SSI fraction as its original

NPR. AR 33, 35. Thus, there is no evidence that the intermediary

reconsidered the SSI fraction when it reopened Merced's NPR for

either . fiscal year 1991 or 1992. 10 See Little Company of Mary

Hospital v. Sebelius, 587 F.3d 849, 855-56 (7th Cir. 2009)

(upholding Board's determination that it lacked jurisdiction

over appeals of revised NPR where there was no evidence that

intermediary had taken any "affirmative action sufficient to

consider the issue reopened 11

)

Second, in an effort to compensate for its failure to show

that the intermediary reconsidered its SSI fraction, Merced

argues that a change to any element of the DSH adjustment

10

Moreover, the specific language of the revised NPRs

contradicts Merced's assertion that "the issue revisited on

reopening was 'the DSH payment,' not some more narrow aspect of

the DSH calculation. Pls.' Mot. at 16. Because it misconstrues

11

the record, Merced's argument that it is entitled to broad

appellate rights based on the broad language in the NPRs lacks

merit.

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requires recalculation of the entire DSH adjustment. This

recalculation, Merced insists, requires the intermediary to

"revisit" all of the other elements that make up the DSH

adjustment, making all of those elements appealable to the

Board. Pls.' Mot. at 14, 25.

Merced identifies no authority that supports its argument. 11

Indeed, a number of courts have rejected this approach and held

that revision of one element of a larger calculation does not

mean that all of the other elements of that calculation were

"reconsidered." See Anaheim Mem'l Hosp. v. Shalala, 130 F.3d

845, 851 (9th Cir. 1997) (upholding Secretary's conclusion that

reopening a cost report to apply a routine cost limit ("RCL") to

one cost item does not give the Board jurisdiction to hear

challenges to other components of the RCL) ; French Hosp., 89

F. 3d at 1421-22 (rejecting argument that "mere application" of

RCL constitutes either reconsideration or adjustment of RCL);

Baptist Memorial Hosp. v. Sebelius, 768 F. Supp. 2d 295, 300-01

(D.D.C. 2011) (upholding Secretary's conclusion that Board's

11

The one case cited by Merced, Zia Hospice, Inc. v. Sebelius,

723 F. Supp. 2d 1347, 1354 (D.N.M. 2010), is distinguishable for

a number of reasons. The Court will only note the most

significant distinction it was undisputed in Zia that the

issue the provider wished to appeal to the Board was the "only

item reconsidered, revisited, or reviewed" when the provider's

cost report was reopened. Id. Because it was undisputed that the

issue was reconsidered on reopening, Zia provides no guidance in

this case.

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jurisdiction was limited to cost items exceeding the RCL that

had been affected by revised NPR) .

Merced tries to distinguish these cases by arguing that the

RCLs affect "almost every cost item a provider would submit for

reimbursement," whereas the DSH adjustment is only "one

calculation, with one purpose." Pls.' Reply at 21. This argument

is unpersuasive. The DSH adjustment, like the RCL, involves

numerous pieces of data and several distinct calculations. See

42 U.S.C. § 1395ww(d) (5) (setting out the DSH adjustment in 12

sections and over 50 subsections); see also Catholic Health

Initiatives, 718 F.3d at 916-17 (describing language of DPP as

"downright byzantine" and "not easily discernible") . Thus, this

Court is not persuaded that the recalculation of one element of

the DSH adjustment means that all of the other elements have

been "reconsidered."

In sum, Merced has not identified evidence that the SSI

fraction was actually reconsidered when its cost reports for

fiscal year 1991 and 1992 were reopened, nor has it persuaded

the Court that any change to a DSH adjustment is sufficient to

establish that all of the elements of the DSH adjustment have

been reconsidered. Therefore, Merced has failed to establish

that its appeals are meaningfully distinguishable from those in

HCA.

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Third, Merced argues that the Secretary's application of

her issue-specific standard to the issue of DSH adjustments is

so inconsistent as to make it arbitrary and capricious. Merced

is correct that " [a] n agency must treat similar cases in a

similar manner unless it can provide a legitimate reason for

failing to do so." Indep. Petroleum Ass'n of America v. Babbitt,

92 F.3d 1248, 1258 (D.C. Cir. 1996). However, Merced has failed

to identify any significant evidence of inconsistency. P. I .A.

Michigan City Inc. v. Thompson, 292 F.3d 820, 826 (D.C. Cir.

2002) (noting that "an appellant complaining of inconsistency

and capriciousness in the agency's explanation of its treatment

[must] ·bring before the reviewing court sufficient particulars

of how the appellant was situated, how the allegedly favored

party was situated, and how such similarities as may exist

dictate similar treatment and how such dissimilarities as may

exist ~re irrelevant or outweighed").

Neither the agency decisions 12 nor the sub-regulatory

guidelines issued by the agency13 cited by Merced establish that

12

The first Board decision cited by Merced was reversed by the

CMS Administrator, who noted that the only issue "open for

appeal" was the issue "decided pursuant to the ·revised NPR."

Cmty. Hosp. of the Monterey Peninsula v. Blue Cross Blue Shield

Assoc., 2006 WL 1684658, at *3 (H.C.F.A. Admin. Dec. Mar. 15,

2006) (reversing Cmty. Hosp. of the Monterey Peninsula v. Blue

Cross Blue Shield Assoc., Case No. 01-2940, 2006 WL 752462

(P.R.R.B. Jan. 19, 2006). The other two Board decisions cited by

Merced, Alina 95 Medicare DSH Medicaid Eligible Patient Days

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the agency has acted inconsistently in its application of the

reopening regulations to DSH adjustments. Merced has failed to

identify any meaningful example of a "similar case" not being

resolved "in a similar manner" and has thus failed to establish

that the agency's treatment of this issue is so inconsistent as

to make it arbitrary and capricious. Indep. Petroleum, 92 F. 3d

at 1258.

Based on the above analysis, the Court concludes that the

agency "considered the factors relevant to its decision and

articulated a rational connection between the facts found and

the choice made." In re Polar Bear Litig., 709 F. 3d at 8

(quotation and citation omitted). Thus, the Board's decision was

Group, Case No. 02-2262G, and Legacy Emanuel Hospital and Health

Center, Case No. 06-1702, are unpublished and were never

submitted to the Court.

As to the Board's treatment of Community Hospital of

Monterey Peninsula ("CHOMP") 's appeal in the SSI Group Appeal,

the Board reversed its jurisdictional decision once it

discovered that CHOMP's initial NPR did not include a DSH

adjustment. AR 7-8. This is materially different from Merced's

appeals, where its entitlement to a DSH adjustment was not in

question and its SSI fractions were simply reapplied in its

revised NPRs.

13

The portion of the Provider Reimbursement Manual cited by

Merced does not "instruct[] intermediaries and providers to

consider the DSH adjustment as a single issue," as Merced

suggests. Pls.' Reply at 13. It describes the item that should

be included on a line of a particular form -- it does not state

that each entry on that form must be treated as an indivisible

issue. CMS, Provider Reimbursement Manual Chapter 24 § 2418 .1

(setting out directions for completing the Health Care Complex

Cost Report Form HCFA 2552-89).

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not "arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law." 5 U.S.C. § 706(2) (A).

V. CONCLUSION

For the foregoing reasons, Plaintiff's Motion for Summary

Judgment is granted in part and denied in part and Defendant's

Motion ·for Partial Summary Judgment and for Partial Remand is

granted. Emanuel, s appeal of its revised NPR for fiscal year

1992 shall be remanded to the agency for appropriate resolution.

An Order shall accompany this Memorandum Opinion.

April 17, 2014

United States District Judge

Copies to: attorneys on record via ECF

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