Opposition Brief — Leavitt v. Baystate Health Health Systems Systems (No. 05-936)
Supreme Court brief2005
Ask Donna
What actually matters in this document.
Text
2
COUNTERSTATEMENT
1. The Medicare Reopening Regulation. In addition
to the vertical appeal process established under 42 U.S.C.
§ 139500 (Pet. 2-3) for review of Medicare payment deter-
minations, the Secretary’s regulations provide for horizontal
review of payment determinations through reopening. See 42
C.F.R. § 405.1885. The reopening regulations provide for
both discretionary and mandatory reopening. Section
405.1885(a), the subsection governing discretionary reopen-
ing, provides that a payment determination “may” be re-
opened within a three-year window upon request of a pro-
vider or upon the motion of the Secretary’s contractor, the
fiscal intermediary. See Pet. 2-3. A decision denying a
request for discretionary reopening under subsection (a) is
not subject to review. Your Home Visiting Nurse Servs., Inc.
v. Shalala, 525 U.S. 449, 452-57 (1999).
This case is about mandatory reopening under 42 C.F.R.
§ 405.1885(b). As it existed at the relevant time—in 1997—
subsection (b) directed that a payment determination “shal/
be reopened and revised * * * within the aforementioned 3-
year period,” if “HCFA [now the Centers for Medicare and
Medicaid Services (“CCMS”)] notifies the intermediary that
such determination is inconsistent with applicable law,
regulations, or general instructions issued by [CMS] in
accordance with the Secretary’s agreement with the interme-
diary.” 42 C.F.R. § 405.1885(b). A notice of inconsistency
with law triggers a mandatory, automatic duty to reopen.
Monmouth, App. 45a. See also Bartlett Mem. Med. Ctr. v.
Thompson, 347 F.3d 828, 837-38 (10th Cir. 2003). When-
ever a Medicare payment determination is reopened, and
regardless of whether reopening was effected under subsec-
tion (a) or (b), the determination is not “final and binding” as
to the matters at issue in the reopening. See 42 C.F.R.
§§ 405.1807, 405.1885, 405.1889.
3
In 2002, the Secretary amended subsection (b) in response
to the D.C. Circuit’s decision construing that regulation in
Monmouth (discussed below), and the decision of a district
court that had foliowed Monmouth. 67 Fed. Reg. 49,982
(Aug. 1, 2002). As amended, the regulation now requires, in
addition to the notice of inconsistency, an explicit direction
by the agency “to reopen and revise the intermediary deter-
mination.” /d. at 50,110.
2. The Medicare Payment Adjustment For A Dis-
proportionate Share Hospital. For most hospitals,
the Medicare payment for the operating costs of inpatient
hospital services is based on preset, standardized rates per
discharge, subject to certain adjustments. See 42 U.S.C.
§ 1395ww(d); Baystate, App. 3a. One of the payment
adjustments is the “disproportionate share hospital”
(or ““DSH”) adjustment, which is a percentage add-on to
the standardized rates paid to hospitals that serve a dispropor-
tionate share of low-income patients. 42 U.S.C.
§ 1395ww(d)(5)(F); 42 C.F.R. § 412.106; Baystate, App. 3a.”
2 During the years following congressional authorization of the
DSH payment in 1983, Congress repeatedly expressed concems
about the Secretary’s lack of effort to define a DSH and the
agency’s failure to implement the DSH adjustment “in any
meaningful way.” See H.R. Rep. No. 99-241, at 16 (1986),
reprinted in 1986 U.S.C.C.A.N. 579, 594; see also H.R. Conf.
Rep. No. 98-861, at 1356 (1984), reprinted in 1984 U.S.C.C_A.N.
1445, 2044. Since then, several courts likewise have commented
on the agency's apparent hostility toward the DSH adjustment.
See Portland Adventist Med. Ctr. v. Thompson, 399 F.3d 1091,
1099 (9th Cir 2005) (“This appears to be the latest in a series of
cases in which the Secretary has refused to implement the DSH
provision in conformity with the intent behind the statute.”); Clark
Reg'l Med. Ctr. v. United States Dep't of Health & Human Servs.,
314 F.3d 241, 249 (6th Cir. 2002) (“{T]he Department cannot
simply interpret the [DSH] regulation so as to always disadvantage
the subject hospital.”); Jewish Hosp., Inc. v. Sec’y of Health &
Human Servs., 19 F.3d 270, 276 (6th Cir. 1994) (noting “credible
4
Under the statutory criteria in effect during the periods at
issue here, a hospital’s qualification for a DSH adjustment
and the amount of that adjustment generally are based on the
hospital’s “disproportionate patient percentage.” That
percentage is defined as the sum of two fractions that func-
tion as proxies for inpatient hospital utilization by low-
income individuals. 42 U.S.C. §§ 1395ww(d)(5)(F)(v), (vi).
This case concerns the composition of the numerator of one
of those fractions, the so-called “Medicaid fraction.” As
defined in the Medicare Act, the numerator of a hospital’s
Medicaid fraction for a fiscal year consists of:
[T]he number of the hospital’s patient days for such pe-
nod which consists of patients who (for such days) were
eligible for medical assistance under a State plan ap-
proved under [the Medicaid statute], but who were not
entitled to benefits under part A of [the Medicare statute].
42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added).
3. The Secretary’s Invalid DSH Rule. From the start,
the Secretary’s regulations were at odds with the statutory
definition of the Medicaid fraction. While the statute counts
all days attributable to patients who were “eligible” for
Medicaid but not “entitled” to Medicare benefits, from 1986
through 1997, the Secretary’s DSH _ regulation literally
substituted “entitled” for “eligible.” See 42 C.F.R. §
412.106(b)(4) (1997) (defining the numerator of the Medi-
caid fraction to consist of days attributable to patients who
were “entitled to Medicaid but not to Medicare part A’).
Under this regulation, the Secretary allowed hospitals to
count only those days for which a Medicaid-eligible patient
was entitled to have Medicaid payment made on his or her
behalf. See 51 Fed. Reg. 16,772, 16,788 (May 6, 1986); 51
Fed. Reg. 31,454, 31,460 (Sept. 3, 1986). The effect of the
and compelling” evidence of the agency’s “hostil[ity] to the
concept of the disproportionate share adjustment’’).
5
Secretary’s restrictive interpretation of the DSH statute was
to reduce DSH payments to hospitals, in that a hospital might
not be paid by Medicaid for some portion of a Medicaid-
eligible patient’s stay for any number of reasons having
nothing to do with the patient’s low-income status or eligibil-
ity for Medicaid.3
Between 1994 and 1996, all four of the federal circuit
courts that considered the Secretary’s DSH rule invalidated
it, holding that the regulation was inconsistent with the plain
meaning of the DSH statute because it conflated eligibility
and entitlement.4 See Cabell Huntington Hosp. v. Shalala,
101 F.3d 984, 990 (4th Cir. 1996) (characterizing the Secre-
tary’s regulation as an attempt to “rewrite the wil! of Con-
gress’’ by an agency that has been “hostile from the start to
the very idea of making the payments at issue”). The
Secretary did not seek Supreme Court review of any of the
adverse circuit court decisions; nor did his interpretation
prevail in any other case.
4. Ruling 97-2. On February 27, 1997, the Secretary
issued Ruling 97-2. App. 49a. In that Ruling, issued
3 For example, because Medicaid is the “payer of last resort,”
New York State Dep't of Social Servs. v. Bowen, 846 F.2d 129, 133
(2d Cir. 1988), a Medicaid-eligible patient is not entitled to have
Medicaid payment made if some other person is liable for medical
expenses.
4 See Cabell Huntington Hosp. v. Shalala, 101 F.3d 984 (4th
Cir. 1996); Legacy Emanuel Hosp. & Health Ctr. v. Shalala, 97
F.3d 1261 (9th Cir. 1996); Deaconness Health Servs. Corp. v.
Shalala, 83 F.3d 1041 (8th Cir. 1996) (per curiam); Jevs4 Hosp.,
Inc. v. Sec'y of Health & Human Servs., 19 F.3d 270 (6th Cir.
1994).
5 The version of Ruling 97-2 appended to the petition,
App. 49a, is incorrect. It omits language in the official ver-
sion regarding the binding nature of CMS rulings on
al! components of the agency. A complete version of Rul-
6
without notice and comment, the agency changed its DSH
rule. While insisting that the agency believed that its prior
DSH rule was “permissible,” the agency conceded that it “is
contrary to the applicable law in four judicial circuits.” /d. at
Sia. The Ruling announced the agency’s determination “to
follow the holdings” of the circuit courts and to count all
Medicaid-eligible days in the Medicaid fraction, regardless of
whether the patient was actually entitled to have Medicaid
payment made for those days. /d. at 50a-52a.°
5. The Retroactive Effect of the Ruling. In Ruling 97-
2, the Secretary stated that the agency would count all
Medicaid-eligible days “on a prospective basis.” Jd. at Sla.
That characterization is not entirely accurate. The Ruling
was effective for “hospital cost reports that are settled by
fiscal intermediaries on or after the effective date of this
ruling”—which necessarily included cost reports for prior
years. For example, Ruling 97-2 applied by its terms to a
determination issued after February 1997 with respect to a
hospital cost report filed in 1996 for a fiscal period ending in
1995.
Ruling 97-2 therefore established a new substantive rule for
determining payments made for prior fiscal periods—the
hallmark of a retroactive rule. See Bowen v. Georgetown
ing 97-2 is published on the agency’s website at
http://www.cms.hhs.gov/Rulings/downloads/hcfar972.pdf.
© In 1998, the Secretary amended the DSH regulation to con-
form it to Ruling 97-2. In the accompanying preamble, the
Secretary confirmed that the Ruling had been issued to “acqui-
esce[] in the four adverse appellate court decisions,” 63 Fed. Reg.
25,576, 25,594 (May 8, 1998), and to “change[] the agency’s
statutory construction to comport with those decisions,” see id. and
63 Fed. Reg. 40,954, 40,985 (July 31, 1998). The new regulations,
in turn, were “intended simply to conform the regulations to
HCFA Ruling 97-2 (and hence to the four adverse court deci-
sions).” 63 Fed. Reg. at 40,985.
7
Univ. Hosp., 488 U.S. 204 (1988) (Secretary lacks authority
to promulgate a new rule for determining payments to
hospitals for prior years). The Ruling expressly forbade
reopening of prior DSH payment determinations, however,
App. 52a, regardless of whether such determinations were
within the three-year reopening window when the Ruling
issued.
6. Monmouth. \n Monmouth, App. 31a, the D.C. Cir-
cuit unanimously ruled that mandamus should issue to
compel the Secretary to reopen DSH determinations rendered
within the three-year reopening period that preceded Ruling
97-2. The court of appeals explained that, by issuing the
Ruling without invoking notice and comment rulemaking
procedures, the Secretary had given notice that prior DSH
determinations rendered under the agency’s original interpre-
tation of the statute were “inconsistent with law,” as deter-
mined by all four circuits that had considered the matter. The
Secretary’s notice of inconsistency with law triggered a
mandatory and “automatic” duty to reopen the pnor DSH
determinations under subsection (b) of the Secretary’s
reopening regulations. App. 41a, 45a. The Secretary’s
directive in Ruling 97-2 that no reopenings occur therefore
was a “nullity” in light of the clear legal duty that arose under
his own reopening regulations. /d. at 43a-45a (citing, inter
alia, Dixon v. United States, 381 U.S. 68, 74 (1965)).
The Secretary petitioned the court of appeals to rehear the
case en banc. That petition was denied with no votes in favor
of it, and the Secretary did not seek certiorari.
7. Baystate. Respondents are 26 public and private non-
profit hospitals that sued the Secretary in March 2002,
approximately eight months after the D.C. Circuit decided
Monmouth. They sought relief in the nature of mandamus
compelling the Secretary to reopen DSH payment determina-
tions that were issued within the three-year reopening win-
dow preceding Ruling 97-2, on grounds that, under Mon-
8
mouth, the Ruling triggered mandatory and automatic
reopening under subsection (b).’
The district court granted the hospitals’ motion for sum-
mary judgment. App. 12a. A unanimous panel of the D.C.
Circuit affirmed, App. 1a, concluding that the hospitals were
not required to request discretionary reopening under Section
405.1885(a) in order to qualify for mandatory reopening
under Section 405.1885(b), and that the district court acted
within its discretion in balancing the equities on mandamus
in favor of the hospitals. App. 7a-lla. The Secretary
petitioned for rehearing en banc. That petition garnered no
votes and was denied. The court of appeals later denied the
Secretary’s motion to stay the mandate.
REASONS FOR DENYING THE WRIT
The Secretary’s petition belies his assertion that this case
presents an important federal question warranting this
Court’s attention. Baystate itself poses no such question, as
is evident both from the Secretary’s Question Presented
(which identifies no issues of any broad significance) and
from the text of the petition itself, the bulk of which consists
of a diffuse complaint about no fewer than three unanimous
decisions of the D.C. Circuit. Indeed, the Secretary’s petition
amounts to a generic appeal from the adverse decisions
below. But this Court sits to settle important questions of
federal law, not as an additional appellate option for disap-
pointed litigants.
The writ should be denied for the following reasons:
1. The petition does not urge that the court of appeals’
decision on the narrow question presented in this case—
whether the mandatory duty to reopen under subsection
? By agreement of the parties and the district court, Baystate is
the lead case among approximately 250 similar cases, consolidated
and presently stayed below.
9
(b) should be enforced in the absence of a request for discre-
tionary reopening under subsection (a}—is sufficiently
important to warrant further review. Indeed, that aspect of
the decision is not in conflict with the decision of any court.
2. The prior D.C. Circuit decisions the petition chal-
lenges similarly do not warrant review. The asserted “circuit
split” between Monmouth and Bartlett is shallow and stale.
It is shallow because the split is alleged on a narrow issue in
which just two circuits—one of them by a 2-1 vote—have
disagreed. And it is stale because the issue in both cases
turned on the particular reopening regulation in effect when
the Ruling issued in 1997. That regulation was unique in the
entire Code of Federal Regulations, and the Secretary has
since amended it to resolve the split he complains about here.
3. The petition also alleges a “conflict” between the
D.C. Circuit’s decision nine years ago in Paralyzed Veterans
and two decisions of the First and Ninth Circuits (Pet. 25).
That “conflict” is not presented in Baystate; certiorari should
not be granted to address an issue not presented in this case.
Nor, for that matter, is the asserted conflict a genuine one.
Paralyzed Veterans and the decisions the Secretary contends
are in tension with it all are consistent with this Court’s
precedent. See Shalala v. Guernsey Mem. Hosp., 514 U.S.
87, 100 (1995).
4. The Secretary does not directly challenge the D.C.
Circuit’s holding that the district court acted within its
discretion in finding that the equities in this case weigh in
favor of the hospitals. App. 9a-lla. He does offer seif-
serving allegations about the administrative and financial
impact of this case on his agency, Pet. 27-30, but those
allegations do not support granting certiorari. The petition’s
representations about the potential impact of the decision are
both newly revised from representations previously made and
do not square with statements made since: In his most recent
filing with the district court, the Secretary refused to engage
10
in what he characterized as “rank speculation” about the
impact of the court of appeals’ decision in Baystate.®
5. The D.C. Circuit’s decisions in Monmouth and Bay-
state are correct. Crediting the Secretary’s actions over the
self-serving statements in Ruling 97-2, the court of appeals in
Monmouth properly compelled the agency, consistent with
this Court’s decisions in Morton v. Ruiz, 415 U.S. 199
(1974), and United States ex rel. Accardi v. Shaughnessy,
347 U.S. 260 (1954), to perform the mandatory reopening
duty that arose under the Secretary’s own rules. In addition,
consistent with this Court’s decisions in Bethesda Hospital
Association v. Bowen, 485 U.S. 399 (1988), and Shalala v.
Illinois Council on Long Term Care, Inc., 529 U.S. 1 (2000),
the court of appeals in Baystate did not require the hospitals
to pursue unavailable, futile, and unnecessary administrative
remedies before suing to vindicate their right to mandatory
reopening.
I. THE PETITION IDENTIFIES NO
SIGNIFICANT CONFLICT WITH THE
DECISIONS OF OTHER CIRCUITS.
1. Baystate presents no circuit conflict. Having ruled in
Monmouth that Ruling 97-2 gave notice of inconsistency
with law, triggering the mandatory reopening duty under
subsection (b), the court of appeals held in Baystate that the
obligation to reopen may be enforced against the Secretary
even if the hospitals did not timely request discretionary
reopening under subsection (a).? The court’s decision on this
8 Defendant’s Reply in Further Support of Motion to * 2y
Proceedings, at 9, Misc. No. 03-0090 (D.D.C. Feb. 16, 2006).
9 This holding is not a “dramatic extension” of Monmouth. See
Pet. 9. Monmouth had already held that the reopening guaranteed
by subsection (b) was mandatory and “automatic” upon issuance
of a notice of inconsistency with law. App. 41a, 45a. In light of
that, the holding in Baystate that there was nothing the hospitals
had to do to perfect their reopening right is hardly surprising. See
1]
narrow question does not conflict with any decision of any
other court, including the Tenth Circuit. While the Secretary
generally complains that Baystate was wrong, he quite
properly does not assert that this aspect of the decision-—the
only new issue preseated in Baystate—warrants this Court’s
attention. See Pet. 22-30.
2. The conflict about which the Secretary complains is
instead between the portion of Baystate that relies on the
prior unanimous decision in Monmouth, and the Tenth
Circuit’s split panel decision in Bartlett. That shallow split
does not raise any important question of federal law.
To begin with, the underlying conflict between Monmouth
and Bartlett, such as it is, does not relate to whether manda-
mus jurisdiction is available or to the requirements for
mandamus relief. Nor is there any conflict between Mon-
mouth and the Bartlett majority over whether subsection (b)
requires reopening upon issuance of the requisite notice of
inconsistency with law. Both courts agree that it does.
Monmouth and Bartlett part ways only on the narrow ques-
tion whether Ruling 97-2 in fact gave notice of inconsistency
with law and whether subsection (b) required specific intent
on the Secretary’s part to compel reopening when the notice
was issued. See Bartlett, 347 F.3d at 839 (rejecting Mon-
Baystate, App. 8a. After the panel decision in Menmouth, more-
over, the Secretary plainly was not operating on the assumption
that it would take a “dramatic extension” of that decision to visit
substantial liability on the agency. In fact, the Secretary’s unsuc-
cessful petition for rehearing en banc in Monmouth included the
assertion that the impact of that decision “could total as much as
$3.25 billion.” Petition for Rehearing and Suggestion for Rehear-
ing En Banc, at 3, Nos. 00-5109 & 00-5110 (D.C. Cir. Sept. 10,
2001). The Secretary’s failure to seek certiorari then, when the
agency was estimating an even greater impact than what it fore-
casts now (see Part III, infra), belies the Secretary’s assertion that
the Monmouth decision is sufficiently important to warrant review
on certiorari now.
12
mouth “because it makes assumptions about the premises and
intended effect of Ruling 97-2 that do not comport with fact
or with the clear intention of the Secretary”) (emphasis
added). That narrow disagreement does not warrant review
by this Court. S. Ct. Rule 10; cf United States v. Johnston,
268 U.S. 220, 227 (1925) (this Court “dofes] not grant a
certiorari to review evidence and discuss specific facts”’).
Whatever difference there is between the Tenth and D.C.
Circuit panels over the 1997 version of subsection (b) also
has little, if any, continuing significance. _ The Secretary
amended his reopening regulation in 2002; since then, a
notice of inconsistency with law will only trigger reopening
in the Medicare context if it is accompanied by an express
direction to reopen from the Secretary. Compare 42 C.F.R.
§ 405.1885(b) (1997) with 42 C.F.R. § 405.1885(b) (2002).
The Secretary thus has resolved the Monmouth/Bartlett split
himself, ensuring that Monmouth and Baystate will not
require reopening with respect to Medicare notices issued
after 2002. '° Nor is the issue likely to recur in other con-
texts; the Secretary cites no other regulation anywhere in the
Code of Federal Regulations (and respondents are unaware of
any) that operates as subsection (b) once did—to compel
reopening solely upon the issuance of a notice of inconsis-
tency with law.
3. The next “conflict” the Secretary alleges is between a
statement in the D.C. Circuit’s 1997 decision in Paralyzed
Veterans and two later decisions of the First and Ninth
Circuits (in 1998 and 2004, respectively). There is no
genuine conflict here, either. First of all, the statement with
10 The “additional mandamus litigation” that the Secretary
identifies (Pet. 29-30) relates to other agency actions preceding his
2002 amendments to the reopening rules. “{T]he Secretary believes
that the 2002 amendments to the reopening rule should prevent
future mandamus actions to force reopening in cases governed by
the amended rule.” Pet. 27.
13
which the Secretary takes issue was, the Secretary concedes,
“dictum” in Paralyzed Veterans, only “later elevated * * * to
a holding” in Alaska Professional Hunters v. FAA, 177 F.3d
1030 (D.C. Cir. 1999). See Pet. 24 n.5. Second, certiorari
was sought in Paralyzed Veterans and was denied. 523 U.S.
1003 (1998). And third, the later First and Ninth Circuit
decisions allegedly in “conflict” with Paralyzed Veterans
both endorse the proposition, stated in that case and in the
earlier case of American Mining Congress v. Mine Safety and
Health Administration, 995 F.2d 1106, 1112 (D.C. Cir.
1993), that interpretive rules that effectively change agency
regulations require notice and comment rulemaking. See
Erringer v. Thompson, 371 F.3d 625, 632 (9th Cir. 2004)
(applying the principle that a rule is legislative and therefore
requires notice and comment rulemaking if it is inconsistent
with another rule having the force of law); Warder v. Sha-
lala, 149 F.3d 73, 80-81 (lst Cir. 1998) (same).'' That
proposition is entirely consistent with this Court’s opinion in
Guernsey Memorial Hospital, 514 U.S. at 100. And it is that
settled principle that applies here—effective amendment of a
substantive rule by an interpretive rule—not just amendment
of one interpretive rule by another, which is the narrow
application of Paralyzed Veterans that the Secretary chal-
lenges. Pet. 25. See infra at 25-27.
For that reason, this is not the case to address Paralyzed
Veterans, even if there were a question worth addressing. In
light of Guernsey, Paralyzed Veterans is not needed to
support Monmouth's holding regarding the operative effect
of Ruling 97-2. The D.C. and Tenth Circuits in any event did
not split over Paralyzed Veterans in Monmouth and Bartlett.
And most important, Paralyzed Veterans is not at all relevant
to Baystate’s narrow holding. Any conflict between Para-
'!_ The Secretary does not challenge Monmouth’s observation
(App. 44a) that the codified DSH regulation that Ruling 97-2
changed was indeed a “legislative rule.”
14
lyzed Veterans and the decisions of other circuits is best left
to be addressed in a-case in which the challenged principle
stated in Paralyzed Veterans is actually at issue. Cf The
Monrosa v. Carbon Black Export. Inc., 359 U.S. 180 (1959)
(Court was compelled to dismiss a writ of certiorari as
improvidently granted when the question presented in the
petition tu. aed out not to be presented in the case).
Il. THE COURT OF APPEALS’ DECISIONS
ARE CONSISTENT WITH THE DECISIONS
OF THIS COURT.
1. The Secretary argues that Monmouth and Baystate
undermine important administrative interests in finality, in
conflict with decisions of this Court. Pet. 21-22 (citing Your
Home, 525 U.S. 449, Pittston Coal Group v. Sebben, 488
U.S. 105 (1988), and JCC v. Brotherhood of Locomotive
Engineers, 482 U.S. 270 (1987)). That is not correct; Mon-
mouth and Baystate are fully consistent with this Court’s
decisions regarding finality.
The cases the Secretary cites are demonstrably inapposite.
Respondents are not trying to secure judicial review of an
agency’s refusal to grant a request for discretionary reopen-
ing, as was the case in Locomotive Engineers and Your
Home. Nor are the hospitals trying to pursue an unauthorized
further review of a determination the agency is under no
obligation to reopen again, as was the case in Sebben, 488
U.S. at 110, 121-22. Rather, respondents brought this action
to vindicate their right to the mandatory reopening required
by the Secretary’s own regulations upon a notice of inconsis-
tency. Monmouth and Baystate are predicated on the notice
of inconsistency with law the Secretary gave when he issued
Ruling 97-2 and the sui generis reopening regulation in effect
when that notice was given.
In view of the plain meaning of subsection (b) of the Secre-
tary’s 1997 reopening regulation, the rest of what the Secre-
tary has to say about the importance of “finality” is beside
15
the point. And, as there appears to be no other federal
regulation that operates as subsection (b) once did, the D.C.
Circuit’s decisions in Monmouth and in this case could not
possibly have any “chilling” effect on any agency’s decision
to acquiesce in judicial decisions in the future, as the Secre-
tary suggests.
2. The D.C. Circuit also acted consistent with this
Court’s precedents when it properly compelled the Secretary
to follow his own rules. The Secretary suggests that Mon-
mouth and Baystate are “in tension” with this Court’s deci-
sions in Your Home and Thomas Jefferson University v.
Shalala, 512 U.S. 504 (1994). According to the petition, the
agency was under no obligation to issue a notice of inconsis-
tency with law, and the court of appeals therefore should
have deferred to the Secretary’s statement in Ruling 97-2 that
‘his “acquiescence” was “prospective.” Pet. 13-17. But the
question in Monmouth was not whether the Secretary was
required to give notice; it was whether he did give notice and
what obligations follow from that act.
The D.C. Circuit correctly determined in Monmouth that
whatever else the Secretary may have said when he issued
the 1997 Ruling, his determination to follow the holdings of
the four circuit courts that ruled the prior DSH rule invalid,
together with the manner in which he effected that acquies-
cence, in fact gave notice of inconsistency and thereby
triggered a mandatory duty to reopen under Section
405.1885(b). This Court’s precedents do not require or
permit -the lower courts to privilege an agency’s contradic-
tory and self-serving pronouncements over the clear dictates
of its regulations. “[I}t is incumbent upon agencies to follow
their own procedures * * * even where the internal proce-
dures are possibly more rigorous than otherwise would be
required.” Morton v. Ruiz, 415 U.S. 199, 235 (1974). See
Accardi, 347 U.S. at 267-68 (requiring agency adjudicative
board to exercise its own d‘scretion as required by regulation,
16
despite contrary direction by Attorney General as head of the
agency).
The Secretary also expresses the view that his acquiescence
in Ruling 97-2 put the agency in a worse position than it
would have been in had it continued to litigate the validity of
the original DSH rule after its first four appellate losses.
That lament is difficult to credit, for it again amounts to
nothing more than a complaint about the requirements of the
Secretary's own rules. See United States v. Nixon, 418 U.S.
683, 696 (1974) (so long as a “regulation remains in force,
the Executive Branch is bound by it, and indeed the United
States as the sovereign composed of the three branches is
bound to respect and to enforce it”). !2
3. Monmouth and Baystate are also fully consistent with
this Court’s decisions excusing exhaustion of unavailable or
futile administrative remedies. The Secretary therefore is
incorrect in contending that the decisions ran afoul of Heck-
ler v. Ringer, 466 U.S. 602 (1984), because the hospitals had
not pursued appeals prior to Ruling 97-2 and had not re-
quested discretionary reopening under Section 405.1885(a).!3
12 The Secretary’s revocation of his unlawful regulation came
too late, in any event, for thousands of other prior erroneous DSH
deterrninations that were final and beyond the three-year reach of
any reopening by the time the Ruling issued.
13 The Secretary also complains that the hospitals waited five
years after Ruling 97-2 to seek relief in district court. Pet. 20.
However, the hospitals sued only eight months after Monmouth
made clear that the hospitals did indeed have a cause of action for
reopening, despite the Ruling’s express bar to reopening. The
hospitals acted within the applicable statute of limitations, and the
Secretary does not challenge the D.C. Circuit’s finding that the
Secretary suffered no prejudice from the hospitals’ alleged
“delay.” Baystate, App. 9a
17
in the first place, it is irrelevant whether the hospitals in
Monmouth and in this case took direct appeals from DSH
payment determinations issued before Ruling 97-2. As in
Monmouth, the hospitals in this case seek to compel reopen-
ing of their payment determinations under a separate regula-
tory mechanism. The question is not whether the hospitals
did all they could to “vindicate their claims to payment,” Pet.
13, but rather, as Monmouth properly framed it, “whether
[the hospitals] have done all they can to vind»cate their right
to reopening.” Monmouth, App. 45a (emphasis added)
(quoted with approval in Bartlett, 347 F.3d at 837).
The only reopening that a hospital has any role in initiating
is discretionary reopening under subsection (a), Pet. 14, and
as the D.C. Circuit correctly concluded in both Monmouth
and this case, that avenue was foreclosed before and after
Ruling 97-2. App. 35a. Before the Ruling, the applicable
DSH regulation prohibited intermediaries from counting
Medicaid-eligible days in the DSH payment calculation
unless the patient was also entitled to Medicaid payment.
After that rule was revoked, the Ruling itself expressly
forbade the Secretary’s intermediaries from granting provider
requests for reopening. Pet. 5,9. See 42 C.F.R. § 401.108.
As the Secretary properly conceded below, the Medicare
“intermediaries were not at liberty to ignore this bar even if
they believed the ruling amounted to a notice of inconsis-
tency.” Baystate, App. 8a. Moreover, following the Court’s
decision in Your Home, 525 U.S. 449, hospitals have no right
to administrative review of an intermediary’s refusal to grant
a request for discretionary reopening under subsection (a).
The Secretary nevertheless argues that the Baystate hospi-
tals should have sought discretionary subsection (a) reopen-
ing anyway, if for no o*>er reason than to “at least claim an
equitable tochold to invoke mandamus.” Pet. 20. Whatever
that means, it is not the law. Exhaustion principles do not
require hospitals to make futile requests for reopening before
they can bring suit to compel reopening. See Bethesda Hosp.
18
Ass'n, 485 U.S. at 404 (hospitals are not required to request
that their intermediaries grant relief proscribed by the Secre-
tary’s rules).!4
The question that matters in this case is what the Secre-
tary’s own rules required the agency to do in a mandatory
subsection (b) reopening. Subsection (b) reopenings occur
automatically upon the Secretary’s notice of inconsistency.
Under the Secretary’s reopening regulations, there is nothing
the provider must do to secure mandatory reopening; indeed,
there is nothing the provider can do. The D.C. Circuit
correctly concluded as much in Baystate when it found that
the respondent hospitals did not first need to request discre-
tionary reopening under subsection (a) before compelling
mandatory reopening under subsection (b).
14 The Secretary also suggests that, futile as it would have been,
the hospitals nonetheless should have requested reopening in order
to satisfy the “presentment” requirement of 42 U.S.C. § 405(g).
Pet. 20. Presentment, however, is a prerequisite only for the
statutory judicial review that follows a final determination by the
Secretary on a claim for benefits, after the administrative hearing
provided for under the Medicare Act. See Ringer, 466 U.S. at 617
(“[T]he exhaustion requirement of § 405(g) consists of a nonwaiv-
able requirement that a ‘claim for benefits shall have been pre-
sented to the Secretary’”) (quoting Mathews v. Eldridge, 424 U.S.
319, 328 (1976)). This, of-course, is not such a claim; this is a
mandamus action to compel reopening required by the Secretary’s
regulations and unlawfully withheld. Cf Shalala v. Illinois
Council on Long Term Care, Inc., 529 U.S. 1, 19 (2000) (noting an
exception to the statutory preclusion of federal question jurisdic-
tion over claims arising under the Medicare Act when there is no
available administrative remedy for vindication of the right
plaintiffs seek to secure).
19
fil. THE SECRETARY’S UNSUPPORTED
ALLEGATIONS CONCERNING THE
FINANCIAL AND ADMINISTRATIVE
IMPLICATIONS OF THIS CASE PROVIDE
NO BASIS FOR CERTIORARI.
1. The lower courts rejected the Secretary’s argument
that the economic impact of an adverse decision in Baystate
counseled against mandamus relief, and those discretionary
rulings go unchallenged even now. See Pet. 29. Yet the
petition asserts, post hoc and without citation to any evidence
in the record, that the decision in this case warrants review
because it might possibly result in liability of $2.8 billion and
may impose administrative burdens on the agency and its
fiscal intermediaries. Pet. 27. The various figures the
Secretary cites for support were not presented to the district
court or the court of appeals. Respondents object to each
such assertion pursuant to Supreme Court Rule 15.2.
2. The Secretary’s self-described “speculation” about
Baystate’s possible financial impact also has been inconsis-
tent, to say the least. When the Secretary petitioned for en
banc review of the panel’s decision in Monmouth, he said at
the time that the impact of that decision “could total as much
as $3.25 billion.” !5 He later told the district court in Baystate
that relief should not be granted because there is “‘no guaran-
tee that the end result would necessarily produce any finan-
cial benefit to the hospital.”'® In the court of appeals, this
“zero liability” estimate grew to $1 billion, App. Ila, and
15 Petition for Rehearing and Suggestion for Rehearing En
Banc, at 3, Nos. 00-5109 & 00-5110 (D.C. Cir. Sept. 10, 2001).
16 Defendant’s Memorandum in Support of His Motion to
Dismiss, at 15-16, No. 02-00601 (D.D.C. july 30, 2002) (emphasis
added).
20
then to “at least $1.5 billion” by the time the Secretary sought
rehearing. !7
Since last August, the Secretary has nearly doubled that
estimate in service of his arguments for certiorari, offering
“$2.8 billion” as the outcome of his examination of the
“actual” DSH payment records of the “affected hospitals.”
Pet. 27 n.7.'8 And yet, on February 16, the Secretary told the
district court that his agency cannot at this time identify a
single case or category of claims where the hospitals in the
consolidated cases would be entitled to relief under the D.C.
Circuit’s decision in Baystate:
Until Baystate is finally resolved, there is no
way of knowing what categories of claims, if
any, might be entitled to relief in these con-
solidated cases, or for that matter, what issues
would be raised by different categories of
claims. Consequently, any attempt to come
up with abstract “categories” and procedures
for determining which claims fit into which
catégories would be a pointless exercise in
rank speculation.
See Defendant’s Reply in Further Support of Motion to Stay
Proceedings, at 9, Misc. No. 03-0090 (D.D.C. Feb. 16, 2001)
(emphasis added).
17 Appellant’s Petition for Rehearing En Banc, at 2, No.
04-5203 (D.C. Cir. Aug. 15, 2005).
18 But compare Defendant's Reply in Further Support of Mo-
tion to Stay Proceedings, at 4, Misc. No. 03-0090 (D.D.C. Feb. 16,
2001) (stating to the district court that the estimated financial
impact of the court of appeals’s decision “is not based on (and
defendant did not conduct) an individualized ‘investigation’ of the
underlying factual and legal merits of all 2,300 or so fiscal period
claims raised in this litigation”).
21 ‘
3. The petition also exaggerates the purported adminis-
trative burdens associated with the decision below. To begin
with, as the D.C. Circuit observed, the burden is on the
hospitals to justify their entitlement to additional DSH
payment, not the other way around. App. !0a. Moreover,
correcting the DSH calculation is not “exceedingly complex”
(Pet. 28); it involves a single change to just one variable
term—the number of Medicaid-eligible days—that appears
on a single line of each hospital’s Medicare cost report. The
agency’s protest about the “audit hours” that it (or more
precisely, its fiscal intermediaries) will spend in processing
the required reopenings is not only unsupported by record
evidence but is also overblown and misleading.'? The same
is true of the Secretary’s complaint about the number of
items listed on provider cost reports.*° And, in any event, as
the district court and D.C. Circuit both observed, any in-
creased burden on the Secretary does “ ‘not outweigh the
public’s substantial interest in the Secretary’s following the
law.’” App. 10a.
19 The Secretary has at his disposal several tools, like sampling
or the use of other reasonable proxies, that can be employed to
minimize the administrative burden of reopening. See, e.g., St.
Joseph's Hosp. v. BlueCross BlueShield Ass'n, {2004 Transfer
Binder] Medicare & Medicaid Guide (CCH) 4 81,265 at 203,872
(CMS Adm’r 2064) (fiscal intermediary conducted a small-sample
review of patient days to determine hospital’s DSH payment);
Barnes Hosp. v. Mutual of Omaha, [1994 Transfer Binder]
Medicare & Medicaid Guide (CCH) 4 42,592 at 41,421-22 (HCFA
Adm’r 1994) (applying a 1964 agreement, a 1992 amendment to
the agreement, and a 1990 time study as proxies for establishing
the cost of teaching residents in 1984).
20 The vast majority of entries on a cost report go to the re-
quired reporting of the costs of services furnished to Medicare
beneficiaries. In almost all cases, these items no longer have any
bearing on payment to the provider; nearly all institutional provid-
ers today are reimbursed by Medicare under a prospective payment
system that does not vary based on cost.
22
4. Finally, whatever the economic or administrative impact
of the decision in this case, the salient fact is that the DSH
payments at stake are funds that Congress intended the
Secretary to pay to the mostly non-profit and governmental
hospitals that typically qualify for these DSH payments
because they incur higher costs treating a large proportion of
low-income and uninsured patients.
Like all of the hospitals in the case, the great majority of
the hospitals involved in the consolidated cases before the
district court are non-profit, governmental or religious
institutions that are located in urban areas and provide care
not only for low-income Medicare and Medicaid patients but
also for the millions of other low-income, uninsured pa-
tients.2!_ These hospitals provide a crucial safety net in our
health care system, and they incur substantial financial stress
in providing high-risk care to low-income patients. Indeed,
just during the pendency of this litigation, at least three of the
plaintiff hospitals in the consolidated cases have gone into
bankruptcy.22
There will be no “windfall” to these hospitals as a result of
the rulings below; if anything, the hospitals are still going to
come up well short of being fully reimbursed for the critical
services they provided long ago. Whatever the amount at
stake in these cases, it represents only the additional pay-
ments that were owed but not paid to the hospitals in unlaw-
ful Medicare payment determinations issued in the three
21 See Robin A. Cohen, PhD, Michael E. Martinez, M.P.H.,
Centers for Disease Control, Health Insurance Coverage: Esti-
mates from the National Health Interview Survey, January —
March 2005, at | (2005) (reporting that 41.7 million persons were
uninsured in early 2005).
22 The hospitals are Osteopathic Medical Center of Texas, St.
Vincent’s Catholic Medical Center of New York, and United
Hospital Medical Center of New York.
23
years preceding Ruling 97-2. Even as to those sums that are
recoverable, the hospitals will never recoup the substantial
lost time value of money, as the Medicare Act does not
provide for interest on the additional payments due upon
reopening. And DSH_payments for prior years back to 1986
that were not subject to reopening when Ruling 97-2 issued
will never be recouped, despite the fact that the Secretary’s
old DSH rule was just as unlawful then as it is now.
When he declined to seek certiorari in Monmouth, the
Secretary apparently understood that not even substantial
estimated liability provided a sound basis to seek this Court’s
review of the D.C. Circuit’s unanimous decision. That
reasoning should prevail all the more now. As the Secretary
conceded below, “Congress imposed on the Secretary a clear
statutory duty to pay the hospitals these funds.” Baystate
App. Ila. And, as the court of appeals concluded: “Having
to pay a sum one owes can hardly amount to an equitable
reason for not requiring payment.” /d.
IV. THE D.C. CIRCUIT CORRECTLY DECIDED
MONMOUTH AND BAYSTATE.
1. The D.C. Circuit correctly decided Monmouth. The
court properly construed and enforced the Secretary’s
reopening regulation in light of the notice of inconsistency
that the agency gave through Ruling 97-2. Consistent with
the interpretive framework articulated in Thomas Jefferson
University, the court correctly discerned the meaning and
requirements of subsection(b) from its plain text and
context.
The Secretary argues that subsection (b) did not require
reopening unless the Secretary specifically directed interme-
diaries to reopen. But the text of the regulation itself (before
the 2002 amendments) did not require any such express
directive, and for good reason. The Secretary maintains that
he has, and has always had, the “inherent authority to direct
the actions of our own agents [i.e., the fiscal intermediaries]
24
with respect to reopening matters under § 405.1885(a)”—the
discretionary reopening provision. 67 Fed. Reg. 49,982,
50,096 (Aug. 1, 2002). That being the case, subsection (b)
would serve no purpose not already subsumed within subsec-
tion (a) if subsection (b) were construed to require specific
intent to reopen in addition to a notice of inconsistency with
law. Because the Secretary already has inherent authority to
cause his intermediaries to reopen under subsection (a) when
that is what he intends to do, the D.C. Circuit was correct in
declining to construe subsection (b) as serving a wholly
redundant role. See Carus Chem. Co. v. EPA, 395 F.3d 434,
441 (D.C. Cir. 2005).?3
The D.C. Circuit also properly found that Ruling 97-2 gave
notice of inconsistency with law as contemplated by subsec-
tion (b). That Ruling expressly announced the agency’s
determination to follow the uniform holdings of four circuit
courts that the Secgetary’s prior rule was inconsistent with
the plain meaning of the controlling statute. Notably, the
Ruling did not and could not say that the prior DSH rule was
valid; it said only that the agency “believes” that it was a
“permissible reading of the statutory language.” App. 5la.
All four circuit courts that considered the question had held
otherwise. See Monmouth, App. 44a (‘As a general rule, it is
for the courts to determine whether or not a regulation is
invatid.”’). If the prior DSH rule really were valid, moreover,
23 The Secretary cites language in the preamble to the first
iteration of a prior version of his reopening regulations in 1972, to
the effect that mandatory reopening occurs upon “request” of the
agency. Pet. 15 (quoting 37 Fed. Reg. 10722, 10723 (May 27,
1972)). However, the preamble does not state that such reopenings
could occur “only” upon request, as the Secretary erroneously
states. Jd. More importantly, the text of the actual regulation—as
was always the case until the 2002 amendments—contains no
mention of any “request.” Rather, the regulation makes mandatory
reopening dependent on notification of inconsistency. 20 C.F.R.
§ 405.499g (1972); 20 C.F.R. § 405.1885(b) (1974).
25
then the Secretary simply could not have changed the rule
without advance notice and comment rulemaking, made the
new rule effective immediately in all circuits, and applied it
not only prospectively but also retroactively to at least some
prior fiscal years. But that is exactly what the Secretary did
when the agency issued Ruling 97-2.
As Monmouth correctly concluded, App. 42a-43a, the
issuance of the Ruling without notice and comment rulemak-
ing could only have been permissible if the Secretary’s prior
interpretation was in fact a nullity, and if the Ruling were
understood to convey notice of that fundamental inconsis-
tency with law. See Dixon v. United States, 381 U.S. 68, 74
(1965); Manhattan Gen. Equip. Co. v. Comm'r, 297 U.S.
129, 134-35 (1936) (an amended regulation may apply to
prior transactions that occurred when a prior, invalid rule was
in place because a regulation that does not “carry into effect
the will of Congress” but instead “operates to create a rule
out of harmony with the statute, is a mere nullity”).
In so holding, the D.C. Circuit also properly applied the
sound principles reflected in Paralyzed Veterans. Paralyzed
Veterans and its progeny stand for the unremarkable proposi-
tion that the APA requires notice and comment when an
agency revises a putatively interpretive rule to such an extent
that it has effectively amended a substantive rule. See, ¢.g.,
Alaska Prof’l Hunters Assoc. v. FAA, 177 F.3d 1030, 1034
(D.C. Cir. 1999). That proposition is consistent with this
Court’s opinion in Guernsey Memorial Hospital—a case the
Secretary curiously chooses not to cite despite the D.C.
Circuit’s reliance on it in Paralyzed Veterans. As this Court
explained in Guernsey, “APA rulemaking would still be
required if [the interpretive rule] adopted a new position
inconsistent with any of the Secretary’s existing regulations.”
26
514 U.S. at 100. Guernsey fully supports the court of ap-
peals’ decision in Monmouth.24
Indeed, whether Ruling 97-2 itself is deemed substantive or
merely interpretive in form, there is no question that the
Ruling effectively changed the underlying substantive DSH
regulation codified at 42 C.F.R. § 412.106(b)(4). The
regulation in effect when the Ruling issued allowed hospitals
to count only those days for which a Medicaid-eligible
patient was “entitled” to have Medicaid payment made on his
or her behalf. Ruling 97-2 adopted a new rule permitting a
hospital to count all Medicaid-eligible days, regardless of
whether the patient was entitied to have Medicaid payment
made for those days. App. 51a-52a.
If there were any doubt that Ruling 97-2 effectively
amended the DSH regulation, it was eliminated in 1998,
when the Secretary promulgated a new DSH regulation (after
notice and comment) stating that, for cost reporting periods
beginning on or after October 1, 1998, the numerator of the
Medicaid Fraction would include days attributable to patients
who were “eligible” for Medicaid but not entitled to Medi-
care Part A benefits. 63 Fed. Reg. 40,954, 41,004 (July 31,
24 No precedent supports the Secretary’s idea that the APA’s
notice and comment rulemaking requirements were inapplicable to
Ruling 97-2 because the ruling worked to the benefit of some
providers. Pet. 26. If they had been given the chance, some
Medicare providers that are not DSH hospitals might have had
something to say about the new rule benefiting their competitors,
and if DSH hospitals had been given the chance, they might have
objected to the Ruling’s purported ban on reopening. But, more
importantly, it is not for an agency to decide unilaterally whether
those affected by a proposed rule (adversely or otherwise) deserve
advance notice and an opportunity to comment on the rule. The
exception the Secretary apparently desires would swallow the
APA’s notice-and-comment rulemaking requirements.
27
1998).25 The Secretary made clear that the agency was
making this substantive change “to conform the regulations
to HCFA Ruling 97-2 (and hence to the four adverse circuit
court decisions),” and indeed, expressly left Ruling 97-2
itself in place as the governing substantive rule for cost
reporting periods beginning before October 1, 1998. Jd. at
40,985. Thus, the D.C. Circuit properly called the Secre-
tary’s action for what it was despite some of what the Secre-
tary said when the Ruling issued. The Secretary’s desire for
a replay does not warrant review on certiorari.
Monmouth’s result also follows from the retroactive reach
of Ruling 97-2. Despite the Secretary’s claim that the
_agency’s acquiescence was only “prospective,” Ruling 97-2
plainly supplied a new rule not only for future periods, but
also for prior periods that had not yet been settled when the
Ruling was issued in February 1997. In terms of its retroac-
tive effect, then, the 1997 Ruling is not different in any
material respect from the retroactive rule invalidated by this
Court in Bowen v. Georgetown University Hospital, 488 U.S.
204 (1988). Like the 1984 cost limit schedule at issue in
Georgetown, the 1997 Ruling established a new substantive
standard applicable to payments to hospitals for services
rendered in prior periods. Just as the cost limit schedule in
25 The Secretary is incorrect to the extent he suggests that the
1998 notice-and-comment rulemaking transformed Ruling 97-2
from a confession of past legal error to a purely prospective change
in the law. Pet. 26 n.6. Ruling 97-2 was a fait accompli by the
time the new regulations were offered for comment, and comment
on the Ruling itself (including its purported ban on reopening) was
not invited. See Nat'l Tour Brokers Ass'n v. United States, 591
F.2d 896, 902 (D.C. Cir. 1978) (invalidating ICC rulemaking
where comments were sought only after rules were finalized; “We
doubt that persons would bother to submit their views, or that the
Secretary would seriousiy consider their suggestions after the
regulations are a Fait accompli.”) (internal quotations and citation
omitted).
28 -
Georgetown applied retroactively to payments for services
rendered during a period beginning July 1, 1981, Ruling 97-2
applied retroactively to payment for services rendered in cost
reporting periods that ended before February 1997 but were
settled after that date.
Under Georgetown, the Secretary simply does not have
authority to promulgate a rule with retroactive effect, unless
the new rule merely supplants a rule that was invalid because
it conflicted with the statute itself. See Manhattan Gen.
Equip. Co., 297 U.S. at 135. The Secretary’s determination
to proceed retroactively in Ruling 97-2 thus furnishes another
independent reason to sustain Monmouth’s reading of Ruling
97-2 as a concession by the Secretary that his old rule was
unlawful.
Indeed, that concession appears on the face of the Ruling.
Although the Secretary describes Ruling 97-2 as merely a
“prospective acquiescence” in four adverse circuit rulings,
Pet. 18, it is not possible to “acquiesce” in or determine to
“follow the holdings” of those particular decisions only
“prospectively.” App. 49a-50a. The circuit courts uniformly
held that the Secretary’s interpretation of Medicaid-eligible
days was contrary to statute. The Secretary cannot “prospec-
tively acquiesce” in decisions that, by their very terms,
require the conclusion that the Secretary’s interpretation was
never lawful.
29
For all these reasons, it was perfectly appropriate for the
D.C. Circuit to credit what the Secretary actually did when
the agency issued Ruling 97-2——that is, notify his intermedi-
aries that his old rule was inconsistent with law—over some
of what the agency said it was doing at the time. Courts
review agency action, not the agency’s own self-serving
characterizations.2° The agency’s professed “belief” that its
prior DSH rule was permissible (see App. 51a) is not incom-
patible with the D.C. Circuit’s conclusion that the Ruling
gave notice that the prior rule nevertheless was, in fact,
inconsistent with the plain meaning of the DSH statute.
2. Baystate also was correctly decided. Following Mon-
mouth, the only additional question raised by Baystate was
whether the respondent hospitals were entitled to the fanda-
tory reopening due them under subsection (b) if they did not
request discretionary reopening under subsection (a). Notice
of inconsistency with law is the only stated “precondition”
that “triggers” the reopening obligation under the reopening
regulation that was in effect in 1997. See 67 Fed. Reg. at.
50,096-97. The Secretary tacitly admitted as much when he
amended his reopening regulations in response to Monmouth
without suggesting that a hospital must request reopening as
a precondition to mandatory reopening under subsection (b).
See id. The D.C. Circuit therefore was correct in holding
that no additional conditions beyond a notice of inconsis-
tency were necessary to trigger mandatory reopening.
26 See Appalachian Power Co. v. EPA, 251 F.3d 1026, 1033
(D.C. Cir. 2001) (“whether an agency has in fact reopened an issue
{for comment] is dependent upon the entire context of the rulemak-
ing including all relevant proposals and reactions of the agency,
and not just on the agency’s stated intent’’) (internal quotations and
citation omitted).
30
CONCLUSION
For the foregoing reasons, the Petition should be denied.
Respectfully submitted,
CATHERINE E.STETSON * CHRISTOPHER L. KEOUGH
HOGAN & HARTSON L.L.P. JOHN M. FAUST
555 13th Street, NW. STEPHANIE A. WEBSTER
Washington, DC 20004 VINSON & ELKINS L.L.P.
(202) 637-5600 1455 Pennsylvania Ave., N.W.
Washington, DC 20004
(202) 639-6500
*Counsel of Record
Counsel for Respondents Baystate
Health Systems, et al.
February 2006
( ) ) ‘ ~
. ?
’ e
No. 05-936 hee
In the Supreme Court of the Gnited States
MICHAEL O. LEAVITT, SECRETARY OF HEALTH
AND HUMAN SERVICES, PETITIONER
v.
BAYSTATE HEALTH SYSTEMS, DBA BAYSTATE
MEDICAL CENTER, ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
REPLY BRIEF FOR THE PETITIONER
PAUL D. CLEMENT
Solicitor General
Counsel of Record
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
~
TABLE OF AUTHORITIES
Cases: Page
Bartlett Mem'l Med. Ctr., Jue. v. Thompson,
O47 F.20 S28 (100 Civ. 2008) .... cc ccc cccccsccs 2
Bowen v. Georgetown Univ. Hosp.,
Ce 10
Cabell Huntington Hosp., Inc. v. Shalala,
ge A ee | 6
Cheney v. United States Dist. Ct.,
TED, Sade vcs csevocbecvecsereyes 3
Erringer v. Thompson, 371 F.3d 625 (9th
I kn, sshd d paw anseesbsveceresesee 3
Heckler v. Ringer, 466 U.S. 602 (1984) ............ 7
Jewish Hosp., Inc. v. Secretary of HHS, 19 F.3d
AMES Vwatvecey sve vevccceececeess 6
MCI v. AT&T, 512 U.S. 218 (1994) ........ weluesan 2
Monmouth Med. Ctr. v. Thompson, 257 F.3d
CE ES cca ciedavvsvecvevcees 1,2
Paralyzed Veterans of Am. v. D.C. Arena
L.P., 117 F.3d 579 (D.C. Cir. 1997), cert.
TNE, De Uo. RO CLMOO) 2. ccc ccc cc ccceccees l
Plaut v. Spendthrift Farm, Inc.,
OO EMMOD ei phous ova'evescveevecsees 10
Scheidler v. NOW, 1268S. Ct. 1264 (2006) ........... x
Shalala v. Guernsey Mem Hosp.,
EE 3
Thomas Jefferson Univ. v. Shalala, 512 U.S.
ee EC bcc dics oe ees aacve nt i)
United States v. Mendoza 464 U.S. 154
Re eens 2Os b's bab ove 6 Vo «00h oon 08 4
l’nited States v. Recio, 53
~I
—
Ta
Iw
~1
-~
—_
|)
=
>
w
tw
(1)
I]
Case—Continued: Page
Your Home Visiting Nurse Servs., Ine. v.
Shalala, 525 U.S. 449 (1999). 2. cc ccc cee ccess 8
Statutes and regulation:
Medicare Act, Tit. XVIII, 42 U.S.C. 1395 et seq.:
Ge Recs SICA. b iuadinedeeedeueesnanxa cs 2
Se Sdn PE: Scabies cee nisnsbandssweneee 2
42 C.F.R.:
OCTET GER OUR - 0 hd vcbedna dst recasvins 4,7,8
eens A SOD os d's oid aro Wee eh ddewe 4,8,9
Miscellaneous:
Christopher L. Keogh, CMS Reverses
Application of Payment-Reduction
~'actor to Part B Inpatient Ancillary
Services Healthcare Fin. Mgmt. (2002) ........ 6
REPLY BRIEF FOR THE PETITIONER
The court cf appeals, based on its prior decisions in
Monmouth Medical Center v. Thompson, 257 F.3d 807 (2001),
and Paralyzed Veterans of America v. D.C. Arena L.P., 117
*.3d 579 (1997), cert. denied, 523 U.S. 1003 (1998), has held
that the Secretary must reopen Medicare payment determina-
tions for as many as 2380 cost reports at issue in more than
275 pending cases because the Secretary, without notice-and-
comment rulemaking, issued an acquiescence ruling to ensure
nationwide uniformity in Medicare payments. The court of
appeals reached that unprecedented result even though the
acquiescence ruling, Ruling 97-2, explicitly prohibited reopen-
ing of closed cost reports.
The court of appeals’ decision erroneously exposes the
Medicare program to staggering (and previously unforesee-
able) financial and administrative burdens and threatens to
chill future agency acquiescence rulings to the detriment of
agencies, private parties, and the courts. It conflicts with
decisions of other courts of appeals on whether the Secretary
can be ordered to reopen final Medicare determinations con-
trary to his express direction, and whether an agency may
change an interpretive rule absent notice-and-comment
rulemaking. And it cannot be reconciled with this Court’s
decisions compelling the conclusion that mandamus relief is
not available for parties, such as respondents, that slept on
their rights and now seek a form of administrative re-
lief—reopening—-that is inherently discretionary. Review by
this Court is warranted.
1. Respondents contend that the circuit conflicts presented
by the decision below are not worthy of this Court’s review.
Br. in Opp. 11-14. That contention lacks merit.
a. Respondents argue that there is no conflict on whether
the court of appeals in this case correctly held that Mon-
; (1)
2
mouth applies to hospitals such as respondents that (unlike
the hospitals in Monmouth) never sought reopening. Br. in
Opp. 8-9, 10-12. Respondents concede (id. at 9, 11-12), how-
ever, that Monmouth conflicts with the Tenth Circuit's deci-
sion in Bartlett Memorial Medical Center, Inc. v. Thompson,
347 F.3d 828, 838-840 (2003), on the critical threshold question
in this case: whether Ruling 97-2 triggered a mandatory duty
to reopen. Respondents do not dispute that Monmouth’s
holding on that question was a fundamental premise of the
decision below. Pet. App. 6a-7a. Thus, resolution of the
Monmouth-Rartlett conflict in the government’s favor would
necessarily require the reversal of the decision below. The
conflict therefore is squarely presented and merits this
Court’s review. See, e.g., United States v. Recio, 537 U.S. 270,
274 (2003) (reviewing the validity of a legal rule announced in
a prior decision of Ninth Circuit that had been applied in a
subsequent case); ef. MCIl v. AT&T, 512 U.S. 218 (1994).
Respondents contend that the conflict is “shallow” and
“narrow” because it implicates only two circuits. Br. in Opp.
12. The D.C. District Court, however, has nationwide venue
in mandamus actions involving the Secretary and in Medicare
cases in general. 28 U.S.C. 1391(e); 42 U.S.C. 139500(f)(1).
Given that nationwide venue and the unprecedented relief
granted below, there is no reason to expect that providers in
the future will press for reopening in any other forum.
b. As the petition explains, the courts of appeals also are
divided on whether an agency may change an interpretation
of a regulation without notice-and-comment rulemaking. That
issue is of ongoing and obvious significance and worthy of this
Court’s review. Pet. 25-26. Respondents do not directly chal-
lenge those points, but argue that the issue is not presented
here because the Secretary’s DSH regulation was a /egislative
rule and that the circuits agree that amendments to legisla-
tive rules must be preceded by notice and comment. Br. in
3
Opp. 12-14, 25-27; Shalala v. Guernsey Mem'l Hosp., 514 U.S.
87, 100 (1995). But the question decided by the court of ap-
peals and therefore presented here is whether the Secretary
was permitted to change his interpretation of that regulation
without notice-and-comment rulemaking. On that question,
the court of appeals erred, see id. at 99 (“|i]nterpretive rules
do not require notice and comment”), and the circuits are
divided. Compare Pet. App. 44a (after an agency interprets
a regulation, it cannot alter that interpretation without notice
and comment) with Erringer v. Thompson, 371 F.3d 625, 632
(9th Cir. 2004) (stating that “[a]ny rule that effectively
amends a prior legislative rule is legislative and must be pro-
mulgated under notice and comment rulemaking,” but that
“no notice and comment rulemaking is required to amend a
previous interpretive rule”). Monmouth expressly held that
both the Secretary’s original interpretation and his subse-
quent interpretation as reflected in Ruling 97-2 were inter-
pretive rules, but that notice-and-comment rulemaking none-
theless was required before the agency could change course.
Pet. App. 34a, 42a-48a (Secretary’s original interpretation),
43a-44a (Secretary’s subsequent interpretation). The circuit
conflict is squarely presented here.
2. Respondents argue that the conflicts in the circuits do
not warrant this Court’s review because the Secretary did not
seek immediate review of Monmouth. Br. in Opp. 9, 12. The
government, however, should not be penalized for allowing
the D.C. Circuit an opportunity to limit the consequences of
its erroneous decision in Monmouth. Cf. Cheney v. United
States Dist. Ct., 542 U.S. 367, 379 (2004) (“the Government
cannot be faulted for attempting to resolve the dispute
through less drastic means.”). The decision below makes
clear that the D.C. Circuit will extend, not limit, Monmouth.
Thus, review is now appropriate.
4d
Monmouth involved only two providers that had timely
sought reopening under the Secretary’s regulations. The
Secretary was not aware of any significant number of other
similarly situated hospitals. And because Monmouth itself
stressed that the two hospitals had sought reopening within
the three-year deadline imposed by 42 C.F .R. 405.1885(a) (see
Pet. App. 45a), the Secretary reasonably believed that the
court would not extend a mandamus remedy to providers,
such as respondents, that never made any administrative re-
quest for reopening at all.
The decision below makes clear that the court of appeals
does not view Monmouth as a limited holding. Pet. 27. More-
over, when Monmouth was decided, the Tenth Circuit had not
yet rendered its conflicting decision in Bartlett. Cf. United
States v. Mendoza 464 U.S. 154, 160 (1984) (agencies immedi-
ately seeking review may “deprive this Court of the benefit it
receives from permitting several courts of appeals to explore
a difficult question”). Now that there is a square conflict with
the Tenth Cireuit and the D.C. Circuit has dramatically ex-
tended the reach of its Monmouth decision, review by this
Court is plainly warranted.
Respondents also incorrectly assume that this case con-
cerns only the meaning of Ruling 97-2 and a previous version
of Section 405.1885(b). Monmouth concluded more broadly
that an acquiescence ruling, even when it only departs from
a prior interpretive rule, must be a nullity because it was not
preceded by notice-and-comment rulemaking. Pet. App. 43a-
44a. That holding is of significant and ongoing importance to
federal agencies that regularly must consider whether to ac-
quiesce in adverse circuit precedent (and often must do so
promptly). In this case, the court of appeals held that the Sec-
retary’s routine acquiescence for one Medicare cost item re-
sulted in a completely unforeseeable and mandatory duty
retroactively to calculate cost reports for providers that
5
waited five to eight years to challenge those reports. The
decision, if not corrected, would create significant confusion
and substantial disincentives for agencies to acquiesce in cir-
cuit precedent. The net effect of respondents’ position would
create substantial incentives for unnecessary litigation. The
government would need to seek certiorari, rather than try to
limit the reach of adverse decisions, and the costs of acquies-
cence would needlessly increase.
Furthermore, the Secretary’s amendment of the reopening
rule does not ameliorate the immediate consequences directly
imposed by the decision below even in the Medicare context.
Pet. 11, 27-30. Respondents argue that the government’s $2.8
billion estimate of the potential costs on the DSH issue alone
is speculative, different from previous estimates, and not part
of the record below. Br. in Opp. 19-20. But CMS’s most re-
cent $2.8 billion estimate was prepared after a careful analysis
and for reasons unrelated to this litigation, 7.e., in connection
with the agency’s public financial statement. Pet. 27 & n.7.
The Secretary has always estimated that the hospitals’
claims, if fully successful, could result in payments totaling
between $1 billion and $3.25 billion. /bid.; Br. in Opp. 19.
Such a massive drain on the Medicare Trust Fund, as well as
the tremendous administrative burden associated with re-
opening potentially thousands of previously settled cost re-
ports at issue in the 275 cases pending in the district court,
merits this Court's review. '
' Contrary to respondents’ assertion (Br. in Opp. 1, 10, 19-21), the Secretary
has not suggested that the potential financial and administrative impact of the
court of appeals’ decision is speculative. The government has simply objected
to further proceedings in the district court until this Court has completed its
review of the decision below. In addition, the Secretary reasonably believes
that compliance with the decision will impose a tremendous burden on the
agency and divert its scarce auditing resources to reviewing stale cost report
information. Pet. 28. Kespondents challenge that assertion as “exaggerate| d|.”
6
Finally, respondents do not dispute that many providers
have filed similar mandamus actions that are governed by the
Secretary’s prior reopening regulation and that seek to ex-
tend Monmouth to cost issues other than DSH payments.
Pet. 29-30. Indeed, respondents’ counsel has urged hospitals
to file similar mandamus actions, “|flollowing | Monmouth’s|
line of reasoning,” in the District of Columbia based on other
prospective-only changes in policy. C. L. Keogh, CMS Re-
verses Application Of Payment-Reduction Factor To Part B
Inpatient Ancillary Services, Healthcare Fin. Mgmt. (2002).
3. In defense of the court of appeals’ decision on the mer-
its, respondents attack the Secretary's original methodology
for DSH payment determinations. Br. in Opp. 3-5, 22-23. The
Secretary believes (as Ruling 97-2 itself stated) that his prior,
longstanding interpretation was proper,” but that acquies-
cence nonetheless was appropriate to ensure national unifor-
mity in light of adverse circuit precedent. Pet. App. 5la. The
issue here, however, is not the validity of the Secretary’s prior
interpretation. The relevant question rather is whether re-
spondents are entitled, through the extraordinary remedy of
mandamus, to force the Secretary to recalculate Medicare
payments even though they first challenged those payments
five to eight years after the determinations became final. The
answer ¢@ that question is clearly no, because respondents
both faiied to invoke the prescribed statutory and regulatory
remedies and failed to show an indisputable right of recovery.
“overblown,” and “misleading” (Br. in Opp. 21), but the Secretary respectfully
submits that he is in a far superior position than respondents to judge the
complexity and burdens from review and recalculation of DSH payments for
cost vears more than ten vears old.
* Strong dissents in two decisions approved the Secretary's position. See
Cabell Huntington Hosp. luc. v. Shalala, 101 F.3d 954, 991 (4th Cir. 1996)
(Luttig, J., dissenting); Jewish Hosp. luc. v. Secretary of HHS, 19 F 3d 270,
276 (6th Cir. 1994) (Batchelder, J., dissenting).
7
a. Admitting that they did “nothing” (Br. in Opp. 18) to
exhaust their claims before the Secretary, respondents argue
that seeking reopening would have been futile because re-
opening was prohibited by Ruling 97-2. But respondents
could have appea/ed their initial DSH payment determina-
tions to the Provider Reimbursement Review Board (PRRB),
and then sought direct judicial review in the manner provided
by the Medicare Act. Pet. 12-13. If they had, they might have
obtained precisely the relief that they now seek: recalculation
of their original DSH determinations under the methodology
later adopted in Ruling 97-2. Other hospitals in fact obtained
that relief after they appealed and sought judicial review.
Pet. 13 n.3; Br. in Opp. 5 & n4. Respondents thus did not in-
voke that “adequate remedy * * * for challenging all aspects
of the Secretary’s denial of their claims for payment.” Heck-
ler v. Ringer, 466 U.S. 602, 617 (1984).
In all events, even if reopening were the only relevant focal
point, as respondents maintain (Br. in Opp. 16-18), they never
invoked that remedy either, unlike the hospitals in Monmouth
that timely sought reopening within three vears of the deter-
minations as required by Section 405.1885(a)—the only regu-
lation that permits reopening at the behest of providers. Pet.
20. Any effort by respondents to obtain reopening therefore
is time-barred, in addition to being foreclosed on the merits.
The hospitals’ excessive delay before challenging their final
Medicare payment determinations is alone sufficient to pre-
clude them from the equitable remedy of mandamus.”
Given the government's consistent position that reopening of DSH deter-
minations would impose wholly unwarranted and potentially far-reaching
liability on the Medicare Trust Fund in favor of hospitals that slept on their
rights, respondents’ suggestion (Br. in Opp. %, 19) that the government has
conceded that the equities lie in their favor and that the Secretary suffers no
prejudice from the court of appeals’ decision is baseless.
8
b. Respondents’ reliance on the principle that an agency
must follow its own regulations is misplaced. Br. in Opp. 15-
16. Since the inception of the reopening regulation in 1972,
the Secretary has always considered that regulation to be
entirely discretionary. Pet. 15-17. Respondents have pointed
to nothing in the regulation that gives them a right to demand
reopening (much less a clear and undisputable right), and to
do sa contrary to the Secretary’s express directive in Ruling
97-2. In fact, they admit that “[t]he only reopening that a
hospital has any role in initiating is discretionary reopening
under subsection (a).” Br. in Opp. 17 (emphasis added).
Respondents nonetheless argue (Br. in Opp. 24) that See-
tion 405.1885(b) must be read to require reopening, even when
the Secretary has prohibited it, or subsection (b) “would serve
no purpose not already subsumed within subsection (a).” But
any arguable superfluity would not justify reading the regula-
tion contrary to the Secretary’s manifest intent. F.4.,
Scheidler v. NOW, 1268S. Ct. 1264, 1273-1274 (2006). In any
event, there is nothing superfluous about subsections (a) and
(b). Section 405.1885(a) confers discretion not only on inter-
mediaries, but also on the PRRB and the Secretary if they
(rather than an intermediary) entered the decision that the
provider seeks to reopen, if a motion is made within three
years. By contrast, Section 405.1885(b) is directed only to
intermediaries and specifies that reopening “shall” occur
when the Secretary himself explicitly instructs the intermedi-
ary to reopen. Pet. 14-17. Thus, while Section 405.1885(a)
“generously gives [providers] a second chance to get the deci-
sion changed” (Your Home Visiting Nurse Servs., Tne. v.
Shalala, 525 U.S. 449, 455 (1999)), Section 405.1885(b) allows
the Secretary, on his own initiative, to identify errors in inter-
mediary determinations and to direct the intermediaries to
correct them. As we demonstrate in the petition (at 15-17),
Section 405.1885(b) creates a contingent duty owed by the
intermediary to the Secretary in accordance with their bilat-
eral contractual arrangement; it creates no duty owed by ei-
ther an intermediary or the Secretary to providers. Respon-
dents make no effort to refute this showing that Section
405.1885(b) creates no clear duty owed to them, a necessary
prerequisite for mandamus relief. Pet. 15-16 & n.4.
The Secretary’s reading not only comports with the text
and his longstanding interpretation, but also with the well-
settled understanding of reopening as inherently discretion-
ary and non-reviewable. Pet. 17. It also comports with Con-
gress’s stringent time-requirements for appealing payment
determinations under a program as complex and massive in
size as Medicare. The Secretary's eminently reasonable inter-
pretation was therefore binding on the court of appeals.
Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 505 (1994).
Respondents defend the court of appeals’ reading of Ruling
97-2 as the Secretary’s concession of an error of law (despite
the Ruling’s express statement to the contrary) on the ground
that any other reading would have required the Secretary to
promulgate a new legislative regulation in order to acquiesce
in circuit precedent. Br. in Opp. 24-27. But it has never been
the law that an agency must issue such a regulation to effectu-
ate what quintessentially is a /itigation judgment. Pet. 25-26.
Moreover, any procedural defect in Ruling 97-2 would, at
most, permit a court to invalidate the Ruling until notice and
comment had been completed. It would not authorize a court
to strike the Ruling’s critical provision expressly prohibiting
reopening while enforcing its substantive provision. Pet. 19.
Respondents also err in arguing that the Secretary's prior
DSH determinations must have been void ab initio because
Ruling 97-2 applied the new DSH payment methodology for
costs incurred by hospitals in prior years if the cost reports
were not yet finally settled or were still pending on review.
-”
Br. in Opp. 6-7, 27-28. In respondents’ view (/bid.), the Ruling
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.