201 F. Supp. 3d 131
D.D.C.2016Background
- Plaintiffs are nonprofit hospitals that participated in Medicare and filed FY2008 cost reports; they later challenged CMS regulations governing outlier payments (extra payments for extraordinarily expensive cases).
- Hospitals did not include or "self-disallow" the contested outlier amounts on their cost reports because they believed the fiscal intermediary lacked authority to grant relief under the regulations.
- Plaintiffs appealed to the Provider Reimbursement Review Board (Board) and requested expedited judicial review because the Board (like intermediaries) lacks authority to rule on the validity of CMS regulations.
- The Board denied expedited review, concluding it lacked jurisdiction because Plaintiffs had not complied with 42 C.F.R. § 405.1835(a)(1) (the 2008 "self-disallowance" regulation), which required claiming or self-disallowing specific items on the cost report to preserve Board review.
- Plaintiffs sued in district court challenging the Board’s jurisdictional dismissal and the application of the self-disallowance regulation; they sought vacatur of the Board decision and remand for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §405.1835’s self-disallowance requirement is a jurisdictional prerequisite to Board review of a pure legal challenge to a Medicare regulation | Bethesda bars requiring providers to present pure legal challenges to intermediaries; providers need not self-disallow to preserve Board jurisdiction | Secretary may impose exhaustion by regulation; agencies have discretion to set procedures and may require self-disallowance | Court held Bethesda controls: the regulation, as applied to pure legal challenges, conflicts with §1395oo and is foreclosed by Bethesda; Board erred in denying jurisdiction |
| Whether the Board’s denial rested on discretionary refusal to hear claims rather than lack of jurisdiction, and whether that would validate the rule | Plaintiffs: Board denied jurisdiction, not exercising discretion; agency rationale was statutory (jurisdictional) and must be evaluated against Bethesda | Secretary: Board jurisdiction is not mandatory; agency can promulgate rules for efficient administration and decline review as a discretionary matter | Court rejected Defendant’s post hoc discretionary rationale because the Board expressly relied on lack of jurisdiction; Court remanded rather than substituting its own rationale |
| Appropriate remedy (vacatur vs. remand; court hearing merits) | Plaintiffs asked court to retain and decide merits / not remand because remand would be pro forma and delay inevitable expedited review | Defendant argued legal error requires remand to the agency for further action consistent with correct standard | Court vacated Board decision and remanded to Board for further proceedings consistent with opinion; declined to decide merits or broadly invalidate the regulation |
| Scope of the ruling (facial vs. as-applied) | Plaintiffs sought invalidation of the regulation generally | Defendant urged narrower relief | Court limited ruling to the regulation’s application to providers raising pure legal challenges that intermediaries cannot address; declined to vacate regulation wholesale |
Key Cases Cited
- Bethesda Hosp. Ass’n v. Bowen, 485 U.S. 399 (1988) (Medicare statute does not require providers to present pure legal challenges to intermediaries to preserve Board jurisdiction)
- Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (two-step test for reviewing agency statutory interpretation)
- HCA Health Servs. of Oklahoma, Inc. v. Shalala, 27 F.3d 614 (D.C. Cir. 1994) (once Board has jurisdiction, it may review matters covered by the cost report)
- Little Co. of Mary Hosp. & Health Care Ctrs. v. Shalala, 165 F.3d 1162 (7th Cir. 1999) (issue must be within intermediary’s competence to require prior presentation)
- Palisades Gen. Hosp., Inc. v. Leavitt, 426 F.3d 400 (D.C. Cir. 2005) (agency legal error ordinarily warrants remand to agency for reconsideration)
- Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) (courts may not accept post hoc rationalizations for agency action)