Canonsburg General Hospital v. Sylvia Mathews Burwell
420 U.S. App. D.C. 190
| D.C. Cir. | 2015Background
- Canonsburg General Hospital, a hospital-based skilled nursing facility (SNF), challenged the Secretary of HHS’s method for calculating the Medicare "atypical services" exception that produced a reimbursement "gap" for hospital-based SNFs under section 2534.5 of the Provider Reimbursement Manual.
- Canonsburg earlier litigated the validity of section 2534.5 in the Western District of Pennsylvania (Canonsburg I), which upheld the Secretary’s methodology; Canonsburg did not appeal that judgment.
- Separately, Canonsburg pursued administrative review of its FY1996 reimbursement; the PRRB found section 2534.5 invalid, but the CMS Administrator reversed, upholding the method.
- Canonsburg sued in D.C. district court to review the Administrator’s decision, alleging APA violations (arbitrary-and-capricious, inconsistent with statute/regulation, and promulgated without notice-and-comment); the Secretary raised issue preclusion as an affirmative defense.
- The district court granted summary judgment for the Secretary on issue-preclusion grounds, concluding the issues were identical to Canonsburg I, were actually and necessarily decided there, and preclusion did not work basic unfairness.
- The D.C. Circuit affirmed, holding (1) the Secretary did not waive the defense by failing to invoke it in the administrative proceedings, (2) Chenery does not bar a court from applying issue preclusion, and (3) equitable exceptions to preclusion did not apply.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Secretary waived issue preclusion by not raising it in administrative proceedings | Canonsburg: Poulin requires the agency to raise res judicata at admin stage; failure means waiver | Secretary: Poulin limited; here Secretary timely pleaded issue preclusion in federal court and could not reopen the prior judicial decision | Held: No waiver — Secretary properly pleaded res judicata in district court and Poulin is inapplicable |
| Whether Chenery prohibits the court from applying issue preclusion when the agency did not rely on it administratively | Canonsburg: Chenery forbids courts from supplying new grounds not considered by the agency | Secretary: Chenery governs agency policymaking/factual judgments, not ordinary judicial doctrines like issue preclusion | Held: Chenery does not bar application of judicial doctrines like issue preclusion here |
| Whether applying issue preclusion would be unfair/equitable to preclude Canonsburg’s APA claims | Canonsburg: settlements by HHS and other district decisions show unfairness; incentives changed and procedural landscape evolved | Secretary: No change in controlling law applicable to Canonsburg I; Canonsburg had equal or greater incentive previously; public policy favors finality | Held: No basic unfairness — equitable exceptions to preclusion not met |
| Whether section 2534.5 validity was actually and necessarily decided in Canonsburg I | Canonsburg: challenges remain given later decisions invalidating section 2534.5 | Secretary: Canonsburg I directly addressed and decided the same legal questions | Held: First two Yamaha factors satisfied; Canonsburg I actually and necessarily decided the issues |
Key Cases Cited
- Poulin v. Bowen, 817 F.2d 865 (D.C. Cir. 1987) (agency waiver of res judicata where agency expressly declined to apply it administratively)
- Yamaha Corp. of Am. v. United States, 961 F.2d 245 (D.C. Cir. 1992) (elements for issue preclusion in this circuit)
- SEC v. Chenery Corp., 318 U.S. 80 (1943) (Chenery I) (courts must review agency action on the grounds the agency invoked)
- SEC v. Chenery Corp., 332 U.S. 194 (1947) (Chenery II) (cannot affirm agency action on a ground the agency did not rely upon when that ground invades agency discretion)
- St. Francis Health Care Ctr. v. Shalala, 205 F.3d 937 (6th Cir. 2000) (upholding Secretary’s interpretation of atypical-services calculation)
- Apotex, Inc. v. FDA, 393 F.3d 210 (D.C. Cir. 2004) (limits on equitable exceptions to res judicata)