Clarian Health West, LLC v. Burwell
Civil Action No. 2014-0339
| D.D.C. | Aug 26, 2016Background
- Clarian Health West, an Indiana hospital, received Medicare outlier payments for 2007 and CMS later demanded repayment of ~$2.4 million after applying a 2010 CMS Manual reconciliation procedure.
- CMS promulgated a 2003 regulation authorizing retroactive reconciliation of outlier payments once cost reports settle, but left implementation details to later guidance.
- In 2010 CMS issued manual criteria (no notice-and-comment) triggering reconciliation when (1) actual cost-to-charge ratio differs by ±10 percentage points from the ratio used for outlier payments and (2) total outlier payments exceed $500,000.
- Clarian challenged the recoupment under the APA and Medicare statute, arguing the 2010 criteria were substantive rules that required notice-and-comment and thus the recoupment was invalid.
- The Secretary defended the criteria as interpretive or procedural guidance exempt from notice-and-comment and contended the 2003 rule and its implementation were lawful.
- The district court held the 2010 qualifying criteria were substantive rules not properly promulgated and granted Clarian summary judgment, remanding to CMS.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2010 CMS Manual qualifying criteria for outlier reconciliation are substantive rules requiring notice-and-comment | The criteria are substantive policy choices (numeric thresholds) that change who is subject to repayment and therefore required notice-and-comment | The criteria are interpretive or procedural technical guidance set in a manual and thus exempt from notice-and-comment | The criteria are substantive and not exempt; notice-and-comment was required |
| Whether the statutory phrase "approximate the marginal cost of care" supplies a textual basis making the manual criteria interpretive | The statute does not compel the specific numeric thresholds; criteria are not mere interpretation | The criteria implement the statutory mandate and are interpretive of the broad statutory term | The statutory phrase is too broad/attenuated to justify treating the manual thresholds as interpretive |
| Whether a procedural-rule exemption exists under the Medicare statute that would permit the criteria without notice-and-comment | N/A (Clarian argues no) | The Medicare statute should be read to incorporate the APA procedural-rule exemption so the manual guidance is exempt | Court finds Medicare does not incorporate a procedural-rule exemption and, in any event, the criteria are not procedural |
| Whether agency discretion (CMS approval step) makes the criteria non-substantive | N/A | Discretion to approve reconciliation means the criteria are not mandatory substantive rules | Discretion does not convert a substantive rule into a procedural or interpretive one; criteria remain substantive |
Key Cases Cited
- Catholic Health Initiatives v. Sebelius, 617 F.3d 490 (D.C. Cir. 2010) (manual numeric requirements were substantive and required notice-and-comment)
- District Hospital Partners, L.P. v. Burwell, 786 F.3d 46 (D.C. Cir. 2015) (explains outlier payment calculation and related disputes)
- Cape Cod Hospital v. Sebelius, 630 F.3d 203 (D.C. Cir. 2011) (prospective payment system overview)
- County of Los Angeles v. Shalala, 192 F.3d 1005 (D.C. Cir. 1999) (discusses outlier payment context)
- Electronic Privacy Information Center v. U.S. Dep’t of Homeland Sec., 653 F.3d 1 (D.C. Cir. 2011) (agency discretion does not alone make a rule procedural)
- U.S. Telecom Ass’n v. FCC, 400 F.3d 29 (D.C. Cir. 2005) (distinguishes substantive rules from interpretive exemptions)
- Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29 (U.S. 1983) (standard for reviewing agency rulemaking under the APA)