Clarian Health West, LLC v. Eric Hargan
878 F.3d 346
| D.C. Cir. | 2017Background
- Medicare pays hospitals prospectively and provides supplemental "outlier" payments when costs exceed statutory thresholds; CMS calculates payments and reconciles them to finalized cost reports per a 2003 regulation.
- The 2003 rule (promulgated after notice-and-comment) authorized reconciliation but did not define specific selection criteria for which hospitals would be reconciled.
- In 2010 CMS published selection criteria in the Medicare Claims Processing Manual (CMS Manual): reconciliation when (1) actual cost-to-charge ratio differs by ±10 percentage points from the ratio used to make outlier payments and (2) total outlier payments exceed $500,000 (with discretionary exceptions).
- Clarian Health West was retrospectively selected under the 2010 Manual criteria for reconciliation of 2007 outlier payments and was ordered to repay about $2.4 million; it challenged the Manual on procedural grounds in district court.
- The district court held the Manual instructions invalid under the Medicare Act and the APA for lack of notice-and-comment rulemaking; HHS appealed, and the D.C. Circuit addressed jurisdiction and the procedural issue.
Issues
| Issue | Plaintiff's Argument (Clarian) | Defendant's Argument (HHS) | Held |
|---|---|---|---|
| Whether the Board’s expedited-review certification and §1395oo(f)(1) gave district court jurisdiction | Board granted expedited review of questions including procedural invalidity; district court has jurisdiction | Board’s grant didn’t cover Manual criteria; alternatively Board had authority so judicial review unavailable | Court holds jurisdiction exists: Board either granted review or failed to decide within 30 days, permitting district-court review under §1395oo(f)(1) |
| Whether the 2010 Manual instructions must be promulgated as regulations under 42 U.S.C. §1395hh(a)(2) | Manual criteria establish the substantive legal standard that determines providers’ reimbursement and thus require notice-and-comment | Instructions are non‑binding enforcement guidance; the Act and 2003 rule already establish substantive standards | Court holds Manual are not substantive legal standards subject to §1395hh(a)(2); they do not change providers’ rights but set enforcement priorities |
| Whether the APA (5 U.S.C. §553) required notice-and-comment for the Manual instructions | Manual provisions are legislative rules requiring notice-and-comment | Manual is a general statement of policy (guidance) exempt from §553 notice-and-comment | Court holds Manual is a general statement of policy exempt from §553(b)(3)(A) because it has no binding legal effect and leaves agency discretion intact |
| Whether this appeal challenges substantive validity of reconciliation decisions | Clarian argues Manual defines who will be subject to retroactive adjustment in practice (substantive) | HHS notes this appeal raises only the procedural question of notice-and-comment | Court clarifies the appeal is solely procedural; it does not decide the substantive validity of CMS’s application of criteria |
Key Cases Cited
- Perez v. Mortgage Bankers Ass’n, 135 S. Ct. 1199 (2015) (courts may not impose procedural requirements beyond statute or regulation)
- Vermont Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, 435 U.S. 519 (1978) (agencies not required to adopt procedures beyond statute)
- Allina Health Servs. v. Price, 863 F.3d 937 (D.C. Cir. 2017) (boards’ expedited-review determinations under Medicare Act are not revisited by courts)
- Nat’l Mining Ass’n v. McCarthy, 758 F.3d 243 (D.C. Cir. 2014) (distinguishing legislative rules from policy statements; policy statements describe enforcement priorities)
- Pac. Gas & Electric Co. v. Fed. Power Comm’n, 506 F.2d 33 (D.C. Cir. 1974) (policy statements do not create binding norms)