Firsthealth Moore Regional Hospital v. Azar, Civil Action No. 2020-1007

Background:

FirstHealth Moore Regional Hospital received a Notice of Program Reimbursement (NPR) showing a Medicare overpayment for FY ending Sept. 30, 2011 and appealed to the PRRB on Dec. 1, 2015.
In Aug. 2016 the hospital asked the MAC (Palmetto GBA) to reopen its cost report for six bad‑debt issues and conditioned withdrawal of its PRRB appeal on the MAC’s agreement; the MAC agreed and the hospital withdrew its PRRB appeal while reserving the right to reinstate.
The MAC issued a Revised NPR on Sept. 27, 2017 that increased reimbursement by $833,242 by revising some, but not all, disputed bad‑debt items; the hospital did not appeal the Revised NPR within 180 days.
Nearly two years later (Aug. 13, 2019) the hospital moved to reinstate its withdrawn PRRB appeal; the MAC opposed, asserting it had performed the agreed reopening and issued a Revised NPR.
The PRRB denied reinstatement on Feb. 19, 2020; plaintiff sued under the APA, and the district court granted summary judgment to HHS, holding the PRRB rules lawful and properly applied.

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether PRRB Rule stating “it is the Provider’s responsibility to withdraw” makes withdrawal mandatory when MAC agrees to reopen	The word "responsibility" imposes a mandatory duty to withdraw issues upon MAC agreement, which (in combination with reinstatement limits) unlawfully strips appeal rights	The phrase is ambiguous; elsewhere rules use explicit mandatory terms like "must" and withdrawal is voluntary; PRRB interpretation that it is non‑mandatory is reasonable	The rule is ambiguous; agency's interpretation that withdrawal is not mandatory is reasonable and entitled to deference (Kisor/Auer)
Whether plaintiff waived its challenge to the PRRB rules by not raising it earlier before the PRRB	No waiver: the grievance arose only when PRRB denied reinstatement and so is properly raised here	Plaintiff should have objected earlier to preserve the argument before the PRRB	Court rejects defendant's exhaustion/waiver argument and allows the challenge to be heard because the injury materialized with the denial of reinstatement
Whether PRRB must reinstate an issue when the MAC’s Revised NPR left some disputed items unchanged (i.e., whether reinstatement is nondiscretionary if MAC did not "fully" resolve issues)	Reinstatement is mandatory when the MAC fails to fully resolve the originally appealed issues; PRRB violated its own rule by denying reinstatement	Reinstatement is limited to situations where the MAC failed to reopen and issue a new final determination as agreed; here the MAC issued a Revised NPR that addressed the reopened issues	PRRB correctly denied reinstatement: the MAC issued a Revised NPR that reviewed the reopened issues, so the reinstatement condition was not met
Whether regulatory scheme permits further PRRB review after MAC reopening when MAC reexamined but did not revise particular matters	Hospital contends its statutory appeal rights were deprived by the rules' interaction	HHS points to 42 C.F.R. §405.1889(b)(2) which bars appeals of matters that were reopened but not revised; agency rules implementing PRRB authority are valid	Court upholds regulation barring appeals of reopened but unrevised matters; hospital was not deprived of statutory rights because it could have pursued either route but not both for the same items

Key Cases Cited

Adirondack Med. Ctr. v. Sebelius, 740 F.3d 692 (D.C. Cir. 2014) (describes Medicare as a "labyrinthine world")
New LifeCare Hosps. of N.C., LLC v. Becerra, 7 F.4th 1215 (D.C. Cir. 2021) (describes Medicare appeals process and PRRB jurisdiction)
Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (standards for deferring to an agency's interpretation of its own ambiguous regulation)
Auer v. Robbins, 519 U.S. 452 (1997) (agency deference to interpretations of its own regulations)
Carr v. Saul, 141 S. Ct. 1352 (2021) (issue‑exhaustion considerations in administrative proceedings)
Sims v. Apfel, 530 U.S. 103 (2000) (issue exhaustion and administrative adversarial analogies)
HCA Health Servs. of Okla., Inc. v. Shalala, 27 F.3d 614 (D.C. Cir. 1994) (upholding regulations that limit scope of post‑reopening appeals)
Edgewater Hosp., Inc. v. Bowen, 857 F.2d 1123 (7th Cir. 1988) (earlier case interpreting scope of review of Revised NPRs; discussed and effectively overruled by later rulemaking)
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary and capricious standard for reviewing agency action)