523 F.Supp.3d 81
D.D.C.2021Background
- Sequestration under the Budget Control Act triggered a 2% reduction to Medicare payments effective April 1, 2013. CMS/OMB/President implemented the reduction; CMS issued a March 2015 Technical Direction Letter (TDL) instructing MACs how to account for sequestration in hospice-cap reconciliations.
- The Medicare hospice program pays fixed per-diem rates throughout the year but reconciles at year-end against an annual aggregate cap; overpayments discovered after reconciliation must be refunded.
- CMS instructed MACs to add back amounts withheld for sequestration to compute a pre-sequestration reimbursement total, apply the annual aggregate cap to that total, then reduce any cap-based overpayment by 2% (crediting the sequestered amount).
- Six Gentiva hospices were affected by this methodology; MACs issued final cap determinations requiring repayment. Gentiva appealed to the PRRB, which upheld CMS’s method; CMS declined review.
- Gentiva sued in district court seeking reversal, arguing CMS misapplied the hospice-cap statute and the Budget Control Act, improperly relied on the secret TDL and inapposite materials, and failed to provide required notice/rulemaking. The district court granted the Secretary summary judgment and denied Gentiva’s motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Proper statutory method for applying hospice aggregate cap with sequestration | Gentiva: cap must be applied to actual interim payments made during year (net of sequestration) | Secretary: cap applies to the reconciled amount payable under Medicare; sequestration reduces program spending and is applied after cap reconciliation using TDL method | Court: sided with Secretary; statute and regs support treating year-end reconciled payment as the amount to which sequestration applies and CMS’s method is reasonable |
| 2) Legality of Board’s reliance on the TDL and other materials | Gentiva: Board improperly deferred to a secret TDL and relied on inapplicable hospital payment law | Secretary: Board conducted independent analysis; TDL described but not dispositive; hospital material used analogously | Court: Board provided independent, adequate reasoning; references to TDL/materials were explanatory, not improper |
| 3) Notice and rulemaking (Allina) | Gentiva: CMS changed substantive payment standard without notice or required rulemaking | Secretary: Sequestration is a statutory mandate implemented by OMB/President; CMS integrated that mandate with existing law and did not change a substantive legal standard | Court: Allina/rulemaking not triggered here; CMS did not establish or change a substantive payment standard |
| 4) APA arbitrary-and-capricious and reliance interests from MACs’ initial calculations | Gentiva: MACs’ initial (net-payment) calculations and guidance created reliance; changing methodology is arbitrary | Secretary: initial MAC calculations were not final agency policy; no serious reliance shown; Board’s reasoning addressed change | Court: No arbitrary-and-capricious violation; no protected reliance or unexplained policy reversal |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (agency deference where statute ambiguous)
- SEC v. Chenery Corp., 318 U.S. 80 (courts review agency reasoning, not post hoc rationalizations)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (agency must supply reasoned explanation for policy changes)
- Azar v. Allina Health Servs., 139 S. Ct. 1804 (rulemaking requirement for changes to substantive Medicare payment standards)
- FCC v. Fox Television Stations, Inc., 556 U.S. 502 (agency must display awareness of and provide reasons for departures from prior policy)
- Motor Vehicle Mfrs. Assn. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (arbitrary-and-capricious standard for agency actions)
- Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281 (reasoned decisionmaking requirement)
- Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359 (agency action must be within lawful authority and rational)
- Marymount Hosp., Inc. v. Shalala, 19 F.3d 658 (D.C. Cir. deference to PRRB interpretations)
- Humana, Inc. v. Heckler, 758 F.2d 696 (Medicare Act incorporates APA standard for judicial review)