Kaiser Foundation Hospitals v. Kathleen Sebelius
404 U.S. App. D.C. 148
| D.C. Cir. | 2013Background
- Kaiser is a consortium of ten Southern California teaching hospitals receiving Medicare GME payments.
- The GME cap, established in 1997, uses an unweighted FTE count from the most recent pre-1997 cost report to set future caps.
- Kaiser’s 1996 data were disputed as inaccurate by both sides; the Secretary argues the predicate facts cannot be corrected outside a three-year window.
- An NPR determines Medicare reimbursement after reviewing the GME FTE cap; 3-year reopening applies to intermediary determinations.
- Kaiser challenged the Secretary’s interpretation of reopening to allow modifying predicate facts in closed years if it affects future reimbursements; the district court sided with Kaiser; the Secretary appealed.
- The panel held that reopening can apply to predicate facts in closed years even if total reimbursement for open years is affected, rejecting the Secretary’s narrow reading of the regulation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether predicate facts in closed years may be reopened | Kaiser: reopening limited to changes that affect total reimbursement | S ecretary: predicate facts are reopening within 3 years | Yes; reopening may modify predicate facts if it affects open-year reimbursement |
| Whether § 405.1801(a) requires materiality of inputs | Kaiser: inputs not material if output unchanged | Secretary: inputs can be material even if output changes | No; inputs not independently controlling materiality; interpretation favors Kaiser—inputs not automatically material |
| Whether Regions and HealthEast limit reopening of closed years | Kaiser: these cases support reopening predicate facts | Secretary: allows narrow reaudit/reopening | No; reopening regulation allows modification of predicate facts when total reimbursement is affected (consistent with HealthEast/Regions) |
| Whether the Secretary’s differential treatment of similar cases was arbitrary | Secretary treated Kaiser differently from similar providers | Policy distinctions justified by facts | Arbitrary; Secretary failed to show a reasoned basis for disparate treatment |
| Whether the agency should reinterpret to favor provider reimbursement | Kaiser: agency consistent with prior practice | Secretary: no change warranted | Affirm district court; Secretary’s interpretation rejected |
Key Cases Cited
- HealthEast Bethesda Lutheran Hosp. & Rehab. Ctr. v. Shalala, 164 F.3d 415 (8th Cir. 1998) (re-audit/reopening limited to changes that affect total reimbursement)
- Regions Hosp. v. Shalala, 522 U.S. 448 (Supreme Court 1998) (reaudit/regulatory silence supports reopening flexibility under regulation)
- Tulane Educational Fund v. Shalala, 987 F.2d 790 (D.C. Cir. 1993) (reaudit authority in absence of explicit statutory guidance)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (agency deference to its regulations; Chevron/Skidmore context)
- Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945) (deference to agency interpretations)