Maine Medical Center v. Burwell, 841 F.3d 10

Background

Eight Maine hospitals submitted Medicare cost reports claiming DSH (disproportionate share hospital) payments for multiple fiscal years; CMS/intermediary later reopened many reports and recouped ~$22 million alleging improper inclusion of "non-SSI type 6" days (patients eligible for Medicare Part A and Medicaid but not entitled to SSI).
Some hospitals had earlier settlement agreements with the intermediary that led the intermediary to accept inclusion of non-SSI type 6 days in prior years; CMS later questioned that practice and directed reopenings beginning in 2003.
The intermediary recouped funds; the hospitals appealed to the PRRB (Board), which ordered restoration of roughly $17 million for many reopenings; the Secretary reviewed and reversed the Board; the hospitals sought district-court review.
The district court held some reopening notices ineffective and found certain settlement agreements barred reopenings; both sides appealed to this Court.
The First Circuit considered (1) whether reopening notices complied with regulations/PRM, (2) whether settlement agreements or lack of CMS written directives barred reopenings, (3) correct statutory interpretation of the DSH disproportionate patient percentage (DPP) regarding non-SSI type 6 days, and (4) whether hospitals could be held harmless or ‘‘without fault.’"

Issues

Issue	Plaintiff's Argument (Hospitals)	Defendant's Argument (Secretary/CMS)	Held
Validity of reopening notices	Notices failed PRM requirements and lacked detail/opportunity to rebut; thus invalid	Notices complied with 42 C.F.R. §405.1887 (written notice + reasonable time); PRM is nonbinding guidance	Notices met the regulatory requirement; PRM not legally binding; district court erred to the extent it relied on PRM strictures
Effect of settlement agreements	Prior settlements (intermediary agreements) barred reopening and required the government to honor those calculations	Intermediary lacked authority to bind the Secretary/government beyond authorized Medicare payments; settlements cannot expand intermediary power	Settlement agreements with intermediary do not bind the Secretary where intermediary lacked authority to authorize payments inconsistent with Medicare law
Statutory meaning of DPP: inclusion of non-SSI type 6 days	DSH statute should include all Medicare- or Medicaid-eligible days (including non-SSI dual-eligibles) to reflect hospital low-income burden	Statute's plain text requires Medicare fraction to count only Part A + SSI days and Medicaid fraction to exclude days of those entitled to Part A; non-SSI dual-eligibles are thus excluded	Chevron step-one: statute unambiguous; Secretary’s interpretation is consistent with plain statutory text; non-SSI type 6 days excluded from DPP
Equitable defenses (hold-harmless; without-fault reliance)	Hospitals invoke PM A-99-62 (hold-harmless) and §1395gg (without-fault waiver) to avoid repayment due to reliance on intermediary guidance	PM A-99-62 addresses different Medicaid-day commingling issues and disclaims broader relief; §1395gg applies to individual claim overpayments, not aggregate DSH formula errors	Hold-harmless memo does not cover non-SSI type 6 DSH overpayments; §1395gg waiver does not apply to aggregate DSH overpayments; defenses fail

Key Cases Cited

Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (adm. law two-step deference framework)
Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947) (private parties bear risk of acting on agent statements beyond agent's authority)
Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87 (1995) (agency manuals/PRM lack force of law)
County of Los Angeles v. Shalala, 192 F.3d 1005 (D.C. Cir. 1999) (remand principles when court finds agency error needing further agency action)
Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914 (D.C. Cir. 2013) (explaining DSH and DPP mechanics)
Metro. Hosp. v. HHS, 712 F.3d 248 (6th Cir. 2013) (interpretation of DPP fractions and exclusion of certain dual-eligible days)