747 F.3d 1214
9th Cir.2014Background
- PAMC, a Medicare-participating acute care hospital, missed the RHQDAPU quarterly data submission deadline (11:59 p.m. CST Nov. 20, 2007); its vendor, Thomson Reuters, submitted the data ~12.5 hours late and admitted fault.
- CMS assessed a 2% reduction to PAMC’s FY2009 Medicare annual payment update per statutory/regulatory RHQDAPU rules for late data submission.
- PAMC requested reconsideration from CMS arguing diligence, minimal lateness, vendor fault, and sought equitable relief; CMS denied because vendor error does not excuse late filing.
- PAMC appealed to the Provider Reimbursement Review Board, which affirmed CMS: the hospital is responsible for vendor errors, the deadline is strictly enforced, and the Board has no authority to grant equitable relief.
- The Secretary declined review; PAMC sued in district court, which affirmed the Board; PAMC appealed to the Ninth Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether agency/Board must grant equitable relief for late RHQDAPU filing caused by vendor error | PAMC: equitable relief warranted because lateness was minimal and due to vendor fault; Board should ameliorate penalty | Department/CMS: statute/regulation requires timely submission; hospitals are responsible for vendor errors; no authority to grant equitable relief | Court: No; Board did not have authority to grant equitable relief and denial was not arbitrary or capricious |
| Whether contract doctrine of substantial performance excuses late submission | PAMC: substantial performance/compliance should excuse a minor untimely submission | CMS/Board: Medicare regulatory regime governs, not contract doctrines; timely submission requirement is strict | Court: Declined to apply substantial performance here; even assuming arguendo, PAMC’s lapse was a major error and relief unwarranted |
| Whether agency interpretation of its regulations is entitled to deference | PAMC: agency policy is too rigid and should yield to equitable considerations | CMS: its long-standing interpretation and administrative rules require strict compliance and hospital responsibility for vendors | Court: Applied Chevron/Skidmore-style deference (Thomas Jefferson Univ. cited) and upheld agency interpretation |
| Whether the Board acted arbitrarily or capriciously in denying relief | PAMC: denial was arbitrary given factual context and minimal lateness | CMS/Board: applied published rules, prior guidance, and enforcement history; alerted hospital before deadline | Court: Not arbitrary or capricious given regulatory text, agency guidance, and consistent enforcement |
Key Cases Cited
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (agency interpretations of its regulations entitled to substantial deference)
- Cmty. Hosp. of Monterey Peninsula v. Thompson, 323 F.3d 782 (APA review of Board decisions and deference principles)
- Kaiser Found. Hosps. v. Sebelius, 649 F.3d 1153 (declining equitable-excuse analysis for agency procedural deadlines)
- United States v. Bourseau, 531 F.3d 1159 (distinguishing regulatory regime from ordinary contract principles)
- Mem’l Hosp. v. Heckler, 706 F.2d 1130 (joining Medicare program creates statutory entitlement, not a bilateral contract)
- Rock Island A. & L. R. Co. v. United States, 254 U.S. 141 (government contracts/strict adherence to rules)
- Sebelius v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817 (declining to apply equitable tolling to Secretary’s appeal deadlines)
- SEC v. Chenery Corp., 332 U.S. 194 (limits on reviewing courts substituting their judgment for agency action)