Saint Francis Medical Center v. Burwell
239 F. Supp. 3d 237
| D.D.C. | 2017Background
- Medicare inpatient prospective payment system (IPPS) base rate still relies on 1981 hospital cost-reporting data; plaintiffs (277 hospitals) allege that 1981 data miscounted discharges vs. transfers, understating reimbursement since 1984.
- Prior regulation (pre-2013) permitted reopening a reimbursement determination within three years, and courts had held that providers could challenge older "predicate facts" (like 1981 discharge counts) even if those facts predated the three-year window.
- After the D.C. courts’ rulings (Kaiser), CMS amended 42 C.F.R. §405.1885 in 2013 to state explicitly that predicate facts are subject to the three-year reopening limit and that the amendment applies to appeals/reopenings pending on or after the rule’s effective date (the "2013 Amendment").
- Plaintiffs sought Board review to reopen cost years 2002–2015 to correct the 1981 predicate facts; the Provider Reimbursement Review Board held it lacked jurisdiction because the 2013 Amendment bars such challenges and applies retroactively to pending appeals.
- Plaintiffs sued under the APA and the Medicare Act, arguing the 2013 Amendment is unlawfully retroactive and arbitrary and capricious (both as applied and prospectively); the government defended the rule and its retroactive application under 42 U.S.C. §1395hh(e)(1)(A).
- The District Court assumed arguendo the rule is retroactive but held CMS had statutory authority to apply it retroactively, that the retroactive application was not arbitrary and capricious, the Board properly applied the rule to pending appeals, and the rule is not arbitrary and capricious prospectively; judgment for the Secretary.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2013 Amendment is an unlawful retroactive rule | 2013 Amendment impermissibly retroactive as applied to pending appeals reopening predicate facts | Secretary has statutory authority under 42 U.S.C. §1395hh(e)(1)(A) and invoked it; retroactive application necessary to comply with statutory scheme/public interest | Court assumed rule retroactive but held Secretary lawfully invoked statutory authority; retroactive application not arbitrary or capricious |
| Whether applying the 2013 Amendment to pending Board appeals was arbitrary and capricious | Board should have allowed plaintiffs to proceed because their cost years were within three-year reopening period | 2013 Amendment explicitly covers pending appeals/reopenings; predicate facts challenges are reopenings governed by §405.1885 | Board’s jurisdictional dismissal upheld; application to pending appeals was reasonable and unambiguous |
| Whether the 2013 Amendment is arbitrary and capricious prospectively | Rule prioritizes finality over accuracy and departs from prior agency positions without adequate explanation | Rule is a reasoned policy choice weighing finality vs. accuracy; rulemaking made text explicit and explained statutory/public-interest bases | Rule is not arbitrary and capricious prospectively; agency reasonably justified prioritizing finality |
| Whether agency improperly failed to explain inconsistencies with prior positions | Prior inconsistent agency interpretations required explanation and counsel against the new rule | Rule changed the regulation’s text via rulemaking; changing policy by rule does not require repeating or reconciling past interpretations beyond a reasoned explanation | Court rejected plaintiffs’ consistency claim; rulemaking sufficed to justify the new text |
Key Cases Cited
- Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225 (D.C. Cir. 1994) (describing IPPS base-rate structure and the competing values of finality and accuracy)
- Regions Hosp. v. Shalala, 522 U.S. 448 (U.S. 1998) (interpreting CMS reopening regulation time limits)
- Your Home Visiting Nurse Servs., Inc. v. Shalala, 525 U.S. 449 (U.S. 1999) (confirming three-year reopening framework)
- Kaiser Foundation Hospitals v. Sebelius, 708 F.3d 226 (D.C. Cir. 2013) (invalidating agency’s past interpretation that §405.1885 barred challenges to predicate facts and prompting the 2013 Amendment)
- Bowen v. Univ. of Georgetown Hosp., 488 U.S. 204 (U.S. 1988) (explaining when an agency may make regulations retroactive)
- Motor Vehicle Mfrs. Ass’n v. State Farm, 463 U.S. 29 (U.S. 1983) (arbitrary-and-capricious standard for reviewing agency action)