ABRAHAM LINCOLN MEMORIAL HOSPITAL, et al., Plaintiffs-Appellants, v. Kathleen SEBELIUS, Secretary of Health and Human Services, Defendant-Appellee.
No. 11-2809.
United States Court of Appeals, Seventh Circuit.
Argued Jan. 6, 2012. Decided Oct. 16, 2012.
698 F.3d 536
[REDACTED] The government argues that Lam‘s testimony on cross-examination itself is enough to support the IJ‘s exercise of discretion and strip us of jurisdiction. But the only thing that Lam‘s testimony reveals is his (and possibly the government‘s) confusion regarding the Gateway dealership incident. It is clear from the record that there were two dealerships involved and that the IJ relied on improper evidence in making his discretionary determination that Lam failed to exhibit rehabilitation. Because Lam is not disagreeing with the weight that the IJ and Board placed on the evidence, see Huang, 534 F.3d at 621, but on mischaracterization of the document as impeachment evidence, we have jurisdiction over Lam‘s claim. We find that reliance on the document was improper. It is not clear to us whether the IJ‘s discretionary determination would stand without reliance on the improper evidence, so we remand to the BIA for reconsideration.
III. CONCLUSION
For the reasons set forth above, we GRANT Lam‘s petition for review, VACATE the order of removal, and REMAND to the agеncy for reconsideration of Lam‘s application for a waiver of inadmissibility.
Peter R. Maier (argued), Attorney, Department of Justice, Civil Division, Appellate Staff, Washington, DC, for Defendant-Appellee.
Before MANION and WILLIAMS, Circuit Judges, and CASTILLO, District Judge.*
CASTILLO, District Judge.
In a ruling constituting the final administrative decision of the Secretary of the Department of Health and Human Services (“HHS“), the Administrator of the Centers for Medicare and Medicaid Services (“CMS“) disallowed the reimbursement of Medicare expenses to a group of Illinois hospitals for their 2004 and 2005 cost years. Specifically, the Administrator found that the amount of a tax assessment paid by the hospitals pursuant to an Illinois statute was a reasonable cost, but was subject to offset by any payments those hospitals received from an Illinois State fund. Plaintiffs-appellants, nineteen hospitals (“Hospitals“),1 appeal from the district court‘s decision upholding the Administrator‘s decision. Because the Administrator‘s decision was not arbitrary or capricious and is supported by substantial evidence, we affirm the district court‘s well-reasoned and comprehensive opinion which granted summary judgment in favor of the Secretary.
I. BACKGROUND
The issues presented in this appeal require an understanding of the complex and
A. Medicare
Title XVIII of the Social Security Act,
Medicare “is administered, in part, through contractual arrangements with providers of health care services.” Adventist Living Ctrs. v. Bowen, 881 F.2d 1417, 1419 (7th Cir. 1989) (citing
Again, under the Medicare Act, participating health care providers are reimbursed for the “reasonable cost” of providing services to Medicare beneficiaries.
the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services, and
shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included, in determining such costs for various types or classes of institutions, agencies, and services[.]
Pursuant to her statutory authority, “[t]he Secretary has promulgated ... regulations establishing the methods for determining reasonable cost reimbursement.” Shalala v. Guernsey Mem‘l Hosp., 514 U.S. 87, 92, 115 S. Ct. 1232, 131 L. Ed. 2d 106 (1995). Consistent with the statute, these regulations provide that “[a]ll payments to providers of services must be based on the reasonable cost of services covered under Medicare and related to the care of beneficiaries.”
In addition to the regulations, the Secretary also publishes the Provider Reimbursement Manual (“Manual“) which provides guidance in interpreting the regulations. Mem‘l Hosp. of Carbondale, 760 F.2d at 772; Guernsey Mem‘l Hosp., 514 U.S. at 101-02 (referring to the Manual provisions as interpretive rules). While the Manual “is entitled to ‘considerable deference’ as a general matter[,]” Daviess Cnty. Hosp. v. Bowen, 811 F.2d 338, 345 (7th Cir. 1987) (citing Bedford Med. Ctr. v. Heckler, 766 F.2d 321, 323 (7th Cir. 1985)), it is not strictly binding on the Secretary and “we will uphold a decision despite certain variations from the [M]anual.” Paragon Health Network, Inc. v. Thompson, 251 F.3d 1141, 1147 (7th Cir. 2001).
At the time the Hospitals submitted their cost reports to the Intermediary, the Manual provided that “[t]he general rule is that taxes assessed against the provider ... are allowable costs.” Manual § 2122.1 (Rev. 205).2 The Manual also provides a list of taxes that are not allowable as costs,
Consistent with the regulations, the Manual provides that “refunds of previous expense payments are reductions of the related expense.” Manual § 800 (Rev. 450). The Manual further instructs that “[d]iscounts, allowances, refunds, and rebates ... should be used to reduce the specific costs to which they apply[.]” Manual § 804 (Rev. 45).4 The Manual defines refunds as “amounts paid back by the vendor generally in recognition of damaged shipments, overpayments, or returned purchases.” Manual § 802.31 (Rev. 450). The Manual also defines “Applicable Credits” as “[t]hose receipts or types of transactions which offset or reduce expense items that are allocable to cost centers as direct or indirect costs. Typical examples of such transactions are: purchase discounts, rebates, or allowances; recoveries or indemnities on losses; sales of scrap or incidental services; adjustments of overpayments or erroneous charges; and other income items which serve tо reduce costs.” Manual § 2302.5 (Rev. 336).
B. Medicaid
Title XIX of the Social Security Act,
Where a State establishes a State plan that satisfies the requirements of Title XIX, the Federal Government shares in the cost by reimbursing a participating State for patient care costs on the basis of a federal medical assistance percentage (“FMAP“).
Prior to 1991, States “began to take advantage of a ‘loophole’ in the Medicaid program that allowed states to gain extra federal matching funds without spending more state money.” Protestant Mem‘l Med. Ctr., Inc. v. Maram, 471 F.3d 724, 726 (7th Cir. 2006). Specifically, States would make payments to hospitals, collect the federal matching funds, and then recover a portion of the payments made to hospitals through the collection of a health care related tax imposed on the hospitals. See generally id. (discussing loophole). Under these arrangements, States essentially raised revenue for their Medicaid programs while shifting program costs away from themselves and to the Federal Government.
In 1991, Congress enacted the Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991 (“1991 Amendments“), Pub. L. No. 102-234 § 2, 105 Stat. 1793, 1793-99 (effective Jan. 1, 1992) (codified at
“A health care related tax is either a tax that treats providers or purchasers of hеalth care items or services differently from other individuals on whom the tax falls, or it is a tax in which at least eighty-five percent of the tax burden falls on those who provide or purchase health care items or services.” Protestant Mem‘l Med. Ctr., Inc., 471 F.3d at 726 (citing
C. Illinois’ Hospital Provider Funding Legislation
In 2004, Illinois enacted Hospital Provider Funding Legislation (“Legislation“) imposing a tax (“Tаx Assessment“) on hospital providers, except for certain categories of exempt hospitals, for fiscal years 2004 and 2005.
The Illinois Department of Public Aid (now known as the Illinois Department of Healthcare and Family Services) (“Department“) was charged with the responsibility of collecting the Tax Assessments, along with administering and enforcing the Legislation.
Pursuant to Section 5A-12 of the Legislation, the Department was required to make hospital access improvement payments (“Access Payments“) to non-exempt hospitals with money from the Fund.
The Access Payments were “not due and payable” until: (1) approval by the Federal Government in a State plan amendment; (2) a determination was made that the Tax Assessment was a permissible tax under Medicaid; and (3) the Tax Assessment took effect.
In the event the Access Payments were not eligible for federal matching funds un-
D. State Plan Amendments to Illinois’ Medicaid Plan
In 2004, Illinois submitted two State plan amendment (“SPA“) requests to CMS for approval of adjustments to the payment methodologies for inpatient and outpatient hospital services. Illinois also requested that CMS grant a waiver of the broad-based requirement for the Tax Assessment under
E. The Administrator‘s Decision
During fiscal years 2005 and 2006, the Hosрitals sought reimbursement for services provided to Medicare patients on a reasonable cost basis. See
The Intermediary sought review of the Board‘s decision, and the CMS Administrator reversed. The Administrator held that although the Tax Assessment was an allowable tax, the Access Payments were properly treated as refunds of the Tax Assessment. The Administrator reasoned that the statutory language of the Legislation evinced a link between the Tax Assessments and the Access Payments. The Administrator therefore concluded that the Tax Assessment payments were properly offset against the amount of Access Payments each of the Hospitals received, such that the allowable tax was properly calculated as the amount of the Tax Assessment less the amount refunded by Illinois in the form of Access Payments. The Administrator further concluded that whether the Tax Assessment met Medicaid‘s hold harmless provision was not pertinent to whether the refund should be offset under Medicare principles to determine the
The Hospitals then brought suit in the Central District of Illinois, contending that the Administrator‘s decision violated the Administrative Procedure Act (“APA“). In a thorough and detailed opinion granting summary judgment to the Secretary and denying summary judgment to the Hospitals, Judge Myerscough upheld the Administrator‘s decision, finding that the Secretary‘s interpretation of the Medicare statutes and regulations “was not arbitrary, capricious, or contrary to law, and is supported by substantial evidence.” Abraham Lincoln Mem‘l Hosp. v. Sebelius, No. 10-3122, 2011 WL 2293233, at *7-*10 (C.D. Ill. June 8, 2011).
II. DISCUSSION
We review the district court‘s decision denying the Hospitals’ motion for summary judgment and granting summary judgment to the Secretary de novo. Mt. Sinai Hosp. Med. Ctr. v. Shalala, 196 F.3d 703, 707 (7th Cir. 1999). At the outset, however, we note that our review of the Secretary‘s decision is limited. Loyola Univ. of Chi. v. Bowen, 905 F.2d 1061, 1066 (7th Cir. 1990). Our review of the Secretary‘s decision on reimbursement matters is governed by
To the extent the Secretary‘s decision is based on an interpretation of the statutory language, the Court owes Chevron deference. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984) [hereinafter Chevron ]. Under Chevron, courts engage in a two-step inquiry. First, we must determine “whether Congress has directly spoken to the precise question at issue.” Id. at 842, 104 S. Ct. 2778. Where Congress’ intent is clear, we must give effect to Congress’ unambiguously expressed intent. Id. at 842-43, 104 S. Ct. 2778. Where the statute is silent or ambiguous, however, we must examine “whether the agency‘s [interpretation] is based on a permissible construction of the statute.” Id. at 843, 104 S. Ct. 2778.
When the construction of an administrative regulation is at issue, it is well-established that the Secretary‘s interpretation of her own regulations is entitled to substantial deference. Thomas Jefferson Univ., 512 U.S. at 512, 114 S. Ct. 2381. “Our task is not to decide which among several competing interpretations best serves the regulatory purpose. Rather, the agency‘s interpretation must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation.” Id. (internal citations and quotation marks omitted). This substantial degree of deference is “particularly warranted when, as here, the Secretary is interpreting regulations ‘issued pursuant to the complex and reticulated Mediсare Act[.]‘” Hinsdale
The Medicare Act “gives the Secretary wide latitude in developing methods of determining costs.” St. Mary‘s Hosp. Med. Ctr. v. Heckler, 753 F.2d 1362, 1367 (7th Cir. 1985) (citing
Finally, “[t]he fact that the [Board] and the Secretary may have reached different conclusions does not diminish the deference due the Secretary‘s final decision: ‘[f]inal responsibility for rendering decisions rests with the agency itself, not with subordinate hearing officers.‘” Adventist Living Ctrs., 881 F.2d at 1421 (quoting St. Francis Hosp. Ctr., 714 F.2d at 874).
The Hospitals urge us to reverse the Secretary‘s final decision on the basis of five separate arguments. First, the Hospitals contend that the Administrator‘s decision (“Decision“) is arbitrary and capricious, contrary to law, and not supported by substantial evidence because the Administrator misapplied the regulatory term “refund” in concluding that the Access Payments constituted a refund of the Tax Assessments. Secоnd, the Hospitals argue that the Decision misapplied Medicare‘s statutory standard as to whether the Tax Assessment costs were “actually incurred.” Third, the Hospitals urge us to set aside the Decision on the basis that CMS previously determined that the Access Payments did not constitute refunds. Fourth, the Hospitals argue that the Decision must be set aside as an arbitrary and capricious reversal of long-standing policy. Finally, the Hospitals stress that the Decision must be set aside because it establishes a new rule that fails to comply with the APA. We address each argument in turn.
A. The Administrator‘s Decision did not misapply the regulatory definition of the term “refund” and was supported by substantial evidence
The Hospitals first argue that the Decision, finding that the Access Payments to the Hospitals were inextricably linked to the Tax Assessments and constituted a refund, is contrary to law, arbitrary and capricious, and not supported by substantial evidence. According to the Hospitals, the Decision misapplied the regulatory definition of the term “refund” and ignored facts in the record showing no link between the Tax Assessments the Hospitals paid and the Access Payments they received.
1. Whether the Administrator misapplied the regulatory definition of the term “refund”
We find that the Administrator‘s Decision to treat the Access Payments as
A plain reading of the Legislation evidences that the Access Payments clearly served to reduce related expenses, i.e., the Tax Assessments, and therefore were appropriately offset against the Tax Assessments. Pursuant to the terms of the Legislation, the full Tax Assessment was not an incurred cost as the Illinois statute made clear that no installment of the Tax Assessment was “due and payable” until the Hospitals actually received the Access Payments.
Nonetheless, the Hospitals contend that the Access Payments were not computed based on the amount of the Tax Assessment the Hospitals paid and therefore the Access Pаyments could not possibly have constituted a “refund” of the Tax Assessments. According to the Hospitals, the Access Payments do not fit within the technical definition of a refund, which is defined as an “amount[] paid back or a credit allowed on account of an overcollection.”
2. Whether there is substantial evidence to support the Administrator‘s Decision
Despite the Legislation‘s language to the contrary, the Hospitals also argue that the Decision is not supported by substantial evidence in that it ignored facts in the record showing no link between the Tax Assessments and the Access Payments the Hospitals received. “Substantial evidence is ‘such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.‘” Loyola Univ. of Chi., 905 F.2d at 1066-67 (quoting Richardson v. Perales, 402 U.S. 389, 401, 91 S. Ct. 1420, 1427, 28 L. Ed. 2d 842 (1971)).
In concluding that the Access Payments were properly treated as refunds of the Tax Assessments and should be offset against the Tax Assessments because they were inextricably linked, the Administrator relied on the language of the Legislation, communications between providers and the State, and the timing of the Tax Assessments and the Access Payments. Specifically, the Administrator took into account the fact that health care providers did not have to pay any portion of the Tax Assessment until the Access Payments were received, letters from the State to providers informing them of the date they should expect to receive the Access Payments and the dates their Tax Assessment was due, as well as the sheer timing of the Access Payments and the Tax Assessments. The fact that the Access Payments were integrally related to the Tax Assessments was not a mystery to the Administrator, who recognized that “but for the [T]ax [A]ssessment there would have been no Fund payment and likewise without the Fund payment there would have been no [T]ax [A]ssessment.”
According to the Hospitals, the Administrator placed undue weight on the “superficial timing issue” while ignoring other facts in the record. For instance, they contend that Illinois removed conditional language from the SPAs during the SPA review process, thereby making it clear that the Access Payments would be made regardless of whether CMS found the Tax Assessment permissible. While it is true that Illinois removed the conditional language from the SPAs, the Hospitals ignore the fact that the State did not remove such language from the Legislation which con-
The Hospitals also ignore the language in the Legislation making it clear that the Hospitals did not need to pay the Tax Assessment until after they received the Access Payments. According to the Hospitals, this should be disregarded as a mere “superficial timing” issue. We disagree, in light of the fact that any Tax Assessment moneys would be refunded to the Hospitals if the State did not receive federal matching funds for the Access Payments. Finally, the Hospitals also ignore the fact that the Access Payments were disbursed out of the same Fund that the Tax Assessment moneys were paid into. Because the Administrator‘s decision is supported by substantial evidence, we decline to reverse it.
B. The Administrator‘s Decision applied the correct statutory standard requiring that allowable costs must be “actually incurred”
The Hospitals’ second contention on appeal is that the Decision failed to apply the correct statutory standard that costs must be “actually incurred” in determining the allowability of the Tax Assessment, and incorrectly determined that the Hospitals did not actually incur the cost of the Tax Assessment. The Secretary counters that the term costs “actually incurred” found in the Medicare Act, requires her to assess costs “as they are.” According to the Secretary, this necessarily includes accounting for offsets for anything that defrays part of the nominal costs health care providers pаy.
1. Whether the Decision applied the wrong statutory standard
The Hospitals assert that the Decision hinges on the premise that because the Access Payments were “inextricably linked” to the Tax Assessments, the Access Payments must be offset against the cost of the Tax Assessments when determining the amount of a health care provider‘s reimbursable costs. According to the Hospitals, the Administrator‘s use of a “linkage” concept was inappropriate and under the statutory language of the Medicare Act, the correct standard is whether the costs were “actually incurred.” Relying on Charlotte Mem‘l Hosp. v. Bowen, 860 F.2d 595, 598 (4th Cir. 1988), the Hospitals argue that a cost is “actually incurred” when a provider‘s liability accrues, regardless of when the liability is paid.
Again, under the Medicare Act, health care providers are reimbursed for their reasonable costs.
Here, the Administrator did not manufacture a “linkage” standard out of whole cloth as the Hospitals assert. Rather, in determining the costs actually incurred, the Administrator looked at the economic impact of the Hospitals’ receipt of the Access Payments to determine the Hospitals’ net Tax Assessment costs. In so doing, the Administrator assessed whether the Access Payments served to reduce a related expense, such that they constituted a refund of the Tax Assessments, and concluded that the Access Payments were indeed intended to reduce the cost of the Tax Assessment. The Hospitals’ reliance on Charlotte Memorial Hospital is unavailing, as the question presented there was when a hospital incurred a reimbursable cost for services and not whether а hospital‘s costs should be offset. 860 F.2d at 598.6 Accordingly, we find that the Secretary‘s construction of costs “actually incurred” is based upon a reasonable interpretation of the statutory term and was not arbitrary, capricious, or contrary to law.
2. Whether the Tax Assessment costs were “actually incurred”
The Hospitals also argue that they incurred the full cost of the Tax Assessment, as they were billed by the State of Illinois for the Tax Assessment and they wrote checks to the State to pay for the Tax Assessment. Therefore, they contend, the Administrator‘s Decision that they did not actually incur the cost of the Tax Assessment is incorrect, as the statutory language requires that they be reimbursed for the reasonable costs they actually incurred.7
While the Hospitals are correct that the Secretary must assess the costs “actually incurred,” their argument does not recognize that the Secretary‘s regulations require that reimbursable costs must necessarily take into account any amounts that defray a health care provider‘s costs.
The Hospitals also assert that CMS‘s position that the Hospitals did not “actually incur” the costs of the Tax Assessment
C. Significance of CMS‘s determination that the Access Payments were not a hold harmless arrangement
The Hospitals’ third contention on appeal is that the Decision must be set aside in light of CMS‘s approval of the SPAs. The Hospitals argue that CMS‘s approval of the SPAs demonstrates that CMS previously determined that the Access Payments and Tax Assessment did not constitute a hold harmless arrangement. According to the Hospitals, “[t]he nature of the Medicaid payments to the Hospitals—already determined by CMS not to be a repayment of the provider tax but, rather, needed payments for services to Medicaid patients—does not change when the Medicare program confronts those facts.” In support, the Hospitals rely on Michael Reese Physicians and Surgeons, S.C. v. Quern, 606 F.2d 732, 736-37 (7th Cir. 2002). There, however, we stated that in approving the Illinois Medicaid plan, HHS had determined that the State plan was in compliance with Medicaid‘s statutory and regulatory requirements. Nowhere in Michael Reese Physicians and Surgeons did we note that HHS‘s determinations as they pertained to Medicaid, were controlling on HHS‘s Medicare determinations.
The Hospitals also fail to point to any statutory language in the Medicare Act suggesting that an interpretation of the Medicaid Act is controlling when interpreting provisions of the Medicare Act. While both Medicare and Medicaid are federally sponsored programs, they are two entirely distinct programs with fundamentally different rules governing eligibility for federal funds. Univ. of Wash. Med. Ctr. v. Sebelius, 634 F.3d 1029, 1031 (9th Cir. 2011) (explaining the different funding mechanisms). Most notably, Medicare is a federally funded program whereas Medicaid is jointly financed by the States and the Federal Government with precise rules for determining the amount of fеderal matching funds a participating State will receive. Because the two programs are independent of one another, CMS‘s decisions with respect to a State‘s Medicaid program are not controlling on how CMS interprets the application of Medicare provisions. See Cmty. Health Ctr. v. Wilson-Coker, 311 F.3d 132, 137 (2d Cir. 2002) (finding that Secretary‘s definition of “reasonable” or “reasonably related” under Medicare “need not have the same meaning that those terms have for Medicaid purposes); Roe v. Norton, 522 F.2d 928, 933 n. 5 (2d Cir. 1975) (assuming that Medi-
The Hospitals further argue that the purpose of the hold harmless provision in the Medicaid statute is the same as the purpose of the reasonable cost provision in the Medicare statute, which is to ensure that CMS only reimburses an entity for the costs it has actually incurred and therefore the two provisions should not be interpreted inconsistently. According to them, by prohibiting, in the Medicaid context, the payment of federal matching funds in those circumstances where a State refunds taxes back to the providers that originally paid them, the Medicaid Act was essentially employing the same payment restriction as found in the Medicare regulations and Manual provisions pertaining to refunds. The Hospitals contend that by disregarding the fact that CMS approved the SPAs, thereby concluding that the Access Payments did not constitute a refund of the Tax Assessment, the Decision interpreted the Medicaid and Medicare Acts inconsistently. In support, the Hospitals rely on Adena Regional Medical Center v. Leavitt, 527 F.3d 176, 180 (D.C. Cir. 2008) [hereinafter Adena ].
The Hospitals’ reliance on Adena is misplaced. There, the District of Columbia Circuit reviewed a provision in the Medicare Act that expressly refers to the Medicaid statute,
D. The Decision that the Access Payments were refunds was not an arbitrary and capricious reversal of long-standing policy
The Hospitals’ fourth contention on appeal is that the Decision should be set aside as arbitrary and capricious because it constitutes a reversal of long-standing policy. In support, the Hospitals rely on United States v. Mead Corp., 533 U.S. 218, 228, 121 S. Ct. 2164, 150 L. Ed. 2d 292 (2001) [hereinafter Mead ]. Without further elaboration, the Hospitals assert that consistency is one of the most important factors and that where an agency‘s interpretation of a relevant provision is inconsistent with the agency‘s earlier interpretation, it must be set aside as arbitrary and capricious.
The Hospitals’ reliance on Mead merits discussion. There, the Supreme Court merely expanded upon its prior decision in Christensen v. Harris County, 529 U.S. 576, 120 S. Ct. 1655, 146 L. Ed. 2d 621 (2000), and held that tariff classification rulings issued by the United States Customs Service, while not deserving of Chevron deference, deserved respect proportional to their “power to persuade” under Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S. Ct. 161, 89 L. Ed. 124 (1944). In Christensen, the Supreme Court clarified that agency interpretations contained in
While we need not look at the Skidmore factors here, where an agency has changed course it is “obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first place.” Motor Vehicle Mfrs. Ass‘n, 463 U.S. at 42, 103 S. Ct. 2856. Were HHS to have abandoned a longstanding policy and taken a new direсtion, we would require a reasoned analysis of its reasons for doing so. The Administrator‘s Decision, however, does not constitute such a change in course. Prior to this case, HHS had not issued any construction of the statute or applicable regulations that was in tension with the application here of the regulatory provisions at issue.
1. Whether the Administrator‘s actions are inconsistent with long-standing policy
According to the Hospitals, CMS has not previously taken the position that taxes paid by hospitals must be offset by Medicaid or other State funds received for services that were funded by the taxes. Rather, the Hospitals assert that CMS has allowed Medicare reimbursement of these taxes consistent with Manual Section 2122 without any offset for a provider‘s receipt of such funds. On reply, and as discussed at oral argument, however, the Hospitals concede that “CMS has not previously promulgated a regulation that expressly stated provider taxes were not to be offset by Medicaid payments.” The Hospitals nonetheless attempt to point to prior Board decisions that demonstrate an implicit policy.
As evidence of the alleged past policy, the Hospitals cite to five prior Board decisions involving the reimbursement of taxes, two CMS decisions (Kindred Hosp. v. Wisconsin Physician Servs., 2009 WL 6049415, at *1 (H.C.F.A. Sept. 29, 2009);
The handful of prior Board decisions the Hospitals rely upon to purportedly show HHS‘s long-standing policy are not determinative. Our precedent instructs that Board decisions are not the decisions of the Secretary or her Administrator and are not authoritative. Cmty. Care Found. v. Thompson, 318 F.3d 219, 227 (D.C. Cir. 2003) (“There is no authority for the proposition that a lower component of a government agency may bind the decision making of the highest level“). While such decisions may offer guidance to providers, they “carr[y] no more weight on review by the Secretary than any other interim decision made along the way in an agency where the ultimate decision of the agency is controlling.” St. Francis Hosp. Ctr., 714 F.2d at 874 (quoting Homan & Crimen, Inc. v. Harris, 626 F.2d 1201, 1205 (5th Cir. 1980)). “Final responsibility for rendering a decision lies in the agency itself, not with subordinate hearing officers ....” Id. Furthermore, the Board decisions relied upon by the Hospitals did not directly address the issue of offsets. In Florida Group Appeal, the Administrator affirmed a Board decision addressing the question of the appropriate fiscal year in which Florida hospitals could claim an indigent care tax assessment as a reimbursable expense. PRRB Dec. Nos. 90-D61 and 90-D62, CCH Medicare and Medicaid Guide ¶ 38,934 (Sept. 20, 1990), aff‘d, HCFA Admr. Dec. CCH Medicare and Medicaid Guide ¶ 38,935 (Nov. 20, 1990). Florida Group Appeal did not involve a question as to the amount of costs the Florida hospitals actually incurred. The line of cases discussing the Minnesota provider taxes are also distinguishable in that the Minnesota statute therein at issue did not involve payments of any kind to offset the amount of taxes paid by the hospitals. Because none of the cases involve the precise issue that was before the Administrator in this case, the Administrator‘s Decision was not inconsistent.
The Hospitals’ reliance on Kindred Hospitals is similarly unhelpful. The issue in Kindred Hospital involved the proper treatment of payments providers received from a privately-administered pooling arrangement in which certain Missouri hospitals participated. 2009 WL 6049415, at *4. The providers in Kindred Hospitals were Medicare-certified providers in Missouri that were subject to a State tax and were also participants in the pooling arrangement. Id. at *5. On their Medicare cost reports, the providers reported their tax payments, listed the pool payments they received as Medicaid revenue, and claimed the amount of the tax as an allowable expense. Id. The Administrator concluded that the pool payments must be used to offset the tax, and that the actual costs incurred were properly determined with respect to the tax payment once the related pool payment was recognized and offset. Id. at *8.
On appeal to the district court, the Western District of Missouri affirmed the Administrator‘s decision. Kindred Hosps. East, LLC v. Sebelius, No. 10-00073-CV-W-HFS, 2011 WL 4729735, at *9 (W.D. Mo. Oct. 5, 2011). In affirming the Administrator‘s decision, the district court
In sum, the Administrator‘s decision here was not inconsistent with a prior policy statement. Even if it were arguably inconsistent, the Administrator was not required to explain a departure from previous interpretations. See Pre-Fab Transit Co. v. United States, 595 F.2d 384, 387 (7th Cir. 1979) (noting that “[a]dministrative agencies are not bound by the doctrine of stare decisis” and that courts may not reverse an agency determination simply because the agency determination may arguably be inconsistent with prior agency decisions) (citing Sawyer Transport, Inc. v. United States, 565 F.2d 474, 477 (7th Cir. 1977)).
2. Whether CMS‘s policy clarification fails to refute its “prior position” that provider taxes are allowable without offset
In May 2010, shortly after the Administrator‘s Decision was issued, CMS published a “Proposed Clarification of Payment Policy for Provider Taxes” in the Federal Register, 75 Fed. Reg. 23,852, 24,018-19 (May 4, 2010), which was adopted as final without change in August 2010. 75 Fed. Reg. 50,042, 50,362-64 (Aug. 16, 2010). The Hospitals assert that CMS‘s policy clarification was intended to bolster CMS‘s litigating position in this case and is an effort to gloss over changes in Medicare reimbursement policy, and therefore it is deserving of no deference.
In the Final Rule, CMS noted that there was confusion relating to the determination of whether a tax is an allowable tax, and that much of the confusion had arisen because it was possible to read sections 2122.1 and 2122.2 of the Manual “as permitting all taxes assessed on a provider by a State that are not specifically listed in Section 2122.2 to be treated as allowable costs.” 75 Fed. Reg. at 50,362-63. CMS proposed to amend the Manual “[i]n situations in which payments that are associated with [an] assessed tax are made to providers specifically to make the provider whole or partly whole for the tax ex-
While it is clear that “[d]eference to what appears to be nothing more than an agency‘s convenient litigating position would be entirely inappropriate,” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 213, 109 S. Ct. 468, 102 L. Ed. 2d 493 (1988), here, the Secretary has not taken such a position. The Secretary has not relied on the policy clarification to justify its denial of the Hospitals’ claims. See Gonzales v. Reno, 212 F.3d 1338, 1350 (11th Cir. 2000) (noting that “[a]n after-the-fact rationalization of agency action—an explanation developed for the sole purpose of defending in court the agency‘s acts—is usually entitled to no deference from the courts,” but concluding that the agency‘s position, developed in the course of administrative proceedings before litigation commenced is not such a justification). Importantly, while the policy clarification was issued a few months after the Administrator‘s Decision, HHS issued the proposed clarification before the Hospitals filed this action in district court. Accordingly, the Secretary‘s position is in no sense “a post hoc rationalization[ ]” advanced by an agency seeking to defend its actions against attack. Georgetown Univ. Hosp., 488 U.S. at 212, 109 S. Ct. 468.
E. The Decision did not establish a new rule that fails to comply with the APA
The Hospitals’ final contention on appeal is that the Decision must be set aside because it establishes a new substantive legal standard for Medicare reimbursement that is invalid because it was not adopted in compliance with the APA‘s notice and comment requirements, and because it cannot be retroactively applied.9 As an initial matter, and as discussed above, the Decision did not constitute a departure from a previous position. See Homemakers North Shore, Inc. v. Bowen, 832 F.2d 408, 413 (7th Cir. 1987) (court‘s conclusion that Secretary had not changed positions necessarily disposed of providers’ contention that Secretary‘s change to regulatory language required Secretary to follow APA‘s notice and comment requirements prior to making change). Even if it had, however, we find that the Decision properly qualifies as an adjudication and therefore the Secretary was not required to follow the APA‘s notice and opportunity for comment requirements.
Under the APA, an administrative agency must publish in the Federal Register “substantive rules of generаl applicability ... and statements of general policy or interpretations of general applicability formulated and adopted by the agency” as well as “each amendment, revision, or repeal of the foregoing.”
cedure, or practice requirements of an agency....”
An adjudication, in contrast to rulemaking, “means agency process for the formulation of an order[.]”
Here, the Decision has the hallmarks of аn adjudication. The Medicare Act provides that providers of services contesting the amount of reimbursement due as determined by an intermediary may request a hearing before the Board, and it further instructs that a Board decision “shall be based upon the record made at such hearing.”
Furthermore, it is well-established that “[a]n agency is not precluded from announcing new principles in an adjudicative proceeding rather than through notice-and-comment rule-making.” Negrete-Rodriguez v. Mukasey, 518 F.3d 497, 503 (7th Cir. 2008); see also City of Arlington, Tex., 668 F.3d at 240. “Nor is there any basis for suggesting that the Secretary has a statutory duty to promulgate regulations that, either by default rule or by specification, address every conceivable question in the process of determining equitable reimbursement.” Guernsey Mem‘l Hosp., 514 U.S. at 96, 115 S. Ct. 1232. As the Supreme Court has noted, the Secretary has issued a set of comprehensive and detailed regulations, which consume hundreds of pages of the Code of Federal Regulations. Id. “As to particular reimbursement details not addressed by her regulations, the Secretary relies upon an elaborate adjudicative structure which includes the right to review by the [Board], and, in some instances, the Secretary, as well as judicial review in federal district court of agency action.” Id. “The APA does not require that all the specific applications of a rule evolve by further, more precise rules rather than by adjudication.” Id. In our view, the Secretary‘s method of determining that the Tax Assessments must be offset by the Access Payments via an adjudication is a proper exercise of her statutory mandate. See id.
The Hospitals’ reliance on American Federation of Government Employees, AFL-CIO, Local 3090 v. Federal Labor Relations Authority, 777 F.2d 751, 752 (D.C. Cir. 1985), is not on point. There, the Federal Labor Relations Authority (“FLRA“) dismissed a complaint and ignored the plain language in regulations pertaining to when the filing of exceptions stayed an arbitration award. American Federation of Government Employees, AFL-CIO, Local 3090, 777 F.2d at 752-53.
The Hospitals also rely on Alaska Professional Hunters Association, Inc. v. Federal Aviation Administration, 177 F.3d 1030, 1033-34 (D.C. Cir. 1999) (quoting Paralyzed Veterans of Am. v. D.C. Arena, 117 F.3d 579, 586 (D.C. Cir. 1997)), where the District of Columbia Circuit held that although an agency may give its regulation an interpretive rule without offering the opportunity for notice and comment, “‘[o]nce an agency gives its regulation an interpretation, it can only change that interpretation as it would formally modify the regulation itself: through the process of notice and comment rulemaking.‘” But, Alaska Professional Hunters Association, Inc. conflicts with the APA‘s rulemaking provisions, which exempt all interpretive rules from notice and comment, and with our own precedent and is therefore not persuasive.
The Hospitals also argue that even if CMS‘s change in position were considered a non-substantive change in interpretation, it is still arbitrary, and rely on Continеntal Web Press, Inc. v. National Labor Relations Board, 742 F.2d 1087, 1093 (7th Cir. 1984). In Continental Web Press, the Board had succeeded in developing a clear policy through a course of adjudications “and to discard the policy without explanation was arbitrary.” Id. at 1094. Unlike Continental Web Press, however, here, a clearly developed policy had not been created through a series of Board opinions and therefore it is inapplicable. Indeed, as we noted in Continental Web Press, where the Board applies the common law technique to its adjudications, “[f]inding distinctions is not reversing course; it is not like first deciding that cars must be equipped with airbags and then that they need not be; it calls for no special explanation.” Id. at 1093.
The Hospitals’ final argument is that the rule announced cannot be retroactively applied. Because we find that no such new rule was announced, however, we decline to address this argument.
III. CONCLUSION
For the foregoing reasons, we affirm the thoughtful and carefully drafted opinion of the district court.
RUBEN CASTILLO
UNITED STATES DISTRICT JUDGE