GENTIVA HEALTH SERVICES, INC., Plaintiff, v. NORRIS COCHRAN, Defendant.
Civil Action No. 19-2271 (RDM)
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
March 3, 2021
MEMORANDUM OPINION
When Congress failed to pass a budget in fiscal year 2013, the failure triggered a statutorily mandated process culminating in government-wide “sequestration,” a tightening of purse strings across a broad range of programs.
The parties have cross-moved for summary judgment. For the reasons explained below, the Court concludes that the Secretary has the better of the argument. The Court will therefore DENY Gentiva‘s motion for summary judgment and will GRANT the Secretary‘s cross-motion for summary judgment.
I. BACKGROUND
A. Statutory Background
This case deals with Medicare and sequestration, two markedly complex regimes. Before moving to the specific facts of this case, therefore, the Court will lay out the legal framework at play.
1. Medicare Statute and Hospice Caps
The Medicare program, established in 1965 by Title XVIII of the Social Security Act,
The Centers for Medicare and Medicaid Services (“CMS“) oversees the Medicare program, and CMS relies on Medicare Administrative Contractors (“MACs“) to administer the process for the payment of providers, including hospice caregivers.
A regulatory process has emerged to navigate this difficulty. Throughout the fiscal year, MACs pay hospices a “fixed” amount “for each day during which the beneficiary is eligible and under the care of the hospice” depending on the “categor[y] of hospice care” provided “for any particular day.”
A hospice that “is dissatisfied with a final determination” may “file[] a request for a hearing within 180 days after notice of the [MAC‘s] final determination,” to appeal the decision to the Provider Reimbursement Review Board (“Board” or “PRRB“), an independent administrative tribunal “composed of five members appointed by the [HHS] Secretary,” with “the power to affirm, modify, or reverse a final determination.”
2. Sequestration
This case also involves another complex statute: the
Pursuant to the Budget Control Act, OMB issued a report to Congress on March 1, 2013 determining that Congress‘s failure to enact legislation reducing the deficit by $1.2 trillion had triggered the sequestration requirement for the 2013 fiscal year. See Office of Management and Budget Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013, at 1 (2013) (“OMB Report“).2 Among an array of other cuts, the 2013 sequestration required “reductions of 2.0 percent to Medicare.”
B. Factual Background
Plaintiff Gentiva and its subsidiaries “Kindred at Home” operate hospices nationwide, including the six hospices at issue in this case. Dkt. 1 at 1 (Compl. ¶ 2). Each of these six hospices participated in
As explained above, the Medicare statute requires MACs to reimburse hospices for services provided to terminally ill Medicare beneficiaries on a monthly basis, but those payments are only preliminary; among other things, the MACs cannot determine the aggregate cap until the end of the fiscal year, and they do not make final determinations of program reimbursement until months (or years) after the services are provided and the preliminary payments are made. As the PRRB later observed: “Not surprisingly, CMS [did] not want to knowingly overpay providers, so it [did] not wait until the close of the [fiscal] year to apply sequestration[;] . . . [r]ather, CMS applie[d] sequestration up front throughout the cap year to any interim hospice payments made prior to the [fiscal]-year end.” Dkt. 14-1 at 17 (AR 17). At the end of the cap year, however, CMS still needed to make a final determination of program reimbursement.
Under the methodology set forth in the TDL, the MACs were first required to add the amounts that had been withheld from the preliminary monthly payments as a result of sequestration back to the net preliminary payments.
Simplified examples illustrate how the calculation works. Although sequestration did not start until April 2013, for simplicity‘s sake, the following examples assume that sequestration applied to the entire fiscal year and assume an unrealistically low annual aggregate cap of $1,000. The
Table 1
| CMS TDL Method | ||
|---|---|---|
| Hospice A | Hospice B | |
| A. Annual Aggregate Cap | $1,000 | $1,000 |
| B. Actual Preliminary Payments | $980 | $1,176 |
| C. Sequestered Amount | $20 | $24 |
| D. Pre-sequestration Reimbursement Amount (B+C) | $1,000 | $1,200 |
| E. Pre-sequestration Amount in Excess of Cap (D-A) | $0 | $200 |
| F. 2% of the Pre-sequester Amount Overpayment | $0 | $4 |
| G. Revised Payment in Excess of Cap (E-F) | $0 | $196 |
| H. Final Amount Retained by Hospice (B-G) | $980 | $980 |
As this example demonstrates, under the TDL‘s approach, the inefficient hospice is subject to a cap-based repayment obligation of $196, while the efficient hospice owes nothing. More generally, the TDL‘s approach results in an across-the-board 2 percent cut to Medicare spending on hospices; regardless of the amount of overpayment a hospice has received, the maximum amount of payment it can receive (in the example) is $980, or 98 percent of the otherwise applicable $1,000 maximum.
Because “most hospices [do] not [typically] exceed their aggregate cap,” most were unaffected by the implementation of the TDL‘s methodology. Dkt. 14-1 at 17 (AR 17). That was not the case, however, with respect to the six Gentiva hospices at issue in this case. Although their MACs’ “first overpayment calculations did not take sequestration into account,” Dkt. 14-1 at 466 (AR 1142); see also
The Gentiva hospices disagreed with the methodology mandated by CMS and applied by their MACs. In their view—and in Gentiva‘s view in this litigation—CMS and the MACs erred in adding back the sequestration amount prior to applying the cap and, instead, should have simply applied the cap to the sum of the preliminary payment amounts the hospices received throughout the year. Dkt. 8-1 at 29–30. Continuing the example from above, the following chart provides hypothetical calculations for two hospices, one efficient and the other inefficient, under two scenarios—one with no sequestration and one
Table 2
| No Sequestration | ||
|---|---|---|
| Hospice A | Hospice B | |
| A. Annual Aggregate Cap | $1,000 | $1,000 |
| B. Actual Preliminary Payments | $1,000 | $1,200 |
| C. Amount Overpayment | $0 | $200 |
| D. Final Amount Retained by Hospice | $1,000 | $1,000 |
| With 2 Percent Sequestration | ||
| A. Annual Aggregate Cap | $1,000 | $1,000 |
| B. Actual Preliminary Payments | $980 | $1,176 |
| C. Amount Overpayment | $0 | $176 |
| D. Final Amount Retained by Hospice | $980 | $1,000 |
The bottom line of the methodology that Gentiva advocates is that the inefficient hospice is subject to a cap-based overpayment of only $176, substantially lower than the $196 overpayment derived under the CMS-mandated methodology in Table 1. Moreover, under this methodology, Hospice B ultimately retains the same payment amount with or without sequestration; the across-the-board cuts do not reach it. Under the actual facts of this case, Gentiva posits that the difference between the CMS methodology and its preferred methodology resulted in a $383,903.79 loss across the six hospices at issue. Dkt. 1 at 11 (Compl. ¶ 42).
The six hospices timely filed a group appeal of the MACs’ cap overpayment determinations to the Board. Dkt. 8-1 at 24; Dkt. 14-1 at 124–451 (AR 628–955). The Board held a hearing on August 23, 2017,
The fact that MACs deducted 2 percent from the interim payments did not, in the Board‘s view, alter its conclusion that the “amount paid” to each hospice must be
On June 27, 2018, CMS declined to review the Board‘s decision. Dkt. 8-1 at 26. The Board‘s decision, accordingly, constitutes the Secretary‘s final determination regarding the proper calculation of the hospices’ 2013 cap year overpayments.
Gentiva moved for summary judgment on February 11, 2020. Dkt. 8-1, and the Secretary cross-moved for summary judgment on April 17, 2020, Dkt. 9-1. On November 3, 2020, the Secretary filed a notice of supplemental authority, drawing the Court‘s attention to the recent decision in Silverado Hospice, Inc. v. Azar, No. SA-CV 19-1007, 2020 WL 6821073 (C.D. Cal. Oct. 30, 2020). Dkt. 16; Dkt. 16-1. In that case, which is similar to this one, the U.S. District Court for the Central District of California granted the Secretary‘s motion for summary judgment and denied the cross-motion of the hospice plaintiffs. Silverado, 2020 WL 6821073, at *1. Gentiva promptly responded to that notice, arguing that the Silverado decision does not address additional arguments that it makes in this case. Dkt. 17.
II. LEGAL STANDARD
The Court‘s jurisdiction is premised on the Medicare statute,
III. ANALYSIS
Although at times overlapping, Gentiva‘s challenges fall into three general groups. First, it argues that the Board‘s decision is inconsistent with the Medicare statute, regulations, and the Budge Control Act and thus is “not in accordance with law” and is “in excess of statutory jurisdiction, authority, or limitations.” See
A. Challenges to the Board‘s Decision‘s Consistency with the Governing Law
Although Gentiva raises both procedural and substantive challenges to the Board‘s decision, its principal objection is that CMS added the sequestration deductions back to the actual preliminary payments before applying the aggregate cap and, then, only accounted for sequestration after calculating the payments in excess of the cap. This was a mistake, according to Gentiva, because the hospice cap provision of the statute and the corresponding regulation require CMS to calculate the cap based on the “amount of payment made under [Medicare Part A] for hospice care provided by . . . [the] hospice program for [the] accounting year,”
In assessing this argument, the Court considers—as it must, see SEC v. Chenery Corp., 318 U.S. 80, 87 (1943)—the Board‘s analysis. The Board‘s decision, moreover, “is entitled to considerable deference.” Marymount Hosp., Inc. v. Shalala, 19 F.3d 658, 661 (D.C. Cir. 1994). To the extent the decision is based “on the language of the Medicare Act itself, [the Court] owe[s] [the Board] deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843–45 (1984),” and must, accordingly, apply the
As the Board observed, “how the hospice cap interacts with sequestration is key to understanding the issue in this case.” Dkt. 14-1 at 14 (AR 14). To resolve that question, the Court must start, as did the Board, with the plain language of the Medicare statute. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240–41 (1989). And, the Court concludes, as did the Board, that nothing in the language of the statute required CMS to apply the aggregate cap to the periodic payments made over the course of the year, as opposed to the payments due the participating hospices under the Medicare statute based on the final, year-end reconciliation. In other words, the payments “made” under the Medicare statute may not exceed the cap, even if another statute—the Budget Control Act—further reduces the amount of the payments made. Other indicia of congressional intent, moreover, support the view that CMS applied the correct methodology.
In arguing that CMS should have applied the aggregate cap to the total, periodic payments, Gentiva relies in large part on the language of
The amount of payment made under this part for hospice care provided by (or under arrangements made by) a hospice program for an accounting year may not exceed the “cap amount” for the year . . . multiplied by the number of Medicare beneficiaries in the hospice program in that year.
The Court is unpersuaded. The statute does not say, as Gentiva posits, that “[t]he amount of [periodic] payments made” may not exceed the aggregate cap. Nor is it otherwise retrospective, requiring consideration of amounts previously paid. Gentiva‘s argument turns on the premise that the phrase “amount of payment made” uses the past tense—that is, refers to historical payments—but that construction is difficult to reconcile with the next clause of
Gentiva‘s reliance on
Subject to the limitation under paragraph (2) . . . , the amount paid to a hospice program with respect to hospice care for which payment may be made under this part shall be an amount equal to the costs which are reasonable and related to the cost of providing hospice care or which are based on such other tests of reasonableness as the Secretary may prescribe . . . .
Finally, Gentiva‘s reliance on the governing regulations provides no further support to its claim.4 The regulations merely iterate that “the total Medicare payment to a hospice for care furnished during a cap period is limited by the hospice cap.”
Further statutory evidence weighs heavily against Gentiva‘s reading of the statute. As the Board observed, “the fact that payments made during the year are subject to not just the aggregate cap but also a cap related to inpatient care” reinforces the conclusion “that the payments made during the year are interim” and are not the final payments subject to the cap. Dkt. 14-1 at 15 (AR 15). As explained above, the amount payable for hospice care is subject to two caps—the aggregate cap and the inpatient cap, which limits reimbursement for inpatient hospice services to “20 percent of the aggregate number of days during” a “12-month period” for which the patient received hospice care,
Gentiva also unpersuasively argues that CMS guidance militates in favor of its interpretation of the phrases “amount paid” and “the amount of payment made.” The Medicare Benefit Policy Manual (“BPM“), according to Gentiva, makes clear that “‘payments made’ means ‘actual Medicare payments made’ for hospice services.” Dkt. 8-1 at 13. In two sections titled “Aggregate Cap on Overall Reimbursement to Medicare-certified Hospices” and “Actual Medicare Payments Counted,” the BPM stipulates that:
Overall aggregate Medicare payments made to a Medicare-certified hospice are subject to an aggregate cap, calculated by the . . . MAC . . . at the end of the hospice cap period. . . . The total actual Medicare payments made for services furnished to Medicare beneficiaries during the cap year (November 1st to October 31st ) are compared to the aggregate cap for this period. Any actual Medicare payments in excess of the aggregate cap must be refunded by the hospice.
. . .
“Total actual Medicare payments made for services furnished to Medicare beneficiaries during the cap year” refers to Medicare payments for services rendered
beginning November 1 and ending October 31, regardless of when payment is actually made. All payments made to hospices on behalf of all Medicare hospice beneficiaries receiving services during the cap year are counted.
Dkt. 14-1 at 502–03 (AR 1373–74). The BPM‘s references to “actual Medicare payments,” in Gentiva‘s view, make clear that the Medicare statute‘s references to “payments made” mean the periodic payments hospices receive over the course of the year. And because the sequestered amounts were never actually paid, Gentiva contends that they ought not be included when MACs apply the aggregate cap to determine overpayments. Dkt. 8-1 at 34–36; Dkt. 12 at 19.
As an initial matter, even if agency guidance supported Gentiva‘s reading, the guidance could not override the plain meaning of the statute. But neither excerpt from the BPM necessitates Gentiva‘s interpretation. Indeed, as the Secretary notes in his briefing, the second excerpt, if anything, undermines Gentiva‘s position. Dkt. 9-1 at 23. The guidance defines “actual Medicare payments made for services furnished . . . during the cap year” as payments made for services provided during the year, “regardless of when payment is actually made.” Dkt. 14-1 at 503. Thus, the guidance makes clear that the payment amount subject to the aggregate cap encompasses more than the sum of checks cut by a MAC during a fiscal year. For example, “if Medicare determines after the fiscal year closes that it should not have disallowed a claim for hospice reimbursement, it will pay the hospice in the subsequent year, but the payment counts against the hospice‘s cap for the year in which the hospice provided the services.” Dkt. 9-1 at 23. In some cases, the hospice never receives a check, but instead, the payment is incorporated into the MAC‘s final reimbursement determination: “it is not at all uncommon for the reconciliation process to increase Medicare‘s obligation to a hospice which, in turn, reduces its overpayment.” Dkt. 13 at 20. The fact that “total actual Medicare payments made” include payments that hospices did not in fact receive during the year undercuts Gentiva‘s contention that the periodic payments are the lodestar for calculating the cap.
Finally, even if the text of the Medicare statute did not, standing alone, carry the day, the Court would still sustain the Board‘s conclusion because, unlike Gentiva‘s argument, it honors the mandate of the Budget Control Act. Although the Board is not entitled to Chevron deference when it comes to its interpretation of the BCA (because it is not charged with administering that statute, see SW Gen., Inc. v. NLRB, 796 F.3d 67, 74 n.4 (D.C. Cir. 2015); Pro. Airways Sys. Specialists, MEBA v. FLRA, 809 F.2d 855, 857 n.6 (D.C. Cir. 1987)), the Court is nonetheless persuaded that the Board correctly determined that that the 2 percent sequestration should apply to the final “amount paid“—that is to the amount paid ”after the hospice aggregate cap itself has been applied.” Dkt. 14-1 at 16 (AR 16) (emphasis in original). In cases in which the hospice did not exceed its aggregate cap based on the final, reconciled payment amount, there was no need to make any further adjustments. The 2 percent reduction was already reflected in the interim payments, and no further adjustment was required. But in cases in which the hospice exceeded its aggregate cap based on the final, reconciled payment amount, “CMS had to develop a cap year-end reconciliation and accounting process that simulated the proper process” under which the sequestration deduction was made after application of the cap.
Again, the Board‘s conclusion is supported by the relevant statutory text. The Budget Control Act requires OMB and the President to effectuate a reduction in “[d]iscretionary appropriations and direct spending accounts” across the board.
In pressing its argument, Gentiva relies on
Accordingly, each of Gentiva‘s substantive challenges to the Board‘s reading of the Medicare statute and Budget Control Act fail.
B. Challenges to Materials Considered by the Board
Gentiva also argues that the Board relied on improper or inapposite materials in its decision.5 The Court is unpersuaded.
This resolves the matter, but the Court pauses to note that Gentiva‘s repeated disparagement of the TDL as “secret” is, at the very least, overstated. See, e.g., Dkt. 8-1 at 32–33, 42. Although CMS prohibited MACs from distributing the letter itself, it instructed MACs to “send a listserv to providers explaining the sequestration impact on the hospice cap calculation,” Dkt. 14-1 at 26 (AR 26); required that MACs notify hospices if their cap determinations would be reopened,
Gentiva next claims that the Board “[r]ecogniz[ed] that its position f[ound] no support in the plain language of the existing law or CMS‘s published interpretation of existing law, [and thus] relie[d] on materials that do not apply to” hospices. Dkt. 8-1 at 44. Gentiva claims, for example, that the Board improperly relied “on payment law applicable to” hospitals exempt from the prospective payment system, even though “[h]ospices are not hospitals and are not subject to the hospital payment rules cited.”
Gentiva also takes aim at the Board‘s “inexplicabl[e] and repeated[] refer[ences] to the [h]ospices’ fixed per diem payments as ‘interim’ payments.” Dkt. 8-1 at 46. Gentiva argues that these payments cannot be interim because (1) in contrast to regulations governing hospital payments, the regulations governing hospices make no reference to “interim payments,” and (2) the hospice‘s per diem payments reflect fixed rates and are “the only Medicare payments that hospices receive.”
[I]t is quite common for a hospice‘s final determination of program reimbursement to include adjustment “up or down.” . . . Cap numbers and provider reimbursement can change for a variety of reasons including a miscount or reallocation of beneficiary days, . . . updated data, . . . a finding that [a] beneficiary is not eligible for hospice benefits, . . . or a finding that Medicare paid for a claim that should have been covered by another party . . . . While it is certainly true that the efficiency of the electronic claims filing process rarely, if ever, results in Medicare “cutting a check” to a hospice at year‘s end, it is not at all uncommon for the reconciliation process to increase Medicare‘s obligation to a hospice which, in turn, reduces its overpayment. Likewise, MACs routinely reopen hospice cost reports to increase a hospice‘s total allowable Medicare reimbursement.
Dkt. 13 at 19–20. “Regardless of the nomenclature, . . . [a]ll preliminary payments are subject to reconciliation at year-end,”
The Court, accordingly, is convinced that the Board “examine[d] the relevant data and articulate[d] a satisfactory explanation for its action.” Encino Motorcars, 136 S. Ct. at 2125 (quoting Motor Vehicle Mfrs. Assn. of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). Its “explanation is clear enough that its [decision-making] ‘path may reasonably be discerned.‘” Id. (quoting Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 286 (1974)). That is all that the law requires.
C. Challenges to the Notice Provided to Hospices
Finally, Gentiva maintains that hospices received inadequate notice of the methodology adopted by CMS and approved by the Board and that CMS failed to follow required procedures before “chang[ing] a ‘substantive legal standard’ affecting Medicare benefits.” Dkt. 8-1 at 42 (quoting Azar v. Allina Health Servs., 139 S. Ct. 1804, 1808 (2019)). The Court is, once again, unpersuaded.
The governing principles are well settled. “Agencies are,” of course, “free to change their existing policies as long as they provide a reasoned explanation for the change,” Encino Motorcars, 136 S. Ct. at 2125, and their new policies are otherwise lawful. But when an agency changes an existing policy, it “must at least ‘display awareness that it is changing position’ and” must “‘show that there are good reasons for the new policy.‘” Id. at 2126 (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)). Moreover, agencies must recognize where “longstanding policies . . . have ‘engendered serious reliance interests‘” and must take those interests “‘into account.‘” Id. (quoting same).
Here, Gentiva argues that neither the TDL nor the Board‘s decision acknowledged that CMS had departed from established policy, including the policy set forth in
Similarly, Gentiva maintains that the Secretary‘s “published guidance and the MACs’ consistent use of net reimbursement to calculate overpayments through the original cap determinations for [FY 2013], and hospices’ reliance on that guidance and longstanding practice, preclude retroactive application of the MACs’ new calculation method.” Dkt. 8-1 at 40–41. But, for the reasons just discussed, the Court is unpersuaded that the MACs’ approach constitutes a “new calculation method.” As the Board explained, “neither the sequestration order nor the CMS TDL altered any aspect of the calculation of the aggregate cap. Rather, CMS implemented sequestration in a manner to ensure that no aspect of those cap calculations was altered by sequestration.” Dkt. 14-1 at 22 (AR 22). It is true that CMS did not implement sequestration through a regulation, but the reason is that Congress imposed sequestration by statute, and Congress charged OMB and the President with implementing the sequestration reductions.
Gentiva does identify one instance of change: the change between the MACs’ initial approach to calculating final determinations for fiscal year 2013, and their revised approach following the March 2015 TDL. Dkt. 8-1 at 41. As Gentiva‘s MACs explained to the Board, “[a]pplication of the sequestration payment withhold for all [h]ospice [p]roviders got off to a rocky start. The first overpayment calculations did not take . . . sequestration into account. However, this omission was discovered and corrected.” Dkt. 14-1 at 466 (AR 1142). The contractors accordingly “published a document,”
Nor is the Court persuaded by Gentiva‘s contention that the Secretary was required to act, if at all, by rulemaking. To be sure, the Medicare statute provides that “[n]o rule, requirement, or other statement of policy . . . that establishes or changes a substantive legal standard governing . . . the payment for services . . . under this subchapter shall take effect unless it is promulgated by the Secretary by regulation.”
[W]e can imagine that the government might have sought to argue that the policy at issue here didn‘t “establis[h] or chang[e]” a substantive legal standard—and so didn‘t require notice and comment under
§ 1395hh(a)(2) —because the statute itself required it to count Part C patients in the Medicare fraction. But we need not consider this argument . . . because the government hasn‘t pursued it.
139 S. Ct. at 1816. As explained above, CMS merely applied sequestration in the manner required by law. See also Silverado, 2020 WL 6821073, at *7 (“Defendant is not exercising discretion to apply the 2 percent sequestration. Rather, the agency is integrating Congress‘s sequestration mandate with the Medicare Act and existing regulations.“). Accordingly, the procedural hurdles that govern discretionary decisions that CMS or the Secretary makes, like “whether to count [certain] participants in the . . . fraction” used to determine Medicare payments, Allina Health, 139 S. Ct. at 1809, do not apply in this context.
The Court, accordingly, concludes that all of Gentiva‘s process challenges fail as well.
CONCLUSION
For the reasons explained above, the Court will deny Gentiva‘s motion for summary judgment, Dkt. 8, and will grant the Secretary‘s cross-motion for summary judgment, Dkt. 9.
A separate order will issue.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: March 3, 2021