MAINE MEDICAL CENTER et al., Plaintiffs, Appellees, v. Sylvia M. BURWELL, Secretary, United States Department of Health and Human Services, Defendant, Appellant. Maine Medical Center et al., Plaintiffs, Appellants, v. Sylvia M. Burwell, Secretary, United States Department of Health and Human Services, Defendant, Appellee.
No. 15-2408, No. 15-2483
United States Court of Appeals, First Circuit.
October 27, 2016
William H. Stiles, Portland, ME, with whom Nora Lawrence Schmitt, Boston, MA, and Verrill Dana, LLP were on brief, for plaintiffs.
Before HOWARD, Chief Judge, SELYA and KAYATTA, Circuit Judges.
SELYA, Circuit Judge.
The system through which the federal government reimburses hospitals for charity care is among the most arcane known to man. A central feature of this system is a provision through which hospitals receive so-called disproportionate share payments (DSH payments). See
After first clearing a jurisdictional hurdle, we hold that the Secretary properly reopened the disputed years and adequately demonstrated that the Hospitals had received substantial overpayments of DSH funds. We further hold that the myriad defenses to repayment asserted by the Hospitals lack force. Accordingly, we reverse in part and affirm in part.
I. BACKGROUND
Putting these appeals in perspective requires a journey into the “often surreal” Medicare reimbursement regime. See S. Shore Hosp., Inc. v. Thompson, 308 F.3d 91, 94 (1st Cir. 2002). Medicare has a noble purpose: it assists elderly and disabled individuals in accessing health care. See
Initially, the federal government reimbursed hospitals for the “reasonable cost” of treating Medicare patients. See, e.g., R.I. Hosp. v. Leavitt, 548 F.3d 29, 39 (1st Cir. 2008). In 1983, however, Congress amended the program to incorporate a prospective payment system through which hospitals are reimbursed predetermined amounts for certain services. See
The DSH payment protocol works this way. Hospitals that serve a “significantly disproportionate number of low-income patients” are known as disproportionate share hospitals (DSH hospitals).
To receive Medicare payments (including DSH adjustments), a Medicare provider submits cost reports to an intermediary at the end of each fiscal year. The intermediary thereafter issues a notice of program reimbursement (NPR) specifying the amount the provider is owed in reimbursements and adjustments. See
In the case at hand, the Secretary maintains that the Hospitals were overinclusive in their DSH payment calculations because they included patient days for patients entitled to both Medicare Part A and Medicaid but not supplemental security income (SSI), known as non-SSI type 6 days. The inclusion of these days dates back to at least 1997, when one of the plaintiffs (Central Maine Medical Center) settled an administrative cost report appeal. The settlement required the intermediary to include non-SSI type 6 days in its DSH payment
In 2003, the intermediary changed its tune and reopened numerous cost reports to reassess DSH payments. After several meetings between the Hospitals, the intermediary, and CMS, CMS remained unconvinced that non-SSI type 6 days should be included in the DSH payment calculation. Accordingly, the intermediary recouped from the Hospitals approximately $22 million in alleged overpayments.
The Hospitals did not go quietly into this bleak night: they challenged the intermediary‘s action before the Board. Their challenge bore fruit. The Board, finding many of the notices of reopening to be ineffectual, ordered the intermediary to restore approximately $17 million to the Hospitals.
The Hospitals’ victory was short-lived. The Secretary elected to review the Board‘s decision and reversed. Displeased, the Hospitals sought judicial review. See
II. JURISDICTION
At the outset, a jurisdictional question looms. The parties jointly assure us that we have jurisdiction under
The district court‘s initial decision inspires some cause for concern: it directed the parties to inform the court which settlement agreements purported to be “full and final settlements of the issues raised concerning the cost reports for the years at issue.” It went on to provide that if the parties disagreed about which settlement agreements satisfied this standard, the court would establish a dispute-resolution procedure. The parties could not agree on an answer to the question the court had posed. Instead, they jointly petitioned the court to amend its decision and leave the matter unresolved. The court acquiesced to the parties’ suggestion that it did not need to answer the question “at this point” and simply removed the requirement from its decision.
A related matter also may bear on the jurisdictional issue. After the district court handed down its initial decision, the Hospitals requested the payment of interest on the amounts due under the court‘s decision. The court denied the Hospitals’ request without prejudice because the precise amounts owed to the Hospitals had not yet been determined.
We begin the probe into our subject-matter jurisdiction with first principles. As a general matter, a final decision is one “that disposes of all claims against all parties.” Bos. Prop. Exch. Transfer Co. v. Iantosca, 720 F.3d 1, 6 (1st Cir. 2013). The decision in this case does not satisfy that general rule; it leaves open the identification of the fiscal years to which the decision applies, as well as the question of interest.
Here, however, the general rule does not apply because this is not an appeal from a garden-variety civil judgment. Rather, it is an appeal taken from the district court‘s review of agency action.
This is a critically important distinction because “when a court reviewing agency action determines that an agency made an error of law, the court‘s inquiry is at an end: the case must be remanded to the agency for further action consistent with the corrected legal standards.” County of Los Angeles v. Shalala, 192 F.3d 1005, 1011 (D.C. Cir. 1999) (quoting PPG Indus., Inc. v. United States, 52 F.3d 363, 365 (D.C. Cir. 1995)); see Hosp. Ass‘n of R.I. v. Sec‘y of HHS, 820 F.2d 533, 538 (1st Cir. 1987) (stating that “it is the Secretary who must first apply” the applicable law to the facts). Thus, the court below had gone as far as it could go: even if it had intended to resolve other issues at a later date, it lacked any authority to do so.4 Consistent with the limits of the district court‘s authority, we construe its decision as a remand to the agency. See County of Los Angeles, 192 F.3d at 1012.
Even so, a remand order is not usually considered a final decision. See Glob. NAPs, Inc. v. Mass. Dep‘t of Telecomms. & Energy, 427 F.3d 34, 41 (1st Cir. 2005). There is an exception, though, for cases “where the agency to which the case is remanded seeks to appeal and it would have no opportunity to appeal after the proceedings on remand.” County of Los Angeles, 192 F.3d at 1012 (quoting Occidental Petrol. Corp. v. S.E.C., 873 F.2d 325, 330 (D.C. Cir. 1989)). This is such a case: the Secretary will have to conduct further proceedings pursuant to the remand order and, unless the Hospitals appeal the outcome of those further proceedings, the district court‘s ruling will escape review. See id.
To be sure, a district court‘s failure to award or withhold interest may in some circumstances prevent its decision on the merits from being a final judgment. See Comm‘l Union Ins. Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 37 & n.3 (1st Cir. 2000). But in this case, the district court‘s refusal to pass upon the Hospitals’ request for interest does not alter our analysis. Since the district court had to remand to the agency to determine the precise amounts due to the Hospitals, an award of interest would have been premature. See Palisades Gen. Hosp. Inc. v. Leavitt, 426 F.3d 400, 403 (D.C. Cir. 2005) (holding that district court lacked authority to order specific relief because it had jurisdiction only to vacate agency‘s decision, and then had to remand).
We conclude that we have jurisdiction to hear and determine these appeals. Consequently, we proceed to the merits.
III. STANDARDS OF REVIEW
We review the judgment of the district court de novo. See Doe v. Leavitt, 552 F.3d 75, 78 (1st Cir. 2009). Given the na-
The most basic of these tenets is that a court will disturb an agency‘s decision only if that decision is “arbitrary, capricious, an abuse of discretion,” “otherwise not in accordance with law,” or “unsupported by substantial evidence in the administrative record.” S. Shore Hosp., 308 F.3d at 97 (citations omitted). Atop this tenet lies a “further gloss.” Id. When Congress has spoken directly on a particular issue and the traditional tools of statutory interpretation reveal that congressional intent is clear, an inquiring court must give effect to Congress‘s intent. See Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43 & n.9 (1984). If Congress did not directly address the issue, the question reduces to whether the agency‘s view is based on a permissible construction of the statute. See id. at 843. Particular deference is owed to the agency‘s interpretation of its own regulations when Congress has entrusted the agency with rulemaking authority. See S. Shore Hosp., 308 F.3d at 97. That deference is most pronounced when the issue involves “a complex and highly technical regulatory program,” such as Medicare, “in which the identification and classification of relevant criteria necessarily require significant expertise and entail the exercise of judgment grounded in policy concerns.” Id. (quoting Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994)).
IV. THE SECRETARY‘S APPEAL
The Secretary claims that the district court erred both by holding certain notices of reopening invalid and by holding that settlement agreements barred the reopening of certain cost reports. We put these claims in context and then explain why we accept them.
A. Validity of Notices of Reopening.
We start with the validity of the notices of reopening.5 To initiate a cost report reopening, the intermediary must give a hospital written notice. See
Here, the written notices sent by the intermediary were terse. They stated:
The above referenced Medicare cost report is reopened to address the following issue:
To review and correct the disproportionate share hospital (DSH) payment calculation in accordance with section 1886(d)(5)(F) [of] the Social Security Act and 42 CFR 412.106.
Please contact me at ... if you have any questions regarding this reopening.
The Hospitals do not seriously argue that the notices failed to satisfy the plain language of the regulation. They do argue, however—and the district court found—that the notices did not satisfy the more elaborate criteria limned in the PRM: although the notices advised the Hospitals of the circumstances surrounding the reopening by identifying DSH payments as the relevant issue, they failed to furnish any additional detail and did not offer the Hospitals the opportunity to comment, object, or submit evidence in rebuttal.
Essentially, the Secretary makes two arguments. First, she says that the notices substantially complied with the demands of the PRM. Second, she says that even if they did not, they complied with the regulation—and no more was exigible.
The second of these arguments is dispositive. The regulation itself does not require that a notice of reopening include advice about the opportunity to present evidence and arguments. The regulation controls: as we said in an earlier case discussing the PRM, the PRM is nothing more than an interpretive guide and, as such, “interpretive guides generally do not have the force of law.” S. Shore Hosp., 308 F.3d at 103; accord Shalala v. Guernsey Mem‘l Hosp., 514 U.S. 87, 99 (1995) (concluding that the PRM does not have the force and effect of law).
B. Effect of Settlement Agreements.
This brings us to the Secretary‘s contention that the settlement agreements present no barrier to the cost report reopenings in this case. This contention rests on solid ground: the regulations make pellucid that an intermediary lacks the authority to make payments that are not authorized by Medicare. See
We acknowledge that the intermediary represented to at least one hospital (Central Maine Medical Center) that it had the authority to enter into a settlement that included non-SSI type 6 days. Such a representation, however, cannot cloak the intermediary with authority that it does not have. Cf. Sheinkopf v. Stone, 927 F.2d 1259, 1269 (1st Cir. 1991) (recognizing that, under doctrine of apparent authority, agent‘s own words are insufficient to bind principal). The Supreme Court has made it nose-on-the-face plain that “anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority.” Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947); see United States v. Flemmi, 225 F.3d 78, 85 (1st Cir. 2000) (noting that “doctrines such as estoppel and apparent authority are not available to bind the federal sovereign“). Here, the Hospitals accepted public funds knowing (or, at least, being fully charged with knowledge of) the limitations of intermediaries; and any attempt by the Hospitals to claim that they reasonably relied on the intermediary‘s extralegal representations would be empty.8 See Heckler v. Cmty. Health Servs., 467 U.S. 51, 64-65 (1984); Faith Hosp. Ass‘n v. Blue Cross Hosp. Serv., 537 F.2d 294, 295 (8th Cir. 1976) (per curiam); see also Madison Gen. Hosp., Inc. v. United States, No. 141-85 C, 1986 WL 66215, at *2-3 (Cl. Ct. Sept. 19, 1986) (holding that a settlement agreement between a hospital and an intermediary did not bind the government when the intermediary lacked authority to settle the claim).
This ends our analysis of the Secretary‘s appeal. The short of it is that we find her arguments largely persuasive. We therefore proceed to the Hospitals’ appeal. As we undertake that task, we are cognizant that unless the Hospitals prevail, the Secretary will be entitled to the relief that she seeks.
V. THE HOSPITALS’ APPEAL
In their appeal, the Hospitals advance three main lines of argument. They begin with the proposition that the reopening notices were invalid because they failed to comply with mandatory reopening provisions contained in the regulations. As a fallback, the Hospitals say that even if the notices of reopening were valid, non-SSI type 6 days were properly included in DSH calculations. Finally, the Hospitals suggest that they should either be held harmless or absolved as without fault for including non-SSI type 6 days in their DSH calculations. We examine each line of argument in turn.
The Hospitals assert that the notices of reopening were invalid for a reason different from those identified by the district court. Their view has morphed over time, see supra note 7; but as expressed here, their assertion seems to be that the mandatory reopening provisions of
It is clear that the regulations allow an intermediary to reopen its own determination. See
Here, the record indicates that CMS instructed the intermediary to reopen the cost reports, but did not issue a written directive to that effect. Rather, the instruction appears to have taken place orally and informally. The Hospitals’ argument is that, under
The more logical reading of the regulation is that it simply makes clear the power structure in play: CMS trumps the intermediary. Should an intermediary and CMS disagree about the need for reopening, CMS may force the intermediary‘s hand. Such a situation did not occur here because the intermediary reopened the cost reports as CMS desired. Accordingly, any failure to comply with the mandatory reopening provisions did not abrogate the notices of reopening.
B. Treatment of Non-SSI Type 6 Days.
We turn next to the Hospitals’ contention that the statutory scheme permits providers to include in DSH calculations all patients eligible for either Medicare or Medicaid, whether or not those patients are entitled to SSI. Like the agency and the district court, we reject this contention.
The DPP is the sum of two fractions: the Medicare fraction and the Medicaid fraction. See
This taxonomy, as the Secretary interprets it, excludes patients who are entitled to both Medicare Part A and Medicaid, but not entitled to SSI. The Secretary reasons that a patient must be eligible for SSI to be included in the Medicare fraction numerator and must be ineligible for Medicare Part A to be included in the Medicaid fraction numerator. The Hospitals take issue with this reasoning, insisting that all Medicaid- and Medicare-eligible patient days, including non-SSI type 6 days, should be included in the DSH calculation.
Our resolution of these dueling interpretations is guided by the Supreme Court‘s landmark decision in Chevron. Where applicable, Chevron requires a two-step approach. See 467 U.S. at 842-43. At step one, an inquiring court must determine whether Congress has spoken clearly and, if so, must give effect to Congress‘s intent. See id. Step two is necessary only if Congress‘s intent is unclear: in that event, the question reduces to whether the agency‘s view is based on a permissible interpretation of the statute. See id. at 843.
Here, we need not go beyond step one. The language of the controlling statute is unambiguous, and the Secretary‘s interpretation of the statute faithfully tracks its plain language.
The Hospitals nonetheless point out that in a Chevron step one analysis, courts must apply the traditional rules of statutory interpretation. See id. at 843 & n.9. These rules include the canon that statutes should be construed to avoid absurd results. See Stornawaye Fin. Corp. v. Hill (In re Hill), 562 F.3d 29, 32 (1st Cir. 2009). Seizing on this canon, the Hospitals argue that excluding certain low-income patients from the DSH calculation is absurd because the purpose of the figure is to compensate hospitals for providing services to disproportionately large populations of low-income patients.
Even if a Chevron step two analysis were required, the result would be the same: it is crystal clear that the Secretary‘s interpretation would certainly be permissible under Chevron step two. The Hospitals’ argument rests upon the supposition that Congress must have intended to include in the DSH calculation all patients eligible for either Medicare or Medicaid. But the authorities on which they rely for that supposition, see Jewish Hosp., Inc. v. Sec‘y of HHS, 19 F.3d 270 (6th Cir. 1994); Edgewater Med. Ctr. v. Blue Cross & Blue Shield Ass‘n/Blue Cross & Blue Shield of Ill., 2000 WL 1146601 (HCFA Admin. June 19, 2000), lend no support.
To be sure, the Jewish Hospital court stated that “Congress intended to include all days attributable to Medicaid beneficiaries in the proxy.” 19 F.3d at 276. The context of the case reveals, however, that the Sixth Circuit‘s analysis was focused on the meaning of the words “eligible for” medical assistance and “entitled to” benefits,
So, too, the Secretary‘s decision in Edgewater explains that one apparent purpose of the two fractions that compose the DPP is to prevent double counting of patient days. See 2000 WL 1146601, at *5 n.17. Again, the Secretary was considering the “eligible for” versus “entitled to” dichotomy addressed in Jewish Hospital. See id. at *4-5. The decision simply did not consider the possibility that a patient could be eligible for Medicare and Medicaid but ineligible for SSI. See id. at *4. And to the extent the decision is applicable at all, it is more helpful to the Secretary than to the Hospitals: it recognizes that the plain language of the statute excludes from the Medicaid fraction individuals who are eligible for Medicare Part A. See id. (noting that “the statutory phrase in the Medicaid proxy ‘but who were not entitled to benefits under Medicare Part A of this title’ forecloses the inclusion of the days at issue in this case in the numerator of the Medicaid proxy” (quoting
The Hospitals argue that these two decisions require us to hold that an interpretation of the statutory provision that does not count a particular low-income patient at all must be an unreasonable synthesis of congressional intent. But—as we have shown—the authorities upon which the Hospitals rely do not support, let alone require, such a view, and we refuse to take such a gargantuan leap. We believe that the Secretary, at the very least, acted permissibly in adhering to the plain language of the statute, which is typically the best
C. Confession and Avoidance.
In a last-ditch effort to stem the tide, the Hospitals attempt to confess and avoid. This attempt takes two forms.
First, the Hospitals claim that, even if their DSH calculations were incorrect, they should be held harmless from any obligation to refund overpayments. This claim rests on a program memorandum issued by the Secretary, see Program Memorandum HCFA-Pub. 60A, No. A-99-62 (Dec. 1, 1999) (PM A-99-62), which instructed intermediaries to refrain from recouping “the portion of Medicare DSH adjustment payments previously made to hospitals attributable to the erroneous inclusion of general assistance or other State-only health program, charity care, Medicaid DSH, and/or ineligible waiver or demonstration population days in the Medicaid days factor used in the Medicare DSH formula.” The Secretary argued below—and the district court found—that this hold-harmless provision does not extend to the obligation to refund DSH overpayments based on non-SSI type 6 days. We agree.
Read in context, PM A-99-62 plainly concerns a different DSH calculation issue. Historically, “hospitals and Intermediaries [had] relied, for the most part, on Medicaid days data obtained from State Medicaid agencies to compute Medicare DSH payments and ... some of those agencies commingled the types of otherwise ineligible days ... with Medicaid Title XIX days.” PM A-99-62. Seen in this light, the hold-harmless provision in PM A-99-62 must refer to the calculation of Medicaid-eligible patient days, not to whether Medicaid- and Medicare-eligible patients who were not entitled to SSI could be included in the DSH calculation.
Nor can there be any legitimate doubt about the sweep of the hold-harmless provision. PM A-99-62 itself states that it “is not intended to hold hospitals harmless for any other aspect of the calculation of Medicare DSH payments or any other Medicare payments.”
In yet another effort to confess and avoid, the Hospitals attempt to skirt liability by insisting that they should be excused as being “without fault” for collecting DSH overpayments because they reasonably relied on the incorrect advice of their intermediary. See
Section 1395gg sets forth a framework for recovering overpayments made to or on behalf of individuals. As part of this scheme, Section 1395gg(b) authorizes the Secretary to recoup overpayments from individuals and providers when the overpayments were made “for items or services furnished an individual.” Section 1395gg(c) carves out an exception: it provides that overpayments made “with respect to an individual who is without fault” should not be recouped if doing so “would defeat the purposes of [Social Security] or [Medicare] or would be against equity and good conscience.” Congress‘s repeated references to “individuals” in the text of the statute convince us that the “without fault” language in Section 1395gg(c) does not apply to DSH payments, the calculation of
The Hospitals make one final argument. They protest that during meetings at which the Hospitals, CMS, and the intermediary were all represented, the attendees discussed whether the Hospitals satisfied the “without fault” requirements and agreed that the provision applied. But even if this is an accurate depiction of the parties’ negotiations, it does not preclude the Secretary from asserting a different view now. In the absence of detrimental reliance—and we see none here—the Secretary is not foreclosed from changing a position that she has come to conclude is rooted in a mistaken interpretation of the statutory scheme. See Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417 (1993).
VI. CONCLUSION
We need go no further. For the reasons elucidated above, we reverse the judgment of the district court as to the cost reports for which the Board and the district court found that the notices provided to specific plaintiffs were inadequate and as to the cost reports for providers and years covered by written settlement agreements entered into by individual providers and the intermediary. As to all other plaintiffs and cost years, we affirm the district court‘s entry of judgment for the Secretary. All parties shall bear their own costs.
Reversed in part, affirmed in part, and remanded with instructions to enter judgment in favor of the Secretary.
UNITED STATES of America, Appellee, v. Kormahyah KARMUE, Defendant, Appellant.
No. 15-1990
United States Court of Appeals, First Circuit.
October 28, 2016