A D.C. district court found for HHS in a challenge to the formula used by CMS to determine Medicare payment rates for hospitals. The formula base rate is formed from data on the number of hospital discharges in 1981, which is then adjusted and used to determine current hospital rates. A total of 277 hospitals challenged the formula for their cost years 2002 through 2015 because they believe the 1981 data is faulty. In finding for HHS, the court found that a 2013 regulatory amendment by CMS, which made the preexisting three-year limit on reopening reimbursement determinations applicable to predicate facts (i.e., the 1981 base year data), as well as actual payments, was properly promulgated, and its retroactive application to the hospitals’ pending claims by the Provider Reimbursement Review Board (PRRB) and its prospective application by CMS was not arbitrary or capricious (Saint Francis Medical Center v. Price, March 10, 2017, Bates, J.).
Background. Under the prior version of an applicable regulation (42 C.F.R. Sec. 405.1885) a provider could only challenge reimbursement determinations within three years, but could challenge the predicate facts that formed the basis of the reimbursement rate even if those facts dated from more than three years prior. Therefore, a hospital could only challenge its payment amount within three years, but could challenge errors in even much older data that was used to determine that amount. This prior regulation was applied by the district court in Kaiser Foundation Hospitals v. Sebelius, 828 F. Supp. 2d 193 (D.D.C. 2011), and affirmed on appeal, 708 F.3d 226 (D.C. Cir. 2013) (see D.C Circuit finds hospitals entitled to an adjustment to graduate medical education full-time equivalents, March 6, 2013).
In 2013, following the Kaiser decision, CMS promulgated a regulation (2013 Amendment) stating that the three-year limit on reopening reimbursement determinations applied to predicate facts as well as actual payments (see CMS projects OPPS payments for 2014 to increase by 9.5 percent, December 10, 2013).
Action before the PRRB. The hospitals sought to correct the 1981 discharge data incorporated into the base payment rates for hospitals. They did not challenge their reimbursement amounts for every year since 1984 (when the 1981 data was first used to determine the base rate). Rather, they only challenged their reimbursement amounts for cost years 2002 through 2015. The appeal was first filed in 2005, within the three-year reopening limit for cost year 2002. Since then, additional hospitals and cost years were added. The appeals were all consolidated before the PRRB.
On August 5, 2015, the PRRB issued a final decision, concluding that it lacked jurisdiction over the appeals because the 2013 Amendment specifically barred this type of action, and it applied retroactively to pending cost report appeals. Moreover, the PRRB found that the requested correction of the 1981 base year data (the predicate facts) was clearly the type of revision CMS wanted to preclude through its 2013 Amendment. The hospitals sought review of the PRRB’s decision in the district court.
2013 Amendment was reasonable. The parties did not dispute that CMS had the statutory authority to apply the 2013 Amendment retroactively. The question, then, before the court, was whether that determination was arbitrary and capricious. The court found that, although CMS’ explanation in the 2013 Amendment could have been more robust, and at times it merged its explanation for the rule as a whole with its explanation for applying the rule retroactively, the decision was ultimately reasonable and reasonably explained.
Retroactive application to pending appeals was proper. The hospitals argued that the PRRB’s determination that the 2013 Amendment applies to their pending appeals was arbitrary and capricious. The court found this argument to be a nonstarter. According to the court, the 2013 Amendment clearly applied to pending appeals. It states, “we have further determined that it would be in the public interest to apply the proposed revision to intermediary determinations, appeals, and reopenings (including requests for reopening) that are pending on or after the effective date of the final rule.”
The court felt that the hospitals’ uncertainty came from the relationship between 42 C.F.R. Secs. 405.1885 and 405.1835. The former was altered by the 2013 Amendment; the latter, which governs certain appeals taken within 180 days, was not. The hospitals’ claimed that because their appeals to the PRRB were taken under Sec. 405.1835, it is unclear whether the time limitations in Sec. 405.1885 apply to them.
The court found that the hospitals’ argument misunderstood how the two sections operate. While the hospitals may have filed their appeal with the PRRB within 180 days of the Medicare Appeals Council (MAC) determination, as required by Sec. 405.1835, they sought to challenge a predicate fact that was established much earlier than 180 days (3 years) before their filing. The 2013 Amendment made clear, according to the court, that challenging a predicate fact is reopening a matter at issue, which is subject to the time limitations of Sec. 405.1885(a)(1)(iii)). Therefore, the court found that the hospitals’ request was governed by Sec. 405.1885, and was not permitted under that section. The court concluded that the CMS regulation was unambiguous, and the PRRB applied its unambiguous meaning correctly.
Prospective application was proper. The hospitals first argued that the entire 2013 Amendment is arbitrary and capricious even if applied only prospectively. They claimed that CMS failed to adequately explain its departure from prior cases where it argued in favor of the hospitals’ position.
The court explained that the 2013 Amendment altered the regulation at issue, rather than adopting a view on how that regulation should be interpreted. It made the text of the regulation explicit that predicate facts are governed by the three-year reopening period (42 C.F.R. Sec. 405.1885(a)(1)(iii)), and that this applies to reopenings at the request of the agency and of the provider. The court noted that if the hospitals’ argument was correct, an agency could never adopt a new policy approach and enact that approach through rulemaking, because the new rule would by design contradict the old policy.
Second, the hospitals argued that CMS’ substantive reasoning behind promulgating the 2013 Amendment is unpersuasive. According to the court, that argument is simply a disagreement with CMS’ decision to prioritize finality over accuracy in the hospital base rate. In the 2013 Amendment, CMS determined that after three years, the value of finality outweighs the value of accuracy, and thereby extended the reopening regulation to cover predicate facts. The fact that the hospitals might wish that CMS reached a different conclusion, did not make the agency’s decision unlawful. The court concluded that the 2013 Amendment represents a reasonable choice between the competing values of finality and accuracy, and is lawful.
The case is No. 15-1659 (JDB).
Attorneys: Arthur Moritz Meyer, Jr. (Jackson Walker, LLP) for Saint Francis Medical Center, Saint Anthony Medical Center, Saint James Hospital, St. Joseph Medical Center and St. Mary Medical Center. Joel L. McElvain; U.S. Department of Justice, for Thomas E. Price, Secretary, U.S. Department of Health and Human Services.
Companies: Saint Francis Medical Center; Saint Anthony Medical Center; Saint James Hospital; St. Joseph Medical Center; St. Mary Medical Center; U.S. Department of Health and Human Services
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