Providence Yakima Med. Ctr. v. Sebelius

• Citation: 611 F.3d 1181
• Decision Date: 23 July 2010
• Docket Number: No. 09-35266,09-35402.,09-35266
• Parties: PROVIDENCE YAKIMA MEDICAL CENTER, a Washington non-profit corporation; St. Vincent Hospital, a Montana non-profit corporation; Yakima Valley Memorial Hospital, a Washington non-profit corporation; Merle West Medical Center, an Oregon non-profit corporation; Deaconess-Billings Clinic Health System, a Montana non-profit corporation, Plaintiffs-Appellees-Cross-Appellants,v.Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant-Appellant-Cross-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

611 F.3d 1181

PROVIDENCE YAKIMA MEDICAL CENTER, a Washington non-profit corporation; St. Vincent Hospital, a Montana non-profit corporation; Yakima Valley Memorial Hospital, a Washington non-profit corporation; Merle West Medical Center, an Oregon non-profit corporation; Deaconess-Billings Clinic Health System, a Montana non-profit corporation, Plaintiffs-Appellees-Cross-Appellants,v.Kathleen SEBELIUS,^* Secretary, United States Department of Health and Human Services, Defendant-Appellant-Cross-Appellee.

Nos. 09-35266, 09-35402.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 6, 2010.

Filed July 23, 2010.

COPYRIGHT MATERIAL OMITTED

Sanford E. Pitler, Bennett, Bigelow & Leedom, P.S., Seattle, WA, for the plaintiffs-appellees-cross-appellants.

Jeffrey A. Clair, Civil Division, United States Department of Justice, Washington, D.C., for the defendant-appellant-cross-appellee.

Appeal from the United States District Court for the Eastern District of Washington, Fred L. Van Sickle, District Judge, Presiding. D.C. No. 2:03-cv-03096-FVS.

Before: HAWKINS, CARLOS F. LUCERO,^** and N. RANDY SMITH, Circuit Judges.

OPINION

PER CURIAM:

Secretary of the Department of Health and Human Services Kathleen Sebelius (“the Secretary”) appeals the adverse summary judgment grant in an action brought by five not-for-profit hospitals (“Hospitals”), each recipients of Medicare direct graduate medical education (“DGME”) payments for approved family medicine residency programs. The district court found the Secretary's methodology for calculating the Hospitals' base-year per resident amounts (“PRAs”) under the existing regulation 42 C.F.R. § 413.86(e)(4)(I) (1989) (“1989 regulation”), known as Sequential Geographic Methodology (“SGM”), arbitrary and capricious. On appeal, the Secretary argues the agency's Provider Review Reimbursement Board (“PRRB”) improperly granted expedited judicial review (“EJR”) to the Hospitals' challenge to SGM. The Hospitals cross appeal, challenging, among other determinations, the district court's failure to find the 1989 regulation both substantively and procedurally invalid on its face.

Finding a lack of subject matter jurisdiction based on the PRRB's incorrect granting of EJR, we vacate the district court's invalidation of SGM, and remand to the district court with instructions to dismiss the Hospitals' challenge and further remand to the agency for it to determine the validity of the methodology. We affirm the district court's determination as to the validity of the 1989 regulation.

I. BACKGROUND

A. Factual Background

The Hospitals operate residency training programs in rural family medicine, and include Yakima Medical Center and Yakima Valley Memorial Hospital (“Yakima Medical”), located in Yakima Valley, Washington, St. Vincent Hospital and Deaconess-Billings Clinic Health System (“St. Vincent”), located in Billings, Montana, and Merle West Medical Center (“Merle West”), located in Klamath Falls, Oregon. The five Hospitals were recipients of Medicare DGME payments, which are based on a hospital-specific PRA and calculated according to several formulas. These formulas included the 1989 regulation and SGM.

The 1989 regulation based the PRA for the new graduate medical education programs on “the lower of the following: (A) The hospital's actual costs ... (B) The mean value of per resident amounts of hospitals located in the same geographic wage area.” ¹ 54 Fed.Reg. 40286, 40317 (Sept. 29, 1989). In areas with “fewer than three amounts in the wage area, ... the intermediary [was required to] write HCFA [Health Care Financing Administration] ² Central Office for a determination of the per resident amount to use.” 54 Fed.Reg. at 40291.

HCFA described SGM in a June 1997 letter to the reimbursement manager of Blue Cross of Montana. The methodology was used in the mid-1990s by HCFA to calculate the PRAs for hospitals with “fewer than three amounts in the wage area.” See 54 Fed.Reg. at 40291. In its letter, HCFA noted:

If there are at least three hospitals in the same geographic wage area, we determine the base year per resident amount based on a weighted average of the per resident amounts in the same geographic wage area. If there are less than three teaching hospitals in the same geographic wage area, we include all hospitals in contiguous wage areas. If we continue to have fewer than three hospitals for this calculation, we use a statewide average. In the case of St. Vincent's and Deaconess, there are fewer than three hospitals with teaching programs in the entire state so we calculated a weighted average among all hospitals with teaching programs in contiguous states.

However, in its final rule, issued in 1997, the Secretary ultimately declined to adopt SGM as its methodology, relying instead on the “regional weighted average per resident amounts determined for each of the nine census regions established by the Bureau of Census for statistical and reporting purposes” for areas with fewer than three hospitals in a given geographic wage area. 62 Fed.Reg. 45966, 46004 (Aug. 29, 1997).

Here, the Secretary calculated the Hospitals' PRAs via SGM, based on the weighted average of PRAs of teaching hospitals in each state (for Merle West, Yakima Medical, the PRAs of Oregon and Washington, respectively), or the weighted average of PRAs of teaching hospitals in contiguous states (St. Vincent). The Hospitals appealed these PRA determinations to the PRRB, contending their allowed Medicare DGME costs exceeded these determinations.

B. Procedural Background

The Hospitals' district court action challenged both the Secretary's 1989 regulation and “its prior ad-hoc methodology,” or SGM, as “inconsistent with the plain and unambiguous wording of the governing Medicare statute, inconsistent with clear congressional intent, patently unreasonable, arbitrary and capricious, and otherwise contrary to law.”

In 2005, the PRRB, which had granted EJR as to the validity of the Secretary's 1989 regulation, granted EJR “over the issue of whether 42 C.F.R. § 413.86(e)(4)(I)[ (1989 regulation) ], as applied by the Intermediaries [ (via SGM) ] to each of the Providers in this appeal, violates 42 U.S.C. § 1395ww(h)(2)(F).” EJR permits a party to seek judicial review in federal court, without the issuance of a final decision of the PRRB, of an action “which involves a question of law or regulations relevant to the matters in controversy whenever the Board determines ... that it is without authority to decide the question.” 42 U.S.C. § 1395 oo(f)(1).

In 2007, the court granted summary judgment in favor of the Hospitals, and found SGM lacked the force of law and that under the appropriate Skidmore level of deference,³ SGM is arbitrary and capricious. In the same order, the court accorded the 1989 regulation Chevron deference,⁴ upheld the regulation, and declined to find the regulation arbitrary and capricious. The court then ordered the Secretary in 2008 to “calculate a weighted average PRA based on Plaintiffs' Medicare-allowable base-year costs, and set each Plaintiff's PRA at the lesser of: (a) Each Plaintiff's actual average cost per resident; or (b) The average weighted cost per resident of the five Plaintiffs.” The order required the Secretary to submit the new figures to the court and allowed the court to retain jurisdiction over the matter. The Secretary ultimately submitted those calculations, and the court awarded these amounts and entered judgment for the Hospitals.

The Secretary filed a timely notice of appeal challenging the subject matter jurisdiction of the district court under the 2005 EJR, the court's reversal of the PRRB's determination, via SGM, of the DGME amounts due to the Hospitals, and the court's limitation of the Secretary's discretion to reaudit the Hospitals' base DGME costs.

The Hospitals filed a timely cross appeal challenging the court's failure to invalidate SGM on procedural grounds, failure to find the 1989 regulation substantively and procedurally invalid on its face, failure to specify, in the alternative, that its remedy was based on the 1989 regulation itself, and the exclusion of evidence of the Secretary's comparable programs under Fed.R.Evid. 408.

II. STANDARD OF REVIEW

We review de novo both the district court's subject matter jurisdiction and the district court's grant of summary judgment. See Schnabel v. Lui, 302 F.3d 1023, 1029 (9th Cir.2002) (subject matter jurisdiction); Rene v. MGM Grand Hotel, Inc., 305 F.3d 1061, 1064 (9th Cir.2002) (grant of summary judgment) cert. denied, 538 U.S. 922, 123 S.Ct. 1573, 155 L.Ed.2d 313 (2003) (same). Our review is not of the Secretary's/PRRB's reimbursement determination itself, but the district court's determinations.

III. DISCUSSION

A. 2005 EJR Grant

The Secretary challenges the district court's jurisdiction, contending because reimbursement determinations under SGM “do not turn on a question of law or regulation that the PRRB cannot review, ... they consequently are not amenable to expedited judicial review” under 42 U.S.C. § 1395 oo(f)(1). Because SGM is an “ad hoc” methodology and does not meet the requirements of § 1395 oo(f)(1), we agree that the PRRB's 2005 grant of EJR was in error, and the district court should not have determined it had jurisdiction.

1. PRRB's decision

Section 1395 oo(f) gives providers the right to obtain judicial review of any action of the fiscal intermediary involving a question of law or regulations whenever the Board determines that it is without authority to decide the question. See Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 406, 108 S.Ct. 1255, 99 L.Ed.2d 460 (1988) (“Subsection (f)(1) grants providers the right to obtain judicial review of an action of the fiscal intermediary, but the predicate is that the Board must first make a determination that it is without authority to decide the matter because the provider's claim involves a question of law or regulations.”).⁵

The PRRB granted EJR for SGM in its 200...