In re Medicare Reimbursement Litigation

• Citation: 414 F.3d 7
• Decision Date: 01 July 2005
• Docket Number: No. 04-5203.,04-5203.
• Parties: In re: MEDICARE REIMBURSEMENT LITIGATION Baystate Health Systems, d/b/a Baystate Medical Center, et al., Appellees Michael O. Leavitt, Secretary, Department of Health & Human Services, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

414 F.3d 7

In re: MEDICARE REIMBURSEMENT LITIGATION

Baystate Health Systems, d/b/a Baystate Medical Center, et al., Appellees

Michael O. Leavitt, Secretary, Department of Health & Human Services, Appellant.

No. 04-5203.

United States Court of Appeals, District of Columbia Circuit.

Argued April 11, 2005.

Decided July 1, 2005.

Appeal from the United States District Court for the District of Columbia (No. 02cv00601) (No. 03mc00090).

Anne Murphy, Attorney, U.S. Department of Justice, argued the cause for appellant. With her on the briefs were Peter D. Keisler, Assistant Attorney General, Kenneth L. Wainstein, U.S. Attorney, and Anthony J. Steinmeyer, Assistant Director.

Christopher L. Keough argued the cause for appellees. With him on the brief were John M. Faust and Stephanie A. Webster.

Before: SENTELLE, ROGERS, and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge.

In this case, the district court ordered the Secretary of Health and Human Services to make statutorily mandated payments to hospitals serving high percentages of low-income patients. Finding no error, we affirm.

I.

Pursuant to the Medicare Act, the Secretary of Health and Human Services reimburses hospitals for the "operating costs of inpatient ... services" provided to Medicare and Medicaid beneficiaries. See 42 U.S.C. § 1395ww. At the end of each fiscal year, eligible hospitals file cost reports with their "fiscal intermediaries," see 42 C.F.R. § 413.20(b); Monmouth Med. Ctr. v. Thompson, 257 F.3d 807, 809 (D.C.Cir.2001)—usually insurance companies that serve as the Secretary's agents for purposes of reimbursing health care providers, 42 C.F.R. §§ 421.1, 421.3; see generally id. § 421.100-421.128. After auditing the reports, intermediaries issue "Notice of Program Reimbursements" ("NPRs") in which they determine the amount owed to the hospitals for the fiscal year at issue. See id. § 405.1803(a)(2). Hospitals unhappy with their fiscal intermediary's award have 180 days to appeal to the Provider Reimbursement Review Board ("the Review Board"), 42 U.S.C. § 1395oo(a), which issues a decision that the Secretary may "reverse[], affirm[], or modif[y]" within 60 days, id. § 1395oo(f)(1). Hospitals remaining dissatisfied after the Review Board or Secretary issues a final decision may seek "judicial review" by filing suit in the appropriate U.S. District Court. Id.

Known at the time of the events at issue here as the Health Care Financing Administration ("HCFA"), the agency within HHS responsible for administering Medicare and Medicaid promulgated regulations that permit reopening of final NPRs. Two reopening provisions play central roles in this case. One, 42 C.F.R § 405.1885(a) (1997), provides that an intermediary's payment determination or a decision by the Review Board or Secretary "may be reopened" if its issuer or the affected hospital moves to do so within three years of the date of the determination or decision. The other, 42 C.F.R. § 405.1885(b) (1997), provides (though it has been amended since the events at issue here) that an intermediary's determination "shall be reopened and revised by the intermediary if, within the ... 3-year period, the Health Care Financing Administration notifies the intermediary that such determination or decision is inconsistent with the applicable law, regulations, or general instructions."

The Medicare Act bases payments for "operating costs of inpatient hospital services" on preset nationally applicable rates, but those rates are subject to hospital-specific adjustments, 42 U.S.C. § 1395ww(d), one of which, the "Disproportionate Share Hospital" ("DSH") adjustment, increases payment rates for hospitals serving disproportionately high percentages of low-income patients, id. § 1395ww(d)(5)(F). Several years after creating the DSH adjustment, Congress enacted legislation that established detailed criteria for determining eligibility and the extent of a hospital's adjustment. Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, § 9105, 100 Stat. 82, 158-60 (1986) (codified at 42 U.S.C. § 1395ww(d)(5)(F)). HCFA promulgated interpretive regulations to implement these new statutory provisions, see 51 Fed. Reg. 16,772, 16,776-78 (May 6, 1986), but between 1994 and 1996 four circuits found the regulations inconsistent with one of these provisions, ruling that HCFA had improperly restricted DSH eligibility and reduced payments to eligible hospitals. Cabell Huntington Hosp., Inc. v. Shalala, 101 F.3d 984 (4th Cir.1996); Legacy Emanuel Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261 (9th Cir.1996); Deaconess Health Servs. Corp. v. Shalala, 83 F.3d 1041 (8th Cir.1996) (per curiam); Jewish Hosp., Inc. v. Sec'y of Health & Human Servs., 19 F.3d 270 (6th Cir.1994).

Responding to these decisions, HCFA issued Ruling 97-2, in which it announced it had "chang[ed] its interpretation of [the statutory provision at issue] to follow the holdings of the United States Courts of Appeals for the Fourth, Sixth, Eighth, and Ninth Circuits." Health Care Financing Administration Ruling 97-2, at 1 (Feb. 27, 1997) ("HCFAR 97-2" or "Ruling 97-2"). Significantly, however, HCFA's new interpretation would have prospective effect only. As the ruling explained, HCFA would "not reopen settled cost reports," and would instead apply its new interpretation only to cost reports settled thereafter, or to cost reports for which the hospital had a "jurisdictionally proper appeal pending on this issue." Id. at 2.

After HCFA issued Ruling 97-2, two DSH eligible hospitals, Monmouth Medical Center and Staten Island University Hospital, filed motions with their intermediaries pursuant to section 405.1885, seeking to reopen NPRs issued to them during the three years prior to the ruling. Monmouth, 257 F.3d at 808, 810. When the intermediaries denied these motions and the Review Board declined to order the proceedings reopened, the two hospitals sued in the U.S. District Court for the District of Columbia, which dismissed for lack of jurisdiction. Id. Reversing, we held in Monmouth Medical Center v. Thompson, 257 F.3d 807, that the district court had jurisdiction under the Mandamus Act, 28 U.S.C. § 1361, to order reopening of the hospitals' NPRs. Id. at 813-815. We explained that Ruling 97-2 amounted to a finding that HCFA's old method of calculating DSH entitlement was "inconsistent with the applicable law" for the purposes of section 405.1885(b). Id. (quoting 42 C.F.R. § 405.1885(b)). Pointing out that the regulation speaks in mandatory terms—intermediaries "shall" reopen payment determinations when they receive notice the determinations are "inconsistent with the applicable law"—we held that Ruling 97-2 gave intermediaries a clear duty to reopen the NPRs even though the ruling said it had only prospective effect. Id.

Eight months later, plaintiffs in this case, twenty-six hospitals serving Medicare and Medicaid beneficiaries, filed suit under the Mandamus Act, seeking to compel reopening of NPRs issued to them in the three years preceding Ruling 97-2. Over 250 other hospitals filed similar suits, which (with some exceptions) the district court stayed pending resolution of the "core issue" in this case, In re Medicare Reimbursement Litig., No. 03-0090 (D.D.C. July 1, 2003) (adopting case management plan staying actions other than this action). The court then denied the Secretary's motion to dismiss and granted plaintiffs' motion for summary judgment, relying on Monmouth's holding that Ruling 97-2 triggered a duty to reopen NPRs pursuant to section 405.1885(b). In re Medicare Reimbursement Litig., 309 F.Supp.2d 89, ____, ____, slip op. at 8, 11 (D.D.C.2004).

The Secretary now appeals.

II.

Under the Mandamus Act, "[t]he district courts shall have original jurisdiction of any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff." 28 U.S.C. § 1361. Pursuant to this act, a district court may grant mandamus relief if "(1) the plaintiff has a clear right to relief; (2) the defendant has a clear duty to act; and (3) there is no other adequate remedy available to the plaintiff." Power v. Barnhart, 292 F.3d 781, 784 (D.C.Cir.2002) (quoting Northern States Power Co. v. U.S. Dep't of Energy, 128 F.3d 754, 758 (D.C.Cir.1997)). A district court's determination that a plaintiff has met these standards is reviewed de novo. See Am. Cetacean Soc'y v. Baldrige, 768 F.2d 426, 432 (D.C.Cir.1985) (reviewing de novo district court's conclusion that claim passed three-prong test for mandamus jurisdiction), rev'd on other grounds sub nom. Japan Whaling Ass'n v. Am. Cetacean Soc'y, 478 U.S. 221, 106 S.Ct. 2860, 92 L.Ed.2d 166 (1986). Even when the legal requirements for mandamus jurisdiction have been satisfied, however, a court may grant relief only when it finds "compelling ... equitable grounds." 13th Reg'l Corp. v. U.S. Dep't of the Interior, 654 F.2d 758, 760 (D.C.Cir.1980). As to the equities, we review for abuse of discretion. See Am. Cetacean Soc'y, 768 F.2d at 444 (reviewing for abuse of discretion district court's determination that granting mandamus relief comports with equity).

We begin with Monmouth. There, we held that two hospitals, similar in all significant respects to the hospitals in this case, had satisfied the requirements for mandamus relief. The Secretary had a clear duty to require the intermediaries to reopen the hospitals' NPRs, we held, because Ruling 97-2 amounted to a notice of inconsistency and because section 405.1885(b) mandates reopening when HCFA issues such a notice. Monmouth, 257 F.3d at 813-15. In finding mandamus jurisdiction, we held implicitly that the hospitals had a clear right to relief, and we explained that they had no other adequate means of obtaining relief. Id. at 811-13, 815. To prevail in this case, then, the Secretary must identify some reason why the district...