Little Co. of Mary Hosp. v. Sebelius

• Decision Date: 24 November 2009
• Docket Number: No. 09-1665.,09-1665.
• Citation: 587 F.3d 849
• Parties: LITTLE COMPANY OF MARY HOSPITAL, Plaintiff-Appellant, v. Kathleen SEBELIUS, Secretary, U.S. Department of Health and Human Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

587 F.3d 849

LITTLE COMPANY OF MARY HOSPITAL, Plaintiff-Appellant, v. Kathleen SEBELIUS, Secretary, U.S. Department of Health and Human Services, Defendant-Appellee.

No. 09-1665.

United States Court of Appeals, Seventh Circuit.

Argued September 15, 2009.

Decided November 24, 2009.

Leslie D. Alderman, III (argued), Alderman, Devorsetz & Hora, PLLC, Washington, DC, for Plaintiff-Appellant.

Kathryn Ann Kelly, Attorney, Office of the United States Attorney, Chicago, IL, Gerard Keating, Attorney (argued), Department of Health and Human Services, Washington, DC, for Defendant-Appellee.

Before POSNER, FLAUM, and ROVNER, Circuit Judges.

FLAUM, Circuit Judge.

In 2003, plaintiff-appellant, Little Company of Mary Hospital (Little Company), requested that their assigned Medicare financial intermediary (Intermediary) reopen and reconsider several issues in Little Company's cost report from 1998. When the Intermediary reopened only one of the challenged issues, Little Company appealed all of the challenged issues to the Provider Reimbursement Board (PRRB). The PRRB dismissed the appeal of the non-reopened issues. Little Company appealed the PRRB's dismissal to the district court. The district court granted summary judgment in favor of the defendant-appellee, the Secretary of Health and Human Services (Secretary). This appeal follows. For the reasons set forth below, we affirm the district court's grant of summary judgment.

I. Background

A. The Medicaid Reimbursement Process

Hospitals that participate in the Medicare program must enter into a provider agreement with the U.S. Department of Health and Human Services to receive Medicare reimbursement. Those hospitals participating in the Medicare program that serve a disproportionate share of low income patients are entitled to a Disproportionate Share Hospital (DSH) payment adjustment. The DSH payment adjustment requires the calculation of the disproportionate patient percentage. The disproportionate patient percentage is the sum of the Medicaid Fraction¹ and the Supplemental Security Income (SSI) Fraction.² See 42 U.S.C. § 1395ww(d)(5)(F)(vi).

When filing for reimbursement from the Medicare program, the provider must first file an annual cost report with an assigned Intermediary. The Intermediary then conducts an audit, accounts for interim payments to the provider, and issues an initial "notice of program reimbursement" (NPR). The provider may appeal the initial NPR to the PRRB within 180 days if at least $10,000 is at issue. 42 U.S.C. § 1395oo(a). Upon appeal, the Secretary's delegate, the Administrator of the Centers for Medicare and Medicaid Services (CMS), may review the decision of the PRRB. If the provider is dissatisfied with the decision of the PRRB and the CMS Administrator, the provider may request that a federal district court review the decision. 42 U.S.C. § 1395oo(f)(1).

When a provider does not file a timely appeal of the initial NPR, the NPR is considered finalized. 42 C.F.R. § 405.1807 (2009). However, under 42 C.F.R. § 405.1885(a) (2004)³—a set of regulations separate from those governing the appeals process discussed above—the Intermediary may reopen specific findings on matters at issue within three years of the initial NPR based on a request by the provider or on its own initiative. At the close of the reopening, the Intermediary issues a revised NPR on the specific issues reopened. The parts of the NPR that the Intermediary did not reopen remain finalized in the initial NPR. With regards to the specific issues reopened, the provider has the rights of appeal discussed above. 42 C.F.R. § 405.1889 (2009).

B. The Medicaid Reimbursement Process In This Case

Little Company is a hospital that participates in the Medicare program and is entitled to a DSH payment adjustment. On September 12, 2000, Little Company's assigned Intermediary issued an initial NPR for Little Company's cost reporting period ending June 20, 1998. The NPR was finalized when Little Company failed to appeal to the PRRB or the CMS Administrator within 180 days. On September 5, 2003, Little Company submitted a request for reopening of the finalized 1998 NPR regarding the calculation of the Medicaid Fraction and the SSI Fraction. Shortly after this request, on November 3, 2003, an email exchange occurred between two employees of the Intermediary regarding Little Company's 1998 cost report. The email stated, "Chris, I just realized that there are only Primary, Secondary and HMO supports. Can you please send supports for the SSI Eligible Days as well? Thank you, Mark K."

Almost exactly a year after this email exchange, on November 11, 2004, the Intermediary issued a Notice of Reopening. The Notice of Reopening stated:

In accordance with this Regulation, we have determined that your cost report will be reopened for the following reason(s): The Intermediary notes that the Provider has requested a reopening to include Medicaid Additional Eligible Days (757) and Baby Additional Days (82) for the DSH computation.

The Notice of Reopening made no mention of reopening the SSI Fraction and the Intermediary did not issue a separate Notice of Reopening regarding the SSI Fraction. On November 17, 2004, the Intermediary issued a revised NPR with an adjusted Medicaid Fraction.

On January 26, 2005, Little Company appealed the revised NPR to the PRRB. Specifically, Little Company appealed the revised Medicaid Fraction and the failure to revise the SSI Fraction. On March 3, 2005, the Intermediary filed a jurisdictional challenge to Little Company's appeal of the failure to adjust the SSI Fraction. The Intermediary claimed the SSI Fraction was not reopened and therefore remained finalized from the NPR issued in 2000. On February 15, 2006, the PRRB sustained the Intermediary's challenge to Little Company's appeal of the SSI Fraction and dismissed the issue.

On November 27, 2006, Little Company filed suit in the Northern District of Illinois challenging the PRRB's jurisdictional decision. On October 18, 2007, Little Company filed a motion to permit discovery of decisions by the PRRB and CMS Administrator in similar administrative appeals. The district court denied this discovery motion, finding that judicial review of the PRRB's final decision on Little Company's appeal should be based solely on the certified administrative record.

Both parties filed for summary judgment. The district court granted summary judgment in favor of the Secretary. The district court found that the evidence in the record supported the PRRB's finding that the Intermediary did not reopen the SSI Fraction, and therefore, the PRRB properly dismissed that issue.

On appeal, Little Company challenges the district court's grant of summary judgment in favor of the Secretary and the district court's denial of the motion for discovery outside of the administrative record.

II. Discussion

A. Summary Judgment

We review a district court's grant of summary judgment de novo. Argyropoulos v. City of Alton, 539 F.3d 724, 732 (7th Cir.2008). Summary judgment is proper where "there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c).

As a preliminary matter, Little Company challenges the district court's grant of summary judgment by arguing that the district court granted too much deference to the PRRB's decision below. The district court indicated that it reviewed the PRRB's decision under the standard of review set forth in the Administrative Procedure Act (APA). The APA requires that an agency's decision be set aside only if it is arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence in the case, or not in accordance with the law. See Edgewater v. Bowen, 857 F.2d 1123, 1129 (7th Cir. 1989). This is the proper standard of review for district courts reviewing decision of the PRRB regarding reimbursement.

Little Company challenges this degree of deference based on this court's statement in Edgewater that "a lesser degree of deference is required when reviewing the secretary's actions under the Medicare Act's reimbursement provisions." 857 F.2d at 1130. However, reliance on this statement is misplaced. This statement in Edgewater references a series of cases where we found that the "Medicare statute specifically circumscribes the Secretary's discretion to define `reasonable cost'." See St. James Hospital v. Heckler, 760 F.2d 1460 (7th Cir.1985); St. Francis Hospital Center v. Heckler, 714 F.2d 872 (7th Cir.1983); Northwest Hospital, Inc. v. Hospital Service Corp., 687 F.2d 985 (7th Cir.1982); St. John's Hickey Memorial Hospital, Inc. v. Califano, 599 F.2d 803 (7th Cir.1979). These cases reason that the highly specific language in the Medicare Act regarding "reasonable cost" limits the amount of deference courts should grant to the Secretary's interpretation of that term. However, this court has never disavowed the APA standard of review for Medicare provider reimbursement decisions more broadly. See Edgewater, 857 F.2d at 1129 ("We defer to the decision of the Secretary (acting through the PRRB) unless it is found to be arbitrary, capricious, or not in accordance with the law."). As is true of deference to any decision by an administrative agency, this deference is limited by the clear meaning of the statute as revealed by its language, purpose, and history. Id. However, Little Company does not advance any argument that the plain language of the statute and regulations mandate an outcome different from what occurred in the district court.

The parties agree that whether the district court properly granted summary judgment hinges on whether the Intermediary reopened the SSI Fraction when it reopened the Medicaid Fraction. An Intermediary's decision to reopen an annual report is issue-specific. 42 C.F.R. § 405.1885(a) (2004) ("A determination of an Intermediary officer ... may be reopened with respect to findings on matters at issue...