Me. Med. Ctr. v. Burwell

• Decision Date: 27 October 2016
• Docket Number: No. 15-2408, No. 15-2483,15-2408
• Citation: 841 F.3d 10
• Parties: 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.
• Court: U.S. Court of Appeals — First Circuit

841 F.3d 10

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

Stephanie R. Marcus , Attorney, Appellate Staff, Civil Division, United States Department of Justice, with whom Benjamin C. Mizer , Principal Deputy Assistant Attorney General, Civil Division, Thomas E. Delahanty, II , United States Attorney, Andrew K. Lizotte , Assistant United States Attorney, and Mark B. Stern , Attorney, Appellate Staff, Civil Division, were on brief, for defendant.

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 42 U.S.C. § 1395ww(d)(5)(F)(i)(I)

. These appeals involve a dispute between the Secretary of Health and Human Services (the Secretary) and a group of eight Maine hospitals¹ about DSH payments for fiscal years dating as far back as 1993.

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 42 U.S.C. §§ 1395 –1395lll. This regime is administered by the Secretary through the Centers for Medicare and Medicaid Services (CMS), which contracts with fiscal intermediaries—often private health insurance companies—to act as go-betweens for Medicare providers and CMS. See 42 C.F.R. § 421.100

.²

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 42 U.S.C. § 1395ww(d) ; R.I. Hosp., 548 F.3d at 39–40. Congress was concerned, though, that the new payment system might disadvantage hospitals that served disproportionate numbers of low-income patients, so it created the DSH payment system to address this concern. See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I) ; H.R. Rep. No. 98–861, at 1356 (1984) (Conf. Rep.), as reprinted in 1984 U.S.C.C.A.N. 1445, 2044; S. Rep. No. 98–23, at 54 (1983), as reprinted in 1983 U.S.C.C.A.N. 143, 194.

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). 42 U.S.C. § 1395ww(d)(5)(F)(i)(I)

; see Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 916 (D.C. Cir. 2013). Those hospitals receive additional payments—known as DSH payments or DSH adjustments—from the government. See Catholic Health Initiatives, 718 F.3d at 916. Both a hospital's eligibility for DSH payments and the amount of any such payment depend in large part on the hospital's disproportionate patient percentage (DPP). See 42 U.S.C. § 1395ww(d)(5)(F)(vi). Generally speaking, the more low-income patients a hospital serves, the higher its DPP and, thus, the higher its annual DSH payment. See Catholic Health Initiatives, 718 F.3d at 916 ; Metro. Hosp. v. HHS, 712 F.3d 248, 251 (6th Cir. 2013). Nevertheless, this figure does not correlate directly with “the actual percentage of low-income patients served; rather, it is an indirect, proxy measure for low income.” Catholic Health Initiatives, 718 F.3d at 916.

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 42 C.F.R. §§ 405.1801(b)(1)

, 413.24(f), 421.100 ; see also MaineGen. Med. Ctr. v. Shalala, 205 F.3d 493, 494, 496 (1st Cir. 2000). The intermediary may reopen a cost report within three years after issuing the NPR and, if necessary, issue a revised NPR. See 42 C.F.R. § 405.1885(a)-(b). A provider may appeal an intermediary's decision to the Provider Reimbursement Review Board (the Board). See 42 U.S.C. § 1395oo (a)(1)(A)(i). The Secretary has the option of reviewing Board decisions, and the agency's final decision is subject to judicial review. See id.§ 1395oo (f)(1).

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 calculations. Following this settlement and similar agreements between the intermediary and other hospitals in the late 1990s, the intermediary began telling all Maine hospitals to include such days in their cost reports.

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 42 U.S.C. § 1395oo (f)(1)

. Following cross-motions for judgment on the administrative record, the district court³ held that some notices of reopening were fatally flawed and that settlement agreements barred the intermediary from reopening certain cost reports. Neither side was completely satisfied with the district court's ruling, and these cross-appeals ensued.

II. JURISDICTION

At the outset, a jurisdictional question looms. The parties jointly assure us that we have jurisdiction under 28 U.S.C. § 1291

, which permits us to review “appeals from all final decisions of the district courts.” Notwithstanding their shared assurance, we have an independent obligation to confirm our jurisdiction to hear this dispute. See Anversa v. Partners Healthcare Sys., Inc., 835 F.3d 167, 174 n.5, 2016 WL 4527492 (1st Cir. 2016) [No. 15–1897, op. at 174 n.5 ].

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, ...