Mercy v. Sebelius

• Decision Date: 10 June 2011
• Docket Number: Civil Action No. 09–01286 (HHK).
• Citation: 793 F.Supp.2d 62
• Parties: UPMC MERCY, Plaintiff,v.Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

793 F.Supp.2d 62

UPMC MERCY, Plaintiff,

v.Kathleen SEBELIUS, Secretary, United States Department of Health and Human Services, Defendant.

Civil Action No. 09–01286 (HHK).

United States District Court, District of Columbia.

June 10, 2011.

John R. Sharp, Stephen P. Nash, Sven Collins, Patton Boggs, LLP, Denver, CO, for Plaintiff.Nicholas P. Cartier, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

HENRY H. KENNEDY, JR., District Judge.

Plaintiff UPMC Mercy (“UPMC”), a hospital located in Pittsburgh, Pennsylvania, brings this action against Kathleen Sebelius (“the Secretary”) in her official capacity as Secretary of the Department of Health and Human Services (“DHHS”), seeking review of a DHHS decision regarding the accrual of interest on underpayments by the government to Medicare providers. Specifically, UPMC challenges a determination that interest does not begin to accrue on amounts owed to providers by the government until certain steps are taken by the fiscal intermediaries who are responsible for dispensing payments to providers. Before the Court are the parties' cross-motions for summary judgment [# 22, 25]. Upon consideration of the motions, the oppositions thereto, and the record of this case, the Court concludes that UPMC's motion must be granted and the Secretary's motion must be denied.

I. BACKGROUND

A. The Hurry–Up–and–Pay Statute and the Implementing Regulations

Under the Medicare Act, 42 U.S.C. § 1395 et seq., hospitals that provide certain inpatient services to Medicare patients are reimbursed for their costs by the government via fiscal intermediaries, usually insurance companies that serve as the Secretary's agents for this purpose. See In re Medicare Reimbursement Litig., 414 F.3d 7, 8 (D.C.Cir.2005). Hospitals seeking reimbursement file “cost reports” with the intermediaries, which then audit those reports and issue “notices of program reimbursement” (“NPRs”) that state the amount owed to the hospitals by the government. If a hospital disagrees with the contents of an NPR, it may appeal to the Provider Reimbursement Review Board (“PRRB” or “the Board”). PRRB determinations are in turn subject to review by the Administrator of the Centers for Medicare and Medicaid (“CMS”). Hospitals may seek judicial review of decisions by either the Administrator or the PRRB under 42 U.S.C. § 1395 oo(f).

In 1983, Congress amended the Medicare Act to incentivize prompt correction of underpayments and overpayments under this scheme. Congress added a provision, 42 U.S.C. § 1395g(d), referred to as the Hurry–Up–and–Pay Statute, that provides for the accrual of interest—at a high rate—on “the balance of [any] excess or deficit not paid or offset” within 30 days of a “final determination” of an underpayment or overpayment. Significantly, the statute does not define “final determination.”

In order to implement the Hurry–Up–and–Pay Statute, CMS issued a regulation, which took effect concurrently with the statute, defining “final determination.” During the events at issue in this case, the regulation provided that:

[A]ny of the following constitutes a final determination:

(i) A Notice of Amount of Program Reimbursement (NPR) is issued ... and either—

(A) A written demand for payment is made; or

(B) A written determination of an underpayment is made by the intermediary after a cost report is filed.

(ii) In cases in which an NPR is not used as a notice of determination (that is, primarily under part B), one of the following determinations is issued—

(A) A written determination that an overpayment exists and a written demand for payment;

(B) A written determination of an underpayment; or

(C) An Administrative Law Judge (ALJ) decision that reduces the amount of an overpayment below the amount that [CMS] has already collected.

42 C.F.R. § 405.378(c)(1) (1998). As further discussed below, the original regulation was adopted in 1982 without a notice-and-comment period, although CMS subsequently issued a revised version in 1984 that included changes based on comments received after the rule was issued. CMS also made some alterations to the language of this provision without notice and comment in 1991.

B. Factual Background

The events that gave rise to this case began in 1991, when Blue Cross of Western Pennsylvania (“Blue Cross”), acting as the Secretary's fiscal intermediary, recouped over $9,700,000 in alleged overpayments from UPMC. UPMC timely appealed Blue Cross's assessment of its costs to the PRRB. In 1998, the Board issued its decision, ordering Blue Cross to reclassify a number of UPMC's expenses. J.A. at 88–171 (PRRB Hearing Decision 98–D26, Jan. 28, 1998). ¹ According to UPMC, this decision resulted in a “substantial award of more than $13,500,000 in UPMC Mercy's favor, and ... effectively reversed Blue Cross'[s] improper earlier recoupment of more than $9,700,000.” Pl.'s Mem. in Supp. of Summ. J. (“Pl.'s Mem.”) at 13. It is uncontested, however, that the Board's decision did not contain a specific dollar amount that UPMC was owed by the government.

The Board's January 1998 decision was interpreted differently by UPMC and Blue Cross. Blue Cross issued a revised NPR based on the Board's decision and paid UPMC the full amount specified by that NPR. According to UPMC, however, the revised NPR and resulting payment did not adequately reflect the amount UPMC was owed pursuant to the Board's decision. Thus, UPMC appealed to the Board again. In 2008, while that appeal was still pending, Blue Cross finally conceded that it had miscalculated the amount owed to UPMC, issued another NPR, and paid the remainder. The question remained, however, whether UPMC was entitled to receive interest on the amount that had gone unpaid from 1998 to 2008. Accordingly, UPMC revised its PRRB appeal to address that question.

UPMC, counting from the date of the Board's 1998 decision, calculated that it was owed over $9,000,000 in interest as of March 2008. Pl.'s Mem. at 22. The Board, however, disagreed, ruling that its own 1998 decision had not been a “final determination” of an underpayment for the purposes of the Hurry–Up–and–Pay Statute's interest provision. Rather, the Board concluded that although it had “identified specific amounts for reallocation in its [1998] decision, the final determination of the amount due could only be determined by [Blue Cross] via revisions to the cost report and [the issuance of] a revised NPR.” J.A. at 11 (PRRB Hearing Decision 2009–D22, May 8, 2009). Thus, because Blue Cross had paid UPMC within 30 days of issuing its revised NPR in 1998, the Board concluded that the statute's interest provision had never been triggered and UPMC was due no interest.² UPMC subsequently commenced this action, seeking judicial review of the Board's 2009 decision under the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq.

II. LEGAL STANDARD

Summary judgment is the proper mechanism for deciding, as a matter of law, whether an agency action is supported by the administrative record and consistent with the APA standard of review, which requires a reviewing court to “hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A); see Stuttering Found. of Am. v. Springer, 498 F.Supp.2d 203, 207 (D.D.C.2007) (citing Richards v. INS, 554 F.2d 1173, 1177 & n. 28 (D.C.Cir.1977)). Because, however, “the district judge sits as an appellate tribunal” in such cases, Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C.Cir.2001), the usual summary judgment standard does not apply. Rather, “it is the role of the agency to resolve factual issues to arrive at a decision that is supported by the administrative record, [and] ‘the function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.’ ” Stuttering Found., 498 F.Supp.2d at 207 (quoting Occidental Eng'g Co. v. INS, 753 F.2d 766, 769–70 (9th Cir.1985)).

III. ANALYSIS

UPMC deploys an impressive array of arguments to challenge the Board's decision that UPMC was not entitled to interest, including that the Board's decision was inconsistent with the text of the interest-payment regulation, incompatible with the text and purpose of the Hurry–Up–and–Pay Statute, and would effectively allow the government to take interest-free loans from Medicare providers like UPMC. The Court does not reach the majority of these arguments, however, because it agrees with UPMC's alternative argument that the applicable section of the interest-payment regulation was amended without notice and comment in violation of the APA.

A. UPMC Has Abandoned or Conceded Its Claim That the Regulation Was Originally Promulgated in Violation of the APA's Notice and Comment Procedures

The Secretary understands UPMC to challenge the validity of the interest-payment regulation not only on the basis of its 1991 amendment (discussed below), but also because of the process by which it was originally enacted in 1982. See Def.'s Opp'n at 32–36. The Secretary understandably reaches this conclusion on the basis of UPMC's complaint, which states: “[T]he Secretary's hurry-up-and-pay interest regulation is entitled to no deference because it was both promulgated, and later amended in pertinent part, without notice and an opportunity for comment and without a logical (or other) explanation....” Compl. ¶ 145 (emphasis added). None of UPMC's three subsequent filings, however, addresses the validity of the regulation's original promulgation, focusing only on its 1991 amendment. See Pl.'s Mem. at 43–45; Pl.'s Opp'n at 44–45; Pl.'s Reply at 25. Accordingly, it appears that UPMC has abandoned its challenge to the regulation's original enactment.

Further, even if UPMC has not deliberately abandoned its challenge to the regulation's original enactme...