Univ. of Tex. M.D. Anderson Cancer Ctr. v. Sebelius
| Decision Date | 06 October 2011 |
| Docket Number | No. 10–5201.,10–5201. |
| Citation | 397 U.S.App.D.C. 1,650 F.3d 685 |
| Parties | UNIVERSITY OF TEXAS M.D. ANDERSON CANCER CENTER, Appellantv.Kathleen SEBELIUS, Appellee. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
OPINION TEXT STARTS HERE
Appeal from the United States District Court for the District of Columbia (No. 1:08–cv–00946).Christopher L. Keough argued the cause for appellant. With him on the briefs were Daniel J. Hettich, Paul D. Clement, Ashley C. Parrish, and Erin E. Murphy.Jorge Lopez, Jr. and Patricia A. Millett were on the brief for amicus curiae Memorial Sloan–Kettering Cancer Center in support of appellant.Mark D. Polston, Deputy Associate General Counsel for Litigation, U.S. Department of Health & Human Services, argued the cause for appellee. With him on the brief were Ronald C. Machen, Jr., U.S. Attorney, and R. Craig Lawrence and Mitchell P. Zeff, Assistant U.S. Attorneys.Before: SENTELLE, Chief Judge, BROWN and KAVANAUGH, Circuit Judges.Opinion for the Court filed by Circuit Judge KAVANAUGH.KAVANAUGH, Circuit Judge:
In 1965, Congress passed and President Johnson signed the Act creating Medicare. Medicare was primarily designed to ensure adequate health care for Americans who are 65 or older.
Paying for Medicare has posed a massive challenge for the U.S. Government, as the costs of Medicare have grown significantly over time. For several decades now, Congress has intermittently attempted to rein in Medicare costs.
This case involves cost-saving tools that Congress has devised for Medicare payments to cancer hospitals. The case specifically concerns Medicare reimbursements paid to one cancer hospital—M.D. Anderson in Texas—in 2000 and 2001 for inpatient and outpatient costs.
The first issue on appeal relates to cancer hospitals' inpatient costs. Medicare reimburses cancer hospitals for the reasonable costs of inpatient services for Medicare patients up to a target amount. If a cancer hospital proves that its actual costs exceeded the target amount because of “events beyond the hospital's control,” the target amount is increased, and Medicare reimburses the cancer hospital for costs attributable to those events. In this case, M.D. Anderson requested an increase to its target amount in 2000 and 2001 due to the high cost of certain new cancer drugs. The Department of Health and Human Services denied that request, and the District Court affirmed HHS's decision.
On appeal, the Hospital claims that HHS, after an administrative hearing on the Hospital's claim, imposed a new requirement that the Hospital expressly prove the net financial impact of the new drugs—as opposed to its simply showing the gross cost of the new drugs. The Hospital argues that it did not receive proper notice of the new net financial impact requirement and thus did not have a fair opportunity to satisfy the requirement at the administrative hearing. We agree. The Hospital did not receive timely notice of the requirement and, on remand to HHS, must be given an opportunity to satisfy it.
The second issue concerns cancer hospitals' outpatient costs. Since 2000, Medicare has typically reimbursed cancer hospitals for outpatient care based on a statutory formula that provides the hospitals a fraction of their reasonable costs. One component of that formula is the reasonable cost of the hospital's outpatient care in 1996. The overarching idea is to ensure that cancer hospitals can receive Medicare reimbursement for at least the same proportion of their actual costs that the hospitals received in 1996. In this case, the Hospital contends that HHS misapplied the formula and undercompensated the Hospital. The problem for the Hospital is that its interpretation of the statute would actually give cancer hospitals higher reimbursements in 2000 and later years than they would have received in 1996 for the same actual costs. We do not believe that the statute unambiguously says that, or that the Secretary's interpretation of ambiguous language is unreasonable. The Hospital, of course, must show one or the other in order to overcome HHS's interpretation. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The District Court granted summary judgment to HHS on this issue, and we affirm the District Court's decision.
In sum, we reverse the District Court's decision regarding the Hospital's request to raise the target amount for inpatient costs. The District Court should remand the matter to HHS. On remand, HHS must provide the Hospital an opportunity to show the net financial impact of the new cancer drugs. We affirm the District Court's decision granting summary judgment to HHS with respect to cancer hospitals' outpatient costs.
We first analyze M.D. Anderson's argument concerning its Medicare reimbursements for inpatient costs in 2000 and 2001. We review the statutory and regulatory framework, and we then address the merits of the Hospital's challenge to its Medicare reimbursement for inpatient services.
Congress has repeatedly attempted to slow the increase in Medicare costs for hospitals' inpatient services. In 1982, Congress set a ceiling—known as the “target amount”—on the annual reimbursement that Medicare would permit for hospitals' inpatient costs. See 42 U.S.C. § 1395ww(b)(3). Although most hospitals are now subject to a different Medicare system, the regime created in 1982 continues to apply to cancer hospitals—that is, hospitals such as M.D. Anderson that integrate cancer research with patient care. See 42 U.S.C. § 1395ww(d)(1)(B)(v)(I).
The target amount is usually based on the previous year's reasonable inpatient costs plus an inflation-based rate of increase. But there is an exception: HHS must increase the target amount by more than the inflation-based rate when there are “events beyond the hospital's control.”
Under HHS regulations, to obtain an increase to the target amount greater than the standard inflation-based bump for events beyond a hospital's control, the hospital must show that the increase is “reasonable, attributable to the circumstances specified separately, identified by the hospital, and verified by” an intermediary. 42 C.F.R. § 413.40(g)(1)(ii).
The University of Texas operates a cancer hospital, the M.D. Anderson Cancer Center in Houston, Texas. For 2000 and 2001, the Hospital requested an adjustment to its inpatient target amount to cover the costs of using new cancer drugs. It requested an extra $4.8 million for 2000 and an additional $4.18 million for 2001.
The Hospital submitted its request to a component of HHS called the Provider Reimbursement Review Board, which issued the final HHS decision in this case. After holding an administrative hearing, the Board issued an opinion rejecting the Hospital's request. In that opinion, the Board said that the Hospital had failed to show the net financial impact of the new drugs, but rather had shown only the gross cost of the new drugs.
Although neither the statute nor the HHS regulation explicitly requires the Hospital to prove the net financial impact of using a new cancer drug, we agree with HHS that such a requirement is a reasonable application of the statute and regulation. If a new drug costs $1000, but saves $1000 that the hospital would have spent on the old cancer treatment, then the net financial impact for the hospital—that is, the increase that is attributable to the new drug—is $0. Of course, the analysis is rarely so straightforward. And the problem in this particular case is that the Board held its administrative hearing with regard to M.D. Anderson before the Board announced (in its later opinion in this case) that a hospital must show the net financial impact of new drugs in order to raise the target amount. In prior proceedings with other hospitals, moreover, the Board had not required an express showing of the net financial impact of the different drugs. See Belmont Hills Hospital v. Blue Cross & Blue Shield Ass'n/Blue Cross of California, PRRB Dec. No. 99–D39 (Apr. 21, 1999). In essence, therefore, the Board sprung this requirement on the Hospital after the hearing—when it was too late for the Hospital to put forward evidence to satisfy the requirement.
That won't do. To use the terms of our precedents, the “regulated party” here was “not on notice of the agency's ultimate interpretation.” General Electric Co. v. EPA, 53 F.3d 1324, 1334 (D.C.Cir.1995) (internal quotation marks omitted). The Hospital did not have notice that it had to show the net financial impact of the new cancer drugs.
We thus reverse the District Court's decision with regard to the Hospital's inpatient costs. The District Court should remand the case to HHS, and HHS in turn should provide the Hospital an opportunity to show the net financial impact of the new cancer drugs it used in 2000 and 2001.
We next address the Hospital's Medicare reimbursements for 2000 and 2001 outpatient costs. We review the statutory and regulatory framework, and we then address the merits of the Hospital's challenge to its Medicare reimbursement for outpatient services.
As with Medicare inpatient costs, Congress has repeatedly attempted to slow the rapid increases in Medicare outpatient costs. Under the old system, hospitals treated outpatients, and then informed Medicare of the cost of the treatment, and then received money to cover costs that were “reasonable.” Not surprisingly, costs exploded under this system because there was little check on the services and costs for which hospitals received reimbursement. In 1990, Congress instructed HHS to implement a new system for reimbursing those outpatient costs. Under this new approach, Medicare would pay hospitals fixed amounts set in advance of the patients' treatment. The new system—designed “to encourage health care providers to improve efficiency and reduce operating costs”—is called the Prospective Payment System....
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