United States Court of Appeals, District of Columbia Circuit
Allina Health Services, doing business as United Hospital, doing business as Unity Hospital, doing business as Abbott Northwestern Hospital, et al., Appellants
Thomas E. Price, Secretary, United States Department of Health and Human Services, Appellee
May 11, 2017
from the United States District Court for the District of
Columbia (No. 1:14-cv-01415)
Stephanie A. Webster argued the cause for appellants. With
her on the briefs were Pratik A. Shah, Christopher L. Keough,
James H. Richards, and Hyland Hunt.
Stephanie R. Marcus, Attorney, U.S. Department of Justice,
argued the cause for appellee. With her on the brief was Mark
B. Stern, Attorney.
Before: Henderson, Kavanaugh, and Millett, Circuit Judges.
KAVANAUGH, CIRCUIT JUDGE
hospitals have challenged the formula used by the Department
of Health and Human Services for calculating certain Medicare
reimbursement adjustments for fiscal year 2012. As relevant
here, the hospitals argued before the District Court that HHS
violated the Medicare Act by changing the reimbursement
adjustment formula without providing the public with notice
and opportunity for comment.
District Court ruled that HHS did not violate the Medicare
Act's procedural requirements. The District Court
reasoned that (i) the Medicare Act incorporates the
Administrative Procedure Act's exception to
notice-and-comment rulemaking for interpretive rules and (ii)
HHS's issuance of the reimbursement adjustment formula
here constituted an interpretive rule. The District Court
granted summary judgment to HHS.
disagree with the District Court. We conclude that HHS
violated the Medicare Act when it changed its reimbursement
adjustment formula without providing notice and opportunity
for comment. We reverse the judgment of the District Court
and remand for proceedings consistent with this opinion.
the Medicare program, the Federal Government provides health
insurance to Americans who are 65 or older, as well as to
disabled Americans. See generally Social Security
Amendments of 1965, Pub. L. No. 89-97, sec. 102, 79 Stat.
286, 291-332 (codified as amended at 42 U.S.C. § 1395
et seq.). The Department of Health and Human
Services administers and oversees Medicare. Patients can
obtain insurance under different Medicare "parts."
Two of those parts are relevant here. Medicare Part A
provides Medicare enrollees with government-administered
health insurance through which the Government makes direct
payments to hospitals for healthcare services provided.
See 42 U.S.C. §§ 1395c to 1395i-5. Part C
provides enrollees with government-subsidized enrollment in
private insurance plans. See id. §§
1395w-21 to 1395w-29.
contracts with companies known as fiscal intermediaries to
reimburse healthcare service providers for services rendered
to Medicare Part A patients. Fiscal intermediaries make
initial payments to hospitals for a given cost year. Those
initial payments are based on estimates of the hospitals'
actual costs. The initial payments are later adjusted based
on providers' actual cost reports.
provider who disagrees with a fiscal intermediary's
reimbursement or adjustment decision may appeal that decision
to the Provider Reimbursement Review Board within HHS.
See 42 U.S.C. § 1395oo. The Board may
affirm, modify, or reverse the fiscal intermediary's
decision. Id. § 1395oo(d). But
importantly, the Board does not have the authority to declare
statutes or regulations invalid. See Bethesda Hospital
Association v. Bowen, 485 U.S. 399, 406 (1988); 42
C.F.R. § 405.1842(f)(2)(ii).
relevant here, the Medicare Act authorizes reimbursement
adjustments in order to increase payments to hospitals that
treat a disproportionately high number of low-income
patients. See 42 U.S.C. §
1395ww(d)(5)(F)(i)(I). That adjustment is known as the
"disproportionate share hospital adjustment." The
adjustment is calculated for each hospital by adding two
fractions that together approximate the proportion of
low-income patients treated at that hospital over a certain
time period. See id. § 1395ww(d)(5)(F)(vi). HHS
calculates and publishes one of those fractions - the
Medicare fraction - for each hospital in the Nation every
year. HHS requires the fiscal intermediaries to use HHS's
published Medicare fractions in calculating each
hospital's final reimbursement adjustment. See
42 C.F.R. § 412.106(b)(2), (5).
other things, the Medicare fraction incorporates the number
of each hospital's patient days for patients
"entitled to benefits under part A" of Medicare. 42
U.S.C. § 1395ww(d)(5)(F)(vi)(I). The meaning of that
phrase has been the subject of much debate (and litigation).
The dispute is over whether the phrase "entitled to
benefits under Part A" should be read to refer not only
to Part A enrollees, but also to patients enrolled in a Part
reasons that are beyond the scope of this opinion, HHS now
believes that the phrase "entitled to benefits under
Part A" should also include patients enrolled in a Part
C plan. HHS therefore contends that Part C patient days
should be included in the Medicare fractions. Many hospitals
disagree. They argue that Part C enrollees are not
"entitled to benefits under Part A" and that Part C
days therefore should not be included in Medicare
difference in interpretation makes a huge difference in the
real world. Part C enrollees tend to be wealthier than Part A
enrollees. Including Part C days in Medicare fractions
therefore tends to lead to lower reimbursement rates.
Ultimately, hundreds of millions of dollars are at stake for
the Government and the hospitals. See Northeast Hospital
Corp. v. Sebelius, 657 F.3d 1, 5 (D.C. Cir. 2011).
2004, HHS had not treated Part C enrollees as
"entitled to benefits under Part A." See
id. at 15. In 2004, however, HHS promulgated a rule
announcing that Part C enrollees are "entitled
to benefits under Part A" and that HHS would therefore
include Part C days in Medicare fractions. See
Medicare Program; Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2005 Rates, 69
Fed. Reg. 48, 916, 49, 099 (Aug. 11, 2004). That 2004 rule
would have applied HHS's changed interpretation
prospectively to all Medicare fraction calculations from
fiscal year 2005 onward. However, this Court vacated the 2004
rule on the grounds that it was not a logical outgrowth of
the proposed rule and had therefore been improperly issued
without notice and opportunity for comment. See Allina
Health Services v. Sebelius, 746 F.3d 1102, 1107-09
(D.C. Cir. 2014). As a result, HHS can no longer rely on the
2013, HHS promulgated a new rule again announcing that HHS
would treat Part C enrollees as "entitled to benefits
under Part A" and that HHS would therefore include Part
C days in Medicare fractions. See 78 Fed. Reg. 50,
496, 50, 614 (Aug. 19, 2013). The 2013 rule is prospective
only: It applies to Medicare fractions calculated for fiscal
year 2014 and beyond. Id. at 50, 619. It does not
address the definition of "entitled to benefits under
Part A" for any fiscal years before 2014. In sum, HHS
has no ...