                           UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF COLUMBIA

EMANUEL MEDICAL CENTER, INC.
     et al.,

             Plaintiffs,

      v.
                                                     Civil Action No. 12-1962 (GK)
KATHLEEN SEBELIUS,
Secretary of the United
States Department of Health
and Human Services,

             Defendant.


                                   MEMORANDUM OPINION

      Plaintiffs          are     two     hospitals,           Emanuel         Medical      Center

("Emanuel")        and     Merced       Community         Medical         Center        ( "Merced" )

(collectively,          "Plaintiffs"          or     "Providers").         They     bring       this

action     against       Kathleen Sebelius               in her official           capacity as

Secretary     of     the        Department         of    Health      and       Human      Services

("Defendant"       or     "Secretary"),            pursuant     to   Title       XVIII     of    the

Social Security Act,              42 U.S.C.         §§   1395 et seq.           ("the Medicare

Act") .    Plaintiffs           seek    judicial         review      of    a     final      agency

decision that the Provider Reimbursement Review Board ("PRRB" or

"Board") did not have jurisdiction over Providers' appeals.

      This matter is before the Court on Plaintiffs'                                Motion for

Summary     Judgment        [Dkt.       No.    17]       and   Defendant's         Motion        for

Partial Summary Judgment and for Partial Remand                                 [Dkt.    No.    22] .

Upon consideration of the briefs, the administrative record, and
the      entire         record     herein 1        and        for    the       reasons     stated below         1




Plaintiff's Motion for Summary Judgment is granted in part and

denied        in        part     and   Defendant's                 Motion        for   Partial     Summary

Judgment and for Partial Remand is granted.

I .      BACKGROUND

         A.        Statutory and Regulatory Framework

                   1.      The Medicare Program

         Title          XVIII    of    the        Social       Security          Act   established        the

Medicare program/                which provides medical                         care   for   the elderly

and disabled.              42 U.S. C.        §    13 95 et seq.           i    see also Kaiser Found.

Hosps. v. Sebelius 1 708 F.3d 226                         1    227    (D.C. Cir. 2013)           (citation

omitted)           The Medicare program is administered by the Secretary

through the Center for Medicare and Medicaid Services                                             ( "CMS 11 )   •




Ark.     Dep 1 t    of Health          &   Human Servs.              v.       Ahlborn 1    547 U.S.     268 1

275 (2006) .

         Medicare providers enter into written agreements with the

Secretary to provide services to eligible individuals. 42 U.S.C.

§     1935cc.      Fiscal intermediaries/                     private companies that process

payments on behalf of CMS 1                        make interim payments to providers/

subject to subsequent adjustments. Id.                                §       1395h.

         To calculate these adjustments/                             providers are required to

submit        an        annual    cost           report       to     their        fiscal     intermediary

identifying the costs incurred during the course of each fiscal

                                                      -2-
year.     42         C.F.R.       §§   413.20,          413.24;       see also Sebelius v.                  Auburn

Reg'l Med. Ctr.,                   133 S. Ct. 817,              822    (2013)      ("At the end of each

year, providers participating in Medicare submit cost reports to

contractors               acting          on        behalf        of        HHS        known      as        fiscal

intermediaries")                    Fiscal       intermediaries              then analyze           and audit

the cost report and inform the provider of the amount of total

Medicare             reimbursement             to       which     they      are    entitled,           which      is

referred to as                   the Notice of Program Reimbursement                              ( "NPR") .     42

C.F.R.       §    405.1803;            see also Regions Hosp.                     v.    Shalala,        522 U.S.

4 4 8 1 4 52      ( 19 9 8 ) •

        If       a     provider           is     dissatisfied               with       the    intermediary's

determination of its NPR,                           it has 180 days to request a hearing

before the PRRB. 42 U.S.C.                          §    1395oo(a). Review of an initial NPR

is   comprehensive                  and    may       include          any    item       contained           in   the

original          cost      report.        Id.       §   1395oo(d);          Bethesda Hospital Ass'n

v.   Bowen,           485     U.S.      399,        405-06       (1988)       (noting        that      statutory

language          allows         the Board          "to review and revise a                       cost      report

with     respect              to       matters           not     contested         before         the       fiscal

intermediary") .                 The    Board        can       affirm,       modify,         or   reverse        the

fiscal       intermediary's award;                        the    Secretary in turn may affirm,

modify,          or reverse the PRRB's decision.                              See 42 U.S.C.             §   1395oo

(d)-(f).



                                                           -3-
         The Medicare      regulations permit             a    fiscal     intermediary to

reopen a      provider's       cost   report     "with respect            to    findings    on

matters at issue" wi~hin three years.                      42 C. F. R.    § 405.1885 (a) . 2

The intermediary can reopen the cost report either on its own

motion, at the request of the provider, or at the request of the

CMS Administrator. Id.

         After the intermediary reopens and revises the cost report,

the      revised    NPR     is   considered           a       "separate       and    distinct

determination       or     decision."    Id.     §    405.1889.         The    provider    can

then appeal        the revised NPR to the PRRB within 180 days.                            Id.

§§ 405.1889,       405.1835(a). Unlike the comprehensive review of an

initial NPR,        however,     the Board's         jurisdiction over a               revised

NPR is limited to           "the specific issues revised on reopening."

HCA Health Servs.          of Okla.,    Inc.     v.       Shalala,      27 F.3d 614,       615

(D. C.     Cir.    1994)      (upholding       Secretary's           interpretation         of

reopening regulations as reasonable) .

         Within sixty days of notice of a final decision of the PRRB

or the Secretary, a provider is entitled to file a civil action

in the United States District Court for the District of Columbia

to seek judicial review of that decision. 42 U.S.C.                            §    1395oo(f);

42 C.F.R.     §   405.1877.
2
  Because all of the relevant events in this case occurred before
2008, the Court will evaluate the providers' claims under the
pre-2008 regulations. All citations are to those regulations
unless otherwise noted.
                                           -4-
              2.             Disproportionate Share Hospital Adjustment

      Part         E       of    the        Medicare                statute          sets     out       "Miscellaneous

Provisions    I/            including              a       prospective                  payment           system        for

reimbursing                hospitals            that       provide          certain           inpatient         hospital

services.      42           U.S. C.         §    13 95ww (d) ;          see          also    Ne.    Hosp.      Corp.     v.

Sebelius,          657          F.3d        1,        3    (D.C.           Cir.        2011).       A    hospital        is

reimbursed for each day spent treating a                                                Medicaid patient,               and

receives      additional                        funds          if     it      is       eligible          for        various

hospital-specific                 adjustments.                       See     42        U.S.C.       §   1395ww(d) (5);

Cookeville Reg'l Med.                           Ctr.      v.     Leavitt,             531 F.3d 844,            846    (D.C.

Cir. 20.08).

      The          adjustment                    at        issue            in          this        case        is      the

Disproportionate Share Hospital                                      ( "DSH 11   )    adjustment,          under which

the government gives additional funds to hospitals that "serve[]

a significantly disproportionate number of low-income                                                       patients.~~


42   U.S.C.            §    1395ww(d) (5) (F) (i) (I).                       This           adjustment         is     "made

because     hospitals              with           an       unusually                 high    percentage         of     low-

income    patients              generally                 have       higher           per-patient         costs;       such

hospitals,             Congress             therefore                found,            should       receive          higher

reimbursement rates.                   11
                                            Auburn Reg' l,                 133 S.           Ct.    at 822;      see also

Catholic     Health              Initiatives                   Iowa     Corp.          v.    Sebelius,         718     F.3d

914, 916     (D.C. Cir. 2013)                         (citation omitted).



                                                                -5-
        Whether a hospital qualifies for this adjustment,                               and the

amount of the adjustment the hospital receives,                                depends on the

hospital's          "disproportionate            patient        percentage"      ("DPP").     42

U.S.C.    §    1395ww(d) (5) (F) (v); Ne. Hosp. Corp., 657 F.3d at 3. The

DPP "is not 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.

         The DPP, as defined by the Medicare statute, is calculated

by adding together two fractions: the SSI fraction.                                  In sum, the

Medicaid fraction.              42 U.S.C.    §   1395ww(d)95) (vi); Metro. Hosp. v.

Dep't    of Health          &    Human Servs.,          712     F.3d 248,      251    (6th Cir.

2013). The basic unit of measurement for both fractions is the

hospital's "patient days." Metro Hosp., 712 F.3d at 251.

        The SSI       fraction,      also    known as           the   "Medicare       fraction,"

"measures· the portion of a hospital's Medicare-entitled patient

population          that    is     also   entitled         to     [Supplemental         Security

Income        ("SSI")],    a cash benefit provided to low-income elderly,

blind, or disabled individuals." Id.; see also Auburn Reg'l, 133

s. Ct. at 822.
        The SSI fraction for a given period consists of the number

of   patient        days        attributable       to    patients       entitled        to   both

Medicare Part A benefits and SSI benefits divided by the number

of patient days            attributable          to patients          entitled to Medicare

                                                 -6-
Part      A         benefits               but        not      SSI        benefits.              41         u.s.c.
§   1395ww(d) (5) (vi) (I).                 The       Secretary        receives             data      from       the

Social Security Administration to calculate the SSI fraction and

provides the fraction to the intermediary. Auburn Reg'l,                                                133 St.

Ct. at 822; 42 C.F.R.                  §    12.106(b) (2),           (3).

        The        Medicaid           fraction          "measures           the        proportion           of     a

hospital's          total       patient          population         that      is       Medicaid-eligible,

with the caveat of excluding patients who are also entitled to

Medicare benefits."                   Metro Hosp.,            712    F.3d at 251.               The Medicaid

fraction       for    a    given period consists of                          the       number of patient

days attributable to patients eligible for a state Medicaid plan

but    not    entitled           to    Medicare          Part A benefits,                   divided by the

total     number           of     patient             days    in      that            period.      42       U.S.C.

§   1395ww(d) (5) (vi) (II) . 3 The Medicaid fraction                                   is    calculated by

the intermediary. 42 C.F.R.                       §    412.106(b) (4).

        The    intermediary                 then       adds     the         SSI        fraction         and      the

Medicaid fraction                and that             sum,    expressed as              a    percentage,          is

the    hospital's          DPP        for    that       period.       Id.         §   412.106 (b) (5).           The

higher       the    DPP,        the    higher the            rate    at      which the          hospital          is

reimbursed.          Catholic Health Initiatives,                            718       F.3d at        916     ("[A]
3
  Medicaid is a separate program from Medicare. It is "a jointly
funded,  federal-state program that provides health care to
indigent persons who are aged, blind, or disabled, or members of
families with dependent children." See Univ. of Kansas Hosp.
Auth. v. Sebelius, 953 F. Supp. 2d 180, 183 n.1 (D.D.C. 2013)
(citing 42 U.S.C. § 1396 et seq.).
                               -7-
higher DPP means greater reimbursements because the hospital is

serving more low-income patients."); Metro.                                Hosp.,       712 F. 3d at

251     ("A   higher       DPP    produces           a    higher     adjustment             percentage,

which in turn produces a larger adjustment payment.")                                         (citation

omitted) .

        B.    Factual and Procedural History

        Plaintiffs         are      two        hospitals           located        in        California.

Administrative            Record        ( "AR" )      80-81.       It     is     undisputed          that

Plaintiffs         are    "providers           of     services"         participating           in    the

Medicare      program.           This      case          concerns       three         cost     reports:

Merced's      cost        reports        for        fiscal     year       1991        and     1992    and

Emanuel's cost report for fiscal year 1992.

              1.         Merced's Cost Report for Fiscal Year 1992

        On August 23, 1994, Merced received its NPR from its fiscal

intermediary for fiscal year 1992. AR 27-28.                                   It included a DSH

adjustment     of        $1,576,346.        AR 30.         On November           5,     1996,    Merced

requested      that       its    intermediary              reopen       that     cost       report    "to

include the submitted information in its determination of the

revised Disproportionate Share Calculation." AR 32. It sought to

increase its DSH adjustment by an additional $1,075,578. Id.

        On February 5,           1997,     the intermediary notified Merced that

it was reopening Merced's cost report for fiscal year 1992 "[t]o

agree    Medi-Cal         days     to     those          audited    by     the     State,       and    to

                                                    -8-
recompute DSH accordingly." AR 44. On its adjustment report, the

intermediary described             the   purpose    of    the    adjustment     as:    "TO

AGREE MEDI-CAL DAYS TO AUDITED DATA" and "TO CORRECT DSH TO BE

BASED ON AUDITED MEDI-CAL & TOTAL DAYS, & FEDERAL DRG PAYMENTS."

AR 46. The intermediary increased Merced's DSH adjustment by the

amount Merced had requested, $1,075,578. Id. The revised NPR was

issued on March 10, 1997. AR 652. 4

       On September 8,         1997,     Merced appealed its revised NPR for

fiscal year 1992 to the PRRB. AR 655-56. Among other things,                            it

argued that        "the Supplemental Security Income                (SSI)    ratio used

in determining the Disproportionate Share Payment was incorrect"

and    that        "the     Medi-Cal      ratio    used     in     determining         the

Disproportionate Share Payment was incorrect." AR 655.

              2.     Emanuel's Cost Report for Fiscal Year 1992

       On October 6,         1995,   Emanuel's fiscal intermediary reopened

Emanuel's     cost        report   for   fiscal    year    1992.       AR   347-48.    The

notice of reopening states that it was reopened "TO REVISE THE

DISPROPORTIONATE SHARE ADJUSTMENT AND TO UPDATE THE SETTLEMENT,

IF APPLICABLE." AR 347. The adjustment report showed an increase

in Emanuel's DSH adjustment               from    $1,315, 799     to    $1,388, 806.    AR

353.



4
  The Court notes that Merced received the                         entire    additional
amount it sought in its request for reopening.
                                           -9-
                                                                                                     •·


       On November 9,           1995,        Emanuel appealed its revised NPR for

fiscal year 1992 to the PRRB. AR 350-51. It alleged that the DSH

adjustment was understated because "determination of the number

of patient days relating to patients entitled to both Medicare

Part A coverage and Supplemental Security Income                              (SSI)   benefits

was    understated"           and     "[t] he    ratio     of   Medi-Cal      days    to     total

patient days was in error." AR 351 (emphasis in original).

                3.      Merced's Cost Report for Fiscal Year 1991

       On April         30,    1999,        Merced's     fiscal    intermediary reopened

Merced's cost report for the fiscal year ending 1991 on its own

motion    and        increased Merced's               DSH adjustment.        AR    631-32.     The

revised    NPR        increased        the      DSH    adjustment     from    $1,353,189        to

$2,508,403,          and described the adjustment as "incorporat[ing] the

Medi-Cal audited days." AR 637.

       On October 14,               1999,    Merced appealed its            revised NPR for

fiscal year 1991 to the PRRB.                         AR 634-35.    Again,     Merced argued

that     "the        Supplemental        Security        Income     (SSI)    ratio     used     in

determining          the    Disproportionate            Share     Payment    was     incorrect"

and    that          "the     Medi-Cal          ratio     used      in      determining        the

Disproportionate Share Payment was incorrect." AR 635-35.

                4.      SSI Group Appeal

       On October 7,           1996,     two providers requested a group appeal

before the PRRB to address the common issue of                                " [w] hether the

                                                 -10-
SSI percentage (proxy) used to compute Medicare Disproportionate

Share    (DSH)   Payments has been determined in accordance with the

Medicare statutes              [sic] . " AR 1254.          The group appeal was given

the   Case    No.       97-0021G,        and     eventually           grew   to    include         nine

hospitals     seeking review of                the SSI          fraction used in 26                cost

reports (hereinafter, "SSI Group Appeal"). AR 3-5, 1161.

        On   December          9,     1996,    Emanuel         requested       that     the    Board

transfer     the        "SSI        percentage        issue"    from     its      appeal      of     its

revised NPR for fiscal                  year 1992 to the SSI Group Appeal.                           AR

362. The issue was transferred on July 31, 1997. AR 930.

        On April 1, 1998, Merced requested that the Board transfer

"the SSI Percentage issue"                    from its appeal of its revised NPR

for fiscal year 1992 to the SSI Group Appeal. AR 1144. The issue

was transferred on that date. AR 930.

      On     October       27,        2000,    Merced          requested       that     the        Board

transfer "the SSI ratio issue"                        from its appeal of its revised

NPR for fiscal year 1991 to the SSI Group Appeal. AR 1169.

      On January 23, 2004, an intermediary challenged the Board's

jurisdiction        to         hear     six      of     the     appeals        that     had         been

consolidated in the SSI Group Appeal. AR 1104-1109. The Board's

jurisdiction over the three appeals at issue in this case was

not   raised       at     that        time.    On      June      1,    2004,      the    providers



                                                 -11-
responded      that       they    were       "in    the   process    of    researching         the

challenges and providing a response." AR 924.

       on: March 31, 2008, Judge John Bates, in a different case,

upheld the      PRRB' s         determination that          CMS had been erroneously

calculating the SSI fractions used in calculating provider's DSH

adjustments. Baystate, 545 F. Supp. 2d at 57-58; see also Auburn

Reg'l, · 133       S.     Ct.     at    822-23      (discussing      Baystate         case).    He

remanded      the       case     to    the    Secretary      for    appropriate         action.

Baystate, 545 F. Supp. 2d at 58.

       In response, the CMS Administrator issued CMS Ruling 1498-R

on April     28,        2010.    CMS Ruling No.           CMS-1498-R,      2010 WL 3492477

(Apr. 28, 2010). The Administrator directed CMS and the Medicare

contractors        to     "take       the   steps    necessary to         apply   a    suitably

revised data matching process in determining the SSI                                  fraction,

and recalculating the DSH payment adjustment,                             for each properly

pending claim on the SSI                    fraction data matching process                 issue

that   is    remanded by an administrative appeals tribunal                              and is

found to qualify for relief under this Ruling." Id. at *3. It is

undisputed that the SSI Group Appeal presented a                             "pending claim

on the SSI fraction data matching process issue." Id.

       On March 9, 2012, the Board wrote a letter to the SSI Group

Appeal members asking for jurisdictional documentation regarding

the    six    previously-challenged                  appeals       and     also   requesting

                                               -12-
jurisdictional documentation for fourteen other appeals that had

joined the SSI Group Appeal. AR 906-909. Among other things,                                it

request·ed jurisdictional documentation from providers appealing

from     revised NPRs,           including Merced for          fiscal      year     1991   and

Emanuel      for   fiscal    year 1992.          AR 907.    On August        8,   2012,    the

Board asked for similar jurisdictional documentation from Merced

for fiscal year 1992 because that appeal was also from a revised

NPR. AR 64-65.

       On July 30,      2012,      the PRRB issued its first jurisdictional

decision,      in which it addressed its jurisdiction over the six

appeals      challenged      by     the    intermediary        in    2004.        These    six

appeals did not include the appeals at issue in this case. AR

66-72.      The Board noted that the providers could not show that

the SSI      fraction had been adjusted in their original NPRs.                             AR

70-71.      However,    because           the     providers    were     appealing          from

original NPRs, not revised NPRs, the Board concludes that it had

jurisdiction over any issue,                    even if    that     issue had not been

included in the original NPR or decided against the provider by

the intermediary.       Id.        (citing Bethesda, 485 U.S.            at 404). Thus,

the Board concluded that an adjustment to the SSI fraction was

"not a prerequisite to the appeal" of original NPRs. AR 72.

       On     October       5,     2012,         the   Board      issued      its     second

jurisdictional decision, which is the decision at issue in this

                                                -13-
case. AR 22-24           ("Jurisdictional Decision") . The Board held that

it   did      not     have    jurisdiction over               four    appeals      from    revised

NPRs,        including        Emanuel's      appeal       for        fiscal     year     1992     and

Merced's appeals for fiscal years 1991 and 1992.                                  Id.    The Board

reasoned       that     it    did     "not   have       jurisdiction over               these    four

Providers           because     the    Providers         are        appealing     from     revised

[NPRs] which did not specifically adjust the SSI% issue." AR 22.

                5.      Judicial Review

        As    permitted by 42           U.S. C.     §    13 95oo (f) ,      Plaintiffs      timely

filed        this     Complaint       challenging         the        Board's     Jurisdictional

Decision on December 6,                 2012      [Dkt.       No.     1].   On May 31,          2013,

Plaintiffs           filed    their     Motion      for        Summary        Judgment      ("Pls.'

Mot.")       [Dkt.     No.    17] .   On July 16,             3013,     Defendant        filed    her

Motion       for     Partial     Summary       Judgment        and     Partial      Remand,       and

Opposition to Plaintiffs' Motion ("Def.'s Opp'n")                                [Dkt. Nos. 22,

23] . Plaintiffs then filed their Opposition and Reply on August

30, 2013       ("Pls.' Reply")          [Dkt. Nos. 27, 28], and Defendant filed

her Reply on November 6,                  2 013   [Dkt.       No.     31]     ("De f. 's Reply") .

The administrative record was filed on July 24,                                  2013     [Dkt No.

26], and this matter is now ripe for review.

                6.     Secretary's Stipulation

        In    the     Secretary's       Motion,         she    included        newly-discovered

evidence that Emanuel's SSI fraction was changed in its revised

                                               -14-
NPR for fiscal year 1992.                   Def. 's Opp' n at 30-31               (discussing a

1995 letter to Emanuel stating that the wrong SSI percentage had

been used in the original NPR)                     On that basis, she concedes that

Emanuel's       SSI     fraction        was        adjusted        in     its     revised      NPR.

Moreover,    Emanuel's             appeal    of    its       revised NPR        challenged       its

intermediary's          determination             of    "the     number    of     patient      days

relating     to    both       Medicare       Part        A     coverage    and        Supplemental

Security Income          (SSI)      benefits." AR 351             (emphasis in original) .

For these reasons,             the Secretary is now conceding that Emanuel

filed a timely appeal of an issue reopened and adjusted in its

revised NPR,          and,     therefore,         the     Board had       jurisdiction over

Emanuel's appeal. Def.'s Opp'n at 30.

      The Secretary requests a remand of Emanuel's appeal to the

agency so that the agency can grant Emanuel's requested relief:

"a remand to the Intermediary in accordance with CMS Ruling CMS-

1498-R."    Def. 's Opp'n at            30    (quoting Complaint at                   9).    Because

the agency has not yet addressed the merits of Emanuel's appeal,

this Court does not have jurisdiction over the merits and remand

is the appropriate course of action.                           Palisades Gen.          Hosp.    Inc.

v.   Leavitt,     426    F.3d 400,          403        (D.C.    Cir.    2005)     (holding that

district     court's           jurisdiction             was      "only      to        vacate     the

Secretary's       decision                    and       to     remand    for     further      action

consistent      with         its    opinion");          PPG     Indus.,        Inc.     v.    United
                                                        ------------~---------------------


                                              -15-
States,       52         F.3d        363,     366        (noting        that    agency        can          reopen

proceedings to take new evidence after reviewing court has found

agency's original findings invalid).

         Therefore,             the     Court       remands        Emanuel's          appeal           of     its

revised      NPR         for        fiscal    year        1992     to     the    agency       for          action

consistent with this opinion,                            and will now turn to the Board's

decision that             it     lacked jurisdiction over Merced's appeals                                    for

fiscal years 1991 and 1992.

II.     STANDARD OF REVIEW

        The Medicare Act                    provides       for   judicial        review of             a    final

decision       made            by     the      PRRB       or     the      Secretary.          42           u.s.c.
§    1395oo (f) (1) .          It     instructs       the      reviewing        court    to    apply          the

provisions          of     the       Administrative            Procedure        Act     ( "APA") ,          which

instructs the courts to be "highly deferential"                                       in their review

of    agency    action.              Bloch v.       Powell,        348    F.3d     1060,      1070          (D.C.

Cir. 2003)         (citations and internal quotation marks omitted).

        Under the APA,                an agency decision is set aside only if it

is "arbitrary,             capricious,          an abuse of discretion,                    or otherwise

not     in accordance with law"                      and its          factual     findings         are only

overturned          if     "unsupported             by    substantial           evidence."         5       U.S. C.

§    706 (2) (A),        (E);       see also Murray Energy Corp. v.                      F.E.R.C.,            629

F.3d 231,      235        (D.C. Cir.          2011)       (quotation and citation omitted).

"[A] lthough         the        Board's       adherence          to     Medicare        regulations             is

                                                      -16-
reviewable under the arbitrary and capricious standard, and the

sufficiency        of      the    Board's     record    is    reviewable          under       the

substantial        evidence       standard,     the    two    standards          involve       the

same level of scrutiny." Mem. Hosp./Adair Cty. Health Ctr. Inc.

v. Bowen, 829 F.2d 111, 117 (D.C. Cir. 1987).

       The arbitrary and capricious standard is satisfied if the

agency has "considered the factors relevant to its decision and

articulated a            rational     connection between the              facts       found and

the    choice      made."        In   re   Polar    Bear     Endangered          Species      Act

Listing     &    4 (d)    Rule    Litig.,     709   F.3d     1,    8     (D.C.    Cir.     2013)

(quoting        Keating     v.    F.E.R.C.,     569    F.3d       427,    433     (D.C.       Cir.

2009)).

III. ANALYSIS

       A. The Secretary's Issue-Specific Interpretation of the
          Reopening Regulations Is Reasonable and Entitled to
          Deference

       The parties agree that our Court of Appeals'                              decision in

HCA Health Services of Oklahoma v.                     Shalala,        27 F.3d 614         (D.C.

Cir.   1994),       is     the    appropriate       starting       point.        In    HCA,     an

intermediary reopened a hospital's NPR on five specific issues.

Id.    at       616.      The     hospital      then       sought        to      appeal        its

intermediary's decision on those issues to the Board, as well as

an additional issue "which had been decided in the original NPR

but never revisited since." Id. The Board concluded that it did

                                             -17-
not   have    jurisdiction     over    the     hospital's      appeal      of        that

additional     issue     because     its     jurisdiction      was   limited           to

reviewing only the specific issues adjusted by the revised NPR.

Id.

      In reviewing the Board's conclusion,               the Court· of Appeals

analyzed the Secretary's uissue-specific"                interpretation of its

reopening regulations under Chevron U.S.A.               Inc. v. Natural Res.

Def. Council, Inc., 467 U.S. 837, 843-45 (1984). HCA, 27 F.3d at

617   (summarizing Chevron framework). Chevron requires a two-step

analysis.    The court must first determine whether ucongress has

directly spoken to the precise question at issue." Chevron,                           467

U.S. at 842.       If Congress has not,       the court will then defer to

the agency's interpretation of the regulations if it                    uis based

on a permissible construction of the statute." Id.

      Applying this framework,         the HCA Court first examined the

Medicare statute to see if Congress had udirectly spoken" to the

scope of     the   Board's   jurisdiction over revised NPRs.               HCA,        27

F.3d at 617-19. The Court of Appeals concluded that Congress had

not   addressed        the   issue    because      the     statute      did          unot

specifically       address   either        reopenings     of   an    NPR        by     an




                                      -18-
intermediary or review of such a reopening by the Board [.] " Id.

at 619. 5

        The Court of Appeals then turned to the second step of the

Chevron          framework           and      evaluated        whether     the      agency's

interpretation of the regulations was permissible. It observed:

        In  light of the explicit language in 42 C.F.R.
        § 405.1885 limiting reopenings to "findings on matters
        at issue in [the original NPR]" and in 42 C.F.R.
        § 405.1889 characterizing revisions as     "separate and
        distinct   determination [s]"  for purposes     of Board
        appeals, we do not think it impermissible for the
        Secretary      to    interpret     the      "intermediary
        determination"    on  reopening   as   limited    to  the
        particular matters revisited on the second go-round.

Id. at 620. The Court of Appeals also noted that the Secretary's

interpretation          of     the    reopening        regulations   was    "particularly

persuasive"        because       it        preserved    the    statute's    180-day       time

period for filing appeals from the intermediary's original NPR.

Id. at 620-21.

        Based on        this    application of           the    Chevron    framework,      the

Court       of   Appeals       upheld       the    agency's     interpretation       of    its

regulations        to    deny    the       Board   jurisdiction over         appeals      from

revised NPRs that raised issues that were not the                                "subject of
5
  Merced argues that "Congress has made its intent clear" that a
provider's DSH adjustment is one issue and cannot be subdivided.
Pls. ' Reply at 5. The HCA Court's holding that the Medicare
statute does not address reopenings of NPRs binds this Court and
forecloses Merced's argument. HCA, 27 F. 3d at 619 (concluding
that Medicare statute does not "address either reopenings of an
NPR by an intermediary or review of such a reopening by the
Board").
                              -19-
the reopening."          Id.    at     622     ("Given that no specific statutory

provision        governs         reopenings,             and   that        the         Secretary's

interpretation          of    the     reopening          regulations       is    a     permissible

reading of the regulatory language and implements the statutory

time restriction on appeals from an intermediary's determination

of   the    amount      of     total    program reimbursement,                   we    uphold   the

Board's determination that it lacked jurisdiction to review cost

items that were not the subject of the reopening.").

        The HCA decision remains the law in this Circuit, 6 and the

Secretary's issue-specific interpretation of the regulations has

been upheld by all other Circuits to address it.                                      See Hennepin

Cnty.     Med.   Ctr.    v.     Shalala,        81 F.3d 743,         749        (8th Cir.     1996)

("The reopening regulation has been in place for many years and

is   in    accord    with       the    agency's          authority    under          the   Medicare

Act.");     French Hosp.         Med.        Ctr.   v.    Shalala,     89 F.3d 1411,            1420

(9th Cir. 1996)          ("Limiting the PRRB' s scope of review to issues

the fiscal       intermediary reconsidered upon reopening the NPR is

6
  Merced argues that the concurring opinions written by Justices
Scalia, Roberts, and Alito in Decker v. Nw. Envtl. Def. Ctr.,
133 S. Ct. 1326, 1341 (2013), invite this Court to re-evaluate
the Secretary's interpretation of her regulations with less
deference. Pls.' Reply at 17-18. The majority opinion of the
Decker Court reaffirmed that an agency's interpretation was
entitled to deference. Id. at 1337. Therefore, nothing in
Decker's concurrences undermines the binding determination of
our Court of Appeals in HCA that the Secretary's issue-specific
interpretation of her regulations is reasonable and entitled to
deference.
                              -20-
consistent with the Medicare regulation governing the treatment

of reopenings or revisions on appeal.") ; Edgewater Hosp. ,                                        Inc.

v. Bowen, 857 F.2d 1123, 1134 (7th Cir. 1988).

        Thus,       it is clear that in this Circuit, as well as in the

three        others    that    have        addressed         the     issue,    the       Secretary's

"issue-specific" interpretation of her NPR reopening regulations

is reasonable and entitled to substantial deference.

        B.      The Board's Jurisdictional                        Decision    Is    Not Arbitrary
                or Capricious

        In     its     Jurisdictional             Decision,          the      Board       began      its

analysis         with        the      HCA       decision,            reiterating           that      its

jurisdiction over revised NPRs was limited to "specific issues

revisited on reopening." AR 23                         (citing HCA,          27 F.3d 614).           The

Board        then     found        that     Merced          had    failed      to     "submit        the

documentation           to     show       that        the     revised        NPRs        specifically

adjusted" Merced's SSI fractions. AR 23. Consequently, the Board

concluded that it lacked jurisdiction over Merced's appeals of

the SSI fractions used in their revised NPRs. Id.

      All       of    the     record       evidence          fully    supports           the    Board's

conclusion that             the SSI       fraction was not adjusted,                      and Merced

has   identified         no    evidence          to    the    contrary.        For       both     fiscal

years at issue, the intermediary's reopening documents show that

Merced's        cost    reports           for    fiscal       year     1991        and     1992     were


                                                 -21-
reopened to include additional "Medi-Cal Days." AR 46 (reopening

    "to correct DSH to be based on Audited Medi-Cal                                  &    Total Days          &


Federal       DRG Payments") ;            AR 63 7       (reopening         "to modify the DSH

adjustment to incorporate the Medi-Cal audited days") . 7

        As        discussed           above,     the     Medicaid              fraction             requires

calculating             the    number     of    patient        days      made     up          of    patients

eligible for a                state Medicaid plan,                 such as Medi-Cal.                    See 42

U.S.C.        §    1395ww(d) (5) (F) (vi) (II);              see    also       Banner          Health        v.

Sebelius,          715    F.     Supp.    2d    142,     156        (D.D.C.      2010)             ("[F]or    a

patient       to be           'eligible    for medical             assistance        under a              State

plan              approved             under            [Medicaid] , '                   42              u.s.c.
§    1395ww(d) (5) (F) (vi) (II),              the     patient          must    be       eligible           for

Medicaid payment under the approved State Medicaid plan.") . The

SSI fraction,            however,        does not include state Medicaid patient

days,        but     considers          only    individuals             entitled          to        Medicare

benefits          and    SSI     benefits.       Id.     §    1395ww(d) (5) (F) (vi) (I);                   see

also Metro Hosp., 712 F.3d at 262-63 (finding it "clear from the

statute" that the two fractions are "exclusive of one another,"

and,     thus,       that       the    statute       should        be    interpreted               to     avoid

"double-counting"                patient       days     by         including         them           in     both

7
  Medi-Cal is the Medicaid program offered by California. See
Grossmont Hosp. Corp. v. Sebelius, 903 F. Supp. 2d 39, 45
(D.D.C. 2012) ("California participates in the Medicaid program
by operating a State program commonly known as Medi-Cal."); see
also Cal. Welf. & Inst. Code § 14000.4.
                               -22-
fractions    of    the DPP) .       The      addition of Medicaid patient days

would   have      no   effect      on     the   SSI    fraction     and   the   Board's

conclusion that        the   SSI     fractions        were not    adjusted is     amply

supported by the evidence in the record. 8

     Merced argues that the Board's conclusion was arbitrary or

capricious     for     a   number       of    reasons.   The     Court . will   briefly

address them in turn. 9

8
   Merced argues that the only evidence that the SSI fraction was
adjusted would be in the "sole possession" of the agency, and
that requiring providers to identify that information puts them
in a "Catch-22." Pls.' Mot. at 25. Unlike Atlanta College of
Med. & Dental Careers, Inc. v. Riley, 987 F.2d 821, 831 (D.C.
Cir. 1993) , the agency has not requested documents from Merced
to which Merced does not have access. Rather, the relevant
documents are in the record and simply do not support a finding
that the SSI fraction was reconsidered or adjusted. See Baptist
Mem'l Hosp. v. Sebelius, 765 F. Supp. 2d 20, 30-31 (D.D.C. 2011)
 (upholding    Board's determination   that  it   did   not     have
jurisdiction over provider's appeal when "appeal provided no
document trail demonstrating that it specifically raised the
exclusion of expansion waiver days"), aff'd sub nom. Baptist
Mem'l Hosp., Inc. v. Sebelius, No. 11-5112, 2012 WL 1859132
 (D.C. Cir. May 14, 2012).
9
   As a preliminary matter, Merced argues that the Secretary is
estopped from denying jurisdiction over Merced's appeals because
the "intermediary's stipulation that there are no jurisdictional
impediments to an appeal on the SSI fraction amounts to an
admission that the SSI fraction was reconsidered in the
reopening." Pls.' Mot. at 24; Pls.' Reply at 19. Even if the
intermediary had made such a stipulation, the intermediary's
assertion would not bind the Secretary. As our Court of Appeals
has stated, "the intermediary's position is not the Secretary's
    it is the Board's interpretation that matters." Appalachian
Reg'l Healthcare, Inc. v. Shalala, 131 F.3d 1050, 1053 n.4 (D.C.
Cir. 1997) (emphasis added); see also Medcenter One Health Sys.
v.   Sebelius,   635 F.3d 348,    351   (8th Cir.  2011)    (" [T]he
intermediary's position before the PRRB does not bind HHS, which
was not a party to the PRRB proceedings."). Thus, any concession
                               -23-
        First,   Merced argues that even if its SSI                  fractions were

not     modified    on    reopening,       they   were    reconsidered       when   the

intermediary       recalculated Merced's          DSH    adjustment.     It    insists

that this Court must thus decide the question left open in HCA:

"whether a cost item must be modified on reopening or need only

be reconsidered on reopening in order to become appealable to

the Board." HCA, 27 F.3d at 621.

        The Court need not resolve this open question because there

is no evidence that the SSI fraction used in Merced's NPRs was

reconsidered in either fiscal year 1991 or 1992.                     Id.;     see also

French Hosp.       Med.   Ctr.   v.   Shalala,     89 F.3d 1411,       1419-20      (9th

Cir.    1996)    (finding    that     no   jurisdiction existed over appeal

where     intermediary      "neither       reconsidered      the     [routine       cost

limits] components nor adjusted them").

        Merced's fiscal intermediary reopened and adjusted Merced's

cost report for fiscal year 1991 on its own initiative in order

to incorporate Medi-Cal          audited days.          AR 631-32,    637.    This is

identical to the situation in HCA, where "[t]he reopening

was initiated solely by the intermediary and the intermediary's

notices of reopening made no reference whatsoever to the cost

items which the provider now wishes to add to its hearing before

the Board." HCA, 27 F. 3d at 621.

by the intermediary about these appeals has no effect on the
appropriateness of the Board's determination in this case.
                               -24-
        Merced        requested       that               its     intermediary              reopen     its    cost

report         for     fiscal        year                1992     "to     include             the     submitted

information in its determination of the revised Disproportionate

Share     Calculation.~~             AR        32.         In    the     "submitted            information,~~


Merced included documents                            supporting          its       claim for         additional

Medi-Cal        days,       which     were                to    be     included          in    the     Medicaid

fraction. AR 36-38.              It also submitted a worksheet recalculating

its DSH adjustment using the same SSI fraction as its original

NPR. AR 33, 35. Thus, there is no evidence that the intermediary

reconsidered the SSI fraction when it reopened Merced's NPR for

either . fiscal           year 1991 or 1992. 10 See Little Company of Mary

Hospital        v.    Sebelius,           587            F.3d    849,     855-56           (7th     Cir.    2009)

(upholding           Board's    determination                    that         it     lacked       jurisdiction

over appeals of revised NPR where there was no evidence that

intermediary          had    taken         any           "affirmative              action      sufficient      to

consider the issue reopened                     11
                                                     )




       Second,        in an effort to compensate for its failure to show

that     the     intermediary             reconsidered                  its        SSI   fraction,         Merced

argues     that       a    change         to         any       element        of     the      DSH    adjustment
10
    Moreover,  the   specific  language  of  the   revised NPRs
contradicts Merced's assertion that "the issue revisited on
reopening was 'the DSH payment,' not some more narrow aspect of
the DSH calculation.   Pls.' Mot. at 16. Because it misconstrues
                                11


the record, Merced's argument that it is entitled to broad
appellate rights based on the broad language in the NPRs lacks
merit.

                                                          -25-
requires       recalculation       of      the     entire    DSH      adjustment.        This

recalculation,        Merced      insists,       requires      the     intermediary         to

"revisit"       all   of   the     other     elements       that     make   up     the     DSH

adjustment,       making    all     of     those    elements         appealable     to     the

Board. Pls.' Mot. at 14, 25.

       Merced identifies no authority that supports its argument. 11

Indeed, a number of courts have rejected this approach and held

that revision of one element of a larger calculation does not

mean that all of the other elements of that                            calculation were

"reconsidered."       See Anaheim Mem'l             Hosp.     v.     Shalala,      130    F.3d

845,   851     (9th Cir.   1997)     (upholding Secretary's conclusion that

reopening a cost report to apply a routine cost limit                            ("RCL") to

one    cost    item does     not    give     the     Board     jurisdiction         to    hear

challenges       to other components of              the    RCL) ;    French Hosp.,         89

F. 3d at 1421-22       (rejecting argument that               "mere application" of

RCL    constitutes     either reconsideration or adjustment                        of    RCL);

Baptist Memorial Hosp. v. Sebelius, 768 F. Supp. 2d 295,                                300-01

(D.D.C.       2011)   (upholding         Secretary's       conclusion       that    Board's

11
   The one case cited by Merced, Zia Hospice, Inc. v. Sebelius,
723 F. Supp. 2d 1347, 1354 (D.N.M. 2010), is distinguishable for
a number of reasons. The Court will only note the most
significant distinction      it was undisputed in Zia that the
issue the provider wished to appeal to the Board was the "only
item reconsidered, revisited, or reviewed" when the provider's
cost report was reopened. Id. Because it was undisputed that the
issue was reconsidered on reopening, Zia provides no guidance in
this case.
                               -26-
jurisdiction was limited to cost items exceeding the RCL that

had been affected by revised NPR) .

        Merced tries to distinguish these cases by arguing that the

RCLs affect "almost every cost item a provider would submit for

reimbursement,"         whereas        the     DSH   adjustment              is        only     "one

calculation, with one purpose." Pls.' Reply at 21. This argument

is     unpersuasive.       The   DSH    adjustment,         like       the    RCL,       involves

numerous pieces of data and several distinct calculations.                                       See

42 U.S.C.     §    1395ww(d) (5)       (setting out the DSH adjustment in 12

sections     and    over    50   subsections);            see    also    Catholic             Health

Initiatives,       718 F.3d at 916-17            (describing language of DPP as

"downright byzantine" and "not easily discernible") . Thus,                                     this

Court is not persuaded that the recalculation of one element of

the DSH adjustment means               that    all   of    the other elements have

been "reconsidered."

        In sum,     Merced has not            identified evidence              that      the     SSI

fraction    was     actually reconsidered when                   its    cost       reports       for

fiscal year 1991 and 1992 were reopened,                         nor has it persuaded

the Court that any change to a DSH adjustment is sufficient to

establish that all of the elements of the DSH adjustment have

been    reconsidered.       Therefore,         Merced      has    failed          to    establish

that its appeals are meaningfully distinguishable from those in

HCA.

                                             -27-
        Third,     Merced     argues         that     the    Secretary's           application          of

her issue-specific standard to the issue of DSH adjustments is

so inconsistent as to make it arbitrary and capricious.                                          Merced

is   correct       that     " [a] n    agency        must     treat    similar           cases    in     a

similar     manner        unless      it     can    provide     a   legitimate           reason        for

failing to do so." Indep. Petroleum Ass'n of America v. Babbitt,

92 F.3d 1248,         1258    (D.C.         Cir.   1996). However,         Merced has failed

to   identify       any     significant            evidence    of     inconsistency.             P. I .A.

Michigan       City   Inc.     v.     Thompson,        292    F.3d     820,     826       (D.C.       Cir.

2002)      (noting     that    "an        appellant        complaining        of    inconsistency

and capriciousness in the agency's explanation of its treatment

[must] ·bring before            the        reviewing       court    sufficient           particulars

of   how    the    appellant          was    situated,        how   the    allegedly         favored

party      was    situated,         and      how    such     similarities           as    may     exist

dictate     similar       treatment          and    how     such dissimilarities                 as    may

exist    ~re     irrelevant or outweighed").

        Neither       the     agency         decisions 12       nor       the      sub-regulatory

guidelines issued by the agency13 cited by Merced establish that

12
   The first Board decision cited by Merced was reversed by the
CMS Administrator, who noted that the only issue "open for
appeal" was the issue "decided pursuant to the ·revised NPR."
Cmty. Hosp. of the Monterey Peninsula v. Blue Cross Blue Shield
Assoc., 2006 WL 1684658, at *3 (H.C.F.A. Admin. Dec. Mar. 15,
2006) (reversing Cmty. Hosp. of the Monterey Peninsula v. Blue
Cross Blue Shield Assoc., Case No. 01-2940, 2006 WL 752462
(P.R.R.B. Jan. 19, 2006). The other two Board decisions cited by
Merced, Alina 95 Medicare DSH Medicaid Eligible Patient Days
                              -28-
the   agency has    acted     inconsistently in its          application of       the

reopening regulations to DSH adjustments.               Merced has failed to

identify any meaningful         example of     a   "similar case"       not     being

resolved "in a similar manner" and has thus failed to establish

that the agency's treatment of this issue is so inconsistent as

to make it arbitrary and capricious.               Indep.    Petroleum,    92    F. 3d

at 1258.

      Based on the above analysis,           the Court concludes that the

agency     "considered   the    factors     relevant    to    its   decision         and

articulated    a   rational    connection between the          facts    found        and

the   choice   made."    In    re   Polar   Bear    Litig.,     709    F. 3d    at     8

(quotation and citation omitted). Thus,             the Board's decision was

Group, Case No. 02-2262G, and Legacy Emanuel Hospital and Health
Center,  Case No.   06-1702,  are unpublished and were never
submitted to the Court.

     As to the Board's treatment of Community Hospital of
Monterey Peninsula ("CHOMP") 's appeal in the SSI Group Appeal,
the   Board   reversed its    jurisdictional decision  once  it
discovered that CHOMP's initial NPR did not include a DSH
adjustment. AR 7-8. This is materially different from Merced's
appeals, where its entitlement to a DSH adjustment was not in
question and its SSI fractions were simply reapplied in its
revised NPRs.
13
   The portion of the Provider Reimbursement Manual cited by
Merced does not "instruct[]     intermediaries and providers to
consider the DSH adjustment as a single issue," as Merced
suggests. Pls.' Reply at 13. It describes the item that should
be included on a line of a particular form -- it does not state
that each entry on that form must be treated as an indivisible
issue. CMS, Provider Reimbursement Manual Chapter 24 § 2418 .1
(setting out directions for completing the Health Care Complex
Cost Report Form HCFA 2552-89).
                               -29-
not "arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law." 5 U.S.C.           §   706(2) (A).

V.   CONCLUSION

     For the     foregoing reasons,      Plaintiff's Motion for Summary

Judgment is granted in part and denied in part and Defendant's

Motion ·for Partial     Summary Judgment        and for Partial Remand is

granted.   Emanuel, s   appeal   of   its    revised NPR      for   fiscal   year

1992 shall be remanded to the agency for appropriate resolution.

     An Order shall accompany this Memorandum Opinion.




April 17, 2014
                                             United States District Judge


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