                            UNITED STATES DISTRICT COURT
                            FOR THE DISTRICT OF COLUMBIA


                                              )
EDWARD W. SPARROW HOSPITAL                    )
ASSOCIATION d/b/a SPARROW                     )
HOSPITAL,                                     )
                                              )
              Plaintiff,                      )
                                              )
      v.                                      )       Civil Action No. 08-1021 (RMC)
                                              )
KATHLEEN SEBELIUS, Secretary,                 )
Department of Health and Human                )
Services,1                                    )
                                              )
              Defendant.                      )
                                              )


                                  MEMORANDUM OPINION

               Plaintiff Edward W. Sparrow Hospital Association (“Sparrow”) filed this case against

the Department of Health and Human Services (“HHS”) alleging that HHS improperly denied its

claim for Medicare payments in connection with its approved residency training program. The

Secretary moves to remand this matter to the agency for reconsideration in light of the recent

judgment by the D.C. Circuit in Loma Linda Univ. Med. Ctr. v. Sebelius, No. 10-5116, 408 Fed.

Appx. 383, 2010 WL 4903887 (D.C. Cir. Dec. 2, 2010), a decision that addressed issues similar to

those in this case. Sparrow contends that remand as the Secretary requests is unnecessary, will

unduly delay resolution of the case, and that the D.C. Circuit's resolution of Loma Linda is

dispositive of Sparrow's claim of insufficient notice of the claims filing deadline. Instead, Sparrow




       1
         Pursuant to Federal Rule of Civil Procedure 25(d)(1), Kathleen Sebelius is substituted for
her predecessor, Michael O. Leavitt, Secretary of Health and Human Services.
seeks remand to enable it to submit claims for payment to the Secretary and for payment of such

claims or, in the alternative, for summary judgment proceedings related to the issue of actual notice.

As explained below, the Court will grant the Secretary’s motion for remand.

                                             I. FACTS

               A. Statutory and Regulatory Background

               The Secretary, through the Centers for Medicare and Medicaid Services (“CMS”),

administers the Medicare Statute, 42 U.S.C. § 1395 et seq., a federal insurance program for the aged

and disabled. CMS contracts with private entities to act as “fiscal intermediaries” to process hospital

claims. See 42 U.S.C. § 1395h. This case deals with Medicare Part A, which provides insurance

for services such as hospital care, and Medicare Part C, which provides benefits through health

maintenance organizations (“HMOs”). See id. § 1395c, 1395d (Part A); id. § 1395w-21 et seq.

(Part C, also known as “Medicare+Choice”). Medicare reimburses hospitals for both the direct and

indirect costs of graduate medical education. See id. §§ 1395ww(h), 1395ww(d)(5)(B). Prior to

1997, hospitals were reimbursed only for these costs under Medicare Part A; then, in 1997, Congress

passed the Balanced Budget Act of 1997, providing for reimbursement under Part C as well. See id.

§§ 1395ww(d)(11), (h)(3)(D).

               CMS issued a Final Rule on May 12, 1998, regarding how Part A and Part C

payments for medical education would work. The Preamble to the Rule stated:

               We anticipate teaching hospitals will need to submit claims
               associated with Medicare+Choice discharges to the fiscal
               intermediaries for purposes of receiving indirect and direct medical
               education payments. When the claims are processed, the fiscal
               intermediaries will make the IME payment associated with a
               Medicare+Choice discharge directly to the teaching hospital.



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63 Fed. Reg. 26,318, 26342 (May 12, 1998). On July 1, 1998, CMS issued Program Memorandum

A-98-21 to its fiscal intermediaries explaining that each hospital must submit a claim to its

intermediary in “UB-92 format, with condition codes 04 and 09.” The intermediaries sent out

Bulletins to their providers regarding the filing requirements.

               At the end of every fiscal year, each hospital provider submits a cost report to its

fiscal intermediary showing its costs and the portion allocated to Medicare. See 42 C.F.R. § 424.20.

The intermediary reviews the report, determines the amount of Medicare reimbursement owed, and

issues a Notice of Program Reimbursement. Id. § 405.1803. Within 180 days, a provider may

appeal the intermediary’s determination of total reimbursement, as set forth in the Notice, by filing

an appeal with the Provider Reimbursement Review Board. 42 U.S.C. § 1395oo(a); 42 C.F.R. §

405.1835. The decision of the Board is final unless the CMS Administrator — on his own motion

and within 60 days — reverses, affirms, or modifies the Board’s decision. 42 U.S.C. § 1395oo(f).

The Administrator’s decision constitutes final agency action subject to judicial review. Id.

               Sparrow’s fiscal intermediary denied reimbursement for medical education expenses

related to certain Medicare beneficiaries enrolled in HMOs for fiscal years 1998 and 1999 because

the claims were not timely filed in UB-92 format. Sparrow appealed to the Provider Reimbursement

Board arguing, among other points, that it was not on notice of the filing requirements. The Board

found in favor of Sparrow, but, on April 14, 2008, the CMS Administrator reversed. That decision

was final agency action. Claiming that the agency’s decision was arbitrary and capricious, on June

13, 2008, Sparrow brought this suit seeking reversal.

               B. Posture of this Case

               On February 5, 2009, the Court granted Sparrow’s motion to stay, pending decisions


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in two similar cases previously filed in this District: Cottage Health Sys. v. Leavitt, No. 08-cv-98-

JDB (D.D.C.) and Bayfront Medical Ctr. v. Leavitt, No. 08-cv-249-PLF (D.D.C.). Two more

similar cases were filed after this case: Loma Linda Univ. Medical Ctr. v. Leavitt, No. 08-cv-1520-

HKK (D.D.C.) and Hosp. of Univ. of Pennsylvania v. Leavitt, No. 08-cv-1665-JRB (D.D.C.). When

ordering the stay in this case, the Court explained:

               A district court has broad discretion to stay a proceeding pending the
               resolution of proceedings in other courts where the other proceedings
               may affect the scope and necessity of the litigation. IBT/HERE
               Employee Representatives’ Council v. Gate Gourmet Div. Am., 402
               F. Supp. 2d 289, 292-93 (D.D.C. 2005). “The power to stay
               proceedings is incidental to the power inherent in every court to
               control the disposition of the causes on its docket with economy of
               time and effort for itself, for counsel, and for litigants.” Air Line
               Pilots Ass’n v. Miller, 523 U.S. 866, 879 n.6 (1998). The resolution
               of Cottage Health and Bayfront may affect the scope and necessity
               of this litigation. The cases are substantially similar — the
               complaints in all three cases allege that the Medicare payments at
               issue are for direct graduate medical education costs and indirect
               medical education costs, and that in administrative proceedings
               before the agency the Secretary denied these payments with respect
               to Medicare beneficiaries who were enrolled in certain Medicare
               managed care plans (HMOs).

Order [Dkt. # 19] at 2. On June 1, 2011, the district court in Cottage Health remanded the case to

the Secretary for proceedings that take into account the D.C. Circuit’s decision in Loma Linda, 2010

WL 4903887. See Def.’s Notice of Supplemental Authority [Dkt. #30], Att. 1 (June 1, 2011 Order

in Cottage Health). The Secretary asks for a similar remand so that it can reconsider Sparrow’s

claim for payment in light of Loma Linda.

               In Loma Linda, the district court granted summary judgment in favor of the plaintiff,

a teaching hospital which sought review of the Secretary’s decision to deny payments for graduate

medical education costs associated with providing services to Medicare beneficiaries who were


                                                 -4-
members of health maintenance organizations. Loma Linda Univ. Med. Ctr. v. Sebelius, 684 F.

Supp. 2d 42 (D.D.C. 2010). One of the reasons that the Secretary denied payment was that the claim

for payment was not timely. The Secretary’s position was that the hospital should have inferred that

the regulation governing deadlines for Medicare Part A claims also applied to bills for Medicare Part

C services. The district court held that the Secretary’s decision was arbitrary and capricious and

reversed the Secretary’s determination that the claims were untimely. Id. at 55-56. The court found

that the May 12, 1998 Rule, Program Memorandum A-98-21, and the Bulletin sent by the

intermediary regarding the filing requirements did not provide adequate notice of a filing deadline.

Id. at 54-55. Further, the court did not find that Loma Linda University Medical Center had actual

notice of the deadline — “[N]either the Administrator’s decision nor the Secretary’s filings to this

Court identify any evidence in the record that Loma Linda was aware of the deadline for filing.” Id.

at 55. The D.C. Circuit affirmed, noting that the hospital did not receive notice of the billing

deadline “with ascertainable certainty.” Loma Linda, 2010 WL 4903887 at *1.

               Sparrow moves to remand for the purpose of enabling it to file claims and for claim

processing and payment, or for summary judgment proceedings on the issue of actual notice. The

Secretary contends that remand such as that granted in Cottage Health is appropriate, i.e., remand

for reconsideration in light of Loma Linda.

                                          II. ANALYSIS

               An agency’s motion to remand for reconsideration of its own decision is usually

granted. “We commonly grant such motions (for remand), preferring to allow agencies to cure their

own mistakes rather than wasting the courts’ and the parties’ resources reviewing a record that both

sides acknowledge to be incorrect or incomplete.” Ethyl Corp. v. Browner, 989 F.2d 522, 524 (D.C.


                                                 -5-
C ir. 1993). Sparrow seeks review of the Secretary’s decision dated April 14, 2008; Loma Linda was

affirmed on December 2, 2010. It is undisputed that the Secretary did not have the opportunity to

consider the Circuit’s ruling at the time it denied Sparrow’s claims in this case. See Sierra Club v.

Van Antwerp, 560 F. Supp. 2d 21, 23 (D.D.C. 2008) (“[W]here an intervening event may affect the

validity of the agency action at issue, a remand is generally required.”). The Secretary should have

the first opportunity to consider and, if necessary, revisit her decision here in light of Loma Linda.

               Further, where an agency has not considered all of the relevant factors, “the proper

course . . . is to remand to the agency for additional investigation or explanation.” Fl. Power & Light

Co. v. Lorian, 470 U.S. 729, 744 (1985). While the Secretary touched on the issue of whether

Sparrow had actual notice of the filing deadline,2 the issue was addressed without the benefit of the

Loma Linda ruling. Thus, the record is not fully developed regarding the notice issue.

               Sparrow contends that Loma Linda is “dispositive” of this case. But Sparrow

overreads Loma Linda. In that case, the D.C. Circuit considered whether the Loma Linda University

Medical Center had actual notice of the claims filing deadline; thus, the decision was necessarily

limited to the facts and circumstances presented there. The Secretary here is entitled to determine,

in the first instance, whether Sparrow had actual notice of the claims filing deadline or not; such a

determination must be informed by Loma Linda. The Court will therefore remand to the Secretary

for further factual development and reconsideration.

                                        III. CONCLUSION


       2
           See Def.’s Resp. [Dkt. # 28] at 16 (Sparrow filed claims on the UB-92 form for the years
at issue, but has not given any explanation of why it submitted such forms if it did not have notice
of the filing requirement); id. (a fiscal intermediary for Sparrow testified that Sparrow’s accounting
employee indicated that Sparrow was aware of the filing requirement in 1998 but “decided not to
bill” due to other priorities).

                                                  -6-
               For the reasons set forth above, Sparrow’s motion for remand for claims processing

or for summary judgment proceedings [Dkt. # 25] will be denied and the Secretary’s motion for

remand for reconsideration in light of Loma Linda will be granted. This case will be stayed pending

the Secretary’s decision. A memorializing Order accompanies this Memorandum Opinion.




Date: July 12, 2011                                        /s/
                                             ROSEMARY M. COLLYER
                                             United States District Judge




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