Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-08-02227/USCOURTS-ca7-08-02227-0/pdf.json

Parties Involved:
Michael O. Leavitt
Appellee
Rush University Medical Center
Appellant

Document Text:

In the

United States Court of Appeals

For the Seventh Circuit ____________

Nos. 07-3648 & 08-2227

RUSH UNIVERSITY MEDICAL CENTER,

Plaintiff-Appellant,

v.

MICHAEL O. LEAVITT, Secretary of

Health and Human Services,

Defendant-Appellee.

____________

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 06 C 1550—Joan B. Gottschall, Judge.

____________

ARGUED APRIL 16, 2008—DECIDED AUGUST 1, 2008

____________

Before EASTERBROOK, Chief Judge, and WOOD and

WILLIAMS, Circuit Judges.

EASTERBROOK, Chief Judge. Rush University Medical

Center believes that it has not received all of the Medicare payments to which it is entitled for fiscal year 1991.

After an unduly prolonged administrative process, the

Secretary of Health and Human Services resolved numerous contested issues against the Medical Center. On

judicial review under 42 U.S.C. §1395oo(f)(1), the district

Case: 08-2227 Document: 5 Filed: 08/01/2008 Pages: 14
2 Nos. 07-3648 & 08-2227

court made a decision mostly favorable to the Secretary’s

position. 2007 U.S. Dist. LEXIS 66244 (N.D. Ill. Sept. 4, 2007).

Unfortunately, it is impossible to tell from the judgment who won what. It reads:

IT IS HEREBY ORDERED AND ADJUDGED that

Plaintiff, Rush University Medical Center’s motion

for summary judgment is granted in part and

denied in part; the Defendant, Michael Leavitt’s

motion for summary judgment is granted in part

and denied in part. Civil case terminated.

Unless the plaintiff loses outright, a judgment must

provide the relief to which the winner is entitled. That

motions have been granted is beside the point. See, e.g.,

Waypoint Aviation Services Inc. v. Sandel Avionics, Inc., 469

F.3d 1071 (7th Cir. 2006); Foremost Sales Promotions, Inc. v.

Director, BATF, 812 F.2d 1044 (7th Cir. 1987); Reytblatt v.

Denton, 812 F.2d 1042 (7th Cir. 1987).

Despite Fed. R. Civ. P. 58(b)(2), which requires district

judges to review and approve any judgment other than

one implementing a jury verdict, awarding a sum certain,

or denying all relief, this judgment was drafted and

entered by a deputy clerk. For more than 20 years this

court has been urging the district judges of this circuit to

enter proper judgments. Otis v. Chicago, 29 F.3d 1159 (7th

Cir. 1994) (en banc), and Bethune Plaza, Inc. v. Lumpkin, 863

F.2d 525 (7th Cir. 1988), are two examples among many.

See also, e.g., Properties Unlimited, Inc. v. Cendant Mobility

Services, 384 F.3d 917 (7th Cir. 2004); Buck v. U.S. Digital

Communications, Inc., 141 F.3d 710 (7th Cir. 1998).

Some district judges turn each decision over to a

deputy clerk, who either fails to enter a judgment (many

a case peters out with a “minute order” but nothing

Case: 08-2227 Document: 5 Filed: 08/01/2008 Pages: 14
Nos. 07-3648 & 08-2227 3

resembling a Rule 58 judgment) or uses the last paragraph

of the opinion as a template for drafting and entering

a judgment without judicial input. When the disposition

is simple, a clerk’s interpretation is apt to be satisfactory.

But when the disposition is complex, the clerk (who is

not a lawyer) is at sea and disinclined to venture an

independent interpretation. Then we get things like

this document, which says that the judge has granted one

or more motions (“in part”!) but does not even try to

specify what matters: the consequence of the judicial

ruling. Nothing but review by a judge, as Rule 58(b)(2)

demands, will yield a satisfactory judgment when the

outcome is complicated.

Sometimes it is easy to infer the disposition, and then

the appeal may proceed despite technical shortcomings.

See Bankers Trust Co. v. Mallis, 435 U.S. 381 (1978). But

nothing is particularly easy about this litigation, which

involves multiple issues. In the course of addressing

more than a dozen disputes, the district judge concluded that the controversy could not be resolved fully

without a remand to the agency. The agency had declined

to compensate the Medical Center for the costs of resident

physicians participating in some fellowship programs,

which the agency thought had not been approved by the

appropriate bodies. Concerned that some of the programs

might have been approved, but that the Medical Center

had been confused by the documentation requirements,

the court directed the agency to give the Medical Center

another opportunity to “complete Worksheet D-2” for

some participants in some of the programs. Which participants and programs, and what are the agency’s marching

orders on remand? The document did not say.

At this court’s urging, the parties returned to the district

court and obtained a more informative judgment. A new

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4 Nos. 07-3648 & 08-2227

appeal has been filed. The second judgment, which the

parties drafted for the district judge’s signature, is itself

barely adequate. It says that the agency must allow the

Medical Center to submit documentation for “the costs

of services furnished by residents in up to thirteen nonapproved fellowship programs”. More detail would

have been appropriate, but this vagueness does not make

the judgment non-final, though it would prevent any

motion to hold the agency in contempt if it does not

understand its duties the same way the Medical Center

does.

The remand creates a second problem with appellate

jurisdiction. Remand usually signifies that a decision

is not final. Who wins, and how much, cannot be known

until activity on remand has been finished. But the Supreme Court has held that a remand to an agency is final

when the proceedings may end without further litigation—for, if the private claimant prevails, the agency

cannot obtain judicial review of its own decision (even

when that decision has been compelled by a judicial

decision with which the agency disagrees). Unless the

issues can be addressed in court while the agency deals

with the remand, they might never be open to appellate

review. That makes the district judge’s decision effectively final. See Forney v. Apfel, 524 U.S. 266 (1998);

Sullivan v. Finkelstein, 496 U.S. 617 (1990). Forney and

Finkelstein arose from the Social Security program, but in

Edgewater Foundation v. Thompson, 350 F.3d 694 (7th Cir.

2003), we concluded that they are equally applicable to

medical providers’ suits seeking reimbursement under

the Medicare program. The sort of remand ordered by

the district judge is one that might well conclude without a return to court, so the decision is appealable. AlCase: 08-2227 Document: 5 Filed: 08/01/2008 Pages: 14
Nos. 07-3648 & 08-2227 5

though a decision that is “final” only because the agency

may be unable to obtain review after its own action on

remand might be thought to justify immediate review

only at the agency’s behest, Forney concluded that any

decision final from the agency’s perspective also is final

from the private litigant’s, and that principle controls here.

The first cluster of appellate issues arises from 42 U.S.C.

§1395ww(d)(5)(F)(i)(I), which provides that hospitals

serving a “significantly disproportionate number of lowincome patients” receive additional Medicare payments.

The statute and regulations treat persons eligible for

care under the Medicaid program as “low-income patients”

for this purpose. At the outset of this “disproportionate

share” program, it was unclear how persons covered by

states’ general-assistance programs would be classified.

Some hospitals (and some of the Medicare program’s fiscal

intermediaries) equated general-assistance patients to

Medicaid patients; others did not. A regulation issued in

December 1999, and effective January 1, 2000, provides

that general-assistance patients do not count among the

“low-income patients” for the purpose of this program.

(We call it a regulation, though it is actually Program

Memorandum A-99-62. The parties treat this document as

if it had the status of a regulation; we do likewise without deciding whether that is correct.)

Periods before calendar year 2000 are covered by a

grandfather clause (which the parties call the “Hold

Harmless Rule”). Hospitals that classified general-assistance patients with Medicaid patients in cost reports

filed before October 15, 1999, or took administrative

appeals based on that theory, are entitled to the benefit of

classification. Others are not. The manual instructs fiscal

intermediaries:

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6 Nos. 07-3648 & 08-2227

Where, for cost reporting periods beginning before January 1, 2000, a hospital filed a jurisdictionally proper appeal to the PRRB [Provider Reimbursement Review Board] on the issue of the

exclusion of these types of days from the Medicare

DSH formula on or after October 15, 1999, reopen

the settled cost report at issue and revise the

Medicare DSH [“disproportionate share hospital”]

payment to reflect the inclusion of these types of

days as Medicaid days, but only if the hospital

appealed, before October 15, 1999, the denial of

payment for the days in question in previous cost

reporting periods . . . . Do not reopen a cost report

and revise the Medicare DSH payment to reflect

the inclusion of these types of days as Medicaid

days if, on or after October 15, 1999, a hospital

added the issue of the exclusion of these types of

days to a jurisdictionally proper appeal already

pending before PRRB on other Medicare DSH

issues or other unrelated issues. You are to continue

paying the Medicare DSH adjustment reflecting the

inclusion of general assistance or other State-only

health program, charity care, Medicaid DSH,

and/or waiver or demonstration population days

for all open cost reports for cost reporting periods

beginning before January 1, 2000, to any hospital

that, before October 15, 1999, filed a jurisdictionally

proper appeal to the PRRB specifically for this

issue on previously settled cost reports.

Emphasis in original. The idea is that any hospital that

added a claim based on general-assistance patients must

have been trying to take advantage of the grandfather

treatment, which was first announced on October 15, 1999.

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Nos. 07-3648 & 08-2227 7

Only claims that predate the announcement of grandfatherclause treatment are allowed. On that date the Medical

Center’s appeal concerning its 1991 cost report was

before the Provider Reimbursement Review Board (a

component of the Department of Health and Human

Services that reviews fiscal intermediaries’ decisions). The

Board, and later the Secretary, concluded that the

Medical Center’s papers on file on October 15, 1999, did not

propose to treat general-assistance patients as

Medicaid patients for the 1991 fiscal year, so the Medical

Center could not take advantage of the grandfather

clause. The district court held that the Secretary’s decision is supported by substantial evidence.

The Medical Center equated general-assistance to

Medicaid patients in its cost reports for 1989 and 1990

and received grandfather-clause treatment for those

years. The current dispute concerns the cost report for 1991.

The Medical Center did not treat general-assistance days

the same as Medicaid days in that year’s report or propose

this treatment at any other time before October 15, 1999. In

arguing that it should nonetheless receive extra compensation on account of its general-assistance patients in 1991,

the Medical Center relies on a position paper filed in April

1998, challenging the fiscal intermediary’s failure to

“include all inpatient hospital days as directed by HCFA

Ruling 97-2”. (HCFA is an acronym for the Health Care

Financing Administration, which administers the Medicare

program for the Secretary. In 2001 it was renamed the

Centers for Medicare and Medicaid Services.)

How was the Secretary to see in this language—a blanket

demand to be paid everything that was due—any glimmer that the Medical Center proposed to equate generalassistance and Medicaid patients for the purpose of the

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8 Nos. 07-3648 & 08-2227

disproportionate-share program? The problem is not the

omission of magic words but the fact that there were

no synonyms for the right words, or even similes or

metaphors. Indeed, a demand to be paid whatever is

due misses the point that general-assistance patients

differ from Medicaid patients for disproportionateshare payments. To receive grandfather treatment, the

Medical Center had to assert before October 15, 1999, a

particular approach that was not its due.

The parties have debated at length the inferences that

might be drawn from the differences between the cost

reports for 1989 and 1990 and the report for 1991. The

exchange does not get us anywhere. The question is not

what inferences we judges might draw, but whether

substantial evidence (including the Secretary’s inferences)

supports the agency’s conclusion that the Medical Center’s

elliptical “pay what you owe” language does not demonstrate a timely equation of general-assistance patients in

the disproportionate-share claim. The Medical Center

may be right to say that the Secretary could have ruled

in its favor by giving the demand a generous reading.

Agencies are not required to be generous with public

funds, however—especially when the claim is not substantively correct and is supported only by a grandfather

clause. An agency is entitled to guard against reading

general language, with the benefit of hindsight, at taxpayers’ expense. The Secretary’s approach is supported

by substantial evidence and not arbitrary or capricious.

A second group of issues concerns the Medical Center’s

entitlement to payments that underwrite some of the

expense of conducting a graduate medical education

program. Few details of this compensation system, see

42 U.S.C. §1395ww(a)(4), (d)(5), are material. What do

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Nos. 07-3648 & 08-2227 9

matter are the requirements that interns and residents

who are not yet licensed by the state be working toward

certification in certain specialties and be performing

medical services in the hospital on a census day (for

this fiscal year, September 4, 1990).

A hospital can claim reimbursement based on the

number of interns in a teaching program “approved by

the Council on Medical Education of the American

Medical Association” (42 U.S.C. §1395x(b)(6)) and residents

in an “approved medical residency training program” (42

U.S.C. §1395ww(h)(2)). The latter phrase means “a residency or other postgraduate medical training program

participation in which may be counted toward certification in a specialty or subspecialty” (§1395ww(h)(5)(A)).

The Secretary issued a regulation allowing any resident

training “toward certification in a specialty listed in the

Directory of Residency Training Programs published by the

American Medical Association” to be counted, whether

or not any group had approved the program. 42 C.F.R.

(1990 ed.) §412.118(f)(1)(B). (This directory is today known

as the Graduate Medical Education Directory or “Green

Book”. See 42 C.F.R. §412.105.) Arguably giving teaching

hospitals a break beyond the statute’s requirements, the

regulation allows a resident to be counted even if the

specialty or subspecialty has not received this formal

recognition. That is possible when the program has been

“approved by one of the national organizations listed in

§405.522(a) of this chapter.” 42 C.F.R. (1990 ed.) §413.86(b).

During fiscal year 1991 the Medical Center had residents

in neuroradiology, spine surgery, and forensic psychiatry.

None of these fields was recognized during fiscal 1991 in

the Directory of Residency Training Programs as a medical

specialty or subspecialty. None of the residents’ programs

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10 Nos. 07-3648 & 08-2227

had been approved, before the end of the fiscal year, by

“one of the national organizations listed in §405.522(a)

of this chapter.” But the Medical Center says that three

residents should be counted anyway, because one program was approved only a month after the fiscal year’s

end, and the others had been approved by organizations

not on the approved list (and were eventually approved

by one of the listed organizations). Perhaps the Secretary

could make exceptions on grounds such as these, but it is

not arbitrary to enforce the rules as written. Medicare is

a complex program; it would not be administrable if

the Secretary had to bend or break rules whenever a

judge thinks that something outside the rule is “close

enough” to a rule’s spirit. Arguments of this sort are

addressed to the Secretary’s discretion, not to a judge’s

sense of proportionality. Regulations are compromises

and lack “spirits”—or so the Secretary may conclude

without acting capriciously.

That the list of approving organizations had been

amended “only” nine months before the start of the 1991

fiscal year does not change the regulation’s effective date.

Every rule has a beginning, and it is always possible to

argue that the date should be postponed so that more

conduct can be covered by older norms. The Administrative Procedure Act, and not a sense of rough justice,

specifies how much notice an agency must give before

changing a rule. The Medical Center does not say that

this rule was amended with inadequate notice, so the

Secretary was entitled to enforce it. (That the Secretary

had authority to adopt this amplifying regulation cannot

be doubted.)

Now we come to the census date. The Secretary concluded that three particular residents, though enrolled in

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Nos. 07-3648 & 08-2227 11

approved programs (or working toward listed specialties),

were not receiving training in the Hospital on September 4,

1990. Actually what the Secretary concluded is that the

Medical Center, which has the burden of both production

and persuasion, had not demonstrated that these three

residents were in the appropriate places at the required

time. The Medical Center says that the Secretary did not

prove that the residents were not in the Hospital, but that’s

not the Secretary’s burden. A person claiming entitlement to a benefit is the one who must prove that claim by

a preponderance of the evidence. See Director, OWCP v.

Greenwich Collieries, 512 U.S. 267 (1994).

The idea behind pinning down what residents were

doing on a single day is that, with large numbers of

persons involved, the assignments for any given day will

closely mirror how many people the hospital assigns to

particular tasks on average throughout the year—but it is

much easier to determine where physicians were, and what

doing, on a single day than on every day of the year.

Unfortunately, it is not always possible to ascertain locations and tasks on even a single day, as this case shows. It

isn’t enough to be assigned to a hospital, or even in the

hospital; it is essential to be in an eligible part of a hospital.

Research areas, outpatient clinics, psychiatry units, and

rehabilitation units are excluded. 42 C.F.R. (1990 ed.)

§412.118(f). To know who was where, and when, the

agency wants to see each hospital’s formal rotation schedules for the census day.

The Medical Center did not submit rotation schedules

for two of the residents in question. It says that these two

were assigned to maternal/fetal medicine and so necessarily would have been in eligible areas on September 4, 1990.

Yet the documentation that the Medical Center subCase: 08-2227 Document: 5 Filed: 08/01/2008 Pages: 14
12 Nos. 07-3648 & 08-2227

mitted did not show that these residents were assigned to

work at all that day. Where they would have worked, had

they worked, is beside the point. And the Secretary

was entitled to doubt the adequacy of the evidence that

the Medical Center eventually submitted, in the form of a

letter from an administrator who joined the staff after the

end of 1990. A belatedly submitted rotation schedule is

one thing, a letter not based on the writer’s personal

knowledge quite another. That two residents had a specialty of maternal/fetal medicine is not enough to show

that they were seeing patients rather than doing research

on a particular day. A court would not have admitted

this letter into evidence (it was hearsay and not a

regularly kept business record); the Secretary might

have relied on it but was not required to.

The third resident was shown on a rotation schedule as

present in the hospital on the census day. The Medical

Center says that this should have been enough. But the

rotation schedule did not show what part of the hospital

this resident was supposed to be working in, and as not

all parts are eligible it did not carry the Medical Center’s

burden. The agency also suspected that this particular

resident was actually working at a place other than the

one on his schedule—a place ineligible for this special

reimbursement—on September 4, 1990. We need not

decide whether the suspicion was supported by substantial evidence; it is enough to say that the schedule’s

vagueness about location entitled the Secretary to reject

the claim.

Finally, we come to a dispute about the Medical Center’s

capital costs. The value of the hospital itself goes into the

compensation formula, as does the cost of interest on debt

incurred to construct facilities that will be included in the

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Nos. 07-3648 & 08-2227 13

rate base. But the costs of other facilities—for example,

hotels in which friends or relatives of patients may stay

while visiting—do not go into the rate base, nor does

interest paid on debt incurred to finance the construction of such facilities.

During 1987 the Medical Center developed a hotel, the

“Inn at University Village”, near the hospital. The Inn

includes a restaurant and conference facilities as well

as 114 rooms. Contemporaneously the Medical Center

issued $10 million in bonds. The bonds are secured by

the hospital and other medical facilities, not by the Inn,

and the Medical Center contends that interest on these

bonds should be treated as part of the cost of operating

the hospital rather than the cost of building the Inn.

The Medical Center could not directly charge interest to

the federal tab even if the debt had been incurred to run the

hospital. But interest expense can be subtracted from

investment income. The Inn operated at a loss, but Rush

University has other producing investments, whose profits

reduce Medicare reimbursement. The Medical Center

wants to deduct the interest from these investment profits

and so increase federal reimbursement. That is proper,

however, only if the interest relates to the hospital rather

than the hotel.

The Secretary concluded that it did not, for three principal reasons: The bonds were issued just when funds

were needed to build the Inn; the capital raised by issuing

the bonds ($10 million) is roughly equal to the Inn’s

construction cost ($9.8 million); and the Medical Center’s

own accountant attributed the interest to the Inn.

Although the Medical Center responds that this accounting treatment has since been “corrected,” that the bonds’

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14 Nos. 07-3648 & 08-2227

indenture does not mention the Inn, and that the proceeds were deposited into the hospital’s general operating

account, the fact remains that money is fungible. It is six

of one and half a dozen of the other whether the Medical Center incurs $10 million in debt to build a hotel, or

instead incurs $10 million in debt to buy new MRI imagers

and then uses $10 million out of its freed-up operating

budget to build the hotel. In either event the $10 million,

and the interest expense, could have been avoided had

the hotel not been built. The Medical Center must cover

the cost one way or the other, so even if a sheaf of resolutions by the Medical Center’s board says that the money

“really” will be devoted to diagnostic machines, or new

carpets, or a renovated operating theater, it cannot be

arbitrary or capricious for the Secretary to conclude that the

hotel is the marginal outlay and should bear the interest

expense. That the Medical Center’s accountants originally

had the same, sensible, understanding cinches matters.

AFFIRMED

USCA-02-C-0072—8-1-08

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