NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

____________ No. 16

- 1641

____________ CHRIST THE KING MANOR, INC., BALDOCK ASSOCIATES, d/b/a Baldock Health Center; BONHAM NURSING CENTER; BRIARLEAF NURSING AND CONVALESCENT CENTER, INC.; BROOKMONT HEALTH CARE CENTER, LLC; CATHEDRAL VILLAGE; CPSR ASSOCIATES, LLC, d/b/a Mon Valley Care Center; ELLEN MEMORIAL HEALTH CARE CENTER

- HONESDALE, INC.; GREENLEAF NURSING AND CONVALESCENT CENTER, INC.; HUMBERT LANE ASSOCIATES, d/b/a Humbert Lane Nursing and R e habilitation Center; KINKORA PYTHIAN HOME CORPORATION; KUTZTOWN MANOR, INC.; PICKERING MANOR HOME ; RHEEMS NURSING AND REHABILITATION, LL C ; SIEMON NURSING HOME, INC., d/b/a/Siemon ’ s Lakeview Manor Es t ate; CARBON

- SCHUYKILL COMMUNITY HOSPITAL, IN C. d/b/a St. Luke ’ s Miners Memorial Geriatric Center; SOUTHWESTERN GROUP, LTD, d/b/a Southwestern Nursin g Center; SUSQUEHANNA VALLEY NURSING AND REHABILITATION CENTER, LLC; WINDSOR, INC., d/b/a Snyder Memorial Health Care Center; 890 WEATHERWOOD LANE OPERATING COMPAN Y, LLC, d/b/a The R e habilitation and Nursing Center at Greater Pittsburgh; 4114 SCHAPER AVE NUE OPERATING COMPANY, LLC, d/ b/a Presque Isle Rehabilitation & Nursing Center

v. SECRETARY UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES ; ADMINISTRATOR OF THE CENTERS FOR MEDICARE & MEDICAID SERV I C ES; FRANCIS MCCULLOUG H, in his official capacity as Associate Regional Administrator

Region II Division of Medicaid and Children ’s Health Operations of the Centers for Medicare and Medicaid Services (CMS)
Christ the King Manor, Inc ., Baldock Associates, d/b/a Baldock Health Health Care Center, Briarleaf Nursing and Convalescent Center, Inc., CPSR Associates, LLC, d/b/a Mon Valley Care Center; Ellen Memorial Health Care Center

- Honesdale, Inc., Greenleaf N ursing and Convalescent Center, Inc., Humber t Lane Associates, d/b/a Humber t Lane Nursing and Rehabilitation Center, Kinkora Pythian Home Corporation, Kutztown Manor, Inc., Pickering Manor Home, Rheems Nursing and Rehabilitation, LLC,2 Siemon Nursi ng Home, Inc., d/b/a Siemon ’ s Lakeview Manor, Carbon

- Schuylkill Comm u nity Hos pital, Inc. , d/b/a St. Luke ’ s Miners ’ s Memorial Geriatric Center, Susquehanna Valley Nursing and R e habilitation Center, LLC, 890 Weatherwood Lane Operatin g Com pany, LLC, d/b/a Rehabilitation and Nursing Center in Greater Pittsburgh, 4114 Schaper Avenue Operating Company, LLC, d/b/a Presque Isle Rehabilitation & Nursing Center,

Appellants

____________ On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. No. 1

- 14

- cv - 01809) District Judge: Honorable John E. Jones, III

____________ Argued November 2, 2016
Be fore: HARDIMAN and SCIRICA, Circuit Judges , and ROSENTHAL, * District Judge

. (Filed: December 12, 2016 )
Daniel K. Natirboff [Argued] Glenn A. Parno Capozzi Adler 1200 Camp Hill Bypass Suite 205 Camp Hill, PA 17011

Counsel for Plaintiffs

- Appellants
Alisa B . Klein Jeffrey E. Sandberg [Argued] United States Department of Justice Civil Division 950 Pennsylvania Avenue, N.W. Washington, DC 20530

Counsel for Defendants

- Appellees

* The Honorable Lee H. Rosenthal, Chief United States District Judge for the Southern District of Texas, sitting by designation.3 ____________ OPINION **

____________ ROSENTHAL , District Judge

. In 2008, the De partment of Health and Human Services approved a n amendment to Pennsylvania’s Medicaid plan for reimburs ing private nursing homes for patient care provided in 2008 and 2009 . The amendment reduced the payments from what they
otherwise would have been. T he nursing homes sued , challeng ing the amendment’s
ap proval and seeking an order requir ing adherence to the prior year’s plan

- reimbursement
formula

. The District Court affirmed the Secretary’s approval of the 2008 plan
amendment. This is the second of two appeals resulting from that plan amendment. The first appeal required the panel to decide a substantive challenge to the
amendment

. The panel found that the agency’s approval was arbitrary and capricious because the Secretary had failed to explain it ad equately

. The plan had been in effect for a year when the panel reversed and remanded to the District Court. After the panel remand, t he agency reopened proceedings, reconsidered its determination, and in 2014 again approved the 2008 plan amendment

. The nursing home s went back to the District
Court , which approved the agency’s redetermination. This second appeal followed , raising two issues, one procedural and one substantive. The procedural issue requires us to decide the effect of the order from our C ourt reversing the D istrict C ourt’s judgment approving the agency’s 2008 action and

* * Th is disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not constitute binding precedent.4

remanding to the D istrict C ourt with instructions to enter “ a declaratory judgment for Plaintiffs, all in accordance with the opinion of this Court .” The nursing homes c ontend
that this Order and the District Court final j u dg ment that followed precluded any further agency action. The substantive issue requires us to decide whether , if the agency could
reconsider its earlier determination , that reconsideration had to be l imited to the predictive data re lied on in the initial approval, or whether t he agency could also consider
the data collected from actual experience with the amended plan from 2008 to 2009, the
year it had been in effect

. We find the agency’s r e opening a nd re consideration consistent with the first panel’s mandate reversing and remanding to the District Court with instructions to issue a judgment “ in accordance with ” the panel’s opinion. We find the agency’s reliance on the
actual

- experience data accumula ted after the original determination consistent with the
case law and with common sense. Finding no error, we will affirm the judgment of the
District C ourt. I.
Medicaid and Medicare are “cooperative federal

- state program [s] under which the federal gove rnment furnishes funding to states for the purpose of providing medical assistance to eligible low

- income persons.” Pennsylvania Pharmacists Ass’n v.
Houstoun , 283 F.3d 531, 533 (3d Cir. 2002) (en banc). To qualify for federal funding, a participating st ate must submit a plan for medical assistance and any proposed plan
amendment to the Secretary of Health and Human Services , through the Centers for Medicare and Medicaid Services (“CMS”). 42 U.S .C. § 1396a(a); 42 C.F.R. § 430.10.5

That plan must detail t he state’ s program and show its compliance with the Medicaid Act.
42 U.S.C. § 1396a(a); 42 C.F.R. § 430.10 ; see Christ the King Ma nor, Inc. v. Sec’y U.S. Dep’ t of Health & Human Servs. ( “ Christ the King I ” ) , 730 F.3d 291, 297 (3d. Cir. 2013).
The Medic aid Act sets out procedures and criteria for rates to pay partic ipating providers. 42 U.S.C. § 1396a(a)(30)(A). Section 30 (A) requires a state to “assure that payments to providers produce four outcomes: (1) ‘efficiency,’ (2) ‘economy,’ (3) ‘quality of c are,’ and (4) adequate access to providers by Medicaid beneficiaries.” Pennsylvania Pharmacists Ass’n , 283 F.3d at 537 (quoting 42 U.S.C. § 1396a(a)(30)(A) ).
CMS is required to review state plans and proposed plan amendments to ensure compliance with § 3 0 (A)

. Christ the King I , 730 F.3d at 297. Pennsylvania uses a “case

- mix rate” to determine how much Medicaid will reimburse private nursing homes for the covered care they provide

. Id. at 298. The case

mix rate uses a formula to generate per - diem rei mbursement s for each nursing home

. Id. In June 2005, Pennsylvania’s Department of Public Welfare determined that
reimbursement rates had increased too much and too fast , and that absent corrective
action , there would not be enough money to reimburse nurs ing homes for the costs they
incurred

. Id. To slow the rate increas e s , the Department proposed an annually
determined “budget adjustment factor,” abbreviated as BAF. Id. The BAF is a fraction by which the case

- mix rate is multiplied to determine the ne t

- reimbursement rate. Id. Although the Department portrayed the BAF as an interim measure to be applied in the
2005 to 2006 fiscal year , the BAF became a fixture in Pennsylvania’s reimbursement6

formula

. Id. The BAF was recalculated each year based on t he Pennsylvania legislature’s budget

- allocation decisions. 1 Id. at 29 8

– 9 9. In 2008, Pennsylvania submitted the proposed p lan amendment designated as
SPA 08

- 007 to CMS for approval

. That amendment would adjust the BAF for fiscal year
2008 to 2009 to mak e the case - mix payment rate 9.109% lower than it would have been using the existing plan

. Id. at 301

. CMS approved the proposed amendment in
December 2008. T he new rates were retroactively applied to July 2008, the beginning of
the 2008 to 2009 fiscal y ear
. Id. at 302

. Fifty

- three private nursing home s sued , alleging
that CMS had approved the amendment without considering its effect on the quality of

care , as § 30(A) required

. Id. The nursing home s asked the District Court to order Pennsylvania to re imburse them using the case - mix rate without the BAF decrease

. Id.
The District C ourt entered summary judgment for the government defendants, finding that CMS had reasonably determined that the plan amendment complied with § 30(A)

. Id. at 303. The nu rsing home s appealed. In Christ the King I , the panel reversed because the Secretary had failed to “articulate a satisfactory explanation” for her
determination that the revised payment method would not adversely impact the quality of

car e. Id. at 3 14. The panel remanded to the District C ourt “with instructions to enter a declaratory judgment in favor of Plaintiffs on their claim that HHS’s approval of [the amendment] was arbitrary and capricious under the APA.” Id. at 321. The panel’s

1 The case

- mix rate was reduced by the percentage defined in that year’s BAF; the 2005 to 20 06 rates w ere reduced by 4.878%, the 2006 to 20 07 rates by 6.245%, and the 2007 to 20 08 rates by 6.806%. Christ the King I , 730 F.3d at 299.7

mandate added th at the District Court was to enter “ a declaratory judgment for Plaintiffs, all in accordance with the opinion of this Court.” The panel noted that it did not “imply that the payments Pennsylvania ma de to providers during the 2008

– 09 fiscal year were in fact inconsistent with any of Section 30(A)’s requirements

. ” Id. at 314. The panel also noted that it did “not mean that
Plaintiffs will necessar il y be entitled to a rate recalculation” or that “they should have been paid in accordance with the previousl y approved state plan , ” which had not used the budget

- adjustment factor. Id. at 314 n.25. The panel made clear that “[w]hen, as here, ‘the record before the agency does not support the agency action,’ the agency may be afforded an opportunity ‘for additi onal investigation or explanation,’ upon which the agency could lawfully base its action.” Id. (quoting Fla. Power & Light Co. v. Lorion , 470 U.S. 729, 744 (1985)).
B ack at the District Court , the parties disagreed about how the Court should word
it s j udgment. The nursing homes proposed language expressly bar ring CMS from any further review of the disapproved amendment. The government proposed language expressly remanding the case to CMS for further consideration. The District C ourt rejected both pro posals

. In December 2013 , the District Court entered a judgment that quoted the mandate from Christ the King I . The judgment read as follows: Pursuant to the mandate of the United States Court of Appeals for the Third Circuit issued on September 19, 2013 , it is hereby ordered that: Judgment is entered in favor of Plaintiffs on the ir claim that the Department of Health and Human Service’s approval of SPA 08

- 007 was ar bitrary and capricious.8

I n May 2014, CMS informed Pennsylvania that the agency would reopen the
record and reconsider whether the amended repayment rates that had been in effect from July 2008 through June 2009 were consistent with the Medicaid Act . CMS invited Pennsylv ania to submit evidence on the impact the rates had on the quality of care . In August 2014, Pennsylvania submitted a letter explain ing why the amended rates were consistent with “efficiency, economy, quality of care and access to care

. ” The letter
included supporting data that showed the actual experi ence under the revise d rates during the year they were in effect before the panel decision issued

. That data obviously did not
exist when CMS initially approved the plan amendment in December 2008 . In December 2014, the Secretary, through CMS, issued a revised determination with a detailed explanation concluding that the amendment’s payment method was consistent with the quality

- of

- care requirement. While CMS was reconsidering the amend ed rates , 21 of the original 53 nursing
home s went back to the District Court to ask for an injunction preventing CMS from
reconsider ing the plan amendment. When the Secretary issued the revised determination approving the amendment, the 21 nursing homes moved to set it aside as contrary to Christ the King I

. The nursing homes did not repris e their earlier substantive challenge t o the merits of the approval . Instead, they argued that Christ the King I precluded CMS from reconsidering the plan amendment at all

. The District C ourt rejected the nursing homes’ argument s . It concluded that
Chr ist the King I had “explicitly license[d]” a “remand for further agency proceedings” and that its own prior judgment was “best understood” as implicitly remanding to CMS9

for further proceedings. Christ the King Manor, Inc. v. Burwell , 163 F. Supp. 3d. 123 , 131

– 32 (M.D. Pa. 2016).
The nursing homes raised another argument before the District Court

. T hey
contended that the agency’s re determination was inconsistent with § 30(A ) because it
relied on the data measuring the actual impact of the revised rates on the quality of care in nursing homes during 2008 and 2009 , instead of limiting what it considered to the predictive data available in 2008 , when the agency first reviewed the proposed plan
amendment. The nursing homes argued that to the extent the reco rd allowed remand and reconsideration, CMS was limited to using the predictive data available when it first
ap proved the revised reimbursement rates. The District C ourt rejected this argument and
found that the statute allowed using the later quality

- of

- c are data from the year of actual experience under the reduced payment rates

. Id. at 133

– 35.
II. This Court “appl[ies] de novo review to a d istrict c ourt’s grant of summary judgment in a case brought under the APA, and in turn appl[ies] the applicable

sta ndard of review to the underlying agency decision.” Pennsylvania Dep’t of Pub. Welfare v. Sebelius , 674 F.3d 139, 146 (3d Cir. 2012) ( internal quotation marks omitted). “The underlying agency decision is reviewed under the APA, which requires courts to s et aside an agency decision that is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’ or that was conducted ‘without observance of procedure required by law.’” Id. (quoting 5 U.S.C. § 706(2)(A) & (D)). “The scope o f review under the ‘arbitrary and capricious’ standard is narrow and a court is not to substitute its10

judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm
Mut. Auto. Ins. Co. , 463 U.S. 29, 43 (1983). This Court exercise s plenary review over the District C ourt’s interpretation of the prior panel mandate. Kilbarr Corp. v. Business Sys. Inc. , 990 F.2d 83, 87

– 88 (3d Cir. 1993).
III. The nursing homes argue that Christ the King I did not authorize the District Court
to al low the agency to reopen the proceedings, re consider the proposed amendment, and
issue a redetermination

. In Christ the King I , the panel found that the agency’s decision

was arbitrary and capriciou s. The panel mandate remanded the case to the District C ourt “for entry of a declaratory judgment for Plaintiffs, all in accordance with the opinion of this Court.” The panel’s opinion and mandate did not address further agency action after
the remand to the District Court. The District Court’s final judgment tracked the mandate’s language. When an appellate court “direct[s] the district court to act in accordance with [its] opinion . . . the opinion becomes part of the mandate and must b e considered together with it.” In re Chambers Dev. Co., Inc. , 148 F. 3d 214, 224 (3d Cir. 1998) (internal quotation marks omitted)

. The District C ourt followed this rule in holding that its final judgment was “ best understood as an implicit rem and ” to the agency for further
consideration. Christ the King Manor, Inc. , 1 63 F. Supp. 3d. at 132. We agree that the panel’s opinion and mandate in Christ the King I authorized the District Court to allow the agency to reopen proceedings and issue a redetermination

.11

The panel held that the Secretary’s findi n g was arbitrary and c apricious, but t he panel opinion stated that the holding did not : mean that Plaintiffs will necessarily be entitled to a rate recalculation, and we in no way suggest that they should have been paid in accordance with the previously approved state plan, whi ch did not involve the use of any BAF for the 2008

– 09 fiscal year. When, as here, “the record before the agency does not support the agency action,” the agency may be afforded an opportunity “for additional investigation or explanation,” upon which the ag ency could lawfully base its action. Fla. Power & Light Co. , 470 U.S. at 744, 105 S.Ct. 1598. Cf. 42 U.S.C. § 1316(a)(4) (providing that, when a court of appeals reviews a state’s appeal of an agency decision regarding a state plan, the court “may remand the case to the Secretary to take further evidence, and [she] may thereupon make new or modified findings of fact and may modify [her] previous action”). Christ the King I , 730 F.3d at 314 n.25. As t he District C ourt noted, “if the panel did not
intend for there to be a remand for further agency proceedings, this footnote would be but a gratuitous tease to HHS .” Christ the King Manor, Inc. , 163 F. Supp. 3d at 131. Other language from the panel opinion in Christ the King I also supports the
District C ourt’s ruling allowing further agency proceedings

. The opinion stated , “[t]his appeal provides an opportunity for [the plaintiffs] to obtain some measure of relief, since, if the agency’s action was arbitrary or capricious under the APA, we must set that action aside and require the agency to conform its action to federal law.” Christ the King I , 730
F.3d at 304 n.18. The opinion also cited Florida Power & Light Co. v. Lorion , which
sets out the well

- settled principle that “[i]f the record before the age ncy does not support the agency action,

. . . the proper course, except in rare circumstances, is to remand to the agency for additional investigation or explanation.” Id. (quoting 470 U.S. at 744 )

.12

Established administrative law principles provide fur ther support for allowing the agency to reopen, reconsider, and redetermine the validity of the 2008 plan amendment

. See E.E.O.C. v. Kronos Inc. , 694 F.3d 351, 361

– 62 (3d Cir. 2012), as amended (Nov. 15, 2012) (“When an appellate court does not issue spec ific instructions on how to proceed, the question as to what further proceedings can be had consistent with the opinion of the appellate court must be determined from the nature of the case and the pertinent statutory provisions.”) (internal quotation mark s omitted)

. U nder the APA , a court may find an agency’s action arbitrary and capricious, but the court is “not generally empowered to
conduct a de novo inquiry into the matter being reviewed and to reach its own
conclusions based on such an inquiry

. ” I.N .S. v. Orlando Ventura , 537 U.S. 12, 16 (2002) (quoting Fla. Power & Light Co. , 470 U.S. at 744)

. And n othing in Christ the King I indicates that this case was the “rare circumstance ” precluding further agency
action contemplated by Florida Power & Light

. 470 U.S. at 744 ; s ee Yusupov v. Att ’ y Gen. of U.S. , 650 F.3d 968, 993 (3d Cir. 2011) ( finding a “rare ci rcumstance” that did not support agency remand when it had twice considered the record and there were no
additional facts or evidence that could be de veloped). Absent a rare circumstance, the ordinary and proper course is for an appellate court’s remand to the district court to allow the agency to conduct additional investigation or provide additional explanation. The District Court did not err by all owing CMS to reopen the deliberations and issue a
redetermination. 2

2 W e need not address the nursing home s ’ remaining arguments that reopening the approval process was an unlawful exercise of the Secretary’s statutory or const itutional13 IV. Because we hold that the agency ’s further consideration was proper, w e consider whether the Secretary could reasonably rely on actual

- experience data rather than only on the predict ive data used when the plan amendment was first approved in 2008

. As a threshold matter, the parties dispute whether this issue is properly before this C ourt. The nursing home s first raised the issue in their summary judgment briefing before the
District Court , which found that the delay in raising the issue neither waive d it n or cause d the agency unfair prejudice. Christ the King Manor, Inc., 163 F. Supp. 3d. at 133 n.8. We agree. And i n light of our disposition on the merits, the waiver argument is m oot. See United States v. Brown , 547 F. App’x 150, 152 n.2 (3d Cir. 2013) (“In light of our disposition of the appeal on the merits, we need not decide the applicability of the waiver provision.”). As stated above, w e review the agency’s decision under an arbitrary and capricious standard. Under this standard, we “may not set aside an agency rule that is rational, based on consideration of the relevant factors and within the scope of the authority delegated to the agency by the statute.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. , 436 at 42. We note that § 30(A) does not forbid considering the actual

- experience data in reopened proceedings, e ven if that data did not exist during the initial examination and approval

. Id. at 43 (“[A] n agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider .”). Other provisions authority or that the Secretary was required to appeal the District Court’s final judgment following the first appeal in order to reopen the record and reconsider whether to approve the amendment

.14

of the Medicaid Act reinforce the Secretary’s decision to use the actual

- experience data
from 2008 to 2009 in the 2014 reexami nation and redetermination

. Under 42 U.S.C. § 1396n(f)(2), the Secretary may ask the S tate for “ any additional information which is
needed in order to make a final determination with respect to the request.” The Secretary
did so here. A fter this C ourt h eld that the Secretary’s 2008 approval of the plan
amendment was insufficiently explained and therefore arbitrary and capricious, the Secretary reopened the investigation and requested additional information from Pennsylvania. The S tate submitted hundreds of pages of supporting document s , including data showing that the reduced payments had not negatively impact ed the quality of care the nursing homes provided during the year the reduced rates had been in
effect

. Nothing in § 1396n(f)(2) prohibits asking for or using that information. The
statute instead states that the Secretary may request “any additional information which is needed” to approve or deny a proposed plan amendment. The nursing home s conceded at oral argument that if the data showing the actual
effect of the amended plan reimbursement rates had shown a detrimental effect on the quality of care due to the decrease in payments compared to what the amounts would have been under the prior year’s reimbursement rates , the ir argument wo uld be rev ersed. The nursing homes would then flip sides to argue that the Secretary must c onsider the
recent actual

- experience data. That says it all, or at least enough. T he Secretary had the power to seek more information under § 1396n(f)(2 ). S he did not ac t arbitrarily and capriciously by considering that information in the § 30(A) approval process
.15

Common sense also supports the Secretary’s interpretation of § 30(A) to allow the agency to consider the actual

- experience data in reexamining the proposed plan

a mendment. T he Secretary need not blind herself to the more recent and accurate
available evidence of a challenged payment rate’s actual impact on the quality of care for
Medicaid beneficiaries. “To find the Secretary’s consideration of more recent data
i mpermissible would be a foray into judicial abstraction.” Christ the King Manor, Inc., 163 F. Supp. 3d. at 137. The data showing the actual impact of the lower payments the 2008 plan amendment authorized is clearly more recent and more accurate than the predictive data available in December 2008, when the agency first examined the proposed change. 3 I t makes little sense for the Secretary to ignore the “answers to the

test

. ”
V. The nursing home s also argue that the Secretary’s 160

- day delay in reopening approval proceedings after the District Court entered final judgment should result in judgment in their favor. See 42 U.S. C. § 1316(a)(1) (“the Secretary

. . . shall, not later than 90 days after the date the plan is submitted to him, make a determination as to whether it conforms t o the requirements for approval

. . . .”). N othing in the statute
indicate s that the 90

- day timel ine control s here , when a plan amendment is reexamined

3 Our holding is limited to the facts and circu mstances of this case. We do not hold that in the ordinary approval process, the agency can delay deciding a proposed plan amendment’s compliance with § 30(A) until the amendment has been in effect for an extended period and then consider the actual impac t of the proposal. See 42 C.F.R. § 430.20 (noting the earliest effective date that a plan may be become effective after review).16

after judicial review and rejection . And , as the government notes, even if we found that the statutory timeline did apply, under § 1396n(f)(2) , a requested plan amendment is
deemed approved if not considered within that timeline. See 42 U.S.C. § 1396n(f)(2) (“A request to the Secretary from a State for approval of a propos ed St ate plan or plan
amendment

. . . shall be deemed granted unless the Secretary, within 90 days after the date of its submission to the Secretary , ” denies the request in writing or requests “any additional information which is needed” to make a final determi nation.). This argument does not weigh in favor of reversal.
V I . We will affirm the judgment of the District C ourt.