F o rm er Se cretary o f the D ep artm en t of

H ealth an d H u m an Se rvice s M ich ael O
. L eav it t 1 w as n am ed as th e o ri gi n al de f en d an t i n this cas e. Pu rsu an t t o Fe d eral R u le of C ivil Pro ced u re 25( d) , t he Cour t a ut oma t i c a l l y s ubs t i t ut e s t he c ur r e nt Se c r e t a r y of t he De pa r t men t of

He a l t h a nd H u m an Se rvice s, K ath leen Se b elius , as th e d ef en d an t. UNITED STAT ES DIS TRICT COURT F OR THE D ISTRIC T OF CO LU M BIA
COTTAGE HEALTH SYST EM, P la in t if f, v. Ci vilAc ti on N o. 08 -0 98 (J DB ) K AT HLEE N SE BELI US, Se c r e ta r y, U. S. 1 Depart m ent of Health an d Hu m an Se r vic e s, Defendan t.
M EM OR AN DU M OP IN ION The Sec reta

ry of the De partment of H ealth and H uman Service s (" defe ndant" or " the Secre tary ") , throug h the Centers f or Medica

re a nd Medica id Services ( "CMS") , is responsible for administeringthe Medica re statute, T itle XVI I Iof the Social Sec urity Act, 42 U.S.C. § 1395 et seq. Cottag e He alth Sy stem (" plaintiff" ) see ks judicial review of the Sec reta

ry ' s decision to deny it certa in supplemental medica l education pay ments authorized by

the B alanc ed B udg et Act of 1997 (" BB A ' 97") , Pub. L . No. 105-33, 111 Stat. 251. Plaintiff also seeks r eview of the S ec re t ary 's d ec i s i o nn o tt o co un tm ed i ca l re s i d en t s p ro v i d i n g p at i en tca re i nn o n -h o s p i t al s et t i n gs in c a lc ulatin gme dic a l e du c atio n p ay me nts . Now bef ore the Court are the par

ties' cross-motions for summar y judgme nt. For the
rea sons expl ained be low, the Court will gr ant in part a nd deny in part ea ch par

ty ' s motion for
summa ry jud g me nt a

nd wi ll r e mand

the c a se to t

he Se c re tary

fo r f ur the r p ro c e e din g s.-2- BACK GR OUND I. St at ut or y a nd R e gul at or y Ba c kgr ound A

. Cla i m s U

n d e r M e di c a r e P a r t

s A & C The Medic are prog ram is divided into severa l parts, of whic h parts A a nd C are r eleva

nt here . Part A cove rs " inpatient hospital service s" f urnished to Medica

re be nefic iaries by pa rt ic ipatin gpr ov ide rs , li ke ho sp ita ls. 42 U. S.C. § 1 39 5d (a )( 1) . CM S its e lf is d ir e c tly
re sp on sib le fo r t

he c os ts o f p art

A s e rv ic e s. I d. To c oo rd inate bil lin gby and pa y me nt t o hospitals under par

t A, Medica

re c ontrac ts with fiscal intermediar ies (usually private insura

nce companies) pursuant to 42 U.S.C. § 1395h. Claims for pa y ment under pa

rt A ar e g overne d by the re g ulations set forth at 42 C.F.R. § 424.30 et se q., which provide that "[c]laims must be filed in a ll c a se s e xce pt whe n s e rv ic e s are fu rn ish e d o n a

pr e pa id c a

pit atio n b a sis by

a he a lth maintenanc e org anization (HMO), a competitive medica l plan (CMP), or a he alth car e prepa y ment plan (HCPP)." The regulations also provide time limit s for filingclaims with the f i s c a l i n t e r m e d i ar y: (a ) B a sic lim its . E xce pt a s p ro vid e d in pa ra g ra ph(b ) o f t

his section, the c laim must be mailed or deliver ed to the interme diary or ca rrier , as appr opriate-
- (1) On or be fore Dec ember 31 of the followingy ear

for se rv ic e s th at w e re fu

rn ish e d d ur ingthe fi rs t 9 months of a ca lendar

y ear ; and (2) On or be fore Dec ember 31 of the sec ond following y e ar f or se rv ic e s th at w e re fu

rn ish e d d ur ingthe la st 3 months of the cale ndar year . 42 C.F.R. § 424.44. Medica re pa rt C was cr eate d by

BB A ' 97. Under

part C, bene ficiar ies may rec eive-3-

Medica re be nefits throug h private he alth insurance plans ca lled "Me dicar e+Choice " pla ns. See 42 U.S.C. § 1395w-21(a) (1). Such plans - - re fer red to by the par ties as " Medica

re H MOs" - - ar e the mse lve s r e sp on sib le fo r t he c os ts o f p art

C se rv ic e s. Me dic are HM Os re c e ive pa y me nt i n advanc e fr om CMS acc ordingto a complex formula, and the Me dicar e HMOs themse lves coordinate billing and pa

y ment with the hospitals once ser vices have bee n provided. See 42 U.S.C. § 1395mm (a) . The re g ulations gove rningclaims under pa rt A expressly

do not apply

for service s furnished to Medic are HMO enr ollees. 42 C.F.R. § 424.30 (e x ceptingclaims for service s "f

urnished on a pr epaid c apitation basis by a [Medicar e HMO]")
. Claims for service s provided ar e submitted by hospitals -- either

to fiscal interme diaries (for service s provided under

part A) or to Medica

re H MOs (for

service s provided under

part C) -- and paid ove r the c ourse of the y ear . At y ear -end, hospitals file c ost reports with the fisca l intermediar ies, which re concile inter im pay ments made ove r the c ourse of the y ear with actual reimburse ment due. See 42 C.F .R. § 405.1803. The fisca l intermediary makes a final deter mination, which is appea lable to the Provider Re imbursement Review B oard ( "PRRB" ). 42 U. S.C. § 1 39 5o o( a ). Th e PRRB ' s d e c isi on is s ub je c t to fu rt he r r e vie w b y

the CMS Administrator, and a

hospital may

seek r eview of

the Administrator' s decision in fede ral district court. See 42 U.S.C. § 1395oo(f). B. Me dic al E

du c ati on Pa

y me nts Th e Me dic are pr og ra

m a lso pa y s te a c hin gho sp ita ls f

or c e rt a in c os ts r e late d to g ra du ate
me dic a l e du c atio n. Me dic are make s b oth an " ind ir e c t g ra du ate me dic a l e du c atio n p ay me nt" (" I ME") and a " direc t gr aduate medical e ducation pay ment" ( "G ME") . I ME pay ments are int e nd e d to re imb ur se te a c hin gho sp ita ls p ro vid ingse rv ic e s to Me dic are be ne fi c iari e s f or the ir-4-

highe r- tha

n- ave ra g e op e ratin gc os ts. Se e 42 U. S.C. §§ 13 95 f( b) , 1 39 5ww( d) . M e dic are make s a pay ment for e ach Me dicar e bene ficiar y discharg ed by

a hospital. See 42 U.S.C. §§ 1395ww(d) , 1395w-21(i) (1). The per- discharg e pay ment incre ases de pendingon the hospital' s ratio of medical r esidents to beds -- i.e., the hig her the number of r esidents or the hig her the number of discharg es, the g reater the I ME pay ment. See 42 U.S.C. § 1395ww(d) (5)( B)
. The GME pa

y ment, on the other ha

nd, is a pay

ment intended to compensate teac hing hospitals for the dire ct costs of g raduate medica l education incurred be cause of ser vices provide d to a Medica

re be nefic iary . 42 U.S.C. § 1395ww(h). The amount of the GME pa y ment depends
on the numbe r o f f

ull -t ime re sid e nts and

the Me dic are " patie nt l oa d. " He nc e , li ke the I ME pay ment, the GME pay

ment incre ases whe n the number of Medica re patients or the number of residents rise s. See id. Both GME a

nd I ME pay

ments, then, depe nd on the number of residents a

nd the number of Me dic are patie nts re c e ivi ngse rv ic e s f ro m a ho sp ita l. Aho sp ita l ma

y inc lud e re sid e nts tr a ini ngin n on -h os pit a l se tti ng s in its re sid e nt c ount. Un de r t he Me dic are statut e , s uc h r e sid e nts
are inc lud e d if

(1 ) t he ir tim e is r e late d to patie nt c are and (2 ) t he ho sp ita l in c ur s su

bs tanti a lly

a ll of the c osts of their trainingin the non-hospital setting. See 42 U.S.C. §§ 1395ww(h)(4) (E), 1395ww(d) (5)( B) (iv). The regulations gove rningresident c ounts, however , contain a third require ment -- that the hospital have a written ag ree ment with the non-hospital site establishing that the hospital will incur the costs of the r esidents' training . See 42 C.F.R. §§ 413.86(f ) (2002) , 412.105(f) (1)( ii)(C) (2002). Be fore the passag e of B BA' 97, only service s provided to Medica re pa rt A or B benef iciarie s were counted in ca lculatingI ME and GME pa y ments. That is, the " per- discharg e"-5-

mul tip lic and

fo r I ME pa

y me nts did no t in c lud e dis c ha

rg e s o f p art

C Me dic are HM O e nr oll e e s,
and the " patie nt l oa d" mul tip lic and fo r G ME pa

y me nts did no t in c lud e pa

rt C Me dic are HM O
e nr oll e e s. B B A ' 97 , h ow e ve r, dir e c te d th e Se c re tary to m ake a dd iti on a l I ME and GM E pay ments, phased in over

five year s, for ser

vices provide d to Medicar e HMO e nrollees unde r par t C. See BB A ' 97 §§ 4622, 4624 (codifie d at 42 U.S.C. §§ 1395ww(d)( 11), 1395ww( h)(3) (D)( I )). II. F actual Background and Ad m inis trat ive P roce edings A. Factual Back

ground P l ai n t i ff i s a n o t -f o r- p ro fi tco rp o ra t i o nth ato wn s an d o p er at es S an t a B ar

b ar a C o t t age Ho s p i t al , a t ea ch i n g h o s p i t al i nS an t a B ar b ar a, C al i fo rn i a. Am
. C o mp l
. ¶ 1 3
. Fr o m1 9 9 8 th ro u gh 2001 -- the pe riods at issue in this case - - plaintiff ope rate d three medical r esidenc y training pr og ra ms. I d. ¶ 3 1. To re c e ive I ME and GM E p ay

me nts re late d to se rv ic e s p ro vid e d to Me dic are pa

rt A b e ne fi c iari e s, pla int if

f s ub mitte d c la im f

or ms ( la be le d " UB -9 2" fo rm s)
c on ta ini ng" e nc ounte r d ata " (i .e ., the numbe r o f M e dic a re pa rt A b e ne fi c iary

dis c ha rg e s) dir e c tly to its fiscal intermediar

y , as re quired by

42 C.F.R. § 424.30, and re ceive d pay ment acc ording ly
. See id. ¶ 32. To rec eive the a dditional I ME and GME pa y ments authorized by

BB A ' 97 for se rvice s provided to Medica

re H MO enrollee s, plaintiff submitted UB-92 f orms containingencounte r data to t he Me dic are HM O, no t th e fi sc a l inte rm e dia ry . Se e id. ¶ 9 4. Pla int if

f a ve rs that it

a lso submitt ed enc ounter data direc tly to the fiscal inter

mediary afte r cost per iods had ende d: on November

2, 2000 for the c ost period endingDec ember 31, 1998, id. ¶ 92; on Marc h 27, 2002 for the c ost period endingDec ember 31, 1999, id. ¶ 98; and on June 10, 2003 for the cost pe riodPlaintiff's A mended Complaint does not contain the date on which it claims to have 2 provided the f

iscal intermedia

ry with encounter

data f or the c ost period endingDec ember 31, 2001. Nonethele ss, the parties do not dispute that plaintiff did not rec eive the a dditional I ME or GME pay ments for that c ost period. -6- endingDec ember

31, 2000, id. 102. The fisc al intermedia ry did not provide plaintiff with the 2 additional pay

ment authorized by

BB A ' 97 for the 1998- 2001 cost periods. I d. ¶ 103. Pla int if f' s I ME and

GM E p ay

me nts a lso did

no t a c c ount f

or re sid e nts pr ov idi ngc are in
no n- ho sp ita l se tti ng s. In Augus t 20 02 , h avin gde te rm ine d th at pl a int if f l a c ke d a n a de qu ate written agree ment, the fisca l intermediary excluded residents' time spent in non-hospital settings. I d. ¶¶ 129- 30. In 2005, plaintiff enter ed into memoranda of under standing (" MOUs" ) with the
no n- ho sp ita l si te s. Pla int if f a lle g e s th at th e MO Us c lari fi e d a nd me mor ia lize d th e te rm s o f i ts pre- exis ting a g ree ment reg ardingresidents' trainingin non-hospital sites. I d. ¶ 131. The f iscal int e rm e dia

ry no ne the le ss d e te rm ine d th at th e po st- date d M OU s d id n ot s atis fy the re g ulatio ns . B. PRRB's Decision Plaintiff timely

soug ht reviewof the fisc al intermedia ry ' s decision bef

ore the PRR B. The PRR B he ld a hea

ringon November

8, 2006 and issued a de cision on September 28, 2007. See Administrative Record ( "A .R.") at 25-48. Two issues we re pr esente d to the PRR B: " (1) [w]he the r t

he Inte rm e dia

ry imp ro pe rl y

dis a llo we d [G ME ] an d [I ME ] pay me nts wi th r e sp e c t to discharg es of Me dicar e bene ficiar ies who we re e nrolled in [Medicare HMOs] in fiscal y ear s
e nd ingDe c e mbe r 3 1, 19 98 , 1 99 9, 20 00 , a nd 20 01 ; and

(2 ) [w ]he the r t

he Inte rm e dia

ry imp ro pe rl y d i s al l o we d

re s i d en t s ' t i m e s p en ti nn o n -p ro v i d er s et t i n gs wi th i nth e s co p e o f t h e P ro v i d er 's approve d medical r esidenc y trainingprog rams fr om the Provider' s full-time equivalent re sident counts for []GME and I ME purposes." I d. at 26.-7-

On the first issue, the PRRB found " that this disput e is g overne d by the re g ulation, 42 C.F .R. [§] 42 4. 30 e t se q. ," wh ic h s e ts f or th " ba sic re qu ir e me nts " fo r f ili ngc la ims , in c lud ingtim e limit s. A.R. at 36. The PRRB then found that "[t] he cla ims in question, for service s furnished by
and pa id f or by [Me dic are HM Os ], are sp e c if ic a lly e xemp t f ro m th e re qu ir e me nts , p ro c e dure s, and time limits under this sec tion." I d. Next, the PR RB dete rmined that B BA' 97 "c lear ly shifted the burd e n f

or fi lin ge nc ounte r d ata

sq ua re ly to t he [Me dic are ] HM Os ." I d. at 37 . T he PRRB also conc luded that no " regulation ga ve notice that hospitals would now be require d to file a separ ate I ME/[ ]GME claim with the intermediary that was virtually

identical to the cla im filed with the HMO." I d. The PRRB held that an " Administrative Bulletin" outlining the cla ims filing
re qu ir e me nts wa s n ot t

he a pp ro pr iate ve hic le fo r p ro vid ingno tic e , a nd e ve n if it w a s, that it

did not provide conc lusive g uidance as to billing re quirements for the additional pay

ment authorized by BB A ' 97. I d. at 38. Fina lly , the PRRB conclude d that even if the UB -92 for

ms plaintiff pr ov ide d d ir e c tly

to t he int e rm e dia

ry we re fi le d o ut- of

-t ime , th e int e rm e dia

ry imp ro pe rl y

fa ile d to
c on sid e r t ho se c la ims be c a

us e the y c on sti tut e d th e mos t a c c ur ate data fo r I ME /G ME
re imb ur se me nt a

nd c omp a ri so n o f t he UB -9 2 f

or ms t o th e int e rm e dia

ry' s y e ar- e nd

c os t r e po rt s
reve aled discr epanc ies. I d. at 38-39. Ac cording ly , the PRRB remande d the first issue to the i n t e r m e d i ar y. As to the second issue, the PRR B ide ntified " [t ]he crux of the issue [as] whether the MO Us ex ecut ed af

ter th e cos t r epo rt in g peri od s atis su e sat is fy th e regul ati on 's requi rem ent s. " I d. at 40. The PRRB found that they do not, concludingthat the re g ulations require a
c on te mpo ra

ne ou s w ri tte n a g re e me nt. I d. Th e PRRB no te d th at it s f ind ingwa s c on sis te nt w ith the holding of

Chestnut Hill Hospi tal v. Thompson, Civ.A.No. 04-1128, 2006 WL2380660-8-

(D.D.C. Aug . 15, 2006). A.R. at 40. The PRR B f ound that other wr itten ag ree ments -- bylaws and employ

ment ag ree ments -- we re insuff icient to establish that residents' trainingin nonhospital settings wa s relate d to patient car e and that the hospital incurre d substantially all of the
c os ts o f t he re sid e nts ' tr a ini ngin t

he no n- ho sp ita l se tti ng . I d. at 40 -4 1. F ina lly , th e PRRB
c on sid e re d a

le tte r wri tte n in

20 00 by the fo rm e r C MS A dmi nis tr ator , T ho ma s A . Sc ull y , to Con g re ssm an Ch arl e s Ra ng e l. P la int if

f h a d s ub mitte d th e le tte r a s e vid e nc e that CM S its e lf interpre ted the re g ulation as permitting a non-conte mporane ous written agree ment. But the PRR B " d[i d] notfind the Scully letter inconsistent with its findings" that a conte mporane ous written agree ment was re quired, notingthat the letter de monstrated an unw illingness to ac cept p o s t -d at edwr i t t en agr ee m en t s . I d
. at4 1
. Ac co rd i n gl y , th e P R R B a ff i rm edth e i n t erm ed i ary 's de c isi on to d isa llo w r e sid e nts ' tim e sp e nt i n n on -p ro vid e r s e tti ng s f ro m th e re sid e nt c ount. C. Administrat or's Decision Both issues we re timely

appea led to the Administrator, and the Administrator issued a decision on Nove mber 16, 2007. See A.R. at 2-17. On the se cond issue, the Administrator "summar ily

aff irm[ed] the B oard' s decision." A.R. at 2 n.1. On the first issue, the A dminist rator be g an by descr ibing I ME and GME pa y ments befor e the passag e of B BA' 97, A.R. at 7-8, and the n descr ibed the additional pay ment authorized in §§ 46 22 and 46 24 of B B A ' 97 , id . at 8- 11 . T he Ad min ist rator ne xt expl a ine d th at th e Se c re tary fi rs t addre ssed the filingrequire ments for the a dditional pay ment in a rule published in the Ma y 12, 19 98 F e de ra l Re g ist e r, a s f oll ow s: Under section 4622 and 4624 of the B BA , teac hing hospitals may re c e ive ind ir e c t and

dir e c t G ME pa

y me nts a sso c iate d w ith [Medicare HMO enr ollee] discharg es. Since publication of the-9- final rule w ith comment on Aug ust 29, 1997, we have consulted with hospitals, manag ed ca re pla ns, and fisca l intermediarie s for purp os e s o f d e ve lop inga pr oc e ss t o im

ple me nt t he se pr ov isi on s. We a nti c ipate te a c hin gho sp ita ls w ill ne e d to su bmi t c la ims associate d with [ Medica

re H MO enrollee ] di schar g es to the fisca l intermediar ies for pur

poses of re ceivingindirect a nd direc t medical education pay

ments. When the claims are proce ssed, the fisca l intermediar ies will make the I ME pay ment associate d with a [Medicare HMO enr ollee] discharg e dire ctly to the teac hing ho sp ita l. T e a c hin gho sp ita ls w ill a lso be re qu ir e d to su bmi t bi lls associate d with [ Medica

re H MO] orga

nizations to the manag ed car e plans. The inpatient encounte r data from these bills wil l be submitt ed by

the manag ed ca

re pla ns to HCFA for

purposes of implementing the r isk adjustment methodology . The fisc al intermediar ies should revise inter im pay ments to refle ct the Me dic are dir e c t G ME pa

y me nt a sso c iate d w ith[Me dic are HM O enrollee ] di schar g es. Howe ver, until the fisca l intermediarie s have more e x perie nce w ith paying hospitals for direc t GME associate d with [ Medica

re H MO enrollee ] di schar g es, we believe the fiscal int e rm e dia

ri e s w ill have lim ite d d ata up on wh ic h to ba se int e ri m pay ment. We are makingadjustments to the Medicar e cost re port to a llo w f or se ttl e me nt o f t

he c os t r e po rt

re fl e c tiv e of

dir e c t G ME pay ment associate d with [ Medica re H MO enrollee ] di schar g es. I d. at 11 (quoting63 Fe d. Reg . 26,318, 26,342 (May 12, 1998)). The Administrator also quoted from CMS Progra

m Memorandum A- 98-21, which w as issued on Jul y 1, 1998 and provide d as fo llo ws : This Progr am Memora ndum outlines int erme diary and standa

rd sy ste m c ha

ng e s n e e de d to pr oc e ss r e qu e sts fo r I ME and []GME supplemental pay

ments for Medic are [HMO] enrollee s. Sections 4622 and 4624 of the Ba lance d Budg et Act of 1997 state that hospitals may

now re quest a supplementa l pay ment for ope rating I ME for Me dicar e [HMO] enrollees. Duringthe per iod J anuar y 1, 1998 throug h Dec ember

31, 1998, providers w ill rece ive 20 perc ent of the f

ee f or ser vice []GME and operating I ME pay ment. Th is a mou nt w ill inc re a se 20 pe rc e nt e a c h c on se c uti ve y e ar u nti l it re a c he s 1 00 pe rc e nt. PPS hospitals mustsubmit a claim to the hospitals' re g ular-10- intermediar

y in UB- 92 format . . . . I d. at 12 (quotingCMS P rog ram Memor andum A-98- 21). Ne x t, the Administrator outlined the time limi ts for filingclaims under pa rt A, as se t out in 42 C .F.R. §§ 424.30 and 424.44, A .R. at 12-13, and e x plained why the claim submission methodology outlined in the CMS Prog ram Memorandum wa s nece ssary , id. at 13-14. The Administrator then tur ned to the PRRB' s decision. The A dminist rator f ound that the additional I ME/GME pay ment "is within [the] framework of a pre -existi ngmethodology [,] [which] require s that claims be made to the intermediar y ." I d. at 14. The A dminist rator f ound that th e May

19 98 no tic e in t

he F e de ra l Re g ist e r a

nd the July 1, 19 98 Pr og ra

m Me mor and

um,
c ou ple d w itha

July 13 , 1 99 8 B ull e tin

and an Augus t 20 , 1 99 8 le tte r f ro m th e int e rm e dia

ry to pla int if f, pr ov ide d p la int if

f w ithno tic e that c la ims fo r t he a dd iti on a l I ME /G ME pa y me nt w e re to be submitted directly

to the intermediar

y . I d. at 14-15. More over, the Administrator found " that the APAdo e s n ot r e qu ir e CMS t o p ub lis h a ne w r e g ulatio n und e r t

he se c ir c ums tanc e s. CMS i s allowed to promulg ate inter pretive r ules and guidance ." I d. at 15. Havingfound that the c laims filing re quirement wa s valid and that plaintiff ha d notice of it, the Ad min istrator

fo un d th at pl a int if

f h a d n ot f

ile d it s c la ims wi thi n th e tim e lim its se t f or th i n 42 C.F .R. § 4 24 .4 4. I d. F ina lly , th e Ad min istra tor re je c te d th e argume nt t

hat th os e tim e lim its d i d n o ta p p l y: The only

exception to the claims proce ssing r equire ments at 42 C.F.R. § 424.30 is for ser vices fur nished on a pre paid ca

pitation basis to the benef

iciary by a mana g ed ca

re pla n, which is not at issue here . The c laims in the instant case we re c laims for an e sta bli sh e d r e imb ur se me nt m e tho do logy fo r h os pit a ls' c os ts associate d with beinga tea chinghospital and not for the se rvice s f ur n is h e d to a ma n a g e d c ar e e n r o ll e e s [s ic ].-11-

I d. at 15-16. He nce, the Administrator conc luded " that the Intermedia ry proper ly disallowed [] GME and I ME pay

ments with respec t to discharg es of Me dicar e bene ficiar ies who we re enrolled in [Medicar e HMOs]. Thus, the Administrator re verse s the Boa rd' s decision . . . ." I d. at 16. Plaintiff timely

filed suit in this Court on J anuar y 17, 2008 under 42 U .S.C. § 1395oo(f) and ame nded its complaint on Fe bruar y 13, 2008. Plaintiff filed a motion for summary judgme nt on J uly 11, 2008, and the Sec reta ry filed a c ross-motion for summary judgme nt on September 22, 2008. The motions are now fully briefe d and ripe for r esolution. STANDARD Un de r R ule 56 (c ) o f t

he F e de ra l Ru le s o f C ivi l Pr oc e dure , s umm ary jud g me nt i s
a pp ro pr iate wh e n th e ple a din g s and the e vid e nc e de mon str ate that " the re is n o g e nu ine iss ue a s to
any mate ri a l f

a c t and that th e mov ingpa

rt y is e nti tle d to jud g me nt a s a matte r o f l aw. " In a

c a se involving re view of a

final ag ency

action under

the Administrative Proce dure A ct, 5 U.S.C. § 706, howeve r, the standa

rd set for th in Rul e 56(c ) does not apply beca use of the limited role of

a
c o urt i nr e v ie w in gth e a dmi n is tr ati v e r e c o r d
. Se e N o rth Ca r o li n a F is h e r ie s A s s ' nv . G u ti e r r e z, 518 F. Supp. 2d 62, 79 (D.D .C. 2007); Fund for Animals v. Ba

bbitt, 903 F. Supp. 96, 105 (D .D .C. 19 95 ), ame nd e d o n o the r gro un ds , 9 67 F . Su pp . 6 (D .D .C. 19 97 ). Un de r t he APA , it

is the role of

the ag ency

to resolve f

actua l issues to arrive at a dec ision that is s upported by the administrative re cord, where as " the func tion of the district court is to determine whether or not as a matter of law the evidenc e in the administrative r ecor d permitted the a g ency to make the de c isi on it d id. " Se e Oc c ide nta l E ng ' gCo. v. I NS, 75 3 F .2 d 7 66 , 7 69 -7 0 ( 9th Cir . 1 98 5) ; se e a lso Northwe st Motorcy cle Ass' n v. U.S. Dep' t of Ag riculture, 18 F .3d 1468, 1472 (9th Cir. 1994)-12-

(" [T] his case involves r eview of a fina l ag ency

deter mination under the [APA] ; theref ore,
re s o l u t i o no f t h [ e] m at t er d o es n o tre qu i re fa ctfi n d i n g o nb eh al f o f t h i s co urt . R at h er , th e c o urt 's revie w is limi ted to the administrative re cord." ). Summary judgme nt thus serves as the mecha nism for dec iding, a s a matter of law, whe ther the a g ency

action is supported by

the administrative re cord a

nd otherwise c onsistent with the APA standard of r eview. See Richards v. I NS, 554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977). Under the APA, the Administrator' s decision ca n be set a side only

if it is "unsupported by
su bs tanti a l e vid e nc e ," or

" arb itr ary , c a

pr ic iou s, an a

bu se of dis c re tio n, or

oth e rw ise no t in
acc ordanc e with law." 5 U.S.C. § 706(2)(A) and (E) ; see 42 U.S.C. § 1395oo(f) (1) ( providing that judicial revie w of Medic are reimburse ment decisions shall be made under A PA standards); St. Eli zabeth' s Med. Ctr. of B oston v. Thompson, 396 F.3d 1228, 1233 (D.C. Cir. 2005). The

" sc op e of re vie w und e r t

he ' arb itr ary

and c a pr ic iou s' sta

nd ard is n arr owand

a c ourt is n ot t o
su bs tit ute its jud g me nt f

or that of the a g e nc y ." Mo tor

Ve hic le Mf

rs . A ss' n o f U .S. , Inc . v . St ate Fa rm Mut. Auto. I ns. Co., 463 U.S. 29, 43 (1983). The c ourt must be satisfied that the a g ency has " examine[ d] t he re levant data and ar ticulate[d] a satisfa ctory

explanation for its action including a

rational c onnection betwe en the f acts found a

nd the choice made." I d.; Alpharma, Inc. v. L eavitt, 460 F.3d 1, 6 ( D.C. Cir. 2006). The a g ency' s decisions are entitled to a "pr esumption of regularity ," Citizens to P rese rve O verton Park, I nc. v. Volpe, 401 U .S. 402, 415 (1971), a nd althoug h "inquiry

into the fac ts is to be searc hing a nd car eful, the ultimate standa rd of re view is a na

rrow one ." I d. at 416. The c ourt' s review is confined to the a dminist rative
rec ord, subject to limited exceptions not applicable her e. See Camp v. Pit ts, 411 U.S. 138, 142 (1 97 3) (" [T]he fo c a l po int fo r j ud ic ia l r e vie w s ho uld be the a dmi nis tr ativ e re c or d a lr e a dy in-13-

exis tence , not some new re cord ma de initially in the revie wingcourt." ). A cour t should review a

n ag ency' s interpre tation of a statute unde r the fa miliar two-step
ana ly sis outli ne d in

Che vr on , U .S. A. , Inc . v . N atur a l Re so ur c e s D e fe ns e Counc il, Inc ., 46 7 U .S. 83 7 ( 19 84 ). Th e fi rs t st e p is de te rm ini ngwh e the r C on g re ss h a s sp ok e n d ir e c tly to t he " pr e c ise question at issue," for if it has, " the cour t, as well as the a g ency , must give e ffe ct to the unambig uously

expressed intent of Cong ress." I d. at 842-43; State of Ne w J erse y v. EPA, 517 F .3 d 5 74 , 5 81 (D .C. Cir . 2 00 8) . I f, ho we ve r, the statut e is s ile nt o r a mbi g uo us on

the sp e c if

ic iss ue , " the qu e sti on

fo r t he c ourt is whe the r t

he a g e nc y ' s a

ns we r i s b a se d o n a

pe rm iss ibl e construction of the statute." Chevron, 467 U.S. at 843. When the ag ency ' s construction of a statute is challeng ed, its "inter pretation need not be the be st or most natural one by g rammatica l or other sta

ndards . . . . Rathe r [it] need be only rea sonable to wa

rra nt defe renc e." Pauley

v. Be thEnergy

Mines, Inc., 501 U.S. 680, 702 (1991) ( citations omitt ed). AN AL YSI S I. Wr it te n Ag r e e m e ntRe quir e m e nt Pla int if f t ake s is su e wi th t

hr e e a sp e c ts o f t

he Se c re tary' s d e c isi on

no t to c ount r e sid e nts trainingin non-hospital settings in ca lculatingI ME and GME pa y ments. See Am. Compl. ¶ 136. F ir st, pla int if

f a rgue s th at th e wr itt e n a g re e me nt r e qu ir e me nt i s " inc on sis te nt w iththe pla in meaningand manife st intent of the statut[ e]." I d. ¶ 136(A) . Next, plainti ff c ontends that the intermediar

y ' s "r efusa l to acce pt the Hospital' s post-dated memora nda of unde rstanding
. . . conflicts with the plain languag e and intent of the re g ulations." I d. ¶ 136(B ). F inally , plaintiff contends that re fusal to ac cept the post-dated memora nda is not based on substantial evide nce "be cause contempora

neous Hospital re cords r efle ct that the Hospital had a commitment to incurThe brie fingin this case consists of the f ollowing: Plaintiff' s Memorandum in Support 3 of its Mo tio n f

or Summary

Judg me nt ( " Pl. Me m." ); De fe nd ant' s O pp os iti on and Me mor and

um i n Support of its Cross-Moti on for Summary J udg ment (" Def

. Opp." ); Plaintiff' s Reply and Opposition Memorandum (" Pl. R ep." ); Def endant' s Reply

Memorandum ( "D ef. Rep." ); and Plaintiff's Sur- Reply

Memorandum ( "Pl. Sur." ). -14- all or substantially

all of the c osts of the reside nts' tra ining in non-hospital setting s." I d. ¶ 136(C). Wit h respe ct to the first and se cond issues, the PRRB found that the r egulations were a valid exercise of

the Secr etar

y ' s rule-making a

uthority and that the r egulations called for a contempora

neous written a g ree ment. A.R. at 40. As to the third issue, the PRRB deter mined that pl a int if

f' s c on te mpo ra

ne ou s b ylaws and

e mpl oy me nt a g re e me nts we re ins uf fi c ie nt t o establish that residents' trainingin non-hospital settings wa s relate d to patient car e and that the hospital incurre d substantially all of the c osts of the reside nts' tra ining in the non- hospital setting. I d. at 40-41. In revie wingthe PRRB' s decision, the Administrator " summarily aff irm[ed] " the PRR B on the se issues. I d. at 2 n.1. A. Reasonablene

ss of W ritten Agreeme nt Requireme nt P l ai n t i ff ar gu es th atth e s t atu t e go v ern i n g t i m e s p en tb y re s i d en t s i nn o n -h o s p i t al s et t i n gs did no t pe rm it the Se c re tary

to p ro mul g ate re g ulatio ns re qu ir inga wr itt e n a g re e me nt. Se e Pl. Me m. at 35 -3 8. Th e re le va nt s tatut e pr ov ide s a s f

oll ow s: 3 Counting Time in Outpatient Settings. Such r ules shall provide that only time spent in activities relatingto patient car e shall be counted a nd that all the time so spent by a re sident under a

n approve d medical r esidenc y trainingprog ram shall be c ounted towards the de termination of full-time equiva lency , without reg ard to the setting in whic h the ac tiviti es ar e per formed, if the hospital incurs all, or substantially all, of the c osts for the tra ining pr og ram i nth ats et t i n g.-15-

42 U. S.C. § 1 39 5ww( h) (4 )( E) . T he c ha lle ng e d r e g ulatio n is a s f oll ow s: For portions of cost re porting periods occ urringon or af ter January 1, 1999, the time residents spend in nonpr ovider setting s such as fr e e sta nd ingc lin ic s, nurs ingho me s, and phy sic ians ' of

fi c e s in c onne c tio n w itha

pp ro ve d p ro g ra

ms m ay be inc lud e d in deter mining the number

of [full-time equivalent] residents in the calc ulation of a hospital' s resident c ount if the followingconditions are met-- (i) The re sident spends his or her time in patient c are a c tiv iti e s. (ii) The wr itten ag ree ment betwee n the hospital and the no nh os pit a l si te mus t in dic ate that th e ho sp ita l w ill i n cu r t h e c o s to f t h e r es i d en t 's s al ary an d fr i n ge benef its while the resident is trainingin the nonhospital site and the hospital is providing rea sonable c ompensation to the nonhospital site for su pe rv iso ry te a c hin ga c tiv iti e s. Th e a g re e me nt m us t indicate the c ompensation the hospital is providing to the nonhospital site for supervisory teac hing a c tiv iti e s. (iii) The hospital must incur all or substantially all of the costs for the tr ainingprog ram in the nonhospital setting . . . . 42 C.F.R. § 413.86(f) (4) ( 2002). Th e statut e , th e n, se ts f

or th t wo re qu ir e me nts : th at on ly tim e sp e nt i n a c tiv iti e s r e latin gto patient ca re ma y be counte d and that time is only counted if the hospital incurs all or substantially

all of the c osts in the non-hospital setting. See Pl. Mem. at 35-38. A s plaintiff would have it, the statute' s use of the w ord " shall" ba rs the Secr etar

y from promulg ating
r e g u lati o n s r e qu ir in gan y

th in go th e r

th anth e tw o r e qu ir e me n ts s e t f o rth in th e s tatuto r

y te xt itself. The Court must apply the familiar two-step Chevron a naly sis to determine whe ther the-16-

Secre tary ' s interpre tation of the statute to per mit a written ag ree ment require ment was a rbitrar y or
c a pr ic iou s. Th e fi rs t st e p is de te rm ini ngwh e the r C on g re ss h a s sp ok e n d ir e c tly to t he " pr e c ise question at issue," beca

use if it has, " the cour

t, as well as the a g ency , must give e ffe ct to the
un ambi g uo us ly

e xpre sse d inte nt o f C on g re ss. " Che vr on , 4 67 U. S. at 84 2- 43 . H e re , th e statut e itself does not speak to the pr ecise question at issue: whether the Secr etar

y may require a wr itten ag ree ment befor e countingtime spent by residents in non-hospital setting s. Although a differ ent po rt ion of the statut or

y pr ov isi on

re qu ir e s th e Se c re tary

to " e sta bli shru le s c on sis te nt w iththi s para g raph," see 42 U .S.C. § 1395ww(h)(4) (E), that lang uag e does not unambiguously state what
ru le s th e Se c re tary

may pr omu lg ate to e ns ur e that th e statut or y re qu ir e me nts are satis fi e d. Th is ambig uity is underscor ed by

a diffe rent statutory

provision that gr ants the Secr etar y broad
a uth or ity to p ro mul g ate ru le s. Se e 42 U. S.C. § 1 39 5hh( a )( 1) (p ro vid ingthat th e Se c re tary " sh a ll presc ribe such r egulations as may be nec essar

y to car ry out the administration of the insuranc e pr og ra ms" ). He nc e , th e Court

mus t pr oc e e d to the se c on d s te p o f t he Che vr on

ana ly sis to deter mine whether

the Secr etar

y ' s require ment of a written ag ree ment is entitled to defer ence . Un d er th e s ec o n d

s t ep o f C h ev ro n , th e C o urtmu s tas s es s wh et h er th e S ec re t ary 's interpre tation of the statute is " rea sonable to wa rra nt defe renc e." See Pauley , 501 U.S. at 702. Her e, the Sec reta

ry ' s interpre tation is plainly rea sonable. The rea sonablene ss of the written ag ree ment require ment was spec ifically addre ssed in Chestnut Hill, where the c ourt conc luded that the " shall . . . allow" languag e in the statute did not eliminate the Sec reta ry ' s discretion and "[a]ccor dingly , the Secr etar y possessed the a

uthority to impose a ' written agree ment' require ment to ensure that reimburseme nt flowed only to those entities meeting , for e x ample, the r equire ment that reimburse ment be limited to hospit als that ' incurre d all, or substantially all, of the c osts for-17-

the tr a ini ngpr og ra

m in that se tti ng .' " 20 06 WL23 80 66 0 at *4 . M or e ov e r, a s Ch e stn ut H ill pointed out, to disallow the written ag ree ment require ment would "f orec los[ e] . . . the application of any of a host of r equire ments imposed by the Secr etar

y to ensure the order ly

administration of the Medica

re pr og ram." I d. This Court ag ree s with the rea soning of Chestnut Hill, as did t he PRR B, which noted the de cision in determiningthat the written a g ree ment require ment was
rea sonable. A.R. at 40. Unde r Chevron step two, the n, the Secr etar y ' s interpre tation of the statute to permit the promulg ation of a written ag ree ment require ment is reasona ble and e ntitled to defe renc e. B. Interpretation of Regulation as Requiring Contemporaneous W ritten Agreeme nt The ne x t question is whether the Sec reta ry rea sonably

interpre ted the re g ulation as requiringa conte mporane ous written agree ment, which wa s the fisca l intermediary ' s basis for reje ctingthe re troac tive MOUs. Plaintiff argues that interpr etingthe re g ulation to require a
c on te mpo ra

ne ou s a g re e me nt i s c on tr ary to t he re g ulatio n' s p la in l angua g e and int e nt. Se e Pl. Mem. at 38-44. Courts "must g ive substantial defe renc e to an a g ency ' s interpre tation of its own regulations." Thomas Jeffe rson Univ. v. Shalala, 512 U.S. 510, 512 (1994) (citingMartin v. Oc cup at i o n al S af

et y an d He al thR ev i ew C o m m 'n , 4 9 9 U. S
. 1 4 4 , 1 5 0 -5 1 (1 9 9 1 ))
. T h e c o urt 's "ta sk is not to decide which a mong se vera l competinginterpre tations best serves the regulatory purp os e . Rathe r, the a g e nc y ' s inte rp re tatio n mu st b e g ive n ' c on tr oll ingwe ig ht u nle ss i t is pla inl y
err oneous or inconsistent with the re g ulation.'" I d. (quoting Bow les v. Seminole Rock & Sand C o . , 3 2 5 U. S
. 4 1 0 , 4 1 4 (1 9 4 5 ))
. "I no th er wo rd s , [ co urt s ] mu s td ef er t o th e S ec re t ary 's interpre tation unless 'a

n alternative rea ding is c ompelled by the re g ulation's pla in lang uag e or by-18-

other indications of the Secre tary ' s intent at the time of the re g ulation's pr omulgation." I d. (quoting Gar debringv. J enkins, 485 U.S. 415, 430 (1988)). The Sec reta

ry points out t hat its interpretation of the regulations (set out in full at § I .A above) as dema

nding a contempora

neous written a g ree ment is reasona ble bec ause the regulation consistently

uses the pre sent or future tense, a nd never the past tense. See 42 C.F.R. § 413.86(f) (4)( ii) (2002) (" The wr itten ag ree ment . . . must indi cate that the hospital will incur [costs] while the re sident is training in the nonhospital site and the hospital is providing
re a so na ble c omp e ns atio n . . . . T he a g re e me nt m us t in dic ate the c omp e ns atio n th e ho sp ita l is pr ov idi ngto t

he no nh os pit a l si te ." ) ( e mph a sis a dd e d) . T he Se c re tary a g a in c ite s to Che stn

ut H ill , wher e the c ourt consider ed this prec ise question and held that " [t ]he Secreta ry ' s interpre tation of the re levant re g ulations to require a contempora

neous written a g ree ment . . . is reasona ble and
e nti tle d to de fe re nc e ." 20 06 WL23 80 66 0, at *5 . Pl a int if f a rgue s th at th e Che stn

ut H ill c ourt

did not have the be nefit of a

letter wr itten in 2000 by

Thomas Scully , then the Administrator of CMS, t o Represe ntative Charles Rang el. Acc ordingto plaintiff, the Scully -Rang el letter demonstrates that the Secre tary at one point interpre ted the re g ulation to permit retroa ctive written agree ments, but now appea rs to have modifie d his interpretation. Pl . Mem. at 40-42. The PRRB re

jected that argument, finding that the letter did not demonstrate a pr ior, diffe rent interpre tation by

the Secr etar

y . A.R. at 41. To de te rm ine wh e the r t

he PRRB ' s a sse ssm e nt o f t he Sc ull y -R ang e l le tte r i s unr e a so na ble
re qu ir e s an e xami natio n o f t he le tte r i tse lf

, whic h s tate s in

pe rt ine nt p art : A wri tte n a g re e me nt s ig ne d b e fo re the tim e the re sid e nts be g in trainingat the non-hospital site indicate s the hospital's ong oing commitment to incur the costs of tra ining at that site. W rittenT h e a dm i n i s tra t i v e d ec i s i o n s i nBarn es Ho s p i t al v . M u tu al o f O m ah a, HC FA Ad m 'r 4 Dec ., Medica

re & Medica id Guide (CCH) ¶ 42,592 ( J uly 5, 1994), and Washing ton Hospital Center v. Mutual of O maha, HCF A Adm' r De c., Medic are & Me dicaid Guide ( CCH) ¶ 36,850 (F eb. 4, 1988), a

re of littl e help to plaintiff. Those case s do not show a contra ry ag ency prac tice with reg ard to the r egulation at issue here . Rather, they involved differ ent re g ulations requiring dif fe re nt k ind s o f wri tte n a g re e me nts fo r d if fe re nt a sp e c ts o f M e dic are re imb ur se me nt. -19- ag ree ments that are retroa ctive for the time the re sidents beg an trainingat the non-hospital site do not demonstrate an ong oing commitment by

that hospital to incur the trainingcosts. The r e tr o a c t i v e a

p p l i c at i o no f

th i s p r o v i s i o nw o u l d

a p p e ar t o b e s o l e l y a vehicle to incr ease GME pay ments to the hospital for a pe riod when tra ining at the non-hospital location was a lrea dy occur ring without the hospital's fa cilitation or commitment to pay for the costs of that training . Howeve r, if [a] hospi tal can doc ument that the re wa s a

c omm itm e nt t o in c ur

the tr a ini ngc os ts b e fo re the tim e that the re sidents beg an tra ining in the [non-hospital site] , we would allow [the] hospital to count the trainingtime of the . . . r e s id e n ts tr a in in gin

th e [n o n - h o s p it a l s it e ]. A.R. at 1926. Th e Sc ull y -R ang e l le tte r c ann ot b e ar t he we ig ht p la int if

f a ssi g ns it. Court s a

re ra re ly pe rs ua de d b y

iso late d le tte rs of

fe re d to de mon str ate that an a g e nc y ' s a c tua l inte rp re tatio n o f i ts regulations contradicts its publicly -stated inter pretation of those regulations. See Thomas J eff erson Univ., 512 U.S. at 515- 16. Skepticism is warrante d here as we ll. The Scully -Rang el le tte r a pp e ars to i nv olv e pa

rt ie s n ot n owbe fo re thi s Co ur t, a nd pla int if f h a s n ot a

rgue d th at it relied on the letter in ele ctingto submita re troac tive written agree ment rathe r than a contempora

neous one. Plaintiff ha s not submit ted other e vidence showing that the Secr etar y has in fac t permitted retr oactive written ag ree ments. And eve n if the final se ntence of the a bove- 4 qu ote d p or

tio n o f t he le tte r c ou ld b e re a d a s a llo wi ngre tr oa c tiv e wr itt e n a g re e me nts in s ome
narr ow circ umstances, the thr ee pr ece ding se ntence s amply demonstrate - - as the PRRB found, see A .R. at 41 -- that the Sec reta ry interpre ts the regulations to require c ontemporane ous written-20-

a g re e me nts . In sum, the Secre tary

is entitled to subst antial def ere nce in c onstruing his own regulations. See Thomas Jeffer son Univ., 512 U.S. at 512. Interpre ting the r egulations to require a conte mporane ous ag ree ment is consistent with the lang uag e of the regulation itself, as the Chestnut Hill court found as we ll. The Scully -Rang el letter doe s not demonstrate that the Se c re tary ha s c ha ng e d h is i nte rp re tatio n o f t he re g ulatio ns be c a

us e the le tte r d oe s n ot e sta bli sh that the Secr etar

y did, in fact, pre viously

interpre t the regulations differe ntly . Under Thomas J eff erson Unive rsity , then, the Secr etar y ' s interpre tation requiring a conte mporane ous written ag ree ment is reasona

ble and e ntitled to defere nce. C. C on te mp oran e ou s B

y law s a nd Em plo y me nt A gr e e me nts Plaintiff also challeng es the PRRB' s determination that conte mporane ous bylaws and employ ment ag ree ments did not satisfy the written a g ree ment require ment. See Am. Compl. ¶ 13 6( C) . T he PRRB fo un d th at th e bylaws and e mpl oy me nt a g re e me nts we re ins uf fi c ie nt t o establish that residents' trainingin non-hospital settings wa s relate d to patient car e and that the hospital incurre d substantially all of the c osts of the reside nts' tra ining in the non- hospital setting. A.R. at 40-41. Plaintiff has provide d no rea son why the PRRB' s decision was a rbitrar y or
c a pr ic iou s, and

ind e e d d e vo te s b ut a

sin g le pa ra g ra phof its me mor and

um i n s up po rt

of its motion to t his issue. See Pl. Mem. at 43-44. This Court, then, sees no re ason to disturb the PRRB ' s d e c isi on

on thi s p oint. T his c on c lus ion is und e rs c or e d b y

the ho ldi ngof

Che stn ut H ill that bylaws and e mploy

ment ag ree ments in that case w ere insufficient to satisfy the written ag ree ment require ment as we ll. 2006 W L2380660, at *5.-21-

D. Conclusion Th e Court

do e s n ot d ist

ur b th e PRRB ' s c on c lus ion

that th e Se c re tary

wa s p e rm itt e d to promulg ate a

written agree ment require ment, that the Secr etar y ' s interpre tation of the require ment to demand a c ontemporane ous ag ree ment was re asonable , and that plaintiff' s bylaws and employ

ment ag ree ments did not satisfy the written a g ree ment require ment. On this issue, then, plaintiff' s motion for summary judgme nt will be denied and the Secre tary ' s motion for summary judgme nt will be gr anted. II. Su ppl em ental IME/GM E Paym ents Plaintiff contends that the Administrator' s decision disallowing the additional I ME and GME pay ment authorized by

BB A ' 97 should be set aside f or five r easons. See Am. Compl. ¶ 135(A)- (E). The Court will address ea ch re ason, albe it under a diff ere nt org anizational framework tha

n the one pr oposed by

plaintiff. Fir st, the Court will ex amine whe ther plaintiff
re c e ive d a de qu ate no tic e of the c la ims fi lin gre qu ir e me nts fo r r e c e ivi ngthe a dd iti on a l I ME /G ME pay ments. This inquiry

require s an asse ssment both of the Secre tary ' s method of providing notice and of

whether plaintiff re ceive d notice as to the spe cific time fr ame within which submissi on of cla ims was require d. Next, the Court will assess plaintiff' s challeng e under the Pa pe rw or k Re du c tio n A c t, 4 4 U .S. C. § 35 01 e t se q. As de sc ri be d a bo ve , th e Court

mus t a pp ly the sta nd ard se t f or th i n th e APA , und e r whic h th e Ad min ist rator ' s d e c isi on

c an b e se t a sid e on ly if it is "unsupported by

substantial evidence ," or "a rbitrar y , capr icious, an abuse of discre tion, or otherwise not in ac corda

nce w ith law." 5 U .S.C. § 706(2)(A) a nd (E).-22-

A. Notice 1. Whether Plaintiff Rece ived Notice T hat Claims for the Supplemental I ME/GME Pay ments Were to be Submitted to the Fisca l I ntermedia ry Pla int if f a sse rt s th at it

did no t r e c e ive a de qu ate no tic e that c la ims fo r t he a dd iti on a l I ME and GME pa

y ments authorized by

BB A ' 97 wer e to be submitted direc tly to the fiscal intermediar

y . See Pl. Mem. at 20-24, 27-31. The statute itself did not set forth the cla ims filing require ment and the Sec reta ry did not promulgate a f

inal rule settingforth the f iling re quirement. No n et h el es s , th e A dm i n i s tra t o r d et erm i n edth atp l ai n t i ff re ce i v edad equ at e n o t i ce th ro u gh anticipatory

languag e in a Ma

y 12, 1998 rule published in the F eder al Reg ister, a July 1, 1998 Prog ram Memor andum, a July 13, 1998 Bulletin, and a

n August 20, 1998 letter from the f iscal intermediar

y to plaintiff. See A.R. at 11-12, 14- 15. Upon re view of those doc uments, the Court conclude s that the Administrator' s decision that plaintiff re ceive d notice of the claims filing require ment was supporte d by substantial evidence
. Th e May 12 , 1 99 8 r

ule state d th e Se c re tary' s " anti c ipatio n" that " te a c hin gho sp ita ls w ill need to submit claims associate d with [ Medica re H MO] dis char g es to the fisca l intermediarie s fo r p ur po se s o f r e c e ivi ng[I ME ] an d [G ME ] pay me nts ." 63 F e d. Re g . 2 6, 31 8, 26 ,3 42 . T he ru le went on to make c lear

that such cla ims were to be submitt ed twice -- onc e to the fisca l intermediar

y for r eimbursement a

nd once to the Me dicar e HMO f or trac king pur

poses. See id. (" When the claims are proce ssed, the fisca l intermediarie s will make the I ME pay ment associate d wi th a [Me dic are HM O] d isc ha rg e dir e c tly

to t he te a c hin gho sp ita l. T e a c hin gho sp ita ls w ill a lso be re quired to submit bill s associate d with [ Medica re H MOs] t o the manag ed ca re pla ns. The inpatient encounte r data

from these bills wil l be submitted . . . for purpose s of implementing the-23-

risk adjustment methodology .") . Henc e, the Ma y 12 rule put plaintiff on notice that the Secr etar y intended to implement the filing require ments now at issue her e. L ess than two months later, on July 1, 1998, the Secr etar

y implemented the filing require ment throug h a Prog ram Memor andum. See A.R. at 569-70. The Prog ram Memor andum specific ally

addre ssed the additional pay ments for I ME and GME a uthorized by

BB A ' 97 and clea rly stated that " hospitals mustsubmit a claim to the hospitals' re g ular interme diary in UB- 92 format." I d. at 569. On Jul y 13, 1998, the Secr etar

y issued Medica

re B ulletin 416, which further
a dd re sse d f ili ngre qu ir e me nts fo r t

he a dd iti on a l I ME pa

y me nts . Se e id. at 52 1. Th e B ull e tin did not addre ss the filing r equire ment in the same, plain ter ms as the Prog ram Memor andum and the May 12 rule. Rather , the B ulletin presumed the r eade r' s familiarity with other terms used in the highly -spec ialized world of Medica re r eimbursement. In any event, the B ulletin does not provide g uidance conflictingwith that clear ly set forth in the Prog ram Memor andum and the Ma y 12 rule. F ina lly , o n Augus t 20 , 1 99 8, the fi sc a l inte rm e dia ry wr ote to p la int if

f i n r e sp on se to plaintiff' s reque st for information about how the additional pay ment authorized by

BB A ' 97
wo u l d b e i mp l em en t ed
. S ee A. R
. at5 1 7 (p l ai n t i ff 's re qu es tfo r i n fo rm at i o n ); 5 1 9 (i n t erm ed i ary 's response ). The f

iscal intermedia

ry wrote that "[t] o bill for the I ME supplemental pay ment, . . . hospitals mustsubmit a claim to the hospital's re g ular interme diary in UB- 92 format." I d. at 519. As for the GME pay

ment, the fisca l intermediary wrote that it would "eve ntually be included with the interim pay

ment curr ently

employ ed" but that "a

neede d sy stem enhanc ement is pending that would acc umulate sepa rate ly the inpatient day s attributable to Medica re [HMOs]." I d. Read tog ether , these four documents -- the May

12 rule, the Program Memor andum, the-24-

Medica re B ulletin, and the August 20 letter -- suppor t the Administrator' s decision that plaintiff ha d n oti c e that c la ims fo r t he a dd iti on a l I ME and

GM E p ay

me nts a uth or ize d b y

B B A ' 97 we re to be submitted directly

to the fiscal inter

mediary , not to the Medicar e HMO. The Prog ram Me mor and

um c le arl y

e xpla ins that " ho sp ita ls mus t su bmi t a c la im" fo r t

he a dd iti on a l I ME /G ME pay ments "to the hospitals' regular interme diary in UB- 92 format." See A.R. at 569. Eve n tho ug h p la int if

f c an v a lid ly

fi nd so me fa ult in t he re ma ini ngthr e e do c ume nts -- the langua g e in the May 12 rule is mere ly

anticipatory , the Medica

re B ulletin is notexpli cit, and the August 20 le tte r o nly

sq ua re ly a dd re sse s c la ims fo r I ME pa

y me nts -- tho se do c ume nts are c on sis te nt w ith the re qu ir e me nt p la inl y

se t f or th i n th e Pr og ra

m Me mor and

um. Plaintiff argues that a f

ifth document, a r egulation issued on J une 26, 1998, outlined a fi lin gre qu ir e me nt t

hat c on tr a dic te d th e g uid anc e se t f or th i n th e se fo ur

do c ume nts . Se e Pl. Me m. at 13. The r egulation cited by plaintiff, 63 Fe d. Reg . 34,968, dealt with the esta blishment of Me dic are HM Os a s p art

of B B A ' 97 and

re qu ir e d M e dic are HM Os to s ub mit e nc ounte r d ata

to CMS (through f

iscal intermedia

ries). I d. at 35,006, 35,092. B ut the J une 26 re g ulation does not addre ss the additional I ME or GME pa y ments authorized by

BB A ' 97. In the fa ce of

the clea r g uid anc e in t

he Pr og ra m Me mor and

um s pe c if ic a lly a dd re ssi ngthe fi lin gre qu ir e me nts fo r t ho se pa y me nts , th e Se c re tary

re a so na bly c on c lud e d th at th e June 26 ru le wa s n ot c on tr a dic tor y a s to bil lin gfo r t

he a dd iti on a l I ME /G ME pa y me nts . Th e APAsta

nd ard of re vie w o nly

pe rm its the Ad

min ist rator ' s d e c isi on

to b e re ve rs e d if

it is "unsupporte d by

substantial evidence ," or is "a rbitrar y , capr icious, an abuse of discre tion, or otherwise not in ac corda

nce w ith law." 5 U .S.C. § 706(2)(A) a nd (E). H ere , the Administrator deter mined that the Prog ram Memor andum and other g uidance outlined above pr ovided plaintiff-25-

with notice of the f

iling re quirement for

the additional I ME and GME pa y ments authorized by BB A ' 97. See A.R. at 11-12, 14- 15. That dete rmination is supported by substantial evidence and he nc e the Ad

min istrator ' s c on c lus ion

that pl a int if

f h a d n oti c e of

the fi lin gre qu ir e me nt m

us t stand. 2. Whe the r t

he Me tho d o f P ro vid ingNo tic e Was Ad e qu ate Th e ne xt que sti on

is whe the r t

he Ad min istra tor a c te d a rb itr ari ly or c a pr ic iou sly in decidingthat the Secr etar y ' s method of providingnotice wa s adequate. The A dminist rator de te rm ine d " that th e APAdo e s n ot r e qu ir e CMS t o p ub lis h a ne w r e g ulatio n und e r t

he se circ umstances. CMS is allowed to promulgate interpre tive rules and guidance ." A .R. at 15. The g ener al proposition underlying the Administrator' s conclusion is straig htforwa rd -- the Secr etar

y is not required to promulg ate inter pretive r ules throug h notice and c omment rulemaking . See Monmouth Medical Ctr. v. Thompson, 257 F.3d 807, 814 & n.2 (D.C. Cir. 2001). B ut the parties d i s p u t e w h et h er

n o t i ce an d

co m m en tru l em ak i n g i s re qu i re d fo r a ni n t er

p re t i v e r u l e r ep l ac i n g a pr e vio us int e rp re tiv e ru le . Pl a int if f a rgue s th at it

is, re lyingon

c a se s li ke Mo nmo uth . Se e Pl. Mem. at 23. As the Sec reta ry points out, however, a

rec ent ca se has c larified that a cha ng e to a prior interpr etive rule only require s notice and c omment rulemakingwhen pa rties re lied on the prior interpr etation substantially and justifiably . See MetWest Inc. v. Sec' y of L abor, 560 F .3d 506, 510-11 (D.C. Cir. 2009). Resolution of this leg al issue is unnece ssary here beca

use plaintiff has fa iled to make an a dequate showing as to a thre shold matter: that the filing require ment (as set forth in the Prog ram Memor andum) is a c hang e to a pr ior interpre tive rule. As discussed in g reater de tail in § I I .A.3 below, the A dminist rator de termined that the fi lin gre qu ir e me nts se t out in the Pr og ra

m Me mor and

um a lso re qu ir e d p la int if

f t o c omp ly

wi th-26-

time limi ts for filingclaims set forth in 42 C.F.R. § 424.30 et se q. See A.R. at 15-16. T o establish that the Secr etar y previously

interpre ted the applica

ble re g ulations differe ntly , plaintiff points to S aint Anthony ' s Hea lth Center v. B lueCross Blue Shield Ass'n/AdminaStar F eder al I lli no is, CMS A dm' r D e c ., Me dic are & Me dic a id Guid e (C CH ) ¶ 81 ,5 47 (Jul y

19 , 2 00 6) . Se e Pl. Me m. at 23 . In Sa int

Antho ny ' s, the Ad

min ist ra tor de te rm ine d th at § 4 24 .3 0 d id n ot a pp ly to service s for whic h "a

n HMO compa

ny is responsible for pa

ying the claim." I d. But that int e rp re tatio n is no t in c on sis te nt w iththe on e a pp lie d b y the Ad min ist rator he re . H MO companies a

re not " responsible for

paying" the additional I ME/GME pay ments authorized by BB A ' 97. As discussed ea rlier, §§ 4622 a

nd 4624 of B BA' 97 direc ted the Secr etar y , not the HM O, to m ake tho se pa

y me nts . Wit hout a prior c ontrary

interpre tation, the g ener al proposition that interpretive r ules may b e p ro mu l gat edi n fo rm al l y ap p l i es . S ee M o n m o u th , 2 5 7 F. 3 d at8 1 4
. T h e A dm i n i s tra t o r's decision that the Prog ram Memor andum was a validly -issued interpr etive rule , then, was not
arb itr ary or c a pr ic iou s. 3. Whe the r P la int if

f R e c e ive d N oti c e of

Ti me L imi ts Th e fi na l is su e re g ard ingno tic e is whe the r p la int if f h a d n oti c e that it

wa s r e qu ir e d to fi le claims for the additional I ME/GME pay ments within a specific time frame . I f plaintiff did have notice of the deadline f

or filing , then ce rtain other a rguments it raises -- like its ar g ument that the fiscal inter

mediary disreg arde d the best ava ilable evidenc e in deny ing pla intiff the additional I ME /G ME pa

y me nts -- may

fa ll f lat. O n th e oth e r h and , th os e argume nts c arr y g re ate r w e ig ht i f plaintiff did not have notice of the time fr ames for filing c laims directly

with the intermediar

y . The Administrator de termined that the time limits set out i n 42 C.F.R. §§ 424.30 and-27-

424.44 applied. A.R. at 15-16. T he Administrator did not point to any rule or inf

ormal notice that expli citly

incorpora

ted the time limits from that re gulation. Rather, the Administrator
e xpla ine d th at: The only

exception to the claims proce ssing r equire ments at 42 C.F.R. § 424.30 is for ser vices fur nished on a pre paid ca

pitation basis to the benef

iciary by a mana g ed ca

re pla n, which is not at issue here . The c laims in the instant case we re c laims for an e sta bli sh e d r e imb ur se me nt m e tho do logy fo r h os pit a ls' c os ts associate d with beinga tea chinghospital and not for the se rvice s f ur n is h e d to a ma n a g e d c ar e e n r o ll e e s [s ic ]. A.R. at 15-16. Plaintiff does not conte nd (nor c an it) that it met the § 424.44 time limi ts, which require claims to be filed " (1) [o]n or before Dec ember 31 of the followingy ear

for se rvice s that
wer e fur nished duringthe first 9 months of a c alenda r y ear ; and (2) [o]n or before Dec ember 31 of the sec ond following y ear for se rvice s that were furnished dur ing the last 3 months of the
c a le nd ar ye ar. " 42 C.F .R. § 4 24 .4 4. No ne the le ss, pla int if f a ve rs that it

did su bmi t e nc ounte r d ata dir e c tly to t he fi sc a l inte rm e dia

ry , a lbe it i t w e ll b e y on d th e § 4 24 .4 4 ti me lim its . Se e Am
. Compl. ¶¶ 92, 98, 102. To deter mine whether

the Administrator' s decision was a rbitrar y or ca pricious, the Court
may a sse ss " so le ly

. . . th e g ro un ds inv ok e d b y the a g e nc y ," and

may no t c on sid e r c ouns e l' s p os t hoc explanations. Clark County , Neva da v. F AA, 522 F .3d 437, 448 (D.C. Cir. 2008) (quoting SEC v. C hener

y , 332 U.S. 194, 196 (1947)). H ere , in decidingthat the time limit s from 42 C.F.R. § 424.44 apply

to claims for the a dditional I ME/GME pay ment, the Administrator did not explain his rea soning in suff icient detail to per

mit the Court to t est his conclusion. At least three aspec ts of the Administrator' s decision wer e too conc lusory to permit the
re vie w this Court

mus t un de rt ake . F ir st, the Ad min istra tor did no t e xpla in why

the e xce pti on

to-28-

§ 4 24 .3 0 w a s in a

pp lic a ble . T he PRRB ha d d e te rm ine d th at §§ 42 4. 30 and 42 4. 44 did

no t a pp ly to claims for the a dditional I ME/GME pay ments, see A.R. at 36-37, bec ause those time limits do not apply "when ser

vices a re f urnished on a pr epaid c apitation basis by a [Medicar e HMO]," se e § 424.30. In reve rsingthe PRRB, the Administrator stated simply that the exception "is not at issue here ." A .R. at 15. Next, t he Administrator c hara cter ized the claims -- without explanation

-- a s b e ing" fo r a

n e sta bli sh e d r e imb ur se me nt m e tho do logy fo r h os pit a ls' c os ts a sso c iate d w ith bei ng a te achi ng ho sp it al a ndno t f or t he s ervi ces f

urn is hedto a ma naged ca re en rol lee s [ si c] ." But this char acte rization is debatable and me rits at least some discussion. Indeed, the additional I ME/GME pay

ment authorized by

BB A ' 97 was de signe d to reimburse te achinghospitals for the costs of g raduate medica l education incurred while furnishingservice s to manag ed ca re enrollee s. Finally , the Administrator appe ars to have assumed that the c laims for the a dditional I ME/GME pay

ments fell under

Medica re pa rt A. See A .R. at 12-13. B ut, as the brief ing demonstrates, the re is a le g itimate debate a s to whether the se pay ments fall under

Medica re pa rt A or pa rt C. Compare De f. Opp. at 38-40 (ar g uing that the pay ments fall under

Medica re pa rt A) and De f. Rep. at 14- 18 (same) , with Pl. R ep. at 23- 26 (ar g uing that the pay ments fall under Medica re pa rt C) and Pl. Sur. at 1-5 (same). On this recor d, the Court cannot de termine whe ther the A dminist rator' s decision that the time limi ts from 42 C.F.R. §§ 424.30 and 424.44 a pplied should be left undisturbed. The appropr iate re medy

in this si tuation is a remand f or fur ther e x planation. See F lorida Power & L ight Co. v. L orion, 470 U.S. 729, 744 (1985) (holdingthat "if the re viewingcourt simply cannot
e va luate the c ha lle ng e d a g e nc y a c tio n o n th e ba sis of

the re c or d b e fo re it, the pr op e r c ours e . . . is to remand to the a g ency

for a dditional . . . ex planation" ); Tourus Rec ords, Inc. v. DEA , 259 F.3d-29-

731, 737 (D.C. Cir. 2001) (same). Ac cording ly , this iss ue will be re manded to the Sec reta ry for further explanation as to whether the time limi ts from 42 C.F.R. §§ 424.30 and 424.44 a pply , and i f s o , w h y. B. Plaintiff

's C laims Under the Pape rwork Reduction Ac t Th e fi na l is su e c on c e rn s p la int if f' s c la ims un de r t

he Pa pe rw or k Re du c tio n A c t, 4 4 U .S. C. § 3501 et seq. (" PRA"). Althoug h raised be fore the Administrator, see A.R. at 104-06, the Ad min istrator

did no t a dd re ss t he se c la ims in h is wri tte n d e c isi on . N on e the le ss, in t he ir c ro ssmotions for summary

judgme nt, the parties de vote consider able attention to the issue. W hen the Administrator fails to addre ss a potentially meritorious claim, the a

ppropriate reme dy

is remand for f urther e x planation. See F lorida Power, 470 U .S. at 744. There fore , the Court does not de c ide thi s is su e in t

he fi rs t in sta

nc e he re . T he dis c us sio n b e low , th e n, is o nly int e nd e d to demonstrate that plaintiff' s claims under the PRA are suff iciently colora ble to have w arr anted examination by

the Administrator. Th e pu bli c pr ote c tio n p ro vis ion

of the PRApr ov ide s th at " no pe rs on sh a ll b e su

bje c t to any penalty for f ailing to c omply

with a collec tion of information . . . if the collec tion of inf or matio n d oe s n ot d isp lay

a va lid c on tr ol n umb e r a ssi g ne d b y

the Di re c tor

in a c c or da

nc e wi th this subchapter." 44 U.S.C. § 3512(a). A " penalty " is de fined to include the denial of a benef it, § 3502(14), a

nd a " collection of infor

mation" include s "obta ining, c ausingto be obtained, soliciting, or r equiringthe disclosure to third par ties or the public, of f

acts or opinions by

or for an ag ency ," § 3502( 3). De nying r eimbursement f or fa ilure to provide c laims information to the fiscal inter

mediary would seem to fa ll within t he scope of the public prote ction provision. The Sec reta

ry argues that the c ollection of information at issue here is valid. The UB -92-30-

claims forms bea

r a c ontrol number indicatingapprova l by the Off ice of Manag ement and Budg et, the ar g ument g oes, so the public prote ction provision of the PRA does not apply . See Def . Rep. at 21-22. B ut this conclusion is notinesca pable be cause the claims filingrequire ment
ati s s u e h e r e w a s a

n e wu s e o f

th e U B
- 9 2 f

o r m . Is s u an c e o f

c o n tr o l nu mb e r s i s g o v e r n e d b y § 3 5 0 7 , an d

§ 3 5 0 7 (h ) ap p l i es wh en an age n cy "d ec i d es t o s ee k

ex t en s i o no f t h e D i re ct o r's approva l gr anted f

or a c urre ntly

approve d collection of infor mation." Unde r § 3507(h) , the ag ency must conduct an e x tensive re view, which inc ludes seekingpublic comment, to extend the use of a previously -appr oved collec tion of information. Indeed, that is the practice the Secr etar y appea rs to have f

ollowed when se ekingto ext end the use of the UB -92 for ms to other collections of information. See, e.g ., 63 Fe d. Reg . 34,903 (June 26, 1998) (see king public c omment for extension of UB-92 to a

new c ollection of information). The Sec reta

ry opposes plaintiff' s PRA claims on two other g rounds. Fir st, the Secre tary argues that he ha s g ener al authority to require the filing of pape rwork unde r 42 U.S.C. § 1395g (a) , so he is not require d to follow the strictures of the PRA in iss uing the claims filing
re qu ir e me nt at is su e he re . Se e De f. Op p. at 41 -4 4. B ut t hat argume nt m ay

pr ov e too muc h - - i f the Secr etar

y may ignor e the r equire ments of the PRA, then the PRA may be quite toothless. Second, the Sec reta

ry contends that the PRA does not apply when infor

mation is collected pursuant to an investig ation or audit. See D ef. O pp. at 42 (c iting § 3518(c )). B ut here the filing require ment is not a collection of infor mation assembled pursua nt to an investigation or audit. Rathe r, it i s g e ne ra lly

a pp lic a ble -- any te a c hin gho sp ita l se e kin gthe a dd iti on a l I ME /G ME pa y me nts a uth or ize d b y

B B A ' 97 is r e qu ir e d to c omp ly wi th i t. Th e se argume nts me ri t f

ur the r d e ve lop me nt a

nd sh ou ld h ave be e n a dd

re sse d in the fi rs t-31-

instance by

the Administrator. He nce, pla intiff' s claims under the PRA will be re manded to the Secre tary for f urther e x planation and de cision. CO NC LU SION In sum, with respec t to the Administ rator' s decision that plaintiff did not comply with the
va lid ly -i ssu e d wri tte n a g re e me nt r e qu ir e me nt, the Se c re tary' s mo tio n f or summa ry jud g me nt w ill be g rante d and plaintiff' s motion for summary judgme nt will be denied. As to the Ad min istrator ' s d e c isi on

that pl a int if

f d id n ot c omp ly

wi th c la ims fi lin gre qu ir e me nts in o rd e r t o
rec eive the supple mental I ME and GME pa y ments authorized by

BB A ' 97, eac h party ' s motion will be g rante d in part and de nied in part. The Administrator' s decision that plaintiff had notice that claims wer e to be submitted to the fisca l intermediary , and that notice a nd comment rulemakingwas unne cessa ry for this kind of interpre tive rule, wa s supported by substantial
e vid e nc e and

wa s n ot a

rb itr ary or c a pr ic iou s. B ut t

he Ad min istra tor did no t pr ov ide an a de qu ate explanation as to why

plaintiff had suff

icient notice a s to the time lim its for filing c laims. Nor did the Ad min istrator

a dd re ss p la int if

f' s c la ims un de r t

he PRA , whic h a

re su ff ic ie ntl y c olo ra ble to have wa

rra nted explanation. Accor dingly , this case sha ll be rema nded to the Secr etar

y for resolution of these issues. Asepar ate Or der a ccompa nies this opinion. SO OR DE RE D
. /s/ JohnD. B ate s J OHN D. B ATES Un i t edS t at es Di s tri ctJ u d ge Date: July

7, 2009