Court Opinion

ID: 3003795
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:32:03.556569+00
Date Added: 2024-06-11T09:49:39.131430
License: Public Domain

In the

United States Court of Appeals
               For the Seventh Circuit

No. 09-1665

L ITTLE C OMPANY O F M ARY H OSPITAL,

                                                  Plaintiff-Appellant,
                                  v.

K ATHLEEN S EBELIUS, Secretary, U.S. Department of
Health and Human Services,
                                       Defendant-Appellee.

             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
             No. 06-C-6430—Wayne R. Andersen, Judge.

  A RGUED S EPTEMBER 15, 2009—D ECIDED N OVEMBER 24, 2009

  Before P OSNER, F LAUM, and R OVNER, Circuit Judges.
  F LAUM, Circuit Judge. In 2003, plaintiff-appellant, Little
Company of Mary Hospital (Little Company), requested
that their assigned Medicare financial intermediary
(Intermediary) reopen and reconsider several issues
in Little Company’s cost report from 1998. When the
Intermediary reopened only one of the challenged issues,
2                                                No. 09-1665

Little Company appealed all of the challenged issues to
the Provider Reimbursement Board (PRRB). The PRRB
dismissed the appeal of the non-reopened issues. Little
Company appealed the PRRB’s dismissal to the district
court. The district court granted summary judgment in
favor of the defendant-appellee, the Secretary of Health
and Human Services (Secretary). This appeal follows. For
the reasons set forth below, we affirm the district
court’s grant of summary judgment.

                      I. Background
A. The Medicaid Reimbursement Process
  Hospitals that participate in the Medicare program
must enter into a provider agreement with the U.S. Depart-
ment of Health and Human Services to receive Medicare
reimbursement. Those hospitals participating in the
Medicare program that serve a disproportionate share
of low income patients are entitled to a Disproportionate
Share Hospital (DSH) payment adjustment. The DSH
payment adjustment requires the calculation of the dis-
proportionate patient percentage. The disproportionate
patient percentage is the sum of the Medicaid Fraction 1

1
  The Medicaid Fraction is the number of hospital patient days
for patients eligible for medical assistance under a State
Medicaid plan but who are not entitled to Medicare Part I,
divided by the total number of hospital patient days. 42
U.S.C. § 1395ww(d)(5)(F)(vi)(II).
No. 09-1665                                                    3

and the Supplemental Security Income (SSI) Fraction.2
See 42 U.S.C. § 1395ww(d)(5)(F)(vi).
  When filing for reimbursement from the Medicare
program, the provider must first file an annual cost
report with an assigned Intermediary. The Intermediary
then conducts an audit, accounts for interim payments
to the provider, and issues an initial “notice of program
reimbursement” (NPR). The provider may appeal the
initial NPR to the PRRB within 180 days if at least
$10,000 is at issue. 42 U.S.C. § 1395oo(a). Upon appeal,
the Secretary’s delegate, the Administrator of the
Centers for Medicare and Medicaid Services (CMS),
may review the decision of the PRRB. If the provider is
dissatisfied with the decision of the PRRB and the CMS
Administrator, the provider may request that a federal
district court review the decision. 42 U.S.C. § 1395oo(f)(1).
  When a provider does not file a timely appeal of the
initial NPR, the NPR is considered finalized. 42 C.F.R.
§ 405.1807 (2009). However, under 42 C.F.R. § 405.1885(a)
(2004)3 —a set of regulations separate from those governing

2
  The SSI Fraction is the number of hospital patient days for
patients entitled to benefits under both Medicare Part A and
the SSI program divided by the total number of hospital patient
days for patients entitled to Medicare Part A. 42 U.S.C.
§ 1395ww(d)(5)(F)(vi)(I).
3
  In 2008 the Secretary substantively amended 42 C.F.R.
§ 405.1885. This amendment resulted in a significant change
to the appeals rights of a provider after a reopening. Therefore,
                                                   (continued...)
4                                                    No. 09-1665

the appeals process discussed above—the Intermediary
may reopen specific findings on matters at issue within
three years of the initial NPR based on a request by
the provider or on its own initiative. At the close of the
reopening, the Intermediary issues a revised NPR on the
specific issues reopened. The parts of the NPR that the
Intermediary did not reopen remain finalized in the
initial NPR. With regards to the specific issues reopened,
the provider has the rights of appeal discussed above.
42 C.F.R. § 405.1889 (2009).

B. The Medicaid Reimbursement Process In This Case
  Little Company is a hospital that participates in the
Medicare program and is entitled to a DSH payment
adjustment. On September 12, 2000, Little Company’s
assigned Intermediary issued an initial NPR for Little
Company’s cost reporting period ending June 20, 1998.
The NPR was finalized when Little Company failed to
appeal to the PRRB or the CMS Administrator within
180 days. On September 5, 2003, Little Company sub-
mitted a request for reopening of the finalized 1998 NPR
regarding the calculation of the Medicaid Fraction and
the SSI Fraction. Shortly after this request, on November 3,

3
  (...continued)
throughout this opinion all citations to 42 C.F.R. § 405.1885
reference the regulation as it was in 2004, the year relevant
to this case. All other references to the C.F.R. are to the current
version, which has remained substantively unchanged
since 2004.
No. 09-1665                                               5

2003, an email exchange occurred between two em-
ployees of the Intermediary regarding Little Company’s
1998 cost report. The email stated, “Chris, I just realized
that there are only Primary, Secondary and HMO sup-
ports. Can you please send supports for the SSI Eligible
Days as well? Thank you, Mark K.”
  Almost exactly a year after this email exchange, on
November 11, 2004, the Intermediary issued a Notice
of Reopening. The Notice of Reopening stated:
    In accordance with this Regulation, we have deter-
    mined that your cost report will be reopened for the
    following reason(s): The Intermediary notes that the
    Provider has requested a reopening to include
    Medicaid Additional Eligible Days (757) and Baby
    Additional Days (82) for the DSH computation.
The Notice of Reopening made no mention of reopening
the SSI Fraction and the Intermediary did not issue a
separate Notice of Reopening regarding the SSI Fraction.
On November 17, 2004, the Intermediary issued a
revised NPR with an adjusted Medicaid Fraction.
  On January 26, 2005, Little Company appealed the
revised NPR to the PRRB. Specifically, Little Company
appealed the revised Medicaid Fraction and the failure
to revise the SSI Fraction. On March 3, 2005, the Inter-
mediary filed a jurisdictional challenge to Little Company’s
appeal of the failure to adjust the SSI Fraction. The Inter-
mediary claimed the SSI Fraction was not reopened
and therefore remained finalized from the NPR issued
in 2000. On February 15, 2006, the PRRB sustained the
Intermediary’s challenge to Little Company’s appeal of
the SSI Fraction and dismissed the issue.
6                                            No. 09-1665

  On November 27, 2006, Little Company filed suit in
the Northern District of Illinois challenging the PRRB’s
jurisdictional decision. On October 18, 2007, Little Com-
pany filed a motion to permit discovery of decisions by
the PRRB and CMS Administrator in similar administra-
tive appeals. The district court denied this discovery
motion, finding that judicial review of the PRRB’s final
decision on Little Company’s appeal should be based
solely on the certified administrative record.
  Both parties filed for summary judgment. The district
court granted summary judgment in favor of the Secre-
tary. The district court found that the evidence in
the record supported the PRRB’s finding that the Inter-
mediary did not reopen the SSI Fraction, and therefore,
the PRRB properly dismissed that issue.
  On appeal, Little Company challenges the district
court’s grant of summary judgment in favor of the Secre-
tary and the district court’s denial of the motion for
discovery outside of the administrative record.

                     II. Discussion
A. Summary Judgment
  We review a district court’s grant of summary judg-
ment de novo. Argyropoulous v. City of Alton, 539 F.3d
724, 732 (7th Cir. 2008). Summary judgment is proper
where “there is no genuine issue of material fact and
the moving party is entitled to a judgment as a matter
of law.” Fed. R. Civ. P. 56(c).
No. 09-1665                                                  7

  As a preliminary matter, Little Company challenges
the district court’s grant of summary judgment by
arguing that the district court granted too much
deference to the PRRB’s decision below. The district court
indicated that it reviewed the PRRB’s decision under
the standard of review set forth in the Administrative
Procedure Act (APA). The APA requires that an agency’s
decision be set aside only if it is arbitrary, capricious,
an abuse of discretion, unsupported by substantial evi-
dence in the case, or not in accordance with the law. See
Edgewater v. Bowen, 857 F.3d 1123, 1129 (7th Cir. 1989).
This is the proper standard of review for district courts
reviewing decision of the PRRB regarding reimbursement.
  Little Company challenges this degree of deference
based on this court’s statement in Edgewater that “a
lesser degree of deference is required when reviewing the
secretary’s actions under the Medicare Act’s reimburse-
ment provisions.” 857 F.2d at 1130. However, reliance
on this statement is misplaced. This statement in
Edgewater references a series of cases where we found
that the “Medicare statute specifically circumscribes
the Secretary’s discretion to define ‘reasonable cost’.” See
St. James Hospital v. Heckler, 760 F.2d 1460 (7th Cir. 1985);
St. Francis Hospital Center v. Heckler, 714 F.2d 872 (7th Cir.
1983); Northwest Hospital, Inc. v. Hospital Services Corp., 687
F.2d 985 (7th Cir. 1982); St. John’s Hickey Memorial Hospital,
Inc. v. Califano, 599 F.2d 803 (7th Cir. 1979). These cases
reason that the highly specific language in the Medicare
Act regarding “reasonable cost” limits the amount of
deference courts should grant to the Secretary’s inter-
pretation of that term. However, this court has never
8                                              No. 09-1665

disavowed the APA standard of review for Medicare
provider reimbursement decisions more broadly. See
Edgewater, 857 F.2d at 1129 (“We defer to the decision of
the Secretary (acting through the PRRB) unless it is
found to be arbitrary, capricious, or not in accordance
with the law.”). As is true of deference to any decision by
an administrative agency, this deference is limited by
the clear meaning of the statute as revealed by its
language, purpose, and history. Id. However, Little Com-
pany does not advance any argument that the plain
language of the statute and regulations mandate an
outcome different from what occurred in the district court.
  The parties agree that whether the district court
properly granted summary judgment hinges on whether
the Intermediary reopened the SSI Fraction when it
reopened the Medicaid Fraction. An Intermediary’s
decision to reopen an annual report is issue-specific. 42
C.F.R. § 405.1885(a) (2004) (“A determination of an Inter-
mediary officer . . . may be reopened with respect to
findings on matters at issue in such determination or
decision”). The Secretary argues, and the district court
agreed, that the Intermediary did not reopen the SSI
Fraction and therefore the PRRB, and subsequently
the district court, did not have jurisdiction to review
the lack of adjustment of the SSI Fraction. Based on
Your Home Visiting Nurse Services v. Shalala, 525 U.S. 449
(1999), if the Intermediary chose not to reopen the SSI
Fraction, that decision is not appealable and the initial
SSI Fraction determination must stand unchallenged. In
Your Home, the Supreme Court upheld the Secretary’s
interpretation of the Medicare regulations: “A refusal by
No. 09-1665                                               9

the Intermediary to grant a reopening request by the
provider is not appealable to the Board, pursuant to 42
C.F.R. § 405.1885(c).” 525 U.S. at 452. The Court found it
instructive that “42 C.F.R. § 405.1889 says that an Interme-
diary’s affirmative decision to reopen and revise a
reimbursement determination ‘shall be considered a
separate and distinct determination’ to which regulations
authorizing appeal to the Board are applicable; but it
says nothing about appeal of a refusal to reopen.” Id.
at 453. Therefore, based on the regulations and settled
Supreme Court precedent, the PRRB, and subsequently
the district court, do not have jurisdiction to hear an
appeal of the SSI Fraction if the Intermediary did not
reopen it.
  However, Your Home offers no guidance on what
factors the PRRB, and subsequently the district court,
should consider when distinguishing between situations
where the Intermediary did not reopen a given issue
and where the Intermediary did reopen an issue but
simply did not adjust the challenged issue. Little
Company argues that Your Home is not applicable here
because the Intermediary did reopen both fractions but
only chose to adjust the Medicaid Fraction. They urge
this court to focus on Edgewater Hospital v. Bowen, 857
F.2d 1123 (7th Cir. 1989). In Edgewater we held that
simply because the Intermediary did not adjust an issue
does not mean that the Intermediary did not reopen
that issue. 857 F.2d at 1136-37. Little Company attempts
to extend Edgewater to stand for the proposition that a
court should consider all items challenged by the provider
to be reopened if the Intermediary reopens any issue
10                                             No. 09-1665

challenged by the provider. This reading of Edgewater
overstates its holding. In Edgewater we found, based on the
specific facts involved in that case, the reopening was a
reconsideration of all cost items challenged by the pro-
vider. However, Edgewater does not stand for a broad
standard requiring courts to look to the items challenged
to determine what issues the Intermediary reopened.
Rather, in Edgewater, we looked to the specific affirmative
actions the Intermediary took regarding the four chal-
lenged items to make the fact-specific determination that
the Intermediary did reopen all four items. Id. at 1135.
We reasoned that the following affirmative actions
amounted to a reopening: (1) the Intermediary reopened
the first NPR; (2) the Intermediary sent Edgewater a
letter on March 22, 1984 explaining that it would not
change three items but had been persuaded to allow the
fourth claim; and (3) the Intermediary sent the second
NPR with the revised cost reports incorporating the
adjustment. Id. We went on to explain, “the Intermediary
acknowledged that it decided not to change three of
the cost items. That decision itself was a reconsideration,
an affirmative action . . . to re-examine or question the
correctness of a determination or decision otherwise
final.” Id. at 1136.
  In this case, the Intermediary did not take affirmative
actions that would demonstrate it reopened the SSI Frac-
tion. The Intermediary took the affirmative step of
sending a reopening notice regarding the Medicaid Frac-
tion, but did not take any sort of similar affirmative
action regarding the SSI Fraction. Little Company argues
that this silence regarding the SSI Fraction is not
No. 09-1665                                             11

dispositive because a lack of adjustment does not equate
to a lack of reopening. However, the reopening notice
was not a notice of adjustment on any issue. Instead, the
reopening notice was the formal statement of what issue
the Intermediary had agreed to reopen and reconsider
based upon Little Company’s request. Therefore, unlike
the Intermediary’s decision in Edgewater to reopen the
entire first NPR, the facts here indicate the Intermediary
decided to reopen the NPR only with respect to the
Medicaid Fraction. Furthermore, unlike the Intermediary
in Edgewater, which indicated that it examined all four
issues upon reopening but chose to adjust only one,
the Intermediary in this case made no representation
that they examined the SSI Fraction.
   Little Company also argues that the district court
placed too much emphasis on the Intermediary’s silence
regarding the SSI Fraction in the written explanation of
the revised NPR. Little Company points to 42 C.F.R.
§ 405.1887, requiring the Intermediary to explain only
its decision to make revisions, not its reopening deci-
sions, to support its argument that the Intermediary’s
silence is not determinative. However, in addition to
requiring the Intermediary to explain any revisions,
42 C.F.R. § 405.1887 explicitly states, “All parties to any
reopening described above shall be given written notice of
the reopening.” Little Company’s argument ignores this
requirement that the Intermediary provide written
notice of the reopening. In this case, the Intermediary
provided written notice of its intent to reopen the
Medicaid Fraction but did not provide written notice of
its intent to reopen the SSI Fraction. This silence in the
12                                            No. 09-1665

reopening notice indicates that the Intermediary did not
reopen the SSI Fraction.
  Finally, Little Company points to the email exchange
in late October and early November of 2003 as affirma-
tive evidence that the Intermediary reopened the SSI
Fraction. Because this email discusses collecting the
data relied on for the SSI Fraction determination, this
email does raise some questions as to whether the Inter-
mediary reconsidered the SSI Fraction. However, these
emails were sent more than a year before the Inter-
mediary decided to reopen any part of the NPR. When
considered with the Intermediary’s Notice of Reopening,
which does not list the SSI Fraction as an issue to be
reopened, this email exchange does not amount to an
affirmative action sufficient to consider the issue re-
opened. This email exchange merely indicates that the
Intermediary gathered information to decide whether to
reopen the SSI Fraction. To consider such information
gathering a sign that the Intermediary reopened the SSI
Fraction would force Intermediaries to choose between
blindly making reopening decisions, refusing to reopen
any issue in a reopening request, or granting providers
a way to circumvent the 180-day statutory time limit to
appeal by requesting a reopening.
  The Intermediary in this case followed the proper
procedure when dealing with Little Company’s
reopening request. First, the Intermediary considered
which, if any, issues should be reopened. Upon making
that decision, the Intermediary issued a Notice of Reopen-
ing specifically informing Little Company that the
No. 09-1665                                              13

Medicaid Fraction was being reopened. Finally, by not
informing Little Company that they intended to reopen
the SSI Fraction, the Intermediary effectively denied that
reopening request.

B. The District Court’s Denial of Little Company’s
   Discovery Motion
  In addition to challenging the district court’s grant of
summary judgment, Little Company claims that the
district court erred by not permitting discovery of the
PRRB’s precedent in similar cases and any affirmative
actions taken by the Intermediary to reconsider the SSI
Fraction. We review a district court’s denial of discovery
under an abuse of discretion standard. Walker v. Sheanhan,
526 F.3d 973, 977-78 (7th Cir. 2008). As a general rule,
under the APA, review of an agency’s decision is
confined to the administrative record to determine
whether, based on the information presented to the
administrative agency, the agency’s decision is arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with the law. Smith v. Office of Civilian Health
& Med. Program of the Uniformed Services, 97 F.3d 950, 954-
55 (7th Cir. 1996).
  In denying Little Company’s request for discovery of
the PRRB’s decisions in similar cases, the district court
applied the general rule that discovery outside of the
administrative record is inappropriate. Additionally, the
district court reasoned that discovery of decisions in
similar cases would not be relevant to the case at hand and
would inject collateral issues into the case. Little Company
14                                              No. 09-1665

argues that their situation falls within an exception to the
general rule. We have recognized an exception to this
general rule when “discovery is . . . necessary to create a
record without which the challenge to the agency’s action
cannot be evaluated.” See USA Group Loan Service, Inc. v.
Riley, 82 F.3d 708, 715 (7th Cir. 1996). However, this
court has rarely found this exception to apply and has
generally upheld the rule that review of an administra-
tive decision should be confined to the administrative
record. See id. (holding this exception inapplicable
despite the court’s recognition that the record was
lacking certain information because of the nature of the
underlying proceedings). The district court did not abuse
its discretion in finding that this exception did not
apply and rejecting Little Company’s discovery request.
   With respect to the district court’s denial of Little Com-
pany’s second discovery request, plaintiff-appellant
never requested discovery of the Intermediary’s actions
regarding its reopening decision. Instead, Little Company
first raised this issue in their response to the Secretary’s
Motion for Summary Judgment. The district court made
no explicit finding on this request for discovery, but did
implicitly rule on this issue by granting summary judg-
ment in favor of the Secretary. Little Company argues that
the record is incomplete because the record before the
PRRB, which is the record before the district court, lacks
any evidence of the affirmative actions the Intermediary
may have taken in making the reopening determination.
However, this argument fails to recognize that the
district court’s role is to review the decision of the PRRB
based on the evidence presented to the PRRB. See Smith,
No. 09-1665                                            15

97 F.3d at 955. Little Company admits that it is seeking
information that was not before the PRRB, and that it
did not seek to introduce before the PRRB, but does not
explain how obtaining this information would assist
the district court in evaluating the decision of the PRRB.
The district court did not abuse its discretion in
denying this request for discovery.

                    III. Conclusion
  We agree with the district court that the evidence in
the record supports the PRRB’s dismissal of Little Com-
pany’s challenge to the SSI Fraction. For the foregoing
reasons, we A FFIRM the district court’s grant of sum-
mary judgment and denial of Little Company’s two
discovery motions.

                         11-24-09