Court Opinion

ID: 2659023
Source: CourtListenerOpinion
Date Created: 2014-03-31 21:45:59.77608+00
Date Added: 2024-06-11T12:19:28.920813
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

ALEGENT HEALTH - IMMANUEL )
MEDICAL CENTER, )
)

)

Plaintiff, )

)

v. ) Civil Case No. 12-812 (RJL)

)

KATHLEEN SEBELIUS, Secretary, )
Department of Health and Human Services, )

D f d § F I L E D
e en ant.
MAR 3 1 2014
5 'l~ _ _
  Cl&fk, U.S. DlS'(|'|Cf & BHI\KFUDlCV

Courts for the District of Co|umbia
(March §l_, 2014)(1)1¢. ##15, 18)

Plaintiff Alegent Health - Immanuel Medical Center ("Alegent" or “plaintiff")
brought this action against Kathleen Sebelius ("Secretary"), in her official capacity as
Secretary of the United States Department of Health and Human Services ("HHS"),
pursuant to 42 U.S.C. § 1395 et seq., seeking judicial review of the Secretary’s denial of
reimbursements for costs associated with offsite medical resident training during the
fiscal years ending on June 30, 2002 and June 30, 2003. See Compl. [Dkt. #l]. Before
the Court are the parties’ cross-motions for summary judgment. Upon consideration of
the parties’ pleadings, relevant laW, and the entire record in this case, defendant’s Motion
for Summary Judgment [Dkt. #18] is GRANTED and plaintiff’ s Motion for Summary

Judgment [Dkt. #l5] is DENIED.

BACKGROUND
A. Statutory and Regulatory Backgr0und
The Medicare Act provides health insurance benefits to eligible elderly and
disabled persons. See 42 U.S.C. § 1395 et seq. The Centers for Medicare and Medicaid
Services ("CMS") administers the program for the Secretary. See 42 U.S.C. § l395kk;
42 C.F.R. § 400.200 et seq. Medicare Part A serves as insurance for hospital care,
related post-hospital care, home health services, and hospice care. See 42 U.S.C. §
l395c et seq. The Secretary contracts with fiscal intermediaries to determine and process
payments to hospitals. See 42 U.S.C. § l395h. At the close of the fiscal year, a
participating hospital submits a cost report to its interrnediary. See 42 C.F.R. §§ 413.20,
413.24. After auditing the report, the intermediary issues a Notice of Program
Reimbursement ("NPR"). See 42 C.F.R. § 405.l803. A hospital may challenge an NPR
by requesting a hearing before the Provider Reimbursement RevieW Board ("PRRB").
See 42 U.S.C. § l395oo(a). The PRRB’s decision is subject to review by the CMS
Administrator ("Administrator"). See 42 U.S.C. § l395oo(f)(l); 42 C.F.R. §
405.l875(a). The Administrator’s decision constitutes a final agency decision subject to
judicial review. See 42 U.S.C. § l395oo(f`)(l); 42 C.F.R. § 405.1875.
Hospitals are paid standardized rates for designated hospital-provided outpatient

services, subject to payment adjustments and additional payments for particular types of

costs. See 42 C.F.R. § 4l9.2. Under Part A of the Medicare program, hospitals that

adequate to support a conclusion."’ Consolo v. Fea'. Mar. Comm ’n, 383 U.S. 607,
619~20 (1966) (quoting Consol. Edison C0. of New York v. NLRB, 305 U.S. l97, 229
(l938)). Substantial evidence "is something less than the weight of the evidence, and the
possibility of drawing two inconsistent conclusions from the evidence does not prevent an
administrative agency’s finding from being supported by substantial evidence." Ia’. at
620. In applying the substantial evidence standard, the reviewing court may not
"displace . . . [a] choice between two fairly conflicting views, even though the court
would justifiably have made a different choice had the matter been before it de novo."
Um'versal Camera Corp. v. NLRB, 340 U.S. 474, 488 (l95 l).

The Supreme Court has established a two-step framework for reviewing an
agency’s interpretation of a statute that the agency administers. See Chevron, US.A.,
Inc. v. NRDC, Inc., 467 U.S. 837, 842-43 (l984). Under the first step, the Court must
look at the statute to determine whether Congress has "directly spoken to the precise
question at issue." Ia’. at 842. If it has, "that is the end of the matter." Id. If,
however, "the statute is silent or ambiguous with respect to the specific issue," the court
proceeds to Chevron step two, and must determine whether the agency’s interpretation is
"based on a permissible construction of the statute." Ia’. at 843. Under this second step,
the Secretary’s statutory interpretation will be given controlling weight so long as it falls
"within the bounds of reasonable interpretation." Your Home Visiting Nurse Servs., Inc.

v. Shalala, 525 U.S. 449, 453 (1999). The Secretary’s interpretation of the statute "need

ll

not be the only reasonable one" in order to be upheld. Conn. Dep ’t of Income Maint. v.
Heckler, 471 U.S. 524, 532 (1985). Where a Medicare statutory provision is subject to
multiple reasonable interpretations, courts defer to the Secretary’s interpretation. See
Gentiva Healthcare Corp. v. Sebelius, 723 F.3d 292, 295 (D.C. Cir. 2013).

When the agency action at issue involves "the construction of an administrative
regulation rather than a statute . . . deference is even more clearly in order." Ua’all v.
Tallman, 380 U.S. 1, 16 (1965). "[T]he agency’s interpretation must be given
controlling weight unless it is plainly erroneous or inconsistent with the regulation."
Thomas Je]j‘czrson Um'v. v. Shalala, 512 U.S. 504, 512 (1994) (internal quotations and
citation omitted). In other Words, a court "must defer to the Secretary’s interpretation
unless an alternative reading is compelled by the regulation’s plain language or by other
indications of the Secretary’s intent at the time of the regulation’s promulgation." Ia'.

(internal quotations and citation omitted). Not surprisingly, the more complex a

regulatory program is, the greater the deference oWed. See ia’.; see also Methocz’ist Hosp.

of Sacramem‘o v. Shalala, 38 F.3d 1225, 1229 (D.C. Cir. 1994) ("[I]n framing the scope
of review, the court takes special note of the tremendous complexity of the Medicare
statute. That complexity adds to the deference which is due to the Secretary’s

decision.").

12

ANALYSIS
The PRRB’s-and therefore the Secretary’s-final determination was that "[b]oth
the Federal Register and the regulations in effect at the time made a written agreement

3

necessary to qualify as an affiliated group.’ AR at 27. Indeed, the requirement for a
written affiliation agreement is evident from the clear language of the preamble to the
1998 final rule. See generally Kennecott Utah Copper Corp. v. U.S. Dep ’t of Interior, 88
F.3d ll9l, 1223 (D.C. Cir. l996) (preamble language has independent legal effect when
an agency "inten[ds] to bind either itself or regulated parties"). Specifically, the May 12,
1998 Federal Register stated that "[h]ospitals that qualify to be members of the same
affiliated group for the current residency training year and elect an aggregate cap must
provide an agreement . . . ." 63 Fed. Reg. 26318, 2634l (emphasis added); see also AR
at 26-27. The Secretary’s interpretation of that regulation "must be given controlling
weight unless it is plainly erroneous or inconsistent with the regulation." Thornas
Jejj’erson Univ., 512 U.S. at 512 (intemal quotations and citation omitted). Given the
plain language of the preamble and the deference owed to the Secretary’s interpretation of
it, Alegent’s argument that a written affiliation agreement is not required is, to say the
least, incredible.
There is, of course, no dispute here that Alegent failed to enter into a written

affiliation agreement for its fiscal years 2002 and 2003. See AR at 27. Instead, plaintiff

argues that a written affiliation agreement is not required to qualify as an affiliated group

13

and to apply FTE caps on an aggregate basis because the Secretary’s requirement for a
Medicare affiliation agreement is invalid and should be set aside as violative of the
Paperwork Reduction Act. See Pl.’s Mot. Summ. J. ("Pl.’s Mot.") at 2; see also 44
U.S.C. § 3512. Plaintiff further argues that the requirement for a Medicare affiliation
agreement prior to October l, 2002 is invalid because the imposition of such a
requirement violates the Medicare statute and the APA. See Pl.’s Mot. at 2. Lastly,
Alegent argues that the Secretary must be estopped from denying DGME and IME
reimbursement for fiscal years 2002 and 2003 because plaintiff reasonably relied, to its
detriment, on the fiscal intermediary’s prior determinations that DGME and IME
reimbursements were proper. See ia’. at 3, 39-44. Unfortunately for the plaintiff, none
of these arguments is convincing. How so?

A. The Paperwork Reduction Act

Plaintiff’s argument that the PRA prevents the Secretary from requiring written
affiliation agreements because she had not previously obtained approval from OMB fails
for two reasons. First, the PRA does not create a private right of action and, even if it
did, the requirement for a written affiliation agreement falls within the PRA’s exemptions
for administrative actions and audits. See 44 U.S.C. § 35l8(c)(l)(B)(ii).
Put simply, the purpose of the PRA is to control the amount of paperwork the

federal government can require of private businesses, educational institutions, federal

l4

contractors, state and local governments and individuals.€ See 44 U.S.C. § 3501(1).
Speciflcally, the PRA states that "[a]n agency shall not conduct or sponsor the collection
of information unless" it has conducted notice and comment rulemaking and received
prior approval from OMB. See 44 U.S.C. §§ 3507(a)-(c); 5 C.F.R. § l320.5(a)(2). The
PRA further states, hoWever, that "[t]he protection provided by this section may be raised
in the form of a complete defense, bar, or otherwise at any time during the agency
administrative process or judicial action applicable thereto," 44 U.S.C. § 35 l2(b), and
that "no person shall be subject to any penalty for failing to comply," 44 U.S.C. §

3 5 l2(a).

Those federal courts that have addressed the PRA have confirmed what the plain
language of the statute already makes clear: the PRA may be raised as a defense to an
agency action, but does not create a private cause of action. See Sutton v. Providence St.
Joseph Mea'. Ctr., 192 F.3d 826, 844 (9th Cir. 1999) ("As is apparent from [44 U.S.C. §
3512(b)], the Act authorizes its protections to be used as a defense" and "does not
authorize a private right of action.") (emphasis in original); Tozzi v. EPA, 148 F. Supp. 2d
35, 43 (D.D.C. 2001) (noting that "courts that have addressed the issue have consistently
held that there is not a private right of action under the PRA," and collecting cases).

Alegent is not attempting here to use the PRA as a shield against the penalty that the

6 In order for the PRA to apply, the challenged agency action or policy "must impose a reporting
requirement" on recipients. See Benkelman Tel. C0. v. FCC, 220 F.3d 601, 607 (D.C. Cir. 2000)

(intemal quotations omitted) (citing Saco River Cellular, Inc. v. FCC, 133 F.3d 25, 33 (D.C. Cir.

15

Secretary has imposed on it, but a sword to persuade the C0urt to find the Secretary in
violation of the PRA. Unfortunately for the plaintiff`, there is no basis in the statue or
relevant case law for such a use-Alegent’s PRA claim must therefore fail.

B. The Medicare Statute

Next, Alegent’s argument is equally unavailing that the PRRB erroneously found
that a written affiliation agreement was required and that Alegent did not meet the
requirements for sharing FTE caps as a member of an affiliated group for fiscal years
2002 and 2003. Indeed, Alegent’s position is inconsistent with both the law and the
facts.

The BBA explicitly grants the Secretary the authority to define an affiliated group
for the purpose of reimbursement under the Medicare statute. See 42 U.S.C. §
l395ww(h)(4)(H)(ii) ("The Secretary may prescribe rules which allow institutions which
are members of the same affiliated group (as defined by the Secretary) to elect to apply
[FTE caps] on an aggregate basis." (emphasis added)). Moreover, the Medicare statute
clearly states that payments shall not be made "to any provider unless it has furnished
such information as the Secretary may request in order to determine the amounts due
such provider." 42 U.S.C. § l395g(a) (emphasis added).

However, whether or not a written affiliation agreement is required in order to

aggregate FTE caps as an affiliated group is not specifically addressed in either the

1998)).

l6

Medicare statute or the BBA. See Chevron, 467 U.S. at 842. Thus, under Chevron step
two, I must determine whether the Secretary’s interpretation "is based on a permissible
construction of the statute." Id. at 843. I find that it is. The Secretary’s interpretation
need only fall "within the bounds of reasonable interpretation," Your Home Visiting
Nurse Servs., Inc., 525 U.S. at 45 3, and "need not be the only reasonable [interpretation]"
in order to be upheld, Conn. Dep ’z‘ of Income Maz`nt., 471 U.S. at 532. The Secretary’s
interpretation that the statute gives her the authority to define the requirements for
qualifying as an affiliated group easily clears this low threshold of reasonableness.
Indeed, any interpretation that did not require a written affiliation agreement-given the
complex nature of the reimbursement scheme and the thousands of hospitals participating
in it_strikes me as unreasonable. Therefore the requirement for a written affiliation
agreement as a prerequisite to aggregating FTE caps does not violate the Medicare
statute.

C. The Administrative Pr0cedure Act

Alegent next argues that the requirement for a written affiliation agreement, prior
to 2002, violates the APA because it was promulgated without appropriate notice and
comment rulemaking. See Pl.’s Mot. at 33. I disagree.
On August 29, 1997, the Secretary issued a notice of interim final rulemaking

including a definition of an affiliated group and providing for aggregation of FTE caps.

See 42 C.F.R. § 4l3.86(b) (1997). The Secretary received many comments on the

17

proposed regulation, including suggestions that CMS should "perrnit hospitals to
aggregate resident numbers at the program level if the hospitals provide supporting
documentation that the aggregate count of residents within the program remains
unchanged." 63 Fed. Reg. 26318, 26338. Agreeing with the sentiments of the
commenters-but concemed about the administrative feasibility of monitoring aggregate
FTE caps under affiliation agreements-the Secretary concluded that "the only way for
aggregate FTE caps to be reconciled based on multiple agreements between hospitals is
for each agreement to be sent to each hospital’s fiscal intermediary." Ia’. at 26340.

The fact that the affiliation agreement requirement was located in the preamble to
the 1998 final rule is of no consequence. See Kennecott Utah Copper Corp., 88 F.3d at
1223. The relevant inquiry is whether the Secretary "fairly appraised" the public of the
possibility of changes in the final language of the regulation, and whether those changes
are logical outgrowth of the originally noticed rule. See, e.g., Shell Oil Co. v. EPA, 950
F.Zd 741, 750-51 (D.C. Cir. 1991); see also Corm. Light & Power Co. v. NRC, 673 F.Zd
525, 533 (D.C. Cir. 1982) ("The agency need not renotice [sic] changes that follow
logically from or that reasonably develop the rules it proposed original1y."). She did
when she decided they were. Moreover, the Secretary issued her rule requiring written
affiliation agreements for hospitals wishing to apply their FTE caps on an aggregate basis

following a period of notice and comment rulemaking. Thus, this claim by Alegent must

also fail.

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D. Equitable Estoppel

Finally, Alegent argues that the Secretary must be estopped from denying DGME
and IME reimbursement, because plaintiff relied-to its detriment-on the fiscal
intermediary’s representation that a written affiliation agreement was not necessary. See
Pl.’s Mot. at 39. This argument fails for two reasons. First, the Appropriations Clause
of the United States Constitution bars plaintiffs estoppel claim. Second, Alegent cannot
show reasonable reliance upon the intermediary’s representation as a matter of law.

As to the first, the Supreme Court has never held that equitable estoppel applies
against the government for denying the payment of money, and has reversed every such
finding of estoppel against the government that it has reviewed. See OPM v. Richmond,
496 U.S. 414, 427 (1990). In Rz`chmond, for eXample, the Court held that the
Appropriations Clause of the Constitution limited the "[p]ayments of money from the
Federal Treasury . . . to those authorized by statute, and erroneous advice given by a
Government employee to a benefits claimant cannot estop the Govemment from denying
benefits not otherwise permitted by law." See ia'. at 4l4. The Court went on to say that
"[r]ecognition of equitable estoppel could render the Appropriations Clause a nullity if
agents of the Executive were able, by their unauthorized oral or written statements to
citizens, to obligate the Treasury contrary to the wishes of Congress." Id. at 415. The
Secretary’s determination here that Alegent did not qualify as an affiliated group for

fiscal years 2002 and 2003 for failure to submit a written affiliation agreement is not only

19

supported, but required by the BBA and its implementing regulations. See 42 C.F.R. §
4l3.86(b) (l997); 63 Fed. Reg. 263l8, 26338-26339, 26341. Therefore, any claim
seeking to obtain DGME and IME payments above and beyond those related to Alegent’s
individual FTE cap for fiscal years 2002 and 2003 would implicate payments not
authorized by Congress and in violation of the Appropriations Clause.

Even assuming, however, that A1egent’s equitable estoppel claim was appropriate
in this situation, it would still fail because plaintiff cannot show reasonable reliance as a
matter of law. Indeed, because the Secretary could reopen any reimbursement
determination within three years of the date of the NPR in order to make appropriate
adjustments, See 42 C.F.R. § 405.1885, Alegent’s reliance upon the intermediary’s
decision could not be considered reasonable until the three-year period in which it could

be reopened had passed. Of course it never did here.

CONCLUSION

Thus, for all of the foregoing reasons, the Court GRANTS defendant’s Motion for
Summary Judgment and DENIES plaintiff s Motion for Summary Judgment. An Order
consistent with this decision accompanies this Memorandum Opinion.

FZ '
RICHARD N
United States District Judge

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operate approved medical residency programs are entitled to reimbursement for certain
costs related to graduate medical education. Medicare makes both a direct graduate
medical education ("DGME") payment and an indirect graduate medical education
("IME") payment. See 42 U.S.C. §§ l395Ww(d)(5)(B), (h). DGME costs include
residents’ salaries and fringe benefits, as well as compensation paid to teaching
physicians and supervisors. See 42 U.S.C. § l395WW(h); 42 C.F.R. § 4l3.86(b)(3)
(1998). IME costs include higher-than-average operating costs incurred as an indirect
result of having a teaching program. See 42 U.S.C.' §§ l395f(b), l395WW(d)(5)(B); 42
C.F.R. §412.105 (1998).

The standard payment rates, hovvever, do not include reimbursement for DGME
costs. See 42 C.F.R. §§ 4l2.2(a)(l), 4l9.2(f)(7), 4l2.l(c)(l). CMS pays hospitals a
separate payment for DGME costs, as determined pursuant to 42 C.F.R. § 413 .86(d)
(1998). The amount of these payments are determined annually and are based on the
"average per resident amount" payment methodology. See 42 U.S.C. § l395Ww(h).
The DGME payment is equal to the product of the hospital’s average per resident
amount-derived from a 1984 base period_times the number of full-time equivalent
medical residents ("FTE") in approved residency programs during the cost reporting

period, times the hospital’s Medicare patient load.l See 42 U.S.C. § l395ww(h)(3).

1 Generally, a hospital’s Medicare patient load is a percentage of the hospital’s total

inpatient-bed-days attributable to Medicare patients for that cost reporting period. See 42 U.S.C.

§ 1395ww(h)(3)(c).

Additional payments are also made for IME, the amounts of which also vary by the
number of FTEs in a hospital’s residency programs, as well the number of beds the
hospital has. See 42 U.S.C. § l395ww(d)(5)(B)(ii).

Pursuant to the Balanced Budget Act of 1997 ("BBA"), the Secretary imposed
caps on the number of FTEs a hospital could claim, with some ex`ceptions, using 1996 as
the base year. See Pub. L. No. 105-33; 42 U.S.C. § 1395ww(h)(4)(F). The caps limit
the number of FTEs for which a hospital can claim DGME/IME reimbursement to the
number of FTEs claimed by the hospital for the last cost reporting period ending on or
before December 31, 1996.2 See Pub. L. No. 105-33; 42 U.S.C. § l395ww(h)(4)(F). lt
goes without saying that the higher the number of FTEs a hospital is able to claim, the
larger the amount of potential reimbursement payment it might receive.

The BBA contained certain exemptions to the FTE caps placed on hospitals
seeking reimbursement for DGME/IME expenses. For instance, the BBA permitted the
Secretary to prescribe rules allowing hospitals that are members of the same "affiliated
group"-as defined by the Secretary-to apply their FTE caps on an aggregate basis.
See 42 U.S.C. § l395ww(h)(4)(H)(ii). The BBA also directed the Secretary to prescribe
rules for the application of FTE caps to new medical residency training programs

established on or after January l, 1995. See 42 U.S.C. § l395ww(d)(h)(H)(i).

2 F or example, if a hospital claimed 25 FTEs for the cost reporting period ending December 31,
l996, then its number of FTEs for the purpose of DGME/IME reimbursement payments was
capped as of October l, l997 at 25. See Pub. L. No. 105-33; 42 U.S.C. § l395ww(h)(4)(F).

4

On August 29, 1997, the Secretary-through CMS_issued regulations
implementing the BBA’s changes to DGME and IME reimbursements, including the
application of FTE caps, in an interim final rule with comment period published in the
Federal Register. See 62 Fed. Reg. 45966. The regulations promulgated by the 1997
rule provided that "[h]ospitals that are part of the same affiliated group may elect to apply
the [FTE] limit on an aggregate basis."3 42 C.F.R. § 4l3.86(g)(4) (1997). The 1997
rule also provided for adjustments to hospitals’ FTE caps for new medical residency
programs, to include instances where "a hospital had no residents before January l, 1995,
and it establishe[d] a new medical residency training program on or after that date." 42
C.F.R. § 4l3.86(g)(6)(i) (1997).

On May l2, 1998, the Secretary issued a final rule responding to comments
received regarding the August 29, 1997 interim final rule and addressing the application
of FTE caps. See 63 Fed. Reg. 26318. The regulations in the 1998 final rule allowed
the application of FTE caps on an aggregate basis for hospitals in affiliated groups,‘* and

also continued to provide for adjustments to a hospital’s FTE caps for new medical

residency programs. See 42 C.F.R. § 4l3.86(g)(4), (6) (1998). In addition, the

3 The regulations defined an affiliated group as "two or more hospitals located in the same
geographic wage area (as that term is used . . . for the prospective payment system) in which
individual residents work at each of the hospitals." 42 C.F.R. § 413.86(b) (1997).

4 The 1998 final rule slightly amended the definition of "affiliated group," defining it, in
pertinent part, as "(l) Two or more hospitals located in the same urban or rural area . . . or in
contiguous areas if individual residents work at each of the hospitals during the course of the
program; or . . . (3) The hospitals are under common 0wnership." 42 C.F.R. § 4l3.86(b) (1998).

preamble to the 1998 final rule stated that affiliated groups wishing to apply their FTE
caps on an aggregate basis were required to submit a written affiliation agreement$ to the
Secretary and their fiscal inter1nediaries. See 63 Fed. Reg. at 26338-26339, 26341. In
2002, the Secretary amended 42 C.F.R. § 4l3.86(b) to include the detailed requirements
for affiliation agreements contained in the preamble of the 1998 final rule. See 67 Fed.
Reg. 49982, 50069 (Aug. l, 2002).
B. Factual and Procedural Background

Alegent Health - Immanuel Medical Center is a not-for-profit, general acute care
hospital located in Omaha, Nebraska. See Administrative Record ("AR") at 148-149;
Compl. at 11 6. Alegent is owned and operated by A1egentHealth, a non-profit health
care system in Southeast *Nebraska and Southwest Iowa. See AR at 148-49. Creighton

University ("Creighton") is a private university that is also located in Omaha. See AR at

5 The preamble to the 1998 final rule laid out detailed requirements for affiliation agreements:

Each agreement must be for a minimum of one year and may specify the
adjustment to each respective hospital cap under an aggregate cap in the event the
agreement terminates, dissolves or, if the agreement is for a specific time period,
for residency training years and cost reporting periods subsequent to the period of
the agreement . . .

Each agreement must specify that any positive adjustment for one hospital must
be offset by a negative adjustment for the other hospital of at least the same
amount.

The original agreements must be signed and dated by representatives of each
respective hospital that is a party to the agreement . . . .

63 Fed. Reg. at 26341.

107. Creighton’s medical school, like most medical schools in the United States, sends
its third and fourth year medical students to participate in residency training programs in
local hospitals in order to gain clinical experience. See Def.’s Mot. Summ. J. at 8, AR at
19.

Prior to July 1998, Creighton’s psychiatric residency training program took place
at Creighton St. Joseph Regional Healthcare System, LLC ("St. Joseph"). See AR at 19,
149-50, 483, 491. St. Joseph had an FTE cap of 145.39 for IME and 165.45 for DGME,
as established by the cost reporting period ending on May 3 l, 1996. See AR at 19. In
1997, St. Joseph informed Creighton that it would no longer be able to fulfill its
responsibilities as the school’s training site, causing Creighton to approach plaintiff about
becoming the new primary training site for its psychiatric residency training program.

See AR at l49, 491.

Because Alegent had not previously participated in any medical residency training
program, it had a cap of zero FTEs. See AR at 19. In an effort to raise the number of
FTEs plaintiff could claim, and thus raise the potential level of Medicare reimbursement,
Alegent and St. Joseph agreed to form an affiliated group. See AR at 19, 149, 491. On
June 30, 1998, the parties entered into an academic affiliation agreement ("Agreement"),
and plaintiff became the primary site for Creighton’s residency training program. See

AR at 19-20. By doing so, Alegent and St. Joseph were able to apply the FTE caps on an

aggregate basis, thereby allowing Alegent access to a Medicare reimbursement it would
otherwise not have been entitled to receive. See id.

Following an audit of plaintiff’ s cost reports for its fiscal years ending June 30,
1999 through June 30, 2002, the fiscal intermediary determined that the Agreement
satisfied the requirements for establishing an affiliated group for the purpose of applying
FTE caps on an aggregate basis. See AR at 20. Furthermore, the intermediary
determined that plaintiffs medical residency program was a "new program," and allowed
reimbursement on that basis through June 30, 200l. See id. However, during a
subsequent audit of plaintiffs cost report for its fiscal year ending June 30, 2003, the
intermediary determined that the Agreement was insufficient under the regulations
because it was an academic affiliation agreement rather than an FTE sharing agreement,
and thus did not expressly contemplate the application of St. Joseph’s FTE caps on an
aggregate basis. See id. Following this determination, the fiscal intermediary
disallowed all IME and DGME payments claimed by plaintiff pursuant to the Agreement
for the fiscal years ending June 30, 2000 through June 30, 2003. See ia’.

Alegent appealed the interrnediary’s determination to the PRRB. See AR at
1254-55. Alegent argued that requiring a written affiliation agreement prior to 2002 was
contrary to the regulations in place and therefore violated the Administrative Procedure
Act ("APA"). See AR at 20-22. lt also argued that requiring a written affiliation

agreement violated the Paperwork Reduction Act ("PRA") because HHS did not get

Office of Management and Budget ("OMB") approval before making the request. See
AR at 22. Finally, Alegent argued that the Secretary should be estopped from denying it
reimbursement because plaintiff relied, to its detriment, on the findings of the fiscal
intermediary that Alegent qualified for adjustments to the FTE caps because it qualified a
new medical residency program.

The PRRB reversed the intermediary’s determination regarding the fiscal years
ending on June 30, 2000 and June 30, 200l, but affirmed the intermediary’s
determination regarding the fiscal years ending on June 20, 2002 and June 30, 2003. See
AR at 16-28. The PRRB determined that the Agreement satisfied the requirements for
creating an affiliated group for the fiscal years ending on June 30, 2000 and June 30,
2001, allowing Alegent and St. Joseph to apply their FTE caps on an aggregate basis for
those cost reporting periods, but that the agreement lapsed without renewal in 200l. See
AR at 27. The PRRB determined that there was no valid affiliation agreement in place
for fiscal years 2002 and 2003, and thus Alegent and St. Joseph could not aggregate their
FTE caps for those periods. See ia’. The PRRB concluded that the Secretary’s actions
were "consistent with his authority under the statute and do not constitute a violation of
the APA." Ia'. lt did not, however, reach any conclusions regarding plaintiff’s equitable
estoppel claim, nor did it expressly address plaintiff’s PRA claims. See ia’.

The CMS Office of Attomey Advisor notified plaintiff and the fiscal intermediary

in writing on February 2, 2012 that it would review the PRRB’S decision. See AR at 8.

However, on March 20, 20 l2, the Administrator sent plaintiff and the intermediary a
second letter informing them that it had declined to review the decision. See AR at l.
By declining to review the PRRB’s decision under the circumstances, the Administrat0r
effectively affirmed the PRRB’s decision, thereby making it the final decision of the
Secretary in this matter. See 42 C.F.R. § 405.l877(b)(4) (2008). Alegent appealed that
decision to this Court.
STANDARD OF REVIEW
The Medicare Act provides for judicial review of the Secretary’s final decision

under the Administrative Procedure Act. See 42 U.S.C. § l395oo(f)(l). Under the
APA’s strict standard of review, the Court must set aside agency actions, flndings, and
conclusions that are "arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law." 5 U.S.C. § 706(2)(A). Under the arbitrary and capricious
standard, an agency action "may be invalidated . . . if [it is] not rational and based on
consideration of the relevant factors." FCC v. Nat’l Citizens Comm. for Broad., 436
U.S. 775, 803 (1978) (citing Citizens to Prese_rve Overton Park v. Volpe, 401 U.S. 402,
413-16 (l97l)). Factual conclusions are reviewed under the substantial evidence
standard and may be overturned where they are "unsupported by substantial evidence in a
case . . . reviewed on the record of an agency hearing provided by statute." 5 U.S.C. §
706(2)(E); see also Overton Park, 401 U.S. at 4l4. The Supreme Court has "defmed

‘substantial evidence’ as ‘such relevant evidence as a reasonable mind might accept as

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