Last week, the U.S. Court of Appeals for the District of Columbia Circuit invalidated CMS’s prohibition on appeals of so-called predicate facts. The appeal before the court, described in greater detail below, challenged the continued use of allegedly erroneously calculated 1981 standardized amounts (also known as the Federal rate). The court found that the Secretary’s so-called predicate fact regulation at 42 C.F.R. § 405.1885(a)(1), revised in 2013, applies only in the context of a reopening and not in the context of administrative appeals to the Provider Reimbursement Review Board (Board). Under the Secretary’s interpretation, if a provider filed a timely Board appeal of, e.g., a 2016 cost report determination, but within that appeal also challenged a “predicate fact,” such as the cap on the number of full-time equivalent residents eligible for reimbursement established in a prior year, the appeal of the predicate fact would be barred. The D.C. Circuit disagreed, holding that the predicate fact regulation as written applies only to reopenings and does not therefore bar appeals of predicate facts. Absent a reversal by the Supreme Court, providers across the nation should therefore now be able to appeal predicate facts without a jurisdictional bar. In addition, although the court did not directly decide the merits of the appeal before it, the court expressed skepticism regarding the accuracy of the standardized amounts. Providers that are not already challenging the standardized amount should therefore consider doing so from subsequently issued notices of program reimbursement. The case is Saint Francis Medical Center v. Azar, No. 17-5098.
A predicate fact is a “factual underpinning[] of a specific determination of the amount of reimbursement due to a provider [that] may first arise in, or be determined for, a different fiscal period that the cost reporting period under review.” 78 Fed. Reg. 74826, 75162 (Dec. 10, 2013). Such facts “are not [themselves] reevaluated annually” and might instead be a “target amount” updated annually thereafter. Id. In analyzing a previous version of the regulation, the D.C. Circuit held that “the reopening regulation allows for modification of predicate facts in closed years provided the change will only impact the total reimbursement determination in open years,” i.e., those within the three-year window. See Kaiser Foundation Hospitals v. Sebelius, 708 F.3d 226, 232-33 (D.C. Cir. 2013). In response to Kaiser, the Secretary implemented the 2013 regulatory change, such that a decision may be reopened “with respect to specific findings on matters at issue,” including predicate facts “first determined for a cost reporting period that predates the period at issue,” and that the three-year limitation “applies to, and is calculated separately for, each specific finding on a matter at issue.” See 42 C.F.R. § 405.1885(a)-(b).
In Saint Francis, the hospitals challenged the standardized amount calculated based on their 1981 cost reporting data (the predicate fact), but used every year thereafter to determine inpatient payment rates. The hospitals began filing Board appeals in 2005, not of the 1981 cost reporting period, but related to its effect for later periods determined within three years of 2005. The Board dismissed the appeals in light of the 2013 regulation and the district court held that the regulation governing challenges to predicate facts in reopenings also governs challenges to predicate facts in administrative appeals to the Board. As such, the hospitals’ challenges were time-barred. See Saint Francis Med. Ctr. v. Price, 239 F. Supp. 3d 237 (D.D.C. 2017).
Although the court’s prior decision in Kaiser did not address whether the reopening regulation applies to administrative appeals, the D.C. Circuit held now that it does not. Said the court: “Reopenings and administrative appeals are conceptually different, are governed by different statutory and regulatory provisions, and, most importantly here, are governed by different limitation rules.” This is despite statements by the Secretary in the Federal Register indicating that the 2013 amendments covered both reopenings and appeals, which the D.C. Circuit found contained no analysis and lacked “the force and effect of law.” Ultimately, the court refused to defer to the Secretary’s interpretation of the 2013 amendments because it was “inconsistent with the text of the reopening regulation, as well as with the separate statutes and regulations governing administrative appeals.”
Because the court determined that the regulation does not apply to appeals at all, but only to reopenings, the D.C. Circuit did not address whether the 2013 amendments were arbitrary and capricious or whether applying the new regulation to Board appeals pending on the effective date would be impermissibly retroactive. However, Judge Kavanaugh filed a concurring opinion, stating that “it would seem to be the very definition of arbitrary and capricious for HHS to knowingly use false facts when calculating hospital reimbursements.” Therefore, Judge Kavanaugh called for the regulation to be vacated altogether, indicating that it is ripe for challenge even in the context of reopenings.
The D.C. Circuit’s opinion is available here. The district court’s decision, issued March 10, 2017, is available here.
