Court Places Limits on Secretary's "No Reopening" Arguments

by Baker Donelson

CMS has often argued that “base year” determinations cannot be revisited once the three-year reopening period has closed. Now, a recent decision from the U.S. Court of Appeals for the District of Columbia Circuit places those arguments in doubt.

The case of Kaiser Foundation Hospitals et al. v. Sebelius, No. 12-5037 (D.C. Cir., March 5, 2013) [PDF] presented the question of whether plaintiff hospitals could obtain, outside of the three-year reopening window, a corrected count of their full-time equivalent (FTE) residents in their base year for purposes of calculating their FTE caps to be applied to later years. Both the hospitals and the Secretary agreed that the FTE cap data was not accurate. The Secretary nevertheless countered that the data could not be corrected, and thus the caps could not be revised, because too much time had elapsed since the filing of the 1996 (cap year) cost reports, in which the disputed FTE counts were contained, as well as the 1998 cost report used to determine the caps.

The hospitals argued that they were not attempting to alter the reimbursement related to their 1996 cost reports but, instead, adjust only subsequent years’ reimbursement utilizing a corrected base year GME FTE cap count. The Secretary, however, contended that any modification of the data underlying the count or the cap would constitute a reopening of the closed years even if it did not affect the hospitals’ final reimbursement determinations for those years. The D.C. Circuit did not agree.

Quoting the Eighth Circuit decision in HealthEast Bethesda Lutheran Hosp. & Rehab. Ctr. v. Shalala, 164 F.3d 415, 418 (8th Cir. 1998) as support, the D.C. Circuit concluded that, under the reopening regulation, a cost report is “reopened” only when there is a change in the total amount of reimbursement actually paid to the provider for that year. The court further noted that in recent litigation the Secretary had argued that the reauditing and revision of IME FTE determinations made in the 1996 FTE cap base year cost report was permitted and reasonable, even though 1996 was beyond the three-year reopening window. The court then said as follows: “Seeing no reason to depart from the Secretary’s recent wisdom, we hold 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.” Alternatively, the court held that it was arbitrary for the Secretary to treat similarly situated parties differently. The court said that CMS had “routinely championed” a “permissive” interpretation of her reopening regulation when the correction of predicate facts resulted in a windfall for the agency but had adopted a contrary and much more restrictive view when a broad interpretation would benefit the provider. This record, the court concluded, was “inherently suspicious,” suggesting a lack of reasoned, good faith decision making.

Ober|Kaler’s Comments

The Kaiser case is quite significant. First, it allows providers to revisit past GME and IME FTE counts that may have been understated when a cap was first calculated. Potentially more significant, however, is that the decision uses broad language to suggest that any time the Secretary employs a base year payment methodology, providers may challenge later year payments that rely on that methodology by revisiting the prior base year’s “predicate facts.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.