FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MAINE [Hon. Nancy Torresen, U.S. District Judge] [Hon. John
H. Rich, III, U.S. Magistrate Judge]
Stephanie R. Marcus, Attorney, Appellate Staff, Civil
Division, United States Department of Justice, with whom
Benjamin C. Mizer, Principal Deputy Assistant Attorney
General, Civil Division, Thomas E. Delahanty, II, United
States Attorney, Andrew K. Lizotte, Assistant United States
Attorney, and Mark B. Stern, Attorney, Appellate Staff, Civil
Division, were on brief, for defendant.
William H. Stiles, with whom Nora Lawrence Schmitt and
Verrill Dana, LLP were on brief, for plaintiffs.
Howard, Chief Judge, Selya and Kayatta, Circuit Judges.
system through which the federal government reimburses
hospitals for charity care is among the most arcane known to
man. A central feature of this system is a provision through
which hospitals receive so-called disproportionate share
payments (DSH payments). See 42 U.S.C. §
1395ww(d)(5)(F)(i)(I). These appeals involve a dispute
between the Secretary of Health and Human Services (the
Secretary) and a group of eight Maine hospitals about DSH
payments for fiscal years dating as far back as 1993.
first clearing a jurisdictional hurdle, we hold that the
Secretary properly reopened the disputed years and adequately
demonstrated that the Hospitals had received substantial
overpayments of DSH funds. We further hold that the myriad
defenses to repayment asserted by the Hospitals lack force.
Accordingly, we reverse in part and affirm in part.
these appeals in perspective requires a journey into the
"often surreal" Medicare reimbursement regime.
See S. Shore Hosp., Inc. v.
Thompson, 308 F.3d 91, 94 (1st Cir. 2002). Medicare
has a noble purpose: it assists elderly and disabled
individuals in accessing health care. See 42 U.S.C.
§§ 1395-1395111. This regime is administered by the
Secretary through the Centers for Medicare and Medicaid
Services (CMS), which contracts with fiscal intermediaries -
often private health insurance companies - to act as
go-betweens for Medicare providers and CMS. See 42
C.F.R. § 421.100.
the federal government reimbursed hospitals for the
"reasonable cost" of treating Medicare patients.
See, e.g., R.I. Hosp. v.
Leavitt, 548 F.3d 29, 39 (1st Cir. 2008). In 1983,
however, Congress amended the program to incorporate a
prospective payment system through which hospitals are
reimbursed predetermined amounts for certain services.
See 42 U.S.C. § 1395ww(d); R.I. Hosp.,
548 F.3d at 39-40. Congress was concerned, though, that the
new payment system might disadvantage hospitals that served
disproportionate numbers of low-income patients, so it
created the DSH payment system to address this concern.
See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I); H.R.
Rep. No. 98-861, at 1356 (1984) (Conf. Rep.), as
reprinted in 1984 U.S.C.C.A.N. 1445, 2044; S. Rep. No.
98-23, at 54 (1983), as reprinted in 1983
U.S.C.C.A.N. 143, 194.
payment protocol works this way. Hospitals that serve a
"significantly disproportionate number of low-income
patients" are known as disproportionate share hospitals
(DSH hospitals). 42 U.S.C. § 1395ww(d)(5)(F)(i)(I);
see Catholic Health Initiatives Iowa Corp.
v. Sebelius, 718 F.3d 914, 916 (D.C. Cir.
2013). Those hospitals receive additional payments - known as
DSH payments or DSH adjustments - from the government.
See Catholic Health Initiatives, 718 F.3d at 916.
Both a hospital's eligibility for DSH payments and the
amount of any such payment depend in large part on the
hospital's disproportionate patient percentage (DPP).
See 42 U.S.C. § 1395ww(d)(5)(F)(vi). Generally
speaking, the more low-income patients a hospital serves, the
higher its DPP and, thus, the higher its annual DSH payment.
See Catholic Health Initiatives, 718 F.3d at 916;
Metro. Hosp. v. HHS, 712 F.3d 248,
251 (6th Cir. 2013). Nevertheless, this figure does not
correlate directly with "the actual percentage
of low-income patients served; rather, it is an indirect,
proxy measure for low income." Catholic Health
Initiatives, 718 F.3d at 916.
receive Medicare payments (including DSH adjustments), a
Medicare provider submits cost reports to an intermediary at
the end of each fiscal year. The intermediary thereafter
issues a notice of program reimbursement (NPR) specifying the
amount the provider is owed in reimbursements and
adjustments. See 42 C.F.R. §§
405.1801(b)(1), 413.24(f), 421.100; see also MaineGen.
Med. Ctr. v. Shalala, 205 F.3d 493,
494, 496 (1st Cir. 2000). The intermediary may reopen a cost
report within three years after issuing the NPR and, if
necessary, issue a revised NPR. See 42 C.F.R. §
405.1885(a)-(b). A provider may appeal an intermediary's
decision to the Provider Reimbursement Review Board (the
Board). See 42 U.S.C. §
1395oo(a)(1)(A)(i). The Secretary has the option of
reviewing Board decisions, and the agency's final
decision is subject to judicial review. See id.
case at hand, the Secretary maintains that the Hospitals were
overinclusive in their DSH payment calculations because they
included patient days for patients entitled to both Medicare
Part A and Medicaid but not supplemental security income
(SSI), known as non-SSI type 6 days. The inclusion of these
days dates back to at least 1997, when one of the plaintiffs
(Central Maine Medical Center) settled an administrative cost
report appeal. The settlement required the intermediary to
include non-SSI type 6 days in its DSH payment calculations.
Following this settlement and similar agreements between the
intermediary and other hospitals in the late 1990s, the
intermediary began telling all Maine hospitals to include
such days in their cost reports.
2003, the intermediary changed its tune and reopened numerous
cost reports to reassess DSH payments. After several meetings
between the Hospitals, the intermediary, and CMS, CMS
remained unconvinced that non-SSI type 6 days should be
included in the DSH payment calculation. Accordingly, the
intermediary recouped from the Hospitals approximately $22
million in alleged overpayments.
Hospitals did not go quietly into this bleak night: they
challenged the intermediary's action before the Board.
Their challenge bore fruit. The Board, finding many of the
notices of reopening to be ineffectual, ordered the
intermediary to restore approximately $17 million to the
Hospitals' victory was short-lived. The Secretary elected
to review the Board's decision and reversed. Displeased,
the Hospitals sought judicial review. See 42 U.S.C.
§ 1395oo(f)(1). Following cross-motions for
judgment on the administrative record, the district
court held that some notices of reopening were
fatally flawed and that settlement agreements barred the
intermediary from reopening certain cost reports. Neither
side was completely satisfied with the district court's
ruling, and these cross-appeals ensued.
outset, a jurisdictional question looms. The parties jointly
assure us that we have jurisdiction under 28 U.S.C. §
1291, which permits us to review "appeals from all final
decisions of the district courts." Notwithstanding their
shared assurance, we have an independent obligation to
confirm our jurisdiction to hear this dispute. See
Anversa v. Partners Healthcare Sys.,
Inc., ___ F.3d ___, ___ n.5 (1st Cir. 2016) [No.
15-1897, slip op. at 15 n.5].
district court's initial decision inspires some cause for
concern: it directed the parties to inform the court which
settlement agreements purported to be "full and final
settlements of the issues raised concerning the cost reports
for the years at issue." It went on to provide that if
the parties disagreed about which settlement agreements
satisfied this standard, the court would establish a
dispute-resolution procedure. The parties could not agree on
an answer to the question the court had posed. Instead, they
jointly petitioned the court to amend its decision and leave
the matter unresolved. The court acquiesced to the
parties' suggestion that it did not need to answer the
question "at this point" and simply removed the
requirement from its decision.
related matter also may bear on the jurisdictional issue.
After the district court handed down its initial decision,
the Hospitals requested the payment of interest on the
amounts due under the court's decision. The court denied
the Hospitals' request without prejudice because the
precise amounts owed to the Hospitals had not yet been
begin the probe into our subject-matter jurisdiction with
first principles. As a general matter, a final decision is
one "that disposes of all claims against all
parties." Bos. Prop. Exch. Transfer Co.
v. Iantosca, 720 F.3d 1, 6 (1st Cir. 2013).
The decision in this case does not satisfy that general rule;
it leaves open the identification of the fiscal years to
which the decision applies, as well as the question of
however, the general rule does not apply because this is not
an appeal from a garden-variety civil judgment. Rather, it is
an appeal taken from the district court's review of
a critically important distinction because "when a court
reviewing agency action determines that an agency made an
error of law, the court's inquiry is at an end: the case
must be remanded to the agency for further action consistent
with the corrected legal standards." County of Los
Angeles v. Shalala, 192 F.3d 1005,
1011 (D.C. Cir. 1999) (quoting PPG Indus., Inc.
v. United States, 52 F.3d 363, 365 (D.C.
Cir. 1995)); see Hosp. Ass'n of R.I. v.
Sec'y of HHS, 820 F.2d 533, 538 (1st Cir. 1987)
(stating that "it is the Secretary who must first
apply" the applicable law to the facts). Thus, the court
below had gone as far as it could go: even if it had intended
to resolve other issues at a later date, it lacked any
authority to do so. Consistent with the limits of the district
court's authority, we construe its decision as a remand
to the agency. See County of Los Angeles, 192 F.3d
so, a remand order is not usually considered a final
decision. See Glob. NAPs, Inc. v. Mass.
Dep't of Telecomms. & Energy, 427 F.3d 34, 41
(1st Cir. 2005). There is an exception, though, for cases
"where the agency to which the case is remanded seeks to
appeal and it would have no opportunity to appeal after the
proceedings on remand." County of Los Angeles,
192 F.3d at 1012 (quoting Occidental Petrol. Corp.
v. SEC, 873 F.2d 325, 330 (D.C. Cir.
1989)). This is such a case: the Secretary will have to
conduct further proceedings pursuant to the remand order and,
unless the Hospitals appeal the outcome of those further
proceedings, the district court's ruling will escape
review. See id.
sure, a district court's failure to award or withhold
interest may in some circumstances prevent its decision on
the merits from being a final judgment. See Comm'l
Union Ins. Co. v. Seven Provinces Ins.
Co., 217 F.3d 33, 37 & n.3 (1st Cir. 2000). But in
this case, the district court's refusal to pass upon the
Hospitals' request for interest does not alter our
analysis. Since the district court had to remand to the
agency to determine the precise amounts due to the Hospitals,
an award of interest would have been premature. See
Palisades Gen. Hosp. Inc. v. Leavitt, 426 F.3d 400, 403
(D.C. Cir. 2005) (holding that district court lacked
authority to order specific relief because it had
jurisdiction only to vacate agency's decision, and then
had to remand).
conclude that we have jurisdiction to hear and determine
these appeals. ...