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University of Chicago Medical Ctr. v. Sebelius

United States District Court, N.D. Illinois, Eastern Division

July 18, 2014

KATHLEEN SEBELIUS, Secretary of the United States Department of Health and Human Services, Defendant

For University of Chicago Medical Center, The, doing business as University of Chicago Hospitals & Clinics, Plaintiff: Ronald S. Connelly, LEAD ATTORNEY, PRO HAC VICE, Powers Pyles Sutter & Verville, PC, Washington, DC; Michael Vincent Casey, Varga, Berger, Ledsky, Hayes & Casey, Chicago, IL.

For Kathleen Sebelius, Secretary of the United States Department of Health and Human Services, Defendant: Eric S Pruitt, United States Attorney's Office (NDIL), Chicago, IL.

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Milton I. Shadur, Senior United States District Judge.

The University of Chicago Medical Center (" Hospital" ) brings this action pursuant to 42 U.S.C. § 1395oo(f)[1] to contest the decision by Secretary of Health and Human Services Kathleen Sebelius (" Secretary" ) to dismiss its administrative appeal. That appeal -- held before the Provider Reimbursement Review Board (the " Board" ) -- involved a dispute over the proper amount of reimbursement owed to Hospital under Title XVIII of the Social Security Act (colloquially " Medicare," Sections 1395-1395ccc). Secretary seeks to justify her dismissal of that appeal by asserting that Hospital failed to file a preliminary position paper by the applicable deadline. In turn Hospital contends that the paper deadline had been impliedly vacated and that Secretary's dismissal and later refusal to reinstate Hospital's administrative appeal was therefore (1) arbitrary and capricious and (2) not supported by substantial evidence.[2]

Hospital and Secretary have filed cross-motions for summary judgment under Fed.R.Civ.P. (" Rule" ) 56. Both have complied (at least in part) with this District Court's LR 56.1, which has been adopted to facilitate the resolution of Rule 56 motions by smoking out any disputed issues of material fact.[3] Those LR 56.1 statements -- taken together with a substantial administrative record -- reveal that there are no disputed issues of material fact and that Hospital has the right of it: Secretary's actions in this case were indeed arbitrary and capricious and were not

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supported by substantial evidence. And that being the case, Hospital's motion for summary judgment must be granted and Secretary's corresponding motion must be denied.

Summary Judgment Standards

Familiar Rule 56 principles impose on a party seeking summary judgment the burden of establishing the lack of a genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). For that purpose this Court must " read[ ] the record in the light most favorable to the non-moving party" (St. Louis N. Joint Venture v. P & L Enters., Inc., 116 F.3d 262, 264 (7th Cir. 1997)) although it " is not required to draw unreasonable inferences from the evidence" (id. at 265 n.2). Where as here cross-motions for summary judgment are involved, it is necessary to adopt a dual perspective -- one that this Court has often described as Janus-like -- that sometimes forces the denial of both motions. That potential for such a dual denial does not exist here, however, because the underlying material facts are not in dispute.

Standard and Scope of Review

Judicial review of Secretary's Medicare decisions is limited as to both standards and subject matter. As for the former, because Section 1395oo(f)(1) incorporates the Administrative Procedure Act (" APA" ) as the applicable standard, this Court may " hold unlawful and set aside" Secretary's decision only if it is " arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" (5 U.S.C. § 706(2)(A)). This Court may also set aside Secretary's decision if it was " unsupported by substantial evidence" (id. at § 706(2)(E)) -- but Kepple v. Massanari, 268 F.3d 513, 516 (7th Cir. 2001) (internal quotation marks omitted) teaches that the APA's " substantial evidence" standard is extremely deferential to the final agency determination:

Substantial evidence, although more than a mere scintilla of proof, is no more than such relevant evidence as a reasonable mind might accept to support a conclusion.

Secretary must nonetheless " address[ ] in a rational manner the questions . . . tendered for consideration" (Salameda v. I.N.S., 70 F.3d 447, 451 (7th Cir. 1995)) and must " clearly address the specific legal and factual issues raised" (People of State of Ill. v. United States, 666 F.2d 1066, 1073 (7th Cir. 1981)).

Applying the general mandate of the APA to the Medicare reimbursement context, Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (internal citations and quotation marks omitted) has emphasized the reviewing court's limited role:

We must give substantial deference to an agency's interpretation of its own regulations. Our task is not to decide which among several competing interpretations best serves the regulatory purpose. Rather, the agency's interpretation must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation. In other words, we 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. This broad deference is all the more warranted when, as here, the regulation concerns a complex and highly technical regulatory program, in which the identification and classification of relevant criteria necessarily require significant expertise and entail the exercise of judgment grounded in policy concerns.

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Thus this Court must not substitute its own judgment for Secretary's, but must instead confine itself to passing on the reasonableness of Secretary's dismissal of Hospital's appeal and to assessing whether that appeal was based on substantial evidence.

Statutory and Regulatory Framework[4]

Medicare provides a federally funded health insurance program for the elderly and disabled. Only Medicare Part A, which authorizes payment for covered care in institutions such as Hospital, is at issue here. Secretary reimburses a qualified healthcare " provider of services" (Section 1395x(u)) for the reasonable cost of providing covered services to eligible Medicare beneficiaries through private actors known as Medicare Administrative Contractors (" MACs," formerly termed " fiscal intermediaries" ). MACs are private companies under contract with Secretary to pay Medicare claims and audit cost reports (Section 1395kk). Each provider seeking reimbursement submits an annual cost report to the intermediary (42 C.F.R. § 413.20), which then audits the report, determines the amount of reimbursement due to the provider and issues a Notice of Program Reimbursement for the relevant fiscal year (Sections 1395h, 1395kk-1).

Following the issuance of a Notice of Program Reimbursement, a dissatisfied provider may appeal the MAC's determination to Board. If certain jurisdictional prerequisites are met, the Board has the power to affirm, modify or reverse the MAC's decisions (Section 1395oo(d)). Review hearings are governed by rules set by the Board pursuant to its " full power and authority to make rules and establish procedures" (Section 1395oo(e)) -- procedures codified in the Code of Federal Regulations and in Provider Reimbursement Review Board Rules [5] (" Board Rules" ). Secretary, acting through the Administrator of the Center for Medicare & Medicaid Services (" CMS Administrator" ), may review the matter further either on her own motion or at the provider's request (42 C.F.R. ...

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