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Opinion recap: Saving the U.S. billions


Sparing the government from having to pay potentially hundreds of hospitals billions in added reimbursement for treating Medicare patients, the Supreme Court ruled unanimously on Tuesday that they filed their payment challenges too late.  In the course of the ruling, the Court indicated that it won’t often allow those who deal with government regulatory agencies extra time to use internal review machinery at those agencies — a conclusion that drew a lone protest from Justice Sonia Sotomayor.  The ruling came in the case of Sebelius v. Auburn Regional Medical Center (docket 11-1231).

The ruling cuts off scores of pending lawsuits by hospitals who treat many poor patients. Those lawsuits claim that the government miscalculated their reimbursements and then did not tell them about the flaw until an appeal deadline had passed.  They argued that, in that situation, the appeal deadline should be interrupted, under the doctrine of “equitable tolling.”  The Court, in response, said that doctrine would not apply to the Medicare financing scheme, and hinted that it would not be available very often — if at all — for internal agency reviews.

Under the huge Medicare program, which pays for care for elderly patients, hospitals get an up-front payment for their services but with an added amount tacked on for having treated a disproportionate share of low-income patients.  At the end of the year, they can ask the financial contractor working for the Health & Human Services Department to revise upward what they were paid, on the premise that their up-front payment did not reflect their actual cost in caring for such patients; it generally costs more to treat a larger number of poor patients.  But if a hospital’s plea for an upward revision is turned down by the contractor, the hospital gets only 180 days to file an appeal within the Medicare review system, to the Provider Reimbursement Review Board.

Many hospitals, who had treated patients during the period from 1987 through 1994, did not pursue appeals within the six-month filing period.  They did not know, until 2006, that the payment-setting agency within HHS had made serious miscalculations about the poor-patient-adjustment formula, because it failed to count many patients.  The result was a systematic under-valuation of what hospitals were due.  Within 180 days after learning about this miscalculation, when it came out in one hospital’s lawsuit, scores of hospitals began filing appeals to the PRRB.   It turned them aside, saying it could not alter the 180-day appeal period, because that had been set by Congress.

The HHS Secretary, however, has for years allowed hospitals up to three years — from the time they get word of what their reimbursement rate would be — to file appeals, if they can show “good cause” for failing to meet the usual 180-day deadline.   Under the Secretary’s rule, even a “good cause” appeal must come within three years after notification by the financial contractor.   The hospitals involved in the lawsuits had not filed for perhaps ten years after they got notice.

The D.C. Circuit Court ruled, however, that the hospitals were entitled to rely upon the “equitable tolling” doctrine, as a matter of fairness to them.  While the doctrine normally applies to pleas for extra time to pursuit a case in court, the Circuit Court said it should apply in these Medicare reimbursement cases, too.

The Secretary then took a test case, involving eighteen hospitals, to the Supreme Court, noting that potentially billions of dollars in reimbursement were at stake.  The Secretary argued that she had the authority to relax the appeal deadline for “good cause,” but that “equitable tolling” should not be available, so that any appeal filed after a three-year lapse would be too late.   The Court named a Harvard law professor, John Manning, to join in the case to make the argument that the 180-day deadline set by Congress was binding, even on the HHS Secretary, as a matter of the PRRB’s jurisdiction.

In Tuesday’s decision, the HHS Secretary won on all points.  The 180-day appeal deadline is not jurisdictional and thus is not a binding limit on the PRRB’s jurisdiction, the Secretary had the authority to relax the deadline, but “equitable tolling” is not available so that the appeals filed in this case — being beyond even the Secretary’s three-year limit — had come too late.

Justice Ruth Bader Ginsburg, who authored the Court’s opinion, noted that the Court had never applied the tolling doctrine to an administrative appeal process, confining it always to extra time to pursue a case in court where basic fairness demanded it.   While the opinion did not rule out such tolling for every regulatory appeal process, the language of the Ginsburg opinion seemed to suggest it would, indeed, be rare that a private party would get extra time to pursue a regulatory appeal, at least when that private party was as “sophisticated” as the Court found the Medicare-treating hospitals to be.

Justice Sonia Sotomayor, while joining the Ginsburg opinion, wrote a separate concurrence in order to dispel the impression that tolling was being ruled out for internal administrative appeals.  Sotomayor cited cases in which deadlines had been relaxed in that situation, and she said the Court should not be understood as having ruled it out, especially when the private party involved was not a “sophisticated” entity capable of looking after its own interests.

A sidelight of the Court’s ruling was that, since the eighteen hospitals’ case began, the HHS Secretary has tightened even further the situations in which she would allow extra time for a treatment provider to pursue an appeal to the PRRB.  While the former rule, in effect since 1974, had said that added time up to three years would be available for “good cause,” the Secretary in 2008 issued a new regulation saying that the agency would confine “good cause” extensions to situations involving “extraordinary circumstances beyond [the provider’s] control (such as a natural or other catastrophe, fire, or strike).”  The new rule kept intact the outer limit of three years.

Justice Ginsburg noted that new restriction in a footnote, but said it was adopted after the eighteen hospitals’ case arose, so the Court dealt only with the scope of the “good cause” regulation as it was written in 1974.

Justice Sotomayor, however, noted in her separate opinion that the Secretary had taken the extra step to cut off appeals, and the Justice suggested that the Court would face a different case if the HHS Secretary “defined good cause so narrowly as to exclude cases of fraudulent concealment and equitable estoppel.”  Sotomayor then pointed to the 2008 change in the regulation to illustrate her point.

This decision, in plain English:

When a hospital has a heavy patient load of elderly patients whose care is financed by the massive Medicare program, it gets an added amount of  reimbursement from the federal government because the actual cost of treating a sizable number of such patients is higher.   If, at the end of the year, the hospital is dissatisfied with the up-front payment it had received at the time it provided the care, it can seek an adjustment.  And, if the adjustment request is turned down, federal law gives that hospital 180 days to file an appeal to a federal board that reviews hospital reimbursement rates.

Scores of hospitals, however, did not meet that appeal deadline, because they learned only after the deadline had passed that the federal government was using a flawed formula for calculating the cost of treating poor patients.   Since the deadline had passed for those hospitals, they asked that their filing opportunity be reopened.   Because they filed in many cases more than ten years after their reimbursement rate had been set, they could not qualify for a special three-year extension that the federal government had said it would allow if a hospital could show a “good cause” for having missed the deadline.

The issue before the Supreme Court in this new case was whether that 180 days was binding, and could not be extended under any circumstances, even by the federal government when it decided to grant an extra three-year filing time for situations involving “good cause.”   The Court ruled that the 180-day deadline for filing an appeal was not binding, that the Secretary had the authority to extend it for up to three years, and that the hospitals that had not filed within that extra period were not entitled to have extra time, even though they did not know in time to pursue a challenge on the theory that the government reimbursement formula was badly flawed.

The Court said that the idea that an individual pursuing a legal claim can sometimes get more time to pursue a case in court is not an idea that applies very often, if at all, when the individual is pursuing a legal plea at a federal regulatory agency that functions differently from a court.


Recommended Citation: Lyle Denniston, Opinion recap: Saving the U.S. billions, SCOTUSblog (Jan. 22, 2013, 1:45 PM),