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Rapid City Regional Hospital v. Sebelius

February 2, 2010


The opinion of the court was delivered by: Gladys Kessler United States District Judge


Plaintiff Rapid City Regional Hospital ("Plaintiff" or "Rapid City") is a non-profit provider of inpatient hospital services located in South Dakota. Plaintiff brings this action against Kathleen Sebelius in her official capacity as Secretary of the Department of Health and Human Services ("Defendant" or "HHS"), after Defendant dismissed Rapid City's administrative appeal for failure to comply with a filing deadline. Pursuant to the Medicare Act, 42 U.S.C. § 1395 et seq., and the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq., Rapid City challenges that decision. This matter is before the Court on Plaintiff's Motion for Summary Judgment [Dkt. No. 14] and Defendant's Motion for Summary Judgment [Dkt. No. 15]. Upon consideration of the Motions, Oppositions, Replies, and the entire record herein, and for the reasons stated below, Plaintiff's Motion for Summary Judgment is denied and Defendants' Motion for Summary Judgment is granted.


Part A of the Medicare Act provides for prospective payments to healthcare providers, such as Plaintiff, that offer inpatient care to Medicare beneficiaries. See 42 U.S.C. § 1395ww(d). Under this "prospective payment system" ("PPS"), hospitals receive a predetermined payment that is calculated based on a complex statutory formula. Providers file annual cost reports that detail the "reasonable costs" they have incurred and the portion of those costs that are covered by Medicare. 42 U.S.C. § 1395g(a); 42 C.F.R. § 413.50. HHS delegates Medicare administration to the Centers for Medicare and Medicaid Services ("CMS"). CMS often contracts out to "fiscal intermediaries" the task of auditing the providers' cost reports and creating a Notice of Program Reimbursement ("NPR"). 42 C.F.R. §§ 405.1803, 421.100.

Rapid City disagreed with the NPR issued in October of 2005 by the intermediary for Fiscal Year 1999, arguing that it erred in calculating the "disproportionate share" adjustment ("DSH"), one of the several payment adjustments that may be made pursuant to the PPS under 42 U.S.C. § 1395ww. The Medicare Act permits dissatisfied providers to bring their claims before the Provider Reimbursement Review Board ("PRRB" or "the Board"). 42 U.S.C. § 1395oo(a). In April of 2006, Plaintiff appealed its NPR for FY1999 to the PRRB.

The PRRB is authorized by statute to "make rules and establish procedures, not inconsistent with the provisions of this subchapter or regulations of the Secretary, which are necessary or appropriate to carry out the provisions" of the statute. Id. at § 1395oo(e). CMS issued PRRB Instructions in March of 2002, setting forth the Board's policies and guidelines. See PRRB Instructions at Introduction.*fn3

The Instructions require both the provider and the Intermediary to file preliminary and final position papers. Id. at II.B. The due dates for the provider's preliminary and final position papers are included in an Acknowledgment and Critical Due Dates letter sent from the PRRB to the provider. Id. at I.C.I. Providers submit a preliminary position paper to the Intermediary--not to the Board--which is tasked with reviewing the provider's position paper before engaging in a settlement meeting with the provider and filing, if necessary, its own position paper with the Board. Id. at II.B.I. At this early stage of the appeal, the Board requires the provider to submit to it only the first page of its preliminary position paper and certification that a full copy was submitted to the Intermediary. Id.

The PRRB Instructions state that if a provider "fail[s] to meet the preliminary position paper due date and fail[s] to supply the Board with the required documentation, the Board will dismiss [the provider's] appeal for failure to follow Board procedure." Id.*fn4 In addition, the May 9, 2006, Acknowledgment Letter received by Plaintiff stated that "[y]ou (the provider) are responsible for pursuing your appeal in accordance with the Board's procedures, which are outlined in the Board's instructions." AR at 4. It continued, "[i]f you miss any of your due dates including meeting either position paper due date, the Board will dismiss your appeal." Id. Rapid City received notice in the same letter that "[t]he Board will not send a due date reminder." Id.

Federal regulations merely require that the appeal be filed within 180 days of receipt of the Intermediary's NPR, and that the provider identify and explain its reasons for challenging the Intermediary's decision, 42 C.F.R. § 405.1841; therefore, the position paper requirement was implemented by the PRRB alone, and not by statutory or regulatory text.

Rapid City filed a timely appeal on April 21, 2006. The Board received the letter of appeal on April 25, 2006. The letter contained information about the substance of Rapid City's challenges to the Intermediary's decision. On May 9, 2006, the PRRB acknowledged receipt of the appeal, and provided Plaintiff and the Intermediary with due dates for preliminary and final position papers. According to the May 9, 2006, letter from the PRRB, Rapid City's preliminary position paper was due on August 1, 2006. AR at 3. Plaintiff failed to file its preliminary position paper by that date, and thus, on August 23, 2006, the Board dismissed its appeal for failure to comply with PRRB procedures. Id. at 2

Rapid City eventually filed its preliminary position paper with the Intermediary, which was received on September 13, 2006. Id. at 1. On the same date, it supplied the Intermediary with a motion to reinstate its appeal. Id. The Board received a facsimile copy of the motion filed with the Intermediary. Id. at 10-28. The Board sent Rapid City a letter on December 29, 2006, informing Plaintiff that its motion to reinstate must be filed directly with the Board (as opposed to the Intermediary). AR at 8. The Board then dismissed Plaintiff's motion for reinstatement. Plaintiff disputes the claim that it failed to file its motion for reinstatement with the PRRB.


The Medicare Act provides for judicial review of a final decision made by the Board. 42 U.S.C. § 1395oo(f)(1). The Act instructs the reviewing court to apply the provisions of the APA. Id. Under the APA, the agency decision is set aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 702(2)(A).

"The arbitrary and capricious standard [of the APA] is a narrow standard of review." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). It is well established in our Circuit has held that "[t]his court's review is... highly deferential" and "we are 'not to substitute [our] judgment for that of the agency' but must 'consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.'" Bloch v. Powell, 348 F.3d 1060, 1070 ...

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