1 Plaintiff's Complaint names Tommy G. Thompson as theDefendant in this action. Pursuant to Fed.R.Civ.P. 25(d)(1),Michael O. Leavitt is now the proper Defendant.
ORDER GRANTING IN PART PLAINTIFF'S MOTION FOR JUDGMENT BASED ON THE ADMINISTRATIVE RECORD AND DENYING DEFENDANT'S MOTION FOR JUDGMENT BASED ON THE ADMINISTRATIVE RECORD
Plaintiff Aroostook Medical Center (hereinafter "AMC")commenced this action against the Secretary of the United StatesHealth and Human Services Department (hereinafter "Secretary")alleging that the Provider Reimbursement Review Board(hereinafter "the Board") arbitrarily and capriciously deniedPlaintiff's request for increased payments under federal Medicarelaw.2 Judicial review of the Board's final decision isavailable pursuant to 42 U.S.C. § 1395oo(f).3 Both parties have now moved for Judgment Based on theAdministrative Record. See Plaintiff's Motion for JudgmentBased on the Administrative Record (Docket Item No. 13) andDefendant's Motion for Judgment Based on the AdministrativeRecord (Docket Item No. 16). Plaintiff filed a response toDefendant's Motion (Docket Item No. 21). For the reasons setforth below, the Court will deny Defendant's Motion, grantPlaintiff's Motion in part, and remand this matter to the Boardfor further proceedings.
I. Facts and Procedural History
AMC is a general acute care hospital located in Presque Isle,Maine. Among its services, AMC provides end stage renal dialysis(hereinafter "ESRD") to patients suffering from kidney ailments.Rates paid to ESRD facilities under federal Medicare law areestablished by the Centers for Medicare and Medicaid Services(hereinafter "CMS"),4 and payments are made on aprospective basis. 42 C.F.R. § 413.174. Subject to meetingcertain qualifying criteria, an ESRD provider may request thatCMS "approve an exception to that rate and set a higherprospective payment rate." 42 C.F.R. § 413.180. At issue in thiscase is the following regulation: CMS may approve exceptions to an ESRD facility's prospective payment rate if the facility demonstrates, by convincing objective evidence, that its total per treatment costs are reasonable and allowable under the relevant cost reimbursement principles of part 413 and that its per treatment costs in excess of its payment rate are directly attributable to any of the following criteria: . . . (b) Isolated essential facility, as specified in § 413.186.42 C.F.R. 413.182. To qualify for an exception as an isolatedessential facility, AMC must meet three criteria: (1) The facility must be the only supplier of dialysis in its geographical area; (2) The facility's patients must be unable to obtain dialysis services elsewhere without substantial additional hardship; and (3) The facility's excess costs must be justifiable.42 C.F.R. 413.186(a). Facilities may only apply for exceptions tothe standard rates during specifically designatedperiods.5 The federal regulations set forth documentationrequirements for ESRD facilities seeking increasedpayments,6 and additional documentation requirements for payment requests resulting fromisolated and essential status.7 On March 1, 2000, a window opened for providers to submit rateexception requests. The current default rate paid at this timewas $122.62 for each hemodialysis treatment. On August 23, 2000,AMC timely filed such a request, invoking the exception categoryof "isolated essential facility." As required by the federalregulations, AMC submitted its petition to a Fiscal Intermediary(hereinafter "Intermediary"),8 requesting a per-treatmentpayment of $227.58. Administrative Record at 509. TheIntermediary recommended that CMS grant the exception, but at thereduced rate of $218.97. Administrative Record at 629. TheIntermediary suggested the lower rate because AMC did notidentify or explain discrepancies between its year 1999 and year2001 budgets; thus, the Intermediary recommended that the lowerof the two fiscal budgets be used as the baseline number forquantifying the exception. Administrative Record at 629.
The Intermediary submitted its recommendation to the CMS for anadministrative determination of whether the exception waswarranted. By letter dated November 3, 2000, CMS declined toadopt the Intermediary's recommendation, concluding that although AMC is both isolated and essential, it failed to linkits increased costs with its isolated and essential status. CMSoutlined several apparent deficiencies in AMC's petition for anexception. First, CMS indicated that AMC did not properlydelineate the distance from each patient's home to the nearestfacility in Bangor. Second, AMC did not adequately documentrequired travel costs for the medical director of NortheastNephrology.9 Third, CMS determined that AMC's reportedsupply delivery charges and freight charges containedinconsistencies or were not sufficiently documented. Fourth, CMSdetermined that AMC's claim for increased overhead charges due toeconomies of scale was not properly explained. Fifth, CMSindicated that AMC did not adequately document its increasednursing costs due to local nonavailability. Sixth, CMS concludedthat AMC's decision not to purchase reusable dialyzers, whichresulted in increased supply costs, was a management decision andnot a function of location. Seventh, CMS attributed AMC'shardware/software costs — incurred to allow better communicationwith physicians at Eastern Maine Medical Center — to the factthat it does not have a full-time Medical Director. As a resultof these purported deficiencies, CMS declined to adopt theIntermediary's recommendation and denied AMC's exceptionrequest.10 See Administrative Record at 498-500.
AMC timely filed a request for hearing before the ProviderReimbursement Review Board. In support of its hearing before theBoard, AMC requested that the Board subpoena Mark Horney, whomAMC alleges was the CMS employee responsible for reviewing AMC'sexception request. CMS opposed the subpoena of Mr. Horney on the grounds that CMS's decision was an agency decision and not anindividual decision, thus making Mr. Horney's testimonyunnecessary. Further noting Mr. Horney's unavailability, CMSindicated it would make available a substitute witness, MichaelPowell, who would testify about the policies and procedurespertaining to AMC's application. The Board denied the subpoenarequest, stating that Mr. Horney's testimony was not necessary inlight of the availability of Mr. Powell's testimony, and thatAMC's request for all records or materials consulted or preparedin reviewing the exception request are covered by thedeliberative process privilege, 5 U.S.C. § 552(b)(5).Administrative Record at 848.
AMC also requested that the Board subpoena Michael Nobile, therepresentative of the Intermediary who recommended granting theexception request.11 CMS opposed this subpoena on theground that the Intermediary only provided a recommendation toCMS, thus the processes and rationale employed by Mr. Nobile werenot relevant to resolution of the exception request. The Boardagreed, ruling that "the testimony of Michael Nobile is notmaterial and relevant to the issue of whether the Provider isentitled to an exception to the composite rates for End StateRenal Disease (ESRD). Mr. Nobile did not make the final decisionas to whether the Provider was entitled to an ESRD exception."Administrative Record at 896-97. Upon motion for reconsideration,the Board reaffirmed its refusal to issue the subpoena.Administrative Record at 847. Subsequently, the Board affirmedthe decision reached by CMS denying AMC's application for relieffrom the composite payment rate. See Aroostook Medical Ctr. v.Assoc. Hosp. Serv. of Me., 2004 WL 2066683 (P.R.R.B. June 9,2004). II. Standard of Review
In providing for judicial review of Provider ReimbursementReview Board decisions, 42 U.S.C. § 1395oo(f) mandates thatreview be conducted "pursuant to the applicable provisions underchapter 7 of Title 5 notwithstanding any other provisions insection 405 of this title." Id. Pursuant to5 U.S.C. § 706(2)(A), this Court can only set aside the decision of theBoard if that decision is "arbitrary, capricious, and abuse ofdiscretion, or otherwise not in accordance with law." Id.; seealso S. Shore Hosp., Inc. v. Thompson, 308 F.3d 91, 97 (1stCir. 2002). Bearing in mind this deferential review standard, theCourt turns to the issues raised in this case.
In its Motion for Judgment Based on the Administrative Record,AMC contends that the Board's denial of the subpoena requestsamounted to a denial of due process. Id. at 17. Specifically,AMC states that "the Provider was prevented from creating anappropriate administrative record," id., and "the Boardprevented the Plaintiff from obtaining the documents that the PRM[Provider Reimbursement Manual]12 required theIntermediary to prepare during its review." Id.
The issuance of subpoenas in ESRD exception cases is governedby the following federal regulation: When reasonably necessary for the full presentation of a case, the Board may, either upon its own motion or upon the request of a party, issue subpoenas for the attendance and testimony of witnesses and for the production of books, records, correspondence, papers, or other documents which are relevant and material to any matter in issue at the hearing. Parties who desire the issuance of a subpoena shall, not less than 10 days prior to the time fixed for the hearing, file with the Board a written request therefor, designating the witnesses or documents to be produced, and describing the address, or location thereof with sufficient particularity to permit such witnesses or documents to be found. The request for a subpoena shall state the pertinent facts which the party expects to establish by such witnesses or documents and whether such facts could be established by other evidence without the use of a subpoena. Subpoenas, as provided for above, shall be issued in the name of the Board, and the Centers for Medicare & Medicaid Services shall assume the cost of the issuance and the fees and mileage of any witness so subpoenaed, as provided in section 205(d) of the Act, 42 U.S.C. 405(d).42 C.F.R. § 405.1857. The Court is satisfied that the subpoenarequested for Mr. Nobile complied with the above cited regulationand was necessary to ensure that AMC had a full and fairopportunity to present its position to the Board.13Federal law requires that Board review of CMS's decisions includefull consideration of evidence presented to the Intermediary, towit: "A decision by the Board shall be based upon the record madeat such hearing, which shall include the evidence considered bythe intermediary and such other evidence as may be obtained orreceived by the Board, and shall be supported by substantialevidence when the record is viewed as a whole."42 U.S.C. § 1395oo(d).
The Court further notes that CMS's own regulations place theburden of identifying any omissions in an exception request withthe Intermediary. "The intermediary reviews the exceptionrequest, the cost report, the facility's projected costs, and anyother documentation submitted by the facility to assure that itis complete and accurate. If the renal facility fails to submitthe required documentation, as required by this chapter, theexception request is returned to the facility." ProviderReimbursement Manual — Part I, § 2723.3(A), available at http://www.cms.hhs.gov/manuals/pub151/pub_15_1.asp. In this case,the Intermediary never notified AMC that there were deficienciesin its application. Instead, the Intermediary calculated its ownexception rate, different from what AMC requested, and presentedthis recommendation to CMS.
Because the Intermediary made calculations and conclusionsbased on the materials submitted to it by AMC, and because42 U.S.C. § 1395oo(d) requires all evidence considered by theIntermediary to be presented to the Board, the Court concludesthat the Board abused its discretion in failing to issue asubpoena for Mr. Nobile to appear at the Board hearing with thedocuments he considered. The Board's denial of the subpoenarequest deprived AMC of the opportunity to present a full andcomplete argument to the Board. Furthermore, CMS and the Boardrejected AMC's application on largely technical grounds, yet therecord does not reflect that the Intermediary ever notified AMCof any omissions or other shortcomings in its request. Mr.Nobile's testimony, and the documents considered by theIntermediary, are highly relevant in resolving the disputesrelated to the cost report and other issues pertaining to themerits of AMC's request.
In contrast, the Court does not find an abuse of discretion inthe Board's decision not to subpoena Mr. Horney. The Court issatisfied that Mr. Powell was well qualified to testify as arepresentative of CMS. The Court, reviewing only for abuse ofdiscretion, cannot undo a decision of the Board that wasreasonable at the time it was made. The fact that Mr. Powell maynot have testified at the hearing to AMC's satisfaction does notprovide this Court with a proper basis to vacate this decision. Although the Court finds error in the fundamental fairness anddue process afforded to AMC, the Court does not reach the issueof whether AMC's documented costs are related to its isolatedessential status and whether the exception request should beapproved.14 On remand, the Board shall subpoena thetestimony of Mr. Nobile and allow AMC a full and fair opportunityto present its claim before the Board.
For the reasons set forth above, it is ORDERED that thedecision of the Provider Reimbursement Review Board be, and it ishereby, VACATED. It is FURTHER ORDERED that this case be, andit is hereby, REMANDED to the Provider Reimbursement ReviewBoard for further proceedings consistent with this opinion.
1. The Secretary did not grant AMC's petition for furtherreview, thus making the Board's decision final and subject tojudicial review.
2. 42 U.S.C. § 1395oo(f) provides as follows: Providers shall have the right to obtain judicial review of any final decision of the Board, or of any reversal, affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the Board or of any reversal, affirmance, or modification by the Secretary is received. . . . Such action shall be brought in the district court of the United States for the judicial district in which the provider is located.
3. On July 1, 2001, the Health Care Financing Administrationchanged its name to the Centers for Medicare and MedicaidServices.
4. A facility must request an exception to its payment ratewithin 180 days of — (1) The effective date of its new composite payment rate(s); (2) The effective date that CMS opens the exceptions process; or (3) The date on which an extraordinary cost-increasing event occurs, as specified (or provided for) in §§ 413.182(c) and 413.188.42 C.F.R. 413.180(d).
5. 42 C.F.R. 413.180 provides in pertinent part: (f) Documentation for a payment rate exception request. If the facility is requesting an exception to its payment rate, it must submit to CMS its most recently completed cost report as required under § 413.198 and whatever statistics, data, and budgetary projections as determined by CMS to be needed to adjudicate each type of exception. CMS may audit any cost report or other information submitted. The materials submitted to CMS must — (1) Separately identify elements of cost contributing to costs per treatment in excess of the facility's payment rate; (2) Show that the facility's costs, including those costs that are not directly attributable to the exception criteria, are allowable and reasonable under the reasonable cost principles set forth in this part; (3) Show that the elements of excessive cost are specifically attributable to one or more conditions specified in § 413.182; (4) Specify the amount of additional payment per treatment the facility believes is required for it to recover its justifiable excess costs; and (5) Specify that the facility has compared its most recently completed cost report with cost reports from (at least 2) prior years. The facility must explain any material statistical data or cost changes, or both, and include an explanation with the documentation supporting the exception request. (g) Completion of requirements and criteria. The facility must demonstrate to CMS's satisfaction that the requirements of this section and the criteria in § 413.182 are fully met. The burden of proof is on the facility to show that one or more of the criteria are met and that the excessive costs are justifiable under the reasonable cost principles set forth in this part.
6. Specifically, the regulations require the following: (c) Documentation. (1) Isolated. Generally, to be considered isolated, the facility must document that it is located outside an established Metropolitan Statistical Area and provides dialysis to a permanent patient population, as opposed to a transient patient population. (2) Essential. To be considered essential, the facility must document — (i) That a substantial number of its patients cannot obtain dialysis services elsewhere without additional hardship; and (ii) The additional hardship the patients will incur in travel time and cost. (3) Cost per treatment. The facility must — (i) Document that its cost per treatment is reasonable; and (ii) Explain how the facility's cost per treatment in excess of its composite rate relates to the isolated essential facility criteria specified in paragraph (b) of this section. (4) Additional information. The facility must also furnish the following information in a format that concisely explains the facility's cost and patient data to support its request: (i) A list of current and requested payment rates for each modality. (ii) An explanation of how the facility's costs in excess of its composite rate payment are attributable to its being an isolated essential facility. (iii) An explanation of any unusual geographic conditions in the area surrounding the facility. (iv) A copy of the latest filed cost report and a budget estimate for the next 12 months prepared on cost report forms. (v) An explanation of unusual costs reported on the facility's actual or budgeted cost reports and any significant changes in budgeted costs and data compared to actual costs and data reported on the latest filed cost report. (vi) The name, location of, and distance to the nearest renal dialysis facility. (vii) A list of patients by modality showing commuting distance and time to the current and the next nearest renal dialysis facility. (viii) The historical and projected patient-to-staff ratios and number of machines used for maintenance dialysis treatments. (ix) A computation showing the facility's treatment capacity, arrived at by taking the total stations multiplied by the number of hours of operation for the year divided by the average length of a dialysis treatment. (x) The geographic boundaries and population size of the facility's service area.42 C.F.R. 413.186.
7. The Fiscal Intermediary in this case was BlueCrossBlueShield Association/Associated Hospital Service of Maine.
8. The administrative record reflects that the medicaldirector would travel to AMC from Bangor two days every twoweeks.
9. The estimated Medicare reimbursement impact is $625,000.Administrative Record at 636.
10. In addition to requesting that Mr. Nobile appear at thehearing to testify, AMC also sought a subpoena for all recordsand other materials that Mr. Nobile reviewed, consulted, orprepared during his review of AMC's exception application. SeeAdministrative Record at 894.
11. The Provider Reimbursement Manual is a set of guidelinespromulgated by CMS and used in this case for determiningeligibility for ESRD rate exceptions.
12. The Board's decision to deny AMC's request for anexception was based in large part on the purported failure of AMCto submit cost reports and to adequately document commutingdistances from the patients' residences to the Bangor facility.It is undisputed that AMC submitted the so-called "I series" —the cost report worksheets related to the dialysis unit. AMCcontends that because these documents contain all of thenecessary information for the Intermediary to make arecommendation, AMC complied with the cost report requirement.Moreover, AMC contends that the Intermediary already had a copyof the latest cost report at the time the exception request wasfiled.
13. However, the Court notes that the Board's conclusion thatAMC failed to submit adequate documentation concerning patientcommuting distances borders on arbitrary and capricious.Elementary arithmetic would allow for computation of any allegeddeficiencies in AMC's evidence. The record indicates that thedistance from AMC to the next nearest facility in Bangor is 160miles. AMC provided the distance each patient must travel to theAMC facility, but not to the Bangor facility. Simply subtractingthe number of miles a patient had to travel to AMC from 160 wouldpresent the minimum number of miles a patient had to travel tothe Bangor facility. Denial of AMC's exception request on thisminor technicality is, as AMC suggests, a matter of form oversubstance.