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Case number 14-5122.

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Anna Rhonda, Medical Center at L. Appellants Memorial Hospital of Sheridan County and Pasadena Memorial Area Hospital Association, doing business as Pasadena Area Hospital v. Sylvia Mathis Burwell in her official capacity as Secretary of the United States Department of Health and Human Services.

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Mr. Goyal for the Appellants.

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Morning, Your Highness.

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Morning.

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May it please the court, my name is Ankur Goyal.

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I'm representing the Seoul Community Hospitals and the Medicare-dependent hospitals in this case.

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I'd like to reserve five minutes for rebuttal.

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I have two key points, I think.

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First, in this case, the secretary has not paid the target amount defined by statute.

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The target amount means the hospital's own actual operating costs in a specified base cost reporting.

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I think it's undisputed that the rate she paid is not the hospital's cost in the base period.

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The second point is that these pre-base year reductions are framed as budget neutrality adjustments, but the budget neutrality statute neither requires nor authorizes the failure to pay using the target amount.

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statute and elaborate on that.

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The budget neutrality statute calls for adjusting weighting factors, the DRG weights in the vernacular of the Medicare program, the weighting factors, not the payment rates, and the secretary concedes

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adjust the weighting factors in order to be budget neutral.

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If the Secretary had simply done so, there would be no issue here.

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The genesis of this case is that the Secretary has adjusted rates rather than weighting factors.

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Did this – as a result, did the Secretary fail to produce budget neutrality?

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Your Honor, I think the question here is not so much – Well, that's my question.

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Your Honor, I don't know the answer to that because for us, the key question is whether the target amount has been paid.

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By operation of what the Secretary did is she took reductions to rates rather than rates.

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And when you start mixing different things, it's hard to know exactly where it comes out.

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But in aggregate, what we're really talking about here is, in Cape Cod, Your Honor, the issue was by adjusting rates rather than a different component.

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Was the error harmless?

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Here, the statute is very clear about adjusting weights rather than rates.

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Don't we have the same harmless question to ask?

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We do have the same harmless question to ask.

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then doesn't Kate Codd say it's harmless?

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No, Your Honor, because the harm here is that the target amount has been violated.

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So the question is, the statute says adjust the classification and weighting factors annually.

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That's 1395 WWD4C Romanette 1.

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And it can be found at page 8A of the statutory appendix to our opening brief.

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foresee Romanet 3, then requires that any such adjustment under clause Romanet 1 shall be made in a manner that assures budget neutrality.

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So such adjustment is the annual adjustment to the weighting factors that shall be made in a manner that's budget neutral.

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My understanding is you're claiming that you've come out with less as a consequence of the formula that they're using.

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That's right, Your Honor.

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And on the question of harmless,

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What we're saying is that adjustments that are pre-base year, so we have the base year of 2006 for the Seoul Community Hospitals, when you adjust the rates down below the hospital's cost that it actually incurred in 2006, that those are not harmless.

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Adjustments that are after the base year may be harmless.

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So the Cape Cod question that Judge Taylor, that you asked,

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It's harmless if it's after the base year, because those are things that the hospitals are subject to.

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The adjustments that occur, for example, from 2009 to 2010 to the weights, if the secretary instead adjusts the rates,

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the hospitals would still be subject to those.

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It's the pre-base year adjustments that the secretary introduced to the target amount.

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Those are the ones that take the hospital's payments below the cost in the base year, and that's the reason why the Cape Cod issue, the harmless error, doesn't apply.

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You're saying the budget neutral adjustment has not been applied to the group weight?

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The secretary concedes that she has not adjusted the weights to be budget neutral.

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That's correct, Your Honor.

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What she has done is instead apply adjustments to the rates.

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And that is the source of the problem.

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The other thing I would say is, ordinarily... Your case mix is going to be lower.

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That's the divisor.

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And so if you do it the way you're talking about, you're going to get a higher payout than what they're giving you now.

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Well, that's right, Your Honor.

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The way they're doing it now reduces the cost below the cost in the base year.

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And I think their own example at page 28 shows that.

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The example is the hospital's cost per patient in the base year are $5,000, and yet the payment rate that's being provided is $4,900.

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So just from their own example, I think that fact

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But isn't that a result of the statutory requirement that applies to your clients as well as to all the other hospitals, that there be budget neutrality with reference to, what is it, 1981?

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And that's, you know, everybody's

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belt is tightened under that, and that's what the statute of provision you point to requires.

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No, that's not what the statutory provision provides for.

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What the statutory provision provides for has nothing to do with 1981 or the rates.

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It says a separate component of the payment is the weights.

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And the weights, each year that they're adjusted, should be adjusted to be budget neutral.

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For the whole statute, though, not just for your clients, but for every hospital under the statute.

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Yes, for every hospital.

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We are absolutely, the sole community hospitals and Medicare-dependent hospitals are affected by the DRG weights as well.

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If the secretary had simply adjusted the DRG weights,

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In 2009, she adjusted the DRG weights.

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If those had been made budget neutral, as the statute calls for, the sole community hospitals, Medicare-independent hospitals, their rates are going to be applied to those weights.

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It would apply to all of them.

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Let me ask you the question this way.

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Is there any evidence that Congress cared about the DRG weights specifically?

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Didn't it care about budget neutrality?

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It didn't think there was something wrong with the DRG weights.

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It wasn't setting out to build budget neutrality into them.

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It was setting out to build budget neutrality into the whole program, wasn't it?

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No, I disagree, Your Honor.

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I know that's what it says, but wasn't Congress's concern about budget neutrality of the Medicare Act?

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Well, no, because where it's contained is highly relevant to what the purpose is.

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There are a variety of budget neutrality provisions for different aspects of the Medicare program.

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Congress said

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Create DRG weights.

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This is the structure of the program.

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You're going to have DRG weights and payments being made based on those.

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Adjust those annually.

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And when you make that adjustment annually, that adjustment shall be made in a manner that's budget neutral.

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I guess the other thing I would say, Your Honor, is even if there is discretion to adjust rates rather than weights,

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would not be permissible items.

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You're assuming that the target amount is statutorily required to be calculated with the DRG in the denominator, the way the Secretary has historically been doing, but that's not statutorily required, is it?

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I mean, they could use a different weight there, a non-budget neutralized DRG for that purpose, because that's something the statute doesn't restrict.

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Your Honor, the statute doesn't talk about DRG weights in the denominator, but that's not our point.

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The point is that the costs that the hospital incurred in that base year are not being paid.

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That's the target amount.

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And the Secretary doesn't claim to be paying

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the cost that the hospital incurred in the base year.

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And that's the critical issue.

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What in the statute requires that the hospital be paid the costs that are actually incurred in the base year as distinct from some adjusted cost?

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It's in the definition, Your Honor, of the target amount.

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And the target amount is specifically defined.

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We have this at page four of our reply brief.

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It's excerpted there.

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The target amount means

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The target amount means, it uses that word specifically, it means the allowable operating costs of inpatient hospital services for the hospital, and then skipping a few words, for the base cost reporting period.

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That's the key language, and that is precisely what the statute defines.

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It is the central protection, the whole point of this whole community hospital program.

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is this is the protection that they are provided to insulate themselves against financial pressures that otherwise would eliminate the viability of a lot of these hospitals in the communities in which they operate.

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The same thing for the Medicare-dependent hospitals.

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And I see that I'm into my rebuttal time, so if there are no further questions at this time, I'd like to reserve the balance of my time.

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Good morning.

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Abby Wright on behalf of the Secretary.

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I'd like to begin just to answer your question, Judge Tatel, about whether we have achieved budget neutrality.

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The answer is that we have achieved budget neutrality through the Secretary's two-step process, which is to first take the DRG weighting factors as a change from year to year and normalize those.

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And then second... But you don't apply budget neutrality, which the statute says you're supposed to.

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And it has an effect on how much their payout is.

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Well, I have a couple of responses to that.

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I mean, the first- Right.

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You're not applying budget neutrality to the group, right?

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That's correct.

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The normalization does not- And the statute of request.

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We disagree with that point, Your Honor.

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The district court held that we had discretion under the statute, but I- Well, I don't care what the district court held.

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That's not what's at issue here.

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The district court has no discretion to decide whatever it wants about what the statute means.

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I thought you were conceiving- Let me make sure I'm on this thing.

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It's a crazy case.

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Okay.

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Yes, sir.

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My understanding is under that three I section, you're acknowledging that you didn't do what the statute appears to suggest, which is to put budget neutrality into the group weight first.

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Because if we're working with this forever, it does affect the payout for them.

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And I think they're conceding that, but you're saying it says shall be in a matter.

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And you're saying under that provision means we can do it or not as we see fit.

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Well, I don't know where to start, Your Honor, but.

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Well, start by telling me.

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Yeah, I'll start with the statute, Your Honor, since that's what you said.

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OK.

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So I think, for me, it's helpful to understand sort of an example from real life, which would be imagine that this is real life, sorry.

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The statute said, you know, paint your house every five years.

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Wait, can you just answer one question from me first to make sure we're starting at the same place?

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You were not applying the budget neutrality adjustment to the group weight, right?

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When we normalize, it achieves some budget neutrality, but not all.

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Oh, come on.

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Just answer my question.

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It's hard enough.

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But yes, that's right.

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You're right.

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You're not.

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No, we are in part.

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You are normalizing, but you are not applying full budget neutrality adjustment.

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That's right.

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We normalized before there was even a statutory budget neutrality requirement.

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And I'm suggesting that 3I says that you were supposed to.

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I disagree with that, but the point I want to get to quickly, Your Honor, is that it doesn't matter for the way they're paid.

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Because what matters in this case is that we apply a cumulative budget neutrality adjustment for pre-base years.

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Which we could do, whether that's in, we do it weights or we do it rates, because that's just a multiplication.

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We could do it in the rate portion, we could do it in the weight portion.

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Well, it's funny, I did it and I got a different payout.

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If I'm the hospital, I'd rather you apply the budget neutrality to the group weight, because I'm going to come out with more.

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No, they don't actually care how they get paid more, because when the secretary did it differently for the Medicare-dependent rural hospitals for several years, she simply didn't apply the pre-base year budget neutrality adjustments.

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She didn't change the way the weights or rates were handled.

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So they can win without us having to do it in the weights.

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And I don't think they plan to actually care whether we do it in the weights or the rates,

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get paid more.

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So I think the real dispute here is between whether the Secretary is allowed to apply that cumulative budget neutrality adjustment for pre-base years.

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So that's what the heart of this case is about.

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Yeah, I know that's the other part of the case, and I thought that those were different issues, and you're very strong on that.

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The correction the Secretary made, that's what you're talking about.

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I think that's a different issue than the one that I'm

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asking you about now, and they clearly are distinguishing between applying budget neutrality to the rate as opposed to the group weight.

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They clear, that was his whole argument.

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His argument was that for pre-base years, so what we're talking, they don't object to the year-to-year cumulative budget neutrality adjustment because whether you're in weights or rates, they acknowledge it comes out the same.

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The same is true for the pre-base years as well, so we could

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I can make it come out my way with weights.

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I can make it come out their way with rates.

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And in fact, when the Secretary did it the other way for several years, it was just because fiscal intermediaries didn't take off that pre-base year cumulative budget neutrality adjustment.

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So there really, I think, is only one issue here, and that's whether the statute permits the Secretary to equalize.

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Avoid using the budget neutrality adjustment to the group weight.

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No, Your Honor, I really want to be strongly clear here, which is that the Secretary for 25 years has been doing budget neutrality adjustments the way she does here.

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And she does it in other parts of the Medicare statute, too.

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So if we start messing around with the weights, there's going to be repercussions throughout the entire inpatient prospective payment system.

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So what I'm suggesting is that the Court could look at what the Secretary did, in fact, do for the Medicare-dependent rural hospitals for several years, which was

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which planners were happy with because it did what they wanted, which was just not to apply that additional, at that time, 1.74 percent reduction.

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Now it's 2.27 percent reduction.

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For prior years.

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For prior years.

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That's right.

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I understand that.

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Go ahead.

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Okay.

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Let me make that very clear.

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And then, so with respect to the application of the cumulative budget neutrality adjustment, as we explain an example in our brief at page 28, when Congress

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enacts a new base year, and when the Secretary implements a new base year, Congress is checking back in with rural hospitals and saying, have your costs changed?

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How different are you from a federal-rate hospital?

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And the way that the Secretary determines to do that, to really compare apples to apples, is to apply the cumulative budget neutrality adjustment even for pre-base years.

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So as we show in our brief, and I don't think plaintiffs have refuted the facts of this,

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Even if their costs were the same between 1996 and 2006, under their theory, they get paid 2.27% more when Congress enacts a new base year.

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Under our theory, we can actually compare how there have been changes, how there have been changes between their costs to treat the average patient from 1996 to 2006 and their costs compared to federal rate hospital.

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And that's because you keep the DRG unadulterated by the BMA.

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And that's the other point to respond to, the weights versus rates.

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The weights, as they say now, have meaning.

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They represent a ratio of how much it costs to treat this patient as compared to the average patient.

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If the secretary were to be required to put that 2.27% into the weights, and every year it would be a different number, and the weights would go, you know, back and forth, and we wouldn't be able to tell anything about what the weighting factors meant with respect to the ratio of treatment.

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You mean the 1395WWD4C3?

[00:18:16] Speaker 06:
Well, I think it means that you have to do it in a manner, which means you could do some other things, too, but at the end of the day, you've got to achieve budget neutrality, which the Secretary does achieve budget neutrality.

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And to be clear, it's budget neutrality with respect to the weight diagnosis

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related group weighting factors.

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So what Congress wanted to make sure didn't happen was when the secretary changed those to reflect treatment patterns, psychology, just costs of treating patients, didn't want to increase or decrease Medicare payments based on the diagnosis related group weighting factor changes.

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And so the secretary, and plaintiffs don't dispute that, I think, although they seemed equivocal this morning, but has achieved budget neutrality from year to year.

[00:19:01] Speaker 06:
So her changes to the diagnosis weighted

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weighting group factors, plus the budget neutrality adjustments, maintain budget neutrality from year to year.

[00:19:18] Speaker 06:
Happy to answer any additional questions.

[00:19:22] Speaker 02:
So you see this as a Kate Codd case, right?

[00:19:26] Speaker 06:
Is that right?

[00:19:28] Speaker 06:
I don't think we've erred in interpreting the statute, but assuming that you disagree with me on that.

[00:19:32] Speaker 02:
No, I mean in terms of achieving budget neutrality.

[00:19:36] Speaker 02:
I read Cape Cod as saying, yes, the secretary did it differently than the statute expressly required, right?

[00:19:44] Speaker 06:
Yes, I guess I was disagreeing in touch with whether we drink differently, then.

[00:19:47] Speaker 06:
But yes, I agree with you, Your Honor, that what we're talking about is the discretion.

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So by adjusting the rates, you accomplished the budget neutrality Congress directed.

[00:19:57] Speaker 06:
That's right.

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Congress is— And if you did the weights, you would screw up the rest of the system.

[00:20:02] Speaker 02:
Is that the point?

[00:20:03] Speaker 06:
That's exactly right, Judge Tito.

[00:20:04] Speaker 02:
Put it in legal terms?

[00:20:06] Speaker 03:
Well, I mean, the problem with the answer is, and I don't want, of course, you're not trying to wreak havoc on your system, but you really are not answering my question under three.

[00:20:16] Speaker 03:
And three refers back to CI, which says shall adjust the classifications and weighting factors.

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And by a budget neutrality, because that's what rule three is about, by a budget neutrality adjustment.

[00:20:29] Speaker 03:
You're referring to the other arguments of the reason, which I totally understand and agree with, incorporation of the prior years

[00:20:38] Speaker 03:
We're not dealing with the piece of the Cape Cod does not apply here because the Cape Cod found that there was no loss to the claim.

[00:20:47] Speaker 03:
I calculated this.

[00:20:49] Speaker 03:
I may be crazy.

[00:20:50] Speaker 03:
There is a loss if you don't apply the budget neutrality adjustment factor to the weight factor as the statute requires.

[00:21:00] Speaker 06:
I think Judge Pillard actually was getting at this with plaintiff's discussion, which is that

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we could do it in the weighting factors and still apply a budget neutrality cumulative adjustment for pre-base years that would take their rates back down.

[00:21:12] Speaker 06:
So why it looks different from what they've done in the amicus brief is because they have not applied a pre-base year adjustment.

[00:21:19] Speaker 06:
The other thing we could do is renormalize the case mix index, which I think we might very well do, because now our weights would be all to put to jail screwy.

[00:21:29] Speaker 06:
So that would actually make it come out the secretary's way again.

[00:21:33] Speaker 05:
But you would have mucked up your DRGs and their utility for the kind of comparative across time and across geography that they're useful for.

[00:21:42] Speaker 06:
The DRG weighting factors are used throughout the entire inpatient prospective payment system.

[00:21:45] Speaker 06:
So we don't know exactly what would happen if we had to change all the weights, but we could see there would be repercussions.

[00:21:52] Speaker 06:
There are other budget neutrality requirements.

[00:21:55] Speaker 05:
That's right.

[00:21:55] Speaker 05:
What's your statutory language argument, your best statutory language argument?

[00:22:02] Speaker 05:
Given the provision that Judge Edwards is asking about.

[00:22:05] Speaker 06:
In terms of the target amount, I think, is what you're asking.

[00:22:08] Speaker 05:
Well, in terms of the adjustment being.

[00:22:10] Speaker 06:
Oh, the C3.

[00:22:11] Speaker 06:
Yeah.

[00:22:12] Speaker 06:
So the statute says, assures of the aggregate payments.

[00:22:15] Speaker 06:
And so I think Congress is looking at aggregate payments.

[00:22:19] Speaker 06:
And aggregate payments.

[00:22:20] Speaker 06:
Where are you looking at?

[00:22:21] Speaker 06:
So I'm in C3.

[00:22:23] Speaker 06:
So A17 of my brief.

[00:22:25] Speaker 06:
I'm not sure what page it is.

[00:22:28] Speaker 03:
Okay, go ahead.

[00:22:29] Speaker 06:
So, Congress is concerned about that the aggregate payments don't go up or down.

[00:22:35] Speaker 06:
And that's exactly what the Secretary has done.

[00:22:37] Speaker 06:
And so, I read shall be made in a manner to mean you could do, and I was giving an example of the house painting example.

[00:22:45] Speaker 06:
So, say that you said you have to paint your house every five years and do so in a manner that assures that no paint chips go into the soil, for example.

[00:22:53] Speaker 06:
Plaintiff's reading would mean that the way I'm actually painting the house

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has to assure that no paint chips go in.

[00:22:58] Speaker 06:
I couldn't put down a TARP, for example.

[00:23:00] Speaker 06:
So the secretary is on here.

[00:23:01] Speaker 06:
She's just put down a TARP.

[00:23:03] Speaker 06:
So we normalize.

[00:23:04] Speaker 06:
And then because Congress is concerned about aggregate payments, the secretary comes in with a supplemental budget neutrality adjustment.

[00:23:11] Speaker 06:
And that's, as I said, something that's been done for 25 years since the very beginning of the budget neutrality adjustment and is a way that other budget neutrality adjustments are calculated.

[00:23:19] Speaker 05:
What proportion of the hospitals are these SCHs and these hospitals that the

[00:23:28] Speaker 06:
I'm not sure about percentage.

[00:23:30] Speaker 06:
I think there are 420 social community hospitals, so a small percentage in the country.

[00:23:34] Speaker 05:
I mean, it seems like it doesn't, except for them, it wouldn't make a difference whether the budget neutralization is done within the DRG or as a factor outside of the DRG.

[00:23:47] Speaker 05:
That's right.

[00:23:47] Speaker 05:
It just doesn't make a difference because there isn't this denominator where the DRG appears again.

[00:23:52] Speaker 05:
And so it seems like Congress might not be so focused on that when they were writing this provision.

[00:23:58] Speaker 03:
I think I think we could that's not the provision that we invoked here and it would be by regulation and we did regulation for Medicare-dependent rural hospitals but

[00:24:18] Speaker 06:
not personal community hospitals.

[00:24:20] Speaker 06:
So I think we could, I think the secretary could certainly do that if this court required her to do it in a different way going forward.

[00:24:26] Speaker 06:
That was the subject of the prior add-on in that case.

[00:24:28] Speaker 03:
I mean, the way you're reading it, and again, I understand your argument and the potential problems that might arise from what appears to be a little reading of the statute.

[00:24:39] Speaker 03:
You seem to be saying in 3i, any such adjustment under clause 1, as if that means

[00:24:51] Speaker 03:
with the budget neutrality.

[00:24:56] Speaker 03:
C1 says the secretary shall adjust the classifications and the weighting factor, shall do it.

[00:25:03] Speaker 06:
Right, and we do it.

[00:25:03] Speaker 03:
We do that.

[00:25:04] Speaker 03:
It seems to me, no, you don't.

[00:25:06] Speaker 03:
Well, every year.

[00:25:07] Speaker 03:
With the budget neutrality, you don't.

[00:25:08] Speaker 03:
Right, but C1 is not the budget neutrality.

[00:25:10] Speaker 03:
You apply it at the end.

[00:25:11] Speaker 03:
You don't apply it to the weighting factor.

[00:25:14] Speaker 06:
But C1 has been in the statute before there was any budget neutrality requirement.

[00:25:18] Speaker 06:
C1 is just adjusting every year, which we do.

[00:25:21] Speaker 06:
Right.

[00:25:22] Speaker 06:
Right.

[00:25:22] Speaker 03:
Okay, but you're saying that... Now three adds, which adds later, that's the budget neutrality requirement, and it's referring back to the weighting factors.

[00:25:30] Speaker 03:
You're supposed to apply a budget neutrality adjustment to the weighting factors.

[00:25:33] Speaker 03:
Right, and I'm reading... You're reading three, I guess, to say any such adjustments as if to say, well, you may or may not have done it to the weighting factors.

[00:25:40] Speaker 03:
You don't have to put your 10 children in a model that assumes.

[00:25:44] Speaker 03:
Is that what you're reading?

[00:25:45] Speaker 06:
I'm reading, it shall be made in a manner that assures aggregate payments to give us room to do – put that tarp down in my example.

[00:25:51] Speaker 06:
So do a little cleanup.

[00:25:52] Speaker 03:
As long as it ends up budget neutral, you're saying that's it, we're not worrying about beyond that?

[00:25:58] Speaker 06:
Right.

[00:25:58] Speaker 06:
We think Congress's goal in this provision is – it's clearly to maintain aggregate payments not going up or down because of those changes, and that's what the Secretary has done that year.

[00:26:07] Speaker 05:
Doesn't the way the reimbursement amounts were calculated that's expressly set out in separate provisions in the statute in 1984 and 85 also help you?

[00:26:17] Speaker 05:
Given that the methodology there is... It's the same.

[00:26:20] Speaker 06:
Yeah, I mean, so this has been done even from the early 80s when the first standardized rate that was divided by case mix index as well, and then there was a period where all hospitals were sort of hospital-specific payment hospitals because there was a transition period from the, you know, when the inpatient perspective system first began.

[00:26:37] Speaker 06:
So the treatment there was the same as well.

[00:26:40] Speaker 06:
And then the secretaries that applied the cumulative budget neutrality adjustment made a decision in 1991 to do so to both federal rate and hospital-specific rate hospitals.

[00:26:51] Speaker 06:
If there are no further questions, we would ask the district court to confirm.

[00:26:56] Speaker 02:
Thank you.

[00:27:05] Speaker 01:
I'd like to address several of the points.

[00:27:09] Speaker 01:
First,

[00:27:11] Speaker 01:
Council said these hospitals just want to be paid more.

[00:27:13] Speaker 01:
Well, they want to be paid what they're entitled to and a protection under the statute.

[00:27:18] Speaker 01:
But beyond that, I would add three additional points.

[00:27:21] Speaker 01:
First, they're not asking to not have the budget neutral DRG weights applied to them and bear the burden of budget neutrality.

[00:27:30] Speaker 01:
I want to be very clear about that.

[00:27:32] Speaker 01:
Budget neutrality of the DRG weights, if it was applied to the DRG weights,

[00:27:37] Speaker 01:
would properly apply to these hospitals as well.

[00:27:40] Speaker 01:
Second, the other rates, the federal rate, matters to these hospitals too.

[00:27:45] Speaker 01:
It's not that the only rate that matters to them is the hospital-specific rate or the target amount.

[00:27:52] Speaker 01:
The Medicare-independent hospitals are paid

[00:27:56] Speaker 01:
the federal rate plus 75 percent of the difference.

[00:28:00] Speaker 01:
So if the federal rate is also problematic and should be higher, they would be affected by that.

[00:28:04] Speaker 01:
They're not here complaining about that because we agree that it's a harmless area.

[00:28:08] Speaker 01:
So this is not an issue of just

[00:28:13] Speaker 01:
What we are doing here is hospitals who have an interest in both rates, even the sole community hospitals, many of them are, and in fact some of these hospitals may at some point have been paid based on the federal rate as well.

[00:28:30] Speaker 01:
They get whichever one is higher.

[00:28:32] Speaker 01:
So that's really the, I think the issue here is getting to what is the rate that Congress actually provided.

[00:28:41] Speaker 01:
The other point I wanted to address was the 25 years.

[00:28:48] Speaker 01:
What's clear here is the secretary is missing the key point.

[00:28:54] Speaker 01:
What she's been doing for 25 years is apply essentially post-base year adjustments.

[00:29:00] Speaker 01:
Cumulative adjustments, yes, but budget neutrality adjustments for after base years, which we concede is harmless error so that there's no problem.

[00:29:12] Speaker 01:
The federal rate.

[00:29:14] Speaker 01:
was set based on costs in 1981.

[00:29:17] Speaker 01:
You apply budget neutrality adjustments after that.

[00:29:21] Speaker 01:
In fact, their base year is 1981.

[00:29:22] Speaker 01:
No problem.

[00:29:24] Speaker 01:
It's harmless error.

[00:29:25] Speaker 01:
That's why the Medicare-dependent hospitals, for whom it's part of their formula is the federal rate, are not complaining about that aspect.

[00:29:34] Speaker 01:
Similarly, all the other budget neutrality provisions came into place after some of the other base years were in effect.

[00:29:46] Speaker 01:
So the district court's opinion talks about

[00:29:49] Speaker 01:
rulemakings from 1993.

[00:29:52] Speaker 01:
Well, in 1993, the only base year that existed for the hospital's specific rate was 1986.

[00:29:58] Speaker 01:
Those are all post-base year adjustments.

[00:30:02] Speaker 01:
The issue at hand, the first time it's ever come up in rulemaking was in the 2009 rulemaking for Medicare-dependent hospitals.

[00:30:11] Speaker 01:
And the Secretary continues to conflate pre-base

[00:30:17] Speaker 01:
pre-base year, not post-year.

[00:30:19] Speaker 01:
The 25-year history, it's fine.

[00:30:23] Speaker 01:
Post-base year is fine.

[00:30:24] Speaker 01:
We don't have a problem with it.

[00:30:26] Speaker 01:
It's not because it's not an adjustment to the DRG rates, but in those instances, it's harmless error.

[00:30:34] Speaker 01:
The other thing I wanted to address, havoc on the system.

[00:30:39] Speaker 01:
Well, the secretary's brief says she did it this way because she finds it easiest.

[00:30:44] Speaker 01:
and recognize that there's complexity involved for administering this program, but easiest does not make it right, especially when it's contrary to what the statute provides.

[00:30:56] Speaker 01:
And the Secretary has

[00:31:05] Speaker 01:
produce all these other problems of normalization.

[00:31:08] Speaker 01:
That's up to them to decide how to do.

[00:31:12] Speaker 05:
I just don't understand, Mr. Goll, why your position isn't just eaten up by the discretion that the Secretary has under 1395 WWA

[00:31:21] Speaker 05:
for to determine a hospital's cost in a base year.

[00:31:25] Speaker 05:
I think even if you've got the relief that you sought, that the secretary could persist in seeking budget neutrality effectively in the bottom line way that she's been doing, given that discretion.

[00:31:38] Speaker 01:
Because that's not the discretion.

[00:31:41] Speaker 01:
That's not what the secretary's done.

[00:31:42] Speaker 01:
The secretary has never said that these are not the actual costs of the hospital.

[00:31:47] Speaker 01:
The costs of the hospital

[00:31:50] Speaker 01:
that's in A4, the way that is submitted on a cost report, it's computed as the actual.

[00:31:57] Speaker 05:
But they're determined by a formula also.

[00:31:58] Speaker 05:
They're determined by a formula that does or doesn't include the DRG in a particular way, right?

[00:32:03] Speaker 01:
Right, it's determined using the cost the hospital actually submits in its cost report annually, the discharges that are in its cost report annually, and the DRG weights.

[00:32:15] Speaker 01:
And the secretary puts those together, and she has not claimed

[00:32:22] Speaker 01:
to accurately reflect the hospital's costs in the base year that these adjustments are necessary.

[00:32:28] Speaker 05:
That is nowhere in the research.

[00:32:29] Speaker 05:
But just conceptually, why isn't it double counting of the budget neutrality amount to have it both in the target rate and separately in the DRG when you're doing the whole case next?

[00:32:43] Speaker 01:
Your Honor, I'm going to give you a math answer to that.

[00:32:45] Speaker 01:
The double counting actually works in reverse, and the mechanism for this is

[00:32:50] Speaker 01:
at pages 29 to 31 of our brief, the weights are not budget neutral.

[00:32:56] Speaker 01:
The sector concedes they're not budget neutral.

[00:32:59] Speaker 01:
The weights themselves are not.

[00:33:00] Speaker 01:
That's right.

[00:33:01] Speaker 01:
The weights are not.

[00:33:02] Speaker 01:
They're in this calculation that you referred to.

[00:33:04] Speaker 01:
They're in the denominator of the calculation.

[00:33:08] Speaker 01:
If the weights were budget neutral, at some level, they would have to be

[00:33:13] Speaker 01:
lower.

[00:33:14] Speaker 01:
If they were lower and they're in the denominator, our rate would be higher.

[00:33:19] Speaker 05:
That's your whole case.

[00:33:20] Speaker 01:
Not lower.

[00:33:20] Speaker 01:
That's not our whole case.

[00:33:21] Speaker 01:
That's part of our case.

[00:33:23] Speaker 01:
So the double counting is actually the reverse.

[00:33:26] Speaker 01:
The rates have already been reduced at some level because the weights were not made budget neutral.

[00:33:34] Speaker 01:
That is the mathematical operation

[00:33:37] Speaker 01:
because they are in the denominator.

[00:33:39] Speaker 01:
And now the Secretary is coming back and loading an additional reduction on top of that.

[00:33:45] Speaker 01:
So it's actually the reverse.

[00:33:48] Speaker 01:
It's already reducing their rates, and now there's another reduction that's in place.

[00:33:55] Speaker 01:
And that fits in with the reason why it is harmful to make the adjustment to pre-base year and harm less to make them post-base year.

[00:34:09] Speaker 01:
I see my time has expired.

[00:34:10] Speaker 01:
Thank you, Your Honor.

[00:34:12] Speaker 02:
Thank you.

[00:34:12] Speaker 02:
Thank you, both cases submitted.