[00:00:02] Speaker 00:
Case number 13-5330, Borges Medical Center of Michigan Non-Profit Corporation and Bronson Methodist Hospital of Michigan Non-Profit Corporation, Appellant v. Sylvia Matthews Burwell, Secretary of the United States Department of Health and Human Services.

[00:00:18] Speaker 00:
Mr. Ru for the Appellant, Ms.

[00:00:19] Speaker 00:
Heifetz for the Appellee.

[00:00:29] Speaker 04:
Morning, Your Honors.

[00:00:29] Speaker 04:
Good morning.

[00:00:30] Speaker 04:
Jeffrey Rue from Foley & Lardner on behalf of Appellants Borges Medical Center and Bronson Methodist Hospital.

[00:00:37] Speaker 04:
This case involves reimbursements sought by Borges and Bronson associated with cost reports filed more than a decade ago.

[00:00:44] Speaker 04:
A number of things have taken place since those cost reports were filed that impact this case, perhaps the most significant of which is the Supreme Court's decision in King v. Burwell.

[00:00:55] Speaker 04:
While King did not announce any new law, it did place a renewed emphasis on a long-standing tenet of statutory interpretation, namely that a provision within a statute should be read within the entire statutory context and within the statute's purpose.

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As the Court stated, a fair reading of legislation demands a fair understanding of the legislative plan.

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Here, the statutes that govern this case, what we've called the non-hospital site statutes, have a clear purpose.

[00:01:24] Speaker 04:
Their purpose is to encourage hospitals to rotate their residents from the hospital to the non-hospital setting.

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Congress sought to accomplish this purpose by providing a monetary incentive for hospitals to rotate their residents through non-hospital settings.

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Only two limitations were imposed.

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First, Congress provided that only time spent by a resident on patient care activities could be counted towards the hospital's full-time equivalency count.

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Second, it provided that such patient care time could only be counted if the hospital incurred all or substantially all of the cost for the training program in that non-hospital setting.

[00:02:02] Speaker 04:
The Secretary of Health and Human Services has adopted two policies to apply the all or substantially all requirement, what we've called the single hospital policy and the written agreement requirement.

[00:02:13] Speaker 04:
In this case, these two regulatory policies were applied in such a way that Borges and Bronson, which collectively contributed over $100 million to non-hospital residency training in the years in question, have received zero reimbursement for the costs associated with resident training in the non-hospital setting.

[00:02:32] Speaker 04:
is that how much is at stake in this case then no it's not your honor what's at stake in this case that the hospitals are not reimbursed dollar-for-dollar based on what they contribute so what is the amounts so so what's roughly it's tough to tell what's what's a

[00:02:49] Speaker 04:
What we're fighting about really is what goes into the FTE count.

[00:02:52] Speaker 04:
So the reimburse is based on a resident's time.

[00:02:56] Speaker 04:
And so that time spent in the hospital setting, whether it can be counted or not.

[00:03:01] Speaker 04:
And here, none of the time that was spent out of the hospital setting has been permitted to be counted based on these two policies.

[00:03:06] Speaker 05:
Do you have a rough estimate of the amount of money at stake in this case?

[00:03:10] Speaker 04:
I believe it's over $5 million, but I can't give you a specific figure.

[00:03:14] Speaker 04:
I apologize.

[00:03:17] Speaker 04:
The circumstances resulting here where none of this time is counted is not the circumstance that Congress would have envisioned or desired when implementing these statutes.

[00:03:26] Speaker 04:
For the Secretary's policies to be upheld in this case, the Court must first determine if the all-or-substantially-all language is unambiguous.

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If it is, that's the end of the inquiry.

[00:03:36] Speaker 04:
Appellants acknowledge that the statutory language is not as direct as it could be, but I think this is where King comes to bear.

[00:03:42] Speaker 04:
The Supreme Court said that oftentimes the meaning or ambiguity of certain words or phrases in a statute may only become evident when placed into context.

[00:03:52] Speaker 03:
So is your argument that the secretary doesn't have the authority under the statute to prescribe a written agreement requirement that's more specific than the statutory language?

[00:04:05] Speaker 04:
Is that your argument?

[00:04:06] Speaker 04:
Two arguments, Your Honor.

[00:04:08] Speaker 03:
Is that one of them?

[00:04:09] Speaker 04:
Yes, that is one piece of our argument.

[00:04:12] Speaker 03:
So your argument is that since the statute says all or substantially all, the secretary has no authority to issue a regulation

[00:04:22] Speaker 03:
that provides for a written agreement with something more precise than that statutory language.

[00:04:31] Speaker 04:
That the secretary was not permitted to impose an additional limitation on the ability to receive funding that Congress didn't impose itself.

[00:04:38] Speaker 03:
We need no authority to define all or substantially all.

[00:04:42] Speaker 04:
That is correct.

[00:04:43] Speaker 03:
And that's because of King?

[00:04:46] Speaker 04:
I believe that, two reasons.

[00:04:48] Speaker 04:
First, I believe that King suggests that when things are looked at in context, that's what helps us determine whether something's ambiguous or unambiguous.

[00:04:57] Speaker 04:
In King, language that perhaps could have been found unambiguous was found ambiguous.

[00:05:02] Speaker 04:
Here, I think the reverse is true.

[00:05:04] Speaker 04:
The language on its face may appear ambiguous, but when placed into its context, when we see what's really going on here, it's- On the written requirement, I thought part of your argument was,

[00:05:15] Speaker 05:
that they satisfied the written requirement.

[00:05:18] Speaker 05:
I thought that was your lead argument on the written requirement.

[00:05:21] Speaker 05:
On the single hospital policy, I thought your argument was that it would be asinine to read this to apply to one hospital, but not to two.

[00:05:32] Speaker 04:
Yes, Your Honor.

[00:05:34] Speaker 05:
We believe that both policies, the Secretary's... On the written agreement requirement, the government says, well, this wasn't specific enough and didn't satisfy the particular requirements of the regulation.

[00:05:52] Speaker 05:
And you're piecing together various things on that, but what's your best response to the government on that point?

[00:06:00] Speaker 04:
Well, I think that – two things in response to that point.

[00:06:04] Speaker 04:
The thrust of what the requirement is imposing is that there be a contractual obligation that they can – that the Secretary can easily see, not that this was just claimed in the cost report, but that there is some sort of contractual obligation that these monies had to be paid.

[00:06:19] Speaker 04:
That's been satisfied here.

[00:06:21] Speaker 05:
And that's the affiliation agreements.

[00:06:23] Speaker 04:
right?

[00:06:23] Speaker 04:
Those are those are there and also in the bylaws as well.

[00:06:26] Speaker 04:
But there's there's several places where these hospitals were obligated to provide this financing.

[00:06:31] Speaker 04:
Now there's not the level of specificity that the government has.

[00:06:35] Speaker 05:
That's the problem.

[00:06:36] Speaker 05:
The lack of specificity.

[00:06:38] Speaker 05:
What's your response to that?

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And I think that there's two problems with that.

[00:06:42] Speaker 04:
First off, I think the boat has to run both ways here.

[00:06:45] Speaker 04:
So they're trying to enforce this detailed level of specificity.

[00:06:49] Speaker 04:
But if we're going to do that, how about the regulations that talk about the reopening notices?

[00:06:53] Speaker 04:
Those require that all bases for the reopening must be specified.

[00:06:57] Speaker 05:
Well, that's a deflection.

[00:06:58] Speaker 05:
I mean, what about on the specificity itself?

[00:07:01] Speaker 04:
On the specificity itself, the argument.

[00:07:04] Speaker 05:
Your point, I think, is that, well, if you say we're going to cover all the costs,

[00:07:08] Speaker 05:
That should be sufficient.

[00:07:10] Speaker 05:
That's broad and specific.

[00:07:11] Speaker 04:
Well, right.

[00:07:12] Speaker 04:
And I guess what we've cited some cases in our reply about technical violations and how those shouldn't be allowed to trump the overarching purpose here.

[00:07:20] Speaker 04:
Again, $100 million have been paid, no reimbursement for the non-hospital time.

[00:07:25] Speaker 04:
And we're talking about a circumstance where we didn't use the magic words in our agreement that the government would like, but we are obligated to pay those amounts.

[00:07:32] Speaker 04:
We did pay those amounts.

[00:07:34] Speaker 04:
That's what Congress wanted.

[00:07:35] Speaker 04:
We did exactly what Congress wanted.

[00:07:37] Speaker 03:
Well, the secretary disagrees with you about that.

[00:07:42] Speaker 03:
The secretary does not believe you paid off.

[00:07:46] Speaker 03:
Right?

[00:07:47] Speaker 03:
The secretary disagrees with that assertion.

[00:07:51] Speaker 04:
The secretary claims, I believe, that it can't be demonstrated in the documentation what the monies were paid for.

[00:07:58] Speaker 03:
Exactly.

[00:07:58] Speaker 03:
That's the secretary's position, that you have not demonstrated that.

[00:08:03] Speaker 04:
I believe that it's clear that these monies were paid for medical residency.

[00:08:08] Speaker 05:
They were paid, but they were paid by multiple hospitals, right?

[00:08:11] Speaker 04:
They were paid by two hospitals.

[00:08:13] Speaker 04:
And when you look at the PRB's decision, they put forth a chart that sets forth the medical education costs versus the contributions made by the hospital comparing those of years.

[00:08:25] Speaker 04:
It's about 90% for the years in question of all the funds that were coming in.

[00:08:30] Speaker 05:
It's a little lower than that on some of the couple of years.

[00:08:31] Speaker 04:
A couple of years.

[00:08:32] Speaker 04:
That's right.

[00:08:33] Speaker 04:
I'm giving you the aggregate.

[00:08:34] Speaker 04:
Some are much higher than 90%.

[00:08:35] Speaker 04:
Some are a little less.

[00:08:37] Speaker 04:
But this is where the funding is coming from.

[00:08:39] Speaker 04:
And again, if we look at the purpose for what this statute is about, we're talking about the residence time here, looking at it from a residence level.

[00:08:47] Speaker 04:
And the focus from the secretary and looking at the entire program, how much does this program cost in aggregate form, is really not where the focus should be.

[00:08:56] Speaker 05:
And on the your King versus Burlowe argument, I think is interesting.

[00:09:00] Speaker 05:
And I think that's

[00:09:02] Speaker 05:
is true i think that reminds us were supposed to pay attention to context not just text but on text you also have the dictionary act which is one USC one which says that you read singular to include plural and plural to include singular on hospital as well here so you have a decent argument on purpose slash context but

[00:09:29] Speaker 05:
You don't have a terrible argument on single hospital either, just on the pure text that you throw the dictionary at.

[00:09:34] Speaker 04:
I think that two things on when we're looking at the single hospital quickly, we've made the argument about this being a retroactive rule change and the application of that statute for years did not include or require a single hospital to cover all these costs.

[00:09:53] Speaker 04:
The first statement of that was past time and I think this falls right into the Northeast Hospital case in that regard.

[00:10:00] Speaker 04:
And I'll just say with my remaining time here, we've also made the argument about Section 5504C of the Affordable Care Act.

[00:10:09] Speaker 04:
Other courts have looked at that and said that essentially the language is superfluous.

[00:10:14] Speaker 04:
I would urge this court not to follow that trend.

[00:10:16] Speaker 04:
We've offered an explanation that gives meaning to all of the parts of that statute, and it should be enforced.

[00:10:22] Speaker 03:
Just a quick question.

[00:10:24] Speaker 03:
You mentioned when you were entering Judge Kavanaugh, the notice argument was your argument that you didn't have adequate notice because the notice didn't cite the written agreement requirement.

[00:10:36] Speaker 04:
That's correct.

[00:10:37] Speaker 03:
But it did cite 86F4, and 86F4 contains the written agreement requirement.

[00:10:46] Speaker 04:
several provisions, but they made it clear that what they were talking about was in the notice itself.

[00:10:53] Speaker 04:
And I believe the testimony before the PRB, it was acknowledged that they simply didn't include, they focused on the single hospital paying and not on the written agreement requirement itself.

[00:11:04] Speaker 04:
And they're hoping to sweep that all in by, you know, there's a more generalized statement.

[00:11:08] Speaker 04:
And we're saying essentially the same thing here.

[00:11:10] Speaker 04:
We have a generalized statement in our contract.

[00:11:12] Speaker 04:
Why shouldn't that be?

[00:11:31] Speaker 02:
Good morning, Your Honors.

[00:11:33] Speaker 02:
Samantha Heifetz for the Secretary.

[00:11:35] Speaker 02:
I think to just jump in where the conversation this morning has been taking place, I want to start with the fact that we're all on the same page here about congressional purpose and congressional intent.

[00:11:53] Speaker 05:
What could possibly be the purpose?

[00:11:57] Speaker 05:
behind allowing reimbursement when there's one hospital, but not when there are two.

[00:12:03] Speaker 02:
So here, the agency has talked about this at some length in a number of places, including in the 98 rulemaking.

[00:12:11] Speaker 05:
I want you to tell me, what could possibly be a congressional purpose for reimbursement if there's one and not two?

[00:12:18] Speaker 05:
And give me some reason why that's not crazy.

[00:12:22] Speaker 02:
No, I mean I think that this reflects the fact that we have a complex decentralized scheme and we're looking to make it administratively feasible and Congress is obviously aware of the challenges that are presented in terms of administrative feasibility.

[00:12:39] Speaker 05:
Why is that a challenge?

[00:12:40] Speaker 05:
I've read that and I just don't understand why that is that hard.

[00:12:44] Speaker 05:
to figure out, oh, there are two hospitals each.

[00:12:48] Speaker 05:
So it's a million dollars.

[00:12:49] Speaker 05:
If one hospital does it, we'll reimburse.

[00:12:51] Speaker 05:
But if two hospitals share the cost and pay $500,000 each, we're going to reimburse zero.

[00:12:56] Speaker 05:
I'm trying to figure out some logic.

[00:12:58] Speaker 02:
Right.

[00:12:58] Speaker 02:
So I think this case actually offers a good example of some of the ways in which this becomes quite challenging.

[00:13:06] Speaker 02:
Now, obviously, the written agreement requirement is also a separate argument, but a crucial one because it's meant to also further the desire for administrative feasibility.

[00:13:19] Speaker 02:
But when it comes to auditing multiple hospitals,

[00:13:23] Speaker 02:
The bottom line is that we're trying to make it as straightforward as possible because if we step back and look at the congressional context for this, prior to 1986, a hospital could only get reimbursed, could only seek payment for the time of its residents that was spent inside that hospital.

[00:13:42] Speaker 05:
Right, and then Congress said we want to encourage residents to do training not just in the hospital so they're better prepared to do outpatient work, the like.

[00:13:52] Speaker 02:
Right.

[00:13:52] Speaker 02:
It's always remained the case that if a hospital has individuals within its hospital, they can be reimbursed for that.

[00:14:00] Speaker 02:
But if they went to another hospital, and this remains true, they couldn't get money for another hospital.

[00:14:07] Speaker 05:
But the outpatient thing was the purpose here.

[00:14:09] Speaker 02:
Absolutely.

[00:14:10] Speaker 02:
No, no, no.

[00:14:10] Speaker 02:
That's absolutely right.

[00:14:11] Speaker 02:
What I'm trying to highlight is simply that there's always been a concern about keeping things straightforward in terms of which entity is paying for what.

[00:14:19] Speaker 06:
Did anyone in Congress ever say anything like that?

[00:14:21] Speaker 02:
Well, I think the 2010 Affordable Care Act ratification recognizes that this is how, right, we have clear legislative history.

[00:14:30] Speaker 05:
You call that a ratification?

[00:14:31] Speaker 02:
Well, the legislative history makes very clear that Congress was fully aware of the approach that the agency was taking and decided to leave the language precisely in place

[00:14:44] Speaker 02:
prior to 2010.

[00:14:45] Speaker 02:
So there's been no confusion on the part of Congress that the interpretation of the Secretary is the single hospital interpretation, and there was no effort on the part of Congress to alter that.

[00:14:56] Speaker 05:
But I just don't understand, and this is- With regard to the permanent years.

[00:14:59] Speaker 05:
I don't think I agree with you on the 2010, but I also don't think it matters for this case.

[00:15:05] Speaker 02:
That's probably right.

[00:15:07] Speaker 05:
the purpose, context, logic of this whole thing.

[00:15:12] Speaker 05:
Let me try and put it this way.

[00:15:14] Speaker 05:
Just to get it out.

[00:15:16] Speaker 05:
Because you admit in your brief, I think, that they actually could have gotten reimbursement for this, for the two hospitals.

[00:15:25] Speaker 05:
If they just structured it slightly differently, and you think that helps your position, I thought, well, that makes the nuttiness of this, my word, even more apparent, because this is all

[00:15:40] Speaker 05:
millions of dollars depend on paperwork filing here.

[00:15:45] Speaker 02:
No, that's very helpful.

[00:15:46] Speaker 05:
I don't see that in the statute.

[00:15:48] Speaker 02:
If I might.

[00:15:49] Speaker 02:
No, I think that's very helpful because we don't think that this is an instance of your magic words or from your formality on the part of the secretary.

[00:15:57] Speaker 02:
in interpreting the statute.

[00:15:58] Speaker 02:
We think that this is a very reasonable interpretation of the statute to which the Secretary is owed deference.

[00:16:05] Speaker 02:
And we think that the reason that it's such a reasonable interpretation of the statute is that having multiple entities paying for a program does increase complexity and does increase the likelihood of double payments, which Congress was clearly very concerned about.

[00:16:20] Speaker 02:
And the 98 rulemaking talks at some length about the difficulties of apportioning funding between multiple entities and the importance of having a single entity.

[00:16:31] Speaker 05:
There's a total cost that we know what that is, I think.

[00:16:35] Speaker 02:
When you say for the hospitals, right, in the 98 rulemaking, the secretary is explaining that there is a problem when you're trying to apportion funds, whether between a hospital and a non-hospital, or it would be equally true between two hospitals.

[00:16:50] Speaker 02:
Now, look, I mean, some of the complexity comes in here because Congress envisioned... He's doing it now though, right?

[00:16:55] Speaker 02:
We are taking a different approach now, but that approach still requires, and Congress said, the entities that engage in cost sharing have to have a written agreement that spells out.

[00:17:08] Speaker 02:
Well, it's a different written agreement requirement.

[00:17:10] Speaker 02:
So now I'm speaking to, in the 2010 ACA, in other words, even if different cost years were at issue here, if we were talking about post 2010 cost years, but the plaintiffs had the same

[00:17:22] Speaker 02:
you know, relationship and the same approach to cost sharing that they had during these cost years post 2010, that wouldn't satisfy Congress's

[00:17:36] Speaker 02:
statute because there's still the desire to see things put to paper, to have things itemized and laid out, to make it much more feasible for the agency and for the intermediaries to figure out what's going on.

[00:17:50] Speaker 02:
I mean, there is the potential, depending on which two hospitals, for example, decide to split the costs of a given program.

[00:17:59] Speaker 02:
They could wind up with different fiscal intermediaries.

[00:18:02] Speaker 02:
There are challenges in this scheme such that we need to understand that it was perfectly reasonable, and this is what the district court held, on the part of the secretary to understand the statute in this way.

[00:18:15] Speaker 05:
The statute speaks in the singular.

[00:18:20] Speaker 05:
First of all, there's the Dictionary Act and the plural singular.

[00:18:23] Speaker 05:
So I'm not sure I agree necessarily in your, what I would call strong, you know, your textual argument.

[00:18:31] Speaker 05:
But so let's say from my perspective that you have a gap in the statute on the single, we're on single hospital now.

[00:18:37] Speaker 05:
We're going to get the written agreement requirement.

[00:18:39] Speaker 05:
But on single hospital, let me say there's a gap in the statute.

[00:18:43] Speaker 05:
And I think, OK, the agency can fill the gap.

[00:18:46] Speaker 05:
So far, I think you and I would be on the same page.

[00:18:48] Speaker 05:
And then, has the agency filled the gap reasonably?

[00:18:51] Speaker 05:
That's right.

[00:18:52] Speaker 05:
And in analyzing that, we figure out, is it consistent with the overall purpose, et cetera?

[00:18:56] Speaker 05:
And we give a lot of deference on that.

[00:18:58] Speaker 05:
And it seems like the overall purpose here was to encourage hospitals to do the outpatient, I mean,

[00:19:05] Speaker 05:
the training out of the hospital for the residents.

[00:19:08] Speaker 05:
I don't see a purpose in this statute anywhere or any statements of congressional intent on this provision about administrative efficiency trumping that singular purpose of encouraging hospitals to provide better resident training throughout facilities.

[00:19:31] Speaker 02:
As you're on our notes, we agree about what the fundamental purpose is.

[00:19:35] Speaker 02:
We also agree that on the flip side, part of the purpose or to that end, part of what Congress was trying to do was not just get hospitals to provide non-hospital training, but part of the equation, of course, is also making sure that the non-hospitals agree to participate in the scheme.

[00:19:53] Speaker 02:
So there is an element here that the agency understands to be part of congressional intent to make things as straightforward for the non-hospital as possible.

[00:20:03] Speaker 02:
Because if non-hospitals are concerned that they're going to be saddled with costs that they can't seek reimbursement for because the hospitals are seeking reimbursement, et cetera, et cetera,

[00:20:14] Speaker 02:
then we're not going to be able to effectuate the purpose of the statutory scheme.

[00:20:18] Speaker 02:
So it's not just administrative feasibility for the secretary.

[00:20:22] Speaker 02:
It's also a recognition of the administrative needs of the non-hospital sites, many of which have limited resources for this kind of oversight and trying to make sure.

[00:20:34] Speaker 02:
Now, I just want to ask one more thing.

[00:20:36] Speaker 02:
Oh, yeah, of course.

[00:20:38] Speaker 05:
How many hospitals are in this boat around the country?

[00:20:40] Speaker 05:
And you may not know this, but I'm curious, in this case,

[00:20:43] Speaker 05:
an example of something that's going on all over the place, or is this a one-off?

[00:20:48] Speaker 02:
Well, I'm not sure which type of boat your honor is asking about.

[00:20:51] Speaker 02:
There are several hundred teaching hospitals in the country.

[00:20:54] Speaker 05:
How many hospitals around the country are losing their reimbursements that they think they're entitled to because of the single hospital policy back?

[00:21:02] Speaker 02:
I unfortunately don't have a specific answer for that.

[00:21:05] Speaker 02:
I'm only familiar with the cases that have been litigated.

[00:21:08] Speaker 02:
And so obviously there are decisions out of the Sixth Circuit and the Eighth Circuit and a number of district court decisions from this court that have upheld the written agreement requirement and determined that it was... So underwritten agreement requirement, because that's your other totally independent argument.

[00:21:23] Speaker 02:
Absolutely.

[00:21:23] Speaker 05:
And your argument is you win even

[00:21:25] Speaker 05:
Even if the concern that they have about the single hospital is correct, you still win unwritten agreement.

[00:21:32] Speaker 05:
On that, why is it not enough to say we're going to pay all the costs?

[00:21:36] Speaker 02:
Well, let me take that in a couple parts to explain both what we think is required and also what the shortcomings here are.

[00:21:43] Speaker 02:
And if I might just step back for one half second and note, as this relates to Congressional purpose and the Secretary's authority, that

[00:21:53] Speaker 02:
The other part of plaintiff's argument about congressional purpose as it relates both to the single hospital interpretation and the written agreement requirement seems to be suggestive of the idea that the secretary has no authority to take any steps.

[00:22:08] Speaker 02:
I mean, to the extent they now assert that they're challenging the validity of the written agreement requirement, which, to be honest, we didn't understand their briefs to be doing.

[00:22:16] Speaker 05:
I don't understand that to be their argument, their least primary argument either.

[00:22:19] Speaker 05:
I took their argument to be they satisfied the written agreement

[00:22:22] Speaker 02:
Right, so to the extent this Court has any questions, obviously I think the Secretary has full authority to establish... But assume you win on that.

[00:22:29] Speaker 05:
Now, they say they satisfied it, though, because they said, in essence, with the affiliation agreement, that we agree to pay all the costs.

[00:22:38] Speaker 02:
So that's not what the affiliation agreement says.

[00:22:40] Speaker 02:
Let me take it as a factual matter first, and then we can return to what we think would be legally required.

[00:22:45] Speaker 02:
But the affiliation agreement says that they're going to provide sufficient financing.

[00:22:51] Speaker 02:
This case looks just like the MedStar case in the Eighth Circuit, where the court rejected that type of an agreement.

[00:23:02] Speaker 02:
If you look at the financial statements that they've submitted

[00:23:05] Speaker 02:
underscore this.

[00:23:06] Speaker 02:
They make explicit that the hospitals are going to cover operating costs, capital outlays and debt, net of clinical revenues, university appropriations, money that comes in from contracts, from grants.

[00:23:21] Speaker 02:
The Kalamazoo Center has, and the financial statements reflect this, a number of sources of funding

[00:23:28] Speaker 02:
other than these two hospitals.

[00:23:29] Speaker 02:
And over time, indeed, that quantity has increased, such that the shortfall, even if we're just looking at total financing for the Kalamazoo Center, if you look at what the hospitals paid versus what the cost of the Kalamazoo Center was, we have a difference of almost $10 million in certain years, right?

[00:23:48] Speaker 02:
So it ranges anywhere from one and a half to nearly $10 million in shortfall.

[00:23:52] Speaker 02:
We're not talking about a mere pittance.

[00:23:57] Speaker 02:
it's important to understand that if the revenues of the center increased as they were expected to, the center is expected to become, and the financial statements make reference to this, more independent over time, if there was no

[00:24:14] Speaker 02:
financing over those other sources that was necessary to run the programs, then the hospitals would have been on the hook for zero dollars.

[00:24:24] Speaker 02:
And the very point of the written agreement requirement of the statutory language

[00:24:29] Speaker 02:
is to create a threshold requirement.

[00:24:31] Speaker 02:
If a hospital, because as opposing counsel noted, this isn't about dollar to dollar reimbursement.

[00:24:36] Speaker 02:
This is about, do you have your residents in a program that is the type of which Congress is saying you qualify to claim those people towards your reimbursement formula?

[00:24:46] Speaker 02:
And the threshold requirement established by Congress was that the hospital needed to incur all or substantially all of the costs of the program in that non-hospital setting.

[00:24:59] Speaker 02:
So it established that threshold.

[00:25:02] Speaker 02:
And here we have nothing in the affiliation agreements that comes anywhere close to that.

[00:25:08] Speaker 02:
We have no statements.

[00:25:09] Speaker 05:
But they did pay a large majority percentage over all those years.

[00:25:16] Speaker 02:
We have no idea, however.

[00:25:18] Speaker 05:
And they did that presumably because they were obligated to do so.

[00:25:22] Speaker 02:
We have no idea, unfortunately, from the materials in this record.

[00:25:27] Speaker 02:
how much the non-clinical programs cost, to what extent any of the money that they put in went.

[00:25:33] Speaker 02:
So you may have overall, let's say, had a 20% shortfall.

[00:25:37] Speaker 02:
But was the shortfall within the non-clinical programs 80%?

[00:25:43] Speaker 02:
Was it 75%?

[00:25:45] Speaker 02:
We have no way of knowing.

[00:25:46] Speaker 02:
And of course, we're now talking in a way that gives them credit for the fact that they were putting their funding together.

[00:25:55] Speaker 02:
So when I suggest they had a 20% overall shortfall, let's say in a given year,

[00:26:01] Speaker 02:
That's both hospitals together.

[00:26:03] Speaker 02:
Obviously, looking at either hospital separately, consistent with the secretary's interpretation of the statute, the shortfall is much greater.

[00:26:12] Speaker 02:
Neither one is coming anywhere close to covering all of the costs.

[00:26:17] Speaker 05:
How many hospitals around the country have gotten in trouble on this written agreement requirement?

[00:26:23] Speaker 02:
Again, Your Honor, I'm only familiar with the cases that have been litigated.

[00:26:27] Speaker 02:
So there are a handful of cases here in the D.C.

[00:26:29] Speaker 02:
Circuit, one in the District of Maine.

[00:26:32] Speaker 02:
There are the cases in the Sixth Circuit and in the Eighth Circuit where – and in all of the cases, the written agreement requirement has been upheld.

[00:26:41] Speaker 05:
But the Secretary – Just shocking to me that the hospitals are finding themselves in this boat based on the failure to dot the I.

[00:26:48] Speaker 05:
hospitals around the country have lost tens or hundreds of millions of dollars potentially because of something that they've spent another 20 minutes drafting an additional paragraph or two they would have.

[00:27:03] Speaker 02:
This is something that the agency has gone

[00:27:07] Speaker 02:
out of its way to make very clear there can be no suggestion here that there's any lack of notice because the regulations are extremely specific about what the

[00:27:21] Speaker 02:
the agreement is expected to include.

[00:27:23] Speaker 02:
In the cost years that we're talking about in this case, the regulations specify that the hospital, that the agreement has to be between, of course, the hospital and the non-hospital, and has to make clear that the hospital is going to incur the costs of the resident's salaries and their fringe benefits while they're training at the non-hospital, and that the hospital is going to compensate the non-hospital for the teaching activities of supervisory physicians.

[00:27:50] Speaker 02:
and has to say what that compensation is going to be.

[00:27:53] Speaker 02:
And the agency has- Can I interrupt you there?

[00:27:55] Speaker 05:
Of course.

[00:27:56] Speaker 05:
Oh, go Judge Brown.

[00:27:57] Speaker 01:
Sorry.

[00:27:58] Speaker 01:
Well, no, I'm just trying to figure out how or if these two things work together.

[00:28:03] Speaker 01:
In other words, you said there might have been a way for them to do it where it would be reimbursable.

[00:28:10] Speaker 01:
But at the same time, you've said if it's multiple hospitals, it's just not.

[00:28:16] Speaker 01:
It has to be a single hospital.

[00:28:18] Speaker 01:
So what I'm trying to figure out is how that works.

[00:28:21] Speaker 01:
In other words, is there a way that they could have structured the agreement that would have permitted reimbursement for both hospitals?

[00:28:33] Speaker 02:
step back and say something about what we're talking about when we speak of programs and the agreement.

[00:28:39] Speaker 02:
Because each of the non-clinical residents, each of the residency programs

[00:28:45] Speaker 02:
is a separate program.

[00:28:47] Speaker 02:
That is, we have a hematology residency program, an oncology residency program, a psychology residency program.

[00:28:54] Speaker 02:
And then for each of those programs, those are some of the programs that are at issue here where there is training going on in a non-clinical setting.

[00:29:04] Speaker 02:
And so the Kalamazoo Center is a consortium that runs both the in-hospital residency programs for these hospitals as well as the non-clinical.

[00:29:16] Speaker 02:
So they're not just doing non-clinical stuff, they're running all the different residency programs for everyone.

[00:29:22] Speaker 02:
And the agreements that we have here

[00:29:24] Speaker 02:
if anything, seem more directed to the in-hospital programs.

[00:29:28] Speaker 02:
They say absolutely nothing.

[00:29:30] Speaker 02:
There's no mention in any of these agreements of any non-hospital setting whatsoever.

[00:29:35] Speaker 02:
But when we say that they could have structured it differently, what we're saying is they could have entered agreements consistent with the regulations for each of their programs, oncology, hematology, et cetera, and each would have been a separate agreement, or at least separate portions of perhaps an overall agreement.

[00:29:51] Speaker 02:
But they would have had to separately

[00:29:55] Speaker 02:
agree that they're going to incur the costs of the salaries and fringe benefits of the residents in that program, and that they're going to cover the supervisory costs for that program.

[00:30:03] Speaker 02:
Supervisory costs obviously vary quite a lot from program to program.

[00:30:06] Speaker 02:
The way that they're calculated, the agency has provided guidance on this.

[00:30:10] Speaker 02:
Essentially, there's a number of ways to make those estimates, and estimates are permitted for this purpose of indicating what compensation is going to be permitted, but you take the salary of the person, you look at what percentage of time you anticipate, because you know how the program is going to operate.

[00:30:29] Speaker 05:
Can you say we're going to agree to pay all the costs?

[00:30:34] Speaker 05:
Will that satisfy the regulation?

[00:30:35] Speaker 02:
All of the costs of what?

[00:30:37] Speaker 02:
You have to be at least saying we're going to incur all of the costs of the non-hospital clinical program that's at issue.

[00:30:45] Speaker 02:
Here, we don't have that.

[00:30:47] Speaker 05:
If they say that, is that good enough?

[00:30:49] Speaker 02:
Obviously, that's not this case.

[00:30:50] Speaker 02:
Then that's not what the regulations require.

[00:30:52] Speaker 02:
But is that good enough?

[00:30:53] Speaker 02:
So I don't know that that would be good enough.

[00:30:54] Speaker 02:
I mean, I think that would be a harder case.

[00:30:56] Speaker 05:
But there- Well, why wouldn't that be good enough?

[00:30:58] Speaker 02:
Because part of what we're looking for here is to make sure that the parties understand that, again, this is against the backdrop of administrative feasibility, desiring to avoid double payments, and being concerned that non-hospitals might be left on the hook for things that...

[00:31:17] Speaker 02:
that the secretary thought should be covered.

[00:31:19] Speaker 02:
So we want to make sure there's agreement between the parties about who's paying for what.

[00:31:22] Speaker 05:
You're trying to protect UKMC.

[00:31:24] Speaker 05:
UKMC field is not concerned.

[00:31:26] Speaker 05:
They've been getting paid all these years.

[00:31:28] Speaker 02:
Uh, well, they have been getting paid in this instance, but obviously the secretary is concerned.

[00:31:34] Speaker 05:
Have they been sued for breach of contract?

[00:31:36] Speaker 02:
I'm not familiar with the legal arrangements between the parties.

[00:31:39] Speaker 05:
So the idea that we're just protecting UKMC, you're protecting the FISC of the United States.

[00:31:43] Speaker 02:
Absolutely, absolutely.

[00:31:45] Speaker 02:
But I'm just saying there are multiple concerns and multiple considerations here, and certainly the

[00:31:51] Speaker 02:
98 Rulemaking spends quite a lot of time explaining why the Secretary wanted to make sure that it wasn't just salaries and fringe benefits that were being covered, but the supervisory teaching activities were also.

[00:32:06] Speaker 02:
The Secretary had essentially done an analysis of data prior to the 98 Rulemaking and figured out that those supervisory costs

[00:32:14] Speaker 02:
make up a very big chunk of what the real costs of running these programs are, and that the stipends and the fringe benefits are less than half of the costs.

[00:32:24] Speaker 02:
And so there was a real emphasis in these regulations on splitting out that information to make sure that it was being covered by the hospital that would be seeking, or by the entity that would be seeking reimbursement.

[00:32:36] Speaker 05:
Judge Brown's question, I think, was could you, could they have done this in a way where they would have been able, I think your answer to that is yes.

[00:32:45] Speaker 02:
Yes, so let me just, right, and I apologize that I don't think I necessarily gave you the clarity in finishing that answer that I would like to.

[00:32:53] Speaker 02:
Starting the answer, you could just say yes.

[00:32:55] Speaker 02:
Yes, absolutely.

[00:32:56] Speaker 02:
That would have been a better approach.

[00:32:57] Speaker 02:
So yes.

[00:32:59] Speaker 03:
Well, I'd like to hear the details.

[00:33:00] Speaker 03:
How would they do it?

[00:33:02] Speaker 02:
So each of these programs, oncology, hematology, are separate programs.

[00:33:06] Speaker 02:
So what the statute and the regulation requires is a single hospital to incur the full cost of the training program.

[00:33:15] Speaker 02:
So you could imagine a world in which one hospital agrees to pay for the psychiatry program and another hospital

[00:33:22] Speaker 02:
agrees to pay for the oncology program.

[00:33:25] Speaker 02:
And so in their respective cost reports, they're each claiming that program.

[00:33:28] Speaker 02:
Now they may have agreements with one another.

[00:33:30] Speaker 02:
And again, this goes to the fact that we're not trying to look into what the behind the scenes agreements are between the Kalamazoo Center and Borges and Bronson.

[00:33:38] Speaker 02:
What we're concerned with is

[00:33:40] Speaker 02:
how straightforward are the documents that are being put before the secretary?

[00:33:45] Speaker 02:
Because, as Judge Kavanaugh noted, our primary concern, of course, is protecting the public fisc.

[00:33:49] Speaker 02:
So our number one interest is these hundreds or thousands of page cost reports that go to the dozen or so intermediaries, and then they're expected to do a desk review and potentially audit, but obviously they can't audit every page in every instance.

[00:34:05] Speaker 02:
The money at issue here, just to note, and then I apologize for the judge Brown,

[00:34:09] Speaker 02:
is, you know, one part of how the GRE reimbursement is calculated, which is one part of the much larger reimbursement that the agency is doing to the hospital for all of its Medicare programs.

[00:34:21] Speaker 02:
So the written agreement requirement plays a really important role in just establishing a very quick way to be certain about who's supposed to be paying for what and to know that the parties are on the same page.

[00:34:35] Speaker 02:
And so they could have

[00:34:37] Speaker 02:
divided up the programs in that way, and it would have retained the simplicity and the ease of administration that the agency needs, is looking for.

[00:34:46] Speaker 02:
Because otherwise, what happens is, you wind up in the world that the plaintiffs want to be in, where essentially they're looking to force the secretary, force the agency here to engage in every instance in the kind of case by case, line by line audit, that these types of regulations are intended to help avoid.

[00:35:05] Speaker 01:
Okay, so now Congress has said we really do want more than one hospital to be able to do this.

[00:35:14] Speaker 01:
Right.

[00:35:15] Speaker 01:
So has that changed the way the hospitals would present this information to you, or would the Secretary be requiring the same kind of specificity?

[00:35:26] Speaker 02:
So the regulation has changed consistent with Congress's enactment, but the written agreement requirement remains

[00:35:38] Speaker 02:
or written agreements remain an important part of the scheme.

[00:35:41] Speaker 02:
As I noted earlier, in fact, it is now part of the statute that Congress has made clear that if two hospitals are going to split costs, they have to have a written agreement that spells out the proportional sharing that's going to be going on between those two hospitals with regard to that training program.

[00:36:03] Speaker 02:
So again, a level of specificity that's nothing here.

[00:36:05] Speaker 05:
That doesn't say anything about a written agreement with a third-party entity.

[00:36:08] Speaker 02:
The statute doesn't, but that remains part of the regulations.

[00:36:12] Speaker 02:
The regulations now and since 2004 have offered hospitals

[00:36:18] Speaker 02:
options in terms of how they go about qualifying for this payment.

[00:36:23] Speaker 02:
So the written agreement remains one way that a hospital can come forward and meet the regulatory requirements.

[00:36:35] Speaker 02:
There is an alternative in the current regulations, but there's nothing in this record that would allow these plaintiffs, even if we were talking about

[00:36:45] Speaker 02:
current time years during the cost years at issue.

[00:36:50] Speaker 02:
Essentially, all the way up until the very end of the cost years at issue, the regulations didn't allow any type of alternative.

[00:36:58] Speaker 02:
Since 2004, the regulations have permitted an alternative to the written agreement.

[00:37:03] Speaker 02:
That alternative requires documentation that is not in this record.

[00:37:08] Speaker 02:
Plaintiffs have never tried to avail themselves of that alternative, and they'd only be able to do so for the last few months of 2004, I believe.

[00:37:18] Speaker 02:
but in any event they've never suggested that they're trying to take advantage of that and they wouldn't be able to because the alternative requires documentation that shows that the hospital specifically incurred the

[00:37:33] Speaker 02:
costs of, you know, the costs that we're talking about, salaries for benefits, supervisory physician costs, and that those were paid by the end of the third month after those costs were incurred.

[00:37:44] Speaker 02:
It requires very detailed documentation that obviously this record, just to step back, doesn't tell us anything about what the non-hospital programs cost relative to the total cost of the Kalamazoo Center.

[00:37:56] Speaker 02:
It doesn't tell us anything about whether the monies that the hospitals were providing

[00:38:00] Speaker 02:
went to the non-hospital programs or which of the non-hospital programs or where the shortfall ultimately landed.

[00:38:06] Speaker 02:
We know we have up to a $10 million, nearly $10 million shortfall at points, but we don't know who's bearing that brunt or where those funds are coming from.

[00:38:17] Speaker 02:
And this is the whole issue that animated

[00:38:20] Speaker 02:
the Sixth Circuit and Eighth Circuit's decisions rejecting lump sum payments of this type, rejecting debt financing, which is what these affiliation agreements agree to provide.

[00:38:35] Speaker 02:
They, in their reply brief, refer to this as just technical noncompliance.

[00:38:39] Speaker 02:
In this argument, they've tried to write it off as a lack of magic words, but to the agency, it is much more than that, and we think it was eminently reasonable, as the district court found, for the agency to deny reimbursement on the basis of noncompliance.

[00:38:55] Speaker 02:
There's really no principle of administrative law that would suggest that the plaintiffs or court could require the agency to decline to enforce its regulations fully.

[00:39:06] Speaker 02:
Or that full enforcement was unreasonable.

[00:39:09] Speaker 06:
The board did.

[00:39:11] Speaker 02:
Well, here the board's decision was subject to review by the secretary.

[00:39:17] Speaker 05:
I understand that.

[00:39:18] Speaker 05:
I'm just saying the board.

[00:39:20] Speaker 05:
It's not like their argument's totally off the rails, because the board agreed with them.

[00:39:26] Speaker 02:
No, I'm not suggesting that they have a frivolous argument.

[00:39:30] Speaker 02:
It's simply that ultimately it falls on the question for the court as one of what type of deference to give to the secretary's determination and whether the secretary's determination was a reasonable one.

[00:39:40] Speaker 02:
And here we would submit that it was an eminently reasonable one that was fully supported by the record, if there are no further questions.

[00:39:47] Speaker 03:
Anything else?

[00:39:48] Speaker 03:
No.

[00:39:48] Speaker 03:
OK, thank you.

[00:39:49] Speaker 03:
Thank you, Your Honor.

[00:39:49] Speaker 03:
Mr. Ra, do I have any time left?

[00:39:52] Speaker 03:
You can take two minutes, if you'd like it.

[00:39:56] Speaker 04:
Thank you, Your Honor.

[00:39:57] Speaker 04:
Just a couple of quick points.

[00:39:58] Speaker 04:
I don't know if I'll need the whole two minutes.

[00:40:00] Speaker 04:
I think these hoops imposed by the Secretary don't make sense.

[00:40:03] Speaker 04:
And I think the King allows this court not to extend deference if it chooses not to, if it decides that this is an extraordinary circumstance such that these limitations are really going to the heart of what the statute is about.

[00:40:16] Speaker 03:
That's an opportunity for this court instead of the... Do you agree, though, that the written agreement requirement is a separate and independent basis

[00:40:26] Speaker 03:
for resolving this case.

[00:40:28] Speaker 04:
Yes, I do.

[00:40:28] Speaker 04:
OK.

[00:40:29] Speaker 03:
And does your King argument apply to that also?

[00:40:31] Speaker 04:
I think it does.

[00:40:32] Speaker 03:
I see.

[00:40:34] Speaker 04:
I think we also don't need these hoops in this case to make these determinations, this argument that these are necessary for administrative purposes.

[00:40:45] Speaker 05:
On the written agreement requirement, the biggest argument the council

[00:40:50] Speaker 05:
that you didn't provide.

[00:40:54] Speaker 05:
Numbers in essence, the documentation, the facts and figures that would meet the requirement of the written agreement requirement in this case, so which.

[00:41:05] Speaker 05:
And to me, that's probably the heart of this of that argument and therefore potentially the heart of the case.

[00:41:10] Speaker 04:
So what's your response to my response to that?

[00:41:12] Speaker 04:
And I think we've we've noted this in our

[00:41:19] Speaker 04:
is the stipulation that was entered between the hospitals and the Medicare contractor.

[00:41:24] Speaker 04:
These are the people that are doing the audits.

[00:41:26] Speaker 04:
These things get put on the cost report, and then the only way they get brought up is if the auditor is actually looking at this and saying, hey, there's an issue here.

[00:41:34] Speaker 04:
They looked at that.

[00:41:35] Speaker 04:
They agreed exactly how many FTEs.

[00:41:38] Speaker 04:
It was 4.35.

[00:41:40] Speaker 04:
This gets added to your cost report if this case is granted in the hospital's favor.

[00:41:45] Speaker 04:
They agree.

[00:41:46] Speaker 04:
They know exactly how many residents are at issue, how much time was spent in the non hospital setting in that these were satisfied.

[00:41:52] Speaker 04:
So the purposes of having

[00:41:56] Speaker 05:
But they didn't look, correct me if I'm wrong, to what the council was talking about, namely the agreement between the hospitals on the one hand and the third party and an entity on the other.

[00:42:08] Speaker 05:
Kalamazoo, I'll refer to this.

[00:42:12] Speaker 04:
Well, I believe they did look at the agreements there, that by entering the stipulation, essentially that's- But they didn't look, sorry to interrupt, they didn't look

[00:42:21] Speaker 05:
correct me if I'm wrong, at the course of dealing, the amounts that were paid over the years, et cetera, the shortfalls that council referenced, right?

[00:42:32] Speaker 04:
I think they had access to the financials there, and I think they did look at that.

[00:42:37] Speaker 04:
I think that's in the record before the PRB.

[00:42:39] Speaker 04:
And I think by the stipulation, what they're acknowledging

[00:42:42] Speaker 04:
is by accepting those FTEs and saying, these are what are going over.

[00:42:46] Speaker 04:
It's essentially an acknowledgment that that time was spent in non-hospital setting, it was for patient care, and that the hospital incurred the cost for that time, or they couldn't have agreed to those FTEs.

[00:42:56] Speaker 05:
Council also referred several times to shortfall.

[00:43:03] Speaker 05:
that varied, you know, several million dollars each year and that that indicated one of the problems with your theory of this because we don't know what those shortfalls were for.

[00:43:18] Speaker 05:
And what's your response to that?

[00:43:20] Speaker 05:
Is that relevant or is that wrong?

[00:43:22] Speaker 04:
I don't think it's particularly relevant.

[00:43:24] Speaker 04:
I think that the idea would be that perhaps resident salaries and fringe benefits were getting paid by the shortfall and not the other amount.

[00:43:33] Speaker 04:
Again, I think that if that were the case, then the person who did the audit would not have agreed to those FTEs because that's what they're looking for.

[00:43:40] Speaker 04:
So that's one point in response.

[00:43:43] Speaker 04:
Two, I think, again, I'll go back to what the PRB set forth in their chart there.

[00:43:48] Speaker 04:
about 88% I think it was of all the funds for actual medical training were provided by the hospitals.

[00:43:53] Speaker 04:
I think that's all or substantially all of those funds when we're looking at that.

[00:43:58] Speaker 04:
I believe later on in 2007 the secretary even said it only had to be 90% of the amount and there was no such pronouncement during the time.

[00:44:05] Speaker 05:
I guess my question is why did the affiliation agreements under your theory in essence said all?

[00:44:12] Speaker 05:
And then 88% is not all.

[00:44:16] Speaker 05:
So what was going on there?

[00:44:17] Speaker 04:
Well, we're not disputing that there was some clinical revenue that was generated through these programs.

[00:44:22] Speaker 04:
They're not discounting that.

[00:44:24] Speaker 04:
This program is not making an additional profit here.

[00:44:29] Speaker 04:
We're funding.

[00:44:30] Speaker 04:
If we went away, the program doesn't exist.

[00:44:32] Speaker 04:
And that wouldn't fit with what Congress wants.

[00:44:34] Speaker 04:
And that's the point here.

[00:44:35] Speaker 04:
The Medicare maze is really complicated enough.

[00:44:38] Speaker 04:
We did what Congress wanted here.

[00:44:39] Speaker 04:
We paid millions of dollars.

[00:44:41] Speaker 04:
These hospitals had the residents trained in the non-hospital setting.

[00:44:44] Speaker 05:
Were you all the lawyers for the hospital back in 01 through 05?

[00:44:47] Speaker 05:
What was that, Your Honor?

[00:44:49] Speaker 05:
Were you the lawyer for the hospitals back in 01?

[00:44:52] Speaker 04:
I was not, Your Honor.

[00:44:53] Speaker 05:
OK.

[00:44:53] Speaker 05:
Did you affirm that lawyer for the hospitals back in 01?

[00:44:55] Speaker 04:
Yes, I believe they were for most of this time.

[00:44:58] Speaker 04:
OK.

[00:44:58] Speaker 04:
Thank you.

[00:45:01] Speaker 03:
Thank you both.

[00:45:02] Speaker 03:
Case is submitted.