[00:00:02] Speaker 03: Case number 17-5018, American Hospital Association at Aaron vs. Thomas E. Price and his official capacity as Secretary of Health and Human Services Appellant. [00:00:13] Speaker 03: Mrs. Salzman for the Appellant, Ms. [00:00:15] Speaker 03: Stetson for the Appellees. [00:00:42] Speaker 00: Thank you, Your Honor. [00:00:43] Speaker 00: May it please report Josh Saldeman on behalf of the Secretary. [00:00:47] Speaker 00: The record compiled following this Court's remand establishes three significant undisputed facts. [00:00:53] Speaker 00: First, there continues to be a significant mismatch between the resources appropriated for Medicare ALJ hearings and the demand for such hearings. [00:01:03] Speaker 00: Second, this mismatch is not a mere product of discretionary decisions with regards to the Recovery Product Contractor Program. [00:01:11] Speaker 00: If that program were eliminated in its entirety, the number of appeals filed each year would still be significantly greater than the agency's adjudicative capacity. [00:01:21] Speaker 00: And third, the agency has devoted significant efforts to backlog reduction, and as a result, the backlog today is smaller than it was the last time this case was before the court. [00:01:32] Speaker 00: Now, all of that said, [00:01:34] Speaker 00: It's also undisputed that providers are waiting far longer than 90 days for a hearing. [00:01:40] Speaker 00: That's unacceptable, and the agency still considers it to be a high priority to reduce and eliminate the backlog. [00:01:47] Speaker 00: But it does not follow that mandamus, and particularly the remedy ordered by the district court, is an appropriate or indeed even productive response to this state of affairs. [00:01:59] Speaker 00: The district court has ordered the agency to resolve some 350,000 appeals by the end of this calendar year alone. [00:02:07] Speaker 00: the agency has the resources to adjudicate perhaps a quarter of that amount. [00:02:12] Speaker 00: How is the agency expected to comply then? [00:02:15] Speaker 00: The only suggestion that has ever been made by anybody is through mass settlements. [00:02:20] Speaker 00: But perversely, the district court's very order deters the kinds of merits-based settlements that the agency can enter into consistent with its statutory and fiduciary duties to the Medicare trust fund. [00:02:35] Speaker 00: This is true for several reasons. [00:02:37] Speaker 00: First. [00:02:38] Speaker 00: The very specter of a mandamus hangs over the process. [00:02:43] Speaker 00: A settlement requires a willing counterparty. [00:02:46] Speaker 00: And when there is an expectation on the part of the provider community that a judicially prescribed remedy will provide higher compensation than anything that the agency can, in good faith, agree to, interest in settlement actually declines. [00:03:02] Speaker 00: In fact, the agency reported in a recent district court status report that precisely that has happened. [00:03:07] Speaker 01: I take that point, but could the agency basically do some triage and do the following? [00:03:16] Speaker 01: It appears that the agency has already taken steps to prioritize ALJ resources towards appeals by beneficiaries and other people who are financially vulnerable. [00:03:31] Speaker 01: Could the Secretary also prioritize certain settlements [00:03:37] Speaker 01: and say, look, we're going to bargain with you in good faith. [00:03:42] Speaker 01: If we can't reach an agreement and we feel that we've acted in good faith, then you go to the end of the line and we move on to the next tranche of sediments. [00:03:51] Speaker 00: The agency certainly can work with different groups of providers to try to, I'm having a little trouble envisioning exactly what a tranche is for these purposes, because once you start talking about settlements on the scale that at least the plaintiffs here propose, something like the entire hospital industry, what you have within a given tranche, as you put it, is a fairly diverse set of claims from providers, some of whom are much more scrupulous and have much higher success rates. [00:04:21] Speaker 00: than others. [00:04:22] Speaker 01: So when you start trying to understand that you can put them together in some whatever way that you feel like, you know, they are alike based on whether they're all the same party or they're all the same classification, whatever. [00:04:38] Speaker 01: But basically, you say to them, we're going to do our best to try to resolve these. [00:04:44] Speaker 01: And if we can't resolve, reach resolution, then you go to the end of the line. [00:04:51] Speaker 01: Your appeal will be heard by an ALJ after everybody else's because we're prioritizing it now for this purpose, but we're not going to prioritize it for other purposes. [00:05:03] Speaker 01: Is there anything under the law or under your regulations that would prevent you from doing that? [00:05:08] Speaker 00: So the agency is engaging and has made available what is called settlement conference facilitation. [00:05:15] Speaker 00: So with individual specific providers, the agency is very interested in resolving all of the claims of a provider on a fair basis and not just dealing on a claim by claim basis. [00:05:28] Speaker 00: That said, in terms of sending somebody to the back of the line, [00:05:32] Speaker 00: The agency, generally, with the exception of putting beneficiaries to the front, the agency has sort of felt that maintaining a first-in, first-out approach is what's there, but the agency does have the ability to prioritize. [00:05:50] Speaker 00: And while nobody has made a suggestion quite along the lines you're suggesting, I do think the regulations [00:05:56] Speaker 01: would allow the agency to so the agency could say could do what I just suggested and could say look either settle or go to the end of the line or you can escalate your claim and forfeit your right to a hearing or if you think that we're acting in bad faith you can go back to the district court for some other relief but but those are your options well [00:06:26] Speaker 00: I hesitate to say that I think there would be significant consequences if the agency certainly hasn't been given the opportunity and against the backdrop of this mandamus order. [00:06:37] Speaker 00: They certainly can't do anything you're describing here. [00:06:41] Speaker 00: Why can't they? [00:06:43] Speaker 01: Why can't they tomorrow do say this is how we're going to resolve this backlog. [00:06:49] Speaker 01: We've got to figure out some way under this order to reduce this backlog by 350,000 cases by the end of 2017, and this is what we're going to do. [00:07:02] Speaker 00: So I just want to be sure I understand. [00:07:04] Speaker 00: Basically, the agency, first of all, the scale of this is quite difficult because you are dealing with thousands of different [00:07:13] Speaker 00: providers here, so this isn't something where you can engage in unilateral negotiations with individual parties is time consuming and there's a limited amount of resources for this. [00:07:23] Speaker 00: But if the agency were to come to a provider and say, we will pay you 35 cents on the dollar, take it or leave it, and if you don't take it, you go to the back of the line, I would imagine the providers would [00:07:36] Speaker 00: that there would be significant resistance to that. [00:07:38] Speaker 00: And in fact, what would inevitably happen is if there isn't, they would say, you have to resolve this. [00:07:44] Speaker 00: We have all the leverage here. [00:07:46] Speaker 00: The notion that the agency has the leverage to make a take it or leave it offer under the circumstances, particularly against the background. [00:07:54] Speaker 01: I'm not saying take it or leave it. [00:07:55] Speaker 01: I'm saying that [00:07:57] Speaker 01: That you're arguing that, I mean, we have abuse of discretion review, right? [00:08:04] Speaker 01: That's correct, Your Honor. [00:08:05] Speaker 01: And what the district court, what we've told the district court was to balance the equities. [00:08:12] Speaker 01: It seems to me that your argument is that the equities weren't appropriately balanced here because, A, we don't have the resources [00:08:22] Speaker 01: to eliminate the backlog given what has been appropriated to us, but also the only way to do so is through mass settlements. [00:08:36] Speaker 01: And we have basically been put in a position where we're going to have to settle these claims in a disadvantaged position. [00:08:44] Speaker 01: And I'm trying to test that argument is how disadvantaged the position really is. [00:08:53] Speaker 01: And it doesn't necessarily mean that you have to take an unreasonable position and say take it or leave it, but it could be that maybe you have some leverage that you're not recognizing. [00:09:08] Speaker 00: I wish that were the case, Your Honor, but against the backdrop of the mandamus order, the leverage really is exclusively with the providers. [00:09:15] Speaker 00: I also want to point out that it's not just about leverage. [00:09:18] Speaker 00: There are at least two other significant perverse results of trying to negotiate against the backdrop of this mandamus order. [00:09:25] Speaker 00: One is it perversely incentivizes more appeals. [00:09:29] Speaker 00: Right now, about half of the claims that are rejected at the second level of administrative review are abandoned. [00:09:35] Speaker 00: So you can see that at JA 149. [00:09:38] Speaker 00: So that's 150,000 claims that never enter the backlog. [00:09:41] Speaker 00: But if you create a system where the agency is required to settle any claim that reaches the third level, all it does is incentivize providers to file lots more appeals, which just compounds the problem. [00:09:53] Speaker 00: The other thing I would point out is this adverse selection issue, because I think it's quite significant. [00:09:59] Speaker 00: In order to be able to address this situation, if you want to come up with one size fits all settlement terms for an entire group of providers, the inevitable result is those terms will be most attractive to the claimants with the weakest claims. [00:10:14] Speaker 00: But the claimants with stronger claims are going to view the offer as inadequate. [00:10:18] Speaker 00: You're not even going to be able to settle those claims. [00:10:20] Speaker 00: And all that's going to happen is the Medicare trust funds are going to be depleted by payouts for the weaker claims. [00:10:27] Speaker 00: So this isn't a very effective, ultimately backlog reduction process. [00:10:31] Speaker 00: And it jeopardizes the Medicare trust funds by vastly increasing the potential liability that the trust funds are facing. [00:10:38] Speaker 04: Let me ask you this. [00:10:39] Speaker 04: You haven't proposed any alternative deadlines. [00:10:42] Speaker 04: You haven't said we can't clear the 350-some thousand by December of this year, but we can clear so many. [00:10:50] Speaker 04: Have you in these status reports, or have you – I mean, I haven't seen anything that [00:10:54] Speaker 04: indicates that you're doing anything but saying, we can't do this. [00:11:00] Speaker 00: So we've proposed a number. [00:11:01] Speaker 00: We've said mandamus shouldn't issue, but if mandamus should issue, we proposed at JA 146 and JA 152 to 153 a variety of alternative remedial measures that might be appropriate. [00:11:14] Speaker 00: We haven't committed to a particular deadline, because we don't think we could do that in good faith. [00:11:19] Speaker 00: Given that there's a continuing mismatch between the resources for adjudication and the workload, about 80,000 appeals or 90,000 appeals can be decided each year. [00:11:29] Speaker 00: North of 150,000 are being filed every year going forward. [00:11:34] Speaker 00: So given this sort of structural mismatch, the agency can't in good faith say, [00:11:40] Speaker 00: We think we can resolve this within by X date. [00:11:43] Speaker 00: We know this is going to involve some work from Congress or it's going to involve a great deal of accommodation from the provider community that we can't guarantee we can't hold ourselves to that schedule. [00:11:54] Speaker 00: Now with the entire provider community. [00:11:56] Speaker 00: came in and said, we're willing to work with you and settle at 30 cents on the dollar, or what they think potentially, eventually we could work this. [00:12:05] Speaker 00: But in a representation to a court, we certainly couldn't commit to that. [00:12:09] Speaker 00: Likewise, while the agency's committed to working with Congress to come up with a solution for this problem, we certainly couldn't tie ourselves or commit to a specific date, because we don't know the case of legislation. [00:12:20] Speaker 04: Let me ask you this, though. [00:12:24] Speaker 04: If we could get all the providers to come in. [00:12:27] Speaker 04: You've got one provider of durable medical equipment that's responsible for 24% of all pending appeals. [00:12:36] Speaker 04: That's a quarter of the appeals. [00:12:39] Speaker 04: If you took the top 10 providers and concentrated on them, [00:12:45] Speaker 04: And this particular one who has a 25% also has an error rate of only 25%, which means he has a success rate, I would think, just hear me out, of 75%. [00:12:56] Speaker 04: Offer him 75 cents on the dollar. [00:12:59] Speaker 04: Why can't you do that? [00:13:00] Speaker 00: So that error rate actually is, and this isn't as artfully phrased in the declaration as it should be. [00:13:07] Speaker 00: What that error rate means is not error rate at the third level of review. [00:13:12] Speaker 00: It's not that they prevail 75% of the time at hearings. [00:13:16] Speaker 00: 25% of the claims they file as determined by a validation contractor. [00:13:21] Speaker 00: So just at the outside, a quarter of what they're putting into the system [00:13:26] Speaker 00: or claims that are rejected. [00:13:27] Speaker 00: So that projects out to an ALJ success rate that's far, far lower because [00:13:35] Speaker 00: of many of those claims. [00:13:37] Speaker 00: Well, we don't know that. [00:13:40] Speaker 00: This is what the agency informs me. [00:13:42] Speaker 00: But I would also stress that any settlement is going to require a willing counterparty. [00:13:48] Speaker 00: And the other thing is that needs to be said, and I want to be clear, I'm not talking specifically about this one 24% provider or any other specific provider. [00:13:57] Speaker 00: But the other thing the agency needs to take into account [00:14:00] Speaker 00: are program integrity concerns and law enforcement concerns. [00:14:04] Speaker 00: Medicare fraud is a real phenomenon, and there are claimants out there where there are potential False Claims Act liability. [00:14:10] Speaker 00: There's potential issues related to people putting bad claims into the system, and the agency can't be in a position where it's paying out claimants where there are these major program integrity concerns. [00:14:24] Speaker 04: I've got one more question, and I think you alluded to it in response to Judge Wilkins' question. [00:14:31] Speaker 04: You said you put the beneficiaries at the front. [00:14:34] Speaker 04: Is this the system that's available not just to the providers, but to also Medicare patients who are disputing whether Medicare has paid the 80 percent or whatever? [00:14:48] Speaker 00: It is your honor. [00:14:49] Speaker 00: That's a smaller fraction of the workload. [00:14:53] Speaker 00: I think it's somewhere between five and ten percent, but don't. [00:14:56] Speaker 00: It's on that scale. [00:14:57] Speaker 00: The agency from the get-go recognized that these were the most vulnerable population, so they prioritized them. [00:15:03] Speaker 00: Actually, at this point, [00:15:05] Speaker 00: There is also now a consent decree out of a district court in Connecticut. [00:15:10] Speaker 00: So that is no longer even a discretionary decision by the agency. [00:15:13] Speaker 00: The agency is now required under the terms of that. [00:15:16] Speaker 00: To put the beneficiaries first? [00:15:17] Speaker 00: To put the beneficiaries first. [00:15:21] Speaker ?: OK. [00:15:21] Speaker 02: All right. [00:15:22] Speaker 02: No further questions? [00:15:23] Speaker 00: Thank you. [00:15:32] Speaker 05: Good morning, Your Honors. [00:15:33] Speaker 05: May it please the court? [00:15:34] Speaker 05: I'm Kate Stetson, representing the appellees. [00:15:37] Speaker 05: Judge Wilkins, I want to start with the colloquies that you had with government counsel, because I think they frame the two pairs of questions that are at issue here. [00:15:46] Speaker 05: The first pair is the sort of broader questions. [00:15:49] Speaker 05: Can mandamus issue, which is what the first DC Circuit panel decided? [00:15:55] Speaker 05: And then the second question is, should mandamus issue, which is what the district court decided, and that's what gives rise to [00:16:01] Speaker 05: the abuse of discretion standard of review. [00:16:03] Speaker 05: That's the first pair. [00:16:04] Speaker 05: The second pair is the colloquy that you were having at first, which is the difference between can't and won't. [00:16:11] Speaker 05: What the government is saying at this stage in May of 2017 is that it can't [00:16:19] Speaker 05: meet the four-year plan that the district court set forth in its order. [00:16:25] Speaker 05: I would suggest that one place to start with this is to go back, in fact, to the first D.C. [00:16:32] Speaker 05: Circuit decision. [00:16:33] Speaker 05: A lot of this discussion also took place in the context of whether mandamus could issue. [00:16:40] Speaker 01: But the problem I'm having is I don't understand where the four-year deadlines came from. [00:16:48] Speaker 01: We can't just pick numbers out of thin air. [00:16:50] Speaker 01: I mean, I didn't see anything in the briefing or in the appendix that explained how those numbers were arrived at. [00:17:00] Speaker 05: Right. [00:17:00] Speaker 05: One of the issues, Judge Wilkins, is the question that Judge Henderson posed to government counsel, which is that government counsel didn't essentially offer any other alternative timeline. [00:17:11] Speaker 05: So that's the first issue. [00:17:12] Speaker 05: The second response is the district court concluded [00:17:16] Speaker 05: upon reviewing the suggested time frame. [00:17:18] Speaker 05: And remember, we essentially gave Judge Bosberg two different paths that he might follow. [00:17:23] Speaker 05: Path number one is order the secretary to take certain actions. [00:17:28] Speaker 05: But what the district court said in his decision was, I am reluctant to intrude on the discretionary processes of the secretary. [00:17:35] Speaker 05: That leads me to the second path, which is these phased reductions in the backlog. [00:17:40] Speaker 05: And what the district court found was that those phased reductions were thoughtful and reasonable. [00:17:50] Speaker 02: Did the district court ever find that the government can meet any of those deadlines? [00:17:55] Speaker 02: Because I can't find the district court having found that. [00:17:59] Speaker 05: I think the short answer is yes. [00:18:01] Speaker 05: If you look at the last page of the district court's decision and again at the final page. [00:18:07] Speaker 02: The last page of which decision? [00:18:08] Speaker 05: Of his December 6th opinion. [00:18:13] Speaker 05: One of the comments that he makes. [00:18:15] Speaker 02: Tell me the JA site that well. [00:18:25] Speaker 05: J. [00:18:25] Speaker 05: 165, I'm sorry, so the third to last page. [00:18:28] Speaker 05: The defendant nonetheless argues that imposing such a timetable would require her to make payment on Medicare claims regardless of the merit of those claims, and that is the crux of what the government is asking here. [00:18:37] Speaker 02: Yes, yes. [00:18:38] Speaker 02: I'm looking for the finding by the court that the agency can actually reach these timetables. [00:18:44] Speaker 05: that the agency can reach a sentence? [00:18:47] Speaker 05: I think it's in the very next sentence. [00:18:49] Speaker 05: The timetable doesn't require the agency to do something that it is statutorily prohibited from doing. [00:18:55] Speaker 05: All it demands is that the secretary figure out how to substantiate the claims. [00:19:01] Speaker 02: Right, and the district court, and the secretary says it can't. [00:19:05] Speaker 02: And the court didn't say, I disagree with the secretary. [00:19:11] Speaker 02: The court didn't make a fine. [00:19:13] Speaker 02: Let's put this as a hypothetical, all right? [00:19:15] Speaker 02: Imagine there are 10 billion claims, and Congress provides $1. [00:19:20] Speaker 02: But Congress also says you must resolve every single claim in a week. [00:19:26] Speaker 02: Now, you would agree under those circumstances that whether or not mandamus is jurisdictionally available, that it would not be granted by a court. [00:19:36] Speaker 02: Do you agree with that or not? [00:19:38] Speaker 05: In those circumstances, I would agree, because I think under Alabama Power versus Kossel, under Sierra Club versus EPA, under NRDC versus Train, the agency would be in a position to bear what those cases call the heavy burden of demonstrating impossibility. [00:19:55] Speaker 05: So Judge Garland, the fact that Judge Boasberg didn't specifically say, I find that you can do this, [00:20:02] Speaker 05: He found that the agency had not established that it couldn't, which for these purposes is sufficient. [00:20:08] Speaker 02: I have to say he didn't find that either. [00:20:09] Speaker 02: This strikes me as, I think the district court is doing the best that the court can, given that we gave an instruction that says on the one hand and on the other hand, which is all we provided. [00:20:24] Speaker 02: But I don't see a finding that it's not, whatever the burden is, whatever the burden on the government may be, [00:20:32] Speaker 02: Train requires that a district court not order an agency to do something that's not possible. [00:20:38] Speaker 02: And that requires a finding, it seems to me, by the district court that what the government says is impossible is actually possible. [00:20:46] Speaker 02: And I don't see that. [00:20:48] Speaker 02: I think what the district court did is laudable, given that district court did not want to compel particular things. [00:20:56] Speaker 02: But when you set a timetable, I mean, [00:20:59] Speaker 02: The time table we're working off now is 30 percent reduction by the end of this year. [00:21:03] Speaker 02: The government's position is that is completely impossible. [00:21:07] Speaker 02: And the district court didn't say why it's not impossible. [00:21:11] Speaker 02: The district court just says figure out a way to do it. [00:21:14] Speaker 02: Now that may be the pressure that we put on the district court by the kind of opinion that was issued, but we certainly didn't direct that. [00:21:22] Speaker 02: And if you agree that the court can't compel something impossible, why isn't there a requirement that there be a hearing at which a determination is made of whether each stage of the timetable is possible? [00:21:36] Speaker 05: because that hearing would have been premature in December of 2016. [00:21:41] Speaker 05: What was in front of the judge in December of 2016 was the question whether the agency should be mandamus. [00:21:50] Speaker 05: He answered that question, of course, in the affirmative. [00:21:53] Speaker 05: If the agency [00:21:55] Speaker 05: in the beginning of 2018 comes into the district court, presumably on our motion to enforce the mandamus, comes into the district court with proof, not just supposition, not just prediction or speculation, but actual proof that it could not satisfy that benchmark, then we would be having a very different conversation. [00:22:16] Speaker 02: What conversation would we be having? [00:22:18] Speaker 02: See, they're under threat of contempt here. [00:22:21] Speaker 02: It's not a automatic contempt. [00:22:24] Speaker 02: You asked for that, and the district court refused that. [00:22:27] Speaker 02: But they're still under threat of contempt. [00:22:29] Speaker 02: That's a pretty big threat at this stage, unless there is some possibility even that they can achieve it. [00:22:38] Speaker 02: I understand all the different points you make about different ways that might be possible, but the district court never said that any of those was actually possible. [00:22:47] Speaker 02: And to put the agency under the threat of contempt under those circumstances both seems problematic, but also raises the unintended consequences point that counsel raises, that putting the agency under the hammer here is going to increase the number of appeals rather than decrease them. [00:23:07] Speaker 04: But why wouldn't the imposition of the status reports answer that in some respect? [00:23:13] Speaker 04: Because I see Judge Boesberger saying, look, this is what I'm proposing. [00:23:19] Speaker 04: I want these status reports. [00:23:21] Speaker 04: And in those status reports, I don't think HHS can just wait until the November status report and say, guess what, we're not even close to making it. [00:23:31] Speaker 04: That's right. [00:23:32] Speaker 04: That what he had in mind was that as that deadline gets closer and closer, if the status reports not only say we're not going to make it, but have some alternative, we can do this, but we can't do that. [00:23:46] Speaker 04: We can get rid of this many, not that many. [00:23:49] Speaker 05: I think that's right, Judge Henderson, and I think that points to one of the issues that both the panel and the district court have, which is we are talking about predictions. [00:24:05] Speaker 05: And we heard in government counsel's response, I think, to each of your questions, [00:24:09] Speaker 05: the accommodation that there may be ways, you mentioned the top 10, you mentioned triage, back of the line and so forth, government counsel said at one point that that hadn't been proposed before. [00:24:21] Speaker 05: This is exactly the point of an injunction. [00:24:23] Speaker 05: What the NRDC versus train court said is an injunction is supposed to be an adrenaline shot. [00:24:28] Speaker 05: It is supposed to cause the agency to move more quickly, to think of the things it didn't before, and to solve the problems in front of it. [00:24:36] Speaker 05: So for the district court to impose on the district court in 2016 the obligation to resolve at that time whether the agency could or could not by 2020, [00:24:47] Speaker 05: Comply with a mandate that he declined to put any specifics on correctly We think that that to me is imposing too much of a burden on the district. [00:24:56] Speaker 02: What would be our standard of review? [00:24:59] Speaker 02: The district court at the end at the end of 20 of this year Hasn't met the 30% deadline the district court says okay, you're in contempt is our standard of review the same as it is today and [00:25:12] Speaker 02: And that's where we just decide the abuse of discretion. [00:25:17] Speaker 05: I think the overall question presumably would be abuse of discretion review. [00:25:24] Speaker 05: But in order for the judge, if I'm sort of extrapolating correctly from NRDC versus Train and CASEL, what the judge would have to find is actual factual findings. [00:25:36] Speaker 05: presumably backed by not just speculation from the government about an inability to comply with a settlement, but data showing for example that hundreds of thousands of these claims are potentially fraudulent. [00:25:50] Speaker 05: data showing that they are not susceptible to mass settlement. [00:25:54] Speaker 05: There is no such data in this record. [00:25:57] Speaker 05: What you find in the government's brief are these kind of broad, somewhat hedgy statements. [00:26:02] Speaker 02: But if that's true, the district court could have said that. [00:26:05] Speaker 02: The district court didn't say that. [00:26:06] Speaker 02: The district court just says, I'm not going to tell you how to do this, but do it. [00:26:12] Speaker 02: But the district court didn't say disagree with respect to the data or anything else. [00:26:19] Speaker 05: Yes, Chief Judge Garland, that is what the district court said, but I am not familiar with a single D.C. [00:26:26] Speaker 05: Circuit case that suggests that mandamus is inappropriate because the agency predicts that four years hence it won't be able to comply with something. [00:26:35] Speaker 05: In fact, what you see over and over again in that trio of cases that I've mentioned [00:26:39] Speaker 05: is that the court says, we understand that you are speculating about impossibility. [00:26:46] Speaker 05: But the burden is especially heavy on you in that circumstance to show that something is actually factually impossible, not just to posit that this is going to be very difficult. [00:26:58] Speaker 05: That's why each of those courts said, come back to us, or go back to the district court in the first instance. [00:27:05] Speaker 01: But here's my problem. [00:27:07] Speaker 01: is that I think it's undisputed that the ALJs just have a physical capacity of addressing what is about 90,000 appeals a year. [00:27:21] Speaker 05: That's right. [00:27:22] Speaker 01: We've got a backlog of close to 700,000. [00:27:25] Speaker 01: Even if nobody ever filed another appeal, [00:27:33] Speaker 01: then that backlog would take under what is physically possible for ALJs to do about seven years or eight years to clear. [00:27:49] Speaker 01: So the only way that this is physically possible is through some measure of mass settlements. [00:28:03] Speaker 01: the specter of contempt, and when we're balancing the equities here, an agency now has a gun to its head, but no one has a gun to your client's head. [00:28:19] Speaker 01: And you make arguments in your brief about how [00:28:23] Speaker 01: there's an incentive for the RACs to want to claw back money because they get paid on a contingent basis and they're not penalized when they lose appeals. [00:28:36] Speaker 01: Well, your clients have the same incentives. [00:28:38] Speaker 01: They're appealing everything and they're not settling anything. [00:28:42] Speaker 01: In the declaration from the chief ALJ, [00:28:47] Speaker 01: says that, and the most recent March 2017 status report shows that the recent efforts at settlements aren't working. [00:28:59] Speaker 01: So it seems like basically the equities aren't in favor of the agency, and this is being set up to fail here. [00:29:11] Speaker 05: Judge Wilkins, I'm going to work backwards through your question. [00:29:14] Speaker 05: I first need to take issue with the statement in the status report that settlements aren't working. [00:29:20] Speaker 05: That was a speculation on the part of the declarant. [00:29:23] Speaker 05: In fact, there hasn't been a credible settlement offer since the mandamus issued. [00:29:29] Speaker 05: Working backwards still the of course there is an incentive to settle and that's in two respects The first is we are talking about hospitals including one of these plaintiffs Baxter who didn't have enough money to fix its roof if Baxter is confronting a situation where it is considering taking for example 68 cents on the dollar which was the last settlement and [00:29:52] Speaker 05: for, by the way, 380,000 claims. [00:29:56] Speaker 05: Is it going to take 68 cents on the dollar now, or is it going to play out the string for the next four years on the theory that maybe at the end of those four years, the district court might issue a default judgment entitling it to a little bit more? [00:30:09] Speaker 05: That's the second issue. [00:30:10] Speaker 05: The third is, remember that with these phased targets, [00:30:16] Speaker 05: The agency doesn't need to peel off everybody at once. [00:30:21] Speaker 05: It needs to peel off 30% at a time, which puts the hospitals that are contemplating whether to settle in an interesting position. [00:30:29] Speaker 05: Because if a hospital decides that it's going to hold out and wait for a better offer, but 31% of hospitals get in front of it, it has forfeited that opportunity. [00:30:39] Speaker 05: So I need to push back strongly on the issue that there is some kind of a perverse incentive [00:30:45] Speaker 05: for all of these hospitals simply to wait until the end of this laborious process and somehow they will magically then get a hundred cents on the dollar. [00:30:56] Speaker 05: I don't think that's the reality. [00:30:58] Speaker 05: I also need, if I could just make two more quick points. [00:31:01] Speaker 05: Mr. Saltzman mentioned [00:31:05] Speaker 05: in the beginning of his argument that the backlog today is smaller than it was. [00:31:11] Speaker 05: That is also something that he said to the panel last week in the Casa Colina case. [00:31:16] Speaker 05: But he then went on to say, and this is about 17 minutes in, I do not want to dilute your honors. [00:31:22] Speaker 05: It's going to get worse. [00:31:24] Speaker 05: So even the government understands that the backlog is going to get worse. [00:31:29] Speaker 02: I'm not sure which way that cuts, though. [00:31:31] Speaker 02: I mean, that cuts in favor of impossibility. [00:31:36] Speaker 02: On the other hand, it could cut in favor of they're not faithfully going forward. [00:31:41] Speaker 02: And we're not in a position to make factual findings on that. [00:31:45] Speaker 02: And I'm afraid that the district court didn't. [00:31:48] Speaker 02: Maybe the district court's not in a position to do it either. [00:31:50] Speaker 02: But when you have a Congress saying you must do something by a certain date, and then you have Congress [00:31:57] Speaker 02: clearly not providing enough money for the kind of hearings that everybody originally contemplated, at least. [00:32:03] Speaker 02: I mean, this is not Congress versus the courts. [00:32:09] Speaker 02: This is not Congress versus the agency. [00:32:10] Speaker 02: This is Congress versus Congress. [00:32:12] Speaker 02: And Congress can decide. [00:32:14] Speaker 02: It's amongst itself. [00:32:16] Speaker 05: But Congress, we've talked about Congress and the racks, we've talked about Congress and the budget. [00:32:21] Speaker 05: The one thing that hasn't come up is Congress and the statute that pertains to consent settlements between HHS and the providers. [00:32:28] Speaker 05: So this is 42 U.S.C. [00:32:29] Speaker 05: 1395 triple D, F5. [00:32:33] Speaker 05: And this is the statute that says [00:32:36] Speaker 05: that the HHS can compromise claims with providers and it can do so using less than a statistically valid sample of claims. [00:32:44] Speaker 05: So there is no clearer indication in the statute itself that the agency is in a position to settle these claims if it wants to. [00:32:52] Speaker 05: If the agency [00:32:53] Speaker 05: at the end of these phased processes comes in and demonstrates to the satisfaction of the district judge that it was actually factually impossible to comply, then the agency presumably will seek and obtain a modification of this mandamus. [00:33:13] Speaker 05: But right now, all it's doing is saying that it predicts it can't do something. [00:33:18] Speaker 05: The answer is, it has to try. [00:33:20] Speaker 01: So if the agency engages in reasonable settlement offers negotiations and they break off with parties, you would concede then that with respect to however many of those appeals, [00:33:43] Speaker 01: where that happens. [00:33:44] Speaker 01: Let's suppose they engage in reasonable negotiations that cover 400,000 claims, and they can't settle them, but the district court finds as a matter of fact that their last and best offer was a reasonable offer. [00:34:07] Speaker 01: then you would concede that they should get basically credit for having resolved those 400,000 claims and they can go towards counting towards eliminating the backlog. [00:34:18] Speaker 05: I think if the agency is able to offer that proof, and if the district court accepts that proof, that's absolutely right. [00:34:27] Speaker 05: If the agency reaches out to 400,000 hospitals and says, we're going to offer you 68 cents on the dollar, and the hospitals say, no thanks, we're holding out for 99.5% on the dollar, [00:34:37] Speaker 05: and the agency comes in and submits an affidavit saying this is the offer on the table, this is what we were attempting to do, this is the set of circumstances we were targeting, and this is the response that came back to us, then the agency might be able to make a good case to the district court to modify the maintainance. [00:34:53] Speaker 05: But all of this conversation that we're having now in May of 2017 [00:34:59] Speaker 05: runs the risk of doing what the NRDC versus train court warned of, which is presupposing a possibility, speculating about it, rather than asking the agency to do its part in good faith to try to settle these claims, which it plainly has both the statutory and the regulatory processes to do. [00:35:19] Speaker 01: And then- But didn't the agency make a big settlement offer at the end of 2006 that was rejected? [00:35:25] Speaker 01: that was expected to reduce this backlog and that was rejected? [00:35:31] Speaker 05: No, I don't think it was rejected. [00:35:32] Speaker 05: I think that it was not accepted. [00:35:34] Speaker 05: What the agency would say, I think, is that it wasn't accepted in the numbers that it expected. [00:35:38] Speaker 05: In part, that's because, as I understand it, a lot of the hospitals that were subject to that offer actually had taken the prior deal. [00:35:45] Speaker 05: had taken the $0.66 on the dollar deal that had been offered that took care of 380,000 claims. [00:35:52] Speaker 05: The last point I would like to make is one just about this statutory impossibility. [00:35:58] Speaker 05: One of the government's primary arguments here is that it cannot pay claims that the statute instructs it not to pay. [00:36:06] Speaker 05: There are two responses. [00:36:07] Speaker 05: The first is the statute also clearly allows for compromise of those claims. [00:36:11] Speaker 05: And the second is, again in Mr. Saltzman's argument of last week, [00:36:15] Speaker 05: One of the points that he made to the panel was most of these appeals have to do with documentation requirements. [00:36:22] Speaker 05: Documentation requirements are not a statutory requirement. [00:36:25] Speaker 05: They are in the regulations and they are in the policies and they can be altered. [00:36:29] Speaker 05: The agency needs to try. [00:36:31] Speaker 01: There's not a lot in the district court's decision granting mandamus about [00:36:45] Speaker 01: how escalation and the possibility of escalation should weigh in with the balance of the equities. [00:36:56] Speaker 01: Because as I understand your argument, you say well escalation prejudices claimants because A, we can't supplement the record, B, we can't get a hearing, [00:37:10] Speaker 01: And C, we don't get de novo review at that stage. [00:37:15] Speaker 01: And if we escalate the review before the board, it would be, I guess, without a hearing without supplementing the record. [00:37:24] Speaker 01: And it would be, I guess, a deferential review instead of a de novo. [00:37:30] Speaker 05: And deferential to the agency on any subsequent judicial review without a record. [00:37:34] Speaker 01: That's right. [00:37:40] Speaker 01: You know, it's not nothing. [00:37:43] Speaker 01: And if I'm balancing equities. [00:37:46] Speaker 01: And if one of your complaints as well, we can't supplement the record. [00:37:51] Speaker 01: Well, you're the claimant and you should know what you're supposed to put in and if you like don't have an opportunity to put more in to supplement your claim. [00:38:02] Speaker 01: Kind of the breaks. [00:38:05] Speaker 01: And with respect to lack of a hearing. [00:38:08] Speaker 01: Lots of things are decided without hearings. [00:38:12] Speaker 01: And so the difference in the standard of review, that's something also, but [00:38:28] Speaker 01: It's not like this isn't an empty remedy here, but it doesn't seem to have been accounted for by the district court at all in the decision below. [00:38:38] Speaker 05: Right. [00:38:39] Speaker 05: Well, the first thing is that the standard of review, of course, is the kicker. [00:38:42] Speaker 05: If you're up on judicial review, if you've needed to escalate all the way up to get a judge to hear your case, and you're on abusive discretion review, or deference to the agency, I should say, [00:38:53] Speaker 05: that puts the escalator appellant in a particularly poor position. [00:38:58] Speaker 05: But more to the point, this argument about escalation, of course, was the core argument that the government proffered in the first AHA appeal, where the government said there's an adequate alternative remedy. [00:39:09] Speaker 05: And if you look back at the court's, at this court's first opinion, one of the things it says is, in any particular unusual case, which is what escalation is designed for, [00:39:20] Speaker 05: maybe it's a good remedy. [00:39:22] Speaker 05: But where you have an industry plaintiff like the American Hospital Association bringing a systemic claim and the answer cannot be you all can escalate all of your appeals. [00:39:35] Speaker 01: So we also have in the record a declaration from the chief A. L. J. That [00:39:44] Speaker 01: that there are large companies out here that deem it good business practice to appeal every single rejected claim. [00:39:54] Speaker 01: That's a pretty significant and I would say damning fact that's in the record. [00:40:04] Speaker 01: Judge Wilkins, I think what I would say to that is so if they're appealing every claim, then they perhaps the equities say that the ones that are most important to them, they try to settle. [00:40:19] Speaker 01: And if they can't sell them, then maybe the equities say that they escalate and take their chances. [00:40:27] Speaker 01: But but that the [00:40:35] Speaker 01: It's not like the agency has created the circumstance completely. [00:40:43] Speaker 01: There is some ability of your clients to control the inflow here. [00:40:51] Speaker 01: And without there being some disincentives for inflow, especially inflow of bogus claims, [00:41:02] Speaker 01: then I don't see how we're appropriately balancing the equities here. [00:41:08] Speaker 05: Right. [00:41:08] Speaker 05: So with respect to bogus claims, everyone agrees, including us, that 42 CFR 401.601f essentially strips out from any need for compromise [00:41:23] Speaker 05: claims that indicate that they're fraudulent. [00:41:26] Speaker 05: So a truly bogus claim essentially is in a category by itself. [00:41:29] Speaker 02: But how is that to be figured out under the pressure of getting 30% of the claims done by the end of this year? [00:41:35] Speaker 02: I mean, all the proposals that you've suggested have to do a statistical settlement or something like that, but none of those actually determine whether any particular claim is bogus. [00:41:45] Speaker 02: The use of word of legal art, apparently. [00:41:48] Speaker 02: I didn't realize it was, but OK. [00:41:52] Speaker 02: So how is this consistent with that CFR? [00:41:56] Speaker 02: Basically, they have to pay in order. [00:41:57] Speaker 02: There's no way they're going to be able to pay these settlements or make these settlements without not actually looking closely at specific claims. [00:42:05] Speaker 02: Isn't that right? [00:42:06] Speaker 05: I took Judge Wilkins' hypothetical to be if you've got a supplier or a provider that is essentially flooding the system with bogus claims. [00:42:16] Speaker 02: I understand that, but leave that aside. [00:42:20] Speaker 02: If you read that CFR saying they can't settle a claim that on the merits they've evaluated is bogus, doesn't that require them to be able to evaluate claims on the merits? [00:42:33] Speaker 05: No, I don't think it does. [00:42:34] Speaker 05: I think what it does is it permits them, if there is an indicator of fraud on the face of a series of claims, to set it aside. [00:42:43] Speaker 05: But again, we're talking about the need to settle just 30% of these claims. [00:42:48] Speaker 05: So unless the agency is going to commit to the court, that's correct, but 30% in one year. [00:42:54] Speaker 05: If the agency is going to say to this court that 100% essentially of the claims that are pending right now are all bogus, [00:43:02] Speaker 05: Surely there are 30% of claims that are facially appropriate, that may suffer, as Mr. Salton said last week, from documentation problems, but that can be resolved by settlement. [00:43:15] Speaker 05: So the idea that we are going to get into a situation where there's this perverse incentive I think is not true. [00:43:21] Speaker 05: The other thing I would say is the Fair Fund amicus brief does a good job of pointing out that where you're talking about this adverse incentives question, [00:43:31] Speaker 05: There are statistics, of course, that will aid both the agency and the company in its good business practices in deciding how much on the dollar to offer that company to make its claims go away. [00:43:45] Speaker 05: If the company has, for example, a significant error rate and it is significantly getting paired back in the appeals process, that company presumably will be willing to accept something less on the dollar and to accept it sooner than four years from now. [00:44:03] Speaker 02: This statutory section that you're talking about, consent settlement, do you think that Congress intended that the consequence of the inability to meet the deadlines is that you have to go into this kind of settlement procedure that you're talking about? [00:44:19] Speaker 02: That's what we're saying. [00:44:21] Speaker 02: The consequence of the failure is to look at, is to do these kind of broad settlements. [00:44:26] Speaker 05: Well, that is what we've been reduced to saying because the agency hasn't come forward with a solution. [00:44:32] Speaker 05: And remember, we're now talking about a case that's over three years old. [00:44:37] Speaker 05: And one more sort of finer point on that, Judge Garland, you mentioned a few minutes ago that we had suggested X, Y, or Z [00:44:46] Speaker 05: It's not our burden to suggest or establish the routes that the agency can take to cure this. [00:44:52] Speaker 02: But setting all that aside. [00:44:54] Speaker 02: But it has to be possible. [00:44:56] Speaker 02: It's not enough to just, as the judge said in his early first opinion before actually issuing the order in this case, that he doesn't have the power to wave a magic wand and say it's going to be done. [00:45:07] Speaker 02: So unless there is a route that's possible, [00:45:11] Speaker 02: It's a little hard to uphold an order that just sets deadlines. [00:45:16] Speaker 02: But the reason I asked you about the consequences is really the same question that Judge Wilkins was asking you. [00:45:22] Speaker 02: The previous panel held that the escalation provision of the statute doesn't bar mandamus. [00:45:31] Speaker 02: That is, it doesn't prevent jurisdiction for mandamus. [00:45:36] Speaker 02: But it did not say anything about whether [00:45:39] Speaker 02: the escalation provision should be balanced or how it should be balanced. [00:45:43] Speaker 02: And I ask this question because it is entitled, Consequences of Failure to Meet Deadlines. [00:45:50] Speaker 02: And Congress said that the consequence of the failure was escalation above the ALJ. [00:45:57] Speaker 02: And when I look at it, it didn't say the consequences, consent settlement or anything else. [00:46:03] Speaker 02: And so even if that doesn't affect the jurisdiction of mandamus, don't you think it should be a heavy consideration in any court's decision about whether to issue mandamus or what the content of the mandamus order should be? [00:46:19] Speaker 05: I believe it was a consideration, which means that your review of Judge Boesberg's decision that that was not sufficient to count against maintenance, of course, is subject to abuse of discretion review. [00:46:32] Speaker 05: So unless the panel is prepared to conclude that the district court abused its discretion in concluding that mass escalation [00:46:39] Speaker 05: which, after all, would just kind of move this bolus of claims all the way up to the district court if you could meet the amount and controversy requirement. [00:46:47] Speaker 05: And with the deferential standard of review that comes along with it, the district court clearly concluded that that was not sufficient to count against MnDemis. [00:46:57] Speaker 05: The district court at this stage has simply ordered the agency to try to come into compliance 30%, 60%, 90%, 100% over the next four years. [00:47:08] Speaker 05: If the agency, again, wishes to come back with actual proof, not just speculation, but proof, then the district court at that stage [00:47:20] Speaker 05: can assess that proof and decide whether it's going to modify the injunction. [00:47:25] Speaker 05: But this is not the time to have that conversation, because all the agency is telling you right now is that it thinks it can't do that. [00:47:33] Speaker 05: The agency should be instructed to try. [00:47:35] Speaker 05: That's the point of MENDEMAS. [00:47:38] Speaker 02: Other questions? [00:47:38] Speaker 05: There are no further questions. [00:47:40] Speaker 02: Take it. [00:47:40] Speaker 02: Time's up. [00:47:41] Speaker 02: We'll give you another two minutes. [00:47:47] Speaker 00: Thank you, Your Honor. [00:47:47] Speaker 00: There's just one point I want to make, and it's really picking up right where Ms. [00:47:51] Speaker 00: Stetson left off, which is the entire premise of her argument today is that the agency needs to start trying to fix this problem. [00:48:01] Speaker 00: And I think what that overlooks is the agency has been struggling against this [00:48:07] Speaker 00: backlog since well before the mandamus order came down in December of 2016. [00:48:12] Speaker 00: The reason I bring up the decline in the backlog today as opposed to at the time of the last appeal isn't because I want to give a false sense that everything is fine or everything is fixed. [00:48:25] Speaker 00: It's to show that the agency is struggling against the backlog, that the agency has not adopted what our labs [00:48:32] Speaker 00: called a position of uttering difference at this timetable. [00:48:35] Speaker 00: There are significant constraints on the agency, but the agency, as is detailed from J95 to 105, has adopted a number of initiatives, settlement conferences, the use of attorney adjudicators to provide on-the-record review in cases where there can't be a hearing, statistical sampling, a wide array of initiatives. [00:48:56] Speaker 02: Okay, the list goes on. [00:48:57] Speaker 00: Yeah. [00:48:59] Speaker 02: If the court [00:49:02] Speaker 02: If the district court, say we said that deadlines themselves are not appropriate, but we also didn't think status reports were appropriate, what are the other kinds of mandamus requirements that could be considered by the district court? [00:49:24] Speaker 02: So could the district court order, for example, appreciate that the court did not want to do this, but that court order that the agency eliminate rack to the extent of its discretion because it doesn't have discretion to eliminate the deadlines, the statutory deadlines. [00:49:46] Speaker 00: So the RAP program is itself statutorily mandated. [00:49:50] Speaker 02: Now, the agency could ratchet it back to the extent of its discretion, whatever that is. [00:49:57] Speaker 00: So I think that would be problematic, Your Honor, because I do think the agency needs some degree of flexibility to balance competing priorities. [00:50:04] Speaker 00: So if, for example, and again, this is purely hypothetical. [00:50:08] Speaker 02: I thought your position, as reflected in your brief, was that even if RAC were completely eliminated, it would still be impossible. [00:50:16] Speaker 02: Isn't that your position? [00:50:17] Speaker 00: That is my position, Your Honor. [00:50:18] Speaker 00: And in light of that fact, and it is precisely because that's true, that I think, for example, if eliminating RAC would [00:50:29] Speaker 00: lead to a marginal improvement in the backlog. [00:50:31] Speaker 00: Let's say it was 5% better, but it would expose the Medicare program to billions of dollars in additional fraud. [00:50:38] Speaker 00: I think Bar Labs and the Fourth Circuit's Cumberland County decision, and even this court's decision in the prior appeal, which says the agency has some degree of flexibility to balance priorities, would suggest that the agency is best positioned to do that. [00:50:51] Speaker 00: That being said, and we do think status reports here is [00:50:56] Speaker 00: would be sufficient to ensure that the agency doesn't adopt a position of defeatism to show that that to make sure the agency continues to work on this problem. [00:51:05] Speaker 00: But if this court were to want more at JA 146, for example, what the agency proposed [00:51:11] Speaker 00: or certain scale backs of the RAC program, both look back reductions and look back periods and various things that we think would be unadvisable, we think would to strip the RAC program of too much efficacy without sufficient benefit to the backlog. [00:51:26] Speaker 00: But those are changes that we could live with. [00:51:28] Speaker 00: So that is something that we put forward as an affirmative possibility. [00:51:32] Speaker 04: I do have one question about the RAC. [00:51:34] Speaker 04: Are we going to see another [00:51:39] Speaker 04: bump in the backlog through renegotiation of contracts? [00:51:44] Speaker 04: I mean, can't you do something, or maybe you already have, to extend the contracts? [00:51:49] Speaker 04: Because as I understand it, that [00:51:52] Speaker 04: was part of the cause of the huge multi-hundred-thousand-dollar increase after a delay or a pause of a couple years? [00:52:01] Speaker 00: So here's the timetable on that, Your Honor. [00:52:04] Speaker 00: So in 2013 to 2014, the RAC program was a significant driver of the backlog. [00:52:09] Speaker 00: More than half of appeals originated through the RAC program. [00:52:14] Speaker 00: The last two years have seen a drastic reduction, down to less than 10%. [00:52:19] Speaker 00: Now the drastic reduction is due to two factors. [00:52:22] Speaker 00: One is the agency implemented a number of permanent changes to the RAC program. [00:52:27] Speaker 00: The other is that while contracts were being renegotiated, there was a slowdown in RAC activity. [00:52:33] Speaker 00: Now in October 2016, new contracts were finalized. [00:52:38] Speaker 00: But so there is going to be more RAC activity. [00:52:41] Speaker 00: But those new contracts involve several new provisions that are designed precisely to prevent what happened in the past. [00:52:48] Speaker 00: So one thing that from the start of this litigation that plaintiffs were asking for was that RACs be given stronger incentives to be accurate. [00:52:58] Speaker 00: And in fact, these new RAC contracts, as you'll see at JA 144, have precisely provisions that provide economic incentives [00:53:07] Speaker 00: for accuracy and which will require racks to maintain certain accuracy rates. [00:53:12] Speaker 00: So the agency does not at all expect a repeat of 2013 to 2014.