[00:00:02] Speaker 01:
Case number 18-1504, American Hospital Association and L Appellants versus Alex Michael Azar II and his official capacity as the Secretary of Health and Human Services at L. Mr. Smith for the Appellants, Ms.

[00:00:16] Speaker 01:
Marion for the Appellees.

[00:00:40] Speaker 03:
May it please the Court, I'd like to address three points this morning, which I'll summarize briefly.

[00:00:47] Speaker 03:
First, there have been developments during the course of this appeal that resolve the presentment-related issues and open the door to the resolution of the other issues in the case.

[00:00:57] Speaker 03:
Second, that this Court should resolve those issues, and third, the merits of them.

[00:01:04] Speaker 03:
During the pendency of this appeal, all of the plaintiff hospitals have filed claims for payment and have appealed the determination as to payment on the same legal issue presented in this case and only on that ground to the agency.

[00:01:24] Speaker 02:
Have appealed it where?

[00:01:26] Speaker 03:
Administratively, to HHS.

[00:01:29] Speaker 02:
Are you doing this before the Provider Reimbursement Review Board, or what process are you guys using for these administrative projects?

[00:01:37] Speaker 03:
This is the first step.

[00:01:39] Speaker 03:
There's a 30 days for an initial determination by the Medicare Council, and then there are 60 days to request redeterminations, and then there's a process that goes on further than that.

[00:01:52] Speaker 03:
It's set out at 42 CFR 405.904.

[00:01:58] Speaker 04:
How does that help you, though?

[00:02:00] Speaker 04:
The presentment problem you have is there's no final decision, assuming that applies in this context.

[00:02:06] Speaker 04:
That's equally true now with administrative proceedings ongoing as it was when the appeals started.

[00:02:15] Speaker 03:
Well, it helps in two respects, both as to presentment and as to exhaustion.

[00:02:20] Speaker 03:
As to presentment, the law is that jurisdictional defects generally can be cured during an appeal.

[00:02:28] Speaker 03:
This court's Novak decision at 452, Fed 3rd, it's not cited in the briefs.

[00:02:32] Speaker 04:
But the jurisdictional defect is the lack of a final agency decision.

[00:02:39] Speaker 04:
On this point, correct?

[00:02:44] Speaker 03:
Yeah, that presentment and exhaustion.

[00:02:47] Speaker 03:
Presentment is the jurisdictional issue.

[00:02:50] Speaker 03:
Exhaustion, completing the process when it's futile, is waivable.

[00:02:55] Speaker 04:
I understand, but the requirement of a final decision goes to presentment, as I understand it.

[00:03:01] Speaker 03:
No?

[00:03:02] Speaker 03:
No, I don't think so, Your Honor.

[00:03:05] Speaker 03:
The cases suggest that there are two features of the requirement of a final agency decision.

[00:03:12] Speaker 03:
One is presentment, which is generally termed jurisdictional.

[00:03:16] Speaker 03:
The other is exhaustion going to the end.

[00:03:18] Speaker 04:
Presentment to the agency while the agency process runs its course.

[00:03:24] Speaker 03:
No, Your Honor, presentment is accomplished when you present the claim.

[00:03:28] Speaker 05:
I mean, your perspective on presentment is literally if all that happened was the claim was presented by a letter.

[00:03:35] Speaker 05:
presentments over with and jurisdictions established.

[00:03:38] Speaker 05:
Everything after that is getting to a final decision, and all of that goes to exhaustion.

[00:03:43] Speaker 05:
That's the way you view the world.

[00:03:45] Speaker 03:
If I followed you, I think so, Your Honor.

[00:03:46] Speaker 03:
The letter issued in this case is outside of the normal administrative claim presentment process.

[00:03:55] Speaker 03:
And that's a separate issue.

[00:03:56] Speaker 03:
And we think because it was the only place the claim could actually be considered that Action Alliance

[00:04:04] Speaker 03:
demonstrates that there is some flexibility in what is sufficient presentment.

[00:04:08] Speaker 03:
And we argue that when you do it in the only way possible, you've succeeded.

[00:04:12] Speaker 03:
But that issue does not need to be addressed here.

[00:04:17] Speaker 05:
On this presentment point, so there are cases like Matthews versus Diaz that say that something can happen while a case is pending on appeal to effectively correct a jurisdictional problem.

[00:04:32] Speaker 05:
In that case though, the corrective action had taken place before the district court at a time when the district court could have accepted an amended pleading.

[00:04:45] Speaker 05:
And then the question is, and maybe you have some cases that support this, but the question is, does that same logic apply when I think by, let's assume I agree with you that if everything that has happened today now had happened

[00:04:59] Speaker 05:
before the district court, you'd be fine.

[00:05:02] Speaker 05:
Then the question becomes, is it OK that the things that have happened post-date the district court's decision?

[00:05:09] Speaker 05:
What support do you have for the proposition that that's OK?

[00:05:13] Speaker 03:
Three things.

[00:05:14] Speaker 03:
Diaz says, yes, you're correct, that Diaz filed his claim after he filed the complaint, but in the district court.

[00:05:23] Speaker 03:
But the Supreme Court said it is not too late, even now,

[00:05:26] Speaker 03:
to cure the jurisdictional defect.

[00:05:28] Speaker 03:
I've approximated the end of it.

[00:05:30] Speaker 03:
At the beginning is a quote, 28 USC 1653 says that complaints can be amended at any stage even on appeal to cure just jurisdictional defects.

[00:05:40] Speaker 05:
And does that actually happen?

[00:05:43] Speaker 05:
Do complaints actually get, the complaint itself gets amended while the case is on appeal?

[00:05:47] Speaker 03:
In the Novak case in this court, 452 F3rd, the claim was a claim for personal injuries and jurisdiction was predicated on diversity.

[00:05:58] Speaker 03:
When the case was dismissed on different grounds, when it reached this court, the court looked at the complaint and questioned whether there was complete diversity.

[00:06:07] Speaker 03:
inquired of the parties and everyone realized there was not complete diversity.

[00:06:12] Speaker 03:
The plaintiff made a motion to dismiss the defendant who were destroying diversity.

[00:06:20] Speaker 03:
The court granted the motion.

[00:06:21] Speaker 03:
Which court?

[00:06:22] Speaker 03:
This court.

[00:06:23] Speaker 05:
All that material was presented to this court, even though it was a district court proceeding out of the case.

[00:06:29] Speaker 03:
In that case, in the district court, jurisdiction was predicated on diversity.

[00:06:33] Speaker 03:
Yeah.

[00:06:34] Speaker 03:
The jurisdictional issue did not come up.

[00:06:36] Speaker 05:
Right.

[00:06:36] Speaker 03:
It didn't surface until everybody failed to see it.

[00:06:39] Speaker 03:
This court saw it.

[00:06:41] Speaker 03:
Everyone figured it out.

[00:06:43] Speaker 03:
And then the plaintiff appellants moved to dismiss

[00:06:47] Speaker 03:
the non-diverse defendants and this court granted that motion and moved to amend the complaint and this court granted that motion and proceeded on because the jurisdictional defect had been cured.

[00:06:59] Speaker 05:
So would that suggest that there has to be motions before us in this case?

[00:07:02] Speaker 03:
No, I don't think so, Your Honor, although we surely file one.

[00:07:06] Speaker 03:
I think the complaint has been constructively supplemented.

[00:07:10] Speaker 03:
It's black-letter law that complaints are constructively amended and constructively supplemented through the period of litigation.

[00:07:18] Speaker 03:
And so the Court can find that.

[00:07:20] Speaker 02:
Is it black-letter law that that includes through the appeal?

[00:07:23] Speaker 02:
I'm sorry, I didn't hear you.

[00:07:24] Speaker 02:
Is it black-letter law that that includes while on appeal?

[00:07:27] Speaker 02:
What happens on appeal?

[00:07:28] Speaker 02:
Supplements?

[00:07:28] Speaker 02:
What's going on in district court?

[00:07:31] Speaker 02:
That's a case you didn't cite.

[00:07:33] Speaker 03:
No, we cited Diaz, which says it is not too late even now, the Supreme Court speaking, to cure the jurisdictional defect.

[00:07:43] Speaker 04:
What's left of what I had thought was the general principle, which is normally you measure jurisdiction at the outset,

[00:07:52] Speaker 03:
I think the principle really is that you measure jurisdiction through the entire litigation.

[00:07:58] Speaker 03:
This is somewhat the obverse of the rule that jurisdiction can be lost during appeal, right?

[00:08:05] Speaker 04:
And this is just simply... Sure, but there are also lots of cases that say jurisdiction must exist at the outset.

[00:08:13] Speaker 03:
Well, certainly for the case to proceed, but in this case,

[00:08:19] Speaker 03:
the jurisdiction has been established even in the district court as in Diaz.

[00:08:23] Speaker 05:
There was no jurisdiction at the outset when Mr. Diaz... I mean, it sounds like basically then what happens with the world is the rule that jurisdiction is measured at the time of the complaint being filed only helps plaintiffs because it sounds like the defendant can't destroy jurisdiction after the complaint's been filed, but it seems like the plaintiff can create jurisdiction after the complaint's been filed.

[00:08:45] Speaker 03:
Well, the plaintiff can create jurisdiction after the complaint has been filed.

[00:08:52] Speaker 03:
In Diaz, Mr. Espinosa filed his complaint, and the Supreme Court was clear about it, and then filed his claim, presented his claim, and that was taken to be sufficient to cure the jurisdictional defect.

[00:09:04] Speaker 05:
And I don't remember, in Diaz, had the

[00:09:08] Speaker 05:
The action by Espinoza to create jurisdiction, was that an action that had been taken by the time of the complaint, but just not referenced in the complaint, or was it an action that was taken after the filing of the complaint?

[00:09:19] Speaker 05:
After.

[00:09:20] Speaker 05:
After, okay.

[00:09:20] Speaker 05:
Yeah, and I don't know that it- But while the case was in the district court.

[00:09:22] Speaker 03:
And I don't know that it was taken to create jurisdiction.

[00:09:26] Speaker 03:
It had that effect.

[00:09:27] Speaker 03:
Correct.

[00:09:27] Speaker 05:
Yeah, yeah.

[00:09:28] Speaker 03:
I didn't mean to be pretentious about it.

[00:09:30] Speaker 03:
It was compliance with a rule, which was necessary for jurisdiction.

[00:09:34] Speaker 03:
and as in the Novak case with the diversity issues.

[00:09:39] Speaker 03:
And as I said, section 1653 is pretty clear that you can amend complaints to cure jurisdictional defects, which suggests a general recognition.

[00:09:49] Speaker 05:
What 1653 doesn't tell you is, it does say that the complaint can be amended, but it doesn't tell you the timeframe of the actions that can be the basis of an amendment.

[00:10:01] Speaker 05:
Because it could be that, yeah, you can amend the complaint while the case is on appeal, but it has to be based on something that had happened already.

[00:10:08] Speaker 05:
But I take it to your point.

[00:10:09] Speaker 05:
You have this Novak case that apparently says otherwise.

[00:10:13] Speaker 03:
Yes, Your Honor, and, you know, to some extent, this is a matter of practicality is the wrong word, but it would be useful to simply require where there's no other issue about affecting other parties' rights, like line jumping in a first-filed situation, where there's no prejudice at all to the amendment.

[00:10:37] Speaker 03:
and where both parties agree that delay prejudices.

[00:10:41] Speaker 03:
Here, the government has argued that in this closed environment of a revenue neutral system, that curing, if this court were to find that the rule is invalid,

[00:10:56] Speaker 03:
Providing a cure for that gets more complicated as the dollars in issue grow.

[00:11:01] Speaker 03:
The plaintiffs have demonstrated that they are hospitals who treat the poor.

[00:11:05] Speaker 03:
They are lifelines essential to underserved medical communities.

[00:11:10] Speaker 03:
And they operate on tight margins and provide services to people who desperately need them.

[00:11:18] Speaker 03:
Without these funds,

[00:11:20] Speaker 03:
$1.6 billion a year that's an issue.

[00:11:23] Speaker 03:
It's pretty clear that these hospitals are going to have to pull back on what they are able to do for their need populations.

[00:11:33] Speaker 02:
Can you just tell me any case where

[00:11:38] Speaker 02:
We, Supreme Court and other Court of Appeals, has allowed a preliminary injunction against a rule governing prospective payments under Medicare Part B. I'm not aware of one, Your Honor.

[00:11:56] Speaker 03:
I'm not aware of the opposite either.

[00:11:59] Speaker 03:
I think I told you there were two developments.

[00:12:02] Speaker 02:
People challenge this Medicare Part B prospective.

[00:12:07] Speaker 02:
They do a lot of rules, federal register notices every year on all of those aspects of Medicare Part B calculation.

[00:12:19] Speaker 02:
There's a lot.

[00:12:20] Speaker 02:
There's a lot of pieces.

[00:12:25] Speaker 02:
And I've never seen one of those that's been challenged through the mechanism you're proposing here, both without coming straight to district court, and secondly, to get a preliminary injunction.

[00:12:40] Speaker 02:
I'm just wondering why we get these cases, multiple cases every year, challenging some facet of how they're calculating prospective payments.

[00:12:50] Speaker 03:
In most cases, there will be issues as to individual claims that aren't solely the central legal issue about the validity of the regulation.

[00:13:02] Speaker 02:
How do they compute the Medicare fraction?

[00:13:05] Speaker 02:
That applies to that.

[00:13:07] Speaker 02:
It's going to be one computation for everybody.

[00:13:11] Speaker 02:
How they compute outlier payments.

[00:13:13] Speaker 02:
They're going to have the same rule for everybody.

[00:13:15] Speaker 02:
The math, when you plug the numbers, it'll be different for different hospitals.

[00:13:19] Speaker 02:
But how they do it, I haven't seen them brought this in.

[00:13:23] Speaker 03:
I'm just surprised.

[00:13:24] Speaker 03:
They certainly can be.

[00:13:26] Speaker 03:
Here, frankly, all the logic is in favor of it.

[00:13:31] Speaker 03:
The government explains that dealing with these issues down the line is difficult.

[00:13:37] Speaker 02:
I wonder why

[00:13:40] Speaker 02:
Can you go to the Provider Reimbursement Review Board with these claims?

[00:13:44] Speaker 03:
I didn't hear you.

[00:13:45] Speaker 02:
Can you take a claim like this, like you have this year, starting when it kicked in in January 2018?

[00:13:51] Speaker 02:
You said you've presented the claims.

[00:13:53] Speaker 02:
Yes, we have.

[00:13:54] Speaker 02:
But could you go to the Provider Reimbursement Review Board, and then when it comes asked for the expedited judicial review, why isn't that the mechanism for this?

[00:14:02] Speaker 02:
Does it not apply to these claims?

[00:14:03] Speaker 03:
Because of the second development that I said I was going to tell you about.

[00:14:08] Speaker 03:
The government has filed, in another case pending in the district court, a pleading that assures the court that any appeal presented to the agency based on the invalidity of the regulation will be summarily dismissed.

[00:14:24] Speaker 02:
No, but that's exactly why the Provider Reimbursement Review Board provision allows for expedited judicial review.

[00:14:29] Speaker 02:
If the board determines that it has no capacity, no power to determine the legal claim,

[00:14:35] Speaker 02:
then it gives you a ticket directly to district court.

[00:14:39] Speaker 03:
But if exhaustion, if futility is evident way before that, exhaustion is excused.

[00:14:47] Speaker 03:
Here, the agency has not just said we're bound by the rule, that all decision makers have to apply this rule.

[00:14:54] Speaker 03:
The agency told the court in its filing that it has no jurisdiction to even consider the challenge.

[00:15:00] Speaker 05:
How much are the individual claims?

[00:15:04] Speaker 05:
Do you know what they're seeking?

[00:15:06] Speaker 03:
I don't.

[00:15:07] Speaker 03:
They would be claims for reimbursement of particular drugs.

[00:15:11] Speaker 03:
I'm sorry?

[00:15:11] Speaker 03:
They would be claims for reimbursement of particular drugs.

[00:15:15] Speaker 03:
Uh-huh.

[00:15:15] Speaker 03:
You know, they're submitted regularly throughout the year.

[00:15:17] Speaker 02:
And is that the only argument that would be made with respect to reimbursement on those drugs?

[00:15:21] Speaker 02:
Because sometimes there's other arguments about the drugs.

[00:15:24] Speaker 02:
Is this the only one that would be made?

[00:15:25] Speaker 02:
Yes.

[00:15:26] Speaker 02:
Or might they have some other challenges to raise as well?

[00:15:28] Speaker 03:
None.

[00:15:29] Speaker 03:
The relevant documents are in the very brief appendix to the reply.

[00:15:35] Speaker 03:
Pages one and two are the government's pleading, saying that it will not consider these appeals, that there is no administrative avenue, no administrative door that's open.

[00:15:48] Speaker 03:
And the following few pages are the documents that make the claim and present the legal issue, and you'll see that they've been denied.

[00:15:59] Speaker 03:
I'll get some water.

[00:16:05] Speaker 03:
So with these two developments, I think it's clear that these planners have done everything they can do.

[00:16:13] Speaker 03:
If challenging the proposed rule in the rulemaking system was not sufficient to provide jurisdiction, they have now filed administrative claims for payment, they've been denied, and the government has made it clear that it will not consider any further challenges.

[00:16:30] Speaker 03:
It would virtually be, if you could analogize it to a court proceeding, a Rule 11 violation

[00:16:36] Speaker 03:
They said they won't consider them, and we say, and you can see it in the addendum to the reply, we say the only issue here is the operation of the formula, the rule.

[00:16:49] Speaker 03:
There is no, we do not raise any dispute as to any other issues.

[00:16:54] Speaker 03:
All right, so moving to the preclusion issue, Amgen states the standard for preclusion.

[00:17:00] Speaker 03:
And Amgen indicates that there will be no preclusion unless, quote, the wording of a, when, there will be no preclusion when the wording of a preclusion clause is less than absolute.

[00:17:13] Speaker 05:
Here.

[00:17:16] Speaker 05:
We can give you some time in rebuttal if you want to reserve some time for rebuttal.

[00:17:20] Speaker 05:
Yeah, I've reserved three minutes.

[00:17:21] Speaker 05:
Yeah, we'll give you time back in rebuttal and we'll have it from the government and then we'll give you time back for rebuttal.

[00:17:26] Speaker 05:
Yes, Your Honor.

[00:17:27] Speaker 05:
Okay, thank you.

[00:17:35] Speaker 00:
Thank you.

[00:17:35] Speaker 00:
May it please the court, Laura Myron, for the government.

[00:17:38] Speaker 00:
I'd like to address the presentment questions that have been raised, but with the court's indulgence, I'd like to start with the preclusion of review question, because the limitation of review in Section T-12, which is

[00:17:51] Speaker 00:
on page A3 of our brief, precludes not only administrative but also judicial review.

[00:17:56] Speaker 00:
So, as has been said, the claims don't go through the Provider Review Board because there's no administrative review of these kinds of challenges to the payment rates that the Secretary sets for

[00:18:09] Speaker 00:
services and drugs under the outpatient prospective payment system.

[00:18:13] Speaker 00:
And I can walk through briefly the three provisions that demonstrate that that's true.

[00:18:19] Speaker 00:
They are T2, which is the Secretary's general authority to set up the classification system, set payment rates, and adjust those rates.

[00:18:28] Speaker 00:
T14, which gives additional instruction on how the Secretary shall set rates for certain

[00:18:34] Speaker 00:
classes of drugs, and then T12, as I mentioned, which is the general preclusion of review provision.

[00:18:40] Speaker 04:
So doesn't your argument, if I follow this scheme, depends on our viewing 14 as a subset of two, rather than as a separate freestanding program?

[00:18:59] Speaker 00:
Yes, Your Honor.

[00:19:01] Speaker 00:
What the Secretary is doing under T-14 is an implementation of his T-2 authority, and if I may, we know that because what the T-14... So can I just, historically, I'm curious, I assume that before

[00:19:19] Speaker 04:
Paragraph 14 sets up a special scheme for SCODs, specially covered outpatient drugs.

[00:19:29] Speaker 04:
All of those drugs were

[00:19:32] Speaker 04:
assessed and reimbursed as outpatient drugs under paragraph 2.

[00:19:38] Speaker 00:
That's correct.

[00:19:39] Speaker 00:
There's also a provision that was added in between the initial establishment of the OPPS system and this inclusion of T14 which provides for what are called pass-through payments for new drugs, but that's something separate and sort of the general

[00:19:55] Speaker 00:
classification of establishing groups of drugs that are comparable clinically and with regard to use of resources, and then setting and adjusting payment rates for those drugs, which is what the secretary does under T2.

[00:20:07] Speaker 04:
So for the drugs that are now SCODs under 14, do they, are they still assessed for other purposes under 2 and the general provisions, or are they now just

[00:20:22] Speaker 04:
If it's that drug, it's just under 14 and nothing else.

[00:20:26] Speaker 00:
Well, so what T14 does is provides an instruction to the secretary on how to establish the rate for certain drugs.

[00:20:33] Speaker 04:
For certain programs.

[00:20:34] Speaker 00:
For certain drugs, yeah.

[00:20:36] Speaker 00:
Yes, and those are the drugs for which in B it says a separate ambulatory payment classification group has been established.

[00:20:44] Speaker 00:
So the way that it works is that the secretary under his T2 authority sets up the classification groups

[00:20:51] Speaker 00:
And then once he has a group for this kind of drug, T14 provides some clarification on what the payment rate should be for those drugs.

[00:21:00] Speaker 04:
Why shouldn't we view the schemes as distinct just given if you look at what cross references are and what cross references are not in the scheme?

[00:21:13] Speaker 04:
So you have your general provision in two has cross references

[00:21:19] Speaker 04:
to five and six, but not to 14.

[00:21:22] Speaker 04:
The preclusion provision makes reference to two, but not 14, and 14 makes no reference back to two.

[00:21:34] Speaker 04:
Why doesn't that at least support a colorable argument that 14 is really something distinct?

[00:21:41] Speaker 00:
So if I could take that in two parts, the first being that what section two says is that the secretary, and this is in provision E, which is on A2, the secretary shall establish in a budget neutral manner adjustments under paragraph five and paragraph six, which are, as I said, separate payments that are not part of the general classification system.

[00:22:05] Speaker 00:
And then it says, and other adjustments as determined to be necessary to ensure equitable payments.

[00:22:10] Speaker 00:
It's perfectly reasonable for Congress to think that that covered its additional instructions to the Secretary on how to set it.

[00:22:19] Speaker 05:
Which revision were you asserting from?

[00:22:20] Speaker 00:
2E, which is on A2.

[00:22:23] Speaker 00:
It's a general grant of authority to make adjustments to payment rates under

[00:22:28] Speaker 00:
his T2 authority.

[00:22:30] Speaker 00:
And so I don't think there was any need for Congress to back reference T14 because it already had a catch-all provision.

[00:22:38] Speaker 04:
Sorry.

[00:22:39] Speaker 04:
So what's the relationship between that provision, which talks about adjustments, and nine, which also talks about the Secretary making adjustments and also has the budget neutrality requirement?

[00:22:55] Speaker 00:
So if I may, Section 9 is a general authority to periodically review the rates as they've been set, and the Secretary does that annually.

[00:23:07] Speaker 00:
And if you actually take a look at the rulemaking that's at issue in this case, at the outset, the Secretary says, I am invoking my

[00:23:14] Speaker 00:
T9 authority to periodically review and adjust.

[00:23:18] Speaker 00:
But then within the sort of general scheme, there are specific adjustments that the Secretary is authorized to make with regard to specific kinds of payments.

[00:23:27] Speaker 00:
And that is the kind of thing that's covered in the catch-all provision of T2, and then also referenced in T4.

[00:23:33] Speaker 04:
So your position, the language that you've cited in

[00:23:37] Speaker 04:
2e, you say should not be limited to 5 and 6 even though it follows references to 5 and 6 and therefore I assume you would take the position that

[00:23:52] Speaker 04:
Secretary's action here is independently supportable under 2E and under 9, under both?

[00:24:00] Speaker 00:
Yes, Your Honor.

[00:24:02] Speaker 00:
And I believe, if I could give back to your, also your earlier question about why there is an across reference in T-12 as well.

[00:24:09] Speaker 00:
So the provisions that are outlined in

[00:24:12] Speaker 00:
T12 are sort of general authority that the secretary has at the outset to set up the system and various conversion factors and payments that are involved in that.

[00:24:22] Speaker 00:
And just as an especially confusing matter, what it says in C is paragraph six, but what they mean is paragraph nine.

[00:24:31] Speaker 00:
And if you looked at the statutory history, that's evident.

[00:24:34] Speaker 00:
And they added in 2000, excuse me, I believe 1999, paragraphs five and six

[00:24:41] Speaker 00:
12e but that's because those are as I said separate payment authorities that the secretary has to make

[00:24:49] Speaker 00:
additional payments outside of his General T2 authority to develop the classification system and set rates.

[00:24:56] Speaker 00:
And so it's perfectly reasonable that they would have specifically cross-referenced those provisions, but not added a specific cross-reference.

[00:25:05] Speaker 04:
Sorry, so why would you say the payments in five and six are outside the scope of two, but not the payments in 14?

[00:25:14] Speaker 00:
Because as I said, 14 says it doesn't give the secretary authority to make new payments.

[00:25:20] Speaker 00:
What it says is

[00:25:22] Speaker 00:
For the class of drugs that is covered under this provision, the payment rate shall be as follows.

[00:25:29] Speaker 00:
And then give some additional instruction on how the secretary shall set the rate for that payment.

[00:25:34] Speaker 00:
It's not a new payment of any kind outside the T2 classification system.

[00:25:40] Speaker 05:
It's a clarification on how... Is there anything that happens under 14 that's not covered by 2?

[00:25:47] Speaker 00:
We think that what the secretary did here under 14 is equally justifiable under T2E, which gives the secretary the authority to adjust.

[00:25:56] Speaker 05:
For the Venn diagram, is 14 wholly subsumed by 2?

[00:26:01] Speaker 00:
14 provides specific instruction on how to do a specific part of 2.

[00:26:06] Speaker 00:
So it is a clarification.

[00:26:08] Speaker 05:
So in other words, nothing the Secretary could do under 14 that wouldn't already be covered by 2.

[00:26:12] Speaker 00:
Yes, Your Honor.

[00:26:12] Speaker 02:
Is that right?

[00:26:13] Speaker 02:
Because 2E is adjustments to ensure equitable payments, whereas the adjustment under 14 is to adjustment as necessary for purposes of this paragraph.

[00:26:26] Speaker 02:
So those seem to me actually different purposes.

[00:26:29] Speaker 02:
And so it actually seems

[00:26:32] Speaker 02:
at least ambiguous to me that Congress would have meant the one to cover the other.

[00:26:37] Speaker 00:
So if I could, I think part of what's driving your question is perhaps what are the purposes of this paragraph?

[00:26:44] Speaker 00:
And the purposes of the paragraph is just textual.

[00:26:47] Speaker 02:
Congress used different language and confined the adjustment as to a necessity judgment under that paragraph, which it didn't do under E, which would mean, in fact, the powers are not the same.

[00:27:01] Speaker 00:
Right.

[00:27:01] Speaker 00:
The Adjustment Authority under E, which gives the Secretary broad authority to make any adjustments as determined to be necessary to make equitable payments, is in fact broader than anything that the Secretary... Was this an adjustment to ensure equity?

[00:27:16] Speaker 02:
How is this an adjustment to ensure equitable payments?

[00:27:20] Speaker 00:
So what the Secretary is doing here, and I kind of think this addresses a little bit the question about what the purposes are of this paragraph, and perhaps if I could, before I get to that, say that part of what I think what is confusing about this case is that the appellants have characterized the 340B program as a discount

[00:27:40] Speaker 00:
plus a subsidy under the Medicare reimbursement rate, plus a reimbursement under the Medicare provision in order to create a subsidy.

[00:27:47] Speaker 00:
But that's not how it works.

[00:27:49] Speaker 00:
It's just a discount.

[00:27:51] Speaker 00:
It's a totally separate statutory provision under which certain providers can buy drugs at a discounted rate, which allows them to stretch their dollars further.

[00:28:01] Speaker 00:
The Medicare reimbursement rate at issue here applies to a small category of those drugs that are paid under the outpatient prospective payment system.

[00:28:10] Speaker 00:
And what the secretary is doing when he's setting that rate has nothing to do with the price of, with the 340B discount.

[00:28:19] Speaker 00:
What the secretary is doing is setting the rate under the Medicare statute, which directs him to set the rate as equal to either one, the acquisition cost if certain survey data is available, or two, if that data is not available to use the average price of the drug as set by a different provision of the statute.

[00:28:39] Speaker 00:
But the price in question is the sale of the drug from the manufacturer to the provider.

[00:28:47] Speaker 00:
So what Congress is trying to get at is a number that approximates the acquisition cost of those drugs.

[00:28:55] Speaker 00:
The problem that CMS was addressing here is that the average sales price as calculated by CMS doesn't account for the 340B discounts.

[00:29:05] Speaker 00:
And there's been a number of studies that have demonstrated that 340B providers are buying these drugs at well below not only the average sales price, but also the statutory maximum price under the 340B program.

[00:29:19] Speaker 00:
So the secretary adjusted the reimbursement for those drugs in such a way that better reflects the actual acquisition cost of those drugs to providers and that not only addresses the purposes of the paragraph, which is to

[00:29:33] Speaker 00:
approximate acquisition costs, but also is an equitable payment because that money is redistributed through the rest of the OPPS system and affects the co-payments that Medicare beneficiaries are paying, which is tied to the, statutorily tied to the Medicare reimbursement.

[00:29:53] Speaker 05:
So can I ask you on the, oh sorry, on the preclusion review, so this is 12A.

[00:29:58] Speaker 01:
Yes.

[00:29:59] Speaker 05:
That's the principal provision you're relying on, right?

[00:30:00] Speaker 05:
Yes.

[00:30:02] Speaker 05:
Your argument, as I understand it, is that everything that happens within 14 is necessarily subsumed within 2.

[00:30:08] Speaker 05:
And so there was no reason to mention 14 separately, even though there's other provisions that mention a lot of other paragraphs separately.

[00:30:13] Speaker 00:
Yes, sir.

[00:30:14] Speaker 05:
OK.

[00:30:15] Speaker 05:
There's a question about whether that's, in fact, true about it being completely subsumed within.

[00:30:19] Speaker 05:
But it also, two questions.

[00:30:21] Speaker 05:
First, what are the other paragraphs that are completely subsumed within 2?

[00:30:24] Speaker 05:
Because I suppose it's not just 14.

[00:30:27] Speaker 05:
And 9, I think you mentioned.

[00:30:29] Speaker 05:
But maybe there's others too.

[00:30:30] Speaker 05:
And then secondly,

[00:30:31] Speaker 05:
It speaks in terms of the development of the classification system.

[00:30:35] Speaker 05:
And it sounds like a lot of these questions about what happens under 14, at least, it doesn't sound in development.

[00:30:42] Speaker 05:
It sounds in application or in implementation or something like that.

[00:30:45] Speaker 00:
So first of all, 2 speaks in terms not only of the development of the classification, but also the setting of relative payment weights, the making of wage adjustment factors, the other adjustments

[00:30:57] Speaker 00:
to the payment rates.

[00:30:59] Speaker 00:
And what Congress is getting at is... I'm sorry.

[00:31:02] Speaker 02:
Before you go on, because I want to make sure I'm reading this right.

[00:31:04] Speaker 02:
Yes.

[00:31:04] Speaker 02:
When you say it includes those other things, so you're reading those as distinct parts of the list and not part of the including list in that text?

[00:31:12] Speaker 02:
One way is it's a first clause and then including and everything after it is including, but including as part of the classification.

[00:31:21] Speaker 02:
And what you're saying is it's classification and wage adjustment factors are not part of classification.

[00:31:28] Speaker 00:
They are, in a sense, part of the general development of the system that the Secretary makes at the outset.

[00:31:34] Speaker 00:
But how it works is that the Secretary takes account of all of the drugs and services that are covered under the outpatient prospective payment system and classifies them into groups.

[00:31:45] Speaker 00:
and then sets relative payment weights and makes adjustments to those payment rates in the system.

[00:31:51] Speaker 00:
And the secretary does this in a budget neutral manner and does it at the outset.

[00:31:55] Speaker 00:
It's intended to be prospective.

[00:31:58] Speaker 00:
It's intended to be budget neutral to look forward and to set the rate for the various services at which they will be paid throughout the year.

[00:32:08] Speaker 00:
So all of that is subsumed within the development of the system.

[00:32:11] Speaker 00:
The application of the system is

[00:32:13] Speaker 00:
the paying of claims at the rates set at the outset by the secretary.

[00:32:18] Speaker 05:
And that's outside the limitation of review.

[00:32:22] Speaker 00:
Certainly, you can get review of your claim if you think that you weren't paid enough money, if it was denied for failure to adequately justify the claim, any of those kinds of things.

[00:32:35] Speaker 00:
But what you cannot get review of under T-12 is the rate at which the secretary sets the payment for the year.

[00:32:43] Speaker 00:
And that's what they're trying to challenge here, and that's why it's precluded under 12, because that's part of what the Secretary is doing under his T2 authority, is setting the rates.

[00:32:55] Speaker 05:
And is there any way that they can get the challenge of the rate?

[00:32:57] Speaker 05:
Is your argument that that's just out of bounds, you can't get review of it, or is it that it's using the wrong vehicle?

[00:33:03] Speaker 00:
no that is out of you cannot get review of that as which is what congress intended when it enacted t12 as this court recognized in amgen you cannot get review of the payment rate

[00:33:14] Speaker 00:
that's set for the year.

[00:33:16] Speaker 00:
You can participate in the notice and comment process.

[00:33:20] Speaker 05:
Unless you think it's ultra-various.

[00:33:22] Speaker 00:
Yes, Your Honor, unless you think it's ultra-various.

[00:33:24] Speaker 00:
You can participate in the notice and comment.

[00:33:26] Speaker 00:
You can participate in the notice and comment for the following year and suggest that the rate was too low and should be higher for the next year, but you can't get judicial review of the payment rate

[00:33:37] Speaker 00:
in part because, as I said, it's budget neutral, which means that any adjustment that's made to the payment rates by a backward-looking court would not only affect the rate for that drug and service, but also the entire OPPS system, which, as we noted in our brief, processes 100 million claims a year.

[00:33:58] Speaker 04:
If your view of the world is that two sets forth the general rules for establishing

[00:34:08] Speaker 04:
establishing formulas, and then nine sets forth the general rules for adjustment, and 14 is subsumed into one or both of those.

[00:34:20] Speaker 04:
Why didn't you invoke, for preclusion purposes, 12C, which immunizes periodic adjustments under nine?

[00:34:33] Speaker 04:
We certainly think that 12C covers what the Secretary did here, but because A is the- And wouldn't that take off the table, or would that take off the table the question of initial setup design versus adjustment over time design?

[00:34:51] Speaker 00:
Yes, I think they both address the same thing, and so in this circumstance where the Secretary is using both his authority under T2 and T9 to establish the rates for

[00:35:02] Speaker 00:
2018 that both of those provisions would preclude review of the rate set and Adjustment here and as this court recognized I initially came in here thinking that you couldn't have relied on that because it says six But then but this is the one that everybody apparently agrees that it's actually supposed to be nine There's no question if you look back at the statute toward history that they just didn't update the cross-reference that what is in paragraph nine now was previously in six and

[00:35:32] Speaker 00:
It doesn't make any sense to have periodic adjustment under six.

[00:35:35] Speaker 00:
So I think it's fairly clear that it means nine.

[00:35:39] Speaker 00:
And certainly, the preclusion of review provision in C also would cover what's going on here.

[00:35:46] Speaker 00:
And as this court recognized in Florida Health Sciences, the fact that there are overlapping provisions, in fact, demonstrates that Congress really meant no judicial and administrative review here.

[00:35:59] Speaker 05:
There would be an ultra-various exception to all of that, though.

[00:36:01] Speaker 00:
Yes, sir.

[00:36:02] Speaker 00:
There is an ultra-various exception to all of that.

[00:36:04] Speaker 00:
We don't think that what's going on here is anywhere close to that.

[00:36:08] Speaker 00:
I would be happy to.

[00:36:09] Speaker 02:
What about their argument that this is an adjustment?

[00:36:12] Speaker 02:
I'm sorry?

[00:36:12] Speaker 02:
Because all of this depends on this being an adjustment.

[00:36:14] Speaker 02:
And so what's your response to their argument that this was way too big to be an adjustment?

[00:36:21] Speaker 00:
There's no size limitation on adjustment in the statute.

[00:36:26] Speaker 00:
The secretary has the discretion to adjust as necessary for purposes of the paragraph.

[00:36:31] Speaker 00:
Courts have recognized that in some extreme instances where the adjustment actually amounts to an elimination of the payment, that that might be something that's considered ultra-virus, and that was the analysis in Amgen.

[00:36:45] Speaker 00:
But there's no basis to conclude that

[00:36:48] Speaker 00:
when the Congress has given the Secretary to adjust as necessary, that that wouldn't cover the adjustment at issue here, which was in response to an enormous disparity between the acquisition cost of the drugs under the 340B program and the reimbursement rate that they were receiving under Section T14 in the OPPS system.

[00:37:11] Speaker 00:
And the Secretary also took account, as I said, of the fact that those savings would be redistributed throughout the system

[00:37:18] Speaker 00:
and also that that rate affects the rate at which Medicare beneficiaries are required to pay a certain amount by statute in copay.

[00:37:29] Speaker 00:
And so taking account of that, they made an appropriate adjustment to reflect the disparity between, as I said, the acquisition cost and the actual discounts that providers were getting.

[00:37:43] Speaker 04:
By its terms, contain any requirement of budget neutrality.

[00:37:48] Speaker 04:
I didn't find it.

[00:37:50] Speaker 00:
By the terms of 14, it does not, but the general adjustment authority is... So this is just another manifestation of the principle that 14 has to be embedded in... Yes, yes, Your Honor.

[00:38:03] Speaker 04:
...two and nine.

[00:38:04] Speaker 04:
Yes, Your Honor, and... To get, even to get budget neutrality.

[00:38:08] Speaker 00:
As, what the Secretary did here was consistent with budget neutrality and took and redistributed, as I said, those savings throughout... The government's position 14 must be budget neutral.

[00:38:19] Speaker 00:
The adjustment at issue here was budget neutral.

[00:38:22] Speaker 04:
That's not what I asked.

[00:38:24] Speaker 00:
So the authority to make adjustments under nine does include a budget neutrality requirement.

[00:38:31] Speaker 00:
And the secretary tries to adhere to that when making adjustments throughout the system.

[00:38:36] Speaker 04:
You're fudging a little bit.

[00:38:38] Speaker 00:
Come on.

[00:38:40] Speaker 00:
If you can't take a position, just tell me.

[00:38:43] Speaker 00:
I understand that.

[00:38:43] Speaker 00:
I'm not sure that they would say that all adjustments need to be budget neutral under 14.

[00:38:49] Speaker 00:
Suspect that since the overarching authority requires budget neutrality that that That may be true, but I can't say for sure that that's true but again, I think

[00:39:02] Speaker 00:
The view that I said before is that the secretary invoked T14 authority, but everything that he did here could also have been done under T2, which does require budget neutrality, and it was budget neutral, which means that if this court

[00:39:19] Speaker 04:
seeks to unscramble what the Secretary did in setting the 2008 rates, it would necessarily... It just seems a little bit rich for the government to be saying, well, we have to fold 14 into 2 and 9 to get the benefit of preclusion, but we're not necessarily going to fold it into 2 and 9 to hold ourselves to budget neutrality.

[00:39:41] Speaker 00:
Well, as I said, the Secretary here did use that authority in a manner that was budget neutral, and I... I'm a little confused about what you articulated at one point just now, because you said it acted under 14, but could have acted under 2.

[00:39:53] Speaker 05:
I thought your point is that when you're acting under 14, you're necessarily acting under 2.

[00:39:56] Speaker 00:
Yes, Your Honor.

[00:39:57] Speaker 00:
I'm sorry if I misspoke.

[00:39:58] Speaker 00:
What I meant to say is that the Secretary invoked in the rulemaking his authority to set the rates at a certain level.

[00:40:06] Speaker 00:
as outlined in 14, but the general authority is derived from the T2 authority to set up the classification system and establish the payment rates within that system.

[00:40:17] Speaker 05:
Or nine.

[00:40:19] Speaker 05:
In other words, mention 14 in particular, but 14 is always an application of two, and then is it always an application of nine also?

[00:40:27] Speaker 05:
Only when it's a periodic adjustment.

[00:40:29] Speaker 00:
Yes.

[00:40:29] Speaker 02:
And not every 14 is a periodic adjustment.

[00:40:32] Speaker 02:
When it's a budget neutral period.

[00:40:33] Speaker 00:
Yes.

[00:40:35] Speaker 00:
It could be that the secretary at the outset sets up a new classification system, and that would be a pure exercise of T2 authority, but not an adjustment under 9.

[00:40:46] Speaker 05:
Yeah, I'm assuming 2 is broader than 14 and 9.

[00:40:48] Speaker 05:
What I'm trying to make sure that we button up is that 2 might be broader than 14 and 9, but 14 is not broader than 2.

[00:40:56] Speaker 05:
Yes, Your Honor.

[00:40:58] Speaker 05:
Yes.

[00:40:58] Speaker 05:
And 14 is also completely within 9 or no?

[00:41:00] Speaker 05:
The only some applications of 14 are 9 applications.

[00:41:04] Speaker 00:
I believe it's only some applications because it's all sort of mushed together to a certain extent.

[00:41:12] Speaker 05:
It's unfortunate that it's mushed together because we have to construe a limitation provision in order to understand it.

[00:41:20] Speaker 00:
What I was going to say is that Congress gave the Secretary the general authority to set up this system and then also gave him the authority to invoke periodic adjustments to the system.

[00:41:31] Speaker 00:
The actions that he's taking in setting up the system and making adjustments to it are very similar, if not identical.

[00:41:39] Speaker 05:
It's just a sort of separate, at the beginning you do this, and then when you intend to adjust periodically, you use your authority to... One thing you could sort of say in this realm, you can't agree with this, but is that if all these provisions kind of interrelate, kind of sometimes and sometimes kind of,

[00:41:56] Speaker 05:
You know, a lot of times they do, but then there's a sliver that stands outside.

[00:41:59] Speaker 05:
Then in order to figure out whether a limitation on review provision applies, it could be pinned to what's actually invoked, because then that indicates the Secretary's assumption that what the Secretary is doing is immune from review.

[00:42:12] Speaker 00:
Well, Your Honor, the Secretary did invoke T9 here in – at the outset of the rulemaking proceeding to reset the

[00:42:22] Speaker 00:
to make adjustments.

[00:42:24] Speaker 04:
T9 for the authority, but not 12C for the preclusion.

[00:42:30] Speaker 00:
So as a general matter, he invoked his T9 authority.

[00:42:35] Speaker 00:
And so if the question is what authorities were invoked, I would point to that.

[00:42:40] Speaker 00:
If you think that that means that T12C applies, then certainly we think we would agree with that.

[00:42:48] Speaker 00:
And I think, as I said, 12C

[00:42:52] Speaker 00:
because it lists a number of provisions, it seeks to address some of the concern you have by

[00:42:58] Speaker 00:
saying, OK, well, if it's this provision or this provision or that one, then it's all precluded, because sometimes it's the development at the outset, and sometimes the secretary will invoke his TN as a periodic adjustment authority.

[00:43:09] Speaker 00:
But what he's doing is the same as what he's doing under T2.

[00:43:13] Speaker 00:
And so as a result, the whole thing is beyond the reach of judicial review.

[00:43:16] Speaker 00:
And I think that makes perfect sense and is consistent with how this court viewed it in Amgen to say, we don't take piecemeal review of these kinds of rates, in fact.

[00:43:25] Speaker 00:
we put all of this beyond the reach of judicial review.

[00:43:29] Speaker 05:
Okay, let's just assume for a minute that we disagree with everything you've told us so far today, and we get to the other question, which is about presentment.

[00:43:37] Speaker 05:
Can I ask you about that?

[00:43:38] Speaker 01:
Yes.

[00:43:38] Speaker 05:
So as to that, what's your argument as to why DS doesn't allow us to take account of what's in the addendum to the requirement?

[00:43:47] Speaker 00:
So I would, if I could say a couple of things.

[00:43:49] Speaker 00:
First, DS says when action has occurred,

[00:43:53] Speaker 00:
while the case was pending in district court, but the complaint wasn't technically amended, that we can, for purposes of review, all agree that it essentially was amended and move on.

[00:44:04] Speaker 00:
But it doesn't say that you can go past district court review of the merits or any of the other issues in the case and conclude that a jurisdictional defect can be cured before the court of appeals so that that court can resolve the questions that weren't passed on

[00:44:20] Speaker 00:
the district court it's a very limited what's the difference why does it matter if it's pending in the district court versus the court of appeals if what we're talking about is hypothesizing an amendment that didn't in fact happen well it allows the district court to consider and i believe in that case the district court did consider the issues before it and then

[00:44:41] Speaker 00:
The Court of Appeals said, well, there may have been a jurisdictional defect at the time, but because the complaint could have been amended at that time, it had been cured.

[00:44:50] Speaker 05:
We will overlook, as a formal matter, the fact that... Why can't it be amended later, given that statute that says defective allegations may be amended upon terms in the trial or appellate courts?

[00:45:00] Speaker 00:
So if I take your question, it could be amended, but it would have to go back to district court to review the merits of the question and the other, the preclusion of review question.

[00:45:10] Speaker 05:
I don't understand that because we know from Diaz that it doesn't have to go back to the district court.

[00:45:14] Speaker 00:
No, I think what Diaz says is that when the court has passed on these issues, but there was a latent jurisdictional defect that was later cured, that

[00:45:26] Speaker 00:
We can go on and also pass on the issues that the district court decided, but it doesn't say that you can just skip.

[00:45:33] Speaker 05:
What do you mean by the district court?

[00:45:34] Speaker 05:
The district court didn't decide the jurisdictional issue in DS, right?

[00:45:37] Speaker 00:
No, but it did decide the merits questions.

[00:45:39] Speaker 00:
So what I'm saying is that if you think that the presentment at issue here has cured the jurisdictional defects that the district court ruled on, the case would go back to district court for the district court to rule on

[00:45:54] Speaker 00:
the rest of the issues that were presented, because in this case, the district court only decided the presentment question, only decided the jurisdictional question.

[00:46:03] Speaker 00:
And so in any case, it would need to go back to district court for consideration of the merits.

[00:46:09] Speaker 05:
It seems like there's two different.

[00:46:11] Speaker 05:
You could always say that it should go back to the district court when it hasn't considered it, because that's better for the system.

[00:46:17] Speaker 05:
I get that.

[00:46:18] Speaker 05:
But that's a question of discretion of whether we want to do that.

[00:46:21] Speaker 05:
which seems different from the question of whether there's, in fact, jurisdiction in the case at all, and the district court ruled that there wasn't.

[00:46:28] Speaker 05:
And you're pressing that argument.

[00:46:30] Speaker 05:
And it's true that if we found there was jurisdiction, we could send it back.

[00:46:33] Speaker 05:
We could also send it back to perform what I think it seems like would be a pretty formalistic exercise of taking account of something that's in the addendum to the reply brief that everybody acknowledges is genuine.

[00:46:46] Speaker 05:
Is there a reason not to take stock of that for these purposes and just call that a presentment?

[00:46:52] Speaker 00:
So if you think that the, so first of all, they can't just cure the jurisdictional defect while the court case is pending in the Court of Appeals and just go on their way.

[00:47:03] Speaker 00:
They would need to, if this court thinks that that action fixed the presentment defect and that they had adequately presented their claim to- Do you think, do you disagree with that?

[00:47:13] Speaker 05:
Do you think it didn't fix the presentment defect?

[00:47:16] Speaker 00:
It says we are, basically what the claims say is we are entitled to

[00:47:21] Speaker 00:
payment at a certain rate.

[00:47:23] Speaker 00:
It doesn't outline why they think payment is at a certain rate, so it doesn't specifically say that the Secretary should have, you know... Because this seems – because I think Diaz did say there was a stipulation, so the Secretary agreed.

[00:47:36] Speaker 05:
So if you disagree, then that arguably takes it outside the box.

[00:47:40] Speaker 05:
I mean, are you – do you think that this isn't

[00:47:44] Speaker 05:
D.S.

[00:47:44] Speaker 05:
situation because the document is not sufficient or?

[00:47:48] Speaker 00:
I do not think it is a D.S.

[00:47:50] Speaker 00:
situation in that everybody sort of agreed that it could have been amended in district court and it wasn't and that is a technical error and we should just overlook it and allow the amendment of the complaint now.

[00:48:01] Speaker 00:
This is a different situation in which there's a question about whether what's been submitted actually satisfies

[00:48:08] Speaker 00:
the presentment requirement.

[00:48:09] Speaker 00:
And if this court thinks it does, then it could go back to district court to be amended.

[00:48:13] Speaker 05:
But do you think it does?

[00:48:14] Speaker 05:
I mean, because or do you have, I mean, if you don't have a position, I don't have a position on whether it does or not.

[00:48:19] Speaker 00:
I don't think that it's as clear as

[00:48:22] Speaker 00:
plaintiffs are making it out to be that it does it as I said it says we are entitled to payment at this rate it does not actually flush out any of the reasons why that might be true or present sort of the statutory arguments that

[00:48:39] Speaker 00:
might justify a payment at one rate or another.

[00:48:43] Speaker 00:
And given that that's the case, they have to go back to district court and address the additional questions in the case as well.

[00:48:56] Speaker 02:
Is a particular part of your regulations or cases that specify how much they have to spell out legal arguments?

[00:49:04] Speaker 02:
Maybe they were assuming y'all are on notice for what their position is.

[00:49:07] Speaker 02:
I'm just trying to understand this presentment argument that you're presenting.

[00:49:14] Speaker 00:
So I don't know exactly how fulsome it needs to be.

[00:49:18] Speaker 00:
My point is only that this is not a situation like Diaz where everyone is in agreement that presentment was satisfied when the case was in district court and that it was a technical error.

[00:49:28] Speaker 05:
It was presented enough that it was denied, right?

[00:49:31] Speaker 00:
Yes.

[00:49:32] Speaker 05:
So from that standpoint, it's not like it was defective.

[00:49:34] Speaker 00:
If I could get to sort of the second part of it, the problem that all of this highlights is that HHS,

[00:49:43] Speaker 00:
reads T12 to apply.

[00:49:45] Speaker 00:
And T12 also precludes administrative review.

[00:49:48] Speaker 00:
So they're not taking this claim before the Provider Review Board because administrative review of this kind of challenge is precluded.

[00:49:57] Speaker 00:
So we could go back to district court and litigate these questions again.

[00:50:01] Speaker 00:
But we're asking this court to decide the preclusion of review question because it will be back here shortly thereafter.

[00:50:08] Speaker 00:
If even if the presentment question has been satisfied so right, but I'm assuming that you lose on that That's the whole premise of this is that you lose on that and then the question is that you also lose on the presentment question So if that's if you think that that's true Then that would also mean that that the administrative review question Is more difficult as well and that they're entitled to some additional measure of administrative review that they're not currently getting so

[00:50:39] Speaker 00:
I'm not sure the complaint could be amended in a way that would satisfy the presentment and the exhaustion requirements because the HHS would have to begin providing additional administrative review for this kind of claim, which it's not currently doing.

[00:50:57] Speaker 02:
Would you agree at least that it's futile?

[00:51:01] Speaker 02:
would you agree that no exhaustion is required here?

[00:51:05] Speaker 00:
No, I don't agree that it's futile and specifically as you mentioned and as we mentioned in our brief, Congress has provided a mechanism for review of claims that CMS or HHS cannot

[00:51:18] Speaker 00:
address in the administrative review process, specifically regulatory or statutory or constitutional claims, and there is an administrative review process for those that is expedited, and so even if... Is that the 1395-00?

[00:51:33] Speaker 00:
Yes, even if this claim is something that is, by challenging a position of the secretary made by regulation, they still need to go through that process, and that's well settled.

[00:51:46] Speaker 00:
Supreme Court law that even if the agency can't give you the relief that you're seeking, you still need to go through the administrative process and exhaust your claim in the Medicare context.

[00:51:58] Speaker 05:
Thank you, counsel.

[00:52:05] Speaker 03:
I'm astonished that the government would question whether the presentment has occurred and whether further proceedings of futile.

[00:52:13] Speaker 03:
If you look at page 12 of the addendum,

[00:52:17] Speaker 03:
The hospitals appealed on the following claim.

[00:52:20] Speaker 03:
The new rate violates 1395, the authority to pay for this drug because it is not an adjustment to the statutory rate.

[00:52:29] Speaker 03:
It's based on acquisition costs.

[00:52:31] Speaker 03:
Reliable data are not available.

[00:52:33] Speaker 03:
And it was for the explicit purposes of reducing benefits provided by the statutory created 340B program.

[00:52:39] Speaker 03:
That's a direct summary of the claim that was presented in the complaint below and that we're litigating here.

[00:52:46] Speaker 03:
As to futility, the pleading that the government filed said, if AHA member hospitals attempt to challenge nonreviewable determinations by filing administrative appeals with the Office of Medicare Hearings and Appeals, then OMHA will flag those filings and dismiss them promptly.

[00:53:06] Speaker 03:
It's absolutely clear that there is no door open within the agency.

[00:53:11] Speaker 03:
It's futility squared.

[00:53:14] Speaker 03:
It was futility before the government said this because the decision makers in the agency are bound to apply the new rule.

[00:53:22] Speaker 03:
And it's now futility squared because the agency has said there are no decision makers who will even evaluate the argument.

[00:53:29] Speaker 03:
We don't have jurisdiction.

[00:53:30] Speaker 03:
Diaz took the complaint as constructively amended on appeal.

[00:53:36] Speaker 03:
As I've said, if you prefer a motion, we can file one.

[00:53:39] Speaker 03:
But futility, but resentment and exhaustion, I think, are as clear as they could possibly be.

[00:53:46] Speaker 03:
Taranovitz, Todd Aranovitz in this court said, there's no reason to believe that the agency machinery will exceed to this claim ever.

[00:53:54] Speaker 03:
And clearly, that's the case here.

[00:53:56] Speaker 03:
As to the preclusion, you've got to look at paragraph 12.

[00:54:02] Speaker 03:
There are five subparagraphs.

[00:54:03] Speaker 03:
Every single one specifically names the paragraph in the statute to which it is applicable.

[00:54:10] Speaker 05:
If you look at paragraph 12- What about the argument that every application of 14 is necessarily an application of 2 and therefore there was no reason to mention 14 separately?

[00:54:20] Speaker 03:
It's wrong.

[00:54:21] Speaker 03:
That argument, I believe,

[00:54:23] Speaker 03:
would actually make the preclusion clause, paragraph 12, applicable to the entire OPPS statute, because it's hard to read through any of these provisions and not see some connection with two.

[00:54:37] Speaker 05:
When, for example, paragraphs... There could be a difference between having some connection to two and being entirely subsumed within two.

[00:54:45] Speaker 05:
In other words, I thought the argument, just as a matter of architecture, was that

[00:54:50] Speaker 05:
Everything that's ever done under 14 is necessarily an application of two.

[00:54:55] Speaker 05:
And therefore, there was no reason to mention 14 separately because you've already mentioned it by mentioning two.

[00:55:03] Speaker 05:
Whereas with the other provisions, they may touch on two, but they're not.

[00:55:07] Speaker 03:
There's no cross-reference to paragraph 2 and paragraph 14 or vice versa.

[00:55:15] Speaker 03:
In this statute and the entire statute, the preclusion is identifiable in two ways.

[00:55:21] Speaker 03:
One, paragraph 12 and one of its five sub-paragraphs specifically refers to another paragraph.

[00:55:27] Speaker 03:
And two, the other paragraph to which the preclusion is assertively applicable refers back to paragraph two.

[00:55:38] Speaker 03:
Throughout the scheme, you can see that here and there.

[00:55:41] Speaker 03:
But the preclusion paragraph, but section two does not apply to every decision that's made.

[00:55:47] Speaker 03:
And here, the secretary clearly was acting and said he was acting under paragraph 14, not paragraph two.

[00:55:56] Speaker 03:
When Paragraph 13 was added at the same time as Paragraph 14, Paragraph 13 included the language with a reference to Paragraph 2e, because Congress intended that.

[00:56:09] Speaker 04:
Can I ask, on the cross-references, 14h has a cross-reference which says that

[00:56:21] Speaker 04:
adjustments under 14 after an initial period are taken into account for adjustments under nine and why doesn't that strongly support the government's position that initial initial setting under 14 is really part of two and later adjustments under 14 are really under nine

[00:56:57] Speaker 03:
Well, Your Honor, this issue wasn't raised, and I'm not sure I have a cogent answer.

[00:57:01] Speaker 03:
We can brief it.

[00:57:02] Speaker 03:
But the adjustment authority that matters here under paragraph 14 is defined.

[00:57:12] Speaker 03:
Congress defined how the adjustment was to work.

[00:57:16] Speaker 03:
Congress gave two options.

[00:57:17] Speaker 04:
I understand, but just on the question, on the preclusion question, a lot of the force of your position is in the cross-references that are or are not present and seems like that one cuts against you.

[00:57:35] Speaker 03:
But it's not part of the statutory specification of how you derive the formula and it doesn't affect how you derive the formula.

[00:57:47] Speaker 04:
Right, which makes the point that what I just said doesn't bear on your argument about ultra-virus, but it might well bear on preclusion to the extent preclusion turns on whether 14 is under 2 and 9 or is off by itself.

[00:58:09] Speaker 03:
Well, for one thing, H refers to 2004 and 2005.

[00:58:12] Speaker 03:
Oh, and then the subsequent years.

[00:58:18] Speaker 03:
Just don't.

[00:58:19] Speaker 03:
I do not believe the Secretary has authority to change the formula based on this provision.

[00:58:26] Speaker 03:
But as I say, this issue was not raised.

[00:58:32] Speaker 05:
What about the point that it goes under C as a periodic adjustment?

[00:58:36] Speaker 03:
Sorry?

[00:58:36] Speaker 05:
What about the argument that it goes under C, I'm sorry, 12C as a periodic adjustment made under paragraph 9?

[00:58:45] Speaker 03:
Because the adjustment has to be an adjustment to sales price, average sales price.

[00:58:51] Speaker 03:
Average sales price is a market measure across the entire country.

[00:59:03] Speaker 03:
periodic adjustments under 9.

[00:59:07] Speaker 03:
The periodic adjustments under 9 are not part of the derivation of the rate setting formula under paragraph 14.

[00:59:17] Speaker 03:
The rate is set independent of paragraph 9, and the Secretary did not exercise paragraph 9 authority here to adjust the rate if it applies, which I don't think it does.

[00:59:30] Speaker 05:
I thought that the government said that they did invoke paragraph 9.

[00:59:35] Speaker 03:
No, I think if you look at the final rule in the Federal Register, that's not accurate.

[00:59:40] Speaker 03:
I mean, I'm leaving it inaccurate, but I think it's not there.

[00:59:42] Speaker 02:
Thank you on this.

[00:59:45] Speaker 02:
It says 6, but it means 9.

[00:59:49] Speaker 02:
Have courts held that?

[00:59:52] Speaker 02:
Has any court held that six means nine?

[00:59:54] Speaker 03:
I'm not aware.

[00:59:56] Speaker 02:
How long has that mistake been on the books?

[00:59:58] Speaker 03:
I don't know.

[01:00:00] Speaker 02:
It's not a recent... Congress has been... No, I think it was a codification error.

[01:00:08] Speaker 02:
I'm just wondering how long it's gone and it hasn't been corrected.

[01:00:12] Speaker 05:
I don't know the answer.

[01:00:14] Speaker 05:
But you agree it's a codification error.

[01:00:16] Speaker 05:
It's supposed to be a reference to nine, it sounds like.

[01:00:19] Speaker 03:
I did not note that this issue was raised, and I accept that it might be, but I do not know for sure.

[01:00:30] Speaker 03:
With respect to the heart of this matter, what happened here and why there is a violation of paragraph 14 is that what the Secretary did

[01:00:43] Speaker 03:
was to draw all of the provisions of option one, average acquisition cost rate setting, into paragraph two.

[01:00:54] Speaker 03:
The rule acknowledges that this was set this way to, quote, better represent the average acquisition cost.

[01:01:04] Speaker 03:
Option one prevents the use of that measure unless requisite data is available and it's conceded that it's not.

[01:01:12] Speaker 03:
And option two, the average sales price, requires the use of a market price across the country that can be adjusted for things like overhead.

[01:01:23] Speaker 03:
but does not permit a special rate to be set for a subgroup of hospitals as option one does.

[01:01:30] Speaker 03:
So nominally, in words, the secretary used average sales price terminology, but substantively, in fact, and it's evident on the face of the rule, the secretary used the

[01:01:46] Speaker 03:
authority in option one to set rates for subgroups and use the authority in option one to use acquisition cost.

[01:01:56] Speaker 04:
The scheme as a whole seems to prefer a measure of cost rather than price, right?

[01:02:06] Speaker 04:
It doesn't say use cost or price.

[01:02:09] Speaker 04:
It says you must measure by cost if cost data are available.

[01:02:15] Speaker 04:
And if not, measure by price and make adjustments.

[01:02:21] Speaker 04:
Right?

[01:02:22] Speaker 03:
Yes.

[01:02:23] Speaker 03:
Option one is to be used if the data are available.

[01:02:26] Speaker 04:
So even in the face of imperfect cost data, why would it be

[01:02:34] Speaker 04:
beyond the scope of the statute or arbitrary and capricious for the secretary to say, I may not know exactly what the cost data are, but we know that price overstates cost, and cost is the preferred measure, and so we want to move the compensation in that direction.

[01:02:55] Speaker 03:
Option one requires very rigorous data, and I think shows Congress's skepticism that the rate should actually be set at that – or certainly it should not be set

[01:03:09] Speaker 03:
The Secretary should not use acquisition costs in the absence of rigorous data.

[01:03:16] Speaker 03:
Here, the Secretary not only lacked the rigorous data, but was using estimates.

[01:03:21] Speaker 03:
We don't know that the result would come out the same in calculations under both options.

[01:03:29] Speaker 03:
What we do know is that

[01:03:31] Speaker 04:
No, but adjustment is a question of degree, right?

[01:03:36] Speaker 04:
And so, I mean, if he adjusts it down to zero, you've got a pretty good, you've got a compelling argument that that's not an adjustment.

[01:03:45] Speaker 04:
But if he adjusts it, so you can't say, you can't just rest on adjustment doesn't mean eliminate.

[01:03:56] Speaker 04:
And so you need some notion of, well, this adjustment

[01:04:01] Speaker 04:
is undermining the purpose of the program, targets the program, I think is the language you use.

[01:04:08] Speaker 04:
And that just seems like a little bit of a tough case where what he's targeting and aiming at is a price measure or a compensation measure that's explicitly contemplated in the statute.

[01:04:25] Speaker 03:
The degree to which, this was a 28.5% reduction and it was so huge and unprecedented because the intention was not to use average sales price.

[01:04:37] Speaker 03:
The intention was to make whatever adjustment was necessary to end up at acquisition cost and permissibly and notably to apply that to one subgroup of hospitals and not to the other participants in the OPPS system.

[01:04:54] Speaker 03:
Option one permits that, but option two doesn't, and it disadvantages the hospitals if we have an apples and oranges calculation where the discounts to 348B hospitals are taken into account, but the discount to all the other hospitals who may have negotiated substantially large discounts are not taken into effect.

[01:05:15] Speaker 03:
You're really cutting the pie up.

[01:05:17] Speaker 03:
using different measures for different people, and it's particularly inappropriate where it affects negatively the hospitals that provide care to the poor.

[01:05:27] Speaker 05:
Thank you, counsel.

[01:05:29] Speaker 05:
The case is submitted.