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Case number 18-5264, Bay State Franklin Medical Center at Appellants, versus Alex Michael Azar II, as Secretary of the Department of Health and Human Services.

[00:00:16] Speaker 01:
Ms.

[00:00:17] Speaker 01:
Wertheimer for the Appellants, Mr. Himobot for the Appellees.

[00:01:17] Speaker 02:
Good morning.

[00:01:18] Speaker 02:
May it please the court, Rachel Wertheimer, for the appellants.

[00:01:22] Speaker 02:
The question before the court is whether the Secretary can reasonably rely on facially inaccurate data that causes hospitals in a single state to lose approximately 110 million of Medicare revenue to which they are otherwise entitled.

[00:01:37] Speaker 02:
Here, the Secretary was alerted to erroneous data, first by Nantucket Community Hospital, and then by numerous other hospitals who, by virtue of the application of the rural floor, were affected by Nantucket's error.

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The Secretary chose to ignore the error, citing a technical reason.

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He didn't ignore it.

[00:01:57] Speaker 04:
I'm sorry?

[00:01:57] Speaker 04:
He didn't ignore it.

[00:01:59] Speaker 02:
He did not correct the error.

[00:02:01] Speaker 04:
Okay, that's two different things.

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If he'd ignored it, you might have a better case.

[00:02:06] Speaker 02:
Well, we submit, Your Honor, that while he recognized that an error may have been made, the reasons that were given for his refusal to correct the error were insufficient.

[00:02:17] Speaker 04:
Right.

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And if he had given no reason, that would have been ignoring him.

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But you don't represent it accurately when you say he ignored it.

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He gave reasons.

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He gave reasons for it.

[00:02:26] Speaker 04:
There was a deadline, right?

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And the Secretary imposed the deadline, or the representatives down the line imposed the fall of the deadline, right?

[00:02:33] Speaker 02:
As to Nantucket, correct, Your Honor, but as to my clients and as to the numerous other hospitals in Massachusetts who suffered the result of Nantucket's error, there was no deadline.

[00:02:45] Speaker 04:
We are appealing the... There was a deadline as to when the computations were made, right?

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There is a deadline as to when hospitals can challenge what they believe to be errors in the data.

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When the computations become final.

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Right.

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The computations is what we're doing lately.

[00:03:04] Speaker 02:
Correct.

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And the deadline says as of X date.

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And the Secretary's people imposed them as of that date, right?

[00:03:14] Speaker 02:
There was a proposed calculation that was published in April of 2017-16, and my clients submitted comments to that proposed calculation that the Secretary had full discretion to correct.

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before publication of the final rule, which was not until August of 2016.

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So the comments that my client and the corrections that my client requested were actually made to a proposed calculation, not to the final calculation.

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And I want to bring us back to what the Secretary's obligation is in this case, which is to adjust the wage-related cost portion of hospitals' costs by a factor that reflects the relative hospitals' wage level in the geographic area as compared to the national average.

[00:04:04] Speaker 05:
Sure, but the Secretary can also devise a process for making that determination.

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And we've said the Secretary gets deference in structuring that process, which necessarily includes deadlines for hospital data.

[00:04:20] Speaker 02:
Absolutely.

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We can see that the Secretary has discretion as to how to calculate that.

[00:04:25] Speaker 05:
And to impose deadlines.

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So here there's a deadline.

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Nantucket missed it.

[00:04:33] Speaker 02:
Correct.

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Your clients come in and they say, gosh, this is unfair to us.

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We didn't miss the deadline.

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And the secretary's response is, the deadline's established by legislative rule.

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It's important to the fairness and integrity of our program.

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We have a pattern of not excusing it.

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It seems like a perfectly plausible reason for not excusing it.

[00:05:03] Speaker 02:
Well, we submit that those justifications are not perfectly plausible.

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And at the end of the day, while the Secretary certainly has discretion as to how to calculate and to come up with a process for calculating,

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the wage index that doesn't permit the Secretary to simply ignore accuracy full stop, which is, I think, what the appellees are essentially arguing here.

[00:05:25] Speaker 00:
Isn't there a lot of case law in the circuit that has talked about the Secretary's ability to balance accuracy and finality?

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This is a big job here.

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It's not just computing one hospital, because one hospital affects every hospital in the country under the budget neutrality principle.

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the best accuracy within a workable time frame.

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We have cases that recognize that.

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You're absolutely correct, Your Honor.

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And again, our position here is that this kind of error, which is extremely rare and extremely significant, even by the Secretary's own standards.

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So what we're talking about here for

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with respect to the wage index was a 7% drop in the wage index for Nantucket and therefore for those imputed floor hospitals.

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Data in the record published by the secretary in FY 2017 shows that 1% of hospitals nationwide saw anything close to this kind of drop in the wage level.

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So to correct this kind of significant error, we submit would not have been a significant burden on the secretary.

[00:06:36] Speaker 05:
Do you have any case or any instance in which

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In a situation either exactly like this or at least somewhat like this, HHS has chosen to excuse a deadline.

[00:06:56] Speaker 02:
Well, Your Honor, the Methodist case, which was relied on heavily by the court below, that was a wage index case.

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And in that case, it had to do with the Sacramento statistical area.

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Three hospitals, not the reporting hospital, noticed a significant error in the wage index that was caused by an error by a fourth hospital.

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And the Secretary actually did.

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He instituted a mid-year correction, which is

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changed it going forward, but not as to the previous months in that year.

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But in the middle of the year, which is a significant

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administrative undertaking, he adopted that corrected data to correct the wage index.

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So, in fact, I think that is an example of the Secretary doing, even later in the process, what we were asking him to do while the rule had yet to become final.

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And then there's other instances in

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in the record in this case in the final rule that reflected the Secretary made other changes to the wage index that, you know, were certainly discretionary and... Would you make the changes at this point in the timeline in case you're talking about?

[00:08:17] Speaker 02:
Correct.

[00:08:17] Speaker 02:
So under the Secretary's rules, the only errors that hospitals may, you know, directly sort of appeal as of the proposed index, as after publication of the proposed wage index in the proposed rule, are errors that are due to either CMS miscalculations.

[00:08:37] Speaker 04:
I'm not hearing an answer to the question that I asked.

[00:08:39] Speaker 02:
I'm sorry?

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You said there were many instances in which they made changes.

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My question was, were those instances involving

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changes at this point in the time?

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Yes, they were.

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Can you give us an example of that?

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If at 1266 of the record, which is 81 Federal Register 56915, the Secretary had excluded from the proposed rule data from certain hospitals because, according to the Secretary, that data was aberrant and shouldn't be included in the final wage index.

[00:09:24] Speaker 02:
Between the publication of the proposed rule in April and the final rule in August, which is the exact timeline at issue for my client's comments, he apparently received corrected data and then included that data in the final wait.

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Is that corrected data from a hospital that had just misreported and not double-checked its numbers like Warren, or was it

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something that a contractor or CML itself had discovered?

[00:09:50] Speaker 02:
It's a little bit unclear from the record.

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It does not appear to have been a MAC or CMS error.

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It was error in the data that had been reported by the hospital that the Secretary concluded was aberrant.

[00:10:01] Speaker 00:
Sorry, so it was something that was from the very get-go submitted by the hospital?

[00:10:07] Speaker 02:
It appears that way from what's in the final rule.

[00:10:10] Speaker 02:
Yes, Your Honor.

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And if you may, I'm going to reserve just one minute.

[00:10:14] Speaker 05:
Sorry, I'm just skimming Methodist.

[00:10:17] Speaker 05:
I remember the holding, but not the flown deadline aspect of it.

[00:10:23] Speaker 05:
Maybe I'm missing something, but I don't see that the court engaged at all on

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You know, the existence of an antecedent deadline and HHS's desire to enforce it, it's just a straight out retroactivity case.

[00:10:41] Speaker 05:
The issue comes up, they think it's preserved, and they say, we'll give prospective effect, but not retroactive effect.

[00:10:48] Speaker 02:
You're actually – the court did not engage it.

[00:10:49] Speaker 05:
I was simply pointing out that the facts of that case – You're using it just as an – I asked you for an example, and you're using it for that limited – Exactly.

[00:10:55] Speaker 02:
Exactly.

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It shows that the Secretary, in fact, did make a correction based upon an error by a third party officer.

[00:11:01] Speaker 05:
But so far as we can tell, on the face of the opinion, not in the face of a prior blown deadline, really?

[00:11:11] Speaker 02:
Clearly, the hospital hadn't submitted the correct data by the deadline, or it would have been included in the final rule.

[00:11:17] Speaker 02:
It wasn't included in the final rule.

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It was only after these other hospitals pointed it out, the Secretary then used his discretion to amend the final rule actually mid-year to address that incorrect data.

[00:11:32] Speaker 02:
Thank you.

[00:11:38] Speaker 03:
May it please the court, Edward Himmelfarb with the Department of Justice, representing the Secretary of HHS.

[00:11:44] Speaker 03:
The deadlines in this process are extremely important because the process for computing the wage index is so complicated.

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It takes so long and uses so much interaction back and forth between the hospitals and the Medicare contractors and CMS.

[00:12:02] Speaker 03:
There are basically, if you look at the timetable, that's pages 49 to 53 of the Joint Appendix, you can divide it basically into four different stages.

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And the first stage is really what we're talking about here.

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The first stage is that for fiscal year 2017, CMS issued, published a spreadsheet with tentative raw data on hospital costs.

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And the deadline in the

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timetable was September 2nd for hospitals to correct any errors in that data.

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That's the first stage.

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The second stage is that the contractors then do a desk review.

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They submit it to CMS.

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CMS in January of 2016 publishes a revised spreadsheet, and the hospitals are allowed to challenge things at that point, but they're not allowed to

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correct costs that were mistaken that they should have corrected by September 2nd.

[00:13:01] Speaker 03:
There's a third stage between January and April and then April the final is published and there's a very limited right to the hospitals to challenge anything at that point.

[00:13:13] Speaker 00:
What is your answer to the examples she just gave of corrections that sound like similar errors that were made?

[00:13:23] Speaker 03:
Yeah, I'm not sure about that specific example.

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I'd have to look at it more closely.

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But as a gentleman, if you look at, for example, if you look at the letter that Partners Healthcare sent on April 4th, 2016, to the Secretary to challenge this

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cost error that it made, that it had failed to correct these supposedly – by the way,

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These are not clearly erroneous.

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They're not definitely erroneous.

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The costs have to go through a process.

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That's why you have this multi-stage process.

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If you look at the letter, there were challenges to numerous things, not just this one item.

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There were challenges to other things having to do with

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I believe housing costs and several related aspects of that.

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Those were challenges to the more recent revision of the spreadsheet.

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So those were on time.

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And in fact, if you look at the response to that letter, CMS and the Secretary agreed to make those changes.

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The problem was this one aspect of it that had been

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the alleged inaccurate costs that were in the May 2015 spreadsheet, and those had to have been corrected by September 2, 2015.

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It was now seven months after that, and the Secretary reasonably decided that it was not appropriate to make that correction.

[00:14:57] Speaker 05:
So let me ask you about that.

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I mean, if we focus on the relationship between Nantucket Hospital

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and HHS with regard to Nantucket's input data.

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There's a deadline, they missed it.

[00:15:15] Speaker 05:
It looks like that aspect of this larger process is fine.

[00:15:22] Speaker 05:
But on the other hand, all of these, all of these, all of those decisions are just inputs to what ultimately becomes

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a proposed rule, which has to go through notice and comment rulemaking.

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And as a matter of APA law, the secretary is legally obligated to keep an open mind at that point, take comments, assess them, respond in good faith to comments.

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So why is it that you get to effectively pre-dermit any

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deliberation, consideration of comments, et cetera, with respect to that component of what is, at the relevant time, only a proposed rule?

[00:16:15] Speaker 03:
Well, I think the Secretary did respond to the comments.

[00:16:18] Speaker 03:
I don't think that's a dispute.

[00:16:20] Speaker 03:
There was a response to these particular comments that were submitted by hospitals and associations in Massachusetts and outside of Massachusetts.

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The Secretary, in our view, made a totally reasonable decision in what to accept and what not to accept.

[00:16:34] Speaker 03:
that's part of the rulemaking process.

[00:16:36] Speaker 03:
No question about that.

[00:16:39] Speaker 03:
The question is whether a hospital that has missed a deadline seven months earlier then can take advantage of the fact that there's a proposed rule and then comment and say, oh, you know, I may have missed the deadline seven months ago, but you should take it into account anyway.

[00:16:54] Speaker 05:
And part of the problem with this, as I've started to say, is that... Suppose the secretary were proposing a rule with

[00:17:04] Speaker 05:
a lot of inputs that were generated, not by other hospitals, but by HHS itself.

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And it said internally, this is a really complicated calculation.

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We're going to give ourselves an internal deadline of X, and we're going to stick to it.

[00:17:24] Speaker 05:
And X is before they propose the rule.

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They put the rule out for comments.

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People say this input is crazy.

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And they say, too bad.

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We're not going to consider it.

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We have a deadline.

[00:17:36] Speaker 03:
That was their own internal deadline.

[00:17:37] Speaker 03:
I'm not sure why that.

[00:17:39] Speaker 03:
Let's see how that would prevent the external deadline on regulated parties to provide information to HHS.

[00:17:48] Speaker 05:
I mean, I'm testing the limits of or trying to test the limits of HHS's ability to constrain

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the range of inquiry in rulemaking where they have deadlines to kick in before the rule is put out for comment.

[00:18:05] Speaker 03:
These are deadlines that apply to the regulated parties and the regulated parties are the ones who would be commenting in response to the proposed rule.

[00:18:13] Speaker 00:
The deadline applied to Nantucket Hospital.

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There was no deadline

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on these other hospitals commenting.

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And so one would think that the natural forum for them to comment would have been when a notice to put those rules out and comments are invited.

[00:18:28] Speaker 03:
Let's just say hypothetically that third-party hospitals were permitted to.

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Here's what happens.

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Let's make the case simpler.

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Remove the rural floor statute.

[00:18:42] Speaker 03:
You still have metropolitan statistical areas

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Every hospital in the metropolitan statistical area is connected with each other in the sense that ultimately they're all going to get the same wage index.

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So every hospital there cares about every other hospital's submitted costs.

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Now let's suppose you have an area in which you have 10 hospitals.

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How's that to correct this by September 2nd?

[00:19:05] Speaker 03:
Seven months later it's, oh, I forgot to correct this.

[00:19:07] Speaker 03:
This is really wrong.

[00:19:08] Speaker 03:
So what does hospital six do?

[00:19:10] Speaker 03:
Calls up hospital two and says, you're a third party hospital.

[00:19:13] Speaker 00:
I guess I don't see how that's an answer because I think the premise is still the same.

[00:19:17] Speaker 00:
There was no deadline on those other hospitals

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that they had to have their comments on data in by that seven month earlier deadline.

[00:19:30] Speaker 00:
There's no evidence in this record of the bad faith you're suggesting.

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And so they wouldn't have known.

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And I thought the whole point of notice and comment rulemaking is that you take the comments, you notice them, and you address them.

[00:19:42] Speaker 00:
So it doesn't seem to me your argument about the regulated parties' deadline is quite addressing the issue here.

[00:19:48] Speaker 03:
But what would happen if hypothetically the secretary said, OK, we're going to consider these?

[00:19:53] Speaker 00:
What happens?

[00:19:54] Speaker 00:
Is that the explanation that was given in this comment, that we're worried about the sort of slippery soap everyone's going to just

[00:20:00] Speaker 00:
launder their own errors?

[00:20:03] Speaker 03:
What was actually at stake in the comments, at the time the proposed rule was issued, the Nantucket College Hospital had asked HHS to correct the data.

[00:20:20] Speaker 03:
So when the comments came in, that was the proposal on the table.

[00:20:25] Speaker 03:
The proposal was, let Nantucket

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correct the data.

[00:20:29] Speaker 00:
If you look at the data, I can't... Well, what if the comment was from an Alabama hospital that said... It wasn't that Nantucket came up short in its data.

[00:20:41] Speaker 00:
They somehow thought that, I'll just say hospital X in another state had way overstated its costs, that they were not accurate.

[00:20:54] Speaker 00:
And the end result is that the hospital in Alabama, due to budget neutrality,

[00:20:58] Speaker 00:
is going to get way less money than it should.

[00:21:01] Speaker 00:
So there's no question of cover me here, can you object because I didn't get my data in on time.

[00:21:09] Speaker 00:
They are actually hurt by the data that is submitted by hospital acts that's overinflated because then they get less money.

[00:21:18] Speaker 00:
But they don't know about this problem until the notice and comment rule maker comes out.

[00:21:22] Speaker 00:
Can they object to that point?

[00:21:24] Speaker 03:
They can object to it.

[00:21:25] Speaker 03:
But your Honor, again, the issue is

[00:21:28] Speaker 00:
Should the Secretary grant Nantucket's request to have this adjustment made?

[00:21:39] Speaker 00:
offered reason explanation for not addressing the concern raised by the hospital in Alabama or all the hospitals in Alabama that are now going to come up short because of overinflated numbers in another state.

[00:21:52] Speaker 03:
Well, I think, actually, the response does cover the other out-of-state hospitals.

[00:21:56] Speaker 03:
It talks generally about fairness to other hospitals.

[00:21:59] Speaker 00:
No, I'm trying to ask a very mechanical question here.

[00:22:01] Speaker 00:
And that is, here, the request to

[00:22:08] Speaker 00:
adjust the data to make it more accurate was from people who were going to benefit.

[00:22:13] Speaker 03:
Who were going to benefit.

[00:22:15] Speaker 00:
Right.

[00:22:15] Speaker 00:
In the exact same time frame, you instead get a comment or a lot of comments that come in and say, wait, you've got to fix that data.

[00:22:25] Speaker 00:
It's not accurate.

[00:22:27] Speaker 00:
It's going to hurt us.

[00:22:29] Speaker 00:
We're going to lose a ton of money.

[00:22:31] Speaker 00:
Is the position exactly the same?

[00:22:34] Speaker 00:
That the secretary would go, it's a deadline, we have deadlines, we don't really, we trust the hospital provider to report, we don't want, this is not the time, we cannot fix these numbers now.

[00:22:45] Speaker 03:
That is, and it's precisely because the process is so complicated and it's too difficult to allow people to allow other hospitals to come in and challenge data at the last minute, which has never been vetted.

[00:22:57] Speaker 00:
But they say that it happens, so that's the answer, that we just can't possibly do it.

[00:23:03] Speaker 00:
which isn't spelled out so well in the Federal Register here, but they say it's happened.

[00:23:08] Speaker 00:
It happened, they say it's the Methodist, and they gave another example.

[00:23:10] Speaker 03:
As I said at the beginning, I don't have a response to that because I don't know exactly what – what – so it turned out it has happened in other cases.

[00:23:17] Speaker 00:
Then is the Secretary's explanation here sufficient?

[00:23:22] Speaker 03:
I still think as a general principle, yes, because if you... I don't want to say general.

[00:23:26] Speaker 00:
In fact, it's one thing if the Secretary says, look, this is a complicated scheme.

[00:23:31] Speaker 00:
This is as complicated as math gets.

[00:23:33] Speaker 00:
I have to have deadlines to make this workable.

[00:23:37] Speaker 00:
And so I cannot break from those deadlines.

[00:23:39] Speaker 00:
That's a perfectly reasonable explanation that the Secretary doesn't break from those deadlines.

[00:23:43] Speaker 00:
If the Secretary does selectively, then we need to know why.

[00:23:46] Speaker 03:
That explanation is actually in the final rule.

[00:23:49] Speaker 03:
That's the response.

[00:23:50] Speaker 03:
I know, but... We've told you that repeatedly.

[00:23:52] Speaker 03:
Now, I don't know, again, I can't stand here and tell you about that example we're talking about.

[00:23:58] Speaker 03:
I don't know the details.

[00:23:59] Speaker 00:
Well, what about the background facts of Methodist Hospital?

[00:24:02] Speaker 03:
Oh, no, that was different.

[00:24:04] Speaker 03:
What happened in Methodist Hospital is that the hospital, non-party to the case, gave some data to the state agency, and eventually it trickled its way back to somehow having an effect on the rates at that point.

[00:24:18] Speaker 00:
It gave mistaken data when you raised the background.

[00:24:21] Speaker 03:
I don't think it was a question of the deadline at that point.

[00:24:24] Speaker 03:
The question was whether the amendment could be made prospectively or retrospectively.

[00:24:31] Speaker 00:
I know, but the fact is you made it change prospectively, right, midway through the year.

[00:24:38] Speaker 03:
Right.

[00:24:40] Speaker 00:
And so this we can't change the numbers is too hard thing, doesn't it?

[00:24:44] Speaker 03:
Well, but it didn't make it retroactive.

[00:24:46] Speaker 03:
Because that would have been much harder to do, make it retroactive.

[00:24:49] Speaker 03:
I believe there's a discussion in the case.

[00:24:50] Speaker 03:
It's been a little while.

[00:24:51] Speaker 03:
But I think there's a discussion in the case about why you can't do it retroactive, or why it's reasonable not to do it retroactive.

[00:24:57] Speaker 00:
But here.

[00:24:57] Speaker 00:
Sorry, there's one thing.

[00:24:59] Speaker 00:
In that case, it said it submitted incorrect estimates.

[00:25:01] Speaker 00:
So it was the hospital that submitted incorrect data on Methodist Hospital.

[00:25:04] Speaker 00:
That's right.

[00:25:04] Speaker 03:
It was third party hospitals that found it.

[00:25:06] Speaker 03:
That's correct.

[00:25:07] Speaker 05:
Here we're talking about a 2016 rulemaking to establish the metric for FY 2017 payments.

[00:25:24] Speaker 05:
seems prospective, what your friend on the other side is asking for seems prospective in the same way that the adjustment in Methodist was prospective.

[00:25:35] Speaker 03:
Theoretically possible to do that.

[00:25:38] Speaker 03:
There's no question it's theoretically possible to do that with computers.

[00:25:42] Speaker 03:
They can probably figure out how to change the data.

[00:25:46] Speaker 05:
Part of your explanation was

[00:25:50] Speaker 05:
Rules are important.

[00:25:51] Speaker 05:
This is complicated.

[00:25:53] Speaker 05:
We just don't make exceptions.

[00:25:54] Speaker 05:
That's right.

[00:25:55] Speaker 05:
And this seems like a somewhat analogous case where you did something that looks like a somewhat analogous exception.

[00:26:10] Speaker 03:
Also, that was 25 years earlier.

[00:26:13] Speaker 03:
I really can't speak to the process from 25 years earlier.

[00:26:16] Speaker 03:
That was a 1994 decision.

[00:26:18] Speaker 05:
Can I ask you how hard

[00:26:20] Speaker 05:
At first glance, it sounds like this would be nightmarishly hard to deal with because there are lots of claimed errors.

[00:26:32] Speaker 05:
It's unrealistic to consider rural wage index adjustments in Massachusetts in isolation from everything else that HHS has to deal with.

[00:26:45] Speaker 05:
And on top of that, every adjustment you have to make even to that one index is going to have complications for every other hospital in the country.

[00:26:54] Speaker 05:
I get that.

[00:26:54] Speaker 05:
But could it be less complicated than it sounds in so far as maybe

[00:27:04] Speaker 05:
all of these numbers are just sitting in a computer somewhere which can just spit out the relevant addition and division and you know, a thousand hospitals and you change the input for Nantucket and push a button and the computer just makes all the adjustments for you.

[00:27:23] Speaker 03:
I think theoretically you might be able to do that but I think that's not the way it actually works in practice.

[00:27:27] Speaker 03:
My understanding is that

[00:27:30] Speaker 03:
they have to do modeling of payments.

[00:27:33] Speaker 03:
I'm not even sure how to explain this, but modeling of payments under one scenario and modeling of payments under another, and they come up with, as a result of that, they come up with some factor that then they, I'm sorry if you're using the word factor, because that's a statutory term, but another number that's used to adjust everybody.

[00:27:49] Speaker 03:
It's a difficult process.

[00:27:51] Speaker 03:
I mean, I guess, you know, we have computers.

[00:27:53] Speaker 00:
If at this same stage, if it turned out that

[00:27:57] Speaker 00:
Nantucket had provided the correct data to the contractor, and the contractor, sorry, there's some glitch in the computer, subtracted a decimal point or a zero or something every time, and they didn't realize it until this stage.

[00:28:15] Speaker 00:
The contractor didn't realize it.

[00:28:18] Speaker 00:
And of course, Nantucket didn't realize until it shows up.

[00:28:21] Speaker 00:
Nobody realizes until the sprint out comes and they go, wait, what happened?

[00:28:24] Speaker 00:
That's not what we gave you.

[00:28:26] Speaker 00:
It sounds to me like the changes identified by the contractor can be made at this point.

[00:28:34] Speaker 03:
That's part of the process, yes.

[00:28:36] Speaker 00:
So it is actually workable to make this very correction at this point in time.

[00:28:41] Speaker 00:
It's just a question of whether whose mistake it was.

[00:28:46] Speaker 03:
At this point, yes, that's whose mistake it was.

[00:28:48] Speaker 03:
That's correct.

[00:28:49] Speaker 00:
Okay, so then, again, that's a different answer than it's unworkable at this time.

[00:28:53] Speaker 03:
Well, what's unworkable, Your Honor, is to allow people to come in and to correct something that should have been corrected at an earlier stage, because the data goes through multiple changes.

[00:29:02] Speaker 04:
That's the whole idea.

[00:29:04] Speaker 04:
The petitioners here did not make the mistaken entry.

[00:29:08] Speaker 04:
Why isn't it arbitrary and capricious to deny them the opportunity?

[00:29:17] Speaker 04:
If it's feasible to do this mathematically, why is it not arbitrary and capricious to deny them the opportunity?

[00:29:25] Speaker 03:
There are two answers, I think.

[00:29:27] Speaker 03:
One is that, as a general matter, you need to have deadlines, and the second... We understand that.

[00:29:32] Speaker 03:
Yeah, and the second answer is... We understand that.

[00:29:34] Speaker 03:
General matter need to have deadlines.

[00:29:35] Speaker 04:
Is that if you... Whoa, whoa, whoa, whoa, whoa.

[00:29:37] Speaker 04:
Oh, sorry.

[00:29:37] Speaker 04:
You seem to have a habit of talking over this.

[00:29:39] Speaker 04:
I'm sorry.

[00:29:40] Speaker 04:
I wish you'd watch this.

[00:29:42] Speaker 04:
According to what you told Judge Millett, it is feasible, if the mistake had come from the contractor, that you could have made these corrections.

[00:29:51] Speaker 04:
Why is it any less feasible to do it if the mistake was made by one of the hospitals affecting all the others?

[00:29:58] Speaker 03:
Because there are two different kinds of data we're talking about.

[00:30:01] Speaker 03:
We're talking about the ones that are feasible to do are the ones that have already gone through the process that have been worked on by the Medicare contractors, looked at by CMS, gone back to the hospitals, back and forth and back and forth.

[00:30:12] Speaker 03:
Those are the ones, it's okay to correct those.

[00:30:14] Speaker 03:
The other ones, the one that's in dispute in this case, never has been seen

[00:30:19] Speaker 03:
this proposed correction has never been seen by a Medicare contractor because it was never brought before.

[00:30:25] Speaker 03:
And this whole process of back and forth of correction and double correction and triple correction has never gone through that.

[00:30:31] Speaker 03:
And you can't just take some uncorrected data in the spring when you're at the end of the cycle and you can't just take that and use it as if it's obviously, you know, it's obviously correct.

[00:30:45] Speaker 04:
I may have misunderstood the hypothetical, but I thought the

[00:30:48] Speaker 04:
hypothetical pose was that if the same mistake had been made by a contractor rather than by the hospital itself.

[00:30:55] Speaker 04:
Yeah, I thought you said it would have been possible to make the same mistake.

[00:30:59] Speaker 03:
Right, but again, that's correct.

[00:31:01] Speaker 04:
Presumably, the contractor error would also have followed the process.

[00:31:07] Speaker 00:
Would you still have to go through this back and forth process if the contractor said,

[00:31:12] Speaker 03:
If the contractor has looked at the data and has gone through the process and has gone back and forth through the different stages of this process that takes about a year, the timetable allows the hospital to seek correction of that because it was a mistake made by the contractor.

[00:31:30] Speaker 03:
But our data, in this case, has never been even seen by a contractor.

[00:31:34] Speaker 03:
It's never been presented to a contractor because, according to them, according to the Nantucket College Hospital.

[00:31:39] Speaker 04:
Presumably the corrected data in the hypothetical also would not have gone through the process of back and forth.

[00:31:45] Speaker 03:
Well, I thought the hypothetical was that somehow the contractor made a mistake.

[00:31:50] Speaker 00:
Yes.

[00:31:51] Speaker 00:
They didn't discover the mistake.

[00:31:52] Speaker 03:
Made a mistake at the end of the process of back and forth.

[00:31:54] Speaker 00:
Until the same day the NPRM goes out, they discover the computer error.

[00:32:00] Speaker 00:
The computer screwed up the numbers.

[00:32:01] Speaker 00:
So now do we have to start this back and forth on the numbers all over again?

[00:32:05] Speaker 03:
No, because that's permitted under the timetable to challenge a mistake that's made by a medical contractor at that stage.

[00:32:13] Speaker 03:
That's permissible.

[00:32:15] Speaker 03:
If the question is, is it feasible?

[00:32:18] Speaker 03:
Yeah, it's feasible to do that.

[00:32:19] Speaker 03:
It's theoretically feasible.

[00:32:21] Speaker 03:
Theoretically, it's theoretically feasible to just plug in some more data.

[00:32:26] Speaker 03:
But that's not the way the process is supposed to work, and it's not going to give you a more accurate answer to average hourly wages in Nantucket or to the wage index.

[00:32:38] Speaker 00:
And I understand your point about the concern, at least generally, being that whenever

[00:32:46] Speaker 00:
the submitting hospital's data's error if change would benefit everybody else in the state.

[00:32:53] Speaker 00:
There's going to be a concern about just end running the deadlines.

[00:32:56] Speaker 03:
Yes, that's exactly the problem.

[00:32:58] Speaker 00:
But I still don't understand what you do when the person who's objecting to the data is an out-of-state hospital who's going to be hurt.

[00:33:06] Speaker 00:
And they have no way of knowing, I don't think, about a problem with the data until the NPRM comes out.

[00:33:14] Speaker 00:
And you don't have that concern about end running

[00:33:17] Speaker 00:
deadlines because they are adverse in their interests to the misreporting hospital.

[00:33:23] Speaker 00:
I'm hypothesizing not underreporting, but over claiming by the reporting hospital.

[00:33:28] Speaker 03:
What happens then?

[00:33:29] Speaker 03:
Well, I'm not sure that there's any difference there.

[00:33:32] Speaker 03:
And I can't say this is a 100% perfect system.

[00:33:36] Speaker 03:
You have to deal with reasonableness here.

[00:33:37] Speaker 03:
The statute, as the court said in the Anna Jakes case a few years ago,

[00:33:42] Speaker 03:
The statute provides some very specific directions, but it leaves the vast majority of this process to the secretary's reasonable discretion.

[00:33:51] Speaker 03:
And there are certain things you can do.

[00:33:52] Speaker 03:
There are certain things you can't do.

[00:33:54] Speaker 03:
There are certain things that's reasonable to choose one or the other.

[00:33:58] Speaker 03:
And from the perspective of the court, the question is, is it reasonable to do that?

[00:34:03] Speaker 00:
I think that's what we're pressing.

[00:34:05] Speaker 00:
Is it reasonable to say that this notice and comment thing is really not

[00:34:12] Speaker 00:
the time for people who did not have any prior deadline to comment about something that's harming their interests, and if the answer is deadlines is deadlines, can't do it otherwise, that's one thing, but if in fact deadlines aren't deadlines and we could do it sometimes but with others and maybe we do it sometimes, then it seems less reasonable.

[00:34:32] Speaker 03:
Yeah, at the same time, you know, it's hard to set up a principle in which you say that here's the rule, anybody's allowed to do this, but we can't allow the buddy system that I was describing earlier where the hospital with an interest in it makes a mistake, talks to another hospital that has an interest in it.

[00:34:50] Speaker 00:
Is that the reason it was given in the Federal Register here?

[00:34:52] Speaker 00:
I didn't see that.

[00:34:53] Speaker 03:
No, that's not in the Federal Register.

[00:34:54] Speaker 03:
And the reason it's not in the Federal Register is that nobody proposed that in the Federal Register, in the comments.

[00:35:00] Speaker 03:
The comments don't say,

[00:35:02] Speaker 03:
third party should have the opportunity to have an independent challenge to this data.

[00:35:07] Speaker 03:
What they say is you, the Secretary, should use your discretion to

[00:35:12] Speaker 03:
allow Nantucket to change its data.

[00:35:15] Speaker 03:
Nantucket's request was still pending.

[00:35:18] Speaker 05:
They do focus – the comments do focus on the distinct equities of the third party.

[00:35:23] Speaker 03:
Oh, absolutely.

[00:35:24] Speaker 03:
There's no question about that, but they don't – And that they couldn't have commented earlier.

[00:35:27] Speaker 03:
I'm sorry?

[00:35:28] Speaker 00:
They couldn't have commented – they didn't have a deadline earlier and they couldn't have commented earlier.

[00:35:31] Speaker 03:
No, but I'm talking about the comments to the proposed rule.

[00:35:33] Speaker 03:
Right.

[00:35:33] Speaker 03:
When it comes to the proposed rule, what they say is that the Secretary should accept Nantucket's request to have its data corrected.

[00:35:42] Speaker 03:
I can give you some patient numbers if you'd like.

[00:35:44] Speaker 03:
71, 74, 76, 77, 78, 80, 82, 91.

[00:35:51] Speaker 03:
I'm sorry, I have one inside of me.

[00:35:55] Speaker 03:
Oh, I'm sorry, slow down.

[00:35:58] Speaker 03:
Here are the patient numbers where the comments are made that this is what they want.

[00:36:01] Speaker 03:
They want Nantucket's request to be granted.

[00:36:03] Speaker 03:
The comments don't actually say you should have an independent right.

[00:36:09] Speaker 03:
That was brought up in District 4 instead.

[00:36:15] Speaker 03:
So I wrote down 13 numbers here from the appendix where commenters- From the appendix, okay.

[00:36:24] Speaker 03:
That's what I thought was going to work.

[00:36:26] Speaker 03:
Do you want me to do it slowly?

[00:36:33] Speaker ?:
Sure.

[00:36:42] Speaker 00:
Sorry, I thought you had them.

[00:36:45] Speaker 03:
You can just tell me the page numbers again.

[00:36:53] Speaker 03:
71 is from the Mount Auburn Hospital.

[00:36:57] Speaker 00:
Oh, because you're referring to their letters.

[00:36:59] Speaker 00:
Got it.

[00:37:01] Speaker 03:
We understand from attorneys working with the Massachusetts Hospital Association that CMS has the discretion to provide the corrected wage data for Nantucket Hospital to be used.

[00:37:13] Speaker 00:
But this was not an error made by Mount Auburn Hospital.

[00:37:19] Speaker 00:
It will reduce our Medicare payments by $4.2 million if it's not corrected.

[00:37:25] Speaker 00:
That's right.

[00:37:25] Speaker 03:
Oh, there's no question they raised the issue that it was going to hurt them.

[00:37:29] Speaker 00:
So they didn't just say, we're not here working for Nantucket Hospital?

[00:37:32] Speaker 03:
No, no, of course not, Your Honor.

[00:37:33] Speaker 03:
But the reason they commented was that it was going to hurt them.

[00:37:37] Speaker 03:
And what they said was that Nantucket has a pending request

[00:37:42] Speaker 03:
to have the data corrected and applied to it.

[00:37:46] Speaker 03:
And you should grant that, because they know that if it's granted and it's corrected to Nantucket, it's going to affect them also.

[00:37:53] Speaker 00:
So if they had said in their letters, we'll throw Nantucket under the bus.

[00:37:57] Speaker 00:
It's their problem.

[00:37:58] Speaker 00:
But make the correction for all the other hospitals in Massachusetts?

[00:38:02] Speaker 00:
What then?

[00:38:03] Speaker 03:
I'm sorry.

[00:38:04] Speaker 00:
So if they had said,

[00:38:07] Speaker 00:
I think this is a requisition.

[00:38:08] Speaker 00:
We don't care if you can correct Nantucket Hospital's numbers.

[00:38:12] Speaker 00:
They're on their own.

[00:38:12] Speaker 00:
They hurt themselves.

[00:38:13] Speaker 00:
They shot themselves in the foot.

[00:38:15] Speaker 00:
But don't wound all of us.

[00:38:18] Speaker 00:
So fix the wage index for everybody else who was innocently affected by their error.

[00:38:23] Speaker 00:
Does that make a difference in your mind?

[00:38:25] Speaker 03:
No, it doesn't make a difference.

[00:38:26] Speaker 03:
But the point is that that's conceivable in a case involving the rural floor.

[00:38:30] Speaker 03:
It doesn't work in a case that doesn't involve the rural floor, because everybody in the metropolitan statistical area has to get the same wage index.

[00:38:37] Speaker 03:
You can't punish one who came in late.

[00:38:39] Speaker 00:
OK, but this is a rural floor.

[00:38:41] Speaker 05:
I'm looking at the secretary's summary

[00:38:45] Speaker 05:
of the comments.

[00:38:48] Speaker 05:
And the secretary says one comment made is that it would be good sound public policy to use the most accurate available data in order to prevent one hospital's data errors from having a negative effect on Medicare payments on other hospitals.

[00:39:08] Speaker 05:
So it sounds like the secretary understands the commenters to have made

[00:39:15] Speaker 05:
the line of argument that Judge Malek was just talking about.

[00:39:19] Speaker 03:
Well, maybe I'm not being clear here.

[00:39:23] Speaker 05:
In other words, they did argue, there's more to this than they're just saying, help out Nantucket even though Nantucket messed up.

[00:39:34] Speaker 05:
They said, don't let Nantucket's

[00:39:38] Speaker 05:
mistake hurt us.

[00:39:40] Speaker 03:
Absolutely.

[00:39:41] Speaker 03:
I didn't mean to suggest that that wasn't part of the comment.

[00:39:44] Speaker 03:
It's definitely part of the comment.

[00:39:49] Speaker 05:
And the response to that is deadlines are deadlines.

[00:39:54] Speaker 05:
And I guess the question for us, I mean I think it's a close question for whatever that's worth, is whether we read into that all of the

[00:40:04] Speaker 05:
nuance that you would have us read into it about this is just too hard and there might be subterfuge if we allow third parties to reopen.

[00:40:17] Speaker 03:
Right, and the data still has to go through the process.

[00:40:20] Speaker 03:
so that the Medicare contractor's job is to decide whether this data is accurate, whether it should be permitted to be included in average hourly wages or not.

[00:40:29] Speaker 03:
That process has to go forward, and if you have data that should have been corrected in September, by the time April rolls around, it really is going to be very hard to make sure that that data is correct.

[00:40:41] Speaker 00:
Okay.

[00:40:41] Speaker 00:
Thank you very much.

[00:40:46] Speaker 00:
Did Ms.

[00:40:46] Speaker 00:
Wertheimer have any time left?

[00:40:47] Speaker 00:
We'll give you two minutes, if you'd like.

[00:40:55] Speaker 00:
Do you have evidence that the secretary has been making the kind of exception that you want for a hospital's error under the modern system?

[00:41:10] Speaker 02:
I don't have – there's certainly nothing in the record to indicate that this – that the Secretary makes this particular kind of wage and tax correction on a regular basis.

[00:41:22] Speaker 02:
I mean – No, at all.

[00:41:24] Speaker 02:
At all?

[00:41:24] Speaker 00:
I don't want regular basis.

[00:41:25] Speaker 02:
I mean, in terms of – well, I mean – so, I mean, if you – the Secretary makes

[00:41:33] Speaker 02:
significant number of changes to the wage index between when the proposed rule is issued.

[00:41:39] Speaker 00:
No, I get that.

[00:41:39] Speaker 00:
But they define, these are things that, those are all right.

[00:41:42] Speaker 00:
Here are new errors that you've identified based on what we have sent out to you.

[00:41:48] Speaker 00:
And of course, that's what should be commented on at that point.

[00:41:51] Speaker 00:
But what I'm asking you, is there evidence that at the time of the, you know, once the NPRM is out, or even a later date, like it was much later in Methodist Hospital,

[00:42:02] Speaker 00:
They said, oh, you can now, we will now make changes based on an error that was made at the hospital's original submission point that the hospital could have plenty of opportunity to correct and didn't.

[00:42:20] Speaker 00:
Has that ever happened?

[00:42:22] Speaker 02:
So other than in Methodist Hospital where it clearly did happen.

[00:42:27] Speaker 00:
Was that the prospective payment system even back then?

[00:42:32] Speaker 00:
Yes, it was.

[00:42:33] Speaker 02:
But you said it was 1994.

[00:42:35] Speaker 02:
It was older.

[00:42:36] Speaker 02:
I mean, part of this is this points to the rarity of this situation and why this was so aberrant and why in this one instance.

[00:42:47] Speaker 02:
Well, maybe it's rare because they really have said deadlines are deadlines.

[00:42:50] Speaker 02:
Well, I mean, it's rare that the significant impact that this one hospital had on the entire state and the ability of other hospitals to recognize the significant error.

[00:43:03] Speaker 00:
Generally... What they say, and it doesn't strike me as an unreasonable thing to say, is that if this door is opened, no reporting hospital is going to have to be that careful, because if they find an error later, they're going to pick up the phone

[00:43:17] Speaker 00:
call their friends and say, can you complain about this, please?

[00:43:20] Speaker 02:
Well, I mean, I do think that the Secretary has – we can see that this – the wage index is not an exercise in scientific exactitude.

[00:43:29] Speaker 02:
I think that was the end of Jake's language.

[00:43:31] Speaker 02:
But we do think there is a line somewhere that the Secretary must reasonably draw when he's weighing accuracy, which the statute does require.

[00:43:41] Speaker 02:
against administrative burden and the like.

[00:43:44] Speaker 02:
And so it is possible that if we're talking about a 0.2% change in the wage index, that that is a fair line to draw.

[00:43:52] Speaker 02:
But here, where we're talking about $110 million to a state, our position is that it is not reasonable to sacrifice that degree of accuracy, which is required by the statute, in favor of

[00:44:08] Speaker 00:
the administrative burden of undertaking one change.

[00:44:19] Speaker 00:
This is just too big of an error.

[00:44:21] Speaker 02:
Our position is that the Secretary has discretion and does make changes.

[00:44:26] Speaker 02:
And I'm not talking about necessarily this particular kind of change, but does make changes to data that are the result of hospital error after the proposed rule is issued.

[00:44:37] Speaker 02:
And so he has that discretion.

[00:44:40] Speaker 02:
He does it.

[00:44:41] Speaker 00:
And we believe that that is a result of, other than Methodist Hospital, is a result of hospital error.

[00:44:47] Speaker 00:
Do you mean something that the hospital should have known about when they first reported, should have caught in the four or five months of back and forth?

[00:44:55] Speaker 00:
Were you talking about something that was exposed when the secretary put everything together and the NPRM comes out?

[00:45:04] Speaker 00:
Wait a minute, wait a minute.

[00:45:06] Speaker 02:
Well, I mean, I'm not sure in terms of, like, should the hospital have known or not known, but it was the hospital's data.

[00:45:11] Speaker 02:
It was their error in their own, you know, accounting system or whatever.

[00:45:15] Speaker 02:
It wasn't a CMS error, so... And your evidence of that has happened... That's... ...sometimes since the 1990s.

[00:45:21] Speaker 02:
So I believe that that...

[00:45:25] Speaker 02:
that site that I pointed you to earlier, 1266, that that was an instance of it.

[00:45:31] Speaker 00:
Sorry, is it JA126?

[00:45:32] Speaker 02:
No, no, I'm sorry, it's RO, it's the record.

[00:45:36] Speaker 02:
It did not make its way into the joint.

[00:45:37] Speaker 00:
Record 1266, is that in the joint?

[00:45:40] Speaker 00:
That's the one you've got?

[00:45:41] Speaker 02:
Yeah, and so in that instance, my understanding is that was data that the

[00:45:49] Speaker 02:
secretary determined was unreliable and therefore not going to be included within the wage index.

[00:45:59] Speaker 02:
The errors were addressed, he got new data and he included it in the wage index.

[00:46:03] Speaker 02:
So my point is that the secretary has the discretion to do this, has to weigh

[00:46:11] Speaker 02:
his statutory obligation against legitimate considerations.

[00:46:17] Speaker 02:
And in this instance, we don't believe that the reasons that were given in response to the comments were reasonable or reflect that he actually considered the issues fairly.

[00:46:32] Speaker 00:
Thank you very much.

[00:46:33] Speaker 02:
Thank you, Your Honors.

[00:46:35] Speaker 00:
The case is submitted.