[00:00:00] Speaker 00:
Mr. Pullen for the appellate.

[00:01:06] Speaker 04:
Good morning.

[00:01:07] Speaker 01:
Good morning, Your Honors.

[00:01:09] Speaker 01:
Again, I'm Lori Rubin.

[00:01:10] Speaker 01:
I'm appearing on behalf of the hospitals who are the appellants in this case, and I've asked to reserve five minutes for rebuttal.

[00:01:18] Speaker 01:
May it please the Court, the stakes in this case are high.

[00:01:21] Speaker 01:
The Secretary's position is that agencies can totally botch rulemaking procedures as long as they later act reasonably in response.

[00:01:29] Speaker 01:
That encourages bad rulemaking.

[00:01:32] Speaker 01:
His approach would also mean leaving in place rules that violate the APA and open defiance of the APA's mandate.

[00:01:38] Speaker 01:
His approach would also deprive parties a chance to be heard on their live, non-mute controversies.

[00:01:45] Speaker 01:
In contrast,

[00:01:46] Speaker 01:
Our approach is that vacater of arbitrary agency rules is not only required by the plain language of the EPA, but also incentivizes agencies to engage in proper rulemaking from the get-go and leaves parties free to pursue live controversies.

[00:02:01] Speaker 03:
So doesn't the dispute really come down to whether the district court the first time around properly decided to remand without vacating?

[00:02:15] Speaker 03:
All of what you're saying may be right in the abstract, but we have this settled doctrine allowing courts to do that.

[00:02:24] Speaker 03:
And district court did that and it did so precisely to preserve the option of fixing things going forward rather than having to retroactively undo everything.

[00:02:39] Speaker 01:
I agree that in the district court below, we believe the proper outcome was vacant or from the get-go.

[00:02:45] Speaker 01:
The agency argued that it could fix the procedural deficiencies on remands, and the agency and the court did not even reach our arbitrary and capricious challenge below, which we also hoped that it would reach.

[00:02:58] Speaker 01:
And then upon remand, which Allied Signal provides that you can remand to the agency to give the agency an opportunity to fix the APA deficiencies, but on remand, the agency only addressed the procedural deficiencies and did nothing to cure the arbitrary and capricious deficiencies.

[00:03:16] Speaker 01:
So it's our view that now, vacant or was proper below, but now it's more proper than ever because the agency is no longer willing to even defend this role.

[00:03:26] Speaker 03:
Well, you say that, but,

[00:03:29] Speaker 03:
The district, I'm sorry, the agency on remand cured or addressed the one legal problem identified by the district court the first time around, which was lack of adequate notice, right?

[00:03:45] Speaker 03:
And then the district court also addressed the problem of, you know,

[00:03:54] Speaker 03:
how to respond to the fact that this 0.2% reduction didn't seem warranted, right?

[00:04:04] Speaker 03:
And your position now is, you know, just disregard everything the agency said going forward because it was in a 2017 rulemaking.

[00:04:17] Speaker 01:
Well, Your Honor, the district court, I would respectfully disagree.

[00:04:20] Speaker 01:
The district court did not address the problem as to whether the .2% was warranted or not.

[00:04:26] Speaker 01:
The district court said the agency was not required to defend a rule that it no longer stood by, which we think is incorrect under the EPA.

[00:04:34] Speaker 03:
Right, but from the agency's perspective on remand, they have a rule that the court has expressly decided not to vacate.

[00:04:46] Speaker 03:
And then they have this substantive problem, which is the reduction doesn't seem to be supported.

[00:04:53] Speaker 03:
But they're addressing it from what was 2016, 2017 perspective.

[00:04:59] Speaker 03:
They're addressing it whenever they're addressing it.

[00:05:03] Speaker 01:
Yeah, Your Honor, the problem is the APA requires that deficient agency rules be set aside.

[00:05:08] Speaker 01:
So because the rules are arbitrary and capricious, if we leave it on the books, that can have huge consequences for later rulemaking.

[00:05:15] Speaker 03:
It's only arbitrary and capricious if they lack a reasonable explanation for what they're doing.

[00:05:22] Speaker 01:
That's correct, Your Honor, I agree.

[00:05:23] Speaker 03:
Which doesn't necessarily take us to whether the agency reasonably addressed this problem from the perspective in 2016 or 17 when they realized that what they're doing

[00:05:43] Speaker 03:
It doesn't make sense and they have to figure out how to respond and they can either try to go back three years and unwind everything or they can try to fix things going forward.

[00:05:53] Speaker 03:
And they have to resolve that problem reasonably, but that's what they try to do and that's what we review.

[00:06:01] Speaker 01:
Well, Your Honor, I first want to explain that the rule was arbitrary and capricious in 2013 when it was promulgated.

[00:06:07] Speaker 01:
So from the start, promulgating a 0.2% rate reduction along with the two midnights policy was counterintuitive.

[00:06:14] Speaker 01:
It was based on actuary estimates where the actuaries themselves.

[00:06:17] Speaker 01:
So they're not disputing that?

[00:06:18] Speaker 01:
No.

[00:06:18] Speaker 01:
They don't appear to be.

[00:06:18] Speaker 01:
Oh, OK.

[00:06:19] Speaker 05:
Everybody's agreed.

[00:06:20] Speaker 05:
The question is where Judge Katz is.

[00:06:23] Speaker 05:
That's what we're looking at.

[00:06:24] Speaker 05:
And we get your point about that to go back to the beginning.

[00:06:27] Speaker 05:
He's pressing you, given this doctrine on remand without a vacator.

[00:06:32] Speaker 01:
Sure.

[00:06:33] Speaker 01:
I appreciate the clarification, Your Honor.

[00:06:35] Speaker 05:
No, I'm sure you do.

[00:06:36] Speaker 05:
But the point is.

[00:06:37] Speaker 05:
what's your best response that even if there's no problem on the first remand, there's still a problem because what the agency did is still an arbitrary or a fail with adequately to explain.

[00:06:55] Speaker 05:
Isn't that what you have to persuade us at this point?

[00:06:58] Speaker 05:
In other words, we have all these cases involving these very complicated statutory schemes

[00:07:06] Speaker 05:
Where, you know, candidly, we have given the agencies a lot of leeway because you can't fix them always.

[00:07:12] Speaker 05:
And the agency cites all those reasons.

[00:07:17] Speaker 05:
Is that enough?

[00:07:19] Speaker 01:
Well, Your Honor, the agency cites case law that has to do with rulemaking in the first instance.

[00:07:23] Speaker 05:
I understand that.

[00:07:24] Speaker 01:
And whether rulemaking is arbitrary and capricious.

[00:07:26] Speaker 01:
That's not our situation.

[00:07:28] Speaker 01:
Our situation is under the APA, these rules must be set aside.

[00:07:31] Speaker 01:
They did not fix.

[00:07:33] Speaker 06:
Let me just ask.

[00:07:34] Speaker 06:
The rule that they announced 2017 rule is, we'll pay you back everything.

[00:07:40] Speaker 06:
We're going to make you a halt.

[00:07:42] Speaker 06:
But we're not going to vacate our previous rule.

[00:07:44] Speaker 06:
We're just going to make you a halt.

[00:07:46] Speaker 06:
Would you have an objection?

[00:07:47] Speaker 06:
Would there be some claim that there's something wrong with not vacating the rule under those circumstances?

[00:07:53] Speaker 01:
Your Honor, in my view, that would mood out plaintiff's claims.

[00:07:56] Speaker 01:
So if they were able to mood out plaintiff's claims with the rulemaking, that would, the parties would effectively no longer be in the court.

[00:08:02] Speaker 06:
But you just told me it leaves on the books something bad, but it actually doesn't leave something on the books bad because their new rule would solve the problem, right?

[00:08:11] Speaker 06:
So the answer isn't that we have to vacate in order to not leave something bad on the books, right?

[00:08:18] Speaker 01:
Well, Your Honor, I would add a distinction there, right?

[00:08:21] Speaker 01:
So I think that if you're leaving something on the books, that's now a moot point, because parties have been fully restored.

[00:08:27] Speaker 01:
That's entirely different than leaving a non-moot role that's been properly challenged on the books.

[00:08:32] Speaker 06:
So the next question is, why isn't what they've done the best that they can do, given the complexity of the system?

[00:08:39] Speaker 06:
Well, I think- Your opening brief suggests this is really easy.

[00:08:44] Speaker 06:
Just multiply it by a different number.

[00:08:45] Speaker 06:
Whatever number we gave,

[00:08:47] Speaker 06:
Whatever number they gave you, 0.2 off, multiply by 1.2, something like that you said, right?

[00:08:54] Speaker 06:
Is that correct?

[00:08:55] Speaker 06:
Is that really all that would be necessary with respect to every hospital to just multiply whatever they gave you before by 1.2?

[00:09:07] Speaker 06:
Is that the number you said 1.2?

[00:09:08] Speaker 01:
Your Honor, it's 1.002, a factor of that, multiplied by payments made to hospitals.

[00:09:14] Speaker 06:
Right, but that would solve the problem.

[00:09:16] Speaker 06:
And that would be completely correct.

[00:09:18] Speaker 06:
It would be a make-hole solution if you multiply by 1.002.

[00:09:23] Speaker 01:
Well, it's interesting, Your Honor.

[00:09:24] Speaker 01:
So the agency is attempting to make it into a much more complicated issue, and they only pointed one example.

[00:09:33] Speaker 06:
What's your view?

[00:09:34] Speaker 01:
Is that all that's necessary?

[00:09:35] Speaker 01:
My view is it's that simple, it's that straightforward.

[00:09:37] Speaker 01:
The example, the one example the agency set forward about why it's complicated is such a peripheral butterfly effect situation that can't be measured, that can't be mathematically calculated, that if you look at, you know, what you can calculate precisely, then yes, it is simple and straightforward to do.

[00:09:52] Speaker 06:
So other than that one question about outliers, all you have to do is multiply for every husband.

[00:10:00] Speaker 01:
Yes, if done correctly and applied to the final amounts paid and the final amounts adjusted, I believe that's correct, Your Honor.

[00:10:07] Speaker 06:
And why isn't what they did, which was to add that up for the three years, give up .6 or whatever the correct decimal place is, why wasn't that okay?

[00:10:19] Speaker 01:
Because the agency's fix was a 0.6% adjustment in fiscal year 17 to fiscal year 17 inpatient admissions.

[00:10:26] Speaker 01:
But because for many hospitals, inpatient admissions declined, including because the two-minutes policy caused a decline in inpatient admissions for many hospitals.

[00:10:34] Speaker 01:
It didn't fully compensate them for their deficient rate.

[00:10:36] Speaker 06:
Because they're not multiplying by the past number, past admissions, they're doing it prospectively.

[00:10:41] Speaker 06:
Correct, Your Honor.

[00:10:42] Speaker 06:
Let me ask just one further question.

[00:10:44] Speaker 06:
You have in footnote 12,

[00:10:46] Speaker 06:
your answer to what I think is a pretty serious problem on the part of your clients, which is I take it some of your clients did better than they should under your theory, correct?

[00:10:57] Speaker 01:
Your Honor, the fact that, yes, I think that hospitals are still doing those calculations.

[00:11:02] Speaker 01:
Some of them may have come out better, and some of those may be withdrawing that portion of the appeal, but not the interest portion of the appeal.

[00:11:09] Speaker 01:
But the fact that some did better and they were winners and losers just proves the point that it hasn't been set aside as a requirement.

[00:11:15] Speaker 06:
Yes, but why don't the winners have to pay, if they did better than they should have, why don't they have to pay it back?

[00:11:21] Speaker 06:
And do they realize that by bringing this suit, they are opening themselves up to a clawback?

[00:11:27] Speaker 01:
Well, Your Honor, first of all, I'm not aware of any mechanism by which they could claw back the 0.6% increase.

[00:11:34] Speaker 06:
If we ordered a make-hole order now, and this is above the make-hole order, which is what you're asking us to do, why wouldn't we order an order that anybody who was more than made whole should pay the money back so that the money can go to the people who weren't made whole?

[00:11:52] Speaker 01:
I'm not sure under what authority a recruitment could be taken, and that's partially because, you know, this is the self-inflicted wound by the agency, right?

[00:11:59] Speaker 01:
The agency shouldn't get to get away with skirting APA requirements by coming with a proposal that they think is good enough.

[00:12:07] Speaker 06:
The government pays you too much money by mistake.

[00:12:10] Speaker 06:
They get it back.

[00:12:11] Speaker 06:
It's not like too bad government.

[00:12:14] Speaker 06:
If my savings account gets a direct deposit of more than my monthly salary, it's not mine.

[00:12:23] Speaker 06:
I have to give it back.

[00:12:25] Speaker 06:
And they can get it back.

[00:12:27] Speaker 06:
Why aren't some of your clients in that same circumstance?

[00:12:30] Speaker 01:
Your Honor, I acknowledge that some of our clients may have come out ahead.

[00:12:35] Speaker 01:
I'll stand by.

[00:12:36] Speaker 01:
I don't think there's a mechanism by which it could be recouped.

[00:12:39] Speaker 01:
And I see that I'm out of time.

[00:12:40] Speaker 06:
My guess is the government will come up with one.

[00:12:43] Speaker 01:
Well, and I think that will spawn more litigation, Your Honor.

[00:12:48] Speaker 03:
Your exchange with Judge Garland just proves that this can't be solved globally by changing the .06 to some other number that you like more.

[00:13:03] Speaker 03:
Because it's hospital by hospital the reason why the attempt to undo the consequences

[00:13:12] Speaker 03:
is a little bit imprecise.

[00:13:14] Speaker 03:
And if you have a hospital with declining admissions, they're gonna get a windfall, right?

[00:13:22] Speaker 03:
You have a hospital with increasing admissions, maybe I got that backwards, but there's a windfall or a shortfall depending on whether admissions for the particular hospital are increasing or decreasing.

[00:13:40] Speaker 03:
And that's assuming that everything else is constant, but I'm pretty sure in the context of Medicare, not everything is going to be constant.

[00:13:50] Speaker 03:
So they're going to have to do this redo at every hospital, every admission, figuring out how to make them whole.

[00:14:01] Speaker 03:
That seems like a massive undertaking.

[00:14:05] Speaker 01:
The secretary's approach is the imprecise one, the winners and losers, the .6% increase.

[00:14:09] Speaker 01:
The point, if they actually restore what they took by the rate cut, that is not an imprecise calculation other than the butterfly effect of totally unpredictable outlier payments.

[00:14:20] Speaker 05:
But is the assumption underlying the judge's question correct?

[00:14:26] Speaker 05:
In other words, doesn't the secretary already have this information?

[00:14:31] Speaker 05:
All right, so it's just a matter that if somebody

[00:14:34] Speaker 05:
a hospital system received, I don't know, $5,000 more.

[00:14:40] Speaker 05:
It's easy to tell.

[00:14:42] Speaker 05:
Just go on the computer, look at the data, and tell them to pay $5,000 back, assuming there's authority to do all that sort of thing.

[00:14:50] Speaker 05:
But I'm just not clear that we're talking about starting from scratch, going through this colossally complex calculation hospital by hospital since

[00:15:04] Speaker 05:
other requirements under the statutes and regulations require this data to be provided to the secretary.

[00:15:12] Speaker 05:
But it doesn't mean it's not complex, but I just want to be clear that how complex is it?

[00:15:17] Speaker 05:
What I'm trying to understand is the distinction between the argument that agencies can't be sloppy about how they do rulemaking.

[00:15:25] Speaker 05:
If they are, and it's arbitrary and capricious, then they have to make a correction

[00:15:32] Speaker 05:
And they cannot simply rely on administrative convenience, all right?

[00:15:37] Speaker 05:
A lot of these statutory schemes are necessarily complex.

[00:15:42] Speaker 05:
And what I'm trying to understand, while our court has given leeway in these complex schemes, is this the type of system where such leeway should be accorded?

[00:15:54] Speaker 05:
And the normal administrative convenience argument fits.

[00:16:01] Speaker 05:
It's not going to fit every situation.

[00:16:04] Speaker 05:
And that's what I think is difficult to grasp, at least based on my knowledge of the record in this case, looking at the hospital submissions.

[00:16:15] Speaker 01:
Your Honor, the Secretary should know exactly how much it paid every single hospital for the three fiscal years of issue and should be able to simply multiply that by 1.002.

[00:16:23] Speaker 01:
I'm not saying it's not administrative work.

[00:16:26] Speaker 06:
Your brief says 1.02.

[00:16:27] Speaker 01:
Yes, our opening brief inadvertently left out an extra zero, I believe.

[00:16:35] Speaker 01:
All right, a reply brief corrected.

[00:16:37] Speaker 03:
I saw, I saw.

[00:16:38] Speaker 03:
So one side of the balance is what Judge Rogers just asked you about, which is how complicated is it to do this better.

[00:16:50] Speaker 03:
The other side of the balance is how important is it to do better.

[00:16:56] Speaker 03:
So do we have any sense, do we have any sense of how inaccurate the,

[00:17:04] Speaker 03:
you know, 0.6 for one year going forward to compensate for 0.2 for each of three years backwards.

[00:17:15] Speaker 03:
I mean, at first cut, seems like it should be approximately right.

[00:17:21] Speaker 03:
Of course, it won't be exactly right because of all sorts of complicating factors, but how far off is it?

[00:17:27] Speaker 01:
Yeah, you're right, Your Honor, and there's not a large amount of money at issue in this case.

[00:17:31] Speaker 01:
There's not a large amount of money at issue in this case in terms of the Medicare program as a whole.

[00:17:36] Speaker 01:
The last figures I saw, it's not in the record, the last figures I saw were approximately $1.5 million discrepancy for hospitals that were harmed, exclusive of interest.

[00:17:46] Speaker 05:
Per hospital?

[00:17:49] Speaker 05:
I can't understand these numbers.

[00:17:50] Speaker 05:
Per hospital?

[00:17:52] Speaker 01:
No, in the aggregate.

[00:17:55] Speaker 01:
the last figures that I saw.

[00:17:56] Speaker 01:
Some hospitals are still calculating.

[00:17:58] Speaker 05:
So in response to Judge Katz's question, we're talking about a very small amount of money to each hospital?

[00:18:04] Speaker 01:
That's correct, Your Honor, and setting good policy.

[00:18:07] Speaker 05:
And so why are they bringing this very expensive litigation?

[00:18:11] Speaker 01:
Your Honor, there were many hospitals below who significantly benefited from the 0.6% increase and were part of the case below.

[00:18:18] Speaker 01:
The appellate court level was another step, and also to secure interest for every fiscal year that's an issue.

[00:18:26] Speaker 05:
So it could be significant money for a number of hospitals.

[00:18:30] Speaker 05:
I just need to be clear about this.

[00:18:33] Speaker 05:
I understand your principle, and so does Judge Katz's.

[00:18:36] Speaker 05:
Now we're trying to figure out what's at stake.

[00:18:39] Speaker 01:
For certain hospitals, there's, you know, a chunk of cash at stake.

[00:18:44] Speaker 05:
Chunk of cash.

[00:18:46] Speaker 01:
It depends on the hospitals, Your Honor.

[00:18:48] Speaker 01:
So for all of the hospitals, additional interest is at stake.

[00:18:51] Speaker 01:
And hospitals, you know, can take every increase to their budget line that they can get these dates.

[00:18:58] Speaker 01:
Thank you.

[00:18:59] Speaker 04:
Thank you, Your Honors.

[00:19:24] Speaker 04:
Good morning.

[00:19:26] Speaker 02:
Good morning, Your Honors.

[00:19:28] Speaker 02:
May it please the Court, Thomas Pohl for Secretary Azar.

[00:19:32] Speaker 02:
I'd like to begin.

[00:19:33] Speaker 06:
I think that my colleagues have nicely pointed to the question here.

[00:19:40] Speaker 06:
So if we could begin with, I think, the question that Chief Judge was ending with, which is why can't the Secretary just multiply the amounts that were actually paid during the relevant years by 1.002?

[00:19:56] Speaker 06:
The reasons that the agency gave, which are transparency, expediency, and administrative feasibility, why doesn't this solution fit those criteria?

[00:20:13] Speaker 02:
So a couple of reasons.

[00:20:15] Speaker 02:
First, I think we have to look at where the world was when the secretary made this decision.

[00:20:24] Speaker 02:
At that time,

[00:20:26] Speaker 02:
that knowledge wasn't available.

[00:20:29] Speaker 02:
The secretary won't know how much a hospital is paid for a given year until there's been a full accounting and reconciliation of the claims for that year going through the contractor review and all that dispute process.

[00:20:46] Speaker 02:
That can take several years.

[00:20:48] Speaker 02:
So at the time when this was done in 2016,

[00:20:52] Speaker 02:
it simply would not have been known the total payments for the hospitals for the affected years.

[00:21:00] Speaker 02:
So that's one very big reason.

[00:21:04] Speaker 02:
Another one, we're looking at the reasons advanced by the secretary, expediency, transparency, feasibility.

[00:21:14] Speaker 02:
The secretary adopted a mechanism by which the hospitals could start getting paid right away.

[00:21:20] Speaker 02:
This one-time increase was added to the very next year's payments, so that money was going to start going out right away.

[00:21:29] Speaker 02:
And so I think for that reason and several others, as the Secretary noted, the vast majority of commenters supported this approach.

[00:21:38] Speaker 02:
because they could see, they could estimate how much they were going to get.

[00:21:42] Speaker 02:
That helps with their planning, knowing that their rate is going to go up by a fixed amount the next year.

[00:21:48] Speaker 02:
It gets them the money sooner.

[00:21:50] Speaker 02:
They're saved the administrative burden of going through multiple cost reconciliation processes, one for the old rate and then again for the new rate.

[00:22:00] Speaker 02:
So when we're looking at the time that the Secretary made this decision,

[00:22:05] Speaker 02:
there was a very big difference between these two possible solutions.

[00:22:11] Speaker 02:
Another reason which we talked about is the hospital's proposed solution is just a different approximation of what the difference would have been and we pointed to the

[00:22:26] Speaker 02:
example of outlier payments.

[00:22:28] Speaker 02:
As Your Honors know, this system is very complicated.

[00:22:31] Speaker 02:
There are many interdependent provisions.

[00:22:33] Speaker 02:
You change one thing, that can affect other parts of the system.

[00:22:38] Speaker 02:
Council described outlier payments as kind of a peripheral butterfly effect, but up to 50% of hospitals in a given year will receive an outlier payment.

[00:22:50] Speaker 02:
So this isn't just some very small thing at the margins.

[00:22:55] Speaker 05:
What I'm trying to understand is everything you may say may be correct.

[00:22:59] Speaker 05:
You don't talk about interest, of course.

[00:23:02] Speaker 05:
And the fact that a number of commenters said, yes, we want our money now, does that solve all problems?

[00:23:14] Speaker 02:
Well, I think it underscores the reasonableness of the Secretary's solution.

[00:23:21] Speaker 02:
And I'd like to address the interest that Your Honor mentioned.

[00:23:26] Speaker 02:
The Secretary stated in the 2017 rulemaking that she would not oppose interest under 1395-00F2.

[00:23:37] Speaker 02:
for any hospital that had a pending lawsuit for a given year.

[00:23:43] Speaker 02:
And that process has been going on.

[00:23:46] Speaker 02:
Those interest payments are being made.

[00:23:48] Speaker 02:
It's not fully finished yet, but that's been a cooperative process between the secretary and the hospitals to get those interest payments made.

[00:23:55] Speaker 05:
And how is that being done?

[00:23:57] Speaker 05:
Is it on just a flat percentage basis in terms of this 1.002?

[00:24:05] Speaker 05:
or is it hospital by hospital?

[00:24:10] Speaker 02:
So it's interest, the way it's done is it's an incremental adjustment to the one-time increase that's being applied to the 2017 rates.

[00:24:25] Speaker 02:
The interest rate is set by statute, or statute tells you where to look for that.

[00:24:31] Speaker 02:
And so what my understanding is what the Secretary has done is added kind of a little increment to the one-time adjustment in 2017 to account for that interest.

[00:24:42] Speaker 02:
And basically the hospitals, excuse me, get interest for every year for which they had a lawsuit pending.

[00:24:49] Speaker 02:
So if they had three challenges, they get an interest adjustment to each of the .2 components that adds up to .6.

[00:24:57] Speaker 02:
And so that interest, as your honor indicated,

[00:25:01] Speaker 02:
that adds money, but that is being taken care of.

[00:25:05] Speaker 02:
So there's no dispute that any hospital that had a lawsuit pending would receive interest on the disputed amount in that lawsuit.

[00:25:14] Speaker 05:
So who loses out in this scheme?

[00:25:18] Speaker 02:
So as the secretary acknowledged, there will be some hospitals that come out ahead and some that come out behind, but... I'm trying to understand which they are.

[00:25:32] Speaker 05:
In other words, the well-funded suburban hospital is doing okay.

[00:25:37] Speaker 05:
The urban underfunded hospital is not doing okay.

[00:25:43] Speaker 02:
I don't know that there's any reason to think that would be the case.

[00:25:46] Speaker 02:
Certainly there's been no such argument here.

[00:25:49] Speaker 02:
I just... I don't think there's any reason to think it would fall on one or two.

[00:25:55] Speaker 03:
The most obvious example

[00:25:58] Speaker 03:
of hospitals that are going to be shortchanged are the ones that are closed.

[00:26:04] Speaker 02:
That's right.

[00:26:05] Speaker 03:
Substantially declining.

[00:26:07] Speaker 02:
That's right.

[00:26:07] Speaker 02:
So a hospital might have closed or a hospital might have converted to a different type of institution.

[00:26:12] Speaker 03:
And for the extreme cases of closed or converted, you've addressed that.

[00:26:16] Speaker 02:
That's right, that was raised in the notice and comment period and the secretary realized that those hospitals would not receive the benefit of the proposed solution and the secretary said for those small number of hospitals we can address that through the cost reconciliation process.

[00:26:29] Speaker 02:
So there shouldn't be and nothing has been pointed out to the secretary that there's some class of hospitals that's especially hard hit by this.

[00:26:37] Speaker 03:
It will be kind of... And is there any reason to think, there are lots of reasons to think that

[00:26:44] Speaker 03:
the approximation will be a little bit too high for some, a little bit too low for others.

[00:26:51] Speaker 03:
Is there any reason to think that in the aggregate it won't, you know, the .06 going forward for one year gain won't

[00:27:05] Speaker 03:
be commensurate with the 0.02 times 3 over 3 years losses?

[00:27:11] Speaker 02:
I don't think so.

[00:27:12] Speaker 02:
I mean the hospitals have suggested that it could be because there was a decline in patients.

[00:27:19] Speaker 02:
A global decline.

[00:27:20] Speaker 02:
I mean, that won't be true for all hospitals.

[00:27:23] Speaker 02:
And one thing to take into account is that the 0.6 adjustment is being applied to a higher rate.

[00:27:30] Speaker 02:
Payments are higher now than they were, or they're higher in 2017 than they were in 2014.

[00:27:36] Speaker 02:
So there's a little bit of factor that way.

[00:27:41] Speaker 02:
This isn't in the record.

[00:27:42] Speaker 02:
My understanding is that there is not reason to believe that there is a global deficiency.

[00:27:51] Speaker 02:
So if there are any other questions, I'm happy to address them.

[00:27:54] Speaker 02:
Otherwise, we would ask that the district court's decision be affirmed.

[00:28:00] Speaker 06:
Just on the interest question, could you just go through the statutory explanation for why it's year by year?

[00:28:07] Speaker 02:
Yes.

[00:28:09] Speaker 02:
So this court explained in Tucson Medical Center that when we're applying this interest provision, the court considers three factors.

[00:28:17] Speaker 02:
One is whether the hospital sought judicial review under 1395-00F1.

[00:28:26] Speaker 02:
The second is whether there was an amount of controversy, and the third is whether they were prevailing parties.

[00:28:31] Speaker 02:
Of course, this is a statute that abrogates sovereign immunity, so we need to construe it narrowly and be very careful about what we're talking about here.

[00:28:40] Speaker 02:
The first requirement limits the hospitals to the years for which judicial review was sought.

[00:28:45] Speaker 02:
Judicial review is sought here by

[00:28:48] Speaker 02:
Going to the board for either a rule or a final cost report for a specific year issue, the board either in this case decides that it can't address the challenge and so it grants expedited judicial review.

[00:29:05] Speaker 02:
It does that for the particular subject year on all of the grants.

[00:29:10] Speaker 06:
So the challenges that actually went to the board

[00:29:13] Speaker 06:
were only four specific years?

[00:29:15] Speaker 02:
That's right.

[00:29:17] Speaker 02:
And the board specifically said, we don't have jurisdiction to consider this issue for the subject year.

[00:29:25] Speaker 02:
So expedited judicial review is granted for the subject year.

[00:29:28] Speaker 02:
That language is in all of the letters from the board.

[00:29:37] Speaker 02:
And so at this court in Tucson Medical Center, this court cited with approval two decisions from other courts.

[00:29:45] Speaker 02:
One was the Fifth Circuit's decision in Riley.

[00:29:47] Speaker 02:
The other was a district court decision from the Northern District of California.

[00:29:52] Speaker 02:
In this court said that those decisions were correct in denying interest because judicial review hadn't been sought for the specific years on which interest was sought.

[00:30:05] Speaker 02:
And this also comes into play in the second factor in the inquiry, which is the amount of controversy.

[00:30:12] Speaker 02:
The amount of controversy this court explained in Tucson Medical Center is set at the time the complaint is filed.

[00:30:18] Speaker 02:
And as the Fifth Circuit explained in Riley, it can't exceed the district court's jurisdiction.

[00:30:23] Speaker 02:
So when a hospital brings a suit challenging the payment rate for 2014,

[00:30:31] Speaker 02:
the amount of controversy is the rate that applies to that year.

[00:30:36] Speaker 02:
It doesn't go beyond what the board authorized or what you can identify at the outset.

[00:30:43] Speaker 03:
Sorry, just one more.

[00:30:44] Speaker 03:
Back to the main point.

[00:30:48] Speaker 03:
What agency action are we actually reviewing?

[00:30:54] Speaker 03:
Is it the failure to vacate the 2014

[00:30:59] Speaker 03:
final rule or the promulgation of the 2017 final rule or both?

[00:31:07] Speaker 02:
I think it's the, I mean, the action that's here before is the, that's before this Court, I think, is the Secretary's decision to

[00:31:21] Speaker 02:
to prospectively remove the 0.2% reduction that was adopted in 2014 and... It's the 2017.

[00:31:32] Speaker 02:
I think so.

[00:31:32] Speaker 02:
I mean, it's all kind of wrapped up into one.

[00:31:35] Speaker 02:
It is.

[00:31:36] Speaker 03:
It's jumbled and it makes strong intuitive sense to talk about everything together.

[00:31:43] Speaker 03:
I just want to make sure there aren't any procedural problems because...

[00:31:51] Speaker 03:
I mean, one way of thinking about this case is the agency action that was challenged is the 2014 final rule, and that's what's before us.

[00:32:02] Speaker 03:
And if someone wanted to challenge the 2017 rule, they would have to satisfy presentment, exhaustion, PRRB requirements, which hasn't been done here.

[00:32:15] Speaker 02:
That's right.

[00:32:16] Speaker 03:
But I'm taking any shortcuts in just plumbing those two together.

[00:32:20] Speaker 02:
I really don't think so.

[00:32:22] Speaker 02:
I mean, I think it makes good sense, as Your Honor suggested.

[00:32:24] Speaker 02:
And these were actions that were taken on remand from the district court in a matter over which the district court, you know, everyone agrees had jurisdiction to consider.

[00:32:35] Speaker 02:
The district court remanded for additional proceedings.

[00:32:40] Speaker 02:
It was, I think, clearly contemplated by the fact that it was a remand for notice and comment that the agency action could change.

[00:32:47] Speaker 02:
That's the point of notice and comment.

[00:32:49] Speaker 02:
And so it all came back to the district court.

[00:32:52] Speaker 02:
And I don't think there's any reason why, just because the secretary used the 2017 rulemaking, which was kind of the next train to leave the station, the secretary used that to attach the remand proceedings to.

[00:33:06] Speaker 02:
There's no reason why that divested the district court of jurisdiction to consider what happened on remand.

[00:33:12] Speaker 03:
Even though it's a separate agency action which might

[00:33:19] Speaker 03:
have its own presentment and exhaustion type requirements.

[00:33:24] Speaker 02:
Yeah, I don't think so with respect to what happened on remand.

[00:33:29] Speaker 02:
The district court, when it set this for remand, it set a timetable by which things needed to be done.

[00:33:36] Speaker 02:
It said, you know, if the action's not corrected, I will vacate it.

[00:33:41] Speaker 02:
I mean, it clearly contemplated an ongoing jurisdiction.

[00:33:43] Speaker 03:
No doubt that's what the district court contemplated.

[00:33:46] Speaker 03:
I guess I just want to make sure that that isn't

[00:33:49] Speaker 03:
short-circuiting.

[00:33:50] Speaker 03:
I mean, the procedural and jurisdictional aspects of Medicare are awfully complicated, and some of them are jurisdictional.

[00:33:58] Speaker 02:
Right.

[00:33:59] Speaker 02:
I don't think there's any reason to think that the district court lost jurisdiction over the matter simply because the agency kind of used the 2017 rulemaking as a vehicle to put this out there.

[00:34:13] Speaker 03:
And have jurisdiction to review a later agency action.

[00:34:16] Speaker 02:
I think that's right, because the district court had jurisdiction, as Judge Moss explained, you know, he clearly had jurisdiction over the 2014 rulemaking.

[00:34:29] Speaker 02:
This was additional notice and comment to

[00:34:34] Speaker 02:
you know, provide further action on that particular rulemaking.

[00:34:38] Speaker 02:
So I don't think there's any reason why there would be a jurisdictional problem, nor, as a practical matter, would that be a kind of sensible approach to this, to bifurcate the Secretary's actions and only look at part of them.

[00:34:50] Speaker 04:
So you're reading the Tone 17 rule, really, as P-14 extended as distinct from separate training.

[00:34:58] Speaker 02:
I think that's right, because that's what the Secretary was doing there, was correcting a problem in the 2014 rulemaking.

[00:35:06] Speaker 02:
Thank you very much.

[00:35:17] Speaker 01:
Your Honors, I know I'm out of time, but if it's all right with you, I'd like to address the relevance of Fiscal Year 2017 as well as the interest issue.

[00:35:27] Speaker 01:
First, the fiscal year 17 rule is not before the court.

[00:35:34] Speaker 01:
As Judge Katz has pointed out, it hasn't been appealed by the parties via expedited judicial review granted by the PRB in this matter.

[00:35:44] Speaker 01:
In our view, this court does not have jurisdiction over it.

[00:35:47] Speaker 01:
There's two cases that rule on this issue that we cited in our briefs, the Tallahassee case out of the 11th Circuit, where the 11th Circuit held that the later rulemaking could not prevent the court from considering ordering relief as to the old rulemaking, other than to consider whether it mooted the issue, which it did not.

[00:36:05] Speaker 03:
But it is artificial to separate the two in the circumstances of this case, right?

[00:36:13] Speaker 01:
It's perhaps a challenge.

[00:36:15] Speaker 01:
I wouldn't call it artificial, Your Honor.

[00:36:18] Speaker 01:
They were separate rule-makings.

[00:36:22] Speaker 03:
Suppose we take a formalistic view and think that all that we're reviewing is the refusal to vacate the 2014 rule.

[00:36:33] Speaker 03:
Even if that's true, why can't we determine that question by looking at

[00:36:41] Speaker 03:
everything else the agency has done, looking at by hypothesis a separate rulemaking docket from 2017 which we can judicially notice and all of that informs the 2014 decision.

[00:36:58] Speaker 01:
Well, Your Honor, vacate means to set aside and to restore the rules that were in place prior to the deficient rulemaking.

[00:37:04] Speaker 01:
So we're comfortable with considering the fiscal year 17 rule in terms of seeing whether it mooted the party's claims, whether it fully restored the status quo prior to the fiscal year 14 rate cut.

[00:37:16] Speaker 03:
Or whether it provides a reasonable explanation for the refusal to vacate.

[00:37:22] Speaker 01:
Your Honor, I respectfully disagree that that's not the standard in this case.

[00:37:26] Speaker 01:
The agency doesn't get deference on how to implement the APA's requirement that it be set aside.

[00:37:32] Speaker 01:
Set aside does not mean reasonably addressed.

[00:37:34] Speaker 01:
It means restore the parties to the status quo.

[00:37:37] Speaker 03:
Well, but now we're back to the remand without vacating point.

[00:37:43] Speaker 01:
Well, Your Honor, that was a remand to see if the agency could fix the rule respectfully.

[00:37:47] Speaker 01:
The agency can't.

[00:37:48] Speaker 01:
The agency has now abandoned the rule.

[00:37:53] Speaker 01:
We also cited AHA v. Azar, where the D.C.

[00:37:58] Speaker 01:
District Court vacated a 2019 payment role.

[00:38:01] Speaker 01:
considered a challenge to a 2020 payment rule in the same case that rested on the same justification, and the district court held that it lacked jurisdiction as a technical matter and therefore lacked jurisdiction.

[00:38:12] Speaker 01:
I realize that's a district court decision, but it applies here.

[00:38:16] Speaker 01:
And more importantly, even if there weren't a jurisdictional issue as to the fiscal year 17 rule, the standard is not whether the agency acted reasonably because the APA requires that the deficient rule be set aside.

[00:38:31] Speaker 01:
I'd like to address the interest issue.

[00:38:36] Speaker 01:
Just, I'll be brief.

[00:38:38] Speaker 01:
The amount of controversy in this case is the full impact of the rate cut.

[00:38:41] Speaker 01:
And unlike the cases the Secretary cited in support for the interest arguments, this case was about a rate cut that was promulgated in 2013 to apply for every single future year.

[00:38:52] Speaker 01:
So it's not that the amount of controversy is determined at the time the complaint is filed.

[00:38:56] Speaker 01:
It's the full impact of the rate cut, which impacted every year 14, 15, 16,

[00:39:01] Speaker 01:
without any additional action by the agency just by virtue of the reduction to the standardized amount.

[00:39:06] Speaker 01:
And I'll also say the language in the board decisions that references subject year is not binding language.

[00:39:13] Speaker 01:
It's standard language.

[00:39:15] Speaker 01:
In our view, it doesn't restrict the appeal in that way because the board, and also because the board decisions say that the legal question in those cases was whether the 0.2% adjustment was proper.

[00:39:25] Speaker 01:
That 2% adjustment was done for fiscal year 14 and not again and again, it was simply compounded.

[00:39:33] Speaker 01:
Thank you, Your Honors.