[00:00:00] Speaker 01: Case number 21-5091, Gentile Health Services Inc. [00:00:04] Speaker 01: Appellant versus Xavier Becerra in his official capacity as Secretary of U.S. [00:00:09] Speaker 01: Department of Health and Human Services. [00:00:12] Speaker 01: Mr. Rissler for the appellant, Ms. [00:00:14] Speaker 01: Neumeister for the appellate. [00:00:16] Speaker 05: Council for Appellant, you may proceed. [00:00:20] Speaker 00: Good morning. [00:00:20] Speaker 00: May it please the court, Jared Rissler for appellant. [00:00:23] Speaker 00: I'd like to reserve one minute for rebuttal. [00:00:26] Speaker 00: This case concerns the application of two cost cutting measures. [00:00:30] Speaker 00: the Budget Control Act, and the aggregate hospice cap. [00:00:33] Speaker 00: Applying each according to its plain language is straightforward. [00:00:38] Speaker 00: The Budget Control Act requires a 2% reduction to quote individual payments for services. [00:00:44] Speaker 00: The hospice cap statute applies to the aggregate quote amount of payment made by Medicare for a one-year period. [00:00:53] Speaker 00: The two provisions here can both be applied according to their plain language. [00:00:57] Speaker 00: There's no conflict in reducing individual payments for services by 2% as required by the Budget Control Act, and then applying the aggregate cap to the hospice's aggregate amount of payment made as required by the hospice cap statute and the agency's published interpretations of it. [00:01:19] Speaker 00: In fact, that's exactly what the Medicare contractors initially did in this case. [00:01:25] Speaker 00: The agency wasn't satisfied with that outcome, and in March 2015, it secretly instructed the contractors to change the way that they applied the hospice cap. [00:01:35] Speaker 00: The effect of these instructions was to apply sequestration to the hospice's aggregate payments rather than to their individual payments or services made as Congress had instructed. [00:01:48] Speaker 00: Now, the Secretary observes that if we tweak the language of the Budget Control Act, if we apply the 2% reduction to hospices [00:01:55] Speaker 00: aggregate payments, rather than their individual payments for services, as Congress instructed, then this will result in the maximum possible savings for, or maximum possible recoupments from hostesses, and thus the greatest savings for Medicare. [00:02:11] Speaker 00: But the Secretary has not identified any language in the Budget Control Act that applies the 2% reduction to anything other than individual payments for services. [00:02:24] Speaker 00: And you will search in vain. [00:02:26] Speaker 04: Can I ask you something about that? [00:02:30] Speaker 04: It says individual payments for services furnished during the one year period. [00:02:36] Speaker 04: Now these payments that you got, were any of those for services across a one year period or were they for smaller periods of time? [00:02:46] Speaker 00: All of the payments, that's a good question, all the payments were per PM payment. [00:02:50] Speaker 00: that were issued for claims submitted for specific services. [00:02:55] Speaker 04: Were they for services that were furnished during a one-year period or for a shorter period? [00:03:02] Speaker 00: Well, the individual payments, no, are, they're herding and payments. [00:03:06] Speaker 00: And so what happens- And aren't they made monthly? [00:03:11] Speaker 03: Are they made monthly? [00:03:13] Speaker 00: They are made monthly. [00:03:14] Speaker 00: That is correct. [00:03:15] Speaker 00: Pursuant to claims that are submitted for services, [00:03:19] Speaker 00: at a daily rate. [00:03:23] Speaker 00: As well, the one-year period that's referenced in the Budget Control Act is the one-year period starting with the order for sequestration, which in this case would be April 1 to March 31. [00:03:38] Speaker 00: The aggregate hospice cap applies to an entirely different time period from November 1 to October 31. [00:03:51] Speaker 04: Can I ask you about, go ahead. [00:03:54] Speaker 03: The amount of payment for the services ultimately is the reconciled amount of payment, not the payments that are made through the year as the services are being rendered. [00:04:11] Speaker 03: There's no question that the legally required payment is the reconciled payment at the end of the year, isn't that right? [00:04:21] Speaker 00: Well, the only payment that is made to a hospice are these per diem payments. [00:04:27] Speaker 00: Those payments are the amount of payment made under the language of the statute are subject to an aggregate tax. [00:04:36] Speaker 00: But there are providers that receive interim payments and where that happens that there are regulations governing the interim payments. [00:04:47] Speaker 00: And those interim payments occur when [00:04:50] Speaker 03: providers are paid on a cost reporting basis so that- But in the ordinary case, when there are payments being made, per diem payments being made monthly, so that the providers have a cash flow, there's no determination of what amount the providers are actually entitled to until the cap is determined [00:05:14] Speaker 03: after the fact and applied. [00:05:17] Speaker 03: And so when you're talking about payments made as a sort of literal matter, payments are made, they're dispersed, but they're not payments to which the providers are legally entitled for the services that they provided until the reconciliation has happened under the cap. [00:05:35] Speaker 03: Isn't that correct? [00:05:38] Speaker 00: Well, the amount of payment made [00:05:41] Speaker 00: under the hospice cap statute may not exceed an aggregate cap. [00:05:47] Speaker 00: And so the amount of payment made, and this is, it's in the statute, but I think it becomes even more clear with the secretary's interpretation or implementation of that statute in 42 CFR 418.3 AD, and then even more so in CMS's manual that makes clear that [00:06:10] Speaker 00: The aggregate cap is applied by comparing the amount of payments made, the manual calls it total actual Medicare payments, to an aggregate cap. [00:06:27] Speaker 04: Let me ask you about your reading of 906D3B, because that, since the Budget Control Act can apply, quote, on a basis relating to the reasonable cost incurred for the services during a cost reporting period of the provider. [00:06:46] Speaker 04: When you look at the payments received by hospice during a cost reporting period, [00:06:54] Speaker 04: Isn't that doesn't that already include the aggregate cap? [00:07:01] Speaker 00: No, the hospices are not paid according to a cost report. [00:07:07] Speaker 00: The per diem payments are our final payments. [00:07:12] Speaker 00: They're not reconciled based on cost incurred. [00:07:17] Speaker 00: And so there is no. [00:07:19] Speaker 04: Well, no, there's the application at the end of the year. [00:07:22] Speaker 04: There's the application of the aggregate cap and there may be other adjustments, if I understand this scheme. [00:07:28] Speaker 04: So there is a form of reconciliation that happens at the end. [00:07:31] Speaker 04: It may be tailored to your situation, but your payment for the cost reporting period is determined at the end of the year through the reporting process and that [00:07:45] Speaker 04: process includes application of the aggregate cap, right? [00:07:51] Speaker 00: Yes, there is. [00:07:52] Speaker 04: Per diem payments are not final payments because if they go over the aggregate cap, you'll have to return some. [00:08:00] Speaker 00: Well, the per diem payments are subject to an aggregate cap, which is over a period of November 1 to October 31st. [00:08:09] Speaker 04: Right, over a year. [00:08:12] Speaker 04: All I'm trying to do is clarify what's meant by [00:08:14] Speaker 04: payments over a cost reporting period. [00:08:18] Speaker 04: And that would include in the hospice. [00:08:25] Speaker 04: I'll tell you my understanding, if you can tell me where I'm wrong, because you understand this better than I do, it's pretty complicated. [00:08:30] Speaker 04: But my understanding is that cost reporting period, the year time, the 12 months you mentioned, you have the per diem payments, but then at the end of that, there's a final reckoning [00:08:41] Speaker 04: as to the payments and that there can be adjustments. [00:08:46] Speaker 04: And part of that process includes application of the aggregate cap and any adjustments that need to be made because of that. [00:08:56] Speaker 04: Is my understanding correct? [00:08:59] Speaker 00: Well, with one caveat, I think the language for the cost reporting period is coming from the Budget Control Act. [00:09:07] Speaker 00: I'm not sure that that language is in [00:09:10] Speaker 00: It is not in the hospice cap aggregate cap statute. [00:09:16] Speaker 00: That period is referred to as the cap period as opposed to a cost reporting period because hospices are not paid on cost. [00:09:29] Speaker 00: And that aggregate cap is calculated against net reimbursements. [00:09:34] Speaker 00: Other adjustments are made as the secretary acknowledges in its briefing at pages 44 and 45 [00:09:41] Speaker 00: The aggregate cap is applied after other adjustments. [00:09:47] Speaker 00: And the secretary offers no reason why sequestration should be treated differently than other adjustments. [00:09:55] Speaker 04: So does that cost reporting language report apply to a different part of the Medicare Act? [00:10:00] Speaker 04: Is that what you're saying that doesn't apply to the hospice provision? [00:10:03] Speaker 00: I think that's right. [00:10:05] Speaker 00: Hospices are not paid on a cost reporting basis. [00:10:08] Speaker 00: They do have an aggregate [00:10:10] Speaker 00: An aggregate cap that applies. [00:10:13] Speaker 00: It's not strictly speaking of reconciliation because they're not paid on a cost reporting basis, but they do receive a notice of final reimbursement that applied the aggregate cap. [00:10:26] Speaker 04: Okay. [00:10:26] Speaker 04: So you're saying, I just want to make sure I understand. [00:10:29] Speaker 04: Can you tell me, I don't want to put words in your mouth, so tell me if I've got it wrong. [00:10:32] Speaker 04: Your reading of the language I quoted from 906 D3B is when they're referring to cost reporting periods, that's different aspects of the Medicare Act, maybe hospitals, because they go through a cost reporting process and hospices do not. [00:10:52] Speaker 04: That's right. [00:10:53] Speaker 04: Okay. [00:10:53] Speaker 04: Thanks. [00:10:57] Speaker 05: Sorry, go ahead. [00:10:59] Speaker 03: No, you go ahead. [00:11:00] Speaker 03: No, no. [00:11:02] Speaker 03: I was just going to ask how you square the way you would propose reading the statutes to time the calculation of the sequestration with the explanation example that the district court provided at J.A. [00:11:18] Speaker 03: 249, page 10 of the [00:11:21] Speaker 03: of the slip opinion that shows that your method wouldn't apply the sequestration to hospice B, which was the less efficient hospice, and would apply it to hospice A. That seems contrary to the budget control mandate to reduce the Medicare spending by 2% across the board. [00:11:42] Speaker 03: And it just seems perverse to reward the less efficient provider that way. [00:11:51] Speaker 00: First, the hospice cap is not a matter of efficiency. [00:11:57] Speaker 00: Hospices cannot avoid the cap by being more efficient. [00:12:02] Speaker 00: The hospice cap is a comparison of two numbers. [00:12:07] Speaker 00: An aggregate cap, which is determined by essentially the number of Medicare beneficiaries that a hospice serves and the amount of payment made, which in a per diem system is [00:12:20] Speaker 00: the amount of, the number of days of services being provided. [00:12:27] Speaker 00: And so a hospice that exceeds its cap did not necessarily provide services inefficently. [00:12:38] Speaker 00: It nearly provided more services than the, compared to the number of patients on its census. [00:12:50] Speaker 00: Essentially, it comes down to its length of service and the argument of efficiency is essentially one that patients remain on hospice too long or lived for too long. [00:13:04] Speaker 00: It has nothing to do with the hospices spending too much providing care. [00:13:14] Speaker 00: I'm not sure I follow. [00:13:14] Speaker 03: It sounds like you're arguing with the policy behind the cap. [00:13:19] Speaker 03: I mean, are those examples incorrect in the district court's opinion? [00:13:27] Speaker 03: I thought they were illuminating. [00:13:29] Speaker 03: And to the extent that the cap would apply to the one that spent more and not to the one that spent less, it seems like you're saying, well, that's an erroneous or misled policy choice. [00:13:49] Speaker 00: No, that's not it at all. [00:13:52] Speaker 00: The hospice cap applies to, and we're not questioning the application of the hospice cap. [00:14:04] Speaker 00: So take, for example, a hospice with an aggregate cap of $98,000. [00:14:10] Speaker 00: With sequestration in effect, that hospice would need to deliver $100,000 of services [00:14:18] Speaker 00: in order to exceed the cap. [00:14:21] Speaker 00: And so this notion that hospices that exceed the cap have avoided sequestration is not correct. [00:14:30] Speaker 00: Those hospices have had, as the Budget Control Act requires, their individual payments for services reduced by 2%. [00:14:36] Speaker 00: So there may be services above the $100,000 in that situation. [00:14:44] Speaker 00: The hospices continue to provide services. [00:14:46] Speaker 00: It paid its nurses. [00:14:48] Speaker 00: paid its chaplains, its social workers, its administrative staff. [00:14:52] Speaker 00: It continues to pay for patients' medications. [00:14:56] Speaker 00: And it continues to submit claims, and those claims are paid at 98%. [00:15:00] Speaker 00: The effect of the cap is that those payments made above the cap have to be returned. [00:15:09] Speaker 00: And so the notion that hospices avoid the cap, or excuse me, avoid sequestration, [00:15:16] Speaker 00: because they're subject to a second further cut under the hospice cap statute simply is not the case. [00:15:27] Speaker 00: There are other adjustments that are made to hospice's payments that the secretary in briefing admits. [00:15:37] Speaker 00: Those adjustments must be made before application of the aggregate cap. [00:15:42] Speaker 00: And so take a hospice that had $100,000 [00:15:46] Speaker 00: of payments but that are reduced by $5,000 for Medicare secondary payer and $10,000 for the inpatient cap. [00:15:57] Speaker 00: That hospice then has net payment of $85,000. [00:16:00] Speaker 00: If the hospice's aggregate cap is $70,000, that hospice is paid $70,000 regardless of which would be the same even if the Medicare secondary payer [00:16:16] Speaker 00: the inpatient cap had not applied. [00:16:19] Speaker 00: And the secretary acknowledges that that is the right of resolve. [00:16:25] Speaker 00: Even though one could make the same argument that by applying the aggregate cap after those adjustments, the hospice has essentially avoided those pre-cap cuts. [00:16:41] Speaker 04: I'm just making sure I'm understanding this right. [00:16:45] Speaker 04: Wouldn't that money that was taken off in advance, that 2% off the per diems, wouldn't that have come off in the end anyhow? [00:16:53] Speaker 04: Because that 2% would have been part of what would have been over the aggregate cap anyhow. [00:16:59] Speaker 04: So it wasn't really sequestration. [00:17:01] Speaker 04: It was almost for, I know it was called sequestration, but financially, it's no different than if they had simply sort of somehow been able to see under crystal ball and cut back [00:17:13] Speaker 04: based on the aggregate cap early. [00:17:15] Speaker 04: I mean, you would have lost that same money due to the aggregate cap. [00:17:18] Speaker 04: I think that's what I thought the district court was saying. [00:17:21] Speaker 04: And so that's my question. [00:17:23] Speaker 04: You wouldn't have gotten it anyhow. [00:17:26] Speaker 00: So I think in the example of being able to see into the crystal ball, let's take the example of the hospitals that have the $98,000 cap. [00:17:34] Speaker 00: And let's pretend that we could see into the crystal ball and Medicare could simply cut all payments at the point that [00:17:42] Speaker 00: the quote amount of payment made exceeds $98,000. [00:17:47] Speaker 00: In a sequestration year, that provider would provide $100,000 of services that would then be paid at $98,000. [00:17:55] Speaker 00: At the point after that is where you would cut off payments. [00:18:03] Speaker 00: Under the secretary's position, the payments cut off not at actual [00:18:10] Speaker 00: amount of payment made of $98,000, but at 2% less than that. [00:18:16] Speaker 03: I don't see that. [00:18:18] Speaker 03: I mean, on your example, which I see at JA 249, which is page 10 of the district court's opinion, the 2% sequestration in table two per Gentiva's argument leaves the final amount retained by hospice B at 1,000, not [00:18:35] Speaker 03: 980 and I thought you just said that you know it should assuming that it's it should come out the same way if we had a crystal ball and that under the crystal ball scenario hospice b would retain 980 is that not what you were saying so so in column a of the of the district court's example the actual payments which which is the 980 dollars the 1000 reduced by two percent [00:19:05] Speaker 00: is less than the aggregate cap of $1,000. [00:19:13] Speaker 03: Right. [00:19:15] Speaker 03: This doesn't kick in for that. [00:19:19] Speaker 00: Right. [00:19:19] Speaker 00: That's right. [00:19:22] Speaker 00: And under our view, that's the correct result for the $1,000. [00:19:27] Speaker 03: But what about under column B? [00:19:29] Speaker 03: Why I thought you were saying that if they were paying and knew as they went along that the cap was going to be $980, that they wouldn't pay beyond that amount. [00:19:42] Speaker 03: And so the result should be, even if they did mistakenly pay beyond that, the results should come out that the final amount retained by the hospice is in column B, $980 as well. [00:19:53] Speaker 03: But you're saying no. [00:19:54] Speaker 00: No, the final amount in column B should be $1,000. [00:19:58] Speaker 00: because the actual payments made after sequestration are the $1,176. [00:20:05] Speaker 03: But I thought if we equate what should happen with what would happen if we had the crystal ball and knew what the cap was going to be, then CMS wouldn't have paid $1,176, but would only have paid $980. [00:20:23] Speaker 00: If we had the crystal ball and the aggregate cap was $1,000, [00:20:28] Speaker 00: Medicare would have stopped paying $1,000. [00:20:30] Speaker 03: And because of sequestration, it was down to $980. [00:20:34] Speaker 03: Right. [00:20:35] Speaker 00: If Medicare had had the crystal ball and example B and the aggregate cap was $1,000, and the amount that would have been paid in the absence of sequestration is this $1,200? [00:20:49] Speaker 00: So those payments, those individual payments for services that [00:20:58] Speaker 00: together add up to the aggregate amount of $1,200 would have been reduced by 2% at each claim. [00:21:05] Speaker 00: And at the point that those sequestration reduced payments, the amount of payment made equaled $1,000, it's at that point that Medicare would have stopped paying. [00:21:20] Speaker 04: So the $1,000 that the- So what I was trying to say is the amount [00:21:27] Speaker 04: um that was sequestered in those individual payments the sort of the per diem payments um uh the 824 as if i have my math right between 1200 and 11 1176 in column b you weren't going to get to keep that money anyhow just because of the aggregate cap right they took it out and called it advanced sequestration but you were never going to give that money anyhow because of the aggregate cap [00:21:57] Speaker 04: So counting that as your sequestration payment is sort of double counting for you. [00:22:03] Speaker 04: You're not actually paying any sequestration. [00:22:06] Speaker 04: You're just not getting money that you were never going to get anyhow. [00:22:10] Speaker 04: And so that's why they had to take another 2% off at the end to make sure that for hospital B, hospital B and hospital A share the pain equally and both actually end up getting 2% less than what they would have gotten [00:22:27] Speaker 04: at the end of the year when everything is sorted out, which would have been 1000 max. [00:22:34] Speaker 00: Well, hospice B receives payments that are reduced by sequestration during the year. [00:22:42] Speaker 00: And according to the budget control act, these are the individual payments for services. [00:22:45] Speaker 00: They are reduced in order to get to the $1,000 cap in a sequestration year. [00:22:53] Speaker 00: That hospice needs to provide services that are worth more than $1,000. [00:22:59] Speaker 00: They provide $1,000 plus the 2%. [00:23:04] Speaker 00: And those individual payments for services that otherwise would have been made at say $1,020 are made at $1,000. [00:23:14] Speaker 00: And any payments above that are subject to the [00:23:18] Speaker 03: Why is the hospice cap raised for a hospice that spends more? [00:23:29] Speaker 03: It seems like the cross check for whether sequestration has occurred has to be that no hospice is able to pay [00:23:41] Speaker 03: more than another hospice and as much as they would have had without sequestration. [00:23:48] Speaker 03: And it sounds like they may be getting less per service, but they're allowed to provide and get reimbursed for more services by effectively having a higher cap. [00:24:05] Speaker 03: And I guess you were saying before why you think that's consistent with the notion of [00:24:11] Speaker 03: the dual application of the cap and sequestration, but it's not at all intuitive to me why a hospice that does more services for more patients thereby gets effectively a higher cap. [00:24:30] Speaker 00: Well, providing more services does not create a higher cap. [00:24:35] Speaker 00: The cap is created by statute, is calculated by [00:24:41] Speaker 00: a per beneficiary amount times the number of Medicare beneficiaries. [00:24:48] Speaker 00: So that cap amount is not adjusted upwards for processes that provide additional services or have additional costs. [00:25:00] Speaker 00: That is purely a fixed number that applies to every single hospice across the board. [00:25:07] Speaker 00: So it's an amount that's set every year. [00:25:09] Speaker 00: In this case, [00:25:10] Speaker 00: I believe 26,157.50. [00:25:14] Speaker 00: And that number is multiplied by the number of Medicare beneficiaries that the hospice serves. [00:25:20] Speaker 00: And that's the same across the board for every hospice. [00:25:25] Speaker 00: Hospices that are below the cap retain all of their payments. [00:25:29] Speaker 00: They don't get any additional payments because they stay below the cap. [00:25:33] Speaker 00: They retain all of their payments sequestration reduced payments. [00:25:41] Speaker 00: And the hospice that is above the cap has its sequestration reduced payments further reduced. [00:25:48] Speaker 00: They've already received a 2% sequestration during the year. [00:25:53] Speaker 00: That's taken out of their payments before the contractor sends the money to the hospice. [00:26:01] Speaker 00: So they've already had that 2% taken out. [00:26:04] Speaker 04: But my point was is that that 2% they thought was going to be a sequestration payment, in fact, didn't, because it was just enforcing the aggregate cap. [00:26:17] Speaker 04: In reality, it was money. [00:26:19] Speaker 04: What I don't understand is if that's money you were never going to get anyhow because of the aggregate cap, that you weren't going to get the 200 under the 1200 theory, and you weren't going to get the extra 824 [00:26:35] Speaker 04: Because that they took out because of the 2% sequestration that was never going to be your money, anyhow, because of the aggregate cap right are we agreed on that that that 824 difference between 1200 and 1176 was never going to be money that the hospices got to keep even if there were no sequestration is that right. [00:26:55] Speaker 00: That is essentially the same argument as. [00:27:00] Speaker 04: I'm just asking a fact question. [00:27:01] Speaker 04: Is it right? [00:27:02] Speaker 04: I'm sorry. [00:27:02] Speaker 04: I'm going to go very slow here on this stuff. [00:27:04] Speaker 04: So just a fact. [00:27:05] Speaker 04: Am I right in understanding that $824 that was taken out here that in a normal year, I guess you would have gotten your $1,200 in per diem payments under column hospice B in this column. [00:27:19] Speaker 04: And instead, you only got $1176. [00:27:21] Speaker 04: So that's an $824 difference. [00:27:24] Speaker 04: Those are tiny amounts and they aren't the right amounts. [00:27:27] Speaker 04: But you were never going to get that money anyhow. [00:27:29] Speaker 04: Even without sequestration, you wouldn't have got that money. [00:27:33] Speaker 00: Yeah, without sequestration, the aggregate cap would have required the provider to return everything in excess of $1,000. [00:27:48] Speaker 04: Right, right. [00:27:48] Speaker 04: So that $824 that [00:27:50] Speaker 04: They took out just because they were trying to get ahead on the sequestration thing for the hospitals and overpaid. [00:27:56] Speaker 04: In fact, it ended up not really being a sequestration payment at all because it was never wasn't anything sequestered as to that hospitals that hospices payments because they [00:28:07] Speaker 04: never going to get that money. [00:28:09] Speaker 04: So at the end of the year, they had to go, wow, hospice B, you haven't contributed anything to the sequestration process. [00:28:17] Speaker 04: You're still getting, you still want to get your full 1000. [00:28:19] Speaker 04: We have to pay the sequestration. [00:28:22] Speaker 04: Everybody has to feel the sequestration pinch the same. [00:28:26] Speaker 04: And that's all they did here with you. [00:28:28] Speaker 04: So it's not really, I understand they call them sequestration payments during the year, but in fact, the reason they went through the [00:28:35] Speaker 04: calculations they did is that for hospices that were over the cap, those so-called sequestration cuts during the year were in fact not enforcing sequestration. [00:28:46] Speaker 04: It turns out all they did was enforce the cap a little bit earlier than normal. [00:28:52] Speaker 00: Well, sequestration, according to the Budget Control Act, applies to individual payments for services. [00:28:58] Speaker 00: And Medicare, in implementing the sequestration cuts, instructed [00:29:05] Speaker 00: the Medicare contractors to apply sequestration to individual claims for services. [00:29:14] Speaker 00: And that's precisely what was done. [00:29:17] Speaker 04: But just my factual understanding is accurate as to this table in the math that the 824 that you lost to so-called sequestration was in fact not money the hospice lost at all. [00:29:29] Speaker 04: It was never going to get to have that money or keep it in the first place because it was over the cap. [00:29:34] Speaker 04: And so then it seems like you're just going to your textual argument, which I understand, about individual payments in 906D. [00:29:45] Speaker 04: But then those payments weren't for services furnished during the one-year period, right? [00:29:52] Speaker 04: Because they weren't final as to that until we got to the end of the year and everything got its final reckoning. [00:30:01] Speaker 00: The payments, the only payments that a hospice receives are the individual payments. [00:30:08] Speaker 04: But you don't receive them and that you don't keep them if they're over the cap. [00:30:12] Speaker 04: So there has to be a reckoning at the end of the year. [00:30:15] Speaker 04: And they figure out how much of those checks we send you during the year, in fact, were for services furnished during that year, consistent with law, right, under the statutory scheme. [00:30:29] Speaker 00: under the hospice cap statute? [00:30:33] Speaker 04: Well, the 906D1A is talking about all of A and B of the Medicare Act. [00:30:39] Speaker 04: And so it's looking much more globally. [00:30:42] Speaker 04: There's no specific provision here for the hospice statute. [00:30:45] Speaker 04: It's all of A and B. And that is statutory schemes that require an end-of-the-year reckoning. [00:30:52] Speaker 04: Your reckoning is a bit different than, say, hospitals do for the reasons you've explained very well. [00:30:59] Speaker 04: But at the end of the day, they're talking about payments over a one-year period, but that's one reading of the statute. [00:31:06] Speaker 04: And that's when that payment you received, say you got, I can't do the math, but you got $200 for a one-month payment. [00:31:18] Speaker 04: I know these are very small numbers compared to reality, but my brain can't do the bigger numbers. [00:31:23] Speaker 04: $200 for a month, but it turned out that you're only entitled [00:31:28] Speaker 04: under the statutory scheme to 150, that 50 of that was actually gonna be over the cap anyhow. [00:31:36] Speaker 04: And so that wouldn't be difficult to say that that $200 payment rather than 150 you really should have gotten because of the cap is what Congress was referring to when it talked about individual payments for services furnished during the one-year period. [00:31:55] Speaker 00: Well, I don't think that the, [00:31:57] Speaker 00: that the amount of payments remaining after application of the aggregate cap can be characterized as individual payments for services, which was the specific language that Congress chose as the means for implementing the Budget Control Act. [00:32:18] Speaker 00: It had broader language that goes towards the goals [00:32:23] Speaker 00: But as this court has previously explained, it's for Congress to choose the means for implementing its goals. [00:32:35] Speaker 00: And the means and language that Congress used was individual payments for services. [00:32:43] Speaker 00: So the aggregate cash. [00:32:46] Speaker 05: Excuse me. [00:32:47] Speaker 05: Go ahead. [00:32:50] Speaker 00: The aggregate cap applies to an entirely different amount, which is an aggregate, or excuse me, the amount of payment made by Medicare for an aggregate one year period. [00:33:04] Speaker 00: And so the issue with the hospice having, you know, any hospice that is above the cap after adjustments, whether those adjustments are [00:33:20] Speaker 00: sequestration, Medicare secondary payer, or inpatient cap. [00:33:25] Speaker 00: Any patients that, or excuse me, any hospice that after those reductions remains above the cap is going to get paid, or is going to retain payments at the cap. [00:33:39] Speaker 05: And in that- All right, Council, I see you have your argument, and this is somewhat repetitious in your responses to Judge Millett. [00:33:46] Speaker 04: I think I was repetitious in my questioning. [00:33:48] Speaker 05: Well, maybe so, but I mean, we're not covering new ground here. [00:33:52] Speaker 05: I think we get your argument. [00:33:54] Speaker 05: Why don't we hear from Council for Appellee and then we'll give you your minute for rebuttal. [00:34:02] Speaker 06: Thank you. [00:34:08] Speaker 05: So, Council for Appellee. [00:34:10] Speaker 02: Thank you, your honor. [00:34:11] Speaker 02: And may it please the court, McKay Neumeister for the government. [00:34:14] Speaker 02: I'd like to start by taking a step back and focusing on what this case is about. [00:34:20] Speaker 02: The plain text of the Budget Control Act required a 2% reduction to Medicare spending, which can only be achieved for hospice payments if applied after the aggregate cap, which is precisely what the agency did here. [00:34:32] Speaker 02: Gentiva's view of the statute by contrast would exempt them from the effects of sequestration entirely. [00:34:38] Speaker 03: Well, I'm sorry, they argue that it wouldn't, that you're basically getting a bargain on each and every service provided because as the payments are made throughout the year, they're made at a 2% discount for all of them. [00:34:55] Speaker 03: So in the aggregate, the government will get [00:35:01] Speaker 03: more services for the capped amount than it would without sequestration. [00:35:06] Speaker 03: And that itself, I gather, Appellant is saying, is a saving to the government. [00:35:11] Speaker 02: It's not though, Your Honor, because if you look at the amount that Centiva would be entitled to receive for the aggregate services that it provided over the course of the entire year, [00:35:22] Speaker 02: with or without sequestration under its approach, that amount is the same. [00:35:27] Speaker 02: And so the total outlays from the Medicare program for that year have not been reduced at all to these hostesses that are exceeding their caps. [00:35:37] Speaker 02: Right. [00:35:37] Speaker 03: And my understanding is their position is, yeah, but they have to work harder and provide more value to get there. [00:35:44] Speaker 03: Well, you're getting it you're getting more product discount. [00:35:50] Speaker 02: I think his position. [00:35:52] Speaker 02: Yeah, your honor, the way that this works is that the hostesses have to provide the services that are required under the statute, regardless of. [00:36:03] Speaker 02: what is going to happen at the end of the day. [00:36:05] Speaker 02: These individuals, if they're eligible for hospice benefits, are entitled to keep receiving those benefits even if the hospice provider is not properly controlling its costs and those costs go over the cap. [00:36:17] Speaker 02: And so it's not that the government is receiving more bang for its buck. [00:36:21] Speaker 02: The government will receive the same amount of services or rather these beneficiaries receive the same amount of services either way. [00:36:27] Speaker 02: But the aggregate cap is a cost control measure, and Congress implemented it to ensure that the costs that were being paid for hospice care didn't exceed what the government would otherwise be paying for a conventional care setting for those same patients. [00:36:40] Speaker 02: And so these hospices are supposed to control their costs. [00:36:44] Speaker 02: keep their aggregate cost under this cap for the year. [00:36:47] Speaker 02: And under Geneva's approach, we have an incongruous result, whereby hospices that are properly controlling their costs and keeping them below the cap are subject to the full effect of sequestration and bear the brunt of these cuts, whereas the hospices that are not controlling their costs and are going over the cap [00:37:04] Speaker 02: don't end up seeing any reduction at all for the year. [00:37:07] Speaker 02: And that's what the district court referred to as the difference between an efficient hospice and an inefficient hospice. [00:37:13] Speaker 02: And it creates a perverse incentive, Your Honor, for these hospices that are not controlling their costs. [00:37:21] Speaker 02: It actually creates upward pressure that would incentivize them to shade over their aggregate cap to make sure that they can actually keep more in reimbursement for the year. [00:37:33] Speaker 02: in order to avoid the full effects of sequestration. [00:37:36] Speaker 02: If that's indeed the statute that's enacted, it would be very surprising because rather than reducing Medicare spending for hospice care by 2% across the board, for a significant percentage of hospices, there would be no overall reduction at all. [00:37:52] Speaker 02: And hospices would face this upward pressure that I discussed to actually increase costs instead of decreasing them, which is what both of these measures intend to happen. [00:38:01] Speaker 02: Thankfully, that's not the statute that Congress enacted, though, as the district were correctly held. [00:38:07] Speaker 04: Can I ask you about 906D3B that talks about cost reporting, period? [00:38:17] Speaker 04: And Mr. Reisler said that doesn't apply to hospices because they don't do cost reporting, certainly in the way that many other Medicare participants [00:38:26] Speaker 04: Do you agree that 3B doesn't apply to them on that basis, or do you believe that hospices do file cost reports? [00:38:40] Speaker 02: So, Your Honor, I'm not exactly certain whether the agency treats 3B in particular as applying to hospices, but I will explain what happens [00:38:51] Speaker 02: with hospices with respect to what you would consider to be a cost report. [00:38:56] Speaker 02: So cost reports are a term that's used generally to apply to hospitals and they have a cost reporting period and they file cost reports at the end of the year. [00:39:04] Speaker 02: If you look at 42 CFR 405.1803, this is the regulation titled Contractor Determination and Notice of Amount of Program Reimbursement. [00:39:18] Speaker 02: It talks about the end of the year. [00:39:20] Speaker 02: What page are we on? [00:39:24] Speaker 02: The regulation is 405.1803. [00:39:27] Speaker 02: Let me just find that in the addendum really quickly. [00:39:30] Speaker 02: I believe it's in the addendum. [00:39:33] Speaker 02: Yes, that's A16 of the addendum to our brief. [00:39:39] Speaker 02: So this regulation applies to the end of the year process by which various providers are issued a determination of their overall reimbursement, the overall notice of program reimbursement that they are entitled to receive for the year. [00:39:55] Speaker 02: And this applies both to hospices and to hospitals that have a cost reporting period. [00:40:01] Speaker 02: And as the notice explains, there's cost reports that are filed by other entities, but at A3, [00:40:10] Speaker 02: it mentions the hospice caps. [00:40:12] Speaker 02: And it says that with respect to a hospice, the reporting period is the cap year. [00:40:15] Speaker 02: And so it's essentially indicating that what you would call cost reporting periods for other entities, that the cap year for hospices and a cost report for other entities is essentially this process of filing their self-determination of cap amount that the hospices have to follow. [00:40:39] Speaker 02: I believe that's under 418-308C. [00:40:44] Speaker 02: I want to point you to one other source, Your Honor, and that's the provision for PRRB review. [00:40:49] Speaker 02: That's 1395-00. [00:40:50] Speaker 02: Let me find that in the addendum as well. [00:40:59] Speaker 02: Let's see. [00:41:00] Speaker 02: So A4 is 1395-00, I believe. [00:41:08] Speaker 02: And we don't so the relevant most relevant provision is not included in this, your honor, but. [00:41:18] Speaker 02: that I have the right page. [00:41:18] Speaker 02: And if you actually look at the first provision of that, it's A, establishment, and it talks about the review of the PRRB. [00:41:27] Speaker 02: And it says that any provider of services which has filed a required cost report may obtain a hearing with respect to such cost report. [00:41:35] Speaker 02: But that also applies to hospices. [00:41:36] Speaker 02: They don't technically file what's defined as a cost report. [00:41:39] Speaker 02: They file these cap notices. [00:41:42] Speaker 02: They self-determine their caps. [00:41:44] Speaker 02: And that's ultimately what they get to challenge through the PRRB, which just demonstrates that it's a different term, but it has certain similarities. [00:41:52] Speaker 02: And as the questioning my friend on the other side revealed, there are reasons why these cost reports, sorry, not cost reports, there are reasons why the total amount of program reimbursement to a hospice at the end of the year differs from the amount of payments that are paid out as periodic reimbursements throughout [00:42:13] Speaker 04: One other thing about this budget control act in D1A, the language that they're relying on, the individual payments for services, which has a sort of understanding within the hospice system. [00:42:33] Speaker 04: because of the way it works with per diem payments. [00:42:36] Speaker 04: But Congress there was speaking about A and B of the Medicare Act, parts A and B of the Medicare Act, which is a lot of ground to cover. [00:42:42] Speaker 04: So when you talk for a hospital, [00:42:48] Speaker 04: Is the term payments for services or individual payments for services used or does it how does how is individual payments for services, what was it meant to cover and how do we know that, given that it was an umbrella term for everything that happens under a and b. [00:43:05] Speaker 02: So in the context of hospices, your honor, you read the language of this provision and your individual payments for services, but it needs to be read with a view to its context and its place in the overall statutory scheme. [00:43:18] Speaker 02: So you read it in light of the rest of the structure of the budget control act. [00:43:21] Speaker 02: You also read it in light of the nature of the program statute. [00:43:24] Speaker 02: So for hospices, that's 1395 FI1 and FI2. [00:43:30] Speaker 02: And you can see that in context, payments to hospice providers are treated in the aggregate for an entire year based on all of the collective services that an individual provider has provided for that year. [00:43:47] Speaker 02: So in this context, individual payments for services means the payments to the individual providers. [00:43:53] Speaker 04: Yeah, I think I was trying to ask a different question. [00:43:57] Speaker 04: And that is, [00:44:00] Speaker 04: It's safe for a hospital, right? [00:44:03] Speaker 04: So we're under a different part of part A here. [00:44:06] Speaker 04: We're talking about hospital payments or B. Where in the process for hospitals, which get paid based on, if I recall, past cost estimates and then everything gets adjusted at the end, what in that process counts as an individual payment for service? [00:44:29] Speaker 04: Where did Congress get this phrase, individual payments for services? [00:44:34] Speaker 04: It must've talked to somebody at HHS. [00:44:37] Speaker 02: I'm not exactly certain, Your Honor. [00:44:39] Speaker 02: I know that these are generally referred to as fee for service claims. [00:44:42] Speaker 02: So it's possible that they're in part A and part B. So they're thinking about in terms of services. [00:44:49] Speaker 02: The concept of individual payment amounts has been part of the special Medicare rules since it was first enacted in 1985. [00:44:59] Speaker 02: This provision was respected in 1985. [00:45:03] Speaker 02: And I know that the PRRB in talking about this explained that for a certain segment of hospitals, the agency applies sequestration essentially the same way that it does for hospices. [00:45:14] Speaker 02: That's a footnote in the preliminary payments. [00:45:16] Speaker 02: And then again, at the end, I believe that's correct, your honor. [00:45:22] Speaker 02: on JA 13 and it's note 64, it's talking about hospitals from the inpatient perspective payment system and explains that these hospitals are subject to sequestration in a manner similar. [00:45:35] Speaker 02: I'm not exactly sure what the details of that are, your honor, but sort of stepping back regardless, the way that this provision should be read. [00:45:44] Speaker 04: I know how you guys want to interpret it, what I'm just asking. [00:45:49] Speaker 04: There's no language in other parts of Medicare A, [00:45:52] Speaker 04: Or be the uses of phrase like payment for service or individual payments for services. [00:45:58] Speaker 04: That's not a statutory term that appears somewhere. [00:46:01] Speaker 02: I'm not aware of a statutory provision that uses the phrase individual payments for services that that [00:46:10] Speaker 02: Congress might have been meaning to invoke here. [00:46:13] Speaker 02: If you look at the Medicare statute specifically for hospice payments, the relevant provision is titled payment for hospice care. [00:46:23] Speaker 02: and talks about how payment for hospice care works and how services should be viewed and how payments go to on the basis of individual providers. [00:46:34] Speaker 02: But regardless of the specific Medicare program that you're talking about, the way to interpret individual payments for services is to look at the way that that program functions and then the way that [00:46:48] Speaker 04: Congress structured the rest of the budget control act to determine- I just want to know if for hospitals and whoever else is covered under Medicare A and B, is sequestration applied at the end of the year after all the reconciliation has been done to ensure that each hospital, each participant, whatever form they take, is paying its share of the sequestration [00:47:18] Speaker 02: So that's certainly what the footnote that I pointed to in the PRRB decision suggests for hospitals that are exempt from the inpatient. [00:47:29] Speaker 02: perspective payment system. [00:47:31] Speaker 02: I'm not certain. [00:47:32] Speaker 04: That's a very small number. [00:47:35] Speaker 02: I'm not certain what other, at the top of my head, what other systems are in place that CMS has used to implement this. [00:47:46] Speaker 02: We do have the upfront 2% reduction for fee for service claims under Part A and Part B. And then obviously the technical direction letter was issued here specifically about how to do this for hospices. [00:47:58] Speaker 02: I believe there are there's other direct similar directives about for other programs um for instance the IPPS exempt that I just referenced but I'm not I'm not certain. [00:48:09] Speaker 02: Okay. [00:48:17] Speaker 03: Um can you speak briefly to the notice objection? [00:48:25] Speaker 02: Yes your honor so ultimately the agency was [00:48:28] Speaker 02: was implementing sequestration under the mandatory directive of the Budget Control Act. [00:48:33] Speaker 02: It had to implement sequestration such as to achieve this 2% reduction after the aggregate cap. [00:48:41] Speaker 02: And because it was subject to this mandatory requirement, any potential procedural mechanisms that might otherwise apply aren't to the contrary. [00:48:55] Speaker 02: But in any event, the hospices [00:48:57] Speaker 02: were informed about how this would work by their contractors. [00:49:02] Speaker 02: The technical direction letter instructed contractors to issue a listserv telling ostracists how this would be applied. [00:49:08] Speaker 02: There was also a forum that was held in November of 2014 at which they were made aware of this. [00:49:16] Speaker 02: And that's sort of referenced offhand at JA 213 note one is where that's referenced in this record. [00:49:26] Speaker 02: And ultimately, because the Budget Control Act has this mandatory statutory directive that required this result, that was putting providers on notice about how this would ultimately work. [00:49:40] Speaker 03: Are there other examples of situations like that where the directive comes straight from Congress and so there isn't really room for the agency to implement through notice and comment rulemaking? [00:49:53] Speaker 03: It just has to apply? [00:49:54] Speaker 03: Are there other examples that you can point us to where [00:49:57] Speaker 03: there isn't that sort of more handholding kind of individualized notice to these actors? [00:50:07] Speaker 02: So I don't have a specific example of that, Your Honor, but I will note that the district court found that plaintiffs had not identified any reliance interests that were not being respected here. [00:50:20] Speaker 02: We raised that in our brief as well in the context of [00:50:25] Speaker 02: whether there had been any prejudice and the rule of prejudicial error. [00:50:28] Speaker 02: And in reply plaintiffs still have not identified any prejudice that they might have suffered based on just the timing of awareness of this policy. [00:50:36] Speaker 02: And indeed it's supposed to be a reduction in sequestration is a reduction in overall spending. [00:50:44] Speaker 02: It's a reduction in these programs. [00:50:47] Speaker 02: And so something being applied at the backend when the caps can be properly calculated. [00:50:53] Speaker 02: It's not surprising that [00:50:55] Speaker 02: that there would not be prejudice from this. [00:50:59] Speaker 04: Does the government have a view on whether enforcement of its view of how the Budget Control Act was supposed to work here? [00:51:07] Speaker 04: So just for this question, assume that you're right on the merits. [00:51:12] Speaker 04: Whether that enforcement, cutting that 2% that Congress said everybody has to do at different levels, but everyone has to cut, counts as a sanction [00:51:23] Speaker 04: which ascertainable certainty is even the right standard? [00:51:29] Speaker 02: So we explained in our brief, Your Honor, why this isn't quite the right fit based on the precedence that plaintiff cited about fair notice because this really is not [00:51:43] Speaker 02: in general, not the kind of requirement that's being directly imposed on them that they're being penalized for violating. [00:51:50] Speaker 02: So just on sort of a general conceptual level, this isn't quite a match. [00:51:54] Speaker 02: I don't have a specific answer about your sanction question. [00:51:58] Speaker 04: But I think- It's not that they've violated, the aggregate cap takes care of any, if we can call it a violation, but we'll just say spending more than we're going to pay for. [00:52:07] Speaker 04: but enforcement sequestration is not a response to an individual provider's behavior or failure to conform to statutory regulatory requirements in the way that the sanction would be, right? [00:52:21] Speaker 04: This is just a share the pain all around. [00:52:24] Speaker 02: It is meant to be sort of an across the board cut that's applied evenly across programs with Medicare getting a special limited reduction. [00:52:34] Speaker 02: And another way to think about it that I think is sort of similar is that [00:52:37] Speaker 02: you know, the question about fair notice is about whether CMS is imposing requirements and interpreting its processes to impose certain requirements. [00:52:49] Speaker 02: But here we have this independent statutory mandate from the Budget Control Act that independently applies and requires this result. [00:52:56] Speaker 02: And so, you know, again, it's just the mismatch between saying that an agency didn't give for a notice of something that was independently required by Congress through statute. [00:53:09] Speaker 04: Thank you. [00:53:11] Speaker 02: Anything further? [00:53:12] Speaker 02: No, Your Honor. [00:53:16] Speaker 02: If there are no further questions, we would ask this court to affirm. [00:53:19] Speaker 05: All right. [00:53:20] Speaker 05: Thank you. [00:53:21] Speaker 05: So, counsel for appellant. [00:53:27] Speaker 00: Thank you, Your Honor. [00:53:28] Speaker 00: Just quickly on two points. [00:53:30] Speaker 00: The government said that there's an incentive to be inefficient and to exceed the cap. [00:53:36] Speaker 00: Hospices that exceed the cap [00:53:38] Speaker 00: have to return the amount of payment made in excess of the cap. [00:53:42] Speaker 00: There's no benefit at all to exceeding the cap. [00:53:46] Speaker 00: Hospices decidedly have an incentive not to exceed the cap because every penny that they receive above the cap has to be returned. [00:53:56] Speaker 00: And that's true regardless of sequestration or no sequestration. [00:54:02] Speaker 00: So there simply is no incentive to be inefficient or to exceed [00:54:08] Speaker 00: the cap. [00:54:12] Speaker 00: Briefly on the notice issue, we agree that there was no need to provide notice of the 2% reduction to individual payments for services. [00:54:25] Speaker 00: That was required by statute. [00:54:29] Speaker 00: But what the agency did in implementing it, they changed their interpretation of the hospice cap [00:54:37] Speaker 00: that has been interpreted in implementing regulation and in the Medicare benefit policy need and the instructions that it issues. [00:54:48] Speaker 04: Where had they previously interpreted how the aggregate cap work in conjunction with the Budget Control Act or sequestration requirement? [00:54:56] Speaker 04: Where had they previously done that? [00:54:58] Speaker 00: They had not, Your Honor, not to that level of specificity, but they did interpret the hospice cap as applying to total actual Medicare payments, which is the net reimbursement in each hospice provider's statistical reimbursement report. [00:55:16] Speaker 00: And the new interpretation changes that broad understanding of the hospice cap statute. [00:55:24] Speaker 00: And that was a change that required a notice under 1395-88. [00:55:32] Speaker 00: Thank you. [00:55:33] Speaker 03: Thank you. [00:55:34] Speaker 03: Go ahead, Council. [00:55:35] Speaker 03: I mean, Judge Pillard. [00:55:38] Speaker 03: I was just going to confirm that I think the point is that there would be an incentive to very slightly exceed the cap because on the delta of services provided in case A above 980, [00:55:54] Speaker 03: would, in that instance, not be effectively capped. [00:56:00] Speaker 03: So it's an incentive, I think, Council, for the government said to sort of scape right above, edge right above the cap. [00:56:07] Speaker 03: Yeah, it's a precision type of incentive, but an incentive nonetheless, in her view. [00:56:17] Speaker 05: Anything further? [00:56:20] Speaker 05: Thank you. [00:56:21] Speaker 05: Thank you, Council. [00:56:22] Speaker 00: Thank you, Your Honor. [00:56:23] Speaker 05: We'll take the case under advisement.