[00:00:00] Speaker 00:
Case number 24-5234.

[00:00:03] Speaker 00:
Milton S. Hershey Medical Center et al.

[00:00:06] Speaker 00:
Appellants.

[00:00:07] Speaker 00:
This is Robert F. Kennedy Jr.

[00:00:09] Speaker 00:
in his official capacity as Secretary of Health and Human Services.

[00:00:13] Speaker 00:
Mr. Connolly for the appellants.

[00:00:14] Speaker 00:
Ms.

[00:00:15] Speaker 00:
Shams for the appellate.

[00:00:17] Speaker 02:
Mr. Connolly, please proceed when you're ready.

[00:00:20] Speaker 04:
May please report Ron Connolly for the appellant hospitals.

[00:00:23] Speaker 04:
I request to reserve two minutes for rebuttal.

[00:00:25] Speaker 04:
This is a straightforward case.

[00:00:27] Speaker 04:
The secretary violated the plain text of the Medicare statute, admitted that violation publicly in the federal register, and then promulgated a compliant rule retroactive to 2001.

[00:00:38] Speaker 04:
These actions compel him to recalculate hospitals Medicare payments back to 2001.

[00:00:47] Speaker 04:
The reopening regulation indicates that the secretary

[00:00:53] Speaker 04:
The decision must be reopened if the secretary states the decision is inconsistent with the applicable law.

[00:01:00] Speaker 04:
In the federal register, the secretary so stated that prior interpretation was inconsistent with the statutory requirements.

[00:01:09] Speaker 04:
This is a plain and straightforward application of the reopening regulation.

[00:01:13] Speaker 02:
Can I ask you if we don't, you'll resist this, but I'm just asking you to do it.

[00:01:19] Speaker 02:
If we don't look at the example and we only look at the text beforehand,

[00:01:24] Speaker 02:
Do you have an argument?

[00:01:27] Speaker 04:
Well, yes.

[00:01:28] Speaker 04:
The text beforehand requires an explicit direction.

[00:01:31] Speaker 04:
I think even without the example, the statement in the Federal Register constitutes an explicit direction.

[00:01:38] Speaker 02:
By providing explicit direction to reopen.

[00:01:43] Speaker 02:
Explicit direction to reopen.

[00:01:45] Speaker 02:
Is there any way to read the rule as giving an explicit direction to reopen something that was closed?

[00:01:52] Speaker 04:
Without the example, I think you can reasonably infer that the statements in the Federal Register clearly stating that the prior interpretation was contrary to the law, coupled with the Monmouth and NRA Medicare reimbursement decisions, which were concerned to prior regulation.

[00:02:10] Speaker 04:
But nonetheless, that reasoning applies here, that when there's an explicit acknowledgment, that constitutes the direction to Rio.

[00:02:19] Speaker 02:
I don't know.

[00:02:20] Speaker 02:
It's hard for me to see how it can be an explicit direction to reopen when the explicit direction actually is not to reopen.

[00:02:26] Speaker 02:
But that's what it seems like.

[00:02:27] Speaker 02:
Again, apart from the example, you've got the example.

[00:02:29] Speaker 02:
I'm not denying you the example, but I'm just trying to understand contextually how to read the example.

[00:02:35] Speaker 02:
And if we take out the example, what the regulation says is CMS may direct

[00:02:42] Speaker 02:
to reopen by providing explicit direction to reopen.

[00:02:46] Speaker 02:
And the one thing it seems like the Federal Register notice says is, don't reopen.

[00:02:51] Speaker 02:
If it's already open, obviously, fix it.

[00:02:54] Speaker 02:
But if it's closed, don't reopen that.

[00:02:57] Speaker 04:
Yeah, I know you want to put the example to the side, but the example is a clear example of when there is a direction to reopen.

[00:03:08] Speaker 04:
And our case fits squarely within that example.

[00:03:12] Speaker 04:
which is virtually identical to the regulation and effected when Monmouth and Medicare reimbursement.

[00:03:20] Speaker 02:
I guess what I'm going with is even putting aside that for mandamus purposes, you've got to be clearly right.

[00:03:28] Speaker 02:
And that's the only way to read it.

[00:03:30] Speaker 02:
The natural way to read an example, at least to try to read an example, is so that it can be reconciled with the thing of which it's supposed to be an example.

[00:03:41] Speaker 02:
And the thing of which this is supposed to be an example says, you will reopen when CMS directs you to reopen.

[00:03:50] Speaker 02:
And just if you didn't have the example, it's very hard to see how the rule could be a direction to reopen when it actually directs the opposite.

[00:03:59] Speaker 02:
And then the question is, does the example go so far as to negate that all the way to the point that for mandamus purposes, it's absolutely clear that there was no alternative way to read it other than,

[00:04:10] Speaker 02:
You actually have to reopen.

[00:04:14] Speaker 02:
You said not.

[00:04:17] Speaker 04:
The example is clear that the first part of the regulation says CMS may direct with an explicit direction and then the but the example says

[00:04:27] Speaker 04:
a decision must be reopened.

[00:04:30] Speaker 04:
So the example uses mandatory language.

[00:04:33] Speaker 04:
So here is an example of when CMS has exercised its discretion to order a reopening.

[00:04:41] Speaker 04:
When CMS says that the prior determination was inconsistent with the applicable law.

[00:04:48] Speaker 04:
That example also discusses, as those were understood at the time, and here the retroactive nature of the

[00:04:56] Speaker 04:
revised GME regulation is clear because CMS issued a retroactive rule, which is primary retroactivity.

[00:05:07] Speaker 04:
It changes the past legal consequences of past actions.

[00:05:11] Speaker 04:
The rule that was in effect at the time is now the rule that was promulgated following the Hershey decision.

[00:05:17] Speaker 02:
I thought as CMS understood those legal provisions at the time, I thought at the time actually

[00:05:22] Speaker 02:
CMS didn't have that understanding.

[00:05:25] Speaker 02:
That's the whole reason that you've got the subsequent questions about.

[00:05:28] Speaker 04:
Retroactivity is a powerful tool that CMS used here.

[00:05:35] Speaker 04:
And the meaning of retroactivity is that it changes the past legal consequences, the past actions.

[00:05:41] Speaker 04:
That's what CMS did.

[00:05:42] Speaker 04:
CMS changed the rules that were in effect at the time.

[00:05:45] Speaker 04:
If you look at the revised GME regulation, it doesn't mention open cost reports, closed cost reports.

[00:05:52] Speaker 04:
It just discusses cost reports on or after 2001, all cost reports.

[00:05:58] Speaker 04:
So that is the rule that was in effect at the time.

[00:06:00] Speaker 04:
This is the effect of retroactivity.

[00:06:03] Speaker 04:
It's a powerful tool.

[00:06:06] Speaker 04:
The Supreme Court has said that retroactivity is not favored.

[00:06:09] Speaker 04:
Congress came in after that and gave the Secretary very limited authority to issue retroactive rules, understanding that it should be rare.

[00:06:18] Speaker 04:
And the Secretary did that and found both

[00:06:21] Speaker 04:
that retroactivity was necessary to comply with statutory requirements and that retroactivity was in the public interest.

[00:06:27] Speaker 04:
So the secretary has changed the rules that were in effect at the time of these determinations.

[00:06:32] Speaker 04:
Under the reopening rule, that compels him to revise the cost reports because there's been an explicit notice and explicit direction.

[00:06:41] Speaker 02:
And am I right that in order for you to prevail on mandamus, then you have to show that it's absolutely clear, not just

[00:06:47] Speaker 02:
that the example seems to at least be in some tension with the thing of which it's an example, and that CMS understood those legal provisions at the time, even though you'd have to conclude that they retroactively were deemed to have understood that at the time.

[00:07:03] Speaker 02:
But then it'd also have to get past the prohibition against a reopening where there's a change of legal interpretation made in response to a judicial precedent.

[00:07:14] Speaker 02:
You also have to be

[00:07:16] Speaker 04:
So a couple of points about the prohibited re-openings, Your Honor.

[00:07:23] Speaker 04:
First, our position is that CMS did in fact issue a reopening.

[00:07:27] Speaker 04:
So we're certainly not arguing that's prohibited.

[00:07:31] Speaker 04:
The secretary is in the unusual position of arguing that his own actions are prohibited.

[00:07:39] Speaker 04:
That's certainly not our position.

[00:07:41] Speaker 02:
I think the secretary's position is that they wouldn't have done that because it would have been prohibited.

[00:07:45] Speaker 02:
So the best way to read it is that they didn't mean to do something that

[00:07:48] Speaker 04:
That may be their position.

[00:07:50] Speaker 04:
Our position is that they did in fact issue the reopening by issuing the explicit notice.

[00:07:55] Speaker 04:
And again, the retroactive nature of the rule means that there is no change in interpretation rendering a prohibited reopening.

[00:08:08] Speaker 04:
It's important to keep in mind the chronology of

[00:08:11] Speaker 04:
of the reopening rule.

[00:08:14] Speaker 04:
In 1988, the Supreme Court said at Bowen v. Georgetown that there is no right to create retroactive rules into the Medicare program.

[00:08:22] Speaker 04:
And then Monmouth comes around.

[00:08:26] Speaker 04:
2002, in response to Monmouth, the Secretary revises the reopening regulation.

[00:08:32] Speaker 04:
Then in 2003, Congress gives the authority to the Secretary to issue retroactive rules.

[00:08:39] Speaker 04:
So when the Secretary

[00:08:42] Speaker 04:
issued the 2002 reopening rule, there was no authority to issue retroactive regulations.

[00:08:48] Speaker 04:
So that could not have been contemplated as part of this rule.

[00:08:51] Speaker 04:
So our position is that within the plain language of the rule that the secretary promulgated in 2002, the reopening rule, the retroactive nature of the rule that he promulgated later means that the secretary has issued a reopening and it's not a prohibited reopening.

[00:09:15] Speaker 03:
sure my colleagues don't have.

[00:09:17] Speaker 03:
You have a pretty capacious understanding of was it fault or fraud and similar fault?

[00:09:27] Speaker 04:
It's a fraud and similar fault.

[00:09:32] Speaker 03:
Would that same understanding apply to claims that hospitals committed fraud or similar fault?

[00:09:41] Speaker 04:
Well, yes.

[00:09:42] Speaker 04:
So to be clear, Judge Walker, we are not contending that the secretary committed fraud.

[00:09:46] Speaker 04:
We have no reason to believe that he knew that his rule was unlawful.

[00:09:53] Speaker 04:
We contend that he committed a similar fault because he reasonably should have known.

[00:09:57] Speaker 04:
If anyone in this country should understand what the Medicare statute requires, it's the Secretary of Health and Human Services who is appointed and confirmed by the Senate, charged with administering that statute.

[00:10:11] Speaker 04:
There is a definition of similar fault that does not include intent.

[00:10:15] Speaker 04:
The very text of the similar fault regulation is new or reasonably should have known.

[00:10:23] Speaker 04:
So we contend that he reasonably should have known that the state secretary did.

[00:10:28] Speaker 03:
I appreciate that.

[00:10:29] Speaker 03:
And I was following that argument in the brief.

[00:10:33] Speaker 03:
And I think you may have already answered this one to my first question.

[00:10:38] Speaker 03:
I mean, this line that stood out to me in your reply was, the Medicare standard contains no knowledge requirement.

[00:10:44] Speaker 03:
You're talking about similar fault.

[00:10:46] Speaker 03:
The Medicare standard contains no knowledge requirement.

[00:10:49] Speaker 03:
Is that something that you want to live with when you're the one accused of similar fault?

[00:10:57] Speaker 04:
That's what the regulation says.

[00:10:58] Speaker 04:
It says no knowledge of wrongdoings reasonably should have known.

[00:11:04] Speaker 04:
That's what the text says.

[00:11:07] Speaker 04:
Is that a yes?

[00:11:08] Speaker 04:
That's a yes.

[00:11:11] Speaker 04:
Could you run your answer to the prohibition again for me?

[00:11:16] Speaker 04:
Run that by again, please.

[00:11:17] Speaker 04:
The prohibited reopening?

[00:11:18] Speaker 04:
Yeah.

[00:11:21] Speaker 04:
Yes.

[00:11:22] Speaker 04:
So a couple of things.

[00:11:23] Speaker 04:
As I mentioned before, we're not arguing that it's a prohibited reopening.

[00:11:28] Speaker 04:
We argue that the secretary did, in fact, issue a reopening.

[00:11:32] Speaker 04:
That's their argument, that it's a prohibited reopening.

[00:11:34] Speaker 04:
Is your answer to it?

[00:11:36] Speaker 04:
I'm sorry?

[00:11:36] Speaker 04:
And your answer to it?

[00:11:37] Speaker 04:
And our answer to it is that the retroactive rule means that this is not a change in interpretation.

[00:11:46] Speaker 04:
It's primary retroactivity changes past legal consequences of past actions.

[00:11:56] Speaker 02:
Thank you, counsel.

[00:11:56] Speaker 02:
We have a little time for rebuttal.

[00:12:09] Speaker 03:
Shams.

[00:12:13] Speaker 01:
May it please the court, Sophia Shams on behalf of the government.

[00:12:16] Speaker 01:
In 2022, CMS issued a revised regulation that revised its calculation for certain Medicare reimbursement determinations.

[00:12:25] Speaker 01:
And pursuant to its authority under Section 405.1885C, it declined to apply this new regulation to closed payment determinations.

[00:12:35] Speaker 01:
Plaintiffs now ask this court to require CMS to reopen their closed payment determinations.

[00:12:42] Speaker 01:
But Section 405.1885C does not impose any such duty, and it in fact expressly prohibits the exact reopening that plaintiffs seek here today.

[00:12:53] Speaker 01:
For this reason, we ask that the court affirm the district court's denial of mandamus.

[00:12:57] Speaker 02:
I ask you kind of the exact opposite question that I tried to ask of the other side, which is suppose that all we have is the example in the regulation and we didn't have the part that came before it.

[00:13:10] Speaker 02:
The better reading of the example that explicit notice was given.

[00:13:15] Speaker 01:
Sure.

[00:13:16] Speaker 01:
I think even if we just had the example, this particular example and not the prior regulations example,

[00:13:22] Speaker 01:
But this particular example, we still would argue the same thing that we're arguing with today, which is that the regulation that was revised at CMS issue did not constitute the kind of explicit notice that the example discusses.

[00:13:34] Speaker 01:
And that's particularly because of that secondary part of the example that Your Honor pointed out, which is inconsistent with the applicable law or regulations, as CMS understood those legal provisions at the time that the determination or decision was rendered by the contractor.

[00:13:50] Speaker 01:
That secondary language at the time CMS understood those legal provisions was later added post Monmouth.

[00:13:56] Speaker 01:
And it's precisely to avoid the kind of decision that was rendered in Monmouth in which the court had determined that CMS didn't have this kind of discretion when it comes to reopening or directing reopening of a particular determination.

[00:14:09] Speaker 02:
So before we get to that part of the example, if we're just talking about the very first part, which is

[00:14:13] Speaker 02:
The contractor determination must be reopened and revised if CMS provides explicit notice to the contractor that the contractor determination or contractor hearing decision is inconsistent with the applicable regulations.

[00:14:25] Speaker 02:
That part of it seems like it applies to this situation given the

[00:14:29] Speaker 01:
I think if all we had was that we didn't have the first part of CMS-directed reopenings with MayDirect and we did not have the second part of the provision, which is prohibited reopenings, that would be a situation that's a little bit closer to Monmouth and it would be a more difficult argument for us to be making today.

[00:14:46] Speaker 01:
I do take the point of perhaps that part of the example on its own indicates a different meaning, but that's precisely why CMS revised the regulation.

[00:14:55] Speaker 01:
Because that was the prior regulation.

[00:14:57] Speaker 01:
The prior regulation just had shall be reopened if there's a determination that's contrary to the applicable law.

[00:15:03] Speaker 01:
And this court had interpreted that regulation in a way that CMS did not intend for it to interpret.

[00:15:09] Speaker 01:
And that's why CMS revised its regulation in 2002, stated that it was revising it in direct consequence of Monmouth, and then stated that it was revising it to

[00:15:19] Speaker 01:
express its long-standing interpretation that the secretary has discretion as to whether it's going to direct reopening.

[00:15:27] Speaker 01:
So I think looking at the example part of the example clause in a vacuum would be a mistake that disregards what CMS did in this case and in revising its regulation, which is why we asked the court to look at the first part of the regulation, subsection one, which states that CMS may direct

[00:15:46] Speaker 01:
that provides an explicit indication of discretion on part of CMS that it did not invoke here.

[00:15:51] Speaker 01:
And then we also ask that the court look to the second part of the example clause, which talks about as CMS understood those regulations at the time the decision was rendered.

[00:16:00] Speaker 01:
And then even if we

[00:16:02] Speaker 01:
If the court still disagrees, we ask the court look to the second subsection of Section 402.1885C, which expressly prohibits reopening when it's based on a change of legal interpretation or policy by CMS in a regulation, whether that be made in response to judicial precedent or otherwise.

[00:16:20] Speaker 01:
And that's exactly what we have in this case.

[00:16:22] Speaker 01:
What we have is a case where the district court issued a decision that CMS's prior regulation for calculating FTE

[00:16:30] Speaker 01:
calculations was improper and against the statutory requirement and so CMS revised the regulation and it applied it retroactively to 2001 and it stated that it was prohibited from reopening prior determinations on that basis.

[00:16:44] Speaker 01:
So I think the text of the regulation is fairly clear.

[00:16:49] Speaker 01:
And I think I'll just also briefly address Judge Walker's argument.

[00:16:53] Speaker 01:
I think it's true that

[00:16:56] Speaker 01:
that the plaintiff's understanding of fault or similar fraud is a pretty capacious understanding, and that we should read those two, that phrase together.

[00:17:03] Speaker 01:
Our argument in brief is that similar fault requires some similar knowledge requirement as fault does, and that even if the court doesn't agree with that understanding, it's still a discretionary act by the secretary.

[00:17:15] Speaker 01:
The secretary may reopen if there is a finding of fraud or similar fault, so it wouldn't warrant mandamus here, which is pretty extraordinary relief.

[00:17:22] Speaker 03:
Does the similar fault question just go to the

[00:17:26] Speaker 03:
time limit, three-year time limit, if I'm remembering, or does it go to everything?

[00:17:31] Speaker 01:
I think the similar fault question.

[00:17:33] Speaker 01:
I think plaintiffs invoke the similar fault question to argue that they should get reopening all the way back to 2001.

[00:17:40] Speaker 01:
And so I think you would only get to that question as the district court didn't get to that question because it answered that there was no entitlement to reopening in this case under 405.1885C.

[00:17:50] Speaker 01:
I don't think this court needs to answer the similar fault question if it determines

[00:17:55] Speaker 01:
that Section 405.1885C doesn't require reopening.

[00:17:58] Speaker 03:
You give a very clear answer to a very unclear question, so thank you.

[00:18:02] Speaker 01:
Of course.

[00:18:02] Speaker 01:
Well, if there are no other questions, then I'll be happy to sit back down.

[00:18:05] Speaker 01:
And we ask that you affirm the district court's denial of mandamus.

[00:18:09] Speaker 02:
Thank you.

[00:18:09] Speaker 02:
Thank you.

[00:18:15] Speaker 02:
Mr. Connolly will give you the two minutes you asked for for rebuttal.

[00:18:18] Speaker 02:
Thank you very much.

[00:18:20] Speaker 04:
A few points, Your Honor.

[00:18:23] Speaker 04:
The issue of explicit notice was brought up.

[00:18:26] Speaker 04:
And I just want to point out that the district court agreed that, quote, CMS gave explicit notice that prior determinations were based on a waiting formula inconsistent with the statute.

[00:18:35] Speaker 04:
The district court disagreed that that was an explicit direction.

[00:18:39] Speaker 04:
But I just want to point out that one part of the district court's opinion that we agree with is that there was explicit notice here.

[00:18:48] Speaker 04:
Monmouth was also mentioned, and Ms.

[00:18:54] Speaker 04:
Shams discussed how the Secretary revised the reopening regulation in response to Monmouth.

[00:19:00] Speaker 04:
I want to point out that this is not Monmouth.

[00:19:03] Speaker 04:
The reasoning of that opinion applies, but this is a different case in a couple of respects.

[00:19:09] Speaker 04:
One, in Monmouth, the Secretary did not admit

[00:19:11] Speaker 04:
that the prior interpretation was contrary to the statute, and the secretary did not issue a retroactive rule in Monmouth.

[00:19:19] Speaker 04:
So the secretary may have been trying to prevent a repeat of Monmouth, and when promulgating the 2000 rule, the secretary may have succeeded.

[00:19:29] Speaker 04:
This is not Monmouth, for the reasons I mentioned.

[00:19:31] Speaker 04:
Retroactive rule and no admission by the secretary that the prior determination was contrary to the statute.

[00:19:41] Speaker 04:
Similar fault was just discussed and I just want to point out that the similar fault rule does not engraft an additional layer of discretion.

[00:19:55] Speaker 04:
Similar fault provision is a timeline that applies after the secretary has given an explicit direction.

[00:20:03] Speaker 04:
So the secretary has authority to give an explicit direction.

[00:20:07] Speaker 04:
We contend the secretary did that.

[00:20:09] Speaker 04:
If you agree with that, then you look at the timelines and the similar fault provision does not engraft another layer of discretion on top of that after the explicit direction has been issued.

[00:20:20] Speaker 03:
The rule has a part about reopening and a part about when not to reopen.

[00:20:25] Speaker 03:
And even if I could get pretty on board with your interpretation of the reopen section, why should we privilege the reopen section over the don't reopen section?

[00:20:38] Speaker 04:
I'm sorry, Your Honor, are you talking about the prohibitive reopening when you refer to the don't reopen?

[00:20:42] Speaker 04:
Yes.

[00:20:48] Speaker 04:
So you should, I mean, they're both important, clearly.

[00:20:52] Speaker 04:
But again, our contention is that the Secretary did reopen.

[00:20:56] Speaker 04:
And again, our position is that the retroactive rule means that this is not a change in legal interpretation.

[00:21:04] Speaker 04:
The Secretary changed.

[00:21:06] Speaker 04:
the legal interpretation in effect in 2001 by altering the rule, changing past legal consequences of past actions.

[00:21:17] Speaker 02:
Thank you, counsel.

[00:21:18] Speaker 02:
Thank you to both counsel for taking this case under submission.