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Caring Hearts Personal Home Services, Inc. v. Burwell

United States Court of Appeals, Tenth Circuit

May 31, 2016

CARING HEARTS PERSONAL HOME SERVICES, INC., Plaintiff - Appellant,
v.
SYLVIA MATHEWS BURWELL, Secretary of the United States Department of Health and Human Services, Defendant-Appellee.

Appeal from the United States District Court for the District of Kansas (D.C. No. 2:12-CV-02700-CM-KMH)

Donald M. McLean, Kansas City, Kansas, for Plaintiff-Appellant.

Melissa D. Hart, Special Assistant United States Attorney, United States Department of Health & Human Services, Baltimore, Maryland (Barry R. Grissom, United States Attorney, and Jackie A. Rapstine, Assistant United States Attorney, and William B. Schultz, General Counsel, Janice L. Hoffman, Associate General Counsel, and Susan Maxson Lyons, Deputy Associate General, United States Department of Health and Human Services, Topeka, Kansas, with her on the brief), for Defendant-Appellee.

Before LUCERO, HARTZ, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

Executive agencies today are permitted not only to enforce legislation but to revise and reshape it through the exercise of so-called "delegated" legislative authority. Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 865-66 (1984). The number of formal rules these agencies have issued thanks to their delegated legislative authority has grown so exuberantly it's hard to keep up. The Code of Federal Regulations now clocks in at over 175, 000 pages. And no one seems sure how many more hundreds of thousands (or maybe millions) of pages of less formal or "sub-regulatory" policy manuals, directives, and the like might be found floating around these days. For some, all this delegated legislative activity by the executive branch raises interesting questions about the separation of powers. See, e.g., Dep't of Transp. v. Ass'n of Am. R.Rs., 135 S.Ct. 1225, 1240-42 (2015) (Thomas, J., concurring in the judgment); id. at 1237 (Alito, J., concurring); see also De Niz Robles v. Lynch, 803 F.3d 1165, 1171 & n.5 (10th Cir. 2015). For others, it raises troubling questions about due process and fair notice — questions like whether and how people can be fairly expected to keep pace with and conform their conduct to all this churning and changing "law." See, e.g., The Federalist No. 62, at 381 (James Madison) (Clinton Rossiter ed., 1961) ("It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; . . . or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to­morrow."). But what if the problem is even worse than that? What happens if we reach the point where even these legislating agencies don't know what their own "law" is?

That's the problem we confront in this case. And perhaps it comes as little surprise that it arises in the Medicare context. Medicare is, to say the least, a complicated program. The Centers for Medicare & Medicaid Services (CMS) estimates that it issues literally thousands of new or revised guidance documents (not pages) every single year, guidance providers must follow exactingly if they wish to provide health care services to the elderly and disabled under Medicare's umbrella. Currently, about 37, 000 separate guidance documents can be found on CMS's website — and even that doesn't purport to be a complete inventory. See Jessica Mantel, Procedural Safeguards for Agency Guidance: A Source of Legitimacy for the Administrative State, 61 Admin. L. Rev. 343, 353 (2009).

But how did CMS wind up confused about its own law? It began this way. Caring Hearts provides physical therapy and skilled nursing services to "homebound" Medicare patients. 42 U.S.C. § 1395f(a). Of course, any Medicare provider may only charge the government for services that are "reasonable and necessary." Id. § 1395y(a)(1)(A). But Congress hasn't exactly been clear about who qualifies as homebound or what services qualify as reasonable and necessary. So CMS has developed its own rules on both subjects — rules the agency has (repeatedly) revised and expanded over time. In a recent audit, CMS purported to find that Caring Hearts provided services to at least a handful of patients who didn't qualify as "homebound" or for whom the services rendered weren't "reasonable and necessary." As a result, CMS ordered Caring Hearts to repay the government over $800, 000.

The trouble is, in reaching its conclusions CMS applied the wrong law. As we'll see, the agency didn't apply the regulations in force in 2008 when Caring Hearts provided the services in dispute. Instead, it applied considerably more onerous regulations the agency adopted only years later. Regulations that Caring Hearts couldn't have known about at the time it provided its services. Regulations that even CMS concedes bore only prospective effect. See 42 U.S.C. § 1395hh(e)(1)(A). And as we'll see, Caring Hearts can make out a pretty good case that its services were entirely consistent with the law as it was at the time they were rendered. So this isn't (and never was) a case about willful Medicare fraud. Instead, it's a case about an agency struggling to keep up with the furious pace of its own rulemaking.

So what to do? Caring Hearts says we can find a way out through 42 U.S.C. § 1395pp. In seeming recognition of the complexity of the Medicare maze, Congress there indicated that providers who didn't know and couldn't have reasonably been expected to know that their services weren't permissible when rendered generally don't have to repay the amounts they received from CMS. A sort of good faith affirmative defense, if you will. Of course, in administrative proceedings CMS rejected Caring Hearts's application for relief under § 1395pp. But in doing so, the agency held that the firm knew or should've known its conduct was unlawful only in light of regulations that were then but figments of the rulemakers' imagination, still years away from adoption. And Caring Hearts submits this means we should vacate the agency's decision, just as we would any other that rests on a mistake about applicable law.

With this we agree. For surely one thing no agency can do is apply the wrong law to citizens who come before it, especially when the right law would appear to support the citizen and not the agency. See, e.g., Lax v. Astrue, 489 F.3d 1080, 1084 (10th Cir. 2007) ("We review the [agency] decision to determine whether the factual findings are supported by substantial evidence in the record and whether the correct legal standards were applied."); Sandoval v. Aetna Life & Cas. Ins. Co., 967 F.2d 377, 380 n.4 (10th Cir. 1992) ("In our view, both lack of substantial evidence and a mistake of law would be indicia of arbitrary and capricious actions and thus may be subsumed under the arbitrary and capricious label."); cf. Danti v. Lewis, 312 F.2d 345, 349 (D.C. Cir. 1962) (holding a decision "arbitrary and capricious" where it was based on a failure to comply with a resolution "which did not exist when [the application] was filed, when in fact the application was sufficient to establish eligibility under [the] standards at the time it was received").[1]

Take first the cases where CMS says Caring Hearts provided care to individuals who weren't homebound. Here's a typical example, involving a patient known in our record as L.Sm. At the time Caring Hearts provided L.Sm. with home health services he was 85 years old, weighed 352 pounds, and suffered from diabetes, high blood pressure, and a host of other ailments. By all accounts he could not easily walk 20 feet and, while he sometimes used a walker or cane, he more or less "lived" in a wheelchair. Despite these documented facts, CMS adopted the ALJ's judgment that L.Sm. wasn't homebound and Caring Hearts could not have reasonably thought otherwise. In support of its conclusion the agency reasoned that "the evidence does not establish . . . that leaving his home would require considerable and taxing effort." ALJ Op. at 46 (App. Vol. 2 at 338). And it's surely true that CMS's current regulations state that for a patient to qualify as homebound he must "normal[ly]" be unable "to leave home" even with a wheelchair and any attempt to leave home must also "require a considerable and taxing effort." Medicare Benefit Policy Manual (MBPM), Pub. No. 100-02, Ch. 7, § 30.1.1 (Rev. 208, May 11, 2015). For purposes of this appeal, too, we spot CMS the possibility (without in any way deciding) that L.Sm. would fail to qualify as homebound within the meaning of this narrow definition because (again for argument's sake only) we accept the possibility that he was often able to leave home in his wheelchair without "considerable and taxing effort."

The trouble is that CMS's current regulations defining who qualifies as homebound look little like the regulations in effect when Caring Hearts provided care to L.Sm. in 2008. Back then, CMS's regulations indicated that, "[g]enerally speaking, a patient will be considered homebound if they [sic] have a condition due to an illness or injury that restricts their ability to leave the place of residence except with the aid of: supportive devices such as crutches, canes, wheelchairs, and walkers . . . ." MBPM, Ch. 7, § 30.1.1 (Rev. 1, Oct. 1, 2003). So rather than asking whether a patient could leave home with a supportive device, the regulations back then seemed to ask whether a patient could leave home without one. And it seems pretty clear from the record before us that L.Sm. qualified as homebound under this more generous definition. After all, no one disputes that L.Sm. was unable to leave his house without some kind of "supportive device, " for he "lived" in his wheelchair and struggled to walk even 20 feet. Indeed, it seems CMS issued its current regulations narrowing the class of persons who qualify as homebound specifically to preclude relief in future cases exactly like this one. See Dep't of Health & Human Servs., Centers for Medicare & Medicaid Servs., Change Request 8444 (Oct. 18, 2013) (explaining the new regulations were expressly designed to "clarif[y] the definition" of what it means to be homebound and remove "vague terms" like "generally speaking" in an effort to "promote . . . clearer [one might add, stricter] enforcement").

Of course, CMS's regulations don't exist in a vacuum. There's also the statute they purport to interpret. And CMS suggests that, whatever its relevant regulations said at the time, the statute's plain terms also and independently alerted Caring Hearts to the impropriety of its ...


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