In a little-watched case in the Midwest, the Obama administration's Medicare regulators were dealt an embarrassing blow this week by the 10th Circuit Court of Appeals.

Judges ruled that the Centers for Medicare and Medicaid Services (CMS) improperly pursued an $800,000 fraud fine against "homebound" therapy provider Caring Hearts, which services Medicare patients, by applying new regulations after-the-fact. The court wrote that CMS was "unfamiliar with its own regulations" and is "struggling to keep up with the furious pace of its own rule making."

Judge Gorsuch writes:

[P]erhaps 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... 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... Of course, any Medicare provider may only charge the government for services that are "reasonable and necessary..." 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.

Caring Hearts had made this case in administrative proceedings, but was (not surprisingly) denied relief by CMS. It's unclear whether CMS will appeal, but the 10th Circuit's conclusion is damning:

This case has taken us to a strange world where the government itself —the very "expert" agency responsible for promulgating the "law" no less — seems unable to keep pace with its own frenetic lawmaking. A world Madison worried about long ago, a world in which the laws are "so voluminous they cannot be read" and constitutional norms of due process, fair notice, and even the separation of powers seem very much at stake. But whatever else one might say about our visit to this place, one thing seems to us certain: an agency decision that loses track of its own controlling regulations and applies the wrong rules in order to penalize private citizens can never stand...

You can read the decision below.

CARING HEARTS PERSONAL HOME SERVICES, INC., Plaintiff - Appellant, v. SYLVIA MATHEWS BURWELL, Secretary of... by J. Swift (TWS)