Banner Health v. Burwell, Civil Action No. 10–01638 CKK

• Decision Date: 07 July 2014
• Docket Number: Civil Action No. 10–01638 CKK
• Citation: 55 F.Supp.3d 1
• Court: U.S. District Court — District of Columbia
• Parties: Banner Health f/b/o Banner Good Samaritan Medical Center, et al., Plaintiffs, v. Sylvia M. Burwell, Secretary, Department of Health and Human Services, Defendant.

55 F.Supp.3d 1

Banner Health f/b/o Banner Good Samaritan Medical Center, et al., Plaintiffs

v.Sylvia M. Burwell, Secretary, Department of Health and Human Services, Defendant.

Civil Action No. 10–01638 CKK

United States District Court, District of Columbia.

Signed July 7, 2014

Stephen P. Nash, Sven C. Collins, Squire Patton Boggs, Denver, CO, John Louis Oberdorfer, Samantha R. Petrich, Squire Patton Boggs (US) LLP, Washington, DC, Michihiro M. Tsuda, Mimi D. Hu, Patton Boggs, LLP, Denver, CO, for Plaintiffs.

James C. Luh, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

COLLEEN KOLLAR–KOTELLY, United States District Judge

Plaintiffs are twenty-nine organizations that own or operate hospitals participating in the Medicare program. They have sued the Secretary of the Department of Health and Human Services (the “Secretary”), challenging certain regulatory actions taken by her in the course of administering Medicare's reimbursement scheme.¹ Plaintiffs allege that as a result of the Secretary's flawed promulgation and implementation of various payment regulations, they were deprived of more than $350 million dollars in Medicare “outlier” payments for services provided during fiscal years ending 1998 through 2006. Presently before the Court is Plaintiffs' [108] Motion for Leave to Further Amend and Supplement First Amended Complaint. Plaintiffs seek to add allegations and claims under 5 U.S.C. § 553 regarding the Secretary's failure to disclose a 2003 Interim Final Rule. Upon a review of the parties' submissions² , the applicable authorities, and the record as a whole, the Court shall GRANT IN PART and DENY IN PART Plaintiffs' motion to amend the complaint. The Court denies Plaintiffs leave to amend their complaint to include claims that the Secretary's failure to disclose the Interim Final Rule and its contents violated 5 U.S.C. § 553. However, the Court grants Plaintiffs leave to amend their complaint to include factual allegations concerning the Interim Final Rule.

I. BACKGROUND

The relevant statutory and regulatory background underlying Plaintiffs' claims and the lengthy procedural history of this litigation are set out in detail in the Court's prior opinions. See Banner Health v. Sebelius, 797 F.Supp.2d 97 (D.D.C.2011) ; id., 905 F.Supp.2d 174 (D.D.C.2012) ; id., 945 F.Supp.2d 1 (D.D.C.2013). Accordingly, the Court provides herein only a brief summary of the facts and history of this case, as relevant to the present motion.

Plaintiffs are twenty-nine organizations that own or operate hospitals participating in the Medicare program. Am. Compl., ECF No. [16], ¶ 22. On December 23, 2010, Plaintiffs filed their Amended Complaint, which remains the operative iteration of the Complaint in this action. See Am. Compl., ECF No. [16]. As this Court has previously observed, Plaintiffs' Amended Complaint is “sprawling”; it contains over two hundred paragraphs, spans fifty-nine pages, and appends two lengthy exhibits. Plaintiffs challenge the validity of a series of regulations establishing the methodology for calculating outlier payments (the “Outlier Payment Regulations”), 42 C.F.R. §§ 412.80 –412.86, as well as the Secretary's annual promulgation of the regulations through which she set the fixed loss threshold for the upcoming fiscal year, for fiscal years 1998 through 2006 (the “Fixed Loss Threshold Regulations”).³

In enacting a system for Medicare reimbursement, “Congress recognized that health-care providers would inevitably care for some patients whose hospitalization would be extraordinarily costly or lengthy” and devised a means to “insulate hospitals from bearing a disproportionate share of these atypical costs.” Cnty. of Los Angeles v. Shalala, 192 F.3d 1005, 1009 (D.C.Cir.1999). Specifically, Congress authorized the Secretary to make supplemental “outlier” payments to eligible providers. Id. Outlier payments are governed by 42 U.S.C. § 1395ww(d)(5)(A). See also 42 C.F.R. §§ 412.80 –412.86 (implementing regulations). Each fiscal year, the Secretary determines a fixed dollar amount that, when added to the DRG prospective payment—the standardized calculation for how much a hospital is paid for treating a particular case—serves as the cutoff point triggering eligibility for outlier payments. See 42 U.S.C. § 1395ww(d)(5)(A)(ii), (iv) ; 42 C.F.R. § 412.80(a)(2)-(3). This fixed dollar amount is known as the “fixed loss threshold.” If a hospital's approximate costs actually incurred in treating a patient exceed the sum of the DRG prospective payment rate and the fixed loss threshold, then the hospital is eligible for an outlier payment in that case. See 42 U.S.C. § 1395ww(d)(5)(A)(ii)-(iii) ; 42 C.F.R. § 412.80(a)(2)-(3). In this way, the fixed loss threshold represents the dollar amount of loss that a hospital must absorb in any case in which the hospital incurs estimated actual costs in treating a patient above and beyond the DRG prospective payment rate. An increase in the fixed loss threshold reduces the number of cases that will qualify for outlier payments as well as the amount of payments for qualifying cases.

As noted, the Secretary “establish[es] the fixed [loss] thresholds beyond which hospitals will qualify for outlier payments” at the start of each fiscal year. Cnty. of Los Angeles, 192 F.3d at 1009. In each of the fiscal years at issue in this action, the Secretary set fixed loss thresholds at a level so that the anticipated total of outlier payments would equal 5.1% of the anticipated total of payments based on DRG prospective payment rates. Similarly, the amount of the outlier payment is “determined by the Secretary” and must “approximate the marginal cost of care” beyond the fixed loss threshold. 42 U.S.C. § 1395ww(d)(5)(A)(iii). During the time period relevant to this action, the implementing regulations generally provided for outlier payments equal to eighty percent of the difference between the hospital's estimated operating and capital costs and the fixed loss threshold. See 42 C.F.R. § 412.84(k).

In this litigation, Plaintiffs claim that the Outlier Payment Regulations, in the form they existed prior to 2003,⁴ contained “vulnerabilities” that made them “uniquely susceptible to manipulation” by unscrupulous hospitals. Am. Compl. ¶¶ 52–98, 138. According to Plaintiffs, these “vulnerabilities” in the Outlier Payment Regulations allowed unscrupulous hospitals to submit excessive reimbursement claims, “led to massive overpayments” to the wrong hospitals, prompted the Secretary to raise the fixed loss threshold at the beginning of each fiscal year as a misguided countermeasure, and ended with Plaintiffs being denied the outlier payments “to which they were entitled.” Id. ¶ 55.

Regarding the Fixed Loss Threshold Regulations, Plaintiffs contend that the Secretary, faced with an “aberrantly high” level of projected outlier payments caused by a flood of excessive reimbursement claims, made no attempt to diagnose the actual source of the problem but instead, as a misguided countermeasure, made “enormous, unprecedented and irrational increases” in the fixed loss threshold for the fiscal years at issue in this action, and did so without providing an adequate, reasoned explanation for the increases. See id. ¶¶ 14, 69, 112, 114, 119, 121, 125–26, 129–38, 147–48, 155–61. Plaintiffs contend that the Secretary's failure to account for flaws in the Fixed Loss Threshold Regulations led to an irrational increase in the fixed loss thresholds for fiscal years 1998 through 2006, which allegedly had the ultimate effect of reducing the number of Plaintiffs' cases that qualified for outlier payments and the amount of payments for those cases that did qualify.Id. ¶ 50.

Accordingly, Plaintiffs challenge the promulgation and implementation of the following agency actions: three sets of Outlier Payment Regulations promulgated in 1988, 1994, and 2003; and eleven sets of Fixed Loss Threshold Regulations for federal fiscal years 1997 through 2007. In addition, Plaintiffs challenge outlier payment determinations specific to each of the hospital Plaintiffs.

On March 23, 2012, Plaintiffs filed a motion to compel, requesting that the Court order the Secretary to file the “complete administrative record,” by supplementing the records she had previously filed with various documents, including certain data files, identified by Plaintiffs and all other documents that were before the agency in connection with its rulemakings, and further order the Secretary to certify to the Court and Plaintiffs the completeness of the administrative record. See Pls.' Renewed Mot. to Compel Def. to File the Complete Admin. Record and to Certify Same, ECF No. [60]. On May 16, 2013, the Court granted-in-part and denied-in-part Plaintiffs' motion to compel, and ordered the Secretary to supplement the administrative record in this matter with several categories of materials. See Banner Health, 945 F.Supp.2d 1 ; Order (May 16, 2013), ECF No. [82]. Among the materials the Court ordered added to the administrative record was a February 2003 draft interim final rule (“Interim Final Rule”). As discussed at length in the Court's prior Memorandum Opinion, the Interim Final Rule was “exchanged between HHS and [the Office of Management and Budget (“OMB”) ] ^{[ 5 ]} pursuant to Executive Order 12866, which requires HHS to submit major rulemakings to OMB for review” and which “also requires that, after the regulation becomes final, OMB must make available to the public all documents exchanged between it and the agency during the interagency review.” Banner Health, 945 F.Supp.2d at 24 (citing 58 Fed.Reg. 51735, Exec. Order No. 12866 § 6(b)(4)(D)). Plaintiffs learned of the Interim Final Rule in February 2012 in response to a Freedom of Information Act request to OMB. Pls.' Mem. at 1. The document itself is a “sixty–page Interim Final Rule sent, over the signature of then HHS Secretary, Tommy G. Thompson, to OMB for review and approval in early 2003.” Banner...