Banner Health v. Price

Decision Date18 August 2017
Docket NumberNo. 16-5129,16-5129
Citation867 F.3d 1323
Parties BANNER HEALTH, f/b/o Banner Good Samaritan Medical Center, f/b/o North Colorado Medical Center, f/b/o McKee Medical Center, f/b/o Banner Thunderbird Medical Center, f/b/o Banner Mesa Medical Center, f/b/o Banner Desert Medical Center, f/b/o Banner Estrella Medical Center, f/b/o Banner Heart Hospital, f/b/o Banner Boswell Medical Center, f/b/o Banner Baywood Medical Center, et al., Appellants v. Thomas E. PRICE, Secretary, U.S. Department of Health and Human Services, Appellee
CourtU.S. Court of Appeals — District of Columbia Circuit

Sven C. Collins, Denver, CO, argued the cause for appellants. With him on the briefs was Stephen P. Nash, Denver, CO.

Robert L. Roth, James F. Segroves, Washington, DC, and John R. Hellow, Los Angeles, CA, were on the brief for amici curiae Hospitals in support of appellants.

Benjamin M. Shultz, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief was Michael S. Raab, Attorney.

Before: Rogers, Griffith and Srinivasan, Circuit Judges.

Per Curiam:

This appeal challenges the implementation by the Secretary of Health and Human Services ("HHS") of the Medicare outlier-payment program in the late 1990s and early 2000s. The program provides "supplemental" payments to hospitals to protect them from "bearing a disproportionate share of the [ ] atypical costs" associated with caring for "patients whose hospitalization would be extraordinarily costly or lengthy." Cty. of L.A. v. Shalala , 192 F.3d 1005, 1009 (D.C. Cir. 1999). A group of twenty-nine non-profit hospitals ("the Hospitals") principally contend that HHS violated the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 551 et seq. , by failing to identify and appropriately respond to flaws in its methodology that enabled certain "turbo-charging" hospitals to manipulate the system and receive excessive payments at the expense of non-turbo-charging hospitals, including appellants.

The court addressed similar challenges in District Hospital Partners, L.P. v. Burwell , 786 F.3d 46 (D.C. Cir. 2015), and, to the extent the Hospitals repeat challenges decided in District Hospital Partners , that decision controls here. See LaShawn A. v. Barry , 87 F.3d 1389, 1395 (D.C. Cir. 1996). As to the Hospitals' other challenges, we affirm the district court's denials of their motions to supplement the record and to amend their complaint, and its decision that HHS acted reasonably in a manner consistent with the Medicare Act in fiscal years ("FYs") 1997 through 2003, and 2007. HHS, however, has inadequately explained aspects of the calculations for FYs 2004 through 2006, and we therefore reverse the grant of summary judgment in that regard and remand the case to the district court to remand to HHS for further proceedings.

I.
A.

Under the Medicare program, the federal government reimburses health care providers for medical services provided to the elderly and disabled. See Social Security Amendments of 1965 ("Medicare Act"), Pub. L. No. 89–97, tit. XVIII, 79 Stat. 286, 291 (1965). Initially, Medicare reimbursed hospitals for the "reasonable cost" of care provided. See 42 U.S.C. § 1395f(b)(1). This system, however, "bred ‘little incentive for hospitals to keep costs down’ because ‘the more they spent, the more they were reimbursed.’ " Cty. of L.A. , 192 F.3d at 1008 (quoting Tucson Med. Ctr. v. Sullivan , 947 F.2d 971, 974 (D.C. Cir. 1991) ) (brackets omitted). "To stem the program's escalating costs and perceived inefficiency," Congress revised Medicare's reimbursement system in 1983 to compensate hospitals prospectively at rates set before the start of each fiscal year. Id. Because the new system presented its own risk of under-compensating hospitals for the care of high-cost patients, Congress "authorized the Secretary [of HHS] to make supplemental ‘outlier payments.’ " Id. at 1009. Day outlier payments, which have since been phased out, were originally provided when a patient's length of stay exceeded a certain threshold. See 42 U.S.C. § 1395ww(d)(5)(A)(i), (v). Cost outlier payments are provided when a hospital's "charges, adjusted to cost" for a given patient exceed a certain "fixed dollar amount determined by [HHS]," after discounting any payments the hospital would normally receive. Id. § 1395ww(d)(5)(A)(ii). This appeal addresses cost outlier payments.

"[C]alculating [cost] outlier payments is an elaborate process," Dist. Hosp. Partners , 786 F.3d at 49, and some explication is necessary. First, by requiring that charges be "adjusted to cost" before determining whether a cost outlier payment is due, 42 U.S.C. § 1395ww(d)(5)(A)(ii), the Medicare Act "ensures that [HHS] does not simply reimburse a hospital for the charges reflected on a patient's invoice." Dist. Hosp. Partners , 786 F.3d at 50. HHS applies a "cost-to-charge ratio" "represent[ing] a hospital's ‘average markup’ " to a hospital's charges. Id. (quoting Appalachian Reg'l Healthcare, Inc. v. Shalala , 131 F.3d 1050, 1052 (D.C. Cir. 1997) ). "For example, if a hospital's cost-to-charge ratio is 75% (total costs are approximately 75% of total charges), [HHS] multiplies the hospital's charges by 75% to calculate the hospital's cost." Id.

Second, the "fixed dollar amount," 42 U.S.C. § 1395ww(d)(5)(A)(ii), commonly known as the "fixed[-]loss threshold," " ‘acts like an insurance deductible because the hospital is responsible for that portion of the treatment's excessive cost.’ " Dist. Hosp. Partners , 786 F.3d at 50 (quoting Boca Raton Cmty. Hosp. v. Tenet Health Care Corp. , 582 F.3d 1227, 1229 (11th Cir. 2009) ). The sum of the fixed-loss threshold and the standard payments a hospital would receive for a given treatment is known as the "outlier threshold." Id. "Any cost-adjusted charges imposed above the outlier threshold are eligible for reimbursement under the outlier payment provision," id. (citing 42 U.S.C. § 1395ww(d)(5)(A)(ii) ), although not at full cost, see 42 U.S.C. § 1395ww(d)(5)(A)(iii). For all years relevant to this appeal, "outlier payments have been 80% of the difference between a hospital's adjusted charges and the outlier threshold." Dist. Hosp. Partners , 786 F.3d at 50 ; see 42 C.F.R. § 412.84(j) (1997) ; 42 C.F.R. § 412.84(k) (2003).

Finally, in calculating the fixed-loss threshold, HHS must ensure that the total amount of outlier payments is not "less than 5 percent nor more than 6 percent" of total payments "projected or estimated to be made" under the inpatient prospective payment system that year. 42 U.S.C. § 1395ww(d)(5)(A)(iv). HHS "complies with this provision by selecting outlier thresholds that, ‘when tested against historical data, will likely produce aggregate outlier payments totaling between five and six percent of projected [non-outlier prospective] payments.’ " Dist. Hosp. Partners , 786 F.3d at 51 (quoting Cty. of L.A. , 192 F.3d at 1013 ). For all years relevant to this appeal, HHS has used 5.1% as its target percentage. See Banner Health v. Burwell , 126 F.Supp.3d 28, 43, 50 (D.D.C. 2015) (" Banner Health 2015 "). To account for the costs of the outlier-payment program, HHS also must reduce the standardized prospective payment rates for non-outlier payments by the same target percentage used to establish the fixed-loss threshold. 42 U.S.C. § 1395ww(d)(3)(B). In County of Los Angeles , 192 F.3d at 1017–20, the court held that HHS reasonably interpreted the Medicare Act not to require retroactive adjustments to the outlier threshold if total actual payments fell above or below the target percentage given the prospective nature of the system.

B.

Two sets of implementing regulations govern a hospital's qualification for outlier payments: (1) payment regulations determining when individual patient cases qualify for outlier payments, see 42 C.F.R. §§ 412.80 – 86 ; and (2) annual threshold regulations determining the fixed-loss threshold and other criteria used to define "outlier cases" for the upcoming fiscal year, see 42 C.F.R. § 412.80(c). The latter regulation sets the threshold based on the payment regulations and other factors.

During the early years of the outlier-payment program, HHS made a number of program-design decisions that are pertinent to this appeal. In the late 1980s, HHS revised the payment regulations at 42 C.F.R. § 412.84 to adopt hospital-specific cost-to-charge ratios in lieu of a national cost-to-charge ratio. See FY 1989 Final Rule, 53 Fed. Reg. 38,476, 38,503, 38,507 –09, 38,529 (Sept. 30, 1988). The purpose of this change was to "greatly enhance the accuracy with which outlier cases are identified and outlier payments are computed, since there is wide variation among hospitals in these cost-to-charge ratios." Id . at 38,503. HHS also provided that a hospital would default to an average statewide cost-to-charge ratio if its hospital-specific ratio fell outside reasonable parameters—three standard deviations above and below the statewide average—assuming that "ratios falling outside this range are unreasonable and are probably due to faulty data reporting or entry." Id. at 38,507 –08. Because "Medicare costs are generally overstated on the filed cost report and are subsequently reduced as a result of audit," HHS specified that cost-to-charge ratios were to be based on the "latest settled cost report" (that is, the latest audited cost report) and the associated charge data. Id. at 38,507. HHS acknowledged that this meant the data could be "as much as three years old," but nonetheless concluded that it was "the most accurate available data." Id .

In 1993, HHS decided to change how it adjusted its data for inflation in predicting future outlier payments. Until then, HHS had been inflating the prior year's charge data and then applying hospital cost-to-charge ratios to predict cost-adjusted charges for the upcoming fiscal year. FY 2004 Final Rule, 58 Fed. Reg. 46,270, 46,347 (Sept. 1, 1993). This is...

To continue reading

Request your trial
17 cases
  • E. Tex. Med. Center-Athens v. Azar, Civil Action No. 17-543 (RBW)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • October 18, 2018
    ...2001) ). Banner Health, 126 F.Supp.3d 28, 68 (D.D.C. 2015) (footnote omitted), aff'd in part, rev'd in part sub nom. Banner Health v. Price, 867 F.3d 1323 (D.C. Cir. 2017). Similarly, in Lee Memorial Health System v. Burwell, Judge Collyer determined that the plaintiffs' challenges to certa......
  • Burt Lake Band of Ottawa & Chippewa Indians v. Zinke, Civil Action No. 17–0038 (ABJ)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • March 29, 2018
    ...even under the new regulations." Defs.' Mot. at 18. But the issue before the Court is standing, not the merits. Banner Health v. Price , 867 F.3d 1323, 1334 (D.C. Cir. 2017), citing Sierra Club v. EPA , 699 F.3d 530, 533( D.C. Cir. 2012) ("For purposes of standing, this court is to ‘assume’......
  • Univ. of Colo. Health v. Azar
    • United States
    • United States District Courts. United States District Court (Columbia)
    • March 31, 2020
    ...through 2006 on the grounds that HHS inadequately explained certain aspects of those threshold calculations. See Banner Health v. Price , 867 F.3d 1323, 1337–39 (D.C. Cir. 2017). The case remains pending in the district court.Another group of cases were filed in 2013 and 2014 and were conso......
  • Citizens for Responsibility & Ethics in Wash. v. Fed. Election Comm'n
    • United States
    • United States District Courts. United States District Court (Columbia)
    • August 3, 2018
    ...except in rare circumstances, is to remand to the agency for additional investigation or explanation." (quoting Banner Health v. Price , 867 F.3d 1323, 1356 (D.C. Cir. 2017) ) ); FEC's Reply at 42 ("The general rule when courts review agency decision-making is, ‘except in rare circumstances......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT