H. Lee Moffitt Cancer Ctr. & Research Inst. Hosp., Inc. v. Azar

• Decision Date: 18 July 2018
• Docket Number: Civil Action No. 16-2337 (TJK)
• Parties: H. LEE MOFFITT CANCER CENTER AND RESEARCH INSTITUTE HOSPITAL, INC., Plaintiff, v. Alex M. AZAR II, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

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H. LEE MOFFITT CANCER CENTER AND RESEARCH INSTITUTE HOSPITAL, INC., Plaintiff,
v.
Alex M. AZAR II, Secretary, United States Department of Health and Human Services, Defendant.

Civil Action No. 16-2337 (TJK)

United States District Court, District of Columbia.

Signed July 18, 2018

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Christopher L. Keough, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, for Plaintiff.

Jason Lee, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

TIMOTHY J. KELLY, United States District Judge

Defendant Alex M. Azar II, sued here in his official capacity as head of the Department of Health and Human Services (and referred to as "HHS"), oversees Medicare, a government health insurance program for the elderly and disabled. The Outpatient Prospective Payment System ("OPPS") is a component of Medicare that deals with payments to hospitals for outpatient treatment services. This agency-review case concerns a statutory amendment to OPPS made in 2010 by the Patient Protection and Affordable Care Act (the "ACA"), Pub. L. No. 111-148, 124 Stat. 119 (2010). Under the amendment, HHS was required to study certain costs incurred by a small group of hospitals that focus on cancer research and treatment (commonly referred to as the "cancer hospitals"). If HHS determined that the cancer hospitals' costs were higher than other hospitals', it was required to make an "appropriate adjustment" to payments to the cancer hospitals "effective for services furnished on or after January 1, 2011." HHS ultimately did

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find that the cancer hospitals' costs were higher and warranted an increase in OPPS payments to them. But HHS did not issue a final regulation containing the cancer-hospital adjustment until well into 2011, and made the adjustment effective only as of January 1, 2012.

Plaintiff H. Lee Moffitt Cancer Center and Research Institute Hospital, Inc. ("Moffitt") is a cancer hospital. It has challenged HHS's failure to make higher OPPS payments to cancer hospitals for 2011, claiming HHS thereby violated its statutory mandate. HHS defends its actions as reasonable, and also argues that the adjustment it made is not subject to judicial review. Each party has moved for summary judgment. ECF No. 13; ECF No. 16; see also ECF No. 13-1 ("Pl.'s Br."); ECF No. 16-1 ("Def.'s Br."); ECF No. 19 ("Pl.'s Reply"); ECF No. 21 ("Def.'s Reply"). As explained below, the Court agrees with Moffitt that HHS failed to comply with the statute's directive to make an adjustment effective for services furnished during the 2011 calendar year. Therefore, the Court will enter summary judgment for Moffitt and remand the case to HHS so that it can consider and make an "appropriate adjustment."

I. Legislative and Regulatory Background

A. Medicare and OPPS

Medicare, created in 1965, is a health insurance program run by the federal government for the elderly and disabled. See Univ. of Tex. M.D. Anderson Cancer Ctr. v. Sebelius ("M.D. Anderson "), 650 F.3d 685, 686 (D.C. Cir. 2011) ; Amgen, Inc. v. Smith , 357 F.3d 103, 105 (D.C. Cir. 2004). Funding the program "has posed a massive challenge for the U.S. Government, as the costs of Medicare have grown significantly over time." M.D. Anderson , 650 F.3d at 686. Therefore, Congress has tried various measures to "rein in" those costs over time. Id.

In 1997, Congress made a major change to Medicare intended to reduce the cost of outpatient services. Up to that point, "hospitals treated outpatients, and then informed Medicare of the cost of the treatment, and then received money to cover costs that were ‘reasonable.’ Not surprisingly, costs exploded under this system because there was little check on the services and costs for which hospitals received reimbursement." Id. at 688. The Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 251, replaced that system of cost-based payments with OPPS, which requires "payments for outpatient hospital care to be made based on predetermined rates." Amgen , 357 F.3d at 106.

The statutory provision governing OPPS, codified at 42 U.S.C. § 1395l (t), imposes a number of different requirements with which HHS must comply in setting prospective rates for outpatient services. Subsection (t)(2)(E) also provides HHS a broad discretionary authority to make "adjustments" to those rates:

[T]he Secretary shall establish, in a budget neutral manner, outlier adjustments under paragraph (5) and transitional pass-through payments under paragraph (6) and other adjustments as determined to be necessary to ensure equitable payments, such as adjustments for certain classes of hospitals[.]

42 U.S.C. § 1395l (t)(2)(E). Because adjustments under § (t)(2)(E) are required to be "budget neutral," HHS must offset any increased payments to some hospitals with reduced payments to others. See Amgen , 357 F.3d at 112. HHS must review these adjustments at least annually. See 42 U.S.C. § 1395l (t)(9)(A).

At the time OPPS was enacted, "some hospitals would receive significantly less money" under OPPS than under the old

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system. M.D. Anderson , 650 F.3d at 689. To soften the blow, Congress provided transitional outpatient payments ("TOPs") to hospitals during OPPS's first few years. See 42 U.S.C. § 1395l (t)(7) ; M.D. Anderson , 650 F.3d at 689. Congress made special provision for the cancer hospitals, which consist of eleven hospitals (including Moffitt). See 42 U.S.C. § 1395ww(d)(1)(B)(v) ; ECF No. 1 ("Compl.") ¶ 21; Def.'s Br. at 5. For cancer hospitals, TOPs remained available permanently. See 42 U.S.C. § 1395l (t)(7)(D)(ii). These payments effectively guarantee that cancer hospitals will be reimbursed for their costs to the same extent as under the old, pre-1997 system. See M.D. Anderson , 650 F.3d at 689. Moreover, unlike adjustments under § (t)(2)(E), TOPs are not required to be budget neutral. See 42 U.S.C. § 1395l (t)(7)(I).

B. ACA Section 3138 and HHS's Regulations

In Section 3138 of the ACA, enacted in March 2010, Congress added another special provision for cancer hospitals to the OPPS statute. The provision ordered HHS to undertake a study of whether cancer hospitals' costs for delivering outpatient services exceeded other hospitals' costs. See 42 U.S.C. § 1395l (t)(18)(A). "Insofar as" HHS made such a determination, it was to "provide for an appropriate adjustment under paragraph (2)(E) to reflect those higher costs effective for services furnished on or after January 1, 2011." Id. § 1395l (t)(18)(B).

HHS first addressed this requirement in an August 2010 proposed rulemaking regarding OPPS payment rates for 2011. Medicare Program; Proposed Changes to Hospital Outpatient Prospective Payment System and CY 2011 Payment Rates, 75 Fed. Reg. 46,170 (proposed rule Aug. 3, 2010). The agency explained its study of the cancer hospitals' costs, which showed that the cancer hospitals did in fact have significantly higher costs. See id. at 46,233 -34. HHS then discussed its approach to crafting an adjustment to reflect those costs. Id. at 46,235 -37. It explained that it had not considered TOPs in crafting the proposed adjustment. Id. at 46,235. Its reasons were two-fold: First, the proposed adjustment had to be made under § (t)(2)(E) and thus had to be budget neutral; therefore, the agency believed it was "appropriate to assess costliness and payments within the budget neutral payment system," which does not include TOPs. Id. Second, TOPs are paid on an aggregate basis, and thus could not could not be weighted on a per-service basis, as the proposed adjustment would be. See id.

Based on its analysis, HHS proposed "a hospital-specific payment adjustment" designed "to raise each cancer hospital's PCR [‘payment to cost ratio’] to the weighted average PCR for all other hospitals." Id. Overall, this would increase cancer hospitals' OPPS payments by 41.2%, and in order to be "budget neutral," OPPS payments to other hospitals would have to be 0.66% lower. See id. at 46,225, 46,236. Cancer hospitals would still receive retroactive TOPs if their cost recovery fell below pre-1997 levels; however, because the up-front OPPS payments would be higher, HHS estimated that only one cancer hospital would continue to receive TOPs if the proposal went into effect. See id. at 46,237.

After issuing the proposed rule, HHS received several comments criticizing its approach. See Medicare Program: Hospital Outpatient Prospective Payment System and CY 2011 Payment Rates, 75 Fed. Reg. 71,800, 71,886 -87 (Nov. 24, 2010) (summarizing comments). In particular, many commenters argued that HHS's approach was inequitable: cancer hospitals would receive only a small net benefit (because most of the increases to their up-front OPPS payments would be offset by lower TOPs

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down the line), while other hospitals would receive a larger net loss (because every dollar spent on higher OPPS payments to the cancer hospitals had to be neutralized by lower OPPS payments to other hospitals). See JA at 30-31, 33-34, 39-40, 43, 63-64, 67, 73-74, 77-80, 82-83, 86-87, 90, 92-93, 95-96, 98-100.¹ These commenters argued such an...