Landmark Hosp. of Salt Lake City v. Azar, Civil Case No. 1:19-01227 (TNM)

• Decision Date: 02 March 2020
• Docket Number: Civil Case No. 1:19-01227 (TNM), Civil Case No. 1:19-01228 (TNM)
• Citation: 442 F.Supp.3d 327
• Parties: LANDMARK HOSPITAL OF SALT LAKE CITY, Plaintiff, v. Alex M. AZAR II, Secretary, United States Department of Health and Human Services, Defendant. Landmark Hospital of Savannah, Plaintiff, v. Alex M. Azar II, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

442 F.Supp.3d 327

LANDMARK HOSPITAL OF SALT LAKE CITY, Plaintiff,

v.Alex M. AZAR II, Secretary, United States Department of Health and Human Services, Defendant.

Landmark Hospital of Savannah, Plaintiff,

v.Alex M. Azar II, Secretary, United States Department of Health and Human Services, Defendant.

Civil Case No. 1:19-01227 (TNM)

Civil Case No. 1:19-01228 (TNM)

United States District Court, District of Columbia.

Signed March 2, 2020

Jason M. Healy, Law Office of Jason M. Healy, PLLC, Washington, DC, for Plaintiff.

Sean Michael Tepe, Jason Todd Cohen, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

TREVOR N. McFADDEN, U.S.D.J.

The Landmark Hospitals of Salt Lake City and Savannah recently found themselves on the wrong end of Medicare reimbursement penalties caused by a typographical error and—depending on one's view—either Landmark's carelessness or a temporary glitch in the online reporting system. The penalties set Landmark back to the tune of $400,000. Landmark administratively appealed them twice. But apparently perplexed by its own regulations, the Department of Health and Human Services ("HHS") misapplied its rules in denying the appeals, overlooking one of Landmark's main arguments in the process.

Landmark has moved for summary judgment, arguing that the Secretary of HHS violated the Administrative Procedure Act by adopting an erroneous decision. The Court agrees. Unable to say with any confidence whether the Secretary would have reached a different result under the correct rules, the Court will grant partial summary judgment for Landmark, deny the Secretary's cross-motions, and remand both cases to the Secretary for further proceedings consistent with this opinion.

I.

This case is awash in complex and changing (sometimes contradictory) agency procedures. Save for one key fact, HHS could be forgiven for losing sight of some of those changes. But alas, HHS not only officiates Medicare and Medicaid, it writes the rules of the game as it goes along. This case is a study in what can happen when an agency proliferates rules at such a clip that even it cannot keep up. At every level of review, HHS misapplied the procedures it enacted. But the rulebook must be strictly enforced, especially against the rule maker.

The Centers for Medicare & Medicaid Services ("CMS") administers the day-to-day operation of Medicare on behalf of the Secretary. St. Luke's Hosp. v. Sebelius , 611 F.3d 900, 901 n.1 (D.C. Cir. 2010). One of the integral functions of that administration is the system of agreements between CMS and the providers who care for the insured beneficiaries. See 42 U.S.C. § 1395cc. Among that network are many long-term care hospitals ("LTCHs") that have contracted with the Secretary to receive reimbursement for care. See id. ; 42 C.F.R. § 412.23(e). Under their agreements, LTCHs have to submit regular quality data and measures according to the Secretary's guidelines and timelines. 42 U.S.C. § 1395ww(m)(5)(C). And if a hospital fails the reporting standards, it faces a two-percent reduction in Medicare reimbursement for the year. Id. § 1395ww(m)(5)(A)(i) ; 42 C.F.R. § 412.523(c)(4).

That is exactly what happened to Landmark here. In Landmark Salt Lake City's case, a CMS contractor notified the hospital one week before the February 2016 reporting deadline that CMS had not received the hospital's data. Salt Lake City ("SLC") A.R. 369, ECF No. 29-1. Surprised, the hospital's Director of Quality Management ("DQM") logged into the reporting website, only to find error messages for two reports she thought she had submitted. Id. at 195, 369. The DQM claims she re-entered the data, saved and submitted it, then "logged on to the website several times prior to the [ ] deadline to ensure no further error messages had been generated and she confirmed there were none." Id. at 369. But CMS never received the submissions. Id. at 119–120. Several months later, CMS notified the hospital it would impose a two-percent penalty for FY 2017, which Landmark estimates to be about $129,000. Id. ; SLC Compl. ¶ 4, ECF No. 1.

In Savannah, a different reporting error led to an even costlier penalty. There, Savannah's DQM timely entered reporting data in May 2016 through the same national website. Savannah Pl.'s Mot. for Summ. J. 6, ECF No. 19. After verifying the submission with a CMS contractor, she checked the website several times before the deadline. Id. And like her counterpart in Salt Lake City, she saw no cause for concern. Id. But it turned out the Savannah DQM had mistakenly transposed two digits of the CMS Certification Number. Id. at 8. As a result, the reporting data never made it to CMS. Savannah A.R. 9–10, ECF No. 31-2. Two months after the reporting deadline closed, CMS informed the hospital of the two-percent penalty. Id. at 269–70. And again, the notice caught Landmark flatfooted. Id. at 10. Landmark estimates the two-percent penalty at $275,000. Savannah Compl. ¶ 4, ECF No. 1.

After receiving the penalty letters, Landmark asked CMS to reconsider. SLC A.R. at 368–70; Savannah A.R. at 379–81. Landmark argued that the Salt Lake City reporting error was caused by "a technical error with the [reporting website], rather than a failure to submit." SLC A.R. at 369. And Landmark claimed that Savannah's transposed digits were "not a failure to submit, [but] rather a clerical issue." Savannah A.R. at 380. CMS responded with nearly identical form letters informing both hospitals that it had "reviewed the reconsideration request" but was "upholding the decision to reduce the annual payment" for FY 2017. SLC A.R. at 357–58; Savannah A.R. at 271–72.

Failing there, Landmark turned to the Provider Reimbursement Review Board, a "quasi-judicial" group that "conducts hearings and renders decisions on appeals from Medicare providers[.]" 46 Fed. Reg. 56,911, 56,912 (Nov. 19, 1981). The Board conducted a joint evidentiary hearing for both hospitals' appeals and ultimately upheld CMS's decision to impose the two-percent payment reductions. SLC A.R. at 6–13, 170–244; Savannah A.R. at 6–14, 167–239. Because the Secretary declined to act on the Board's decisions, they are final. 42 U.S.C. § 1395oo(f)(1). Landmark now seeks judicial review under the Administrative Procedure Act ("APA").¹ See id. ; SLC Compl. ¶¶ 27, 38; Savannah Compl. ¶¶ 27, 43.

II.

The Court reviews the Board's final decisions under the APA's standards of review. 42 U.S.C. § 1395oo(f)(1) ; Nursing Ctr. of Buckingham & Hampden, Inc. v. Shalala , 990 F.2d 645, 650 (D.C. Cir. 1993). Normally, a court will grant summary judgment when there "is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). But Rule 56's standards do not apply to a court's review of a final agency action under the APA. See Sierra Club v. Mainella , 459 F. Supp. 2d 76, 89 (D.D.C. 2006). In these cases, summary judgment "serves as the mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review." Id. at 90 (citing Richards v. INS , 554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977) ).

Under the APA, the Court will set aside the Board's decision only if "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Grant Med. Ctr. v. Hargan , 875 F.3d 701, 705 (D.C. Cir. 2017) (quoting 5 U.S.C. § 706(2)(A) ). Though a court's review of agency action under the arbitrary and capricious standard is "narrow," it must determine whether the agency "examined the relevant data and articulated a satisfactory explanation for its action including a rational connection between the facts found and the choice made." Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) (cleaned up). If the agency's reasoning is deficient, the "court should not attempt itself to make up for such deficiencies" or "supply a reasoned basis for the agency's action that the agency itself has not given." Id. (citation omitted). But it may still "uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned." Id. (cleaned up).

III.

These cases bring a feeling of déjà vu for the Court. Just weeks ago, the Court remanded another CMS case to the Secretary for applying an outdated version of its own rule. See PAM Squared at Texarkana v. Azar , 436 F.Supp.3d 52, No. 1:18-CV-02542 (TNM), 2020 WL 364782 (D.D.C. Jan. 22, 2020). As here, the Board in PAM Squared denied a hospital's appeal of a two-percent payment reduction. Id. at 55-56. Throughout its analysis, the apparently confused Board repeatedly cited rules for reconsidering FY 2015 payments, ignoring the fact that a more recent regulation governed the hospital's FY 2017 appeal. Id. at 57-58. Only once the Court raised the issue did the Secretary finally recognize the problem. Id. at 57-58. Finding this pervasive error to be arbitrary and capricious, the Court remanded the issue to the Secretary to apply the proper rules. Id. at 58-61. And the Court will do so again here. While this case may have different particulars, the Board's decision illuminates a strikingly similar error.

A.

To see why, consider Landmark's arguments before the Board. Landmark cited the preamble to CMS's final rule for reconsidering payment determinations, which says that a hospital must submit documentation showing either "full compliance" or "extenuating circumstances that affected noncompliance[.]" SLC A.R. at 176; Savannah A.R. at 173; see 79 Fed. Reg. 49,854, 50,317 (Aug. 22, 2014). Landmark argued for reversal on both grounds. SLC A.R. at 176; Savannah A.R. at 173. Landmark maintained that both hospitals fully complied with their reporting requirements, and that even if they did not, extenuating circumstances excused the...