Lenox Hill Hospital v. Shalala

• Decision Date: 14 November 2000
• Docket Number: Civil Action No. 99-CV03087SSH.
• Citation: 131 F.Supp.2d 136
• Parties: LENOX HILL HOSPITAL and Kaleida Health d/b/a/ Buffalo General Hospital, Plaintiffs, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

Page 136

131 F.Supp.2d 136

LENOX HILL HOSPITAL and Kaleida Health d/b/a/ Buffalo General Hospital, Plaintiffs, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.

Civil Action No. 99-CV03087SSH.

United States District Court, District of Columbia.

November 14, 2000.

David Howard Eisenstat, Akin, Gump, Strauss, Hauer & Feld, L.L.P., Washington, DC, for plaintiffs.

Victoria M. Corke, U.S. Department of Justice, Washington, DC, Stuart Alexander Licht, U.S. Department of Justice, Civil Division, Washington, DC, for defendant.

OPINION

STANLEY S. HARRIS, District Judge.

Before the Court are defendant's motion to dismiss, plaintiffs' opposition, and defendant's reply thereto. Upon consideration of the parties' submissions, the Court grants defendant's motion. Although findings of fact and conclusions of law are unnecessary on decisions of motions under Rule 12 or 56, see Fed.R.Civ.P. 52(a); Summers v. Department of Justice, 140 F.3d 1077, 1079-80 (D.C.Cir.1998), the Court sets forth its reasoning.

BACKGROUND

Plaintiffs Lenox Hill Hospital ("Lenox Hill") and Kaleida Health d/b/a Buffalo General Hospital ("Buffalo General") provide hospital services to beneficiaries under the Medicare program. On November 19, 1999, plaintiffs filed a complaint in this case, and indicated that this case is related to County of Los Angeles v. Shalala, 992 F.Supp. 26 (D.D.C.1998), rev'd, 192 F.3d 1005 (D.C.Cir.1999), cert. denied, ___ U.S. ___, 120 S.Ct. 2197, 147 L.Ed.2d 233 (2000), and the cases with which County of Los Angeles is consolidated.¹ As in those cases, plaintiffs challenge the methodology used by the Secretary of Health and Human Services (the "Secretary") in calculating certain "outlier payments" made to Medicare providers of hospital services. Under the Medicare Act, Title XVIII of the Social Security Act, as amended, 42 U.S.C. § 1395 et seq., the Secretary reimburses qualifying hospitals for the costs of covered services provided to eligible beneficiaries. Since 1983, hospitals have been reimbursed for inpatient services under the Prospective Payment System ("PPS"), which provides reimbursements on the basis of prospectively fixed rates determined according to diagnosis related groups ("DRGs"). See 42 U.S.C. § 1395ww(d)(1) (1994 & Supp. IV 1998). Recognizing that, in certain cases, Medicare patients require extraordinarily lengthy or costly hospitalizations, Congress sought to mitigate the financial burden imposed on hospitals treating such patients by directing that they receive supplemental payments — so called "outlier payments" — that "approximate the marginal cost of care beyond" certain thresholds. 42 U.S.C. § 1395ww(d)(5)(A)(iii) (1994). In this case, plaintiffs challenge the Secretary's determination of outlier payments for fiscal year ("FY") 1986 on the grounds, inter alia, that (1) 42 U.S.C. § 1395ww(d)(5)(A)(iv) mandates that the total amount of outlier payments for each FY equal between 5% and 6% of the total estimated or projected PPS payments for each FY, but the actual amount for FY 1986 fell below the 5% mark; and (2) the Secretary acted arbitrarily and capriciously in setting the outlier thresholds for FY 1986 by ignoring relevant factors and data, and failing to demonstrate a rational connection between the factors and data considered and the thresholds adopted.² See Compl. ¶ 31.

Before filing their complaint, plaintiffs attempted to pursue their claims administratively. In order to receive payment for Medicare services, a provider must file an annual cost report with a "fiscal intermediary," which then analyzes the report, determines the total amount of reimbursement, and sets forth this amount in a notice of program reimbursement ("NPR"). See 42 C.F.R. §§ 405.1803, 413.20, 413.24, and 413.60 (1998). If a provider is dissatisfied with the final determination of reimbursement, it may obtain a hearing before the Provider Reimbursement Review Board (the "PRRB" or the "Board") where the amount in controversy is $10,000 ($50,000 if a group appeal) or more, and where the provider files a request for a hearing within 180 days after notice of the intermediary's final determination. See 42 U.S.C §§ 1395oo(a), (b) (1994). Although the Medicare Act does not provide an exception to the 180-day filing deadline, the Secretary's regulations allow the Board to extend the deadline to up to three years "for good cause shown." 42 C.F.R. § 405.1841(b). If the jurisdictional prerequisites are satisfied, and the Board has authority to decide the issue in controversy, see id. § 405.1867, it may hold a hearing and issue a decision, which is then reviewable by the Administrator of the Health Care Financing Administration (the "Administrator"). See 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. §§ 405.1801(a), 405.1875(a)(1). If the jurisdictional prerequisites are met, but the Board determines — "on its own motion or at the request of a provider of services" — that it does not have authority to resolve the issue in controversy, the provider may seek judicial review by filing a civil action within 60 days after receiving notice of the Board's determination. 42 U.S.C. § 1395oo(f)(1); see also 42 C.F.R. § 405.1842. In such cases of expedited judicial review ("EJR"), a determination by the Board that it lacks authority to resolve an issue is a final decision, but the jurisdictional component of the Board's decision is reviewable by the Administrator. See 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. §§ 405.1875(a)(1), (c)(4).

In this case, both plaintiffs filed their request for a Board hearing over 180 days after, but within three years of, the dates of their respective NPRs for FY 1986. See Administrative Record ("A.R.") 9-10, 95-98. On September 3, 1997, plaintiffs requested that the Board certify their cases for EJR, asserting that they were challenging the Secretary's methodology in calculating outlier payments, and that the Board lacked authority pursuant to 42 C.F.R. § 405.1867 to set aside the challenged portions of that methodology. See A.R. 234-36. Plaintiffs subsequently requested that the Board find good cause for their late appeal filings pursuant to 42 C.F.R. § 405.1841(b). See A.R. 95-98. On November 2, 1999, the Board found good cause for plaintiffs' late filings on the ground that plaintiffs could not have known about the underpayment of outlier payments for FY 1986, as "the outlier payment rates for 1986 were not clearly specified in the Federal Register ..., [and] the first statistic that the funds were underpaid for 1986" was not published in the Federal Register until June 1992. A.R. 77-78. The Board also granted plaintiffs' request for EJR. See A.R. 79. On the basis of the Board's decision, plaintiffs filed their complaint in this case on November 19, 1999. On November 30, 1999, however, plaintiffs were notified that the Administrator, on her own motion, intended to review the jurisdictional portion of the Board's decision, i.e., its finding of good cause. See A.R. 75-76. On January 3, 2000, the Administrator reversed the Board's finding of good cause, reasoning, inter alia, that because plaintiffs were challenging the Secretary's policy of not making retroactive adjustments to outlier payments, publication in the Federal Register of actual underpayments was not required for plaintiffs to appeal their NPRs, and that the Secretary provided sufficient and timely notice of her methodology, the thresholds and data used for FY 1986, and the likelihood that the total actual payments for FY 1986 would fall below the 5% level. See A.R. 1-15.

The Secretary now moves to dismiss plaintiffs' complaint or, in the alternative, for judgment on the pleadings on the ground that the Court lacks jurisdiction to review the Administrator's reversal of the Board's decision.³ Alternatively, the Secretary contends that the Administrator's decision was not arbitrary and capricious.

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b) states that a motion making any of the defenses enumerated therein "shall be made before pleading if a further pleading is permitted." Because the Secretary has already filed an answer, her Rule 12(b) motion to dismiss is untimely. The Court, therefore, will treat her motion as a motion for judgment on the pleadings under Rule 12(c). In resolving a Rule 12(c) motion, a court must "view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party." Peters v. National R.R. Passenger Corp., 966 F.2d 1483, 1485 (D.C.Cir.1992) (internal quotation marks and citation omitted). "A court will grant a motion for judgment on the pleadings only if, after the close of the pleadings, no material fact remains in dispute, and the moving party is entitled to judgment as a matter of law." Transworld Prods. Co. v. Canteen Corp., 908 F.Supp. 1 (D.D.C.1995) (citing Peters, 966 F.2d at 1485).⁴

DISCUSSION

Plaintiffs' complaint invokes this Court's jurisdiction under the Medicare Act, 42 U.S.C. § 1395oo(f)(1), the federal question statute, 28 U.S.C. § 1331, and the Mandamus Act, 28 U.S.C. § 1361. Compl. ¶ 6. The Court, however, finds that it may exercise jurisdiction over plaintiffs' claims only to the extent permitted by the Medicare Act. Section 1331 does not provide an appropriate jurisdictional basis because § 405(h) of the Social Security Act, made applicable to the Medicare Act by 42 U.S.C. § 1395ii, states that "[n]o action against the United States, the [Secretary], or any officer or employee thereof shall be brought under section 1331 ... of Title 28 to recover on any claim arising under this subchapter." See also Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1, 120 S.Ct. 1084, 1093, 1098, 146 L.Ed.2d 1 (2000) (holding that § 405(h) "demands the `channeling' of virtually all legal attacks through the agency"; exception only where, "as applied generally to those covered by a particular statutory provision, hardship...