Scranton Quincy Hosp. Co. v. Azar

Citation514 F.Supp.3d 249
Decision Date07 January 2021
Docket NumberCivil Action No. 18-2310 (ABJ) (Consolidated 19-cv-1602)
CourtU.S. District Court — District of Columbia
Parties SCRANTON QUINCY HOSPITAL COMPANY, LLC, d/b/a Moses Taylor Hospital, et al., Plaintiffs, v. Alex M. AZAR II, Secretary, U.S. Department of Health and Human Services, Defendant.

Daniel J. Hettich and Mark D. Polston, King & Spalding LLP, Washington, DC, counsel for Plaintiffs Scranton Quincy Hospital Company, LLC (d/b/a Moses Taylor Hospital) and Tomball Texas Hospital Company (d/b/a Tomball Regional Center).

Sean M. Tepe, Assistant United States Attorney, United States Attorney's Office for the District of Columbia, Jonathan C. Brumer, U.S. Department of Health and Human Services Office of the General Counsel, for the Defendant, Alex M. Azar, II, the Secretary of Health and Human Services.


AMY BERMAN JACKSON, United States District Judge

Plaintiffs in this case are two hospitals, Scranton Quincy Hospital Company, LLC (d/b/a Moses Taylor Hospital) and Tomball Texas Hospital Company (d/b/a Tomball Regional Center), and they have sued the Secretary of the U.S. Department of Health and Human Services Alex M. Azar II.1 Plaintiffs are challenging the Secretary's calculation of certain adjustments made to payments they receive under the Medicare program. The disputed adjustments, which Medicare provides to hospitals that serve a disproportionate share of low-income patients, are designed to provide additional payments for uncompensated care.

Plaintiffs took issue with the manner in which defendant calculated their uncompensated care adjustment ("UCC adjustment") for fiscal year 2015, and they asserted that the Secretary used the wrong data in estimating the amount of uncompensated care they provided during the relevant period. They appealed the calculations and resulting DSH payments to the agency's Provider Reimbursement Review Board ("Board" or "PRRB"), id. , and the Board dismissed the appeals on the ground that the statute divests it of jurisdiction to take up the issue.

Plaintiffs then filed this lawsuit challenging the Board's dismissal of their appeals. Count I alleges that the Board's application of the provision precluding administrative and judicial review was contrary to the plain meaning of the statute. Count II alleges that the dismissal of the appeals violated the Constitution.

The Secretary moved to dismiss the complaint for lack of subject matter jurisdiction on the ground that the statute precludes any review – administrative or judicial – of the disputed UCC adjustment. In response to an order from the Court seeking clarification, though, the parties agreed that the Court does have jurisdiction to review the PRRB's decision that it did not have jurisdiction to review plaintiffs’ administrative appeals. With the parties’ consent, then, the Court will deem defendant's Rule 12(b)(6) to be a motion for summary judgment on the first count of the complaint. Further, the Court will sua sponte deem defendant's motion on the second count to be a motion for failure to state a claim under Rule 12(b)(6).

For the following reasons, the Court finds that the PRRB correctly determined that it lacked jurisdiction under the statute, and it will grant defendant's motion for summary judgment on Count I. It will also grant the motion to dismiss plaintiffs’ constitutional challenge for failure to state a claim as to Count II. This opinion does not address, and it should not be read to endorse or express any view about, the fairness or reasonableness of the calculations at issue.


The federal Medicare program, established by Title XVIII of the Social Security Act, provides health insurance to the elderly and disabled. See Amgen, Inc. v. Smith, 357 F.3d 103, 105 (D.C. Cir. 2004). The program is divided into five parts, Parts A through E. See Ne. Hosp. Corp. v. Sebelius , 657 F.3d 1, 2 (D.C. Cir. 2011), citing 42 U.S.C. §§ 1395c – 1395i–5. Part A provides payments to hospitals for services provided to Medicare beneficiaries, 42 U.S.C. § 1395c et seq. , including inpatient services, which are subject to numerous adjustments to account for such things as a hospital's geographic location and the population it serves. See id. § 1395ww(d).

Relevant here, Medicare provides an adjustment, known as the Disproportionate Share Hospital ("DSH") payment, for hospitals that serve a significantly disproportionate number of low-income patients. Fla. Health Scis. Ctr., Inc. v. Sec'y of Health & Human Servs. , 830 F.3d 515, 517 (D.C. Cir. 2016), citing 42 U.S.C. § 1395ww(d)(5)(F). In 2010, Congress enacted the Patient Protection and Affordable Care Act ("the Affordable Care Act"), Pub. L. No. 111–148, which revised the DSH payment in an effort to account for the costs of uncompensated care that hospitals provide to patients who have no means to pay, whether through federal programs or otherwise. Id. ; see Medicare Program Final Rule, 78 Fed. Reg. 50,496 ("Final Rule") at 50,622, 50,634–35 (Aug. 19, 2013).

The amended DSH adjustment, which took effect fiscal year ("FY") 2014, is calculated using a combination of the old DSH payment and the new payment for uncompensated care. See 42 U.S.C. § 1395ww(r). Paragraph (1) of the statute describes the first part of the adjustment, which is based on the old DSH payment and provides twenty-five percent of the old payment to hospitals. 42 U.S.C. § 1395ww(r)(1). Referred to as the "[e]mpirically justified" DSH payment, id. , it is calculated in part by determining the number of overnight stays a hospital has for patients (a) who receive Medicaid benefits and (b) patients who receive both Medicare and supplemental security income ("SSI") benefits, as reported on hospitals’ annual cost reports submitted to Medicare. Id. §§ 1395ww(d)(5)(F)(vi)(I)(II), 1395ww(r)(1). The Court will refer to this number as "Medicaid and SSI patient days," for ease of reference.

Paragraph (2) of the statute establishes the second part of the adjustment, the UCC adjustment. It provides an "[a]dditional payment" for uncompensated care, which represents each hospital's share of "75 percent of what otherwise would have been paid as Medicare DSH payments ... after the amount is reduced for changes in the percentage of individuals that are uninsured." Final Rule, 78 Fed. Reg. at 50,505. It is determined by multiplying three factors: (1) an estimate of the remaining seventy-five percent of the DSH payments nationwide, (2) an estimate of the decline in the national uninsured rate for the fiscal year as compared to the prior fiscal year, and (3) each qualifying hospital's share of the total amount of uncompensated care. 42 U.S.C. §§ 1395ww(d)(5)(F)(i), 1395ww(r)(2). Plaintiffs challenge how the Secretary calculated "Factor three" of their UCC adjustments. Id. § 1395ww(r)(2)(C).

Paragraph (3) of the statute contains the following review preclusion provision: "[t]here shall be no administrative or judicial review under section 1395ff of this title, section 1395oo of this title, or otherwise of ... [a]ny estimate of the Secretary for purposes of determining the factors described in paragraph (2)" or "[a]ny period selected by the Secretary for such purposes." 42 U.S.C. § 1395ww(r)(3).

A provider may appeal a payment determination under the Medicare Act to the PRRB pursuant to section 1395oo(a). 42 U.S.C. § 1395oo(a).


When calculating the UCC adjustment for FY 2014, the Secretary looked to the old DSH payment calculation as a means to determine the amount of a hospital's uncompensated care: he used a hospital's number of Medicaid and SSI patient days obtained from its 2010/2011 cost reports, Final Rule, 78 Fed. Reg. at 50,642, finding that this data served as "a reasonable proxy for utilization by uninsured patients." Id. at 50,636 ; Compl. ¶¶ 18, 21.2

The Secretary did the same for the following fiscal year, FY 2015, using a hospital's number of Medicaid and SSI patient days from 2012 cost reports "unless that cost report [wa]s unavailable or reflect[ed] less than a full 12-month year." Compl. ¶ 22, quoting 79 Fed. Reg. 49,854, 50,018 (Aug. 22, 2014). If a hospital's 2012 cost report was for a period shorter than twelve months, the agency would "use the cost report from 2012 or 2011 that is closest to being a full 12-month cost report." Id. In his rule governing FY 2015 payments, the Secretary explained that for the prior FY 2014, he "used data from the most recently available full year cost report for the Medicaid days and the most recently available SSI ratios, which meant data from the 2010/2011 cost reports (that is, cost reports that have cost reporting periods that begin in either FY 2010 or FY 2011)." 79 Fed. Reg. at 50,018.


Plaintiffs are two hospitals that participate in the federal Medicare program. Compl. ¶ 3. They seek to challenge how the Secretary determined the amount of uncompensated care that would be used in calculating Factor three of their FY 2015 DSH adjustments. Compl. ¶ 3, see 42 U.S.C. § 1395ww(r)(2)(C).

The two plaintiffs each changed ownership during FY 2012, which resulted in each having two cost reports that began in FY 2012. Compl. ¶ 40. Moses Taylor Hospital had a cost report for the six-month period from July 1, 2011 to December 31, 2011 and another for the twelve-month period from July 1, 2012 to June 30, 2013. Id. ¶ 40(a). Tomball Regional Center had a cost report for the nine-month period from October 1, 2011 to June 30, 2012 and another for the twelve-month period from July 1, 2012 to June 30, 2013. Id. ¶ 40(b).

The Secretary used each hospital's cost report for the shorter period, rather than the report covering twelve months, in calculating the FY 2015 UCC adjustment. Id. It is this choice that plaintiffs challenge.


On January 30, 2015, plaintiffs filed separate administrative appeals of the agency's selection of the cost report data in determining their UCC adjustments. See...

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