Shands Jacksonville Med. Ctr., Inc. v. Azar
| Decision Date | 28 December 2018 |
| Docket Number | Civil Action No. 15-192, Civil Action No. 16-32, Civil Action No. 14-536, Civil Action No. 15-1601, Civil Action No. 15-1800, Civil Action No. 14-607, Civil Action No. 17-39, Civil Action No. 14-976, Civil Action No. 16-1543, Civil Action No. 16-2301, Civil Action No. 15-1793, Civil Action No. 16-30,Civil Action No. 14-263, Civil Action No. 14-503, Civil Action No. 14-1477, Civil Action No. 17-175 |
| Citation | 366 F.Supp.3d 32 |
| Parties | SHANDS JACKSONVILLE MEDICAL CENTER, INC., et al., Plaintiffs, v. Alex AZAR, Secretary, U.S. Department of Health and Human Services, Defendant. Dignity Health, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Athens Regional Medical Center Inc., et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. American Hospital Association, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Bakersfield Heart Hospital, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. St. Helena Hospital, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. AHMC Monterey Park Hospital LP, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Antelope Valley Hospital, Plaintiff, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Adventist Bolingbrook Hospital, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Long Beach Memorial Medical Center, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Flower Mound Hospital Partners, LLC, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. American Legion Hospital, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Asante Ashland Community Hospital, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Asante Ashland Community Hospital, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. St. Helena Hospital, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. Auburn Medical Center, et al., Plaintiffs, v. Alex Azar, Secretary, U.S. Department of Health and Human Services, Defendant. |
| Court | U.S. District Court — District of Columbia |
Robert L. Roth, Kelly A. Carroll, Hooper Lundy & Bookman, PC, Christopher L. Keough, Akin Gump Strauss Hauer & Feld LLP, Mark D. Polston, Daniel J. Hettich, Marisa Maleck, King & Spalding LLP, Catherine Emily Stetson, Dominic F. Perella, Hogan Lovells US LLP, Donald H. Romano, Lori Allison Rubin, Benjamin R. Dryden, Brian J. Kapatkin, Foley & Lardner LLP, James F. Segroves, Reed Smith LLP, Washington, DC, John R. Hellow, Hooper, Lundy & Bookman, PC, Los Angeles, CA, for Plaintiffs.
Benjamin R. Dryden, Foley & Lardner, LLP, Daniel Edward Bensing, U.S. Department of Justice, Washington, DC, for Defendant.
These consolidated cases are before the Court following an earlier decision holding that the Department of Health and Human Services failed to provide a meaningful opportunity for public comment on a rule that imposed a 0.2 percent, across-the-board reduction in inpatient prospective payment system rates used to compensate hospitals for FY 2014 under the Medicare program. See Shands Jacksonville Medical Center v. Burwell , 139 F.Supp.3d 240 (D.D.C. 2015) ("Shands I "). The issue now before the Court is the lawfulness of the Secretary's actions on remand following the Court's earlier decision.
As the Court explained in its prior opinion, in August 2013, the Secretary of Health and Human Services1 adopted a new policy—known as the "2-midnight policy"—to distinguish between inpatient and outpatient hospital visits. In the Secretary's view, that change in policy came with significant budgetary consequences; the Department's actuaries estimated that adoption of the 2-midnight policy would cause a net utilization shift of approximately 40,000 "encounters ... from outpatient to inpatient" status and, because inpatient stays typically cost the Medicare program more than outpatient visits, it would increase Medicare expenditures by approximately $220 million in 2014. Medicare Program, 78 Fed. Reg. 50,496, 50,953 (Aug. 19, 2013) ("FY 2014 rule"). In light of the "magnitude and breadth" of this "utilization shift," the Secretary concluded that it was appropriate to exercise her exceptions and adjustments authority to offset the cost to the program, and she thus adopted the 0.2 percent rate reduction. Id. at 50,953 –54.
In response, an array of hospitals brought suit under the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq.
They argued that the Secretary lacked statutory authority to adopt the rate reduction; that the FY 2014 rule failed to comply with the procedural requirements of the APA; and that the 0.2 percent rate reduction was arbitrary and capricious. Although the Court rejected the hospitals' challenge to the Secretary's statutory authority and declined to reach their arbitrary and capricious challenge, it held that the Secretary did not reveal key actuarial assumptions until after the close of the comment period and thereby deprived the hospitals of a meaningful opportunity to comment on the rate reduction. Shands I , 139 F.Supp.3d at 260–66. The Court, accordingly, remanded the matter (without vacatur) to allow the Secretary to identify the assumptions the Department's actuaries applied and to provide an opportunity for meaningful public comment. Id. at 266–71.
On remand, the Secretary published a notice describing the assumptions that the Department's actuaries used in calculating the "utilization shift" and invited public comment. See Medicare Program, 80 Fed. Reg. 75,107 (Dec. 1, 2015) ("December 2015 notice"). Then, after receiving and considering those comments, the Secretary did an about-face, abandoning the Department's effort to sustain the 0.2 percent reduction for FY 2014 (and other years) and, instead, proposing that the Department no longer impose the rate reduction going forward and adopt a one-time 0.6 percent rate increase for FY 2017 "to address the effect of the 0.2 percent reduction to the rates in effect for FY 2014," FY 2015, and FY 2016. See Medicare Program, 81 Fed. Reg. 24,946, 25,138 (proposed April 27, 2016) ("FY 2017 proposed rule"). Four months later, the Department finalized that rule. See Medicare Program, 81 Fed. Reg. 56,762 (Aug. 22, 2016) ("FY 2017 rule").
The matter has now returned to this Court, where two groups of plaintiffs raise separate challenges to the Secretary's actions on remand. The first group—the "Bakersfield Plaintiffs"—argue that the Court in Shands I remanded the matter to the Secretary to provide her with an opportunity "to cure the [FY 2014] rule's deficiencies" and, because the Secretary did not do so, the Court should vacate that rule.2 Dkt. 82 at 8. The Secretary's adoption of the 0.6 percent increase for FY 2017, in their view, did not redress this problem for two reasons. First, the administrative record fails to establish that the 0.6 percent rate increase made the Bakersfield Plaintiffs whole; a decline in inpatient visits to a particular hospital over the FY 2014 to FY 2016 period, for example, would mean that the rate increase in later years would not fully compensate that hospital for the rate decrease in earlier years. Second, and more importantly, the FY 2017 rule is only "forward-looking" and did not "repeal, amend, or supersede the FY 2014 [r]ule." Dkt. 82 at 25. The FY 2014 rule, they therefore argue, remains in effect and, because it was neither adopted in conformity with APA procedural requirements nor remedied on remand, it must be set aside.
The second group of hospitals—the "Athens Plaintiffs"—take a different tack.3 While the Bakersfield Plaintiffs treat the FY 2017 rule as immaterial—and, indeed, suggest that the Court lacks jurisdiction to consider that separate rulemaking—the Athens Plaintiffs engage with the FY 2017 rule and acknowledge that the Secretary took a step in the right direction by adopting the 0.6 percent rate increase. But that step, in their view, was far too small. They contend that the data that was before the Department did not merely show that the Secretary erred in hypothesizing that the 2-midnight rule would result in a net increase in inpatient encounters; it actually showed that the 2-midnight policy would decrease inpatient encounters and would, accordingly, decrease Medicare payments to hospitals. Dkt. 84-2 at 23. For this reason, they argued in the administrative process that the Secretary should have adopted an across-the-board rate increase to compensate hospitals for the reduced payments. Because the Secretary failed to consider the data and comments supporting a rate increase, they contend that the Court should once again remand the matter but, this time, should vacate the FY 2014 rule and direct that the Secretary (1) consider Plaintiffs' comments and data and (2) "budget neutralize any replacement rule." Dkt. 84-2 at 9.
Both the Bakersfield and Athens Plaintiffs have moved for summary judgment, and the Secretary has cross-moved for summary judgment. For the reasons explained below, the Court will DENY the Plaintiffs' motions for summary judgment and will GRANT the Secretary's cross-motion.
The Medicare program provides federally-funded health insurance for elderly and disabled individuals. 42 U.S.C. §§ 1395 et seq. The program is divided into two main parts: Part A provides insurance for inpatient services, see 42 U.S.C. §§ 1395c et seq. , while Part B provides additional insurance for services not covered by Part A...
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