Stringfellow Mem'l Hosp. v. Azar

Decision Date29 June 2018
Docket Number Civil Action No. 17–315 (BAH), Civil Action No. 17–880 (BAH),Civil Action No. 17–309 (BAH)
Citation317 F.Supp.3d 168
Parties STRINGFELLOW MEMORIAL HOSPITAL, et al., Plaintiffs, v. Alex AZAR, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendant. Dallas Regional Medical Center, et al., Plaintiffs, v. Alex Azar, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendant. West Anaheim Medical Center, et al., Plaintiffs, v. Alex Azar, in his official capacity as Secretary of the United States Department of Health and Human Services, Defendant.
CourtU.S. District Court — District of Columbia

Donald H Romano, Lori Allison Rubin, Foley & Lardner LLP, Washington, DC, Alan Jay Sedley, Sedley Health Law Group, Irvine, CA, for Plaintiff.

James O. Bickford, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

BERYL A. HOWELL, Chief JudgePending before the Court are cross-motions for summary judgment from the plaintiffs, several hospitals that offer inpatient and outpatient hospital services to patients entitled to benefits under the Medicare program, Pls.' Mot. Summ. J. ("Pls.' Mot."), ECF No. 15, and the defendant, the Secretary of Health and Human Services ("HHS"), who is sued in his official capacity, Def.'s Cross–Mot. Summ. J. ("Def.'s Mot."), ECF No. 17.1 The plaintiffs seek judicial review of a final adverse agency decision by HHS and the vacatur of a 2005 final rule that allegedly reduced the payments that the plaintiffs should have received from HHS to compensate them for the disproportionate number of low-income patients served in their hospitals. See Pls.' Mot. at 1. The plaintiffs allege that the final rule at issue violates the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, because the rule is procedurally defective and arbitrary and capricious. See Compl. ¶¶ 81–88, ECF No. 1; Pls.' Mem. Supp. Mot. Summ. J. ("Pls.' Mem.") at 2, ECF No. 15–1. The defendant counters that the final rule was a logical outgrowth of the proposed rule and that the adoption of the rule was the result of a reasoned deliberative process. See Def.'s Mem. Supp. Cross–Mot. Summ. J. & Opp'n Pls.' Mot. Summ. J. ("Def.'s Mem.") at 1, ECF No. 17–1. For the reasons set forth below, the plaintiffs' motions are denied and the defendant's motions are granted.

I. BACKGROUND

Resolving the instant motions requires examining the "labyrinthine world of Medicare reimbursements." Dist. Hosp. Partners, L.P. v. Burwell , 786 F.3d 46, 48 (D.C. Cir. 2015) (internal quotation marks omitted). The relevant portions of the Medicare statute are explained first, followed by the rulemaking challenged by the plaintiffs.

A. Statutory Framework

Medicare is a federal program that pays for health-care services furnished to eligible beneficiaries, who are generally individuals over the age of sixty-five or individuals with disabilities. See 42 U.S.C. § 1395c. The Centers for Medicare and Medicaid Services ("CMS") is the component of HHS that administers the Medicare program. See St. Elizabeth's Med. Ctr. of Bos., Inc. v. Thompson , 396 F.3d 1228, 1230 (D.C. Cir. 2005). CMS reimburses health-care providers for, inter alia , "the reasonable cost" of services provided to Medicare beneficiaries. See 42 U.S.C. § 1395f(b)(1).2

The Medicare statute has five parts, two of which are relevant to this case. Part A "establishes the requirements that individuals must meet to be eligible for Medicare benefits and provides such individuals insurance for hospital and hospital-related services." Catholic Health Initiatives Iowa Corp. v. Sebelius , 718 F.3d 914, 916 (D.C. Cir. 2013) (citing 42 U.S.C. § 1395c ). Such benefits include coverage for "inpatient hospital services," including overnight stays in a hospital. 42 U.S.C. § 1395d. Part A benefits are limited to a certain number of days, however, and after those days have been used, Part A coverage is "exhausted." Catholic Health , 718 F.3d at 916. "Specifically, Medicare beneficiaries are entitled to coverage for the first 90 days of their stay, and they may then elect to use up to 60 ‘lifetime reserve days’ beyond the first 90 days." Id. (quoting 42 C.F.R. § 409.61(a) ); see also 42 U.S.C. § 1395d.

Part E, which sets out "Miscellaneous Provisions," works in tandem with Part A to provide a "prospective payment system for reimbursing hospitals that provide inpatient hospital services covered under Part A." Catholic Health , 718 F.3d at 916 (citing 42 U.S.C. § 1395ww(d) ). As relevant to this case, Part E mandates that any hospital serving "a significantly disproportionate number of low-income patients" is entitled to a payment adjustment, known as the "disproportionate share hospital" ("DSH") adjustment, which is an upward adjustment to a hospital's reimbursement amount to account for the hospital's treatment of a disproportionately high number of low-income patients. 42 U.S.C. § 1395ww(d)(5)(F)(i)(I) ; see also id. § 1395ww(d)(2) ; Pls.' Mem. at 4 ("The DSH adjustment is an upward adjustment to standard rates to compensate hospitals for the generally higher per-patient costs of low-income patients."). As the D.C. Circuit has recognized, the DSH adjustment "is based on Congress's judgment that low-income patients are often in poorer health, and therefore costlier for hospitals to treat." Catholic Health , 718 F.3d at 916 (citing Adena Reg'l Med. Ctr. v. Leavitt , 527 F.3d 176, 177–78 (D.C. Cir. 2008) ).

A hospital's DSH adjustment is based on its "disproportionate patient percentage" ("DPP"). 42 U.S.C. § 1395ww(d)(5)(F)(v). To qualify for a DSH adjustment, a hospital's DPP typically must exceed 15 percent, although the qualifying percentage varies depending on the size of the hospital and whether it is located in an urban or a rural area. See id. Generally, "a higher DPP means greater reimbursements because the hospital is serving more low-income patients." Catholic Health , 718 F.3d at 916. The DPP is a " ‘proxy measure’ for the number of low-income patients a hospital serves and represents the sum of two fractions, commonly called the ‘Medicare fraction’ and the ‘Medicaid fraction.’ " Ne. Hosp. Corp. v. Sebelius , 657 F.3d 1, 3 (D.C. Cir. 2011) (internal citation omitted) (quoting H.R. REP. NO. 99–241, pt. 1, at 17 (1985) ). The Medicare fraction is statutorily defined as:

[T]he fraction (expressed as a percentage), the numerator of which is the number of such hospital's patient days for such period which were made up of patients who (for such days) were entitled to benefits under [Medicare] part A ... and were entitled to supplementary security income [ ("SSI") ] benefits ..., and the denominator of which is the number of such hospital's patient days for such fiscal year which were made up of patients who (for such days) were entitled to benefits under [Medicare] part A.

42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The Medicaid fraction is defined as:

[T]he fraction (expressed as a percentage), the numerator of which is the number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State [Medicaid] plan ... but who were not entitled to benefits under [Medicare] part A ..., and the denominator of which is the total number of the hospital's patient days for such period.

Id. § 1395ww(d)(5)(F)(vi)(II).

As the D.C. Circuit has noted, "[t]his language is downright byzantine and its meaning not easily discernible." Catholic Health , 718 F.3d at 917. In essence, "[t]he Medicare and Medicaid fractions represent two distinct and separate measures of low income—SSI (i.e., welfare) and Medicaid, respectively—that when summed together, provide a proxy for the total low-income patient percentage." Id. The D.C. Circuit has often used the following visual representation to distill these formulas:

?

Id. ; see also Ne. Hosp. , 657 F.3d at 3. The denominator of the Medicaid fraction—total number of patient days—is larger than the denominator of the Medicare fraction, which contains only patient days for those patients "entitled to benefits under part A." Thus, shifting patient days from the numerator of the Medicaid fraction to the numerator of the Medicare fraction will generally have a larger impact on a hospital's DPP and, accordingly, on its DSH adjustment.

A "fiscal intermediary," such as a private insurance company that has a contract with CMS, is responsible for "[d]etermining the amount of payments to be made to providers for covered services furnished to Medicare beneficiaries" and then "[m]aking the payments" to the hospitals. 42 C.F.R. § 421.100(a)(1)(2) ; see also id. § 421.3. If a hospital providing covered services "is dissatisfied with a final determination of the organization serving as its fiscal intermediary" regarding "the amount of total program reimbursement due the provider," the hospital "may obtain a hearing with respect to such [determination] by a Provider Reimbursement Review Board" ("PRRB"). 42 U.S.C. § 1395oo (a)(1)(A)(i). To obtain such review, the hospital must "file[ ] a request for a hearing with 180 days after notice of the intermediary's final determination." Id. § 1395oo (a)(3). The PRRB may then "affirm, modify, or reverse a final determination of the fiscal intermediary." Id. § 1395oo (d) ; see also Ne. Hosp. , 657 F.3d at 3–4.

PRRB decisions "shall be final unless the Secretary, on his own motion, and within 60 days after the provider of services is notified of the [PRRB's] decision, reverses, affirms, or modifies" the PRRB's decision. 42 U.S.C. § 1395oo (f)(1). Notably, however, the PRRB lacks the authority to declare statutes, regulations, or rules invalid. See Bethesda Hosp. Ass'n v. Bowen , 485 U.S. 399, 406 & n.4, 108 S.Ct. 1255, 99 L.Ed.2d 460 (1988) (citing 42 U.S.C. § 1395oo (d) ); 42 C.F.R. § 405.1867 (instructing that the PRRB "shall afford great weight to interpretive rules, general statements of...

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