Univ. of Colo. Health at Mem'l Hosp. v. Burwell

• Decision Date: 09 February 2017
• Docket Number: Civil Action No.: 14–1220 (RC)
• Citation: 233 F.Supp.3d 69
• Parties: UNIVERSITY OF COLORADO HEALTH AT MEMORIAL HOSPITAL, et al., Plaintiffs, v. Sylvia M. BURWELL, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

233 F.Supp.3d 69

UNIVERSITY OF COLORADO HEALTH AT MEMORIAL HOSPITAL, et al., Plaintiffs,

v.Sylvia M. BURWELL, Secretary, United States Department of Health and Human Services, Defendant.

Civil Action No.: 14–1220 (RC)

United States District Court, District of Columbia.

Signed February 9, 2017

Michihiro M. Tsuda, Mimi Hu Brouillette, Sven C. Collins, Stephen P. Nash, Squire Patton Boggs, Denver, CO, for Plaintiffs.

Caroline Lewis Wolverton, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

GRANTING DEFENDANT'S MOTION FOR LEAVE TO SUPPLEMENT HER ANSWER TO THE FOURTH AMENDED COMPLAINT; GRANTING DEFENDANT'S MOTION FOR LEAVE TO FURTHER SUPPLEMENT HER ANSWER TO THE FOURTH AMENDED COMPLAINT AND MOVE FOR SUMMARY JUDGMENT OUT OF TIME; STAYING PROCEEDING

RUDOLPH CONTRERAS, United States District Judge

I. INTRODUCTION

Plaintiffs, a group of acute care hospitals (Hospitals), have challenged several regulations governing outlier payment reimbursements under Medicare. Before the Court is the Secretary of Health and Human Services's (Secretary) motion to supplement her answer with the affirmative defense of preclusion based on Banner Health v. Burwell , 174 F.Supp.3d 206 (D.D.C. 2016). Also before the Court is the Secretary's motion to supplement her answer with the affirmative defense of preclusion based on Lee Memorial Health System v. Burwell , 206 F. Supp. 3d 307, No. 13–cv–643, 2016 WL 4687072 (D.D.C. Sept. 7, 2016) and to move for summary judgment out of time on the same grounds. For the reasons discussed below, the Court concludes that the Secretary's proposed amendments would not be futile and thus grants leave to supplement the answer to include both defenses. Because the Secretary has shown good cause and the Hospitals would not be prejudiced, the Court further grants the Secretary leave to move for summary judgment out of time. Finally, having determined that the affirmative defense of preclusion is not futile, the Court stays this action until the D.C. Circuit completes its review of Banner Health and, if an appeal is taken, of Lee Memorial .¹

II. BACKGROUND

This case concerns the Hospitals' challenges to the Secretary's system for calculating outlier payments under Medicare. In particular, the Hospitals challenge the "fixed loss threshold" rulemakings for fiscal years (FY) 2007, 2008, 2011, and 2012. The parties dispute whether Plaintiffs also challenge the 2003 amendments to the outlier payment regulations.² The Court assumes familiarity with the facts and its previous opinions, see generally Mem. Op., ECF No. 57; Mem. Op., ECF No. 47, and focuses only on the most relevant background.

A. Statutory background

Medicare is a federal program that provides health insurance to the elderly and the disabled. See 42 U.S.C. §§ 1395 et seq . After hospitals provide covered care, they are reimbursed through the Inpatient Prospective Payment System (IPPS). The IPPS provides reimbursements in two ways. First, IPPS provides the lion's share of reimbursements at a fixed rate for each category of service, aiming to thereby incentivize hospitals to reduce costs. Lee Memorial Health System v. Burwell , 206 F. Supp. 3d 307, 311–14, No. 13–cv–643, 2016 WL 4687072, at *1–2 (D.D.C. Sept. 7, 2016). Second, hospitals' reimbursements may be supplemented with "outlier payments" to compensate for "patients whose hospitalization [is] extraordinarily costly or lengthy." Cnty. of Los Angeles v. Shalala , 192 F.3d 1005, 1009 (D.C. Cir. 1999). An outlier payment is triggered when cost of caring for a particular patient exceeds the fixed loss threshold (FLT), a dollar amount that the Secretary sets each year.³ Banner Health v. Sebelius , 945 F.Supp.2d 1, 8 (D.D.C. 2013), vacated in part , 2013 WL 11241368 (D.D.C. Jul. 30, 2013). The instant case challenges reimbursements under the FLTs for FYs 2007, 2008, 2011, and 2012. The outlier payment system is also governed by a set of overall regulations, codified at 42 C.F.R. § 412.84. These regulations are not updated every year, and the 2003 amendments apply to the reimbursements at issue here. 4th Am. Compl. at ¶ 29, ECF No. 41.

Setting the FLT is a complicated task. Congress has instructed the Secretary that outlier payments should constitute between five and six percent of total IPPS reimbursements. 42 U.S.C. § 1395ww(d)(5)(A)(iv). To this end, the Secretary sets the FLT for each upcoming year prospectively, so that "when tested against historical data, [it] will likely produce aggregate outlier payments totaling between five and six percent of projected ... payments." Cnty. of Los Angeles , 192 F.3d at 1013. After setting the FLT, the Secretary then withholds the predicted total amount of outlier payments in advance from all other IPPS reimbursements, such that the hospitals are essentially sharing the risk of encountering unusually costly patients. See 42 U.S.C. § 1395ww(d)(3)(B). For example, in many recent years the Secretary has aimed to pay 5.1% of the total reimbursements in outlier payments, see Banner Health v. Burwell, 126 F.Supp.3d 28, 42–43 (D.D.C. 2015), and has therefore prospectively reduced all non-outlier payments by 5.1%, id. at 43.

Because Medicare reimbursements—and the hospital-provided care that triggers them—are highly complex, the Secretary's predictions frequently differ from what actually transpires, and the actual outlier repayments are either higher or lower than the amount withheld. The Secretary need not take corrective action when the actual outlier payments vary from the projected values. Dist. Hosp. Partners L.P. v. Burwell , 786 F.3d 46, 51 (D.C. Cir. 2015). This creates competing incentives between hospitals and the Secretary—hospitals prefer a lower FLT, with the concomitant possibility that it will be "too low" and hospitals as a group will receive more in outlier payments than they lost in withholding; while the Secretary on the other hand, may prefer a higher FLT, because if the FLT is "too high" then the total outlier payments will be less than the amount the Secretary withheld to pay for them. If the mismatch between the Secretary's prediction and the actual outlier payments is small as a percentage of IPPS payments, it can still be large in magnitude due to the scale of Medicare. For example, in the period from FY 1997 to FY 2003, IPPS paid out more than $9 billion in excess of its projections. Pls.' Mem. P. & A. Supp. Mot. Summ. J. at 8, ECF No. 64. This motivated several reforms to the outlier payment system, including the 2003 amendments to the overall regulations. In the following years from FY 2004 to FY 2012, IPPS repeatedly paid out less than it projected in outlier payments, for a $6 billion shortfall. Pls.' Mem. Points Auth. Supp. Mot. Summ. J. at 2. This system sets the stage for claims like those at issue here, in which hospitals argue that the Secretary set the FLT too low, denying them outlier reimbursements they should have received.

B. Parties and claims

Thirty-five hospitals are plaintiffs in this action,⁴ and some of these hospitals were also plaintiffs in Banner Health v. Burwell , 126 F.Supp.3d 28 (D.D.C. 2015), and Lee Memorial , 206 F. Supp. 3d 307, No. 13–cv–643, 2016 WL 4687072 (D.D.C. Sept. 7, 2016). The Secretary asserts that, because Banner Health and Lee Memorial involved challenges to some of the same FLTs at issue here, the repeated plaintiffs should be precluded from challenging those FLTs in this case. The Hospitals argue that, because this case involves the appeal of different reimbursements , the overlap in the FLTs that governed those reimbursements is immaterial.

First, the Court discusses the context of the FLTs and reimbursements at issue as it relates to the claims here and in the prior cases. In Banner Health and Lee Memorial , the hospitals appealed different reimbursements than those at issue here, but reimbursements that were governed by the same FLTs. Because the federal fiscal year ends on September 31, and determines which FLT applies, one FLT will govern different sets of reimbursements. Pls.' Opp'n Def.'s Mot. Suppl. 4th Am. Compl. Mem. P. & A. Suppl. at 2–3 (Pls.' 1st Opp'n), ECF 67. For example, Banner Health involved reimbursements from October 1 to December 31, 2006, and those reimbursements were governed by the FY 2007 FLT. Pls.' 1st Opp'n at 10, ECF No. 67. This case involves reimbursements from January 1 to September 30, 2007, which are also governed by the FY 2007 FLT.⁵ See Compl., ECF No. 1.

The plaintiff hospitals here, in Banner Health, and in Lee Memorial describe their claims in nearly identical language as challenges to the Secretary's regulations.⁶

They principally differ as to the years involved, because each case arose out of the appeal of different reimbursements to the hospitals.

The instant case Banner Health Lee Memorial
                                       FLTs for FYs 1997
                                       1998, 1999, 2000
                                       2001, 2002, 2003
                                       2004, 2005, and 2006
                FLT for FY 20077      FLT for FY 2007
                FLT for FY 20088                               FLT for FY 2008
                                                                FLTs for FYs 2009
                                                                and 2010
                FLT for FY 20119                               FLT for FY 2011
                FLT for FY 2012
                2003 amendments10     2003 amendments          2003 amendments
                

[Editor's Note: The preceding image contains the references for footnotes^{7 ,8 ,9 ,10} ].

C. Procedural history

The Secretary has sought the leave of the Court to amend her answer to include the affirmative defense of preclusion as to the effects of both Banner Health and Lee Memorial , and also to move for summary judgment out of time on the preclusive effects of Lee Memorial .¹¹ See generally Def.'s Mot. Suppl. Answer 4th Am. Compl. Mem. P. & A. Supp. (Def.'s 1st Mot. Suppl.), ECF No. 65; Def.'s Mot. Suppl. Answer 4th Am. Compl. Move Summ. J. Out of Time Mem. Points Auth. Supp. (Def.'s 2d Mot. Suppl.), ECF No. 80. The Hospitals oppose...