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

• Decision Date: 09 November 2015
• Docket Number: Civil Action No.: 14–1220 (RC)
• Citation: 151 F.Supp.3d 1
• 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

151 F.Supp.3d 1

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 November 9, 2015

Stephen P. Nash, Squire Patton Boggs, Denver, CO, for Plaintiffs University of Colorado Health at Memorial Hospital, Banner Heart Hospital, Banner Baywood Medical Center, Banner Estrella Medical Center, Banner Gateway Medical Center, Banner Good Samaritan Medical Center, Banner Thunderbird Medical Center, Banner Desert Medical Center, Banner Mesa Medical Center, Banner Del E. Webb Medical Center, Banner Boswell Medical Center, Cape Coral Hospital, Charleston Area Medical Center, Denver Health Medical Center, Boulder Community Hospital, Halifax Community Health System, Sarasota Memorial Hospital, West Virginia University Hospitals, Allina Health, Banner Health, Lee Memorial, Lee Memorial Hospital, Allina St. Francis Regional Medical Center, Valley View Hospital, Parkview Medical Center, Billings Clinic Hospital, Good Samaritan Hospital Los Angeles and Cabell Huntington Hospital.

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

MEMORANDUM OPINION

Granting in Part and Denying in Part Plaintiffs' Motion to Compel Production of the Complete Administrative Record

RUDOLPH CONTRERAS, District Judge

I. INTRODUCTION

This case is one in a series of cases in which various hospitals have challenged regulations promulgated by the Department of Health and Human Services (“HHS”) to implement the Outlier Payment System, which provides for supplemental Medicare payments to hospitals when a particular patient's hospitalization and care is unusually costly. Plaintiffs here, a group of thirty-five acute care hospitals, seek review of the Medicare reimbursements awarded to them under that system. Before the Court is Plaintiffs' motion to compel production of the complete administrative record (ECF No. 29). This issue is well-traveled ground. In several other cases challenging HHS's outlier payment regulations, courts in this district have similarly considered motions to supplement the administrative record that sought many of the same materials Plaintiffs seek here. See generally Lee Mem'l Hosp. v. Burwell, No. 13–643, 109 F.Supp.3d 40, 2015 WL 3631811 (D.D.C. June 11, 2015); Dist. Hosp. Partners v. Sebelius, 971 F.Supp.2d 15 (D.D.C.2013), aff'd, 786 F.3d 46 (D.C.Cir.2015) ; Banner Health v. Sebelius, 945 F.Supp.2d 1 (D.D.C.2013). Upon consideration of the parties' filings, and for the reasons stated below, the Court will grant in part and deny in part Plaintiffs' motion to compel production.

II. FACTUAL BACKGROUND

A. The Outlier Payment System

To comprehend the parties' dispute about the administrative record's contents, one must have a keen understanding of the complex, and at times technical, Medicare Outlier Payment System. Hospitals were originally reimbursed under Medicare for the “reasonable costs” that they incurred when treating patients. See Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46, 49 (D.C.Cir.2015). Under that model, “[t]he more [hospitals] spent, the more they were reimbursed.” Id. (first alteration in original) (quoting Cnty. of L.A. v. Shalala, 192 F.3d 1005, 1008 (D.C.Cir.1999) ). By 1983, however, Congress had determined that a reasonable cost system failed to provide adequate incentives for hospitals to operate efficiently. Id. To remedy the potential for over-spending and to reward cost-effective hospital practices Congress passed as section 1886(d) of the Social Security Act (“Section 1886(d)”) what is called the Inpatient Prospective Payment System (“IPPS”), administered by the Centers for Medicaid and Medicare Services (“CMS”). See Cape Cod Hosp. v. Sebelius, 630 F.3d 203, 205 (D.C.Cir.2011) ; see also 42 U.S.C. § 1395ww(d). Instead of reimbursing a hospital simply for its reasonable costs, Congress directed CMS to calculate a “standardized amount” representing the average operating cost for inpatient hospital services. Cape Cod Hosp., 630 F.3d at 205. Section 1886(d) then provides that Medicare reimbursements made to hospitals are to be based on that standardized amount, regardless of the particular costs a hospital incurs in an individual case. See id.

Congress did recognize that different illnesses may necessarily involve more or less costly care, however. To account for those variations, Congress also directed the Secretary of Health and Human Services (the “Secretary”) to modify the standardized amount based on a number of diagnosis-related groups (“DRGs”). DRGs are “group[s] of related illnesses to which the Secretary assigns a weight representing ‘the relationship between the costs of treating patients within that group and the average cost of treating all Medicare patients.’ ” Dist. Hosp. Partners, 786 F.3d at 49 (quoting Cape Cod Hosp., 630 F.3d at 205–06 ).

Congress further recognized that, notwithstanding the standardized reimbursement system, “health-care providers would inevitably care for some patients whose hospitalization would be extraordinarily costly or lengthy.” Cnty. of L.A., 192 F.3d at 1009. To account for those situations, Congress created the Outlier Payment Program, which permits a hospital to recoup an additional payment, referred to as an “outlier payment,” if the costs incurred during the care of a particular patient exceed a certain dollar amount. Id. As relevant here, section 1886(d) provides that a hospital “may request additional payments in any case where charges, adjusted to cost, ... exceed the sum of the applicable DRG prospective payment rate ... plus a fixed dollar amount determined by the Secretary.” 42 U.S.C. § 1395ww(d)(5)(A)(ii). That fixed dollar amount—referred to as the “fixed loss threshold”—“serves as the cutoff point triggering eligibility for outlier payments.” Banner Health, 945 F.Supp.2d at 8.

Section 1886(d) further mandates that the aggregate amount of outlier payments made in any one fiscal year “may not be less than 5 percent nor more than 6 percent of the total payments projected or estimated to be made based on DRG prospective payment rates for discharges in that year.” 42 U.S.C. § 1395ww(d)(5)(A)(iv). During each fiscal year at issue in this case, the Secretary has endeavored to establish payment rates and policies that will produce outlier payments equaling 5.1% of total projected IPPS payments.¹

Hence, it is somewhat of an understatement to say that “calculating outlier payments is an elaborate process.” Dist. Hosp. Partners, 786 F.3d at 49. For simplicity's sake “three particular numbers are important: (1) the cost-to-charge ratio, (2) the fixed loss threshold, and (3) the outlier threshold.” Id. The cost-to-charge ratio, or “CCR,” is calculated on an individual hospital level and represents the average differential between the charges that a particular hospital lists on a patient's invoice and the actual costs that hospital incurs in treating a patient. In essence, the figure represents the hospital's “average markup” on its services. Id. at 50. To calculate a hospital's CCR, the Secretary considers the hospital's “most recent settled cost report or the most recent tentative settled cost report, whichever is from the latest cost reporting period.” See 42 C.F.R. § 412.84(i)(2).

As indicated above, the fixed loss threshold is the “fixed dollar amount” above the DRG prospective payment rate that the cost of a patient's care must exceed before a hospital becomes eligible for an outlier payment. 42 U.S.C. § 1395ww(d)(5)(A)(ii). The fixed loss threshold “ ‘acts like an insurance deductible because the hospital is responsible for that portion of the treatment's excessive cost’ above the applicable DRG rate.” Dist. Hosp. Partners, 786 F.3d at 50 (quoting Boca Raton Cmty. Hosp., Inc. v. Tenet Health Care Corp., 582 F.3d 1227, 1229 (11th Cir.2009) ). A hospital is simply expected to absorb the additional costs that fall above the DRG but below the fixed loss threshold. The fixed loss threshold is calculated annually and a new threshold is set for each fiscal year. Id. at 50.

The third number, the “outlier threshold,” is calculated by adding the DRG rate for a particular illness to the fixed loss threshold. Id. Any costs a hospital incurs above the outlier threshold may be reimbursed through an outlier payment, although CMS only reimburses a hospital for a fixed percentage of the hospital's costs above that outlier threshold. Since at least 2003, CMS has reimbursed hospitals for 80% of their adjusted costs above the outlier threshold. Id. (citing Medicare Program; Changes to the Hospital Inpatient Prospective Payment System and Fiscal Year 2004 Rates, 68 Fed.Reg. 45,346, 45,476 (Aug. 1, 2003) ; 42 C.F.R. § 412.84(k) ).

It is important to note that outlier payments do not provide hospitals with additional funding that is not already allocated to the Medicare program. Instead, outlier payments simply redistribute a portion of IPPS payments that would normally flow to hospitals as reimbursement for typical DRG patients to those hospitals that treat outlier patients. See 42 U.S.C. § 1395ww(d)(3)(B). To compensate for the anticipated percentage of outlier payments to be made during the fiscal year, the reimbursements that hospitals receive for ordinary cases under the IPPS program are therefore subject to a percentage reduction “by a factor equal to the proportion of [outlier] payments.” Id.

B. The Challenged Regulations

Plaintiffs' claims implicate two types of regulations that HHS has promulgated to implement the outlier payment system. The first is the 2003 Outlier Payment Regulations (the “Payment Regulations”),² which establish the general model for calculating whether a hospital's treatment of a particular patient qualifies for an outlier payment. See Medicare Program; Change in Methodology for Determining Payment for Extraordinarily...