Univ. of Colo. Health v. Azar

• Decision Date: 31 March 2020
• Docket Number: Civil Action No. 14-1220 (RC)
• Citation: 486 F.Supp.3d 185
• Parties: UNIVERSITY OF COLORADO HEALTH, at Memorial Hospital, et al., Plaintiffs, v. Alex M. AZAR II, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Columbia

486 F.Supp.3d 185

UNIVERSITY OF COLORADO HEALTH, at Memorial Hospital, et al., Plaintiffs,

v.Alex M. AZAR II, Secretary of Health and Human Services, Defendant.

Civil Action No. 14-1220 (RC)

United States District Court, District of Columbia.

Signed March 31, 2020

Eryn Kelly Mihocik, Pro Hac Vice, Squire Patton Boggs, Columbus, OH, Michihiro M. Tsuda, Pro Hac Vice, Mimi Hu Brouillette, Pro Hac Vice, Squire Patton Boggs, Stephen P. Nash, Sven C. Collins, Pro Hac Vice, Squire Patton Boggs (US) LLP, 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 Hospital, 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, Cabell Huntington Hospital.

Eryn Kelly Mihocik, Pro Hac Vice, Squire Patton Boggs, Columbus, OH, Stephen P. Nash, Squire Patton Boggs (US) LLP, Denver, CO, for Plaintiffs Lee Memorial Health System, Billings Clinic, Good Samaritan Hospital, Jupiter Medical Center, Bozeman Deaconess Hospital, Riverview Medical Center, Ocean Medical Center, Jersey Shore University Medical Center, Bayshore Community Hospital, Southern Ocean Medical Center, Grady Memorial Hospital, St. Joseph's/Candler, Boulder Community Health, Weirton Medical Center.

Sven C. Collins, Pro Hac Vice, Keith Bradley, Stephen P. Nash, Squire Patton Boggs (US) LLP, Denver, CO, Eryn Kelly Mihocik, Pro Hac Vice, Squire Patton Boggs, Columbus, OH, for Plaintiff All Plaintiffs.

Eryn Kelly Mihocik, Pro Hac Vice, Squire Patton Boggs, Columbus, OH, for Plaintiffs Floyd Medical Center, Memorial Health University Medical Center, Banner Ironwood Medical Center.

James C. Luh, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

GRANTING IN PART AND DENYING IN PART DEFENDANT'S PARTIAL MOTION TO DISMISS; GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION TO SUPPLEMENT THE ADMINISTRATIVE RECORDS

RUDOLPH CONTRERAS, United States District Judge

I. INTRODUCTION

Plaintiffs in these consolidated cases are a group of fifty-one hospitals. They are challenging the implementation of the Medicare outlier-payment program by the Secretary of Health and Human Services ("HHS" or "the Secretary").

The Secretary now moves to dismiss some of the hospitals’ claims, arguing that they are precluded based on prior litigation or are otherwise deficient. Separately, the hospitals move to supplement the administrative records. For the reasons discussed below, the Court will grant both motions in part and deny them in part.

II. FACTUAL BACKGROUND

A. Statutory Framework

This Court assumes familiarity with its prior opinions in this case, which provide detailed background on the Medicare outlier-payments program. See Mem. Op. Granting Def.’s Mot. Leave to Suppl. Answer ("Mem. Op. Suppl."), ECF No. 89; Mem. Op. Granting Def.’s Mot. for Clarification ("Clarification Op."), ECF No. 57; Mem. Op. Granting in Part and Denying in Part Pls.’ Mot. to Compel Produc. of Complete Admin. R. ("Suppl. Rec. Op."), ECF No. 47. A simplified summary is provided here for orientation; additional detail will be provided as needed.

1. The Outlier-Payments Program

Under Medicare, the federal government reimburses hospitals for supplying medical services to the elderly and disabled. See Social Security Amendments of 1965 ("Medicare Act"), Pub. L. No. 89–97, tit. XVIII, 79 Stat. 286, 291.¹ Providers are not reimbursed for the full costs that they incur; instead, they are paid at fixed rates for different categories of services and treatments, known as "diagnosis-related groups" ("DRGs"). See Billings Clinic v. Azar , 901 F.3d 301, 303 (D.C. Cir. 2018) (citation omitted). However, hospitals are also eligible for certain outlier payments as a form of protection against unusually complicated and costly cases. Id. at 303–04 (citing 42 U.S.C. § 1395ww(d)(5)(A)(ii) ). These payments become available when the provider's (1) "cost-adjusted charges" for a case exceed (2) the sum of (2a) the default reimbursement payment and (2b) a fixed dollar amount (known as the "outlier threshold" or the "fixed loss threshold" (FLT) and determined by the Secretary through an annual rulemaking process). Id. at 304 (citation omitted).

That first figure—the provider's "cost-adjusted charges"—is intended to estimate the provider's real cost of care, without any markups, and is calculated by multiplying a provider's actual charges by a historical "cost-to-charge ratio." Id. at 304–05 (citation omitted). The second figure—the sum of the base reimbursement plus the fixed loss threshold—is known as the "fixed-loss cost threshold." Id. at 304 (citation omitted). Cost-adjusted charges above the fixed-loss cost threshold are reimbursed at a rate intended to approximate the marginal cost of care, currently set at 80 percent in most cases. Id. at 305 (citation omitted).

As an example: imagine a hospital charges $100,000 for an unusually complicated procedure.² The $100,000 will be multiplied by a cost-to-charge ratio (imagine it's 72:100 or 72 percent, which HHS will have calculated based on historical data), leaving $72,000 of cost-adjusted charges. Imagine too that the standard DRG reimbursement rate for this kind of procedure is $8,000, and the fixed loss threshold set by the Secretary that year is $11,000. The hospital will automatically receive the base reimbursement of $8,000. And because the cost-adjusted charges ($72,000) are greater than the fixed-loss cost threshold ($19,000), the hospital is also eligible for an outlier payment. That payment will be 80 percent of the difference between the cost-adjusted charges ($72,000) and the fixed-loss cost threshold ($19,000), or $42,400.

That leaves an important question: how does the Secretary determine each fiscal year's fixed loss threshold? Well, Congress has limited the aggregate amount of Medicare outlier payments to a narrow range: it "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). To satisfy this directive, HHS conducts an annual rulemaking to set the fixed loss threshold at a level that it estimates will result in total payments within the statutorily-determined range. See Billings Clinic , 901 F.3d at 306–07 (citation omitted). (Specifically, since 1989, HHS has attempted to set an annual threshold that will result in total outlier payments being 5.1 percent of all Medicare payments. Id. at 307.) Crucial to the Secretary's projections are the providers’ estimated future cost-to-charge ratios.

Id. For instance, if HHS overestimates a future year's cost-to-charge ratios (expecting, say, 90 percent when it turns out to be 72 percent), then reimbursable, cost-adjusted charges will be lower than expected—meaning that HHS may have set the fixed loss threshold too high and therefore be at risk of undershooting its 5.1 percent payment target.

This is all the more important because, in order to fund outlier payments, the Secretary withholds the predicted 5.1 percent from all other standard reimbursements. See 42 U.S.C. § 1395ww(d)(3)(B). And the Secretary need not take corrective action when the actual outlier payments differ from the 5.1 percent target. See Dist. Hosp. Partners L.P. v. Burwell , 786 F.3d 46, 51 (D.C. Cir. 2015) (citing Cty. of Los Angeles v. Shalala , 192 F.3d 1005, 1020 (D.C. Cir. 1999) ). As a result, undershooting the 5.1 percent target results in a net loss of payments to providers as a whole.

2. Judicial Review

Procedurally, healthcare providers are reimbursed on a rolling basis, but at the end of their fiscal years, they submit annual cost reports to so-called "medicare administrative contractors" or "fiscal intermediaries."³ See 42 U.S.C. § 1395h(a) ; 42 U.S.C. § 1395kk-1 ; 42 C.F.R. § 413.20. Fiscal intermediaries then issue a total reimbursement determination for the entire year⁴ through a Notice of Program Reimbursement ("NPR"). 42 C.F.R. § 405.1803. Hospitals are permitted to challenge an NPR by appealing to the Provider Reimbursement Review Board ("PRRB"), a specialized administrative body. 42 U.S.C. § 1395oo (a). Hospitals can in turn seek judicial review of a PRRB's final decision. § 1395oo (f)(1). Providers also "have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy whenever the [PRRB] determines ... that it is without authority to decide the question"; such determinations for expedited review can be made sua sponte by the PRRB or at the request of a provider. Id. In either case, a district court reviews the challenged action "pursuant to the applicable provisions" of the Administrative Procedure Act ("APA"). Id.

B. Procedural History

Many of the plaintiff hospitals here were plaintiffs in two other related cases. Banner Health v. Azar , No. 10-cv-1638 (D.D.C.) was filed in 2010. In addition to advancing some other claims, the Banner Health plaintiffs challenged the fixed loss threshold determinations for federal fiscal years 1997 through 2007. Banner Health v. Burwell , 126 F. Supp. 3d 28, 43 (D.D.C. 2015). The district court disposed of the plaintiffs’ claims through various motions to dismiss and for summary judgment. See Banner Health v. Burwell , 174 F. Supp. 3d 206, 207 (...