Yale New Haven Hosp. v. Azar, CIVIL CASE NO. 3:18-CV-1230(JCH)

• Citation: 457 F.Supp.3d 93
• Decision Date: 06 May 2020
• Docket Number: CIVIL CASE NO. 3:18-CV-1230(JCH)
• Parties: YALE NEW HAVEN HOSPITAL, Plaintiff, v. Alex M. AZAR II, Secretary, United States Department of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Connecticut

457 F.Supp.3d 93

YALE NEW HAVEN HOSPITAL, Plaintiff,

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

CIVIL CASE NO. 3:18-CV-1230(JCH)

United States District Court, D. Connecticut.

Signed May 6, 2020

Patrick M. Noonan, Donahue, Durham & Noonan, Guilford, CT, Robert L. Roth, Hooper, Lundy & Bookman, P.C., Washington, DC, for Plaintiff.

Carolyn Aiko Ikari, U.S. Attorney's Office, Hartford, CT, Daniel Schwei, US Dep't of Justice, Civil Division, Federal Programs B, Washington, DC, for Defendant.

RULING ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S CROSS MOTION FOR SUMMARY JUDGMENT AND MOTION TO STRIKE

Janet C. Hall, United States District Judge

I. INTRODUCTION

Plaintiff, Yale New Haven Hospital ("YNH"), brings this action against the defendant, Alex M. Azar II, Secretary of the United States Department of Health and Human Services, pursuant to Title XVIII of the Social Security Act, section 1395 et seq. of title 42 of the United States Code ("Medicare Act"), and the Administrative Procedure Act ("APA"), section 551 et seq. of title 5 of the United States Code. Complaint ("Compl.") ¶ 1. Following this court's Ruling on the Motion to Dismiss, only Count II from the Complaint remains in this action. See Ruling on Motion to Dismiss ("MTD Ruling") (Doc. No. 33), at 26. In Count II, YNH alleges that the Secretary of Health and Human Services ("Secretary") failed to comply with notice-and-comment procedures. See Compl. ¶¶ 59–63.

Before the court are the Secretary's Motion for Summary Judgment ("Def. Mot.") (Doc. No. 37) and YNH's Cross Motion for Summary Judgment and Motion to Strike ("Pl. Mot.") (Doc. No. 38). For the reasons stated below, the Secretary's Motion is denied, and YNH's Motion is granted in part and denied in part.

II. BACKGROUND

A. Statutory Background

The Medicare Act establishes a system of insurance for qualifying beneficiaries. See 42 U.S.C. § 1395c. The Medicare program is administered by the Secretary through the Center for Medicare and Medicaid Services ("CMS") and its contractors. 42 U.S.C. § 1395kk. The Medicare program is split into five parts: A, B, C, D, and E. Relevant to this case, CMS pays providers, including YNH, for covered services under Part A. In 1983, Congress adopted the inpatient prospective payment system ("IPPS") to reimburse providers for inpatient hospital operating costs. See Social Security Amendments of 1983, Pub. L. No. 98–21, 97 Stat. 65 (1983). Under the IPPS, CMS makes payments to providers for operating costs based on nationally applicable rates, subject to certain payment adjustments. One such adjustment is the Disproportionate Share Hospital ("DSH") payment.

The DSH adjustment provides additional Medicare reimbursement to hospitals that treat a disproportionately large number of low-income patients. See 42 U.S.C. § 1395ww(d)(5)(F). In general, a hospital's qualification for the DSH adjustment was calculated based on its disproportionate patient percentage, which was calculated by adding two fractions: the hospital's Medicare fraction and its Medicaid fraction. The Medicare fraction reflects the number of inpatient days a hospital experiences for patients entitled to both Medicare Part A and Supplemental Security Income benefits. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The Medicaid fraction accounts for inpatients who are not entitled to Medicare benefits, but who qualify for medical assistance under state Medicaid assistance. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).

In 2013, as part of the Patient Protection and Affordable Care Act ("ACA"), Congress enacted the Uncompensated Care DSH ("UC DSH") payment system. See 42 U.S.C. § 1395ww(r). Pursuant to the UC DSH payment system, beginning in federal fiscal year ("FFY") 2014, a qualifying hospital received two separate DSH payments: (1) the "traditional" DSH payment, which amounted to 25% of the payment due to the hospital under the historic DSH methodology, and (2) the UC DSH payment, which is based on each hospital's amount of uncompensated care. This second payment is the hospital's share of 75% of the national total DSH payment, calculated using a methodology outlined in section 3133 of the ACA.

Under the new methodology, CMS calculates the UC DSH payment for each eligible hospital based on the product of three factors. See 42 U.S.C. § 1395ww(r)(2)(A)-(C). Factor Three, which is the only factor relevant in this case, is equal to a faction, where the numerator is

the amount of uncompensated care for [an eligible] hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines that alternative data is available which is a better proxy for the costs of subsection (d) hospitals for treating the uninsured, the use of such alternative data)),

and the denominator is "the aggregate amount of uncompensated care for all [eligible] hospitals that receive a payment ... for such period (as so estimated, based on such data)." 42 U.S.C. § 1395ww(r)(2)(C). CMS calculates the UC DSH payments in advance of each FFY, as part of the annual IPPS rulemaking. See Defendant's Local Rule 56(a) Statement of Facts ("Def. LR 56(a)(2)") (Doc. No. 39-1), ¶ 5.

When Congress created this new DSH program, Congress also enacted a statutory provision precluding judicial (and administrative) review over certain determinations of the Secretary. That preclusion provision states:

Limitations on review. There shall be no administrative or judicial review under section 1395ff of this title, section 1395oo of this title, or otherwise of the following:

(A) Any estimate of the Secretary for purposes of determining the factors described in paragraph (2).

(B) Any period selected by the Secretary for such purposes.

42 U.S.C. § 1395ww(r)(3).

B. Facts ¹

YNH merged with another hospital, Hospital of Saint Raphael ("HSR"), effective September 12, 2012. Defendant's Local Rule 56(a)(2) Statement of Facts in Opposition ("Def. LR 56(a)(2)"), ¶ 9. As a result of this transaction, YNH assumed HSR's Medicare provider agreement, and HSR's CMS certification number ("CCN") was subsumed under YNH's CCN. Id. Following the merger, YNH continued to operate the facility formerly owned by HSR. Id.

On May 10, 2013, the Secretary issued a proposed rule of the inpatient prospective payment system ("FFY 2014 Proposed Rule" or "Proposed Rule"). Plaintiff's Local Rule 56(a)(2) Statement of Facts in Opposition ("Pl. LR 56(a)(2)") (Doc. No. 38-3), ¶ 1. With respect to the UC DSH payment, the FFY 2014 Proposed Rule discussed the Secretary's proposed methodology for estimating hospitals' Factor Three. Id. ¶ 5. In the Proposed Rule, the Secretary stated that hospitals' Factor Three would be estimated as follows: "The numerator of Factor 3 would be the estimated Medicaid and Medicare SSI patient days for the individual hospital based on its most recent 2010/2011 Medicare cost report data (including the most recently available data that may be used to update the SSI ratios)." Id. ¶ 6 (citing FFY 2014 Proposed Rule, 78 Fed. Reg. at 27,590 ). In the Medicare DSH-Supplement Data table published with the 2014 Proposed Rule, CMS estimated hospitals' Factor Three using the most recent data available data at that time. Def. LR 56(a)(2) ¶ 13. Data for both HSR and YNH appeared in this table and a percentage of the UC DSH payment pool amount was calculated for both. Id. ¶ 15.

On August 19, 2013, the Secretary promulgated a final rule governing FFY 2014 of the inpatient prospective payment system ("FFY 2014 Final Rule" or "Final Rule"). Pl. LR 56(a)(2) ¶ 2. In the FFY 2014 Final Rule, the allocation to YNH was $23,465,624. Def. LR 56(a)(2) ¶ 16. This amount represented YNH's percent of the Factor Three pool but did not include HSR's data. Id. ¶ 18. In fact, the Final Rule data file no longer included any reference to HSR or a DSH allocation to it. Id. ¶ 17.

YNH did not submit a comment to CMS on the calculation of FFY 2014 UC DSH payments.² Pl. LR 56(a)(2) ¶ 17. However, another hospital which had also completed a merger during the relevant time period submitted a comment noting its concern that that CMS had "calculated Factor 3 using only the surviving hospital's cost report data." Def. LR 56(a)(2) ¶ 20 (citing 78 Fed. Reg. at 50,642 ). CMS responded to that comment, in its publication of the FFY 2014 Final Rule, that Factor Three would be calculated using only the surviving hospital's data, because use of such data was "consistent with the treatment of other IPPS payment factors."³ Id. ¶ 24 (citing 78 Fed. Reg. at 50,642 ).

On August 29, 2013, YNH contacted CMS, expressed concern that CMS had not introduced in the 2014 Proposed Rule this change to Medicare payment policy concerning merged hospitals, and recommended that CMS account for the aggregate data of both hospitals in a merger. Id. ¶ 27 (citing AR 97-128). CMS declined to revisit its treatment of merged hospitals as related to the FFY 2014 Final Rule.⁴ Id. ¶ 29.

C. Procedural history

YNH timely appealed its FFY 2014 UC DSH payment through a letter dated January 24, 2014. See AR at 483. On May 30, 2014, the appeal was dismissed for lack of jurisdiction, based on the preclusion statute. See AR at 151. On July 25, 2018, CMS declined to review that decision. See AR at 1.

Following this administrative review, YNH initiated the present action against the Secretary by filing its six-count Complaint dated July 24, 2018. See Compl. Counts I, II, and III arise under the Medicare Act and the APA.⁵ Compl. at 20–22. In Count I, YNH alleges that the Secretary violated the APA and the Medicare Act by calculating the UC DSH payment "without including HSR's data." Id. ¶ 57. In Count II, YNH alleges that "[t]he FFY 2014 Merged Hospital Policy and the Hospital's FFY 2014 DSH payment are procedurally unlawful and should be set aside because that payment was calculated using the FFY 2014 Merged Hospital Policy, which the Secretary...