ALLINA HEALTH SERVICES et al v. BURWELL
Filing
39
MEMORANDUM OPINION to the Order denying Plaintiffs' Motion for Summary Judgment and granting Defendant's Motion for Summary Judgment. Signed by Judge Gladys Kessler on 8/17/16. (CL)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
ALLINA HEALTH SERVICES,
et al.,
Plaintiffs,
)
)
)
)
v.
Civil Action No. 14-1415 (GK)
)
)
SYLVIA M. BURWELL, Secretary
United States Department of
Health and Human Services,
)
)
)
)
Defendant.
)
~~~~~~~~~~~~~~~~->
MEMORANDUM OPINION
Plaintiffs Allina Health S-ervices, et al.
("Plaintiffs") are
nine hospitals that bring this action against Sylvia M. Burwell,
in
her
official
Department
of
"Defendant") .
capacity
Health
They
disproportionate
as
and
Secretary
Human
challenge
share
the
hospital
of
Services
the
as
States
("Secretary"
calculation
payments
United
of
or
certain
procedurally
and
substantively invalid.
This matter is before the Court on the Plaintiff's Motion for
Summary Judgment
[ Dkt.
No.
8]
and Defendant's Cross-Motion for
Summary Judgment [Dkt. No. 28]. Upon consideration of the Motions,
Oppositions, Replies, the entire record herein, and for the reasons
set forth below, Plaintiffs' Motion shall be denied and Def-endant' s
Motion shall be granted.
1
I .
Background
A.
The Medicare DSH Payment System
The Medicare program was established in 1965 and provides
health
care
coverage
for
persons
age
65
and
older,
disabled
persons, and persons with end stage renal disease who meet certain
eligibility requirements. See 42 U.S.C.
§
426, 426a. The Secretary
administers the program through the Centers for Medicare & Medicaid
Services
(CMS),
an agency with the United States Department of
Health and Human Services. Def.'s Mot. at 4.
Medicare
pays
benefits
through
different
plans,
three
of
which are relevant here. "Plan A covers medical services furnished
by hospitals and other institutional care providers." Ne.
Hosp.
Corp. v. Sebelius, 657 F.3d 1, 2 (D.C.Cir.2011); 42 U.S.C.
1395c
§§
to 1395i-5. "Part B is an optional supplemental insurance program
that pays for medical items and services not covered by Part A,
including
outpatient
physician
services,
clinical
laboratory
tests, and durable medical equipment." Ne. Hosp., 657 F.3d at 2;
42 U.S.C.
Choice'
§§
(M+C)
1395j to 1395w-4.
program,
alternative to the
which
"Part C governs the
gives
traditional
Medicare
'Medicare +
beneficiaries
Part A fee-for-service system,"
allowing enrollment in a managed care plan. Ne. Hosp.,
at 2; see 42 U.S.C.
§§
an
u5 7 F. 3d
1395w-21 to 139Sw-29. The Secretary pays
the health care provider directly under Parts A and B, but pays
2
the
managed-care
plan
under
Part
C,
which
in. turn
pays
the
provider.
Hospitals that serve a significantly disproportionate share
of low-income patients without private health insurance are paid
"additional monies [by Medicare], on top of Medicare's normal feesfor-service,
to help cover the costs associated with the care of
the very poor." Allina Health Servs. v. Sebelius, 904 F. Supp. 2d
§
(D.D.C.
77
7 5'
13 9 5 WW ( d) ( 5 ) ( F) ; 4 2 C . F . R .
The
based
disproportionate
on
a
I,,) ;
("Allina
2012)
§
see
also
42
u.s.c.
4 12 . 1 0 6 .
share
hospital
"disproportionate
patient
("DSH")
adjustment
percentage"
for
is
each
hospital, which is determined by a complicated statutory formula.
See 42 U.S.C.
§
of
§§
412.106(d).
two
1395ww(d) (5) (F) (iv)
The disproportionate patient percentage is the sum
fractions,
commonly
fraction"
known
and (vii)-(xiii); 42 C.F.R.
42
as
U.S.C.
the
1395ww(d) (5) (F) (vi),
§
"Medicaid
fraction"
and
the
which
"Medicare
(sometimes also referred to as the "SSI fraction").
The Medicare fraction is defined as:
the 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 part A of
[Title XVIII] and were entitled to supplemental security
income benefits
(excluding any State
3
are
supplementation)
under [Title] XVI of this chapter, 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 part A
of [Title XVIII] ...
42 U.S.C.
§
1395ww(d) (5) (F) (vi) (I)
(emphasis added).
In layman's
terms, thE top of the Medicare fraction is based on the number of
a hospital's patient days for individuals entitled to both Medicare
Part A and SSI benefits, and the bottom of the fraction is based
on the number of patient days for all patients under Part A. As
discussed later, the phrase "entitled to benefits under part A" is
key to the present dispute.
The Medicaid fracti6n is defined as:
the 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 wh6 (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 f·or
such period.
Id.
§
1395ww(d) (5) (F) (vi) (II). In layman's terms, the top of
the Medicaid
fraction
is
based on · the number
of
a
hospital's
patient days for individuals who are eligible for Medicaid,
4
but
who are not entitled to benefits under Medicare Part A,
and the
bottom is the total number of all patient days for the hospital.
For a visual representation of the fractions,
see Ne. Hosp.,
657
F.3d 1, 3.
M+C (also referred to as Part C) was established by Congress
in 1997 as part of the Balanced Budget Act of 1997 (BBA), Pub. L.
No. 105-33 (1997). In order to enroll in M+C, an individual must
and enrolled under part
be "entitled to benefits under part A
B." 42 U.S.C.
§
1395w-21 (a) (3) (A). After M+C was implemented, "the
Secretary routinely excluded M+C
[inpatient hospital]
the Medicare fraction" from 1999 to 2004. Ne. Hosp.,
days from
657 F.3d at
15. That is, M+C patients were not counted in the numerator of the
Medicare fraction as part of the patients "entitled to benefits
under Part A .
§
and entitled to
[SSI]
benefits." 42 U.S.C.
1395ww(d) (5) (F) (vi) (I). It was not until 2007 that the Secretary
began
to
collect
the
Medicare/SS I fraction.
data
needed
to
include
M+C
days
in
the
Id.; see Change Request 564 7, CMS Pub. 100-
04, Transmittal No. 1331 (July 20, 2007).
Central to this case is whether,
once enrolled in Part C,
enrollees continue to be entitled to benefits under Part A. If the
agency considers enrollees to be entitled to benefits under Part A,
then they should be included in the Medicare fraction. If they are
no
longer entitled to benefits under
Part A,
because they are
receiving benefits under Part C, then they should be excluded from
5
the Medicare fraction.
this
The financial impact on the hospitals of
seemingly minor detail
is
in the hundreds
of millions
of
dollars. See Allina Health Servs. v. Sebelius, 746 F.3d 1102, 1105
(D.C. Cir. 2014)
B.
("Allina I Appeal").
Factual Background
In Allina I,
a group of hospitals,
including the Plaintiffs
in the present case, challenged a 2004 rulemaking by the Sedietary
("2004 Final Rule"). See 904 F. Supp. 2d at 77. The 2004 rulemaking
adopted a policy whereby Part C patients were to be considered as
"entitled to benefits under part A," and therefore counted in the
numerator of the Medicare fraction.
In November 2012,
the Court
(Collyer, J.) granted summary judgment for the plaintiffs, finding
that
the
2004
Final
Rule
was
not
a
logical
outgrowth
of
the
proposed rule and therefore violated the procedural requirements
of the Administrative Procedure Act ("APA"). See Allina I, 904 F.
Supp. 2d at 89-90.
On appeal,
our Court of Appeals
affirmed the part of the
Allina I Court's decision vacating the 2004 Final Rule. But, the
Court
of
directed
Appeals
the
Secretary
particular manner,
Appeal,
746
held
F.3d
that
to
rather
1102,
the
calculate
than
1111
Allina
simply
(D.C.
I
Court
the
erred
DSH
payments
remanding.
Cir.
2014).
when
On
it
in
a
See Allina
I
remand,
the
Secretary addressed the issue of the appropriate DSH calculation
methodology through an adjudication. The Administrator determined
6
that, prior to 2004, the regulation did not specify where the Part
C enrollees should be counted in the DSH percentage.
Adm'r Dec.
at 26
(Dec.
2,
2015)
[Dkt.
28-2].
Allina I,
The Administrator
further concluded that the better statutory interpretation is that
Part C enrollees are "entitled to benefits under Part A" within
the meaning of the DSH provisions, and therefore should be included
in the Medicare fraction. Id. at 35-45.
C.
Procedural Background
Shortly after our Court of Appeals' decision in Allina I, the
Secretary published calculations for federal fiscal year 2012 DSH
payments ("2012 DSH Calculations") . 1 See 2012 Part A/SSI Fraction
Data File, available at http://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/AcuteinpatientPPS/Downloads/FY-2012-SSIRatios-for-web-posting. zip.
Plaintiffs allege that the 2012 DSH
Calculations are based on the 2004 Final Rule that was vacated.
They
al~o
allege that the 2012 DSH Calculations are procedurally
invalid and arbitrary and capricious. Compl.
timely
appealed
the
2012
DSH
'J['J[
Calculations
46-52. Plaintiffs
to
the
Provider
The present act~on is not considered part of the Allina I re~and,
because it concerns a later year. In 2013, the HHS adopted a
legislative rule that interprets the statute to require Part C
days in the Medicare fraction. 78 Fed. Reg. 50,496, 50,614 (Aug.
1
-1--9, -
2-Q-1~-)-
-("-2-G±-2----Rtoi-1--emaking-~)-. --T--fle--l-eg-i-s-1-a~i-v-e
--r:-ttl-.e
--0R-l-Y---l:i.-O-&>
prospective application, and therefore does not apply to this case
or the Allina I remand. Id. at 50,620.
7
Reimbursement
Review
Board
("PRRB"),
'.lI'.lI
see Compl.
36-39,
and
requested that the PRRB grant expedited judicial review. Id. '.lI 41.
The
PRRB
is
an
independent
administrative
tribunal
that
resolves disputes regarding hospital reimbursement determinations
by Medicare contractors or the Centers for Medicare
Services ("CMS"). See 42 U.S.C.
certain
payment
disputes
guidance, see 42 C.F.R.
§
&
Medicaid
1395oo(a). The PRRB may resolve
without
following
low-level
policy
405.1867; however, it is bound by agency
§
regulation and rulings, id., and cannot decide "question[s] of law
or regulations." 42 U.S. C.
§
13 9500 ( f) ( 1) . Section 13 9500 ( f) gives
providers "the right to obtain judicial review of any action
whenever the
which involves a question of law or regulations .
[PRRB] determines . . . that it is without the authority to decide
the question." Id.
By letter dated August 13, 2014, the PRRB granted Plaintiffs'
request for expedited judicial review, finding that "it is without
the
authority
regulation
whether
Allina
to
decide
regarding
the
the Secretary's
[I]
are
the
legal."
legal
[2012
of
DSH Calculations]
actions
Letter
question
subsequent
from the
to
whether
is
the
valid and
the decisipn
Provider
Review Board to Stephanie Webster 6 (Aug. 13, 2014)
in
Reimbursement
[Dkt. No. 14-1]
("PRRB Decision").
On
August
19,
2014,
Plaintiffs
filed
their
Complaint,
pursuant to the PRRB' s grant of expedited judicial revi-ew
8
[ Dkt.
No. l]. Plaintiffs filed a Notice of Related Case on the same day
[Dkt. No. 2]. Judge Collyer granted Defendant's objection to the
related case designation on May 18, 2015, and the case was randomly
reassigned tp this Court. Minute Order dated May 18,
2015; Case
Assignment [Dkt. No. 20].
On October 27,
2014,
Defendant filed her Motion to Dismiss
for Lack of Jurisdiction or in the Alternative for Voluntary Remand
[Dkt.
No.
15],
arguing
that
expedited judicial review,
the
PRRB
improvidently
or in the alternative,
granted
for voluntary
remand to allow the PRRB to adjudicate Plaintiffs' claims without
consideration of the 2004 Final Rule. Motion to Dismiss at 2. The
Court denied Defendant's Motion to Dismiss on October 29,
2015
[Dkt. No. 21].
Plaintiffs filed their present Motion for Summary Judgment on
September 29, 2014 [Dkt. No. 8], prior to Defendant's response.to
the Complaint. On October 1 7, 2014, the Court (Collyer, J.) granted
Defendant's Motion
to
hold
in abeyance
the Motion
for Summary
Judgment until the Motion to Dismiss was filed and decided.
October 17, 2014 Minute
Ord~r.
See
After this Court denied Defendant's
Motion to Dismiss, Defendant filed her Answer on November 12, 2015
[Dkt. No. 24], and her Cross-Motion for Summary Judgment ("Def.'s
Mot.") on December 15, 2015 [Dkt. No. 29]. Plaintiffs filed their
Opposition
Defendant
("Opp' n")
filed
on
her Reply
January
14,
("Reply")
9
2016
on
[ Dkt.
February
No.
4,
30 J
2016
and
[Dkt.
No. 33]. On February 12, 2016, Plaintiffs filed a Motion for Leave
to File a Sur-Reply [Dkt. No.
34], which Defendant opposed [Dkt.
No. 35], and the Court denied on February 18, 2016 [Dkt. No. 36].
II.
Legal Standard
A.
Motion for Summary Judgment
Summary judgment will be granted when there is no genuine
issue as to any material fact. See Fed. R. Civ. P. 56(a). Because
this case involves a challenge to a final administrative decision,
the
Court's
review
administrative
on
record.
summary
Holy
Land
judgment
Found.
for
Ashcroft, 333 F.3d 156, 160 (D.C. Cir. 2003)
411
U.S.
138,
F. Supp. 96,
appropriate
142
105
(1973));
(D.D.C.
procedure
for
Fund
for
1995)
is
Animals
a
Relief
&
to
the
Dev.
v.
(citing Camp v. Pitts,
("Summary
resolving
limited
v.
Babbitt,
903
is
an
judgment
challenge
to
a
federal
agency's administrative decision when review is based upon the
)
administrative record").
"Summary judgment thus serves as the mechanism for deciding,
as a matter of law, whether the agency action is supported by the
administrative
record
and
otherwise
consistent
with
the
APA
standard of review." Sierra Club v. Mainella, 459 F. Supp. 2d 76,
90
(D.D.C. 2006)
(citing Richards v.
INS,
554 F.2d 1173, 1177
&
n. 28 (D.C. Cir. 1977)). In reviewing agency action, the district
court "sits as an appellate tribunal, not as a court authorized to
determine
in
a
trial-type
proceeding
10
whether
the
Se·cretary' s
[action] was factually flawed." Marshall Cnty. Health Care Auth.
v. Shalala, 988 F.2d 1221, 1225 (D.C. Cir. 1993).
B.
Requirements of the APA and Medicare Act
Under the APA and the Medicare Act, legislative rules - rules
that have the "force and effect of law," Chrysler Corp. v. Brown,
441 U.S.
281,
302-303,
(1979))
-
are issued through notice-and-
comment rulemaking, in which the Secretary must provide the public
with adequate notice of a
comment
§
thereon.
1395hh (b) (1)
regulation
.
See
5
(Medicare)
proposed rule and an opportunity to
U.S.C.
553(b)-(c) (APA);
§
(" [B] efore
42
issuing in final
U.S.C.
form any
the Secretary shall provide for notice of the
proposed regulation in the Federal Register and a period of not
less
than
60
days
for
requirements are designed
public
(1)
comment
thereon.").
"Notice
to ensure that agency regulations
are tested via exposure to diverse public comment,
(2)
to ensure
fairness to affected parties, and (3) to give affected parties an
opportunity to develop evidence in the record to support their
objections to th-e rule and thereby enhance the quality of judicial
review."
Int'l Union,
Cir. 2005) .
The
2012
UMWA v.
MSHA,
407
F.3d 1250,
DSH Calculations were
not
1259
(D.C.
issued through
notice and comment rulemaking, although Plaintiffs argue that they
should have beBn. Pls.' Mot. at 9; Pls.' Reply at 10.
Not all rules require notice-and-comment prior to.issuance.
Section 4(b) (A) of the APA provides that, unless another statute
11
states
otherwise,
the
notice-and-comment
requirement
"does
not
apply" to "interpretative rules, general statements of policy, or
rules of agency organization,
§
procedure,
or practice." 5 U.S.C.
553(b) (A). "[T]he critical feature of interpretive rules is that
they are 'issued by an agency to advise the public of the agency's
construction of the statutes and rules which it administers.'"
Perez v.
Mortgage Bankers Ass'n,
135 S.
Ct.
1199,
(quoting Shalala v. Guernsey Memorial Hospital,
1204
514 U.S.
(2015)
87,
99
(1995)).
The D.C. Circuit had long held that, even though notice and
comment was not necessary for new interpretive rules issued by an
agency, notice and comment was nonetheless required when an agency
changed its prior interpretation.
D.C.
Arena
L.P.,
Veterans
and
recently
held
its
117
F.3d
subsequent
that
an
579
line
agency
Paralyzed Veterans of Am.
(1997).
Overturning
of cases,
need
not
use
v.
Paralyzed
the Supreme
Court
notice-and-comment
procedures "when it wishes to issue a new interpretation of a
regulation that deviates significantly from one the agency has
previously adopted." Perez, 135 S. Ct. 1199 at 1203.
The APA also allows a reviewing court to set aside an agency
action that is "arbitrary, capricious, an abuse of discrBti0n, or
otherwise not in accordance with law." 5 U.S.C.
Records,
Inc.
v.
DEA,
259 F.3d 731,
736
§
706(2) (A); Tourus
(D.C. Cir.
2001)
"The
scope of review under the 'arbitrary and capricious' standard is
12
.
narrow and a court is not to substitute its judgment for that of
the agency." Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm Mut.
Auto. Ins. Co.,
463 U.S. 29, 43
(1983)~
The court must "consider
whether the decision was based on a consideration of the relevant
factors and whether there has been a clear error of judgment."
S. Co. Servs., Inc. v. FCC, 313 F.3d 574, 579-80 (D.C. Cir. 2002);
see also United States v.
Paddack,
825 F,.2d 504,
514
(D.C. Cir.
1987) .
An agency satisfies the arbitrary and capricious standard if
it "examine[s] the relevant data and articulate[s] a satisfactory
explanation
for
its
action
including
a
'rational
connection
between the facts found and the choice made.'" Motor Vehicle Mfrs.
Ass'n,
States,
463 U.S.
371
F.3d 769, 775
at 43
U.S.
(quoting Burlington Truck Lines v.
156,
168
(1962));
Lichoulas
v.
United
FERC,
606
(D.C. Cir. 2010). However, courts "do not defer to
the agency's conclusory or unsupported suppositions." McDonnell
Douglas
Corp.
v.
U.S.
Dep't of
the Air
Force,
375
F.3d 1182,
1186-87 (D.C. Cir. 2004).
III .. Analysis
A.
The Evidence Is Not Convincing that CMS Calculated the
2012 DSH Fractions Based on the Vacated 2004 Final Rule.
Plaintiffs argue that the Secretary improperly relied on the
vacated 2004 Final Rule to formulate the 2012 DSH Calculations,
-P±s~'- --Mot-~
-at --6--7; -whi--le---Be-fendant- counters --that- t-he-:2012-BSH---
13
Calculations were reached by CMS in reliance on the language of
the
disproportionate patient
percentage
statute
itself.
Def.' s
Mot. at 9.
What is central to this dispute is the parties' disagreement
as to the impact of the vacatur of the 2004 Final Rule. Defendant
argues that "the agency was faced with. an ambiguous direction from
Congress"
and
that
the
pre-2004
version
of
the
applicable
regulation did not specify where Part C days should be counted.
Id. at 10. Plaintiffs on the other hand argue that pre-2004, the
agency had a policy of excluding Part C days from the Medicare
fraction.
Pls.' Reply at 4. In the alternative,
Plaintiffs argue
that even if there was not a policy or regulation excluding Part C
days from the Medicare fraction,
of
excl1:J.ding
the
Part
the agency had a prior practice
C days,
vacatur of the 2004 Final Rule.
which was
reinstated after
the
Id.- (citing Croplife Am. v. EPA,
329 F.3d 876, 880, 884-85 (D.C. Cir. 2003).
Defendant
contends
that
there
is
no evidence
to
directly
suggest that the 2012 DSH Calculations were based on the vacated
2004
Final
Rule,
rather
than
on
CMS's
interpretation
of
the
statute. Def.'s Mot. at 10. Conversely, Plaintiff argues that there
is no evidence to suggest that the Secretary did not rely on the
vacated rule.
employ
one
of
The Secretary states that CMS "inevitably had to
two
possible
interpretations
language," and the one it chose
14
for
the 2012
of
the
statutory
DSH Calculations
reflected
itself.
CMS's
best
Def.' s Mot.
understanding
at 10
("Cheng Deel.") i i 7,
of
the
statutory
language
(citing Declaration of Ing Jye Cheng
8 [Dkt. No. 29-3]). Acknowledging that the
2004 Final Rule is no longer in effect, the Secretary cites to the
Allina I Administrator decision as evidence that the agency is no
longer relying on the vacated 2004 Final Rule. Id.
Our Court of Appeals,
in remanding Allina
I
to allow the
agency to consider the interpretive issue anew, made it clear that
it
was
possible
the
agency
could
and
might
adopt
the
same
interpretation contained in the 2004 Final Rule. Allina I Appeal,
746 F.3d at 1111. Consequently, it follows that the fact that the
agency did adopt the same interpretation as the 2004 Final Rule is
not - in and of itself - indicative that the 2004 Final Rule was
relied upon.
While it may have been far better if the agency had provided
an explanation of its interpretation of the DSH statute along with
the 2012 DSH Calculations, particularly in light of the vacatur of
the 2004 Final Rule, there is no convincing evidence that Defendant
actually relied on the vacated rule in promulgating the 2012 DSH
Calculations. Indeed, as the Court later concludes, the Secretary
appropriately relied on and interpreted the underlying DSH statute
to calculate the 2012 DSH Calculations.
15
B.
Notice and Comment Rulemaking Was Not Required
i.
The APA
The parties agree that the Secretary did not undertake notice
and comment rulemaking to implement a rule including Part C days
in
the
Medicare
fraction
that
is
applicable
to
the
2012
DSH
Calculations. The issue is whether the Secretary should have.
The APA requires notice and comment when agencies implement
new legislative rules.
5 U.S.C.
§
553(b).
Plaintiffs argue that
the 2012 DSH Calculations were not a one-time decision, but instead
were the beginning of an ongoing
and therefore should be
patt~rn
considered a legislative rule. Pls.' Reply at 23. Plaintiffs reason
that the 2012 DSH Calculations "'reflect'
a universal policy of
treating part C days as part A days for all hospitals," because
the agency has continued to include Part C days in the Medicare
fraction
continue,
in
the
all
future
2012
DSH
actions.
Id.
Calculations
Plaintiffs
Therefore,
constitute
"an
agency
statement of general or particular applicability and future effect
designed to implement, interpret, or prescribe law or policy," and
are therefore a "rule" for purposes of the APA Id.
§
(citing 5 U.S. C.
551(4)).
Defendant takes issue with the characterization of the 2012
DSH
Calculations
as
involving
a
16
rule
at
all.
The
2012
DSH
Calculations are comprised solely of a spreadsheet of percentages, 2
which Defendant characterizes as "preliminary, provider-specific
determinations calculated on the basis of services that had already
been rendered." In other words, Defendant argues that the 2012 DSH
Calculations
are
more
appropriately
viewed
as
a
step
in
an
adjudication rather than as a rule. Def.'s Mot. at 12.
However,
Defendant
acknowledges
that
the
fractions
"do
reflect an interpretation of the statute that Part C days are
included in the Medicare fraction." Id.
(emphasis in original) .
The
merely
2012
DSH
Calculations
adjudication,
but
Part C
in
days
Calculations
are
reflect a
the
were
a
step
decision by the agency to
Medicare
not
not
fraction.
appropriately
Thus,
viewed
as
the
a
in
an
include
2012
step
DSH
in
an
adjudication but rather as a rule.
The Court must now, determine whether the agency was announcing
a
new legislative
rule or simply interpreting the
statute and
announcing an interpretive rule. A "legislative rule," is a rule
intended
to
have
and
does
have
the
force
of
law.
"A
valid
legislative rule is binding upon all persons, and on the courts,
to
the
same
extent
as
a
congressional
statute.
When Congress
delegates rulemaking authority to an agency, and the agency adopts
2
The
2012
DSH
Calculations
are
available
http:/!'www-. cms.gov!'Medicare/Med~care=F'ee--Fo-r,-Service
Payment/AcuteinpatientPPS/Downloads/FY-2012-SSI-Ratios-for-webposting.zip.
17
at
legislative rules, the agency stands in the place of Congress and
makes law. An 'interpretative' rule, by contrast, does not contain
new
substance
understanding
of
of
its
a
own
but
merely
congressional
expresses
statute."
Nat' 1
the
agency's
Latino
Media
Coal. v. F.C.C., 816 F.2d 785, 787-88 (D.C. Cir. 1987).
Factors to consider when determining whether a rule has a
"legal effect" include "asking 1)
rule
there
would
not
be
an
whether in the absence of the
adequate
legislative
basis
for
enforcement action or other agency action to confer benefits or
ensure
the
performance
of
duties,
( 2)
whether
the
agency
has
published the rule in the Code of Federal Regulations,
(3) whether
the
legislative
agency
authority,
legislati v.e
has
or
( 4)
rule.
explicitly
invoked
whether the
If
the
its
general
rule effectively amends
answer
to
any of
a
prior
these questions
is
affirmative, we have a legislative, not an interpretive rule." Am.
Min. Cong.
v.
Mine Safety
&
Health Admin.,
995 F.2d 1106,
1112
(D.C. Cir. 1993).
The answer to all of the above questions is "no." As our Court
of Appeals has previously recognized, the DSH statute is ambiguous
and could be interpreted to include or exclude Part C days. Ne.
Hosp.,
65 7
F. 3d
interpreted to
at
5-6.
The
fact
include Part C days
that
the
statute
could
indicates that there
be
is an
adequate legislative basis for the agency's decision. The rule of
including Part C days in the Medicare fraction, as applied to the
18
2012 DSH Calculations,
was not published in the Code of Federal
Regulations, nor did the agency explicitly invoke its legislative
authority.
rule.
Lastly,
the rule does not amend a prior legislative
3
For these reasons,
not
issue
a
legislative
Calculations,
necessary.
the Court concludes that the agency did
and
rule
therefore
Instead,
the
when
APA
2012
it
issued
notice
DSH
2012
DSH
comment
and
the
were
not
constitute
the
Calculations
agency's interpretation of the disproportionate patient percentage
statute.
The
statute
itself
provides
an
"adequate
legislative
basis" for including Part C days in the Medicare fraction,
therefore
the
rule
underlying
the
2012
DSH
Calculations
and
is
interpretive. See Am. Min. Cong., 995 F.2d at 1112.
Plaintiffs
promulgated the
rulemaking
argue
same
that,
because
interpretation
in the 2004
Final
Rule
the
through
and the
agency
notice
2013
previously
and comment
Rulemaking,
it
should continue to do so for the 2012 DSH Calculations. Pls.' Reply
at 28-30. However, there is no requirement that the agency continue
to do so. For example, an agency may choose to invoke its general
Plaintiffs argue that the agency had a prior policy, rather than
simply a practice, of excluding Part C days. See Pls.' Opp' n
at 7-8. The facts do not support a fin ding of a policy, rather
than simply a practice.
Even if the agency did have a prior
·· p-0-1-±cy, --tt--woul-ct-not--have- -b-een-a--i:eg±-s-i-at±ve -po-licy-re-qu±r±ng ·
notice and comment to change it~
3
19
legislating authority out of an abundance of caution.
Cong.,
995
F.2d
at
1110-11.
Therefore,
the
invocation of its general legislating authority
Final Rule),
agency's
(here,
Min.
Am.
prior
the 2004
is not per se evidence that it needed to do so and
does not negate the Court's finding that the agency's action was
interpretive.
ii.
The Medicare Statute
The Medicare statute also requires notice and comment prior
to
§
the
Secretary
issuing
final
regulations.
See
42
U.S.C.
1395hh(b). Plaintiffs argue that the Medicare statute requires
"rulemaking for a more expansive set of agency pronouncements than
the Pi.PA." Pls.' Reply at 11. Plaintiffs cite to no cases in support
of
their
argument
and
the
Court
finds
their
statutory
interpretation arguments unpersuasive. Pls. Reply at 11-13.
Our Court of Appeals has not decided whether the Medicare
statute "creates a more stringent obligation
[than the APA]
or
whether it somehow changes the dividing line between legislative
and interpretive rules." Monmouth Med. Ctr. v. Thompson, 257 F.3d
807, 814 (D.C. Cir. 2001). However, the Court of Appeals did note
that, because the Medicare statute was adopted after the APA, it
was fair to infer that
rules'
"§
1385hh ( c) 's reference to, 'interpretive
without any further definition adopted an exemption
[to
notice and comment requirements] at least similar in scope to that
of the APA." Id.
(internal citation omitted). Other circuit courts
20
•.
have similarly concluded, though without thorough analysis, that
the standards imposed by the APA and Medicare are not materially
different. See Baptist Health v. Thompson, 458 F.3d 768, 776 (8th
Cir. 2006)
(42 U.S.C.
1395hh(a) (2) "imposes no standards greater
§
than those established by the APA."); Erringer v. Thompson,
F.3d 625, 633 (9th Cir. 2004)
371
(declining to determine whether the
Medicare Act "draws the line between substantive and interpretive
rules in a different place than the APA"); Warder v. Shalala, 149
F.
3d
73,
79
n.4
(1st
Cir.
1998)
("the
[Medicare
statute's]
language, drafted after the APA's, can fairly be read to duplicate
the APA on this score.").
Even
if
Secretary's
the
Medicare
statute
interpretation of the
was
DSH
more
statute
requirement, or other statement of policy
or changes
comment
a
would
subs tan ti ve
be
required.· See
discussed previously,
there
is
an
legal
standard"
42
U.S.C.
995
is
not
a
the
"rule,
. that establishes
such that notice
§
and
1395hh(a) (2).
As
in the absence of any regulation or rule,
"adequate
legislative
basis"
interpretation. and application of the
Congress,
demanding,
F. 2d at 1112.
for
statute.
the
Secretary's
American Mining
The agency's interpretation of the
statute does not require rulemaking under the Medicare statute.
iii. Rulemaking Through Adjudication
Defendant argues that notice and comment rulemaking is not
necessary because it is "well-established that an agency may employ
21
...
a new interpretation in the course of an individual adjudication."
Def.' s Mot.
at 12
U.S. 87, 97 (1995)
(citing Shalala v.
Guernsey Mem' 1 Hosp.,
514
("The APA does not require that all the specific
applications of a rule evolve by further, more precise rules rather
than by adjudication. The Secretary's mode of determining benefits
by both
rulemaking
and adjudication
is,
in
our view,
a proper
exercise of her statutory mandate" (internal citations omitted)));
see also Clark-Cowlitz Joint Operating Agency v.
1074, 1081 (D.C. Cir. 1987)
(en bane)
FERC,
826 F.2d
("[W]hen as an incident of
adjudicatory function an agency interprets a statute, it may apply
that new interpretation in the proceeding before it.") . Def.endant
also
points
through
out
that
the
or
adjudication
decision whether
rulemaking
is
to make
generally
new policy
within
the
agency's discretion. Id. at 13 (citing NLRB v. Bell Aerospa6e Co.
Div.
of
authority,
Textron,
416
Defendant
U.S.
267,
concludes
that
291-94
it
was
(1974)).
Given
this,
"well within CMS' s
discretion to employ the interpretation it did in the course of
calculating the 2012 [OHS Calculations]." Id.
Whether
or
not
Defendant
can
issue
new
interpretations
through adjudication is not relevant to this case,
because the
agency did not engage in an adjudication to reach the 2012 DSH
Calculations. Defendant attempts to rely on a 2007 adjudication as
authority for its policy in the 2012 DSH Calculations, but this
reliance is misplaced. Def.'s Mot. at 14 (citing St. Joseph's Hosp.
22
-.
v. Blue Cross/Blue Shield Ass'n,
2007 WL 4861952 at *5
2007)) .
forward
St.
Joseph's was not a
(Nov. 13,
looking policy and was
limited to fiscal years 1998, 1999, and 2000. St. Joseph's Hosp.,
2007 WL 4861952 at *1. In addition, the PRRB reached its decision,
later affirmed by the Administrator,
with reference to the now
vacated 2004 Final Rule, which calls into question any prospective
validity St.
2004),
Joseph's may have had.
available
See PRRB Decision
(Aug.
27,
https://www.cms.gov/Regulations-and-
at
Guidance/Review-Boards/PRRBReview/Downloads/2007d68.pdf
Therefore,
an
agency's
ability
to
issue· new
interpretive
rules through adjudication does not help Defendant's case here.
iv.
As
Prior Definitive Interpretation
discussed
previously,
in
the
Perez,
Supreme
Court
overruled the Court of Appeals' Paralyzed Veterans doctrine, which
had created a judge-made procedural requirement that an agency use
notice-and-comment
rulemaking
whenever
it
changed
a
rule
interpreting a statute, even though such notice-and-comment would
not have been required when interpreting the statute in the first
instance. See supra, 12. Plaintiffs acknowledge that changes to an
interpretive rule are no longer subject to notice and comment under
the
APA,
and
have
withdrawn
that
argument.
See
Pls.'
Reply
that
'works
at 16 n. 10.
Even
so,
Plaintiffs
contend
that
a
"policy
substantive changes' or makes 'major substantive legal additions'
23
to existing regulations requires notice and comment.' Pls.' Reply
at 19 (quoting U.S. Telecom Ass'n v. FCC, 400 F.3d 29, 34-35 (D.C.
Cir.
2005)).
Plaintiffs
argue
that
the
2012
DSH
Calculations
effected a substantive change and therefore should have undergone
notice
and
comment
misunderstands
U.S.
procedures.
Telecom,
Id.
at
which
19-20.
does
not
This
stand
argument
for
the
proposition that there are certain instances where interpretive
rules require notice and comment. Rather, it held that new rules
that affect substantive changes or amend prior legislative rules
may more appropriately be considered legislative rules rather than
interpretive rules.
U.S.
Telecom Ass'n,
400 F.3d at 34-35.
The
Court has already determined that the policy that was effectively
announced in the 2012 DSH Calculations was an interpretive one,
not legislative.· See supra 19.
Because the agency's action was
interpretive, notice and comment was not required.
C.
The Decision to Include Part C Days Is Not Arbitrary and
Capricious
Plaintiffs argue that
the Secretary's decision to include
Part C days in the Medicare fraction was arbitrary and capricious.
See
Pls.'
first,
that
hospitals"
agency's
Reply at
is
the
32.
agency's
arbitrary
decision
Plaintiffs'
is
and
contention has
"no-process
underlying stat:utory scneme. ·
determination
capricious,
impermissibly
ra~
at
24
two prongs:
and
second,
inconsistent
3Z-=33.
for
all
that
the
with
the
As
to
policy
the
first,
determination
Plaintiffs
is
contend that
arbitrary
and
the
Secretary's
capricious
because
the
agency has not "articulated any rationale for its choice." Pls.
Reply
at
33
F.3d 400, 407
(quoting
(D.C.
Cir.
76
Nat'l
1996).
scope of review under the
The
Comm.
FEC,
Republican
v.
arbitrary and capricious standard is a narrow one. The Court is
not to substitute its own judgment, but the "agency must examine
the relevant data and articulate a satisfactory explanation for
its action." Motor Vehicle Mfrs. Ass'n v.
Ins.
Co.,
463 U.S.
reasoning that
However,
29,
42-43
(1983).
State Farm Mut. Auto.
The court may not supply
the agency itself has not provided.
Id.
at· 43.
the court will "uphold a decision of less than ideal
clarity if the agency's path may reasonably be discerned." Id.
(quoting Bowman Transp.
Inc. v. Arkansas-Best Freight Sys.,
419
U.S. 281, 286 (1974)).
Defendant blames the absence of a contemporaneous explanation
for its decision to include Part C days in the Medicare fraction
in the 2012 DSH Calculations on the unique posture of the case.
Def.'s Mot. at 25-26. Defendant explains that the agency expected
further
administrative
proceedings
in
connection
with
the
challenge and regarded the decision as non-final. Id. at 26. Even
if the
Defendant expected "further administrative development"
before the PRRB and Administrator,
id.,
it is not clear why the
agency would not provide any contemporaneous explanation with the
25
issuance of the 2012 DSH Calculations. The agency also contends it
was a one-time interpretive decision and as such,
Plaintiffs are
not entitled to expect an explanation of the sort that CMS would
provide for a final prospective rule. Id.
Despite the lack of explanation,
Defendant argues that the
interpretative choi6e "can be readily sustained on the basis of
the.explanation set forth in the Administrator's decision in the
Allina I remand." Id. at 27. Defendant concedes that the Court's
review
is
ordinarily
limited
to
the
contemporaneous
record
developed by the agency, but argues that an exception is warranted.
Id.
(citing
SEC
v.
Crossing Telecomms.,
Chenery Corp.,
Inc.
v.
318
U.S.
80
(1943);
Metrophones Telecomms.,
Glob.
Inc.,
550
U.S. 45, 63-64 (2007)).
Chenery stands for the proposition that "an agency's decision
must
reflect
the
reasons
cannot
rationalizations
contemporaneous
Indiana v.
for
be
reasoned
I.C.C.,
749
its
action,
and
substituted
decisionmaking."
F.2d 753,
759
that
on
Pub.
(D.C.
subsequent
appeal
Serv.
Cir.
1984)
Co.
for
of
(citing
Chenery, 318 U.S. at 92-95). But Chenery is not absolute. In Global
Crossing,
~he
Supreme Court found that the FCC's initial opinion
did not explain its determination,
determination,
opinions
ma[d]e
finding
the
that
FCC's
the
but nevertheless upheld the
"context
rationale
and
obvious."
cross-referenced
Glob.
Telecomms., 550 U.S. at 63 (internal citations omitted).
26
Crossing
The Secretary argues that the instant case is akin to Global
.
Crossing in that the Administrator's Allina I
evidence
of the
agency's
reasoning
rationale is adequately explained.
decision provides
and therefore
the
agency's
Def.'s Reply at 27.
However,
the Administrator's Decision, which was issued in December 2015,
was not yet issued at the time of the 2012 DSH Calculations, which
were issued in 2014. Although the 2013 Rulemaking had been issued,
it
is
prospective
only.
See
78
Fed.
Reg.
50,496,
50,614
(Aug. 19, 2013). In addition, unlike Global Crossing, the 2012 DSH
Calculations do not include any cross-references to opinions or
documents that shed light on the agency's rationale.
Defendant argues that it "'would be a waste of time to review
only'
the
contemporaneous
agency
record
to
the
2012
DSH
Calculations when the agency has subsequently issued in 2015 a
'better
considered'
decision
upon which
review may be
based."
Def.'s Mot. at 28 (quoting Pub. Serv. Co., 749 F.2d at 760). Public
Service
is
easily distinguished
involved a clarifying opinion.
from the
case
at
hand,
as
it
The Commission had provided a first
opinion, but then at the request of the petitioners to reopen the
decision, reconsidered the record and issued a second clarifying
opinion. The issue there was whether the second opinion could be
considered. Such is not the case here. The Administrator's Allina I
decision is precisely
th~
type of post-hoc rationalization that
27
Chenery says cannot be .substituted on appeal for contemporaneous,
reasoned decisionmaking. Chenery, 318 U.S. at 92-95.
The dangers of post-hoc rationalizations for agency action
are that the judiciary,
rather than the agency,
will supply the
reasons underlying the action and that the "real reasons for agency
action will escape judicial scrutiny altogether." Women Involved
in Farm Econ. v. U.S.
Dep't of. Agric.,
876 F.2d 994, 1000
(D.C.
Cir. 1989). These concerns are not present here. Here, the agency
has
supplied its
reasons
on multiple
occasions,
including the
Administrator's recent decision and the 2013 Rulemaking. This is
also not a case where the agency's reasoning will escape judicial
review given that the issue has been before the courts on multiple
occasions, as demonstrated in this opinion. See infra, 29-30.
Viewing the situation in its entirety,
that
the process underlying the 2012
arbitrary and capricious.
contemporaneous
interpretation
are
of
not
the
DSH Calculations was
not
Although the agency gave no explicit
explanation,
rationalization
the Court concludes
the
present.
statute
concerns
The
clear
for
agency
in
the
had
2004
post-hoc
made
Final
its
Rule,
although that rule was later vacated, and the 2013 Regulation, and
has
also
decision.
subsequently
made
Although
explanation
Calculations,
reasoning,
it
is
no
not
it
clear
difficult
in
the
Administrator's
accompanied
to
understand
the
the
2012
DSH
agency's
there is no concern that subsequent rationalizations
28
are substituting contemporaneous reasoned decisionmaking, nor is
there a concern that the judiciary is providing the reasons for
the agency's action, rather than the agency.
Turning to Plaintiffs' second allegation that the Secretary's
interpretation
is
inconsistent
with
the
statute,
our Court
of
Appeals has already held that the statutory text does not foreclose
the Secretary's interpretation. Ne. Hosp. Corp.,
657 F.3d at 13.
In evaluating the same question of whether Part C enrollees are
entitled to benefits under Part A,
the Northeast Hospital court
stated, at step 1 of the Chevron analysis,
that "Congress ha[d]
not clearly foreclosed the Secretary's interpretation that
[Part
C]
While
enrollees are entitled to benefits under Part A." Id.
Northeast Hospital found that. the Secretary's interpretation was
not foreclosed by the statute, it did not reach the Chevron step
2
analysis
reasonable.
to
determine
See Ne.
Hosp.
if
the
Corp.,
Secretary's
interpretation was
65 7 F. 3d at 13.
The Northeast
Hospital court held that it was for the Secretary, not the Court,
to determine the proper interpretation. Id. That is precisely what
the Secretary has done in this instance.
In
Catholic
Health
Initiatives
v.
Sebelius,
the
Court
considered the phrase "entitled to benefits under Part A," also
key to the case at hand, though not in the context of Part C days.
718 F.3d 914·,
917
(2013).
The Secretary argues that the Court's
decision in Catholic Health is instructive here, Def.'s Mot. at 32,
29
as the Court def erred under Chevron step 2 to the Secretary's
interpretation that "entitlement" is "simply a matter of meeting
the
statutory
criteria,
not
a
matter
of
receiving
payment."
Catholic Health, 718 F. 3d at 919-920.
Plaintiffs offer no meaningful distinction between the case
at hand and Catholic Health. See Pls.' Reply at 30-31, 39. Although
the type of days specifically at issue are different,
dispute is the same.
the core
Defendant argues that "entitlement" refers
simply to meeting the statutory requirements,
Def.'s Mot at 31,
while Plaintiffs argue that "entitlement" requires the ability to
be paid under Part A. Pls.' Reply at 3, 39-40. The Catholic Health
Court deferred to the agency's interpretation, and that deference
is applicabie to this case as well.
In light of our Court of Appeals'
Hospital and Catholic Health,
review,
decisions
in Northeast
as well as the narrow standard of
the Court concludes that the Secretary's interpretation
that patients enrolled in Part C continue to be "eligible" for
Part
A
is
well
within
her
authority
and
not
arbitrary
and
capricious.
IV.
Conclusion
For the
Judgment
foregoing
shall
be
reasons,
denied
and
Plaintiffs'
Defendant's
30
Motion for
Motion
for
Summary
Summary
Judgment shall be granted. An Order shall accompany this Memorandum
Opinion.
August 17, 2016
Copies to: attorneys on record via ECF
31
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