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)

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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 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 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-.!'Medicare/Med~care=F'ee--Fo-r,-Service­ Payment/AcuteinpatientPPS/Downloads/ 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, 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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