BATTLE CREEK HEALTH SYSTEM et al v. MERCY HOSPITAL CADILLAC et al

Filing 38

MEMORANDUM OPINION re 37 Order. Signed by Judge Colleen Kollar-Kotelly on October 31, 2023. (lcckk1)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
BATTLE CREEK HEALTH SYSTEM, et al.,
Plaintiffs,
v.

Civil Action No. 17-0545 (CKK)

XAVIER BECERRA, in his official capacity
as Secretary of Health and Human Services,
Defendant.
MEMORANDUM OPINION
(October 31, 2023)
In this Medicare administrative dispute, twenty-six regional hospitals challenge the
dismissal of their appeal by the Provider Reimbursement Review Board (“PRRB,” or “the Board”).
The Board, a subagency of the Centers for Medicare & Medicaid Services (“CMS”), is charged
by statute with reviewing appeals by providers dissatisfied with “final determinations” related to
reimbursement for the provision of medical services to individuals covered by Medicare. 42
U.S.C. § 1395oo.

Plaintiffs maintain, as they did during the underlying administrative

proceedings, that they were undercompensated for services rendered to patients eligible for certain
Medicare benefits. Without reaching the merits of that challenge, the PRRB dismissed Plaintiffs’
administrative appeal, concluding that action on which Plaintiffs based their administrative appeal,
CMS’s publication of patient data that Defendant uses to determine Plaintiffs’ eligibility for certain
reimbursements, was not a “final determination” within the meaning of 42 U.S.C. § 1395oo,
rendering the PRRB without jurisdiction. Plaintiffs now appeal that legal conclusion to this Court.
Ultimately, the Court agrees with Plaintiffs that, contrary to the PRRB’s conclusion, the
publication at issue was a “final determination” within the meaning of 42 U.S.C. § 1395oo that
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vested the PRRB with jurisdiction over Plaintiffs’ administrative action. Because the PRRB is
better equipped to answer the merits question in the first instance, however, the Court stays this
matter pending the PRRB’s consideration of the appropriate reimbursement calculation on remand.
Accordingly, upon the consideration of the pleadings, 1 the relevant legal authority, and the entire
record, the Court GRANTS IN PART AND DENIES IN PART Plaintiffs’ [25] Motion for
Summary Judgment, GRANTS IN PART AND DENIES IN PART Defendant’s [28] CrossMotion for Summary Judgment.
I.

BACKGROUND
A. Factual and Statutory Background
The Medicare Program is a federal health insurance program that pays for medical care for

people 65 years of age or older, certain younger disabled people, and people with kidney failure.
See UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867, 872 (D.C. Cir. 2021). The Secretary of
Health and Human Services is responsible for administering the Medicare Program through the
Centers for Medicare and Medicaid Services (“CMS”) and its Medicare Administrative
Contractors (“MAC”). Popkin v. Burwell, 172 F. Supp. 3d 161, 166 (D.D.C. 2016). The MACs

1

The Court’s analysis has focused on the following documents:
• Plaintiffs’ Motion for Summary Judgment (“Pls.’ Mot.”), ECF No. 25;
• Defendants’ Cross-Mot for Summary Judgment and Opposition to Plaintiff’s
Motion for Summary Judgment (“Defs.’ Cross-Mot”), ECF No. 28;
• Plaintiffs’ Memorandum in Response to Defendant’s Cross-Motion for Summary
Judgement and Reply to Defendant’s Response to Plaintiff’s Motion for Summary
Judgement (“Pls.’ Repl.”), ECF No. 31;
• Defendants’ Reply in Support of their Cross-Motion for Summary Judgment
(“Defs.’ Repl.”), ECF No. 32; and
• The Administrative Record (AR), ECF No. 33.
In an exercise of its discretion, the Court concludes that oral argument would not be of assistance
in resolving this matter.

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are generally private insurance companies that administer routine Medicare payment functions in
a given geographic area. See id.
For acute-care inpatient services administered under Medicare, hospitals are paid pursuant
to a Prospective Payment System (“PPS”). 42 U.S.C. § 1395ww(d). Under the PPS, hospitals are
generally paid a predetermined rate based on a classification of an inpatient’s illness. In addition
to that standard amount under the PPS, hospitals may receive an “additional payment” each year
if they “serve [] a significantly disproportionate number of low-income patients.” 42 U.S.C. §
1395ww(d)(5)(F)(i)(I). The additional payment is known as the “disproportionate share” or
“DSH” payment. See id. Whether a hospital is eligible for DSH payment and the amount of that
payment in a given year is determined by a statutorily defined formula, which is the sum of two
fractions: the Medicare (or SSI) fraction and the Medicaid fraction. Id. The sum of these two
fractions is also termed the “disproportionate patient percentage” or “DPP.” Medicare Claims
Processing Manual, Chapter 3 - Inpatient Hospital Billing, at 59 (Feb. 2, 2023) available at
https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/clm104c03.pdf
(last accessed October 29, 2023 5:19 PM ET) (hereinafter “Processing Manual”).
The Medicare fraction approximates the proportion of Medicare patients the hospital
served during that year who are low-income. Id. at 51. The numerator of the Medicare fraction is
the number of patient days for patients who were both “entitled to benefits under [Medicare] part
A” and “entitled to [SSI] benefits” and the denominator is the number of patient days for patients
who were “entitled to benefits under part A.” 42 U.S.C. §1395ww(d)(5)(F)(vi)(I). The Medicaid
fraction represents the ratio of the hospital’s patients served during that year who are eligible for
Medicaid relative to the hospital’s total patients. Id. (F)(vi)(II). Accordingly, the numerator of
that fraction is the number of patient days in which the hospital treated those who were eligible for

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Medicaid, “but who were not entitled to benefits under part A” and the denominator consists of
“the total number of the hospital’s patient days.” Id.
Without access to SSI data that is maintained by the Social Security Administration,
Plaintiffs lack the information necessary to determine a hospital’s Medicare fraction.

See

Processing Manual at 54. As a result, CMS obtains the SSI data from the Social Security
Administration, calculates the DPP which includes both the Medicare and Medicare fraction for
each hospital and publishes it all on its website. Id. at 56. If a hospital is above a certain DPP, they
qualify for a DSH adjustment. Id. at 51.
Once CMS publishes the percentages, they also provide the data to the appropriate MAC.
Because the SSI/Medicare percentages are determined by CMS on a fiscal year basis, hospitals are
also afforded the option (for settlement purposes) of determining their SSI/Medicare percentage
based upon data from their own cost reporting period. Id. If a hospital avails itself of this option,
it must provide its MAC, in a manner and format prescribed by CMS, with data on its Medicare
patients for the cost reporting period. Id.
In this case, the relevant MAC is the Wisconsin Physicians Service, covering the area
where the hospitals here are located. With the DPP data from CMS, that MAC will identify
hospitals that are eligible to receive the DSH adjustment and make interim payments subject to a
year-end settlement based upon the hospital's DSH percentage for the cost reporting period. Id. at
56. The DSH payment increase varies from hospital to hospital, and depends on a number of
factors, including a hospital’s bed count and its location. Id. With the DPP, the MAC calculates
a DSH adjustment for individual hospitals using the relevant factors.
//
//

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Below is a table of how the DSH adjustment factor is calculated. Id. at 53-57.
Status/Location

Number of Beds

Urban Hospitals

0–99 Beds

DPP Threshold
to Qualify
≥15%, ≤20.2%

Urban Hospitals

0–99 Beds

≥20.2%

Urban Hospitals

100 or More Beds

≥15%, ≤20.2%

Urban Hospitals

100 or More Beds

≥15%, ≤20.2%

Rural Referral
Centers
Rural Referral
Centers
Other Rural
Hospitals
Other Rural
Hospitals
Other Rural
Hospitals
Other Rural
Hospitals

N/A

≥20.2%

N/A

≥20.2%

0–499 Beds

≥15%, ≤20.2%

0–499 Beds

≥20.2%

500 or More Beds

≥15%, ≤20.2%

500 or More Beds

≥20.2%

Adjustment Formula
2.5% + [.65 x (DPP−15%)]
Not to Exceed 12%
5.88% + [.825 x (DPP−20.2%)]
Not to Exceed 12%
2.5% + [.65 x (DPP−15%)] No
Cap
5.88% + [.825 x (DPP−20.2%)]
No Cap
2.5% + [.65 x (DPP−15%)]
No Cap
5.88% + [.825 x (DPP−20.2%)]
No Cap
2.5% + [.65 x (DPP−15%)] Not
to Exceed 12%
5.88% + [.825 x (DPP−20.2%)]
Not to Exceed 12%
2.5% + [.65 x (DPP−15%)] No
Cap
5.88% + [.825 x (DPP−20.2%)]
No Cap

The MAC multiplies this DSH adjustment percentage against the standard PPS amount that the
hospital would otherwise be receiving. Id. at 54. This amount equals a hospital’s DSH adjustment
payment for the year. It is basically a year-end lump sum adjustment. Id. at 56.
Baked into the math is a key legal disagreement between the parties: whether to count
Medicare Part C enrollees as patients “eligible” for Medicare Part A. That issue is, quite literally,
the million-dollar question for Plaintiffs. If not, Plaintiffs are due much more in reimbursement
than CMS ultimately provided. Yet, as discussed further below, that merits question is not before
the Court. At present, the only question before the Court is whether certain DSH adjustments
published by CMS reflected a sufficiently “final” decision on the matter as to permit the PRRB to
decide it.

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B. Procedural Background and Administrative Decision
This dispute ultimately dates to as early as 2009. On July 24 of that year, CMS issued a
“Transmittal 1774,” which provided the underlying, “updated data” for DSH adjustments for the
settlement of FY 2007 cost reports, yet to be completed. CMS, Transmittal 1774/Change Request
6530

at

1

(July

24,

2009)

available

at

https://www.cms.gov/Regulations-and-

Guidance/Guidance/Transmittals/downloads/R1774CP.pdf (last accessed October 29, 2023 8:38
PM ET). This data effectively decided what kind of patients would be counted in the numerator
of the key fraction, and the transmittal and “instruct[ed]” MACs in how to calculate DSH
payments. Id. at 3. On appeal, some of the present Plaintiffs challenged what they characterized
as “CMS’s erroneous inclusion of inpatient days attributable to Medicare Advantage patients” in
the Medicare fraction in this transmittal. AR 239. In 2013, six more hospitals, Plaintiffs here,
were added to the group appeal. AR 1. Each of those newly added hospitals appealed a “notice
of program reimbursement” (or “NPR”), in which a MAC informs an individual hospital the
precise amount of reimbursement. See 42 C.F.R. § 405.1803. The group appeal sought to
challenge what they considered to be “CMS’s erroneous inclusion of inpatient days attributable to
Medicare Advantage (MA) patients in both the numerator and the denominator of the [SSI]
fraction.” AR 239.
The PRRB issued an initial jurisdictional decision on January 26, 2017, dismissing the
Plaintiffs hospitals’ group appeal for lack of jurisdiction. AR 1. In its decision, the PRRB first
noted that the six newly added hospitals appealed from different “determinations” than those
involved in the original hospitals’ appeal. AR 2. Specifically, the PRRB noted that the newly
added hospitals had appealed based on NPRs or revised NPRs and that their underlying appeals
challenged the updated SSI fractions that CMS had published in 2012 rather than those published

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in 2009. Id. Accordingly, the PRRB bifurcated the group appeal, separating the hospitals
appealing from an NPR or revised NPR from the twenty-six hospitals challenging the SSI fractions
that had been published on CMS’s website in 2009. Id.
For those hospitals that appealed from the 2009 SSI fractions that are at issue in this case,
the PRRB seemed to initially accept jurisdiction in this matter. On January 16, 2010, the Lead
Intermediary responded to the appeal with a letter directly stating there are “no jurisdictional
impediments [] noted at this time.” AR 208. On January 26, 2017, the PRRB then dismissed the
appeal for lack of jurisdiction because of the PRRB's determination that Plaintiff Hospitals’ appeal
did not stem from a final determination. AR 1. The Board explained that it lacked jurisdiction
because the SSI fractions on CMS’s website are not a “final determination” as required under 42
U.S.C. § 1395oo(a) for an appeal to the Board.
That statute contains two distinct provision for what constitutes “final determinations.”
Relevant here is the second provision, permitting an appeal where a hospital “is dissatisfied with
a final determination of the Secretary as to the amount of the payment under subsection (b) or (d)
of section 1395ww of this title.” 42 U.S.C. § 1395oo(a)(1)(A)(ii). The Board reasoned that the SSI
fractions are not final determinations of DSH payment, interpreting the statutory language to mean
that determination “hinge[s] upon the completion and settlement of a provider’s cost report.” AR
6. The Board further explained it lacked jurisdiction because “the SSI ratios at issue (dated June
24, 2009) have never been incorporated into settled cost reports (and associated NPRs).” Id. The
Board wrote that it “logically follows that a provider may not appeal DSH-related issues prior to
the final settlement of its cost report.” Id. Plaintiffs now ask the Court to reinstate the appeal and
remand the matter back to the PRRB for adjudication on the merits.

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II.

LEGAL STANDARD
Under Rule 56(a) of the Federal Rules of Civil Procedure, “[t]he court shall grant summary

judgment if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” However, “when a party seeks review of
agency action under the APA [before a district court], the district judge sits as an appellate tribunal.
The ‘entire case’ on review is a question of law.” Am. Bioscience, Inc. v. Thompson, 269 F.3d
1077, 1083 (D.C. Cir. 2001). Accordingly, “the standard set forth in Rule 56[ ] does not apply
because of the limited role of a court in reviewing the administrative record . . . . Summary
judgment is [ ] the mechanism for deciding whether as a matter of law the agency action is
supported by the administrative record and is otherwise consistent with the APA standard of
review.” Southeast Conference v. Vilsack, 684 F. Supp. 2d 135, 142 (D.D.C. 2010).
The APA “sets forth the full extent of judicial authority to review executive agency action
for procedural correctness.” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 513 (2009). It
requires courts to “hold unlawful and set aside agency action, findings, and conclusions” that are
“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). “This is a ‘narrow’ standard of review as courts defer to the agency’s expertise.”
Ctr. for Food Safety v. Salazar, 898 F. Supp. 2d 130, 138 (D.D.C. 2012) (quoting Motor Vehicle
Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). As the “focal
point” in administrative review, the Court’s inquiry is limited to the administrative record before
it. Camp v. Pitts, 411 U.S. 138, 142 (1973). Absent special circumstances, the Court is not to
consider evidence outside the record or arguments not raised before the agency. See Am. Bottling
Co. v. NLRB, 992 F.3d 1129, 1139 (D.C. Cir. 2021).

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III.

DISCUSSION
To evaluate Plaintiffs’ claim that the Secretary has misread what is a final determination,

the Court must first apply “the ordinary tools of statutory construction” to determine “whether
Congress has directly spoken to the precise question at issue.” Chevron U.S.A., Inc. v. NRDC, 467
U.S. 837, 842 (1984). “If the intent of Congress is clear, that is the end of the matter; for the court,
as well as the agency, must give effect to the unambiguously expressed intent of Congress.” City
of Arlington, Tex. v. FCC, 569 U.S. 290, 296 (2013) (quoting Chevron, 467 U.S. at 842-43). As
with all statutory interpretation, the Court “will not resort to legislative history to cloud a statutory
text that is clear.” Citizens for Resp. & Ethics in Wash. v. FEC, 904 F.3d 1014, 1018 (D.C. Cir.
2018). If, however, “the statute is silent or ambiguous with respect to the specific issue,” the Court
must determine what deference to give to the agency’s interpretation. Chevron U.S.A., Inc., 467
U.S. at 844.
It appears that the Board’s primary legal position––only a cost report is a “final
determination”––is foreclosed by appellate precedent. For instance, the D.C. Circuit has held that
any administrative action that provides a “hospital] [with] advance knowledge of the amount of
payment it will receive” is a “final determination.” See Wash. Hosp. Ctr. v. Bowen, 795 F.2d 139,
141 (D.C. Cir. 1986); Cape Cod Hospital v. Sebelius, 630 F.3d 203 (2011) (holding that an agency
may appeal to the PRRB from issuance of the Final Inpatient Prospective Payment System Rule).
In other words, section 1395oo permits providers to prospectively appeal what they will, in the
future, receive as a result of services provided to eligible patients. Bowen, 795 F.2d at 145.
Subsection 1395oo(a)(1)(A)(ii) also “eliminates the requirement that [a provider] file a cost report
prior to appeal.” Id.

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It would appear that the publication provided, with some finality, “advance knowledge of
the amount of [the DSH] payment.” The administrative action here, Transmittal 1774, clearly
instructed MACs in how to calculate DSH payments. Those calculations were a fait accompli as
to whether to count Medicare Part A patients in the numerator as well. As a result, the PRRB has
jurisdiction to consider the decision on DSH calculations in the Transmittal, because the
Transmittal governed, at that point, “some aspect of the calculation of [the] target amount or
hospital-specific rate” for Medicare reimbursement. Bowen, 795 F.2d at 145 (emphasis added).
In the face of Bowen’s clear instruction here, Defendant offers two main distinctions with
no material difference. First, Defendant argues that, that unlike the rates in Wash. Hosp., the SSI
ratios were published after the relevant fiscal year. Def.’s Cross-Mot at 22. Second, as Wash.
Hosp. makes clear, the key question is whether a publication establishes a change in the tabulation
of the particular fraction, not when precisely the publication was issued. 795 F.2d at 148. To be
sure, an earlier publication provides hospitals with clearer financial planning, but the injury accrues
for the purposes of the relevant statutory subsection when hospitals are informed that they will
receive a smaller reimbursement based on a particular fractional determination.
Next, Defendant argues that the SSI fractions at issue were not determined with any finality
when they were published, since they were updated after CMS first published them. Def.’s CrossMot at 23. Defendant is quite right that the SSI fractions have changed over time. Indeed, a DSH
fraction is necessarily mutable with federal law requiring CMS to update DSH calculations as, for
example, the “average [] costs [of inpatient hospital services] for all hospitals” change over time.
See 42 U.S.C. § 1395ww. More importantly, through the Transmittal, CMS had made a final
decision within the meaning of the statute, because CMS definitively alerted providers to
forthcoming reimbursements.

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The Court having found that the PRRB’s conclusion that “a provider may not appeal DSHrelated issues prior to the final settlement of its cost report” contrary to law, the Court must vacate
the PRRB’s decision and remand for further proceedings. See PPG Indus., Inc. v. United States,
52 F.3d 363, 365 (D.C. Cir. 1995). Plaintiffs, however, would have the Court go further and set
aside the fractional determination on the merits. On the merits, however, the Court has no
administrative decision to review. The PRRB never reached the issue, instead denying the
administrative appeal for lack of jurisdiction. Particularly in light of the rather technical nature of
DBH calculations, precisely how the statute should apply is decidedly within the “primary
jurisdiction” of the PRRB and CMS. See Krukas v. AARP, Inc., 376 F. Supp. 3 1, 15 (D.D.C.
2019) (explaining that remand to agency on issue with which it has “special competence” is
appropriate even where federal court has subject-matter jurisdiction). Doing so here ensures that
any ultimate legal ruling on the question has the “advantage of [the] agency’s specialized
knowledge, expertise, and central position within a regulatory regime.” See Pharm. Research and
Mfrs. of Am. v. Walsh, 538 U.S. 644, 673 (2003) (Breyer, J., concurring in part and concurring in
the judgment).

Therefore, the Court must “stay further proceedings” while the PRRB evaluates

the merits of Plaintiffs’ challenge on remand. See Reiter v. Cooper, 507 U.S. 258, 268 (2019)
(explaining that stay is appropriate course when court determines agency has primary jurisdiction
over issue).
IV.

CONCLUSION
Because the PRRB erred in concluding that it did not have jurisdiction over Plaintiffs’

appeals of the CMS publication of SSI ratios for fiscal year 2007, the Court GRANTS IN PART
AND DENIES IN PART Plaintiffs’ [25] Motion for Summary Judgment and GRANTS IN
PART AND DENIES IN PART Defendant’s [28] Cross-Motion for Summary Judgment. The

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PRRB’s jurisdictional decision on January 26, 2017 is VACATED and REMANDED to the
PRRB for appropriate consideration of the merits of the dispute. The Court further STAYS this
matter pending remand.

Date: October 31, 2023
/s/
COLLEEN KOLLAR-KOTELLY
United States District Judge

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