NAZARETH HOSPITAL et al v. SEBELIUS

Filing 47

SUPPLEMENTAL MEMORANDUM AS OUTLINED HEREIN. SIGNED BY HONORABLE EDMUND V. LUDWIG ON 8/7/2012; 8/7/2012 ENTERED AND COPIES E-MAILED.(tomg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
NAZARETH HOSPITAL and
ST. AGNES MEDICAL CENTER

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v.
KATHLEEN SEBELIUS, Secretary
Department of Health and Human Services

CIVIL ACTION
No. 10-3513

SUPPLEMENTAL MEMORANDUM
Ludwig, J.

August 7, 2012

This memorandum supplements order of July 25, 2012 denying plaintiffs’ motion
(doc. no. 41) for amendment and clarification of the July 11, 2012 order and directing
remand (doc. no. 40). That order directed the parties to submit a joint statement setting forth
their agreement, or explaining their disagreement, as to “plaintiffs’ requests for 1) the
agency’s pertinent rule-making records and 2) the standard of review and duty to make
findings, including, if necessary, plaintiffs’ discovery rights, if any. . . .” (July 25, 2012
order, doc. no. 44).
This action is for judicial review of the decision of the Secretary of the Department
of Health and Human Services (HHS) dated May 17, 2010 and issued by the Administrator
of the Centers for Medicare and Medicaid Services (CMS), which affirmed the March 23,
2010 decision of the Provider Reimbursement Review Board (PRRB). Jurisdiction is 42
U.S.C. § 1395oo(f)(1) for review, and federal question 28 U.S.C. § 1331.

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On August 3, 2012 the parties filed a joint statement (doc. no. 45) but did not agree
on any matter, even including the meaning of the order directing the joint statement. The
government appeared to be particularly unwilling to do so, apparently relying on its
perception of the narrowness of this court’s scope of review.
Ordinarily, the scope of review on appeal from an administrative agency’s decision
is confined to the record below. NVE Inc. v. Dep’t of Health & Human Servs., 436 F.3d
182, 190 (3d Cir. 2006) (citing Camp v. Pitts, 411 U.S. 138, 142 (1973) (“[i]n applying [the
arbitrary and capricious] standard, the focal point for judicial review should be the
administrative record already in existence, not some new record made initially in the
reviewing court”)). The exception occurs when evidence is added to that record in which
event the review becomes de novo. Id. (“Under 5 U.S.C. § 706(2)(F), a court may conduct
a trial de novo to determine if administrative action is ‘unwarranted by the facts.’”).1
Here, the court’s concerns are whether the agency’s treatment of Section 1115 waivers
as compared to Pennsylvania’s state plan at the time in question was reasonable or, as
plaintiffs contend, was arbitrary or capricious, and if it comported with principles of equal
protection, or was constitutionally unfair.
1

Our Court of Appeals explained:

“The Supreme Court . . . has limited ‘trial de novo’ review under the APA to two
situations: (1) ‘when the action is adjudicatory in nature and the agency
factfinding procedures are inadequate,’ and (2) ‘when issues that were not before
the agency are raised in a proceeding to enforce nonadjudicatory agency action.’
Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402[, 415] . . . (1971).”
NVE Inc., 436 F.3d at 189. The first situation exists here. Plaintiffs challenge
both rulemaking and adjudicative actions, and the Secretary’s adequate
consideration of the issues presented by plaintiffs.
2

To decide those issues, it is necessary to determine whether the record below is itself
sufficient – or requires additional evidence and, perhaps, discovery. See NVE Inc., 436 F.3d
at 195 (“a strong presumption against discovery . . . born out of the objective of preserving
the integrity and independence of the administrative process”) (citing Grant v. Shalala, 989
F.2d 1332, 1344 (3d Cir. 1993) (“[i]t has long been recognized that attempts to probe the
thought and decision making processes of judges and administrators are generally
improper”)). Cf. NVE Inc., 436 at 195-96 (noting discovery was permitted in Dopico v.
Goldschmidt, 687 F.2d 644 (2d Cir. 1982) because “agency submitted an administrative
record that lacked the fundamental documents that would have formed the very basis for the
agency’s decisions”). The reason for directing the parties to attempt to reach agreement was
to reduce the potential number of appellate issues and to prompt the parties to engage in
discussions that could lead to a settlement of this important case.
The transactional costs of continuing to pursue this case and the significance of the
policy issues involved make settlement highly desirable from both a legal and societal
standpoint. Plaintiffs and the government should exert every reasonable effort to bring about
resolution.

BY THE COURT:
/s/ Edmund V. Ludwig
Edmund V. Ludwig, J.

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