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Shands Jacksonville Medical Center v. Burwell

United States District Court, D. Columbia

September 21, 2015

SHANDS JACKSONVILLE MEDICAL CENTER, et al., Plaintiffs,
v.
SYLVIA M. BURWELL, Secretary, United States Department of Health and Human Services, Defendant

Page 241

[Copyrighted Material Omitted]

Page 242

          For SHANDS JACKSONVILLE MEDICAL CENTER, INC., doing business as UF HEALTH JACKSONVILLE, SHANDS TEACHING HOSPITAL AND CLINICS, INC., doing business as UF HEALTH SHANDS HOSPITAL, DIGNITY HEALTH, 14-cv-536, doing business as ARROYO GRANDE COMMUNITY HOSPITAL, doing business as CALIFORNIA HOSPITAL MEDICAL CENTER, doing business as CHANDLER REGIONAL MEDICAL CENTER, doing business as DOMINICAN HOSPITAL, doing business as FRENCH HOSPITAL MEDICAL CENTER, doing business as GLENDALE MEMORIAL HOSPITAL AND HEALTH CENTER, doing business as MARIAN REGIONAL MEDICAL CENTER, doing business as MERCY GENERAL HOSPITAL, doing business as MERCY GILBERT MEDICAL CENTER, doing business as MERCY HOSPITAL BAKERSFIELD, doing business as MERCY HOSPITAL OF FOLSOM, doing business as MERCY MEDICAL CENTER MERCED, doing business as MERCY MEDICAL CENTER REDDING, doing business as MERCY SAN JUAN MEDICAL CENTER, doing business as METHODIST HOSPITAL OF SACRAMENTO, doing business as NORTHRIDGE HOSPITAL MEDICAL CENTER, doing business as SEQUOIA HOSPITAL, doing business as ST. BERNARDINE MEDICAL CENTER, doing business as ST. ELIZABETH COMMUNITY HOSPITAL, doing business as ST. JOHN'S PLEASANT VALLEY HOSPITAL, doing business as ST. JOHN'S REGIONAL MEDICAL CENTER, doing business as ST. JOSEPH'S HOSPITAL AND MEDICAL CENTER, doing business as ST. JOSEPH'S MEDICAL CENTER OF STOCKTON, doing business as ST. MARY MEDICAL CENTER, doing business as ST. MARY'S MEDICAL CENTER, doing business as ST. ROSE DOMINICAN HOSPITALS - ROSE DE LIMA CAMPUS, doing business as ST. ROSE DOMINICAN HOSPITALS - SAN MARTIN CAMPUS, doing business as ST. ROSE DOMINICAN HOSPITALS - SIENA CAMPUS, doing business as WOODLAND MEMORIAL HOSPITAL, ADIRONDACK HEALTH SERVICES, INC., 14-cv-536, doing business as GLENS FALLS HOSPITAL, ALBANY MEMORIAL HOSPITAL, 14-cv-536, ALEGENT CREIGHTON HEALTH CREIGHTON UNIVERSITY MEDICAL CENTER, LLC, 14-cv-536, ALEGENT CREIGHTON HEALTH, 14-cv-536, doing business as ALEGENT CREIGHTON HEALTH MIDLANDS HOSPITAL, doing business as ALEGENT CREIGHTON HEALTH LAKESIDE HOSPITAL, ALEGENT HEALTH - BERGAN MERCY HEALTH SYSTEM, 14-cv-536, doing business as ALEGENT HEALTH BERGAN MERCY MEDICAL CENTER, doing business as MERCY HOSPITAL, ALEGENT HEALTH - IMMANUEL MEDICAL CENTER, 14-cv-536, ALLINA HEALTH SYSTEM, 14-cv-536, doing business as MERCY HOSPITAL, doing business as ABBOTT NORTHWESTERN HOSPITAL, doing business as BUFFALO HOSPITAL, doing business as CAMBRIDGE MEDICAL CENTER, doing business as OWATONNA HOSPITAL, doing business as REGINA MEDICAL CENTER, doing business as ST. FRANCIS REGIONAL MEDICAL CENTER, doing business as UNITED HOSPITAL, doing business as UNITY HOSPITAL, ALTA LOS ANGELES HOSPITALS, INC., 14-cv-536, doing business as LOS ANGELES COMMUNITY HOSPITAL, ALTON MEMORIAL HOSPITAL, 14-cv-536, ATLANTICARE REGIONAL MEDICAL CENTER, INC., 14-cv-536, BAKERSFIELD MEMORIAL HOSPITAL, 14-cv-536, Plaintiffs (1:14-cv-00263-RDM): Christopher L. Keough, AKIN GUMP STRAUSS HAUER & FELD LLP, Washington, DC.

         For BOARD OF TRUSTEES OF NORTH KANSAS CITY HOSPITAL, 14cv503, doing business as NORTH KANSAS CITY HOSPITAL, CHATTANOOGA HAMILTON COUNTY HOSPITAL AUTHORITY, 14cv503, doing business as ERLANGER MEDICAL CENTER, COMMUNITY HOSPITAL OF BRAZOSPORT, 14cv503, doing business as BRAZOSPORT REGIONAL HEALTH SYSTEM, COPLEY MEMORIAL HOSPITAL, 14cv503, FLOYD HEALTHCARE MANAGEMENT, INC., 14cv503, GUNDERSEN LUTHERAN MEDICAL CENTER, INC., 14cv503, GWINNETT HOSPITAL SYSTEM INC, 14cv503, LUBBOCK COUNTY HOSPITAL DISTRICT, 14cv503, doing business as UNIVERSITY MEDICAL CENTER, MERCY HOSPITAL, IOWA CITY, IOWA, 14cv503, MIDLAND COUNTY HOSPITAL DISTRICT, 14cv503, doing business as MIDLAND MEMORIAL HOSPITAL, NORTHEAST GEORGIA MEDICAL CENTER, 14cv503, OAKBEND MEDICAL CENTER, 14cv503, PARKVIEW MEDICAL CENTER, INC., 14cv503, RECTOR AND VISITORS OF THE UNIVERSITY OF VIRGINIA, 14cv503, doing business as UNIVERSITY OF VIRGINIA MEDICAL CENTER, STATE UNIVERSITY OF IOWA, 14cv503, doing business as UNIVERSITY OF IOWA HOSPITALS AND CLINICS, SWEDISHAMERICAN HOSPITAL, 14cv503, MEDICAL CENTER OF CENTRAL GEORGIA, INC., 14cv503, REGIONAL MEDICAL CENTER OF ORANGEBURG AND CALHOUN COUNTIES, 14cv503, UNIVERSITY OF KANSAS HOSPITAL AUTHORITY, 14cv503, WESTCHESTER COUNTY HEALTH CORPORATION, 14cv503, Plaintiffs (1:14-cv-00263-RDM): Christopher L. Keough, LEAD ATTORNEY, AKIN GUMP STRAUSS HAUER & FELD LLP, Washington, DC; Ethan Price Davis, LEAD ATTORNEY, Daniel J. Hettich, KING & SPALDING, LLP, Washington, DC; Mark D Polston, LEAD ATTORNEY, KING & SPALDING, Washington, DC; Catherine E. Stetson, HOGAN LOVELLS, U.S. LLP, Washington, DC.

         For FAYETTE REGIONAL HEALTH SYSTEM, 14cv503, doing business as UNIONTOWN HOSPITAL, MARTIN HEALTH SYSTEM, 14cv503, doing business as MARTIN MEMORIAL MEDICAL CENTER, Plaintiffs (1:14-cv-00263-RDM): Christopher L. Keough, LEAD ATTORNEY, AKIN GUMP STRAUSS HAUER & FELD LLP, Washington, DC; Daniel J. Hettich, Ethan Price Davis, Mark D Polston, LEAD ATTORNEYS, KING & SPALDING, LLP, Washington, DC; Catherine E. Stetson, HOGAN LOVELLS, U.S. LLP, Washington, DC.

         For AMERICAN HOSPITAL ASSOCIATION, 14cv607, BANNER HEALTH, 14cv607, MOUNT SINAI HOSPITAL, 14cv607, EINSTEIN HEALTHCARE NETWORK, 14cv607, GREATER NEW YORK HOSPITAL ASSOCIATION, 14cv607, HEALTHCARE ASSOCIATION OF NEW YORK, 14cv607, NEW JERSEY HOSPITAL ASSOCIATION, 14cv607, HOSPITAL AND HEALTHSYSTEM ASSOCIATION OF PENNSYLVANIA, 14cv607, Plaintiffs (1:14-cv-00263-RDM): Catherine E. Stetson, LEAD ATTORNEY, Dominic F. Perella, HOGAN LOVELLS, U.S. LLP, Washington, DC; Christopher L. Keough, LEAD ATTORNEY, AKIN GUMP STRAUSS HAUER & FELD LLP, Washington, DC.

         For WAKE FOREST BAPTIST MEDICAL CENTER, 14cv607, Plaintiff (1:14-cv-00263-RDM): Catherine E. Stetson, LEAD ATTORNEY, HOGAN LOVELLS, U.S. LLP, Washington, DC; Christopher L. Keough, LEAD ATTORNEY, AKIN GUMP STRAUSS HAUER & FELD LLP, Washington, DC.

         For BAKERSFIELD HEART HOSPITAL, 14cv976, LOUISIANA MEDICAL CENTER AND HEART HOSPITAL, 14cv976, WILLIS-KNIGHTON MEDICAL CENTER, 14cv976, WILLIS-KNIGHTON BOSSIER HEALTH CENTER, 14cv976, PARMA COMMUNITY GENERAL HOSPITAL, 14cv976, UH REGIONAL HOSPITALS, 14cv976, UNIVERSITY HOSPITALS CASE MEDICAL CENTER, 14cv976, EMH ELYRIA MEDICAL CENTER, 14cv976, UNIVERSITY HOSPITALS GEAUGA MEDICAL CENTER, 14cv976, UNIVERSITY HOSPITALS AHUJA MEDICAL CENTER, 14cv976, Plaintiffs (1:14-cv-00263-RDM): Christopher L. Keough, LEAD ATTORNEY, AKIN GUMP STRAUSS HAUER & FELD LLP, Washington, DC; Lori Allison Rubin, LEAD ATTORNEY, Benjamin R. Dryden, FOLEY & LARDNER, LLP, Washington, DC; Catherine E. Stetson, HOGAN LOVELLS, U.S. LLP, Washington, DC.

         For ST. HELENA HOSPITAL, 14cv1477, doing business as ST. HELENA HOSPITAL NAPA VALLEY, WHITE MEMORIAL MEDICAL CENTER, 14cv1477, doing business as WHITE MEMORIAL MEDICAL CENTER, HANFORD COMMUNITY HOSPITAL, 14cv1477, doing business as ADVENTIST MEDICAL CENTER - REEDLEY, REEDLEY COMMUNITY HOSPITAL, 14cv1477, CENTRAL VALLEY GENERAL HOSPITAL, 14cv1477, FEATHER RIVER HOSPITAL, 14cv1477, doing business as ADVENTIST HEALTH/FEATHER RIVER HOSPITAL, SIMI VALLEY HOSPITAL & HEALTH CARE SERVICES, 14cv1477, doing business as SIMI VALLEY HOSPITAL, GLENDALE ADVENTIST MEDICAL CENTER, 14cv1477, doing business as ADVENTIST HEALTH/GLENDALE ADVENTIST MEDICAL CENTER, UKIAH ADVENTIST HOSPITAL, 14cv1477, doing business as UKIAH VALLEY MEDICAL CENTER, SONORA COMMUNITY HOSPITAL, 14cv1477, doing business as SONORA REGIONAL MEDICAL CENTER, SAN JOAQUIN COMMUNITY HOSPITAL, 14cv1477, doing business as ADVENTIST HEALTH/SAN JOAQUIN COMMUNITY HOSPITAL, CASTLE MEDICAL CENTER, 14cv1477, PORTLAND ADVENTIST MEDICAL CENTER, 14cv1477, doing business as ADVENTIST MEDICAL CENTER - PORTLAND, WALLA WALLA GENERAL HOSPITAL, 14cv1477, doing business as ADVENTIST HEALTH/WALLA GENERAL HOSPITAL, AHMC GARFIELD MEDICAL CENTER LP, 14cv1477, doing business as GREATER EL MONTE COMMUNITY HOSPITAL, AHMC MONTEREY PARK HOSPITAL LP, 14cv1477, doing business as MONTEREY PARK HOSPITAL, AHMC WHITTIER HOSPITAL MEDICAL CENTER LP, 14cv1477, doing business as WHITTIER HOSPITAL MEDICAL CENTER, AHMC SAN GABRIEL VALLEY MEDICAL CENTER LP, 14cv1477, doing business as SAN GABRIEL VALLEY MEDICAL CENTER, AHMC ANAHEIM REGIONAL MEDICAL CENTER LP, 14cv1477, doing business as AHMC ANAHEIM REGIONAL MEDICAL CENTER LP, ALHAMBRA HOSPITAL MEDICAL CENTER LP, 14cv1477, doing business as ALHAMBRA HOSPITAL MEDICAL CENTER, AURORA HEALTH CARE NORTH, INC., 14cv1477, doing business as AURORA MEDICAL CENTER MANITOWOC COUNTY, AURORA HEALTH CARE CENTRAL, INC., 14cv1477, doing business as AURORA SHEBOYGAN MEMORIAL MEDICAL CENTER, AURORA MEDICAL CENTER OF WASHINGTON COUNTY, INC., 14cv1477, doing business as AURORA MEDICAL CENTER WASHINGTON COUNTY, AURORA HEALTH CARE SOUTHERN LAKES, INC., 14cv1477, doing business as AURORA MEMORIAL HOSPITAL OF BURLINGTON, doing business as AURORA LAKELAND MEDICAL CENTER, doing business as AURORA MEDICAL CENTER - KENOSHA, doing business as AURORA MEDICAL CENTER SUMMIT, AURORA HEALTH CARE METRO, INC., 14cv1477, doing business as AURORA WEST ALLIS MEDICAL CENTER, WEST ALLIS MEMORIAL HOSPITAL, INC., 14cv1477, WEST ALLIS MEMORIAL HOSPITAL, INC., 14cv1477, doing business as AURORA WEST ALLIS MEDICAL CENTER, BAYCARE AURORA, LLC, 14cv1477, doing business as AURORA BAYCARE MEDICAL CENTER, AURORA MEDICAL CENTER OF OSHKOSH, INC., 14cv1477, doing business as AURORA MEDICAL CENTER GRAFTON, CENTRAL DUPAGE HOSPITAL ASSOCIATION, 14cv1477, doing business as CENTRAL DUPAGE HOSPITAL, DELNOR-COMMUNITY HOSPITAL, 14cv1477, doing business as DELNOR HOSPITAL, FORT PAYNE HOSPITAL CORPORATION, 14cv1477, doing business as DEKALB REGIONAL MEDICAL CENTER, CENTRE HOSPITAL CORPORATION, 14cv1477, doing business as CHEROKEE MEDICAL CENTER, GADSDEN REGIONAL MEDICAL CENTER, LLC, 14cv1477, QHG OF ENTERPRISE, INC., 14cv1477, TRIAD OF ALABAMA, LLC, 14cv1477, FOLEY HOSPITAL CORPORATION, 14cv1477, AFFINITY HOSPITAL, LLC, 14cv1477, doing business as TRINITY MEDICAL CENTER, CRESTWOOD HEALTHCARE, L.P., 14cv1477, doing business as CRESTWOOD MEDICAL CENTER, GREENVILLE HOSPITAL CORPORATION, 14cv1477, doing business as L.V. STABLER MEMORIAL HOSPITAL, MAT-SU VALLEY MEDICAL CENTER, LLC, 14cv1477, doing business as MAT-SU REGIONAL MEDICAL CENTER, PAYSON HOSPITAL CORPORATION, 14cv1477, doing business as PAYSON REGIONAL MEDICAL CENTER, NORTHWEST HOSPITAL, LLC, 14cv1477, doing business as NORTHWEST MEDICAL CENTER, BULLHEAD CITY HOSPITAL CORPORATION, 14cv1477, doing business as WESTERN ARIZONA REGIONAL MEDICAL CENTER, ORO VALLEY HOSPITAL, LLC, 14cv1477, doing business as ORO VALLEY HOSPITAL, SILOAM SPRINGS ARKANSAS HOSPITAL COMPANY, LLC, 14cv1477, doing business as SILOAM SPRINGS ARKANSAS HOSPITAL COMPANY, LLC, FORREST CITY ARKANSAS HOSPITAL COMPANY, LLC, 14cv1477, doing business as FORREST CITY MEDICAL CENTER, NORTHWEST ARKANSAS HOSPITALS, LLC, 14cv1477, doing business as NORTHWEST MEDICAL CENTER - SPRINGDALE, NATIONAL HEALTHCARE OF NEWPORT, INC., 14cv1477, doing business as HARRIS HOSPITAL, Plaintiffs (1:14-cv-00263-RDM): Christopher L. Keough, LEAD ATTORNEY, AKIN GUMP STRAUSS HAUER & FELD LLP, Washington, DC; Robert L. Roth, LEAD ATTORNEY, HOOPER, LUNDY & BOOKMAN, PC, Washington, DC.

         For SYLVIA M. BURWELL, in her official capacity as Secretary of the United States Department of Health and Human Services, Defendant (1:14-cv-00263-RDM): Daniel Edward Bensing, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Washington, DC; Benjamin R. Dryden, FOLEY & LARDNER, LLP, Washington, DC; Matthew J.B. Lawrence, U.S. DEPARTMENT OF JUSTICE, Civil Division, Federal Programs Branch, Washington, DC.

         For Athens Regional Medical Center Inc, Board of Trustees of North Kansas City Hospital, doing business as, Chattanooga Hamilton County Hospital Authority, doing business as ERLANGER MEDICAL CENTER, Community Hospital of Brazosport, doing business as BRAZOSPORT REGIONAL HEALTH SYSTEM, Copley Memorial Hospital, Fayette Regional Health System, doing business as UNIONTOWN HOSPITAL, Floyd Healthcare Management, Inc., doing business as FLOYD MEDICAL CENTER, Gundersen Lutheran Medical Center, Inc., Gwinnett Hospital System Inc, Lubbock County Hospital District, doing business as UNIVERSITY MEDICAL CENTER, Martin Health System, doing business as MARTIN MEMORIAL MEDICAL CENTER, Mercy Hospital, Iowa City, Iowa, Midland County Hospital District, doing business as MIDLAND MEMORIAL HOSPITAL, Northeast Georgia Medical Center, Oakbend Medical Center, Parkview Medical Center, Inc., Rector And Visitors of The University of Virginia, doing business as UNIVERSITY OF VIRGINIA MEDICAL CENTER, Riverside Medical Center, State University of Iowa, doing business as UNIVERSITY OF IOWA HOSPITALS AND CLINICS, Swedishamerican Hospital, Medical Center of Central Georgia, Inc., Regional Medical Center of Orangeburg And Calhoun Counties, University of Kansas Hospital Authority, Westchester County Health Corporation, doing business as, WESTCHESTER MEDICAL CENTER, Plaintiffs (1:14cv503): Mark D Polston, KING & SPALDING, Washington, DC USA; Daniel J. Hettich, KING & SPALDING, LLP, Washington, DC USA.

         For Kathleen Sebelius (1:14cv503, 1:14cv607), Defendant: Jacqueline E. Coleman Snead, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Civil Division, Washington, DC USA.

         For Dignity Health, doing business as ARROYO GRANDE COMMUNITY HOSPITAL, Dignity Health, doing business as CALIFORNIA HOSPITAL MEDICAL CENTER, Dignity Health, doing business as CHANDLER REGIONAL MEDICAL CENTER, Dignity Health, doing business as DOMINICAN HOSPITAL, Dignity Health, doing business as FRENCH HOSPITAL MEDICAL CENTER, Dignity Health, doing business as GLENDALE MEMORIAL HOSPITAL AND HEALTH CENTER, Dignity Health, doing business as MARIAN REGIONAL MEDICAL CENTER, Dignity Health, doing business as MERCY GENERAL HOSPITAL, Dignity Health, doing business as MERCY GILBERT MEDICAL CENTER, Dignity Health, doing business as MERCY HOSPITAL BAKERSFIELD, Dignity Health, doing business as MERCY HOSPITAL OF FOLSOM, Dignity Health, doing business as MERCY MEDICAL CENTER MERCED, Dignity Health, doing business as MERCY MEDICAL CENTER REDDING, Dignity Health, doing business as MERCY SAN JUAN MEDICAL CENTER, Dignity Health, doing business as METHODIST HOSPITAL OF SACRAMENTO, Dignity Health, doing business as NORTHRIDGE HOSPITAL MEDICAL CENTER, Dignity Health, doing business as SEQUOIA HOSPITAL, Dignity Health, doing business as ST. BERNARDINE MEDICAL CENTER, Dignity Health, doing business as ST. ELIZABETH COMMUNITY HOSPITAL, Dignity Health, doing business as ST. JOHN'S PLEASANT VALLEY HOSPITAL, Dignity Health, doing business as ST. JOHN'S REGIONAL MEDICAL CENTER, Dignity Health, doing business as ST. JOSEPH'S HOSPITAL AND MEDICAL CENTER, Dignity Health, doing business as ST. JOSEPH'S MEDICAL CENTER OF STOCKTON, Dignity Health, doing business as ST. MARY MEDICAL CENTER, Dignity Health, doing business as ST. MARY'S MEDICAL CENTER, Dignity Health, doing business as ST. ROSE DOMINICAN HOSPITALS - ROSE DE LIMA CAMPUS, Dignity Health, doing business as ST. ROSE DOMINICAN HOSPITALS - SAN MARTIN CAMPUS, Dignity Health, agent of ST. ROSE DOMINICAN HOSPITALS - SIENA CAMPUS, Dignity Health, doing business as WOODLAND MEMORIAL HOSPITAL, Adirondack Health Services, Inc., doing business as GLENS FALLS HOSPITAL, Albany Memorial Hospital, Alegent Creighton Health Creighton University Medical Center, LLC, Alegent Creighton Health, doing business as ALEGENT CREIGHTON HEALTH MIDLANDS HOSPITAL, Alegent Creighton Health, doing business as ALEGENT CREIGHTON HEALTH LAKESIDE HOSPITAL, Alegent Health - Bergan Mercy Health System, doing business as ALEGENT HEALTH BERGAN MERCY MEDICAL CENTER, Alegent Health - Bergan Mercy Health System, doing business as MERCY HOSPITAL, Alegent Health - Immanuel Medical Center, Allina Health System, doing business as ABBOTT NORTHWESTERN HOSPITAL, Allina Health System, doing business as BUFFALO HOSPITAL, Allina Health System, doing business as CAMBRIDGE MEDICAL CENTER, Allina Health System, doing business as MERCY HOSPITAL, Allina Health System, doing business as OWATONNA HOSPITAL, Allina Health System, doing business as REGINA MEDICAL CENTER, Allina Health System, doing business as ST. FRANCIS REGIONAL MEDICAL CENTER, Allina Health System, doing business as UNITED HOSPITAL, Allina Health System, doing business as UNITY HOSPITAL, Alta Los Angeles Hospitals, Inc., doing business as LOS ANGELES COMMUNITY HOSPITAL, Alton Memorial Hospital, Atlanticare Regional Medical Center, Inc., Bakersfield Memorial Hospital, Plaintiffs (1:14cv536): Christopher L. Keough, AKIN GUMP STRAUSS HAUER & FELD LLP, Washington, DC USA.

         For American Hospital Association, Banner Health, Mount Sinai Hospital, Einstein Healthcare Network, Wake Forest Baptist Medical Center, Greater New York Hospital Association, Healthcare Association of New York, New Jersey Hospital Association, Hospital And Healthsystem Association of Pennsylvania, Plaintiffs (1:14cv607): Dominic F. Perella, HOGAN LOVELLS U.S. LLP, Washington, DC USA.

         For Bakersfield Heart Hospital, Louisiana Medical Center And Heart Hospital, Willis-Knighton Medical Center, Willis-Knighton Bossier Health Center, Parma Community General Hospital, Uh Regional Hospitals, University Hospitals Case Medical Center, Emh Elyria Medical Center, University Hospitals Geauga Medical Center, University Hospitals Ahuja Medical Center, Plaintiffs (1:14cv976): Lori Allison Rubin, LEAD ATTORNEY, Benjamin R. Dryden, FOLEY & LARDNER, LLP, Washington, DC USA.

         For St. Helena Hospital, doing business as ST. HELENA HOSPITAL NAPA VALLEY, All Plaintiffs, Plaintiffs (1:14cv1477): Robert L. Roth, HOOPER, LUNDY & BOOKMAN, PC, Washington, DC USA.

Page 243

         MEMORANDUM OPINION

         RANDOLPH D. MOSS, United States District Judge.

         Under the Medicare system, participating hospitals are paid for services provided to Medicare-eligible patients. Medicare Part A provides compensation for services provided on an inpatient basis, while Medicare Part B provides compensation for outpatient services. In general, hospitals are paid more for inpatient stays.

         Prior to 2013, Medicare guidance stated that it was generally appropriate for hospitals to admit a Medicare beneficiary as an inpatient if the patient was expected to stay for 24 hours or more. But the guidance also stressed that length of stay was not the only relevant factor in the " complex medical judgment" whether to admit a Medicare beneficiary for inpatient care. Because this open-ended approach generated uncertainty among providers and, at times, discouraged hospitals from treating Medicare beneficiaries as inpatients, in May 2013, the Department of Health and Human Services (" HHS" or " Department" ) proposed a new standard for inpatient admissions. This new standard--the " 2-midnight benchmark" --authorized inpatient admission if the patient's stay was expected to span at least two midnights. See Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Long-Term Care Hospital Prospective Payment System and Proposed Fiscal Year 2014 Rates, 78 Fed.Reg. 27486, 27645, 27648 (May 10, 2013) (proposed rules). To reduce uncertainty, the proposed rule then provided that " Medicare's external review contractors would presume that hospital inpatient admissions are reasonable and necessary for beneficiaries who" satisfy the 2-midnight benchmark. Id. at 27645.

         The Secretary of HHS predicted that in fiscal year 2014 the new 2-midnight benchmark and the related presumption would result in " a net shift of 40,000 encounters" from outpatient status to inpatient status, id. at 27649, at an estimated cost of $220 million to the Medicare program, id. She proposed to offset this cost by making adjustments that would effect an across-the-board reduction in compensation for inpatient services. Id. at 27650, 27651. The final rule--including the 2-midnight benchmark, related policies, and the reduction in compensation for inpatient services--was published in August 2013. See Medicare Program; Hospital Inpatient Prospective Payment Systems For Acute Care Hospitals . . . Payment Policies Related to Patient Status, 78 Fed.Reg. 50496, 50965 (Aug. 19, 2013) (final rule), codified as amended at 42 C.F.R. § 412.3(d)(1).

Page 244

          Plaintiffs in these consolidated actions challenge only one aspect of the final rule: the reduction in compensation for inpatient services. They argue, among other things, that this reduction is invalid for three independent reasons: (1) it exceeds the Secretary's general " exceptions and adjustments" authority under the Medicare Act, see 42 U.S.C. § 1395ww(d)(5)(I)(i); (2) it was promulgated without adequate notice or a meaningful opportunity to comment, in violation of the Administrative Procedure Act; and (3) it is arbitrary and capricious.

         This matter is presently before the Court on Plaintiffs' motions for summary judgment, Dkts. 15, 16, 17, 18, 19, and the Secretary's motion to dismiss and for summary judgment, Dkt. 23. For the reasons given below, the Secretary's motion is DENIED. The Plaintiffs' motions for partial summary judgment are GRANTED in part and DENIED in part, and this matter is REMANDED to the Secretary for further proceedings.

         I. BACKGROUND

         The Medicare Act, 42 U.S.C. § § 1395 et seq., provides medical care for the elderly and disabled. As relevant here, Medicare Part A reimburses hospitals for inpatient services on a prospective basis, see 42 U.S.C. § § 1395c et seq., while Medicare Part B pays for services not covered by Part A, including hospital outpatient services and visits to the doctor, see 42 U.S.C. § § 1395j, 1395 l (t); see generally Cape Cod Hosp. v. Sebelius, 630 F.3d 203, 205-07, 394 U.S.App.D.C. 59 (D.C. Cir. 2011). The amount of compensation that a hospital receives from the Medicare program, as well as the cost to the Medicare beneficiary, varies in part depending on whether the beneficiary was admitted to the hospital as an outpatient or an inpatient.

         Under the Medicare Inpatient Prospective Payment System (" IPPS" ), hospitals are prospectively compensated for inpatient services at a fixed rate that is not based on the actual cost of the services provided. See Methodist Hosp. of. Sacramento v. Shalala, 38 F.3d 1225, 1226-27, 309 U.S.App.D.C. 37 (D.C. Cir. 1994) (explaining that Congress enacted the prospective payment system to promote efficiency and discourage the provision of unnecessary services); Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 405-06, 406 n.3, 113 S.Ct. 2151, 124 L.Ed.2d 368 (1993). The rates used to calculate these payments are set annually by the Secretary according to the Medicare Act's " 'complex statutory and regulatory regime.'" Methodist Hosp., 38 F.3d at 1226 (quoting Good Samaritan, 508 U.S. at 404).

         One important element in the statutory scheme is the " standardized amount," which is set each year by the Center for Medicare and Medicaid Services (" CMS" ), acting on behalf of the Secretary. See 42 U.S.C. § 1395ww(d)(3). Roughly speaking, the standardized amount represents the average per-patient operating costs across all hospitals, see 42 C.F.R. § 412.64, modified to account for various economic and other factors. Most hospitals are compensated for Medicare inpatient services according to the " federal rate," which is " a formula that takes [the] standardized base amount . . . and multiplies it by a weight associated with a diagnosis-related group." Adirondack Med. Ctr. v. Sebelius (" Adirondack " ), 740 F.3d 692, 694, 408 U.S.App.D.C. 161 (D.C. Cir. 2014); see also Methodist Hosp., 38 F.3d at 1227, 42 U.S.C. § 1395ww(d)(3)(D). A " diagnosis-related group" (" DRG" ) is " a category of inpatient treatment." Adirondack, 740 F.3d at 694 n.1; see 42 U.S.C. § 1395ww(d)(4)(A). Each group is assigned a weight reflecting the relative amount of resources expended with respect to discharges in that group.

Page 245

See id. § 1395ww(d)(4)(B). " The upshot of applying a DRG weighting factor is that a hospital will be paid more for patients diagnosed with a heart condition requiring surgery than for those diagnosed with a sprained ankle." Adirondack Med. Ctr. v. Sebelius, 29 F.Supp.3d 25, 30 (D.D.C. 2014) (quotation marks and citation omitted). A 2007 rule refined the DRG system by implementing " Medicare severity diagnosis related groups" (" MS-DRGs" ), which are intended to better account for severity of illness in Medicare payments. See generally Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 72 Fed.Reg. 47130 (Aug. 22, 2007) (final rule).

         A minority of hospitals, including those providing treatment to underserved communities, are compensated based in part on " hospital-specific rates." See Adirondack, 740 F.3d at 694-95; 42 U.S.C. § § 1395ww(d)(5)(D) & (G). These " hospital-specific rates" are calculated using a hospital-specific base amount that reflects historical per-patient operating costs at that particular hospital. See Adirondack, 740 F.3d at 695. The Secretary also sets a " Puerto Rico-specific rate" which is calculated using a Puerto Rico-specific base amount. See 42 C.F.R. § 412.212; 42 U.S.C. § 1395ww(d)(9)(A).

         The Medicare Act does not define the term " inpatient" or specify when inpatient admission is appropriate. The Secretary, however, has issued both formal and informal guidance on the subject. Her regulations specify that certain procedures should be provided on an inpatient basis. See 42 C.F.R. § 419.22(n). She has also issued guidance explaining that patients should be admitted on an inpatient basis only where the admitting physician determines that certain criteria are satisfied. Prior to 2013, the Secretary advised physicians to " use a 24-hour period as a benchmark" and to " order [inpatient] admission for patients who are expected to need hospital care for 24 hours or more." See AR 1451 (Medicare Benefit Policy Manual, CMS Pub. 100-02, Ch. 1, § 10 (2003)). The guidance acknowledged that the admitting physician's decision involves " complex medical judgment" and should not be made solely on the expected length of hospitalization, see id., but cautioned that a hospital stay expected to last " only a few hours (less than 24)" did not justify inpatient admission, even if it was expected to be an overnight stay. See id. (explaining that patients with known diagnoses admitted for less than 24 hours should be admitted as " outpatients for coverage purposes regardless of: . . . whether they remained in the hospital past midnight" ) (emphasis in original); see also 78 Fed.Reg. at 27645, 27648 (describing the Secretary's prior policy on inpatient admissions).

         The Secretary became concerned, however, that there were systemic problems with inpatient admissions under the 24-hour benchmark. In 2012 she observed an increase in the number of Medicare beneficiaries who were kept as outpatients for long periods of observation. See Hospital Outpatient Prospective and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, 77 Fed.Reg. 45061, 45155 (July 30, 2012) (proposed rule). Admissions for long periods of outpatient observation may have " significant financial implications for Medicare beneficiaries," because the patient's copayments, deductibles, and eligibility for certain post-hospitalization services will depend in part on whether the patient was admitted as an inpatient or an outpatient. Id. at 45156.[1]

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The Secretary had " heard from various stakeholders that hospitals appear to be responding to the financial risk of admitting Medicare beneficiaries for inpatient stays that may later be denied upon contractor review, by electing to treat beneficiaries as outpatients receiving observation services, often for longer periods of time, rather than admit them." Id. ; see also AR 3509-3510 (public comment in a subsequent rulemaking describing ongoing concerns that inpatient claims would be denied).[2] A 2012 review of Medicare claims found a high rate of payment denials associated with short inpatient stays. See 78 Fed.Reg. at 27647-27649 (describing findings of the Secretary's Comprehensive Error Rate Testing contractor). In 2013, the Secretary observed that Medicare contractors had " recovered more than $1.6 billion in improper payments because of inappropriate beneficiary patient status." Id. at 27649.

         Against this backdrop, the Secretary solicited public comments on " [p]otential policy changes . . . to improve clarity and consensus among providers, Medicare, and other stakeholders regarding the relationship between admission decisions and appropriate Medicare payment, such as when a Medicare beneficiary is appropriately admitted to the hospital as an inpatient and the cost to hospitals associated with making this decision." 77 Fed.Reg. at 45155. She asked whether " alternative approaches to defining inpatient status" could provide clarity, " consider[ing] opportunities for inappropriately taking advantage of the Medicare system that time-based . . . criteria for patient status may create." Id. at 45157. The Secretary received over three hundred public comments on this issue. 78 Fed.Reg. at 27649; see also Medicare and Medicaid Programs: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, 77 Fed.Reg. 68210, 68430-68431 (Nov. 15, 2012) (summarizing comments).

         In May 2013, the Secretary proposed a new rule " to clarify our longstanding policy on how Medicare review contractors review inpatient hospital admissions for payment under Medicare Part A [and] issue revised guidance to physicians and hospitals regarding when a hospital inpatient admission should be ordered." 78 Fed.Reg. at 27647. She observed that " there [had] been considerable variation in the interpretation" of her prior inpatient admissions guidance and the 24-hour benchmark, see 78 Fed.Reg. at 27648, and that " [t]he majority of improper payments under Medicare Part A for short-stay inpatient hospital claims have been due to inappropriate patient status (that is, the services furnished were reasonable and necessary, but should have been furnished on a hospital outpatient, rather than hospital inpatient, basis)," id. at 27647. " Inpatient hospital short-stay claim errors are frequently related to minor surgical procedures or diagnostic tests. In such situations, the beneficiary is typically admitted as a hospital inpatient after the procedure is completed on an outpatient basis, monitored overnight as an inpatient, and discharged from the hospital in the morning. Medicare review contractors typically find that while the underlying services provided were reasonable and necessary, the inpatient hospitalization following the procedure was not." Id. at 27647.

         To address these issues, the Secretary proposed a new inpatient admissions policy based on a " 2-midnight benchmark." See id. at 27645-27649. Under the 2-midnight

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benchmark, " in addition to services designated . . . as inpatient only, surgical procedures, diagnostic tests, and other treatment would be generally appropriate for inpatient hospital payment under Medicare Part A when the physician expects the patient to require a stay that crosses at least 2 midnights and admits the patient to the hospital based on that expectation." Id. at 27648. " Conversely, when a patient enters a hospital" for care not specified as inpatient only and the stay is expected to last " a limited period of time that does not cross 2 midnights, the services would be generally inappropriate for payment under Medicare Part A." Id.

         To provide increased predictability, the Secretary also proposed a " 2-midnight presumption" to be applied by Medicare reviewers. See id. at 27645-27649. It provided that reviewers " would presume that inpatient hospital admissions are reasonable and necessary for beneficiaries" whose hospital stay " cross[ed] 2 'midnights,'" unless the hospital was found to be " abusing this 2-midnight presumption." Id. at 27645; 27648-27649. For shorter stays, reviewers would consider whether the attending physician who authorized the inpatient admission reasonably expected the patient's stay to last at least two midnights. See id. The 2-midnight benchmark and the 2-midnight presumption were included in the final rule published in August 2013. See 78 Fed.Reg. at 50965, codified as amended at 42 C.F.R. § 412.3(d)(1).[3]

         This action does not challenge the 2-midnight benchmark, the 2-midnight presumption, or the other aspects of the final rule that relate to the Secretary's inpatient admissions guidance. Rather, Plaintiffs challenge a different aspect of the final rule: an across-the-board reduction in payments to hospitals for inpatient services. This reduction was premised on the Secretary's expectation that, in fiscal year 2014, the new rule would result in " a net shift of 40,000 encounters" from outpatient to inpatient status. 78 Fed.Reg. at 27649.

         As explained in the notice of proposed rulemaking,

Our actuaries have estimated that our proposed policy . . . would increase IPPS expenditures by approximately $220 million. These additional expenditures result from an expected net increase in hospital inpatient encounters due to some encounters spanning more than 2 midnights moving to the IPPS from the [Outpatient Prospective Payment System (" OPPS" )], and some encounters of less than 2 midnights moving from the IPPS to the OPPS. Specifically, our actuaries examined FY 2009 through FY 2011 Medicare claims data for extended hospital outpatient encounters and shorter stay hospital inpatient encounters and estimated that approximately 400,000 encounters would shift from outpatient to inpatient and approximately 360,000 encounters would shift from inpatient to outpatient, causing a net shift of 40,000 encounters.

78 Fed.Reg. at 27649. The predicted " net shift of 40,000 encounters" " represent[ed] an increase of approximately 1.2 percent in the number of shorter stay hospital inpatient encounters." Id. Because hospitals are typically paid more for inpatient stays, the Secretary estimated that this " net shift

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of 40,000 encounters" would cost the Medicare program an additional $220 million over the course of the fiscal year. Id. at 27649-27650.

         The Secretary reasoned that the additional cost of the new rule should be offset by an across-the-board reduction to payments for inpatient services. Thus, she proposed to use her " exceptions and adjustments authority" under the Medicare Act, see 42 U.S.C. § 1395ww(d)(5)(I)(i), " to offset the estimated $220 million in additional . . . expenditures" by adopting 0.2 percent reductions to " the operating IPPS standardized amount, the hospital-specific rates, and the Puerto Rico-specific standardized amount." Id. at 27651. Likewise, she proposed to invoke her " broad authority" under § 1395ww(g) to reduce " the national capital Federal rate and Puerto-Rico specific capital rate" by 0.2 percent. 78 Fed.Reg. at 27651.

         " Commenters generally did not support the proposed -0.2% payment adjustment." 78 Fed.Reg. at 50953. The comments raised two principal concerns of relevance here. First, they questioned whether the Secretary possessed the statutory authority to make the proposed across-the-board reductions. Id. ; see AR 4411 (" it is questionable whether CMS has the authority to reduce the standardized amount by 0.2 percent" ); AR 4998 (" these reductions are an inappropriate use of CMS's special exceptions and adjustments authority" ); AR 4265 (same); AR 5672 (noting that this authority " has been used exceedingly sparingly" and its use " in this context, . . . seems unprecedented" ); see also AR 4528, 4497, 4713, 5473. Second, they questioned the underlying basis for the reductions, specifically, the Secretary's prediction that the new policy would cause a net increase in inpatient cases at a cost of $220 million in 2014.

         With respect to the latter concern, the commenters raised a number of different objections. As noted in the final rule, they argued that the Secretary's analysis was " unsupported and insufficiently explained to allow for meaningful comment." 78 Fed.Reg. at 50953; see AR 5010 (" CMS has not been transparent in identifying the criteria used by the actuaries to identify the patient status shifts that would occur." ); AR 5312 (" we are very concerned that CMS has not released any data or even its methodology for determining that a -0.2% payment adjustment is warranted" ); AR 4654-4655; 4411. Some commenters asked for additional information, see AR 4883-4884, 5672, while others attempted to replicate the Secretary's analysis without success, see AR 4653-4655; see also AR 4411 (observing that " it has not been possible to replicate the [Secretary's] finding[s]" ), AR 5235 (similar). The commenters also criticized the prediction resulting from that analysis. They argued that " CMS has profoundly underestimated the volume of [outpatient] encounters" that would result from the two-midnight rule, see AR 4654; predicted that there would instead be a net increase in outpatient encounters, see id., see also AR 5010; and argued that Medicare reimbursement to hospitals would decrease significantly if inpatient rates were cut, see AR 4306.

         The notice of final rulemaking did not engage with these comments in detail. The Secretary expressed her view that in light of the " widespread impact" of the new 2-midnight policy, the proposed adjustments were an appropriate use of her statutory exceptions and adjustments authority. See 78 Fed.Reg. at 50953. She explained that " while we generally agree with commenters that it is not necessary to routinely estimate utilization shifts to ensure appropriate IPPS payments, this is a unique situation. Policy clarifications such as this do not usually result in utilization

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shifts of sufficient magnitude and breadth to significantly impact the IPPS." Id. at 50953-50954. The Secretary did not receive any comments " that specifically addressed [her] proposal to make the -0.2 percent adjustment to the national capital Federal rate and Puerto Rico-specific capital rate." Id. at 50746.

         With respect to the methodology used to predict the net shift and its cost, the Secretary acknowledged that " there is a certain degree of uncertainty surrounding any cost estimate," but maintained that " our actuaries have determined that the methodology, data, and assumptions used are reasonable for the purpose of estimating the overall impact of our proposed policy." Id. at 50953. She further stated that " we specifically discussed the methodology used and the components of the estimate" and " [i]n addition to the opportunity to comment on the estimate, any component of the estimate, or the methodology, commenters had an opportunity to provide alternative estimates for us to consider." Id.

         In addition, the Secretary revealed two aspects of her methodology that were not disclosed in the notice of proposed rulemaking. First, she explained that when estimating the number of cases expected to shift from outpatient to inpatient status under the new rule, her actuaries excluded " [c]laims not containing observation or a major procedure" :

In determining the estimate of the number of encounters that would shift from outpatient to inpatient, our actuaries examined outpatient claims for observation or a major procedure. Claims not containing observation or a major procedure were excluded. . . .

Id. (emphasis added). Second, when calculating the number of cases expected to shift in the opposite direction, her actuaries excluded different claims. In particular, they examined claims involving surgical MS-DRGs, and excluded claims involving medical MS-DRGs:

In determining the estimate of the number of encounters that would shift from inpatient to outpatient, our actuaries examined inpatient claims containing a surgical MS--DRG. Claims containing medical MS-DRGs were excluded. . . .

Id. (emphasis added).

         On the same day that the final rule was published, the CMS Office of the Actuary issued a memorandum entitled " Estimated Financial Effects of Two Midnight Policy," which " summarizes [its] financial estimate for clarifying inpatient vs. outpatient hospital services when all stays which span two midnights will be presumed to be inpatient." AR 2046-2048. The memorandum explains that " [s]everal assumptions were made to estimate the financial impact of this policy change." AR 2047 (describing these " key assumptions" ). Notably, when calculating the number of cases expected to shift from outpatient to inpatient status, " stays . . . not for observation care or for a major procedure were excluded because it was assumed that these cases would be unaffected by the policy change," id., and when calculating the cases expected to shift from inpatient to outpatient status, claims containing a medical MS-DRG were excluded " because it was assumed that those cases ...


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