United States District Court, District of Columbia
E. Boasberg United States District Judge
threads, for some thrift-shop customers, may seem novel and
chic. Not so with well-worn legal disputes. The issues
presented in the instant Motion have already been litigated
before four different district judges, all of whom have come
to roughly consistent conclusions. Like those cases, this
suit involves a group of Plaintiffs - 35 acute-care hospitals
participating in the Medicare program - that challenges
regulations promulgated by the Department of Health and Human
Services in an effort to obtain extra reimbursements for
treating a number of extraordinarily costly patients. Just as
in those cases, Defendant - the Secretary of HHS - submitted
an administrative record reflecting the rules and policies at
issue. Yet the Hospitals want more.
present Motion, they complain of various missing documents,
formulas, and data. The Secretary, on the other hand, opposes
any expansion of the record. Seeing as these matters have
been rigorously and persuasively examined in numerous other
opinions, the Court finds no reason to shamble off the beaten
path to walk the road not taken. Like those other courts,
this Court will grant the Motion to Compel Production in part
and deny it in part. Once the record is complete, the Court
will entertain motions for summary judgment on the merits.
cases similar to this one have been dubbed
“labyrinthine.” Dist. Hosp. Partners, L.P. v.
Burwell (Dist. Hosp. Partners II), 786 F.3d 46,
48 (D.C. Cir. 2015) (quoting Adirondack Med. Ctr. v.
Sebelius, 740 F.3d 692, 694 (D.C. Cir. 2014)). Luckily,
several other courts' decisions have laid the groundwork
for the present Opinion. See Univ. of Colo. Health at
Mem'l Hosp. v. Burwell (Univ. of Colo. Health
I), 151 F.Supp.3d 1 (D.D.C. 2015), reconsidered in
part, Univ. of Colo. Health II, 164 F.Supp.3d
56 (D.D.C. 2016); Lee Mem'l Hosp. v. Burwell,
109 F.Supp.3d 40 (D.D.C. 2015); Dist. Hosp. Partners,
L.P. v. Sebelius (Dist. Hosp. Partners I), 971
F.Supp.2d 15 (D.D.C. 2013), aff'd, Dist.
Hosp. Partners II, 786 F.3d 46; Banner Health v.
Sebelius (Banner Health I), 945 F.Supp.2d 1
(D.D.C. 2013), reconsidered in part, Banner
Health II, No. 10-1638, 2013 WL 11242368 (D.D.C. July
30, 2013). The Court will thus provide only a bare-bones
statutory and regulatory background before moving to the
facts of the present suit.
federal Medicare program funds medical care for elderly or
disabled persons by reimbursing hospitals for services that
they provide those patients. See Ne. Hosp. Corp. v.
Sebelius, 657 F.3d 1, 2 (D.C. Cir. 2011); see
also 42 U.S.C. § 1395 et seq. The Center
for Medicare and Medicaid Services (CMS), a component of HHS,
cuts those checks. See Ark. Dep't of Health &
Human Servs. v. Ahlborn, 547 U.S. 268, 275 (2006).
much money is the key question. Although the federal
government once doled out funds based on the amounts that
hospitals purportedly spent, this created a perverse
incentive: “[t]he more they spent, the more they were
reimbursed.” Cty. of L.A. v. Shalala, 192 F.3d
1005, 1008 (D.C. Cir. 1999) (quoting Tucson Med. Ctr. v.
Sullivan, 947 F.2d 971, 974 (D.C. Cir. 1991)).
Responding to this concern in 1983, Congress shifted to the
present-day system of reimbursing hospitals a fixed sum for
each diagnosis. See 42 U.S.C. § 1395ww(d). In
other words, if two patients had the same illness, they then
fell within the same diagnosis-related group (DRG), and CMS
would apply the same DRG reimbursement rate to each. See
Cape Cod Hosp. v. Sebelius, 630 F.3d 203, 205-06 (D.C.
Cir. 2011). The amount of the particular DRG rates would
depend on how much medical services for certain conditions
usually cost. Id.
treatment of patients, once in a while, will end up being
exorbitantly pricey. To save hospitals from footing the bill
for these “outliers, ” the Medicare Act provides:
. . . [A] hospital may request additional payments in any
case where charges, adjusted to cost, . . . exceed the sum of
the applicable DRG prospective payment rate . . . plus a
fixed dollar amount determined by the Secretary.
42 U.S.C. § 1395ww(d)(5)(A)(ii). That is, a hospital may
obtain outlier payments when its charges (with some
adjustment) exceed the DRG rate plus some threshold. Or, to
break the provision down mathematically, outlier payments are
“charges, adjusted to cost” > DRG
rate “fixed dollar amount”
Id. At issue here are regulations pertinent to the
first and third variables.
by “charges, adjusted to cost, ” the outlier
statute simply means that CMS looks at what hospitals
charge their patients, but then adjusts those
charges to reflect what treatment actually costs. In
other words, some hospitals might radically overcharge - or,
in Medicare's street-racing terminology,
“turbocharge” - in an effort to qualify for
undeserved outlier payments. To combat this problem, CMS does
not take hospitals' reported charges at face
value, but rather applies a discount based on data of how
each hospital marks up its costs - a hospital-specific
adjustment known as the “charge-to-cost ratio.”
See 42 C.F.R. § 412.84(i)(2). In 2003, HHS
promulgated an outlier-payment regulation that amended the
methodology for calculating that ratio and a procedure under
which excess payments could be retroactively revised through
a “reconciliation” process. See 68 Fed.
Reg. 34, 494 (June 9, 2003).
for hospitals to request added reimbursements, the adjusted
charges for a patient must be greater than the baseline DRG
rate and “a fixed dollar amount.” 42 U.S.C.
§ 1395(d)(5)(A)(ii). That amount is also known as the
“fixed-loss threshold” - i.e., the
statute contemplates that hospitals will eat a fixed loss
before asking CMS to cover for outliers. Before each fiscal
year, as part of an omnibus rulemaking, the Secretary
promulgates that year's fixed-loss threshold.
See 42 C.F.R. § 412.80(a). Broadly speaking,
those yearly thresholds take into consideration adjustments
for historical data of past years' outlier payments and
inflation. See, e.g., 77 Fed. Reg. 53, 258 (Aug. 31,
2012); 76 Fed. Reg. 51, 476 (Aug. 18, 2011); 75 Fed Reg. 50,
042 (Aug. 16, 2010).
November 2015, 35 hospitals filed the instant lawsuit after
litigating various outlier-payment claims through the
Medicare-appeals process. Specifically, the Hospitals
challenged that CMS had underpaid them by adhering to two
sets of unlawful regulations - the 2003 regulations
expounding on the charge-to-cost ratio and the
fixed-loss-threshold regulations for fiscal years 2011, 2012,
and 2013. See ECF No. 8 (Amended Complaint) at 40.
Allegedly, Defendant now owes some $939 million in forgone
outlier payments for those years. Id. at 33.
Court, the parties agreed that for the 2011 and 2012
regulatory challenges, the Secretary would produce the
administrative-rulemaking record from another case in this
district. See ECF No. 13 (citing Univ. of Colo.
Health I, 151 F.Supp.3d 1). The Hospitals, however,
“reserve[d] the right to challenge the
completeness” of those records. Id. Consistent
with the parties' stipulation, the Secretary then
produced to Plaintiffs records for those years and also each
of the other challenged rulemakings. See ECF No. 19
(Certification of Administrative Record).
remain unsatiated and have now filed a Motion to Compel