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Charleston Area Medical Center v. Burwell

United States District Court, District of Columbia

October 24, 2016

SYLVIA M. BURWELL, Secretary, U.S. Department of Health and Human Services, et al., Defendants.


          James E. Boasberg United States District Judge

         Vintage 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.

         In the 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.

         I. Background

         Medicare 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.

         The 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).

         For how 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.

         Yet 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 possible when:

charges, adjusted to cost” > DRG ratefixed dollar amount

Id. At issue here are regulations pertinent to the first and third variables.

         First, 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).

         Next, 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).

         In 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.

         In this 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).

         Plaintiffs remain unsatiated and have now filed a Motion to Compel Production.

         II. ...

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