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District Hospital Partners, L.P. v. Burwell

United States District Court, District of Columbia

November 18, 2016

DISTRICT HOSPITAL PARTNERS, L.P. d/b/a The George Washington University Hospital, et al., Plaintiffs,
v.
SYLVIA M. BURWELL, Secretary, Department of Health and Human Services, Defendant.

          MEMORANDUM OPINION

          ELLEN SEGAL HUVELLE, United States District Judge

         Plaintiffs own and operate 186 hospitals that provide medical services under the federal Medicare program. They have sued the Secretary of the Department of Health and Human Services (the "Secretary") in her official capacity, challenging as "arbitrary, capricious, [and] in violation of the Medicare Act" the Inpatient Prospective Payment System rules setting fixed-loss thresholds for Medicare outlier payments to their hospitals for federal fiscal years ("FFYs") 2004, 2005, and 2006. (Compl. ¶ 39, ECF No. 1.) In essence, plaintiffs argue that the fixed-loss thresholds for Medicare outlier reimbursements were set too high, and that the hospitals therefore should have recouped more money for the treatment they provided under the Medicare program.

         Before this Court are the Secretary's motion to dismiss in part for failure to state a claim (Def.'s Mot., May 27, 2016, ECF No. 8), plaintiffs' opposition (Pis.' Opp'n, June 24, 2016, ECF No. 14), and defendant's reply (Def.'s Reply, June 27, 2016, ECF No. 15). The Secretary argues that, with the exception of one issue properly before the Court relating to the Secretary's determination of outlier payments for FF Y 2004, plaintiffs' claims "were either resolved or forfeited in [] earlier litigation and should be dismissed from this case based on principles of issue preclusion and claim preclusion." (Def's Mot. at 1.) The Court agrees with the Secretary, and, for the reasons that follow, the motion will be granted.

         BACKGROUND

         The relevant contours of the Medicare program at issue here, as well as the facts underlying plaintiffs' challenge, have been detailed in this Court's opinion granting summary judgment in favor of the Secretary in the prior lawsuit between the same parties, Dist. Hosp. Partners, L.P., etal. v. Sebelius, 973 F.Supp.2d 1, 8-18 (D.D.C. 2014) ("Dist. Hosp. /"), off 'din part, rev'd in part sub nom. Dist. Hosp. Partners, L.P., et al. v. Sebelius, 786 F.3d 46 (D.C. Cir. 2015) ("Dist. Hosp. 77"), and in the D.C. Circuit's opinion reviewing that decision, Dist. Hosp. II, 786 F.3d at 49-54. The prior lawsuit between the parties involved the same cause of action and the same issues that plaintiffs raise in this case.

         On January 19, 2011, plaintiffs filed their original lawsuit against the Secretary, challenging the final rules setting the fixed-loss thresholds for FFYs 2004, 2005, and 2006. See Dist. Hosp. Partners, L.P. v. Sebelius, 794 F.Supp.2d 162, 167 (D.D.C. 2011) (granting in part and denying in part the Secretary's motion to dismiss). In that action, plaintiffs claimed that the Secretary's "determination of outlier payments from 2004-2006 was 'arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.'" Id. at 167 (citation omitted). Specifically, plaintiffs alleged that

when setting the outlier thresholds and calculating outlier payments for federal fiscal years 2004, 2005 and 2006, " the Secretary: 1) "failed to take into account the established pattern of declining cost-to-charge ratios . . . despite this problem being repeatedly pointed out in comments and despite proposed methods to account for this phenomenon and to more accurately estimate outlier payments;" 2) "failed to consider use of the 'cost methodology, ' rather than the 'charge methodology, ' in setting the outlier thresholds" even though the cost methodology had been more accurate in the past; 3) "failed to require mid-year adjustments;" and 4) "failed to consider adjustments to the reconciliation process."

Id. (citations omitted).

         This Court granted in part and denied in part the Secretary's motion to dismiss, id. at 172, before ruling in favor of the Secretary on the parties' cross-motions for summary judgment, Dist. Hosp. I, 973 F.Supp.2d at 23. In finding for the Secretary, the Court "conclude[d] that the Secretary made reasonable methodological choices in determining the fixed-loss threshold for FFYs 2004-2006." Id. at 5. Plaintiffs appealed, and the D.C. Circuit affirmed in part and reversed in part this Court's decision. Dist. Hosp. II, 786 F.3d at 63. The Court of Appeals held that this Court properly rejected plaintiffs' challenges to the fixed loss thresholds for FFYs 2005 and 2006. Id. However, the Court of Appeals held that "the Secretary's promulgation of the 2004 outlier threshold violated the [Administrative Procedure Act]." Id. at 58.

         Accordingly, the D.C. Circuit ordered that the case be remanded to the agency and ordered the Secretary to provide additional explanations in three areas:

the Secretary should explain why she corrected for only 50 turbo-charging hospitals in the 2004 rulemaking rather than for the 123 she had identified in the NPRM. She should also explain what additional measures (if any) were taken to account for the distorting effect that turbo-charging hospitals had on the dataset for the 2004 rulemaking. And if she decides that it is appropriate to recalculate the 2004 outlier threshold, she should also decide what effect (if any) the recalculation has on the 2005 and 2006 outlier and fixed loss thresholds.

Id. at 60. Following the issuance of the mandate, this Court remanded the matter to the Department of Health and Human Services for further proceedings consistent with the opinion of the Court of Appeals. (Order, August 13, 2015, Civil Action No. 11-116, ECF No. 129). The Court did not expressly or implicitly retain jurisdiction over the case. (See id.)

         On January 22, 2016, the Secretary published an explanation to address the deficiencies identified by the Court of Appeals. Medicare Program; Explanation of FY 2004 Outlier Fixed-Loss Threshold as Required by Court Rulings, 81 Fed. Reg. 3727 (Jan. 22, 2016). Plaintiffs then moved for a new briefing schedule to consider the then-complete administrative proceedings. Because this Court had not retained jurisdiction, it denied the motion, reasoning that the prior lawsuit "was terminated upon remand" to the agency, but that plaintiffs were "free to 'come back to the district court' when they file[d] a new civil action." (Order, February 22, 2016, Civil Action No. 11-116, ECF No. 133).

         On March 18, 2016, Plaintiffs filed the present civil action. Like the 2011 lawsuit, plaintiffs again allege that "[t]he Secretary's final determinations of the outlier thresholds for FFYs 2004-2006 ... are arbitrary, capricious, in violation of the Medicare Act and/or otherwise in violation of the law." (Compl. at 41). Specifically, plaintiffs contend that the Secretary (1) "failed to consider relevant factors and data, " (2) "failed to consider alternative methodologies, " and (3) "failed to demonstrate a reasonable connection between the thresholds and the factors considered." (Id.) The ...


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