United States District Court, District of Columbia
DISTRICT HOSPITAL PARTNERS, L.P. d/b/a The George Washington University Hospital, et al., Plaintiffs,
SYLVIA M. BURWELL, Secretary, Department of Health and Human Services, Defendant.
SEGAL HUVELLE, United States District Judge
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
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.
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.
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
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
Id. (citations omitted).
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.
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.
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).
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 ...