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Bayshore Community Hospital v. Hargan

United States District Court, District of Columbia

October 25, 2017

BAYSHORE COMMUNITY HOSPITAL, et al., Plaintiffs,
v.
ERIC D. HARGAN, [1] Defendant.

          MEMORANDUM OPINION AND ORDER

          AMIT P. MEHTA UNITED STATES DISTRICT JUDGE.

         Plaintiffs Bayshore Community Hospital, Ocean Medical Center, Riverview Medical Center, Southern Ocean Medical Center, and Jersey Shore University Medical Center appeal the decision of the United States Department of Health and Human Services' Provider Reimbursement Board to deny “expedited judicial review” of their procedural and substantive challenges under the Administrative Procedure Act to federal regulations regarding “outlier” Medicare reimbursements. Defendant Eric D. Hargan, Acting Secretary of the Department of Health and Human Services, asks the court to remand this matter to the Board for further proceedings consistent with this court's opinion in Banner Heart Hospital v. Burwell, 201 F.Supp.3d 131 (D.D.C. 2016). In that opinion, the court held that applying a procedural regulation known as the “self-disallowance regulation” to deny expedited judicial review ran afoul of the Supreme Court's decision in Bethesda Hospital Association v. Bowen, 485 U.S. 399 (1988). When the Board made its decision in this case, it acknowledged but explicitly declined to follow Banner Heart and, instead, relied on the self- disallowance regulation to deny Plaintiffs expedited judicial review. In an opposition and cross-motion for judgment on the pleadings, Plaintiffs argue that the court should not only deny Defendant's Motion, but also vacate in full the self-disallowance regulation and allow them leave to amend their Complaint to plead Administrative Procedure Act challenges to the outlier regulations.

         For the reasons herein, the court denies Defendant's Motion for Voluntary Remand and Plaintiffs' Cross-Motion for Judgment on the Pleadings.

         I

         The federal Medicare program allows participating hospitals and other service providers to seek reimbursement for the cost of medical services they deliver to eligible patients. The Centers for Medicare and Medicaid Services (“CMS”) is an agency housed within the United States Department of Health and Human Services (“HHS”) that oversees the program.

         Medicare reimbursements are based on a prospectively determined formula, with additional payments available under certain circumstances. Federal law specifically provides for additional payments, known as “outlier payments, ” when a patient's medical care is either particularly costly or lengthy. See 42 U.S.C. § 1395ww(d)(5)(A); Banner Health v. Price, 867 F.3d 1323, 1329 (D.C. Cir. 2017) (per curiam); Pls.' Opp'n to Def.'s Mot. & Cross-Mot. for J. on Pleadings, ECF No. 13 [hereinafter Pls.' Opp'n], Ex. A, ECF No. 13-1 [hereinafter Bd. Decision], at 2. HHS finances outlier payments by reducing the standard reimbursement payments made to acute care hospitals and limiting reimbursement to those amounts that exceed a “fixed-loss threshold, ” which is set annually. See 42 U.S.C. § 1395ww(d)(3)(B), (5)(A); Banner Health, 867 F.3d at 1329. Federal regulations further limit which providers qualify for outlier payments. See Banner Health, 867 F.3d at 1330; 42 C.F.R. §§ 412.80-86, 412.80(c).

         The reimbursement process occurs in two stages, with an opportunity for administrative review and federal judicial review of an adverse determination. CMS makes reimbursements to participating providers through “fiscal intermediaries, ” which are often private insurance companies. The reimbursement process begins when a participating provider submits an annual cost report to the fiscal intermediary, which then audits the report, determines the amount owed to the provider for the year, and reimburses the provider. A provider has a statutory right to a hearing before the Provider Reimbursement Review Board if (1) it is “dissatisfied” with the fiscal intermediary's determination of the reimbursement amount or the Secretary's determination of the outlier payment amount; (2) the amount in controversy is at least $10, 000; and (3) the provider files a request for a hearing within 180 days of receiving the fiscal intermediary's determination. 42 U.S.C. § 1395oo(a)(1). The Board can “affirm, modify, or reverse” the fiscal intermediary's decision regarding the cost report, as well as make any other revisions to matters covered by the cost report. Id. § 1395oo(d). Providers may seek review of the Board's determination by filing suit in federal court within 60 days of receiving the Board's decision. Id. § 1395oo(f)(1). In certain circumstances, “expedited judicial review”-sending the matter directly to a federal district court before the Board renders a decision-is appropriate. The Board “must grant” expedited judicial review if it has jurisdiction to conduct a hearing but lacks authority to decide the legal question the provider raised. 42 C.F.R . § 405.1842(f)(1). The Board lacks authority to rule on challenges to the constitutionality of a statute or the procedural or substantive validity of a regulation. See Id. § 405.1842(f)(1)(ii).

         Plaintiffs, five acute care hospitals, believe they did not receive the full amount of outlier payments to which they were entitled for fiscal years 2008, 2009, and 2012, and filed an appeal to the Board. Their appeal challenged the amount of outlier payments they received on the ground that the federal regulations governing those payments are substantially and procedurally invalid, in violation of the Administrative Procedure Act (“APA”). See Bd. Decision at 1. Plaintiffs sought expedited judicial review of that APA challenge. See Id. The Board concluded that it lacked jurisdiction over the appeal because Plaintiffs did not have a right to a hearing before the Board and dismissed the case. See Id. at 4.

         The Board explained that Plaintiffs did not have a right to a hearing because they had not complied with the “self-disallowance regulation.” The self-disallowance regulation, which was in effect for fiscal years 2008, 2009, and 2012, deprives a provider of its right to a hearing before the Board if the provider did not report to the fiscal intermediary a cost that it believed should be reimbursable, but which it knew was barred by Medicare regulations.[2] See 42 C.F.R. § 405.1835(a)(1)(ii) (effective August 21, 2008, through September 30, 2014); 42 C.F.R. § 405.1835(a)(1)(ii) (effective October 1, 2014, through December 31, 2015). Plaintiffs did not present to their fiscal intermediaries for reimbursement amounts they believed would be withheld by operation of the challenged outlier regulations. In other words, they did not comply with the self-disallowance regulation before filing their appeal before the Board. See Bd. Decision at 5. The Board recognized this court's decision in Banner Heart Hospital v. Burwell, which held that controlling Supreme Court precedent prevented the Board from applying the self-disallowance regulation to a group of health care providers who brought a legal challenge to a regulation and that the Board retained jurisdiction over their challenge for the purpose of determining whether expedited judicial review is proper. See Id. at 5-6 (citing and discussing 201 F.Supp.3d 131, 142 (D.D.C. 2016)). Although Plaintiffs are also a group of health care providers who bring a legal challenge to a regulation, the Board concluded it remained bound to apply the self-disallowance regulation because the Secretary had neither removed the regulation from the Code of Federal Regulations nor acquiesced to the court's decision in Banner Heart. See Id. at 6 (citing 42 C.F.R. § 405.1867). Reviewing the procedural history of the matter before it and treating the self-disallowance regulation as valid, the Board determined it lacked jurisdiction to review Plaintiffs' appeal because Plaintiffs had not complied with the self-disallowance regulation. See Id. Accordingly, the Board denied expedited judicial review and dismissed Plaintiffs' appeal.

         Plaintiffs now appeal the Board's denial of expedited judicial review to this court. Defendant responded with a Motion for Voluntary Remand, in which he requests that the court remand this matter to the Board for further proceedings consistent with Banner Heart, the application of which he “consent[s]” to in this case. Def.'s Mot. for Voluntary Remand, ECF No. 10 [hereinafter Def.'s Mot.], at 3. In other words, Defendant seeks a remand so the Board can grant Plaintiffs the expedited judicial review that the Board previously denied. Plaintiffs filed an Opposition to Defendant's Motion and Cross-Motion for Judgment on the Pleadings, in which they contend that remand would be frivolous and cause unnecessary delay because they are entitled to expedited judicial review and, once granted, this matter will bounce back to this court for consideration of their APA challenges to the outlier regulations. See Pls.' Opp'n at 3-9. Accordingly, Plaintiffs ask the court to avoid wasting judicial resources by denying Defendant's Motion, vacating or permanently enjoining the self-disallowance regulation, and allowing Plaintiffs to amend their Complaint so the court may reach their APA challenges to the outlier regulations. See id.; see also Compl., ECF No. 1 [hereinafter Compl.], at 19.

         The court begins with Defendant's Motion for Voluntary Remand before turning to Plaintiffs' Cross-Motion for Judgment on the Pleadings.

         II

         Defendant argues that remand is warranted because he consents to the only remedy the court has to offer Plaintiffs at this stage-a finding that the Board should have applied Banner Heart when determining whether expedited judicial review of Plaintiffs' case was warranted. Defendant asserts that the best result Plaintiffs could hope for here is that the court will determine the Board erred by applying the self-disallowance regulation to Plaintiffs and, as in Banner Heart, remand the case for further proceedings. See Def.'s Mot. at 5-6 (citing 201 F.Supp.3d at 143). Although Defendant states that he continues to disagree with the court's decision in Banner Heart, he “does not wish to re-litigate those issues at this time, and thus . . . will consent to entry of the same relief this Court ordered in that case.” Id. at 3. Consequently, by being willing “to acquiesce in the Banner Heart holding for purposes of this case, ” Defendant reasons, remand is the appropriate-and only-remedy here, as there is nothing left for the court to offer Plaintiffs. Id. at 4.

         A few considerations guide the court's review of a motion for voluntary remand. As a general matter, the district court has broad discretion in considering whether to grant an agency's motion for voluntary remand. Limnia, Inc. v. U.S. Dep't of Energy, 857 F.3d 379, 381 (D.C. Cir. 2017). For remand to be appropriate, however, a threshold condition must always be met: the agency must express its intention to take further action on remand with respect to its original decision. Id. at 386. Though the agency need not confess error, it must “at least . . . profess intention to reconsider, re-review, or modify the original agency decision that is the subject of the legal challenge.” Id. at 387. If the agency meets that threshold, then courts generally prefer to permit the agency to correct its own errors rather than offer a judicial opinion on the matter. See Ethyl Corp. v. Browner, 989 F.2d 522, 524 (D.C. Cir. 1993); Sierra Club v. Antwerp, 560 F.Supp.2d 21, 23 (D.D.C. 2008). Courts have found voluntary remand to be appropriate when new evidence comes to light after the agency made its decision, intervening events beyond the agency's control arise after the agency has acted and could affect the validity of the agency's decision, or other “substantial and legitimate concerns” warrant a remand. FBME Bank Ltd. v. Lew, 142 F.Supp.3d 70, 73 (D.D.C. 2015) (citing SKF USA Inc. v. United States, 254 F.3d 1022, 1028 (Fed. Cir. 2001); Ethyl Corp., 989 F.2d at 523; Carpenters Indus. Council v. Salazar, 734 F.Supp.2d 126, 132 (D.D.C. 2010); Sierra Club, 560 F.Supp.2d at 23). A court need not, however, grant a motion for remand that is frivolous or made in bad faith. Cal. Cmtys. Against Toxics v. EPA, 688 F.3d 989, 992 (9th Cir. 2012); SKF USA Inc., 254 F.3d at ...


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