United States District Court, District of Columbia
MEMORANDUM OPINION
BERYL
A. HOWELL CHIEF JUDGE.
Pending
before the Court are cross-motions for summary judgment from
the plaintiffs, several hospitals that offer inpatient and
outpatient hospital services to patients entitled to benefits
under the Medicare program, Pls.' Mot. Summ. J.
(“Pls.' Mot.”), ECF No. 15, and the
defendant, the Secretary of Health and Human Services
(“HHS”), who is sued in his official capacity,
Def.'s Cross-Mot. Summ. J. (“Def.'s
Mot.”), ECF No. 17.[1] The plaintiffs seek judicial review of
a final adverse agency decision by HHS and the vacatur of a
2005 final rule that allegedly reduced the payments that the
plaintiffs should have received from HHS to compensate them
for the disproportionate number of low-income patients served
in their hospitals. See Pls.' Mot. at 1. The
plaintiffs allege that the final rule at issue violates the
Administrative Procedure Act (“APA”), 5 U.S.C.
§ 706, because the rule is procedurally defective and
arbitrary and capricious. See Compl. ¶¶
81-88, ECF No. 1; Pls.' Mem. Supp. Mot. Summ. J.
(“Pls.' Mem.”) at 2, ECF No. 15-1. The
defendant counters that the final rule was a logical
outgrowth of the proposed rule and that the adoption of the
rule was the result of a reasoned deliberative process.
See Def.'s Mem. Supp. Cross-Mot. Summ. J. &
Opp'n Pls.' Mot. Summ. J. (“Def.'s
Mem.”) at 1, ECF No. 17-1. For the reasons set forth
below, the plaintiffs' motions are denied and the
defendant's motions are granted.
I.
BACKGROUND
Resolving
the instant motions requires examining the
“labyrinthine world of Medicare reimbursements.”
Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46,
48 (D.C. Cir. 2015) (internal quotation marks omitted). The
relevant portions of the Medicare statute are explained
first, followed by the rulemaking challenged by the
plaintiffs.
A.
Statutory Framework
Medicare
is a federal program that pays for health-care services
furnished to eligible beneficiaries, who are generally
individuals over the age of sixty-five or individuals with
disabilities. See 42 U.S.C. § 1395c. The
Centers for Medicare and Medicaid Services
(“CMS”) is the component of HHS that administers
the Medicare program. See St. Elizabeth's Med. Ctr.
of Bos., Inc. v. Thompson, 396 F.3d 1228, 1230 (D.C.
Cir. 2005). CMS reimburses health-care providers for,
inter alia, “the reasonable cost” of
services provided to Medicare beneficiaries. See 42
U.S.C. § 1395f(b)(1).[2]
The
Medicare statute has five parts, two of which are relevant to
this case. Part A “establishes the requirements that
individuals must meet to be eligible for Medicare benefits
and provides such individuals insurance for hospital and
hospital-related services.” Catholic Health
Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 916
(D.C. Cir. 2013) (citing 42 U.S.C. § 1395c). Such
benefits include coverage for “inpatient hospital
services, ” including overnight stays in a hospital. 42
U.S.C. § 1395d. Part A benefits are limited to a certain
number of days, however, and after those days have been used,
Part A coverage is “exhausted.” Catholic
Health, 718 F.3d at 916. “Specifically, Medicare
beneficiaries are entitled to coverage for the first 90 days
of their stay, and they may then elect to use up to 60
‘lifetime reserve days' beyond the first 90
days.” Id. (quoting 42 C.F.R. §
409.61(a)); see also 42 U.S.C. § 1395d.
Part E,
which sets out “Miscellaneous Provisions, ” works
in tandem with Part A to provide a “prospective payment
system for reimbursing hospitals that provide inpatient
hospital services covered under Part A.” Catholic
Health, 718 F.3d at 916 (citing 42 U.S.C. §
1395ww(d)). As relevant to this case, Part E mandates that
any hospital serving “a significantly disproportionate
number of low-income patients” is entitled to a payment
adjustment, known as the “disproportionate share
hospital” (“DSH”) adjustment, which is an
upward adjustment to a hospital's reimbursement amount to
account for the hospital's treatment of a
disproportionately high number of low-income patients. 42
U.S.C. § 1395ww(d)(5)(F)(i)(I); see also Id.
§ 1395ww(d)(2); Pls.' Mem. at 4 (“The DSH
adjustment is an upward adjustment to standard rates to
compensate hospitals for the generally higher per-patient
costs of low-income patients.”). As the D.C. Circuit
has recognized, the DSH adjustment “is based on
Congress's judgment that low-income patients are often in
poorer health, and therefore costlier for hospitals to
treat.” Catholic Health, 718 F.3d at 916
(citing Adena Reg'l Med. Ctr. v. Leavitt, 527
F.3d 176, 177-78 (D.C. Cir. 2008)).
A
hospital's DSH adjustment is based on its
“disproportionate patient percentage”
(“DPP”). 42 U.S.C. § 1395ww(d)(5)(F)(v). To
qualify for a DSH adjustment, a hospital's DPP typically
must exceed 15 percent, although the qualifying percentage
varies depending on the size of the hospital and whether it
is located in an urban or a rural area. See Id.
Generally, “a higher DPP means greater reimbursements
because the hospital is serving more low-income
patients.” Catholic Health, 718 F.3d at 916.
The DPP is a “‘proxy measure' for the number
of low-income patients a hospital serves and represents the
sum of two fractions, commonly called the ‘Medicare
fraction' and the ‘Medicaid fraction.'”
Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 3 (D.C.
Cir. 2011) (internal citation omitted) (quoting H.R. Rep. No.
99-241, pt. 1, at 17 (1985)). The Medicare fraction is
statutorily defined as:
[T]he fraction (expressed as a percentage), the numerator of
which is the number of such hospital's patient days for
such period which were made up of patients who (for such
days) were entitled to benefits under [Medicare] part A . . .
and were entitled to supplementary security income
[(“SSI”)] benefits . . ., and the denominator of
which is the number of such hospital's patient days for
such fiscal year which were made up of patients who (for such
days) were entitled to benefits under [Medicare] part A.
42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The Medicaid
fraction is defined as:
[T]he fraction (expressed as a percentage), the numerator of
which is the number of the hospital's patient days for
such period which consist of patients who (for such days)
were eligible for medical assistance under a State [Medicaid]
plan . . . but who were not entitled to benefits under
[Medicare] part A . . ., and the denominator of which is the
total number of the hospital's patient days for such
period.
Id. § 1395ww(d)(5)(F)(vi)(II).
As the
D.C. Circuit has noted, “[t]his language is downright
byzantine and its meaning not easily discernible.”
Catholic Health, 718 F.3d at 917. In essence,
“[t]he Medicare and Medicaid fractions represent two
distinct and separate measures of low income-SSI (i.e.,
welfare) and Medicaid, respectively-that when summed
together, provide a proxy for the total low-income patient
percentage.” Id. The D.C. Circuit has often
used the following visual representation to distill these
formulas:
-
|
Medicare Fraction
|
Medicaid Fraction
|
Numerator
|
Patient days for patients “entitled to
benefits under part A” and “entitled to
SSI benefits”
|
Patient days for patients “eligible for
[Medicaid]” but not “entitled to
benefits under part A”
|
Denominator
|
Patient days for patients “entitled to
benefits under part A”
|
Total number of patient days
|
Id.; see also Ne. Hosp., 657 F.3d at 3. The
denominator of the Medicaid fraction-total number of patient
days-is larger than the denominator of the Medicare fraction,
which contains only patient days for those patients
“entitled to benefits under part A.” Thus,
shifting patient days from the numerator of the Medicaid
fraction to the numerator of the Medicare fraction will
generally have a larger impact on a hospital's DPP and,
accordingly, on its DSH adjustment.
A
“fiscal intermediary, ” such as a private
insurance company that has a contract with CMS, is
responsible for “[d]etermining the amount of payments
to be made to providers for covered services furnished to
Medicare beneficiaries” and then “[m]aking the
payments” to the hospitals. 42 C.F.R. §
421.100(a)(1)-(2); see also Id. § 421.3. If a
hospital providing covered services “is dissatisfied
with a final determination of the organization serving as its
fiscal intermediary” regarding “the amount of
total program reimbursement due the provider, ” the
hospital “may obtain a hearing with respect to such
[determination] by a Provider Reimbursement Review
Board” (“PRRB”). 42 U.S.C. §
1395oo(a)(1)(A)(i). To obtain such review, the
hospital must “file[ ] a request for a hearing with 180
days after notice of the intermediary's final
determination.” Id. §
1395oo(a)(3). The PRRB may then “affirm,
modify, or reverse a final determination of the fiscal
intermediary.” Id. § 1395oo(d);
see also Ne. Hosp., 657 F.3d at 3-4.
PRRB
decisions “shall be final unless the Secretary, on his
own motion, and within 60 days after the provider of services
is notified of the [PRRB's] decision, reverses, affirms,
or modifies” the PRRB's decision. 42 U.S.C.
§1395oo(f)(1). Notably, however, the PRRB lacks
the authority to declare statutes, regulations, or rules
invalid. See Bethesda Hosp. Ass'n v. Bowen, 485
U.S. 399, 406 & n.4 (1988) (citing 42 U.S.C. §
1395oo(d)); 42 C.F.R. § 405.1867 (instructing
that the PRRB “shall afford great weight to
interpretive rules, general statements of policy, and rules
of agency organization, procedure, or practice established by
CMS”). Thus, when a hospital seeks to challenge the
validity of a rule or regulation, the challenger must first
obtain a determination by the PRRB, either on a petition or
sua sponte, that the PRRB “lacks the authority
to decide the legal question.” 42 C.F.R. §
405.1842(a)(1) (citing 42 C.F.R. § 405.1867). The
hospital may then “request a [PRRB] decision that the
provider is entitled to seek” expedited judicial review
(“EJR”) of the issue. Id. §
405.1842(a)(2). If the PRRB grants EJR, “the provider
may file a complaint in Federal district court in order to
obtain EJR of the legal question.” Id.
§405.1842(g)(2).
B.
Rulemaking History Leading to the 2005 Final Rule
At
issue in this lawsuit is the treatment of patient days in the
Medicare fraction or the Medicaid fraction for individuals
who were eligible for both programs-“dual
eligible” individuals-but for whom Medicare did not pay
for care, either because the patient had exhausted his or her
Part A benefits for that period of hospitalization or because
an entity other than the Medicare Trust Fund paid for that
care. See Pls.' Mem. at 1; Def.'s Mem. at 4.
Specifically, this dispute centers on whether such
“dual-eligible exhausted days” should be counted
in the Medicare fraction or instead in the Medicaid fraction.
If dual-eligible exhausted days were included in the Medicare
fraction, they would be added to the denominator of the
Medicaid fraction and, if the patient had been entitled to
SSI benefits, also to the numerator. If dual-eligible
exhausted days were included in the Medicaid fraction, they
would be added to the numerator of the Medicaid fraction. The
denominator of the Medicaid fraction is not at issue, because
that value includes all patient days regardless of
eligibility or exhaustion.
This
distinction matters, because the denominator of the Medicaid
fraction (total patient days) is greater than the denominator
of the Medicare fraction (patient days for patients
“entitled to benefits under part A”). Thus,
including dual-eligible exhausted days in the Medicare
fraction denominator (and, when appropriate, numerator)
rather than in the Medicaid fraction numerator will often
tend to give those days more of an impact on a hospital's
DPP and, correspondingly, on its DSH adjustment. The relevant
rulemaking history is described next.
1.
2004 Proposed Rule
In
2003, the Secretary issued a proposed rule for the 2004
fiscal year outlining “proposed changes to the hospital
inpatient prospective payment systems and fiscal year 2004
rates” for the Medicare program. Medicare Program;
Proposed Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2004 Rates (“2004
Proposed Rule”), 68 Fed. Reg. 27, 154, 27, 154 (May 19,
2003) (capitalization omitted). As it relates to this
lawsuit, the Secretary proposed to revise the manner in which
dual-eligible exhausted patient days are counted in the
Medicare and Medicaid fractions. The 2004 Proposed Rule
explained that currently, “[i]f a patient is a Medicare
beneficiary who is also eligible for Medicaid, the patient is
considered dual-eligible and the patient days are included in
the Medicare fraction of the DSH patient percentage but not
the Medicaid fraction.” Id. at 27, 207.
Importantly, the 2004 Proposed Rule emphasized that:
This policy currently applies even after the patient's
Medicare coverage is exhausted. In other words, if a
dual-eligible patient is admitted without any Medicare Part A
coverage remaining, or exhausts Medicare Part A coverage
while an inpatient, his or her patient days are counted in
the Medicare fraction before and after Medicare coverage is
exhausted. This is consistent with our inclusion of Medicaid
patient days even after the patient's Medicaid coverage
is exhausted.
Id. That is, under the stated status quo,
dual-eligible days were to be counted in the denominator of
the Medicare fraction (and, if the patient were entitled to
SSI benefits, also in the numerator of the Medicare
fraction), regardless of whether the patient had exhausted
his or her available Medicare Part A coverage. The Secretary
then explained that he was contemplating a change in the way
dual-eligible exhausted days would be counted:
We are proposing to change our policy, to begin to count in
the Medicaid fraction of the DSH patient percentage the
patient days of dual-eligible Medicare beneficiaries whose
Medicare coverage has expired. . . . As noted above, our
current policy regarding dual-eligible patient days is that
they are counted in the Medicare fraction and excluded from
the Medicaid fraction, even if the patient's Medicare
Part A coverage has been exhausted. . . . [I]n order to
facilitate consistent handling of these days across all
hospitals, we are proposing that the days of patients who
have exhausted their Medicare Part A coverage will no longer
be included in the Medicare fraction. Instead, we are
proposing these days should be included in the Medicaid
fraction of the DSH calculation.
Id. at 27, 207-08. In other words, the Secretary
proposed adopting the opposite of the stated current policy:
rather than continue to count dual-eligible days, regardless
of whether Part A coverage had been exhausted, in the
appropriate parts of the Medicare fraction, the Secretary
proposed to begin counting only dual-eligible unexhausted
days in the Medicare fraction while counting dual-eligible
exhausted days in the Medicaid fraction.
2.
Initial Comment Period for the 2004 Proposed
Rule
The
comment period on the 2004 Proposed Rule remained open
through July 18, 2003. Id. at 27, 154. Many
commenters supported the policy that the Secretary had
described as the existing policy-namely, the inclusion of
dual-eligible days in the denominator (and, when entitled to
SSI benefits, also in the numerator) of the Medicare
fraction, regardless of whether the patient's Part A
coverage had been exhausted-and opposed the proposed change
to begin including dual-eligible exhausted days in the
numerator of the Medicaid fraction. As discussed below, this
is the policy that the Secretary ultimately adopted in the
2005 Final Rule. The American Hospital Association
(“AHA”) opposed the proposed change because
“CMS provide[d] no justified reason for making this
change, and there are clear reasons not to make this
change.” Administrative Record (“AR”) at
754R, ECF No. 30-1 (emphasis in original). The AHA noted that
“CMS clearly states in the proposed rule that the
current formula is consistent with statutory intent”
and that “the proposed change would place a significant
new regulatory and administrative burden on hospitals.”
Id. In addition, the AHA explained that “it is
likely that this proposed change would result in reduced DSH
payments to hospitals” because “[a]ny transfer of
a particular patient day from the Medicare fraction (based on
total Medicare patient days) to the Medicaid
fraction (based on total patient days) will dilute
the value of that day, and therefore reduce the overall
patient percentage and the resulting DSH adjustment. Thus
the calculation of dual-eligible days must not be
changed.” Id. at 754-55R (emphasis in
original). Other commenters likewise emphasized that the
stated current policy was consistent with statutory intent
and that the change would result in large administrative
burdens for hospitals. See, e.g., id. at
486R (comments of Association of American Medical Colleges
that “current policy is consistent with statutory
intent” and that proposed policy will impose a
“new administrative burden . . . on hospitals to
provide documentation”); id. at 583R (comments
of Healthcare Association of New York State that “it
will be difficult for hospitals to provide the data required
under this proposal”); id. at 718R (comments
of University of Pittsburgh Medical Center Health System
opposing the proposal “due to the additional workload
that will be applied to the providers' limited
resources”); id. at 816R (comments of National
Association of Public Hospitals and Health Systems noting the
“significant new regulatory and administrative burden
on hospitals” imposed by proposed rule).
Other
commenters emphasized the likelihood that DSH payments would
decrease under the proposed rule. For example, the National
Association of Public Hospitals and Health Systems noted that
the proposed rule would “have the effect of reducing
DSH payments across-the-board” because “the
transfer of any particular patient day from the Medicare to
the Medicaid fraction will always dilute the value of that
day and therefore reduce the overall patient percentage and
the resulting DSH adjustment.” Id. at 816R;
see also Id. at 683R (comments of Mercy Hospital
that “[t]he result will be a loss ranging from
approximately ($500, 000) to ($800, 000) for each 1, 000 days
adjusted based on a varied Medicaid eligibility percentage
from 100% to 0%”); id. at 789R (comments of
Federation of American Hospitals that “the proposed
policy would result in a reduction of DSH payments when
Exhausted Days are removed from the Medicare
fraction”).
In
addition, the Federation of American Hospitals alleged that
“CMS lacks statutory authority to implement the
proposed policy regarding Exhausted Days” because
“Exhausted Days patients remain entitled to”
certain Part A benefits even though they have “reached
their coverage limit for inpatient hospital services.”
Id. at 789R. The Federation contended that,
“[u]nder CMS's proposed interpretation of the DSH
statute, it is impossible to reconcile the position that
these patients are not entitled to Medicare Part A when they
can receive other Part A services, such as skilled nursing
services, ” id. at 790R, and “strongly
urge[d] CMS not to finalize this policy, ” id.
Only
one commenter, the BlueCross BlueShield Association, wrote in
support of the proposed rule. BlueCross noted that it
“agree[d] with the proposed change to include in the
Medicaid percentage the patient days of dual eligible
Medicare beneficiaries whose Medicare coverage has expired,
” but the Association nevertheless recommended
“eliminating the requirement that the hospital submit
documentation to the fiscal intermediary that justifies
including the days in the Medicaid fraction.”
Id. at 566R.
Notably,
two commenters wrote to express confusion about the
Secretary's statement of the existing policy. The law
firm Vinson & Elkins wrote, on its own behalf, in support
of the proposed rule but “disagree[d] . . . that
CMS' description of its past practice is correct.”
Id. at 860R. Specifically, Vinson & Elkins noted
that the proposed rule was “at odds with the plain
language of the regulation” governing the DSH
adjustment, which stated that the Medicare fraction included
“‘covered patient days' only”-in other
words, unexhausted days only. Id. at 861R (quoting
42 C.F.R. ยง 412.106(b)(2)(i) (2003)). That is, the
Secretary's stated proposed rule was actually the manner
in which dual-eligible exhausted days were currently being
handled and the exact opposite of the policy the Secretary
had put forth as the status quo. Vinson & Elkins urged
CMS to correct its misstatement, arguing that if ...