United States District Court, District of Columbia
H. LEE MOFFITT CANCER CENTER AND RESEARCH INSTITUTE HOSPITAL, INC., Plaintiff,
ALEX M. AZAR II, Secretary, United States Department of Health and Human Services, Defendant.
TIMOTHY J. KELLY UNITED STATES DISTRICT JUDGE
Alex M. Azar II, sued here in his official capacity as head
of the Department of Health and Human Services (and referred
to as “HHS”), oversees Medicare, a government
health insurance program for the elderly and disabled. The
Outpatient Prospective Payment System (“OPPS”) is
a component of Medicare that deals with payments to hospitals
for outpatient treatment services. This agency-review case
concerns a statutory amendment to OPPS made in 2010 by the
Patient Protection and Affordable Care Act (the
“ACA”), Pub. L. No. 111-148, 124 Stat. 119
(2010). Under the amendment, HHS was required to study
certain costs incurred by a small group of hospitals that
focus on cancer research and treatment (commonly referred to
as the “cancer hospitals”). If HHS determined
that the cancer hospitals' costs were higher than other
hospitals', it was required to make an “appropriate
adjustment” to payments to the cancer hospitals
“effective for services furnished on or after January
1, 2011.” HHS ultimately did find that the cancer
hospitals' costs were higher and warranted an increase in
OPPS payments to them. But HHS did not issue a final
regulation containing the cancer-hospital adjustment until
well into 2011, and made the adjustment effective only as of
January 1, 2012.
H. Lee Moffitt Cancer Center and Research Institute Hospital,
Inc. (“Moffitt”) is a cancer hospital. It has
challenged HHS's failure to make higher OPPS payments to
cancer hospitals for 2011, claiming HHS thereby violated its
statutory mandate. HHS defends its actions as reasonable, and
also argues that the adjustment it made is not subject to
judicial review. Each party has moved for summary judgment.
ECF No. 13; ECF No. 16; see also ECF No. 13-1
(“Pl.'s Br ”); ECF No. 16-1 (“Def's
Br ”); ECF No. 19 (“Pl.'s Reply”); ECF
No. 21 (“Def's Reply”). As explained below,
the Court agrees with Moffitt that HHS failed to comply with
the statute's directive to make an adjustment effective
for services furnished during the 2011 calendar year.
Therefore, the Court will enter summary judgment for Moffitt
and remand the case to HHS so that it can consider and make
an “appropriate adjustment.”
Legislative and Regulatory Background
Medicare and OPPS
created in 1965, is a health insurance program run by the
federal government for the elderly and disabled. See
Univ. of Tex. M.D. Anderson Cancer Ctr. v. Sebelius
(“M.D. Anderson”), 650 F.3d 685, 686 (D.C.
Cir. 2011); Amgen, Inc. v. Smith, 357 F.3d 103, 105
(D.C. Cir. 2004). Funding the program “has posed a
massive challenge for the U.S. Government, as the costs of
Medicare have grown significantly over time.” M.D.
Anderson, 650 F.3d at 686. Therefore, Congress has tried
various measures to “rein in” those costs over
1997, Congress made a major change to Medicare intended to
reduce the cost of outpatient services. Up to that point,
“hospitals treated outpatients, and then informed
Medicare of the cost of the treatment, and then received
money to cover costs that were ‘reasonable.' Not
surprisingly, costs exploded under this system because there
was little check on the services and costs for which
hospitals received reimbursement.” Id. at 688.
The Balanced Budget Act of 1997, Pub. L. No. 105-33, 111
Stat. 251, replaced that system of cost-based payments with
OPPS, which requires “payments for outpatient hospital
care to be made based on predetermined rates.”
Amgen, 357 F.3d at 106.
statutory provision governing OPPS, codified at 42 U.S.C.
§ 1395l(t), imposes a number of different
requirements with which HHS must comply in setting
prospective rates for outpatient services. Subsection
(t)(2)(E) also provides HHS a broad discretionary authority
to make “adjustments” to those rates:
[T]he Secretary shall establish, in a budget neutral manner,
outlier adjustments under paragraph (5) and transitional
pass-through payments under paragraph (6) and other
adjustments as determined to be necessary to ensure equitable
payments, such as adjustments for certain classes of
42 U.S.C. § 1395l(t)(2)(E). Because adjustments
under § (t)(2)(E) are required to be “budget
neutral, ” HHS must offset any increased payments to
some hospitals with reduced payments to others. See
Amgen, 357 F.3d at 112. HHS must review these
adjustments at least annually. See 42 U.S.C. §
time OPPS was enacted, “some hospitals would receive
significantly less money” under OPPS than under the old
system. M.D. Anderson, 650 F.3d at 689. To soften
the blow, Congress provided transitional outpatient payments
(“TOPs”) to hospitals during OPPS's first few
years. See 42 U.S.C. § 1395l(t)(7);
M.D. Anderson, 650 F.3d at 689. Congress made
special provision for the cancer hospitals, which consist of
eleven hospitals (including Moffitt). See 42 U.S.C.
§ 1395ww(d)(1)(B)(v); ECF No. 1 (“Compl.”)
¶ 21; Def.'s Br. at 5. For cancer hospitals, TOPs
remained available permanently. See 42 U.S.C. §
1395l(t)(7)(D)(ii). These payments effectively
guarantee that cancer hospitals will be reimbursed for their
costs to the same extent as under the old, pre-1997 system.
See M.D. Anderson, 650 F.3d at 689. Moreover, unlike
adjustments under § (t)(2)(E), TOPs are not required to
be budget neutral. See 42 U.S.C. §
ACA Section 3138 and HHS's Regulations
Section 3138 of the ACA, enacted in March 2010, Congress
added another special provision for cancer hospitals to the
OPPS statute. The provision ordered HHS to undertake a study
of whether cancer hospitals' costs for delivering
outpatient services exceeded other hospitals' costs.
See 42 U.S.C. § 1395l(t)(18)(A).
“Insofar as” HHS made such a determination, it
was to “provide for an appropriate adjustment under
paragraph (2)(E) to reflect those higher costs effective for
services furnished on or after January 1, 2011.”
Id. § 1395l(t)(18)(B).
first addressed this requirement in an August 2010 proposed
rulemaking regarding OPPS payment rates for 2011. Medicare
Program; Proposed Changes to Hospital Outpatient Prospective
Payment System and CY 2011 Payment Rates, 75 Fed. Reg. 46,
170 (proposed rule Aug. 3, 2010). The agency explained its
study of the cancer hospitals' costs, which showed that
the cancer hospitals did in fact have significantly higher
costs. See Id. at 46, 233-34. HHS then discussed its
approach to crafting an adjustment to reflect those costs.
Id. at 46, 235-37. It explained that it had not
considered TOPs in crafting the proposed adjustment.
Id. at 46, 235. Its reasons were two-fold: First,
the proposed adjustment had to be made under § (t)(2)(E)
and thus had to be budget neutral; therefore, the agency
believed it was “appropriate to assess costliness and
payments within the budget neutral payment system, ”
which does not include TOPs. Id. Second, TOPs are
paid on an aggregate basis, and thus could not could not be
weighted on a per-service basis, as the proposed adjustment
would be. See id.
on its analysis, HHS proposed “a hospital-specific
payment adjustment” designed “to raise each
cancer hospital's PCR [‘payment to cost ratio']
to the weighted average PCR for all other hospitals.”
Id. Overall, this would increase cancer
hospitals' OPPS payments by 41.2%, and in order to be
“budget neutral, ” OPPS payments to other
hospitals would have to be 0.66% lower. See Id. at
46, 225, 46, 236. Cancer hospitals would still receive
retroactive TOPs if their cost recovery fell below pre-1997
levels; however, because the up-front OPPS payments would be
higher, HHS estimated that only one cancer hospital would
continue to receive TOPs if the proposal went into effect.
See Id. at 46, 237.
issuing the proposed rule, HHS received several comments
criticizing its approach. See Medicare Program:
Hospital Outpatient Prospective Payment System and CY 2011
Payment Rates, 75 Fed. Reg. 71, 800, 71, 886-87 (Nov. 24,
2010) (summarizing comments). In particular, many commenters
argued that HHS's approach was inequitable: cancer
hospitals would receive only a small net benefit (because
most of the increases to their up-front OPPS payments would
be offset by lower TOPs down the line), while other hospitals
would receive a larger net loss (because every dollar spent
on higher OPPS payments to the cancer hospitals had to be
neutralized by lower OPPS payments to other hospitals).
See JA at 30-31, 33-34, 39-40, 43, 63-64, 67, 73-74,
77-80, 82-83, 86-87, 90, 92-93, 95-96, 98-100. These commenters
argued such an adjustment would not be budget neutral when
taking TOPs into account, but would instead result in reduced
overall spending. See, e.g., JA at 31. Some
commenters also argued that the way HHS proposed to implement
the adjustment could lead to higher co-payments for Medicare
beneficiaries. JA at 45-46, 83, 87, 96-97, 101. Yet another
commenter urged a delay in implementing the regulation.
See JA at 70.
the cancer hospitals themselves-while requesting a more
generous net adjustment-agreed with some of these criticisms.
See JA at 57-60. They argued that HHS could use its
“exceedingly broad” equitable authority under
§ (t)(2)(E) to structure the adjustment so as to avoid
harming Medicare beneficiaries and other hospitals. JA at 59.
commenter also took aim at HHS's cost study. It argued
that no adjustment was appropriate, because cancer hospitals
and other hospitals had comparable cost-recovery ratios when
TOPs were considered. See JA at 40. That same
commenter also described HHS's cost analysis as
“flawed, ” arguing that it had failed to control
for many factors, and that the perceived cost difference
could be due to inefficiency on the part of the cancer
hospitals. See JA 38-39.
face of these comments, HHS punted. In its final rule
regarding OPPS payments for 2011, HHS acknowledged the
“broad range of very important issues and
concerns” that commenters had raised. 75 Fed. Reg. at
71, 887. It therefore determined to undertake “further
study and deliberation” on the cancer-hospital
adjustment, which would “take a longer period of time
than is permitted in order for us to meet the publication
deadline of this final rule with comment period.”
revisited the issue in its proposed rulemaking for 2012 OPPS
payment rates. Medicare and Medicaid Programs: Hospital
Outpatient Prospective Payment, 76 Fed. Reg. 42, 170
(proposed rule July 18, 2011). Despite the comments it had
received, HHS proposed essentially the same approach as
before: upward adjustments to prospective OPPS payments for
cancer hospitals based on each hospital's costs,
representing a net increase of 39% across all eleven. See
Id. at 42, 220-21. HHS estimated that, as a result of
that increase, no cancer hospitals would receive TOPs.
Id. at 42, 221. To accommodate these increases, HHS
once again proposed a reduction in other hospitals'
payments (this time by 0.73%). See Id. at 42, 210.
Commenters again criticized this approach, largely along the
same lines as before. See JA at 109-12, 119-21,
127-29, 132, 170-71, 173-74, 187-89.
cancer hospitals, while continuing to urge an even greater
increase, yet again asked HHS to exercise its
“exceedingly broad” authority to mitigate
negative effects on others. JA at 153-54 & n.34;
see JA at 147-57. The cancer hospitals also argued
Section 3138 of the ACA compelled HHS to make any adjustments
apply retroactively to services furnished since January 1,
2011. See JA at 157.
November 2011, HHS finalized the proposed adjustment, but
substantially altered its approach. See Medicare and
Medicaid Programs: Hospital Outpatient Prospective Payment,
76 Fed. Reg. 74, 122, 74, 203-07 (Nov. 30, 2011). HHS yielded
to comments urging it to consider the net gain to cancer
hospitals (that is, both the increased prospective OPPS
payments and the resulting decreases in TOPs) in calculating
the offsetting decrease in OPPS payments to other hospitals.
See Id. at 74, 204. When taking TOPs into account,
the resulting increase to payments for cancer hospitals was
9.5% overall (the exact amount varying for each individual
cancer hospital). Id. at 74, 206. The offsetting
decrease for other hospitals was only 0.22%, much smaller
than the 0.73% in the proposed rule. See Id. at 74,
190, 74, 204. In order to avoid increased copayments for