United States District Court, District of Columbia
DISTRICT HOSPITAL PARTNERS, L.P., d/b/a The George Washington University Hospital, et al., Plaintiffs,
ALEX M. AZAR II, Secretary, Department of Health and Human Services, Defendant.
S. HUVELLE UNITED STATES DISTRICT JUDGE
owners and operators of hospitals that participate in the
federal Medicare program, first brought suit to challenge the
Medicare Inpatient Prospective Payment System (IPPS) outlier
thresholds for the federal fiscal years (FFY) 2004, 2005, and
2006 in the prior case of District Hospital Partners,
L.P. v. Sebelius, No. 11-cv-116 (D.D.C.). In that
proceeding, the Court granted defendant Secretary of Health
and Human Services (“HHS”)'s motion for
summary judgment. See Dist. Hosp. Partners, L.P. v.
Sebelius, 973 F.Supp.2d 1, 23 (D.D.C. 2014). On appeal,
the Court of Appeals affirmed in part and reversed in part.
Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46,
63 (D.C. Cir. 2015) (“District Hospital
I”). The Court of Appeals affirmed this Court in
rejecting plaintiffs' challenges to the 2005 and 2006
outlier thresholds. Id. at 60-63. However, the Court
of Appeals reversed with respect to the FFY 2004 rule,
remanding to HHS for additional explanation regarding its
rulemaking for that year. Id. at 60. In particular,
the Court of Appeals instructed:
On remand, the Secretary [of HHS] 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.
January 22, 2016, HHS issued further explanation regarding
its 2004 rulemaking in accordance with this directive.
See Explanation of FY 2004 Outlier Fixed-Loss
Threshold as Required by Court Rulings, 81 Fed. Reg. 3, 727
(Jan. 22, 2016) (“Remand Explanation”). Because
the prior action had been terminated upon remand to HHS,
plaintiffs filed the above-captioned case. In this second
suit, plaintiffs again alleged that HHS's outlier
threshold determinations for FFY 2004, 2005, and 2006 were
arbitrary and capricious in violation of the Administrative
Procedure Act (“APA”). (Compl. ¶ 39.)
27, 2016, defendant filed a motion to dismiss in part under
Federal Rule of Civil Procedure Rule 12(b)(6),
“seek[ing] dismissal of all the claims in the complaint
except the claims that contest the Secretary's fiscal
year 2004 fixed loss threshold determination based on the
issues identified for remand in District
Hospital Partners, L.P. v. Burwell, 786
F.3d 46 (D.C. Cir. 2015).” (Def.'s Mot. to Dismiss
in Part, ECF No. 8.) The Court granted this motion on
November 18, 2016, concluding that plaintiffs' challenge
to the FFY 2005 and 2006 outlier determinations-as well as
any new arguments regarding the FFY 2004 determination-were
barred by the doctrines of claim and issue preclusion.
(Memorandum Opinion at 6-7, ECF No. 21 (“Mem.
Op.”); Order, ECF No. 20 (collectively “2016
Partial Dismissal Order”).)
November 29, 2016, plaintiffs filed an unopposed motion to
stay given the pendency of Banner Health v. Price,
No. 16-5129, in the Court of Appeals. Banner Health
involved challenges brought by different plaintiff hospitals
to the same FFY 2004 outlier threshold being challenged in
the case at hand, as well as challenges to the calculations
in years 1997-2003 and 2005-2007. Banner Health v.
Price, 867 F.3d 1323, 1328 (D.C. Cir. 2017).
Court of Appeals considered three principal challenges to the
2004 rulemaking in Banner Health, which were
addressed in Part VI of its opinion. See Id. at
1342-49. In Part VI.B, the Court considered the adequacy of
HHS's explanation regarding its assumption “that
the rate at which charges had inflated between FYs 2000 and
2002 would accurately approximate charge growth” and
its failure to “exclude charge data for the 123
historical turbo-chargers from its FY 2004 charge-inflation
calculation.” Id. at 1345-46. The Court held
that HHS had acted arbitrarily and capriciously, finding the
agency's explanation on this point to be insufficient.
VI.C, the Court of Appeals addressed the plaintiffs'
challenge to HHS's “explanation for adjusting the
projection cost-to-charge ratios of only 50 turbo-chargers in
order to account for the possibility of
reconciliation.” Id. at 1346. The Court
determined that HHS's explanation was adequate on this
point and rejected the plaintiffs' challenge.
Id. at 1348.
VI.D examined the plaintiffs' third challenge to the 2004
rule, which “contended] that it was irrational for HHS
to appl[y] a charge[-]inflation factor when predicting
hospital charges for the 2004 fiscal year without adjusting
[hospitals' cost-to-charge ratios][.]” Id.
at 1348 (internal quotation marks omitted). The Court of
Appeals found the plaintiffs' challenge on this point to
be meritorious, holding that “HHS acted arbitrarily and
capriciously in failing to adequately explain why it did not
adjust its projection cost-to-charge ratios downward.”
Id. at 1349. The Court of Appeals also determined
that the 2005 and 2006 rulemaking suffered from this same
flaw. Id. at 1352-53.
light of the Court of Appeals' decision in Banner
Health, defendant proposed that the Court lift the stay
in this matter and enter a final order remanding to HHS.
(Apr. 9, 2018 Joint Status Report at 2, ECF No. 29.)
Plaintiffs did not oppose this proposal. (Id.). On
April 23, 2018, the Court directed the parties to submit
proposed final orders with supporting briefs. (Order at 4,
ECF No. 31.)
response, the parties filed competing submissions that
request several alternate forms of relief. (Pls.'
Submission, ECF No. 35; Def.'s Submission, ECF No. 36.)
Plaintiffs ask the Court to reconsider the 2016 Partial
Dismissal Order in light of the Court of Appeals'
decision in Banner Health. (Pls.' Submission at
2, 5-6.) In the alternative, plaintiffs seek clarification of
that ruling. (Id. at 6-7.) Meanwhile, defendant
requests partial summary judgment based on Part VI.C of
Banner Health, where the Court of Appeals
rejected the hospitals' arbitrary-and-capricious
challenge to HHS's selection of only 50 hospitals as
likely to be subject to reconciliation. (Def.'s
Submission at 6 (citing Banner Health, 867 F.3d
the parties dispute the scope of the remand to HHS.
Plaintiffs argue that the remand should encompass the full
scope of the issues identified for remand by the Court of
Appeals in Banner Health. (Pls.' Submission at
2-3 (requesting remand “consistent with Banner
Part VI in its entirety for the Hospitals with claims for
2004, and Banner Parts VI, VII, and VIII in their
entirety for the Hospitals with claims for 2005 and
2006”).) By contrast, defendant argues that only the
issue discussed in Part VI.B of Banner Health