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District Hospital Partners, L.P v. Azar

United States District Court, District of Columbia

August 2, 2018

DISTRICT HOSPITAL PARTNERS, L.P., d/b/a The George Washington University Hospital, et al., Plaintiffs,
v.
ALEX M. AZAR II, Secretary, Department of Health and Human Services, Defendant.

          MEMORANDUM OPINION

          ELLEN S. HUVELLE UNITED STATES DISTRICT JUDGE

         I. BACKGROUND

         Plaintiffs, 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.

Id.

         On 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.)

         On May 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”).)

         On 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).

         The 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. Id.

         In Part 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.

         Part 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.

         In 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.)

         In 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 1346-48).)

         Lastly, 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 ...


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