MEMORANDUM OPINION
KETANJI BROWN JACKSON UNITED STATES DISTRICT JUDGE.
Legal
issues that arise under the federal government's Medicare
and Medicaid programs tend to be “significantly more
difficult to describe than to decide[.]” Cooper
Hosp./Univ. Med. Ctr. v. Burwell, 179 F.Supp.3d 31, 36
(D.D.C. 2016) (internal quotation marks and citation
omitted). The instant matter is no exception; it involves a
claim by twelve Massachusetts hospitals (“the
Hospitals” or “Plaintiffs”) that the
Secretary of the Department of Health and Human Services
(“HHS” or “Defendant”) did not fully
compensate the Hospitals in the manner that the Medicare
program prescribes for a one-year period, from October 1,
2008, to September 30, 2009. (See Compl., ECF No. 1,
¶ 45.) Invoking the Administrative Procedure Act
(“APA”), 5 U.S.C. § 706(2), as well as a
federal law that prescribes additional payments to hospitals
that serve a “disproportionate number of low-income
patients” under the Medicare program, 42 U.S.C. §
1395ww(d)(5)(F)(i)(I), the Hospitals allege that they are
entitled to $6 million more from the federal government than
they received during the relevant timeframe for their service
to low-income individuals, because HHS miscalculated the
percentage of patients who are eligible for Medicaid and
similar services within the meaning of the applicable
regulations and thus improperly lowered the amount of money
that the federal government owes. (See
Compl. ¶¶ 2, 45.)
Whether
these contentions have merit turns on a relatively narrow
dispute over the meaning of an HHS regulation that delineates
how the agency will determine the proportion of low-income
individuals that a hospital serves. See 42 C.F.R.
§ 412.106(b)(4). This regulation establishes a formula
that requires consideration of “the number of the
hospital's patient days of service” for two
categories of low-income individuals: (1) Medicaid-eligible
patients, and (2) patients who are “deemed eligible for
Medicaid” for the purpose of the regulation because
they are “eligible for inpatient hospital services . .
. under a waiver authorized under section 1115(a)(2) of the
[Social Security Act.]” Id. §
412.106(b)(4)(i). The Hospitals contend that HHS has
incorrectly interpreted this regulation to exclude from the
second category those patients who are insured under a
Massachusetts-run health insurance program for low-income
individuals known as Commonwealth Care, which received a
section 1115(a)(2) waiver from HHS and thereby indisputably
“expand[s] upon the traditional Medicaid program
eligibility criteria[.]” (Compl. ¶¶ 2, 45.)
Before
this Court at present are the parties' cross-motions for
summary judgment. (See Pls.' Mem. in Supp. of
Mot. for Summ. J. (“Pls.' Mem.”), ECF No. 12;
Def.'s Mem. in Supp. of its Cross-Mot. for Summ. J. &
Opp'n to Pls.' Mot. for Summ. J. (“Def.'s
Mem.”), ECF No. 14-1.)[1] In its papers, HHS argues that,
in order to determine whether a patient is “eligible
for inpatient hospital services . . . under a waiver
authorized under section 1115(a)(2), ” 42 C.F.R. §
412.106(b)(4)(i), and is thus to be deemed eligible for
Medicaid for purposes of the regulation's calculation,
see id., the court must “look[] to the terms
of the [waiver] agreement that describe the project” to
see if the Secretary has stated explicitly that covered
patients are “eligible for inpatient hospital
services” (Def.'s Reply in Supp. of its Cross-Mot.
for Summ J. (“Def.'s Reply”), ECF No. 19, at
5 (internal quotation marks and citations omitted)). And
because no such explicit statement appears in the waiver
agreement that Massachusetts and HHS entered into in regard
to Commonwealth Care, HHS contends that the patient days
relating to the treatment of Commonwealth Care beneficiaries
do not count in the Medicare-reimbursement formula that the
regulations prescribe. (See Id. at 5-6.) The
Hospitals respond that HHS's explicit-statement
requirement is contrary to both the plain language of the
regulation and the intent behind section 412.106(b)(4)(i) of
Title 42 of the Code of Federal Regulations. (See
Pls.' Mem. at 24- 29; Pls.' Reply in Supp. of Mot.
for Summ. J. & Opp'n to Def.'s Cross-Mot. for
Summ. J. (“Pls.' Reply”), ECF No. 16, at
8-9.) The Hospitals further maintain that HHS's reading
departs from the agency's practices in other cases
(see Pls.' Reply at 24-25), and is an unfair,
post-hoc rationalization that the agency did not
provide or promote at the administrative stage of this
dispute. (See Id. at 22-24; 25-29.)
On
September 28, 2018, this Court issued an Order that
GRANTED Plaintiffs' motion for summary
judgment, and DENIED Defendant's
cross-motion for summary judgment. (See Order, ECF
No. 25.) As a result, the Court also VACATED
the challenged agency decision, and REMANDED
this matter to HHS for further proceedings. (See
id.) This Memorandum Opinion provides the Court's
reasons for that Order.
In
short, after reviewing the parties' briefs, examining the
record, and considering the oral arguments presented in this
case, this Court concluded that HHS's interpretation of
the unambiguous text of section 412.106(b)(4)(i) of Title 42
of the Code of Federal Regulations to disallow the inclusion
of the patient days of service that were associated with
patients who were covered by Commonwealth Care is an
arbitrary and capricious determination, and thus violates the
APA. It is clear from the plain language of the
regulation's text that patients who are eligible to
receive comprehensive medical care through an insurance
program authorized under a section 1115 waiver (as evidenced
by their eligibility for inpatient hospital services) are to
be included in the Medicare reimbursement formula, and
whether or not the waiver agreement through which the
Secretary authorized the program says anything about
their eligibility for inpatient hospital services is
irrelevant to the calculation of a hospital's
disproportionate share hospital adjustment. Furthermore,
given that every individual enrolled in Massachusetts's
Commonwealth Care program during the relevant time period
obtained a subsidized insurance plan that actually provided
coverage for inpatient hospital services, the Secretary's
authorization of the Commonwealth Care program under the
pertinent section 1115 waiver made every individual insured
via Commonwealth Care “eligible for inpatient hospital
services” within the meaning of section
412.106(b)(4)(i). Therefore, per the plain text of the
applicable regulation, HHS should have counted the patient
days pertaining to Commonwealth Care beneficiaries when
calculating the Hospitals' disproportionate share
hospital adjustments under the Medicare program.
I.
BACKGROUND
Congress
authorized and established the federal Medicare and Medicaid
programs in two different subchapters of the Social Security
Act, Pub L. No. 89-97 (1965), and the statutory provisions
that pertain to each of these programs cross-reference one
another in various ways. See Cooper Hosp., 179
F.Supp.3d at 36 (“Although the two programs share
similarities, each functions in partial independence of the
other, albeit with many cross-references between the
subchapters.”). For present purposes, it is important
to understand that “[t]he Medicare program provides
federally-funded health insurance to qualifying elderly and
disabled individuals[, ]” Saint Francis Med. Ctr.
v. Azar, 894 F.3d 290, 291 (D.C. Cir. 2018) (citation
omitted); see also 42 U.S.C. §§
1395-1395111, and that, since 1983, the federal government
has pursued this goal by reimbursing hospitals for the
services they provide to elderly and disabled patients
“based on the average rate of operating costs for
inpatient hospital services . . . at a fixed amount per
patient, regardless of the actual operating costs” that
those hospitals incur while treating those patients.
Billings Clinic v. Azar, 901 F.3d 301, 303 (D.C.
Cir. 2018) (internal quotation marks and citation omitted);
see also Abington Mem. Hosp. v. Burwell, 216
F.Supp.3d 110, 116-17 (D.D.C. 2016). Consequently, as far as
Medicare reimbursements are concerned, patient counts matter.
Moreover, as explained below, Medicare's reimbursement
formulas take into account a variety of factors, including
whether a particular hospital's actual costs are
significantly higher than average due to its treatment of
low-income individuals. Thus, the Medicare payment
system's base per-patient rates are subject to a variety
of adjustments that increase or decrease the total sum that
the government pays each hospital. See Billings
Clinic, 901 F.3d at 304; 42 U.S.C. § 1395ww(d)(1).
A.
Medicare's Disproportionate Share Hospital (DSH)
Adjustment
The
instant dispute homes in on one of these hospital-specific
adjustments to Medicare's base payment rates: “the
disproportionate share hospital (DSH) adjustment.”
Billings Clinic, 901 F.3d at 304 (internal quotation
marks and citation omitted); see also 42 U.S.C.
§ 1395ww(d)(5)(F)(i)(I). In essence, this adjustment
constitutes a “supplemental payment[]” to
hospitals that treat a “significant number” of
“very low-income patients[.]” Allina Health
Servs. v. Sebelius, 746 F.3d 1102, 1105 (D.C. Cir.
2014). The DSH adjustment reflects Congress's recognition
that “[h]ospitals that serve a disproportionate numbers
of low-income patients have higher [M]edicare costs per
case[, ]” H.R. Rep. No. 99-241, pt. 1, at 16 (1985),
and that absent this additional payment, the standardized
rates that Congress has authorized for certain medical
expenses would not cover the full operating costs for these
hospitals, see Cooper Hosp., 179 F.Supp.3d at 37.
Thus, under the Medicare statute, if a hospital treats a
significant number of low-income individuals-i.e.,
if its “disproportionate patient percentage” is
sufficiently high-it is entitled to receive additional
payments from the federal government. See 42 U.S.C.
§ 1395ww(d)(5)(F)(v).
To
calculate a hospital's “disproportionate patient
percentage[, ]” HHS “add[s] together two
fractions”: the “Medicare fraction” and the
“Medicaid fraction[.]” Allina, 746 F.3d
at 1105; see also 42 C.F.R. § 412.106 (laying
out how both fractions are calculated). The instant case
concerns only the Medicaid fraction, which “account[s]
for the number of Medicaid patients . . . not entitled to
Medicare” that a hospital serves. Allina, 746
F.3d at 1105 (emphasis omitted). Section
1395ww(d)(5)(F)(vi)(II) of Title 42 of the United States Code
defines that figure as:
the 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 plan
approved under [the Medicaid program], but who were not
entitled to benefits under Plan A of [Medicare], and the
denominator of which is the total number of the
hospital's patient days for such period.
42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). Put simply,
“the numerator” of the Medicaid fraction
“is the number of patient days attributable to patients
who (for such days) were eligible for Medicaid, but not
entitled to benefits under Medicare Part A[, ]” and
“[t]he denominator is the total number of patient
days[.]” Allina, 746 F.3d at 1105 (internal
quotation marks, citation, and alteration
omitted).[2]
B.
Medicaid's Demonstration Project Expansion
Waivers
As the
above definition makes clear, determining whether an
individual is eligible for health insurance under the
Medicaid program is critical to calculating
“the Medicaid fraction” for the purpose of
establishing the Medicare program's DSH
adjustment. Unlike the Medicare program, which is a purely
federal endeavor that insures the elderly and disabled,
“Medicaid is a cooperative federal-state program that
provides medical assistance to certain limited categories of
low-income persons and other individuals who face serious
financial burdens in paying for needed medical care.”
Cooper Hosp., 179 F.Supp.3d at 38 (internal
quotation marks and citation omitted). States that wish to
participate in this program draw up a medical assistance plan
that conforms to the requirements laid out in the federal
Medicaid statute, see 42 U.S.C. § 1396a(a), and
once HHS approves a state's plan, the state receives
payments from the federal government in support of that
program, see Id. § 1396b.
Significantly
for present purposes, some states also “try new or
different approaches to the efficient and cost-effective
delivery of health care services” for low-income
residents, or seek “to adapt their [healthcare]
programs to the special needs of particular areas or groups
of recipients.” Cookeville Reg'l Med. Ctr. v.
Leavitt, 531 F.3d 844, 845 (D.C. Cir. 2008) (internal
quotation marks and citation omitted); accord 42
C.F.R. § 430.25. To that end, the Medicaid statute gives
the Secretary of HHS the discretion to waive some of the
requirements laid out in the Medicaid statute and yet still
designate the state as eligible for federal financial support
under the Medicaid program. See 42 U.S.C. §
1315. When the Secretary executes such a waiver, the state
plan for which the Secretary has waived the Medicaid
statute's requirements is termed a “demonstration
project[, ]” 42 U.S.C. § 1315, and the
“costs of such project”-including the costs of
patient treatment-“shall, to the extent and for the
period prescribed by the Secretary, be regarded as
expenditures under the State plan or plans approved under
[the Medicaid program], or for administration of such State
plan or plans, as may be appropriate, ” id.
§ 1315(a)(2)(A); see also Cookeville Reg'l,
531 F.3d at 845.
One
category of demonstration projects-known as “expansion
waiver” projects-is of particular relevance to the
legal issues presented in this case. Expansion waiver
projects “provide medical assistance to expanded
eligibility populations that could not otherwise be made
eligible for Medicaid.” Cooper Hosp., 179
F.Supp.3d at 45 (internal quotation marks and citation
omitted). In other words, the patients who receive health
insurance coverage through these programs either make too
much money to have a traditional state Medicaid program pay
their healthcare costs, or are otherwise disqualified from
receiving Medicaid. These patients are known as the
“expansion waiver population[.]” Cookeville
Reg'l, 531 F.3d at 845; see also Banner Health
v. Sebelius, 715 F.Supp.2d 142, 148 (D.D.C. 2010).
States that seek to cover this population can apply to the
Secretary for a waiver, i.e., for approval of their
proposed coverage plan as a demonstration project, and if the
waiver is granted, the state will receive federal financial
assistance as under the Medicaid program. See 42
U.S.C. § 1315(a); Cookeville Reg'l, 531
F.3d at 845; Banner Health, 715 F.Supp.2d at 148.
C.
HHS's Amendment Of The DSH Adjustment Regulation
Before
the year 2000, it was not clear whether the patient days
attributable to low-income individuals who had received
healthcare coverage through an expansion waiver demonstration
project, as opposed to a traditional state Medicaid program,
were to be counted within the numerator of the Medicaid
fraction for the purpose of determining a hospital's
disproportionate share adjustment under section 412.106(b)(4)
of Title 42 of the Code of Federal Regulations. Considerable
confusion arose because, while expansion waiver patients were
technically not “eligible for medical
assistance under” a state Medicaid plan, 42 U.S.C.
§ 1395ww(d)(5)(F)(vi)(II), such patients had nonetheless
received medical care through an insurance program expressly
authorized under the laws that govern the Medicaid program.
HHS has addressed this matter through notice-and-comment
rulemaking, although the agency's position regarding the
issue has evolved over time.[3]
HHS
initially refused to count any patient days associated with
individuals receiving medical care through an expansion
waiver project in the Medicaid fraction's numerator
unless those individuals would otherwise be covered under a
state's Medicaid plan. See Banner Health, 715
F.Supp.2d at 149. Then, in a regulation HHS promulgated on
January 20, 2000, the agency changed course and permitted
all patient days for expansion waiver populations to
be counted in the numerator of the Medicaid fraction.
See 65 Fed. Reg. 3, 136, 3, 137 (Jan. 20, 2000)
(“[W]e believe allowing hospitals to include the
section 1115 expanded waiver populations in the Medicare DSH
calculation is fully consistent with the Congressional goals
of the Medicare DSH adjustment[.]”); see also
42 C.F.R. § 412.106(b)(4)(ii) (codifying the
understanding that the patient days relating to expansion
waiver populations may be counted in the numerator of the
Medicaid fraction). Notably, three years later, the agency
added the caveat that is at the center of the instant
dispute: it clarified that a patient shall be “deemed
eligible for Medicaid on a given day”-and thus his
patient days will count in the numerator of the Medicaid
fraction, see 42 C.F.R. §
412.106(b)(4)-“only if the patient is eligible for
inpatient hospital services under an approved State
Medicaid plan or under a waiver authorized under section
1115(a)(2)” of the Social Security Act, id.
§ 412.106(b)(4)(i) (emphasis added). The Federal
Register provision that accompanied this new language
reiterated the agency's position that patient days under
an expansion waiver should be included in the numerator of
the Medicaid fraction to “the extent that those
individuals receive inpatient benefits under the section 1115
demonstration project[, ]” and explained that the goal
of this clarification was to prevent inclusion of patient
days associated with demonstration project waiver populations
that had, in fact, received only “limited, temporary
benefit[s.]” 68 Fed. Reg. 45, 346, 45, 421 (Aug. 1,
2003). HHS found this situation untenable, because while it
is “fully consistent with the Congressional goals of
the Medicare DSH adjustment” to “include[] the
section 1115 expansion populations” in the Medicaid
numerator, 68 Fed. Reg. 45, 420, that policy decision applied
to individuals “who received benefits under the
demonstration project that are similar to those available
to traditional Medicaid beneficiaries, including
inpatient benefits[, ]” id. at 45, 420-21
(emphasis added); see Id. at 45, 421 (focusing on
whether “individuals receiv[e] a comprehensive benefits
package”). In other words, for the purpose of
determining what share of a hospital's patients counted
in regard to the Medicaid fraction, the key question was
whether an individual had “receiv[ed] a
comprehensive benefit package under a section 1115
demonstration project[.]” Id. at 45, 421
(emphasis added).
D.
Massachusetts's Medicaid And ...