United States District Court, District of Columbia
FRESNO COMMUNITY HOSPITAL AND MEDICAL CENTER, et al., Plaintiffs
ALEX M. AZAR II, Secretary, United States Department of Health and Human Services, Defendant
COLLEEN KOLLAR-KOTELLY, UNITED STATES DISTRICT JUDGE
case concerns the decision of Defendant, the Secretary of the
United States Department of Health and Human Services (the
“Secretary”), to implement a .4588% adjustment
to the standardized amount for the Medicare Hospital
Inpatient Prospective Payment System (“IPPS”) for
fiscal year 2018. Plaintiffs, hundreds of
Medicare-participating providers of hospital services, argue
that an adjustment of at least .1588% was required in order
for the Secretary not to continue unlawfully a prior -0.7%
recoupment adjustment made in fiscal year 2017. Defendant has
moved to dismiss Plaintiffs' Complaint for lack of
jurisdiction. Defendant contends that the Secretary made the
2018 adjustment under Section 7(b) of the TMA, Abstinence
Education, and QI Programs Extension Act of 2007
(“TMA”). Pub. L. No. 110-90, 121 Stat. 984, as
amended. And, Congress has prohibited courts from reviewing
the Secretary's determinations and adjustments made under
Section 7(b) of the TMA.
consideration of the pleadings, the relevant legal authorities,
and the record as a whole, the Court GRANTS IN PART AND
DENIES IN PART Defendant's motion. Moving beyond artful
pleading, at their foundation, Counts 1, 4, and 5 of
Plaintiffs' Complaint ask the Court to review, pursuant
to various statutes, a determination or adjustment made by
the Secretary under Section 7(b) of the TMA. And, Congress
has precluded courts from reviewing determinations and
adjustments made by the Secretary under Section 7(b) of the
TMA. Additionally, these claims do not fit within the narrow
ultra vires exception to Congress' bar on judicial review
because the Secretary did not patently misconstrue the TMA in
implementing a .4588% adjustment in 2018. Accordingly,
Defendant's motion is GRANTED IN PART, and Counts 1, 4,
and 5 of Plaintiffs' Complaint are DISMISSED. However,
Counts 2 and 3 of Plaintiffs' Complaint pertain to the
Secretary's failure to exercise his “exceptions and
adjustments” discretion under 42 U.S.C. §
1395ww(d)(5)(I), not to the Secretary's adjustment under
TMA § 7(b). And, Defendant has failed to establish that
these claims are inextricably intertwined with
Plaintiffs' barred claims. Accordingly, Defendant's
motion is DENIED IN PART, and Plaintiffs may proceed with
Counts 2 and 3 of their Complaint.
crux of this case concerns whether or not the Secretary made
a permissible adjustment to the standardized amount used to
calculate inpatient payment rates in fiscal year 2018. The
Secretary made a .4588% adjustment; but, Plaintiffs argue
that the Secretary should have made a .1588% adjustment in
order to account for the additional -0.7% adjustment that had
been made in fiscal year 2017. While the question appears
relatively simple on its face, the Court must account for the
complex regulatory scheme underlying the dispute over the
Secretary's 2018 adjustment.
Medicare Act establishes a system of health insurance for the
aged, disabled, and individuals with end-stage renal disease.
Compl., ECF No. 1, ¶ 26 (citing 42 U.S.C. § 1395c).
The Centers for Medicare & Medicaid Services
(“CMS”) implement the Medicare program. Under
Medicare Part A, hospitals are compensated for providing
inpatient services and certain other institutional services
to those covered by Medicare. Id. at ¶ 28.
Effective for cost reporting years on or after October 1,
1983, Congress enacted statutes requiring the Secretary to
implement an inpatient prospective payment system
(“IPPS”) to reimburse hospitals for inpatient
hospital operating costs. Id. at ¶ 30. Under
IPPS, hospitals are reimbursed for inpatient services at a
fixed amount for each Medicare patient discharged from the
hospital according to prospectively determined, nationally
applicable payment rates. Id.
the initial implementation of IPPS, hospitals were reimbursed
for inpatient services according to the classification of the
Medicare patient's condition into one of many diagnosis
related groups (“DRGs”). Id. at ¶
31 (citing 42 U.S.C. § 1395ww(d)(1)-(2)). In fiscal year
2008, the DRG system was updated, becoming the Medicare
Severity DRG (“MS-DRG”) classification system, to
increase the number of diagnosis related groups from 538 to
MS-DRG is assigned a relative weight reflecting the average
relative resources needed to treat patients in that MS-DRG.
The MS-DRG weight is multiplied by a base payment rate or
“standardized amount.” That number is then
adjusted for other factors to provide the final IPPS payment
amount. Id. Congress requires the Secretary to
adjust the MS-DRG classification and relative weights
annually. Id. at ¶ 32 (citing 42 U.S.C. §
1395ww(d)(4)(C)(i)). Congress also authorizes the Secretary
“‘provide by regulation for such other exceptions
and adjustments to such payment amounts under [section
1395ww(d)] as the Secretary deems appropriate.'”
Id. (quoting 42 U.S.C. § 1395ww(d)(5)(I)).
changing from the DRG to the MS-DRG system, CMS recognized
the potential for increases in aggregate payments due to more
thorough documentation and coding. Id. at ¶ 33.
The Medicare Act permits CMS to prospectively adjust IPPS
standardized amounts, or base payment rates, when a change to
the DRG classification is likely to result in higher
aggregate IPPS payments due to changes in coding and
classification. Id. (citing 42 U.S.C. §
1395ww(d)(3)(A)(vi)). Pursuant to that authority, CMS adopted
adjustments to the IPPS standardized amounts to prospectively
eliminate the aggregate increase in payments that would flow
from more thorough documentation and coding with the MS-DRG
system. Id. at ¶ 34.
few months after CMS adopted these adjustments, Congress
enacted the TMA. Id. at ¶ 35 (Pub. L. No.
110-90, 121 Stat. 984 (2007)). TMA § 7(a) required CMS
to reduce the IPPS standardized amount by -0.6% for fiscal
year 2008 and to adopt an adjustment of -0.9% for fiscal year
§ 7(b) required further adjustments. Under §
7(b)(1)(A), the TMA instructed the Secretary to make
additional prospective adjustments based on a retrospective
evaluation of fiscal years 2008 and 2009. Id. at
¶ 35 (citing TMA § 7(b)(1)(A)). Prospective
adjustments made under this section do not recoup or repay
for past miscalculations; instead, the adjustments
prospectively eliminate the effect of the coding and
classification changes. Id. (citing 42 U.S.C. §
1395ww(d)(3)(A)(vi)). Unlike the prospective adjustments
under TMA § 7(b)(1)(A), under § 7(b)(1)(B), the
Secretary was instructed to determine whether any additional
adjustments were necessary to recoup or repay any increase or
decrease in the aggregate 2008 and 2009 payments and to
implement appropriate recoupment or repayment adjustments for
discharges occurring during fiscal years 2010, 2011, and
2012. Id. at ¶ 36 (citing TMA §
7(b)(1)(B)). The recoupment or repayment adjustments in
fiscal years 2010, 2011, and 2012 were not permanent and
could not be included in the determination of standardized
amounts for future years. Id. at ¶ 36 (citing
TMA § 7(b)(2)).
in the TMA, Congress limited administrative or judicial
review of the Secretary's implementation of the
adjustments made under TMA §7(b). Specifically, Congress
mandated that “[t]here shall be no administrative or
judicial review under [42 U.S.C. § 1395oo] or otherwise
of any determination or adjustments made under this
subsection.” Id. at ¶ 38 (quoting TMA
2013, CMS announced that a prospective -3.9% adjustment to
the IPPS standardized amount would need to be made under TMA
§ 7(b)(1)(A) to address the documentation and coding
effects. Id. at ¶ 37 (citing 78 Fed. Reg. 27,
486, 27, 503 (May 10, 2013)). The TMA did not specify when
this prospective adjustment must be made. So, CMS implemented
a -2.0% adjustment for fiscal year 2012 and a -1.9%
adjustment for fiscal year 2013. Id. Separately in
2013, pursuant to TMA § 7(b)(1)(B), CMS reduced the IPPS
standardized amounts for fiscal years 2011 and 2012 to
complete the recoupment of all overpayments made in fiscal
years 2008 and 2009. Id. (citing 78 Fed. Reg. 27,
CMS did not phase in the prospective adjustments required
under TMA § 7(b)(1)(A) until 2013, payments for fiscal
years 2010, 2011, and 2012 were overstated. Id. at
¶ 39 (citing 78 Fed. Reg. at 27, 504). But, the TMA did
not permit recovery of these overpayments under TMA §
7(b)(1)(B) because that section was limited to recouping
overpayments made in 2008 and 2009.
Congress passed the American Taxpayer Relief Act of 2012
(“ATRA”) to recoup the overpayments from fiscal
years 2010, 2011, and 2012. Id. at ¶ 40 (Pub.
L. No. 112-240, 126 Stat. 2313 (2013)). The ATRA required CMS
to make additional recoupment adjustments totaling
approximately $11 billion by fiscal year 2017 to account for
overpayments in 2010, 2011, and 2012. The ATRA limited these
recoupment adjustments to discharges “occurring only
during fiscal years, 2014, 2015, 2016, and 2017.”
Id. (citing TMA § 7(b)(1)(B)(ii), amended by
ATRA § 631(b)). The ATRA recoupment adjustment provision
was also subject to the TMA § 7(b)(2)'s limit on
recoupment adjustments continuing for discharges in years
subsequent to the Congressional limit. Id. (citing
TMA § 7(b)(2)).
implementing the recoupment adjustments required under the
ATRA, the Secretary laid out a plan of escalating recoupment
adjustments for fiscal years 2014, 2015, 2016, and 2017 based
on actuarially projected discharges. Id. at ¶
41. Under the Secretary's plan, the IPPS standardized
amount was reduced by -0.8% in 2014 and would escalate by
-0.8% each year until the cumulative adjustment equaled -3.2%
by 2017. Id. (citing 78 Fed. Reg. at 27, 504-05).
The Secretary believed that this plan of escalating
adjustments would result in a full recoupment, by fiscal year
2017, of the $11 billion in overpayments from 2010, 2011, and
the Secretary's plan, in 2014 CMS adopted a -0.8%
reduction in the IPPS standardized amount. Id.
(citing 78 Fed. Reg. 50, 496, 50, 515-17). Likewise, in 2015
and 2016, CMS increased the ATRA recoupment adjustment by
-0.8%, to -1.6% and -2.4% respectively. Id. (citing
79 Fed. Reg. 49, 854, 49, 873-74 (Aug. 22, 2014); 80 Fed.
Reg. 49, 236, 49, 345 (Aug. 17, 2015)). While CMS did not
propose a specific adjustment for fiscal year 2017, CMS
reiterated its plan to implement a -0.8% recoupment
adjustment in 2017 for a total adjustment of -3.2%.
Id. at ¶ 42 (citing 80 Fed. Reg. at 49, 345).
In making these negative recoupment adjustments, CMS
reaffirmed that “‘the adjustment required under
section 631 of the ATRA is a one-time recoupment of a prior
overpayment, not a permanent reduction to payment rates.
Therefore, any adjustment made to reduce rates in one year
would eventually be offset by a positive adjustment, once the
necessary amount of overpayment is recovered.'”
Id. at ¶ 43 (quoting 79 Fed. Reg. at 49, 873;
78 Fed. Reg. at 50, 515; 80 Fed. Reg. at 49, 345).
2015, Congress again amended TMA § 7(b) with the passage
of Medicare Access and CHIP Reauthorization Act of 2015
(“MACRA”). Id. at ¶ 44 (Pub. L. No.
114-10, 129 Stat. 87 (2015)). Through MACRA, Congress
instructed CMS to delay restoration of the estimated -3.2%
ATRA recoupment adjustment that had been made to account for
overpayments in 2010, 2011, and 2012. Id. Instead of
a single positive adjustment of .2% in 2018, under MACRA,
Congress implemented a schedule of restorative adjustments
totaling .0% over six years from fiscal year 2018 to 2023.
Id. CMS was left to implement any final restorative
adjustment to fully offset the ATRA adjustments after 2023.
Id. Specifically, as amended by MACRA, TMA §
7(b)(1)(B)(iii) requires the Secretary to: “‘make
an additional adjustment to the standardized amounts under
such section 1886(d) of an increase of 0.5 percentage points
for discharges occurring during each of fiscal years 2018
through 2023 and not make the adjustment (estimated to be an
increase of 3.2 percent) that would otherwise apply for
discharges occurring during fiscal year 2018 by reason of the
completion of the [ATRA recoupment] adjustments.'”
Id. (quoting TMA § 7(b)(1)(B)(iii)).
the passage of MACRA, the Secretary realized that the planned
-0.8% adjustment in 2017 would not fully recoup the $11
billion in overpayments from 2010, 2011, and 2012.
Id. at ¶ 45. Accordingly, CMS proposed and
finalized an ATRA adjustment of -1.5% for fiscal year 2017,
-0.7% more than the previously estimated adjustment of -0.8%.
With this additional recoupment adjustment, the total ATRA
adjustment was -3.9% rather than the expected -3.2%.
Id. (citing 81 Fed. Reg. 56, 762 (Aug. 22, 2016)).
2016, Congress again amended TMA § 7(b) with the
enactment of the 21st Century Cures Act. Id. at
¶ 46 (Pub. L. No. 114-255, 130 Stat. 1033 (2016)). 21st
Century Cures reduced the 2018 fiscal year positive
adjustment to the IPPS standardized amount to .4588%,
rather than the .5% that was set in MACRA. Id.
(citing TMA § 7(b)(1)(B)(iii), as amended by 21st
Century Cures § 15005). The .5% adjustments required
by MACRA for fiscal years 2019-2023 were left in place.
2017, CMS proposed to implement the .4588% adjustment
required by 21st Century Cures for fiscal year 2018.
Id. at ¶ 47 (citing 82 Fed. Reg. 19, 796 (Apr.
28, 2017)). Pursuant to 21st Century Cures and MACRA, CMS
also stated its intent to propose .5% adjustments to the
standardized amount for each fiscal year from 2019 to 2023.
Id. (citing 82 Fed. Reg. at 19, 816). Some
commenters to the final rule opposed the proposed adjustment
of .4588% for fiscal year 2018. These commenters
highlighted that, in fiscal year 2017, CMS had issued an ATRA
adjustment of -1.5%, which was -0.7% more than had been
previously estimated. Accordingly, a positive adjustment of
only .4588% would continue the additional -0.7% ATRA
recoupment adjustment, leaving a larger permanent cut than
Congress had intended. Id. at ¶ 48 (citing 82
Fed. Reg. at 38, 009). These commenters urged CMS to issue an
additional .7% adjustment in fiscal year 2018 to account
for this difference. Id. Some commenters further
urged CMS to use its “exceptions and adjustments”
discretion under 42 U.S.C. § 1395ww(d)(5)(I) to increase
the 2018 adjustment by 0.7%. Id. (citing 82 Fed.
Reg. at 38, 009).
the comments to the proposed fiscal year 2018 adjustment, in
2018, CMS implemented a .4588% adjustment to begin
compensating for the ATRA recoupment adjustments.
Id. at ¶ 49 (citing 82 Fed. Reg. at 38, 009).
CMS's decision to implement the .4588% adjustment for
fiscal year 2018 is the primary issue in this case.
moves to dismiss Plaintiffs' Complaint only under Federal
Rule of Civil Procedure 12(b)(1) for lack of jurisdiction. A
court must dismiss a case when it lacks subject matter
jurisdiction. See Fed. R. Civ. P. 12(h)(3). In doing
so, the Court may “consider the complaint supplemented
by undisputed facts evidenced in the record, or the complaint
supplemented by undisputed facts plus the court's
resolution of disputed facts.” Coal. for
Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C.
Cir. 2003) (internal quotation marks omitted)); See also
Jerome Stevens Pharm., Inc. v. Food & Drug Admin.,
402 F.3d 1249, 1253 ...