Fresno Community Hospital and Medical Center v. Azar

          MEMORANDUM OPINION

          COLLEEN KOLLAR-KOTELLY, UNITED STATES DISTRICT JUDGE

         This 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.

         Upon consideration of the pleadings^[1], 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.

         I. LEGAL BACKGROUND

         The 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.

         The 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.

         Under 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 745. Id.

         Each 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)).

         In 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.

         But, a 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 2009. Id.

         TMA § 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)).

         Finally, 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 § 7(b)(5)).

         In 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, 504).

         Because 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.

         Accordingly, 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)).

         In 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 2012. Id.

         Following 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).

         In 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)).

         Following 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)).

         In 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. Id.

         In 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).

         Despite 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.

         II. LEGAL STANDARD

         Defendant 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 ...