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Missouri Department of Social Services v. Department of Health and Human Services

United States District Court, District of Columbia

September 26, 2019



          James E. Boasberg, United States District Judge.

         Aided by the parties’ supplemental briefing, the Court returns to the dispute between Missouri and the Department of Health and Human Services over whether the State can remediate an accounting error it first committed over twenty years ago. Specifically, Missouri hopes to correct the FY 1995, 2014, and 2015 Medicaid reports that it submitted to the agency - modifications that will allow for a present-day increase in its federal reimbursement for a subcategory of healthcare-related expenditures. HHS, for its part, rejoins that the Social Security Act prohibits Missouri from amending these reports. The Court, however, need not decide the merits of this accounting dispute. The Government has forfeited the only argument on which this Court could base a ruling in its favor and appears to have instead embraced a new rationale for the agency’s decision, one not relied upon by the agency in the first instance. Given this Kafkaesque reality, the Court remands the matter to the agency; it will then wait to see the basis of a future administrative decision and what the Government will thereafter defend.

         I. Background and Procedural History

         The Court has already described the issues presented by this case in its prior Opinion. See Missouri Dep’t of Soc. Servs. v. HHS, 2019 WL 3802945, at *1–2 (D.D.C. Aug. 13, 2019). Briefly, “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. / Univ. Med. Ctr. v. Burwell, 179 F.Supp.3d 31, 37 (D.D.C. 2016); see also 42 U.S.C. § 1396-1 (Title XIX of the Social Security Act, commonly known as “Medicaid”). Like all such “cooperative” programs, Medicaid has generated some wrangling between the federal government and the states over the reimbursement amounts provided by the former to the latter. This is one such dispute.

         At issue here are the federal government’s responsibilities under Medicaid for Missouri’s payments to institutions for mental disease (IMD) that qualify as disproportionate share hospitals (DSH), which the Act defines as hospitals that “serve a disproportionate number of low-income patients.” 42 U.S.C. § 1396a(a)(13)(A)(iv). Missouri asserts that in 1995 it mistakenly reported about $10 million in payments made to IMD DSHs as expenditures made to non-IMD DSHs. This error was of great significance because Congress later capped federal reimbursement for IMD DSH payments using a formula that is based on the 1995 spending amounts as reported by each state. See Missouri Dep’t of Soc. Servs., 2019 WL 3802945, at *2 (citing 42 U.S.C. § 1396r-4(h)). Upon discovering this mistake, Missouri sought in 2016 to correct its immortalized accounting error by resubmitting its FY 1995 report to reflect the “correct” expenditure totals. Because it was too late to amend most other reports in time to receive additional federal reimbursement, Missouri also hoped to correct only its FY 2014 and FY 2015 reports. (Of course, changes to the FY 1995 numbers would benefit the State going forward as well.) In any event, Missouri therefore petitioned the Centers for Medicare and Medicaid Services (the agency within HHS responsible for administering Medicaid) to make prior-period adjustments to those three reports. CMS objected to these changes and disallowed Missouri’s attempted adjustments. The State then appealed to the Departmental Appeals Board.

         The Board affirmed CMS’s disallowance of Missouri’s attempted adjustments, relying on two interlocking provisions of the Social Security Act. First, § 1132(a) of the Act mandates that “any claim by a State for payment” be “filed . . . within [a] two-year period” of the calendar quarter in which the payment was made. See 42 U.S.C. § 1320b-2(A) (emphasis added). Crucially, the Board determined that Missouri’s revised reports qualify as “claims” under the Act, holding that “a prior-period adjustment that corrects an expenditure reporting error constitutes a claim when it increases the amount of [Federal Financial Participation] sought with respect to a specific expenditure or category of expenditures.” ECF No. 14 (Def. MTD), Exh. 5 (Board Decision) at 10. The Board accordingly affirmed CMS’s determination that Missouri’s proposed amendments to the FY 1995 report were untimely, given that far more than two years had passed since those expenses were incurred. Id. at 13. With the FY 1995 report disposed of, the Board turned to the FY 2014 and 2015 reports. As noted above, § 1923(h) of the Act sets a ceiling for IMD DSH payments based on FY 1995 expenditures. See 42 U.S.C. § 1396r-4(h). As the Board noted - and as Missouri concedes - the State’s proposed FY 2014 and FY 2015 reports result in a request for federal reimbursement that exceeds the limits established by § 1923(h). See Board Decision at 14–15. In other words, if Missouri cannot amend the FY 1995 report to reflect the §10 million accounting error, § 1923(h) seems to stand in the way of its revising reports for future years in such a fashion.

         Of relevance here, the Board’s decision also briefly reflected on a path not taken in its denial of Missouri’s appeal. It noted that even if Missouri could amend the FY 1995 report, a separate part of § 1923(h), which caps Federal Financial Participation pursuant to a formula based on numbers reported “not later than January 1, 1997, ” might provide an independent barrier to the State’s revising the FY 2014 and 2015 reports now. See Board Decision at 15 n.9. This is because Missouri’s amendments would have occurred after January 1, 1997. The Board, however, expressly declined to decide that question. Id. Instead, it grounded its determination entirely on its conclusion that § 1132(a)’s two-year time bar precluded Missouri’s proposed adjustment to the FY 1995 report, a decision that, in turn, prevented Missouri from revising any reports going forward. The critical conclusion reached by the Board - the foundation without which the entire edifice would crumble - was that Missouri’s FY 1995 report qualified as a “claim” under § 1132(a) and was therefore untimely.

         Not so easily deterred, Missouri challenged the Board’s decision in this Court, and Defendants moved to dismiss or, in the alternative, for summary judgment. Their submissions, however, left the Court unclear about the aspects of the Board’s decision that HHS intended to defend. Oddly, the Government focused its briefing entirely on § 1923(h) of the Act, despite the fact that the Board’s decision rests on its determination that Missouri’s amended reports qualify as “claims” under § 1132(a). Puzzled by this litigation strategy, the Court ordered supplemental briefing, urging Defendants to set forth their position and explain how their failure to do so clearly in their opening salvo did not forfeit their opportunity to defend the Board’s position. See Missouri Dep’t. of Soc. Servs., 2019 WL 3802945, at *3–4. Armed with Defendants’ supplemental brief and Missouri’s response, the Court is now primed to proceed.

         II. Legal Standard

         The Administrative Procedure Act “sets forth the full extent of judicial authority to review executive agency action for procedural correctness.” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 513 (2009). It requires courts to “hold unlawful and set aside agency action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2). Agency action is arbitrary and capricious if, for example, the agency “entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

         In other words, an agency is required to “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” Id. (internal quotation marks omitted) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). Courts, accordingly, “do not defer to the agency’s conclusory or unsupported suppositions.” United Techs. Corp. v. Dep’t of Def., 601 F.3d 557, 562 (D.C. Cir. 2010) (quoting McDonnell Douglas Corp. v. Dep’t of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004)). Furthermore, “a reviewing court . . . must judge the propriety of [agency] action solely by the grounds invoked by the agency.” SEC v. Chenery Corp., 332 U.S. 194, 196 (1947). “[A]gency ‘litigating positions’ are not entitled to deference when they are merely [agency] counsel’s ‘post hoc rationalizations’ for agency action, advanced for the first time in the reviewing court.” Martin v. Occupational Safety & Health Review Comm’n, 499 U.S. 144, 156 (1991) (internal quotation marks omitted).

         III. Analysis

         After reviewing the Board’s decision and the Government’s submissions, the Court must determine both whether forfeiture exists here and, if so, what ...

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