United States District Court, District of Columbia
ROSEMARY M. COLLYER, UNITED STATES DISTRICT JUDGE
the Court held that the Centers for Medicare & Medicaid
Services (CMS) exceeded its statutory authority when it
selectively reduced by Final Rule reimbursement rates under
the Outpatient Prospective Payment System (OPPS) to
off-campus provider-based departments for certain outpatient
department (OPD) services. See Am. Hosp. Ass'n v.
Azar, No. 18-2841, 2019 WL 4451984 (D.D.C. Sept. 17,
2019); 83 Fed. Reg. 58, 818 (Nov. 21, 2018) (Final Rule).
Specifically, the Court determined that the addition of a
non-budget-neutral rate reduction for Evaluation and
Management (E&M) services at such facilities-separate
from the normal OPPS reimbursement schedule-conflicted with
the overall statute. Am. Hosp. Ass'n, 2019 WL
4451984, at *8-12. Accordingly, the Court vacated the
relevant portions of the Final Rule, left intact the rest of
the OPPS reimbursement schedule, and remanded the matter back
to the agency for proceedings consistent with its decision.
Id. at *12. However, given the complexities of
setting and administering Medicare payments rates, the Court
also ordered the parties to submit a status report to
determine if additional briefing was required. Id.
asks the Court to modify its Order and to instead remand the
matter to the agency to develop a remedy in the first
instance, without vacatur. Alternatively, CMS asks for a
60-day stay of the Order while it considers whether or not to
appeal. Plaintiffs oppose.For the reasons below, the Court will
neither modify nor stay the Order.
D.C. Circuit has “made clear that ‘[w]hen a
reviewing court determines that agency regulations are
unlawful, the ordinary result is that the rules are
vacated.'” Nat'l Min. Ass'n v. U.S.
Army Corps of Eng'rs, 145 F.3d 1399, 1409 (D.C. Cir.
1998) (quoting Harmon v. Thornburgh, 878 F.2d 484,
495 n.21 (D.C. Cir. 1989)). That said, a court has discretion
to remand an unlawful rule without vacatur depending on (1)
“the seriousness of the [rule]'s deficiencies (and
thus the extent of doubt whether the agency chose
correctly)” and (2) “the disruptive consequences
of an interim change that may itself be changed.”
Allied-Signal, Inc. v. U.S. Nuclear-Regulatory
Comm'n, 988 F.2d 146, 150-51 (D.C. Cir. 1993).
Neither factor is dispositive. “Rather, resolution of
the question turns on the Court's assessment of the
overall equities and practicality of the alternatives.”
Shands Jacksonville Med. Ctr. v. Burwell, 139
F.Supp.3d 240, 270 (D.D.C. 2015) (Shands I).
the first factor, CMS “respectfully disagrees”
with the Court's decision and maintains that its rate cut
was a permissible “method for controlling unnecessary
increases in the volume of covered OPD services.” See
42 U.S.C. § 1395l(t)(2)(F). CMS thus argues that there
is a live question regarding “whether the agency chose
correctly” that may be resolved on appeal. CMS devotes
little space to this argument. This factor may weigh in the
government's favor when a decision within the
agency's discretion was potentially lawful but
insufficiently explained. See Heartland Reg'l Ctr. v.
Sebelius, 566 F.3d 193, 198 (D.C. Cir. 2009)
(“When an agency may be able readily to cure a defect
in its explanation of a decision, the first factor in
Allied-Signal counsels remand without vacatur.”); see,
e.g., Allied Signal, 988 F.2d at 151 (“It is
conceivable that the Commission may be able to explain how
the principles supporting an exemption for education
institutions do not justify a similar exemption for domestic
UF6 converters.”); cf. Am. Hosp. Ass'n
v. Azar, 385 F.Supp.3d 1, 13 (D.D.C. 2019) (finding a
CMS rule could not be justified because the necessary data
did not exist). But here the Court determined that CMS put
forth an impermissible interpretation of the statutory
scheme; no amount of new data or reasoning on remand can save
its interpretation. See Humane Soc'y of the U.S. v.
Jewell, 76 F.Supp.3d 69, 137 (D.D.C. 2014) (“[T]he
Court is certain that the agency cannot arrive at the same
conclusions reached in the Final Rule because the actions
taken were not statutorily authorized.”). Nor does its
hope of reversal on appeal help because “[p]ossible
success on appeal would weigh against vacatur in every case,
given that reversal is always a possibility.” Am.
Hosp. Ass'n, 385 F.Supp.3d at 13. The first factor
clearly favors vacatur.
the second factor, CMS argues more forcefully that for
several reasons the disruption caused by vacating the rule
weighs heavily in favor of remand only. First, CMS contends
that without the rule “there is currently no extant
methodology under which the Secretary may pay off-campus
provider-based departments for the . . . services that the
challenged portion of the Rule addressed.” Mot. at 5.
CMS similarly contends that “there is no methodology
available for affected off-campus provider-based departments
to calculate appropriate patient co-payments.”
contentions fail to convince. Because CMS believed that it
had authority to implement the E&M rate reduction
independent of its authority to review and adjust OPPS
relative payment weights, it developed underlying OPPS
reimbursement rates and then tacked the E&M rate
reduction on at the end. See Final Rule at 59, 014 (applying
the reduced E&M rates to the “final payment
rates” for OPPS). As Plaintiffs describe it, CMS
created an exception to OPPS reimbursement rates for only
E&M services and only at applicable off-campus
provider-based departments; vacating the rate reduction for
E&M services at off-campus provider-based departments
merely reverted such off-campus provider-based departments to
the general rule. Indeed, CMS admits that there are extant
OPPS reimbursement rates for on-campus provider-based
departments which the relevant off-campus provider-based
departments would have been subject to but for the Final
Rule. See Mot. at 6.
this, CMS argues that vacatur leaves behind no OPPS
reimbursement rates because the rate reduction for E&M
services “cannot be severed from the rest of the OPPS
rates set forth in the [Final] Rule.” Id. at
5. The D.C. Circuit has held that “[s]everance and
affirmance of a portion of an administrative regulation is
improper if there is ‘substantial doubt' that the
agency would have adopted the severed portion on its
own.” Davis Cty. Solid Waste Mgmt. v. EPA, 108
F.3d 1454, 1459 (D.C. Cir 1997). CMS asserts that it
accounted for its projected $300 million in projected savings
when developing the underlying OPPS reimbursement rates, and
that without the rate reduction for E&M services it might
have utilized other statutory means to accomplish the same
ends or cut reimbursement rates across the board.
is not nearly enough evidence to find
“‘substantial doubt' that the agency would
have adopted the severed portion on its own.”
Id. To start, that the rate reduction for E&M
services can be so easily severed from the Final Rule as a
practical matter strongly suggests that severance is
appropriate as a legal matter. See Am. Petroleum Inst. v.
EPA, 862 F.3d 50, 72 (D.C. Cir. 2017) (“Thus we
have severed provisions when ‘they operate[d] entirely
independently of one another.'”) (quoting Davis
Cty., 108 F.3d at 1459). That is, unlike other cases, the
underlying OPPS reimbursement rates here were not
“expressly conditioned” on rate reduction for
E&M services. North Carolina v. FERC, 730 F.2d
790, 796 (D.C. Cir. 1984). Further, this is not a case where
the remaining rule starts to lose meaning without the severed
portion. See MD/DC/DE Broadcasters Ass'n v. FCC,
253 F.3d 732, 740 (D.C. Cir. 2001) (examining “whether
a statute's function would be impaired if, after
invaliding a portion of an implementing regulation, the Court
left the rest of the regulation in place”). Indeed,
there is no evidence at all that CMS considered the
underlying OPPS reimbursement scheme when it decided to
reduce rates for E&M services at off-campus
provider-based departments, other than to note that the OPPS
reimbursement rates were higher than comparable rates at
physician offices. Rather, the reduced rate for E&M
services “operate[d] entirely independently” of
the underlying OPPS reimbursement scheme and was “not
in any way ‘intertwined'” with CMS's
obligation to review and set those underlying OPPS
reimbursement rates. Davis Cty., 108 F.3d at 1459
(quoting Tel. & Data Sys., Inc. v. FCC, 19 F.3d
42, 50 (D.C. Cir. 1994)). In fact, that independence was
CMS's explanation for why budget neutrality did not
apply. See Def.'s Opp'n to Pls.' Mot. for Summ.
J. & Mem. in Supp. of Mot. to Dismiss or, in the
Alternative, Cross- Mot. for Summ. J. [Dkt. 20-1] at 14-15.
Regardless of what CMS hypothetically might have done,
nothing in the Final Rule implies that the E&M rate
reduction and underlying OPPS reimbursement rates were
intended to be inseparable.
Court further notes that the only material difference between
the Proposed Rule and the Final Rule is that CMS chose to
implement the rate reduction for E&M services over two
years instead of one. Compare 83 Fed. Reg. 37, 046,
37, 143 (July 31, 2018) (Proposed Rule), with Final Rule at
59, 013-14. CMS thus projected it would save only $300
million due to the Final Rule, or half of the $600 million
originally projected. See Final Rule at 59, 014. Yet CMS did
not change the underlying OPPS reimbursement rates in the
Final Rule to account for the $300 million shortfall caused
by phased implementation. CMS does not explain why the $300
million shortfall caused by vacatur should be treated
differently. CMS's silence in the Final Rule indicates
that it would have implemented the underlying OPPS
reimbursement rates even without a rate reduction for E&M
services and also favors vacatur. Cf. North
Carolina, 730 F.2d at 796 (severing a regulation despite
resulting “nominal effects”).
CMS argues that vacating the Final Rule would prove
disruptive if CMS were to succeed on appeal because, as a
practical matter, it would be difficult for CMS to claw back
any overpayments due to the administrative costs of doing so.
See Mot. at 6. However, if CMS were to lose on appeal, this
disruption would not come to pass. That may seem obvious, but
the point is that CMS's argument has nothing to do with
the appropriateness of vacatur in this case, only its timing;
CMS's argument better supports its request for a stay
pending appeal and is addressed below.
CMS argues that the Court should grant CMS the opportunity to
develop a remedy in the first instance, in recognition of the
“substantial deference that Courts owe to the Secretary
in the administration of such a ‘complex statutory and
regulatory regime.'” Shands Jacksonville Med.
Ctr., Inc. v. Azar,366 F.Supp.3d 32, 54 (D.D.C. 2018)
(quoting Good Samartian Hosp. v. Shalala, 508 U.S.
402, 404 (1993)); see also N. Air Cargo v. U.S. Postal
Serv.,674 F.3d 852, 861 (D.C. Cir. 2012). But in each
of the cases cited by CMS, deference was not an independent
reason to remand without vacatur. Rather, remand without
vacatur was found appropriate only after application of the