UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
BAPTIST MEDICAL CENTER et al.
Plaintiffs,
v. Civil Action No. 11-cv-0899
SYLVIA M. BURWELL, in her official capacity as Secretary of Health and Human Services
Defendant.
MEMORANDUM OPINION AND ORDER
Pending before the Court are the parties’ objections to
Magistrate Judge G. Michael Harvey’s Report and Recommendation
(“R&R”), which recommends that the Court grant in part and deny
in part plaintiffs’ motion for summary judgment, deny
defendant’s motion for summary judgment, and remand the matter
to the agency for further proceedings. See R&R, ECF No. 64. Upon
consideration of the R&R, plaintiffs’ objections, defendant’s
response to those objections, and the relevant law, the Court
adopts Magistrate Judge Harvey’s R&R and GRANTS IN PART and
DENIES IN PART plaintiffs’ motion for summary judgment, DENIES
defendant’s motion for summary judgment, and REMANDS this matter
to the agency. I. Background
The Court will not restate the full factual background of
this case, which is set forth in the Report and Recommendation.
See R&R, ECF No. 64 at 3–8. 1 By way of general overview, this
case concerns the administration of Medicare, the federal
program that provides health insurance to the elderly and
disabled. See 42 U.S.C. §§ 1395-1395cc; see also Northeast Hosp.
Corp. v. Sebelius, 657 F.3d 1, 2 (D.C. Cir. 2011)(explaining
Medicare statutory provisions). The Centers for Medicare and
Medicaid Services (“CMS”) is charged with administering the
Medicare program. The Medicare statute is divided into five
parts; three of which are relevant to this case. see id.
The first relevant part is Medicare Part A which covers
medical services provided by hospitals and other institutional
providers. See 42 U.S.C. § 1395c. Under Part A, providers are
paid directly by the Secretary of Health and Human services for
the services they provide. See id. §§ 1395f(a)-(b), 1395x(u).
This payment arrangement is commonly known as the fee-for-
service system. Northeast Hosp., 657 F.3d at 2 (referring to the
“traditional Part A fee-for-service system.”).
Over the last forty years, Congress has provided an
alternative to the fee-for-service arrangement under Part A
1 When citing electronic filings throughout this opinion, the Court cites to the ECF header page number, not the original page number of the filed document. 2 through different arrangements. Medicare Part C, the second
relevant part, is an alternative to the fee-for-service system
that allows an individual to choose to enroll with a Health
Maintenance Organization (“HMO”), preferred organization, or
other private managed care plan after 1999. 2 See Balanced Budget
Act of 1997 (BBA), Pub. L. No. 105-33, §4001, 111 Stat. 251, 270
(codified at 42 U.S.C. § 1395w-21). If a person chooses to enroll
in Part C, the Secretary makes payments to the managed care
plan, rather than directly to the provider. Id. § 1395w–
21(i)(1).
From 1972 through the end of 1998, as an alternative to the
traditional fee-for-service system, Medicare beneficiaries
instead could enroll with a managed care organization, such as
an HMO, which entered into a payment contract with Medicare. See
Section 1876 of the Social Security Act; 42 U.S.C. § 1395mm
(“HMO statute”). 3 Similar to present-day Medicare Part C, if a
person chose to enroll in an HMO the Secretary made payments to
the managed care plan, rather than to the provider. The fiscal
2 Part C was formerly referred to as “Medicare + Choice” and is currently referred to as “Medicare Advantage.” The parties refer to Part C in their briefing when discussing the HMO statute, now located in Part E, because it was located in Part C of the Medicare statute during the relevant time period. 3 The Medicare HMO statute, 42 U.S.C. § 1395mm, is and has been
located in the “Miscellaneous Provisions” part of the Medicare statute. During the periods at issue, “Miscellaneous Provisions” were gathered in part C. Today, the Medicare + Choice (or Medicare Advantage) program is located in Part C, and the “Miscellaneous Provisions” have been moved to Part E. 3 periods at issue in this case are 1993–1998, i.e., prior to
1999, and therefore are governed by the HMO statute.
Medicare Part E sets out various “Miscellaneous Provisions.”
Relevant to this case, Part E sets out a Prospective Payment
System (“PPS”) for reimbursing inpatient hospital services based
on “prospectively determined national and regional rates rather
than on the actual amount the hospital spends.” Northeast Hosp.,
657 F.3d at 3 (citing 42 U.S.C. § 1395ww(d)(1)-(4)). Providers
are also entitled to payment adjustments based on certain
factors. At issue in this case is the disproportionate share
hospital (“DSH”) payment adjustment, which provides that the
Secretary pays more for services provided by hospitals that
“serve[] a significantly disproportionate number of low-income
patients.” Id. (citing 42 U.S.C. § 1395ww(d)(5)(F)(i)(I)).
“Congress assumes that such patients cost more to treat than the
average Medicare patients, so these hospitals are entitled to
supplemental payments.” Allina Health Services v. Sebelius, 746
F.3d 1102, 1105 (D.C. Cir. 2014).
Whether a hospital qualifies for a Medicare DSH adjustment,
and the amount of that adjustment, depends on the hospital’s
“disproportionate patient percentage [‘DPP’].” 42 U.S.C.
§ 1395ww(d)(5)(F)(v)-(vii). This percentage is a “proxy measure”
for the number of low-income patients a hospital serves. H.R.
REP. No. 99-241, pt. 1, at 17 (1985). The DPP is defined as the
4 sum of two fractions expressed as percentages. See 42 U.S.C.
§ 1395ww(d)(5)(F)(vi). Those fractions are referred to as the
“Medicare” fraction and the “Medicaid” fraction. Id.
§ 1395ww(d)(5)(F)(vi)(I) & (II); see also 42 C.F.R.
§ 412.106(b)(2). Both of these fractions require consideration
of whether a patient was “entitled to benefits under Part A.”
See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I).
The first fraction, the Medicare fraction, is the percentage
of Medicare patients who are entitled to supplemental security
insurance. The numerator of this fraction is the sum of the
hospital’s patient days for patients who were “entitled to
benefits under Part A . . . and were entitled to supplementary
[social security insurance].” Id. § 1395ww(d)(5)(F)(vi)(I). The
denominator of the fraction is the total number of “hospital’s
patient days for such fiscal year which were made up of patients
who (for such days) were entitled to benefits under [Medicare]
Part A.” Id.
The second fraction, the Medicaid fraction, is comprised of
the number of Medicaid patients not entitled to Medicare. The
numerator of the fraction 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
[Medicaid] plan . . . but who were not entitled to benefits
under [Medicare] Part A.” Id. § 1395ww(d)(5)(F)(vi)(II). The
5 denominator is the total number of patient days, regardless of
whether the patients were eligible for assistance through a
federal program. Id.
A “fiscal intermediary,” typically a private insurance
company acting as the Secretary’s agent, calculates DSH
adjustments. See 42 C.F.R. §§ 421.1, 421.3, 421.100–.128. If a
hospital disagrees with the intermediary’s determination, it may
appeal to the Provider Reimbursement Review Board (“PRRB” or
“Board”), an administrative body appointed by the Secretary. See
42 U.S.C. § 1395oo(a),(h). The PRRB may affirm, modify, or
reverse the fiscal intermediary’s award. See id. § 1395oo(d).
The Board’s decision is the final agency action unless the
Secretary affirms, modifies, or reverses the Board’s decision
within 60 days after the provider is notified of the decision.
Id. § 1395oo(f)(1). A provider has a statutory right to seek
judicial review of the agency’s final decision in federal
district court. Id.
Plaintiffs are several hospitals that offered inpatient
services for individuals whose care was paid for by HMOs. See
Compl., ECF No. 1 ¶¶ 5–6. The hospitals serve several elderly,
low-income patients and are therefore entitled to supplemental
payments, an amount determined by the disproportionate share
percentage. See id. For fiscal years, 1995-1998, the
Intermediary concluded HMO patient days should not be in the
6 numerator of the Medicaid fraction. QRS 1995-1998 DSH Medicare
HMO Days Grps. v. BlueCross BlueShield Ass’n, PRRB Dec. No.
2011-D20, 2011 WL 1231544, at *4 (Mar. 16, 2011). Plaintiffs
appealed this decision to the PRRB, arguing that the patient
days should be included in the Medicaid fraction because the HMO
patients are not entitled to benefits under Part A. Id. This
distinction matters because, if Part C beneficiaries are
“included in the Medicaid fraction rather than the Medicare
fraction, the hospitals receive a great deal more compensation.”
Allina, 746 F.3d at 1105.
The PRRB disagreed with plaintiffs and found that the
“Intermediary properly excluded Medicare HMO days from the
Medicaid fraction. QRS 1995-1998 DSH Medicare HMO Days Grps.,
2011 WL 1231544, at *6. The Board reasoned that the HMO statute
required HMO patients to be excluded from the Medicaid fraction
because payments to HMOs are made from the Federal Hospital
Insurance Trust Fund established by Part A. Id. at 5–6. The
Board’s explanation was as follows:
The Federal Hospital Insurance Trust Fund was established under Part A of the Medicare Act to fund the services provided under Part A. 42 U.S.C. §§1395i(a) and (h). Consequently, prior to the change in the Medicare Act which created Part C, HMO inpatient hospital services were paid pursuant to Part A of Medicare.
In Jewish Hospital, Inc. v. Secretary of Health and Human Services, 19 F.3d 270, 274-
7 75 (6th Cir. 1994), the term “entitled” as it is used in the definition of the Medicare fraction at 42 U.S.C. §1395ww(d)(5)(F), was defined as follows:
“[t]o be entitled to some benefit means that one possesses the right or title to that benefit. Thus the Medicare proxy fixes the calculation upon the absolute right to receive an independent and readily defined payment.”
The explicit language of the DSH statute limits inclusion in the Medicaid fraction to those individuals or beneficiaries “eligible for medical assistance under state plan approved under XIX” and “not entitled to benefits under Part A.” 42 C.F.R. §412.106(b)(4)(emphasis added). In that services to Medicare beneficiaries enrolled in an HMO were paid under Part A during the fiscal periods prior to the effective date of Part C, the DSH statute requires those days be excluded from the Medicaid percentage.
Id. at *5–6 (emphasis in original). Therefore, the Board found
that “the Intermediary properly excluded Medicare HMO days from
the Medicaid fraction.” Id. at 6.
The Board also made a finding that the Secretary’s policy
during 1995-1998, the years at issue in this case, was to
include the HMO patient days in the Medicare, but not the
Medicaid fraction. Id. at *4. This finding was based on CMS’s
response to a comment in a statement published in the Federal
Register that stated that CMS believed:
Based on the language of section 1886(d)(5)(F)(vi) of the Act, which states
8 that the disproportionate share adjustment computation should include “patients who were entitled to benefits under Part A”, we believe it is appropriate to include the days associated with Medicare patients who receive care at a qualified HMO. Prior to December 1, 1987, we were not able to isolate the days of care associated with Medicare patients in HMOs and, therefore, were unable to fold this number into the calculation. However, as of December 1, 1987, a field was included on the Medicare Provider Analysis and Review (MEDPAR) file that allows us to isolate those HMO days that are associated with Medicare patients. Therefore, since that time, we have been including HMO days in SSI/Medicare percentage.
Id. The Board’s decision was issued on March 16, 2011 and the
Secretary declined to review the decision, making that decision
the final agency action. See 42 U.S.C. § 1395oo(f)(1).
Plaintiffs sought judicial review under the APA, 5 U.S.C.
§ 701, et seq., of the Board’s decision to exclude HMO patient
days from the Medicaid fraction. The parties filed cross-motions
for summary judgment and the case was referred to Magistrate
Judge Harvey for an R&R. The parties have filed objections to
the R&R and this case is ripe for decision.
II. Standards of Review
A. Objections to a Magistrate Judge’s R&R
Pursuant to Federal Rule of Civil Procedure 72(b), once a
magistrate judge has entered a recommended disposition, a party
may file specific written objections. The district court “must
9 determine de novo any part of the magistrate judge’s disposition
that has been properly objected to,” and “may accept, reject or
modify the recommended disposition.” Fed. R. Civ. P. 72(b)(3).
Proper objections “shall specifically identify the portions of
the proposed findings and recommendations to which objection is
made and the basis for objection.” Local Civ. R. 72.3(b). “As
numerous courts have held, objections which merely rehash an
argument presented and considered by the magistrate judge are
not ‘properly objected to’ and are therefore not entitled to de
novo review.” Shurtleff v. U.S. Envtl. Prot. Agency, 991 F.
Supp. 2d 1, 8 (D.D.C. 2013)(quoting Morgan v. Astrue, Case No.
08–2133, 2009 WL 3541001, at *3 (E.D. Pa. Oct. 30, 2009)
(collecting cases)). Likewise, a court need not consider cursory
objections made only in a footnote. Hutchins v. District of
Columbia, 188 F.3d 531, 539 n.3 (D.C. Cir. 1999).
B. Summary Judgment Standard
Summary judgment should be granted only if the moving party
has shown that there are no genuine issues of material fact and
that the moving party is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986); Waterhouse v. Dist. of Columbia, 298 F.3d 989, 991
(D.C. Cir. 2002). In a case involving review of a final agency
action under the APA, however, Rule 56(c)’s standard does not
apply because of the court’s limited role in reviewing the
10 administrative record. See N.C. Fisheries Ass’n v. Gutierrez,
518 F. Supp. 2d 62, 79 (D.D.C. 2007).
Under the APA, it is the agency’s role to resolve factual
issues and to arrive at a decision that is supported by the
administrative record, whereas “the function of the district
court is to determine whether or not as a matter of law the
evidence in the administrative record permitted the agency to
make the decision it did.” Stuttering Found. of America v.
Springer, 498 F. Supp. 2d 203, 208 (D.D.C. 2007)(citation
omitted). “Summary judgment thus serves as the mechanism for
deciding, as a matter of law, whether the agency action is
supported by the administrative record and is otherwise
consistent with the APA standard of review.” Id. (citing
Richards v. Immigration & Naturalization Serv., 554 F.2d 1173,
1177 n.28 (D.C. Cir. 1977)).
When reviewing agency action pursuant to the APA, the Court
must determine whether the challenged decision is, inter alia,
“arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law,” 5 U.S.C. § 706(2)(A); “in excess of
statutory jurisdiction, authority, or limitations, or short of
statutory right,” id. § 706(2)(C); or “without observance of
procedure required by law,” id. § 706(2)(D). The arbitrary or
capricious provision, under subsection 706(2)(A), “is a
catchall, picking up administrative misconduct not covered by
11 the other more specific paragraphs” of the APA. Ass'n of Data
Processing Serv. Orgs., Inc. v. Bd. of Governors of Fed. Reserve
Sys. (ADPSO), 745 F.2d 677, 683 (D.C. Cir. 1984). The “scope of
review under the ‘arbitrary and capricious’ standard is narrow
and a court is not to substitute its judgment for that of the
agency.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
Although this scope of review is deferential, “courts retain
a role, and an important one, in ensuring that agencies have
engaged in reasoned decision making.” Judulang v. Holder, 565
U.S. 42, 53 (2011). In evaluating agency actions under the
arbitrary and capricious standard, the court must be satisfied
that the agency has “examine[d] the relevant data and
articulate[d] a satisfactory explanation for its action
including a rational connection between the facts found and the
choice made.” Alpharma, Inc. v. Leavitt, 460 F.3d 1, 6 (D.C.
Cir. 2006)(internal citation and quotation marks omitted).
Moreover, when an agency “has failed to provide a reasoned
explanation, or where the record belies the agency’s conclusion,
[the court] must undo its action.” Cnty. of Los Angeles v.
Shalala, 192 F.3d 1005, 1021 (D.C. Cir. 1999)(citation and
internal quotation marks omitted). In other words, “the agency
must explain why it decided to act as it did.” Butte Cnty. v.
Hogen, 613 F.3d 190, 194 (D.C. Cir. 2010).
12 III. Analysis
In its motion for summary judgment plaintiffs argued that
the Board’s ruling that individuals enrolled in HMOs between
1993 and 1998 should not be included in the Medicaid fraction
based on the Board’s interpretation of the phrase “entitled to
benefits under Part A” was inconsistent with the Court of
Appeals for the District of Columbia Circuit (“D.C. Circuit”)
precedent and therefore in violation of the APA. Pls.’ Mot., ECF
No. 53 at 11, 15–42 (citing Northeast Hosp., 657 F.3d at 1).
Defendant argued that the plaintiffs in this case were indeed
entitled to benefits under Medicare Part A, under the
Secretary’s reasonable interpretation of the HMO statute, and
therefore there was no violation of the APA. Def.’s Mot., ECF
No. 54 at 21. Specifically, defendant argued, contrary to even
the Board’s analysis, that an entitlement to benefits under Part
A simply means eligibility for benefits and not actual payment.
Def.’s Mot., ECF No. 54 at 21.
Magistrate Judge Harvey found that the Board’s decision was
arbitrary and capricious and the R&R recommends that the Court
grant plaintiffs’ motion for summary judgment in part because:
(1) the agency’s interpretation of the term “entitled to
benefits under Part A” to mean having a right to payment made
for care under Part A was in direct conflict with the agency’s
contemporaneous interpretation of the phrase offered to the D.C.
13 Circuit in Northeast Hospital; and (2) the agency failed to
consider whether its conclusion that HMO patient days should be
excluded from the Medicaid fraction was a departure from clear
prior policy during the time period relevant to this dispute.
R&R, ECF No. 64 at 13–21. Magistrate Judge Harvey recognized
that the Board’s failure to address evidence of a contrary
practice casts doubt on whether the adjudication should be given
retroactive effect. Id. at 20. Magistrate Judge Harvey noted one
additional wrinkle in the case, specifically that Plaintiff
Stamford Hospital’s dispute encompasses fiscal years 1993-1994,
while all other plaintiffs dispute fiscal years ranging from
1995-1998. Id. at 22. Magistrate Judge Harvey pointed out that
there was no evidence in the administrative record for the
fiscal years of 1993-1994. Id.
Magistrate Judge Harvey recommends that the Court remand
this case back to the Secretary to: (1) provide its rationale
for its contemporaneous contradicting interpretation of the DSH
calculation, or to align its interpretation with that offered by
the Secretary in Northeast Hospital; (2) consider whether the
Secretary’s interpretation conflicts with prior practices, and,
if so, whether plaintiffs had settled expectations and whether
the changes produced real economic consequences for plaintiffs;
and (3) for the parties to develop a factual record concerning
the Secretary’s treatment of HMO patient days during 1993-1994
14 fiscal years. Id. at 15–22.
In their objections, plaintiffs agree with Magistrate Judge
Harvey’s finding that the Board’s decision was arbitrary and
capricious, however plaintiffs do not believe that a remand is
necessary. Pls.’ Objection, ECF No. 68 at 1. Rather than remand,
plaintiffs argue that the appropriate remedy is for the Court to
order the Board to count the HMO patient days in the Medicaid
fraction, which would require this Court to rule on whether the
HMO patient days were in fact paid under Medicare Part A during
the time frame at issue in this case. Id. at 8–11. Plaintiffs
also argue that no remand is necessary to consider Stamford
Hospital’s claims related to the 1993-1994 fiscal years because
there is sufficient evidence in the administrative record from
which a Court can determine that HMO patient days were excluded
from the Medicare fraction as far back as 1987. Id. at 16.
Alternatively, in the event of a remand, plaintiffs request that
this Court retain jurisdiction over this case.
Defendant, on the other hand, disagrees with Magistrate
Judge Harvey’s finding that the Board’s decision was arbitrary
and capricious, but agrees that if the Court adopts the R&R that
a remand is the appropriate remedy. Def.’s Objection, ECF No. 69
at 10. Defendant argues that Magistrate Judge Harvey erred in
relying on Northeast Hospital because that case involved a
different legal question about a different Medicare program,
15 Part C. Id. at 8–10. Defendant states, however, that a remand is
appropriate in this case if the Court grants summary judgment in
plaintiffs’ favor. Id. at 10. Defendant takes no position as to
whether the Court should retain jurisdiction over this case
pending administrative review. See generally, id.
The Court will first address defendant’s argument that the
Board’s decision was not in violation of the APA. After finding
that the Board indeed violated the APA in failing to address
both its contrary policy regarding HMO patient days, and
contrary contemporaneous interpretation of the Medicare statute,
the Court will next address plaintiffs’ objections which concern
the appropriate remedy in this case.
A. Defendant’s Objections
Defendant objects to Magistrate Judge Harvey’s
recommendation that the Board’s decision to exclude HMO patient
days from the Medicaid fraction was in violation of the APA. See
generally Def.’s Objection, ECF No. 69. Again, under APA review,
the question for the Court is whether the Board’s decision was
“arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.” 5 U.S.C. § 706(2)(A). “Normally, an
agency rule would be arbitrary and capricious if the agency has
relied on factors which Congress has not intended it to
consider, entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs
16 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., 463 U.S. at
43. “An agency may not, for example, depart from a prior policy
sub silentio.” FCC v. Fox Tele. Stations, Inc., 556 U.S. 502,
515 (2009). Instead, “[a]n agency must . . . ‘display awareness
that it is changing position’” and provide “‘good reasons’” for
the change. Mary V. Harris Found. v. FCC, 776 F.3d 21, 24–25
(D.C. Cir. 2015)(quoting Fox Tele. Stations, 556 U.S. at 515).
Similarly, “[a]n agency errs when it ignores contradictory
relevant evidence regarding a critical factor in its decision.”
New Life Evangelistic Ctr., Inc. v. Sebelius, 672 F. Supp. 2d
61, 74 (D.D.C. 2009)(citing Morall v. Drug Enforcement Admin.,
412 F.3d 165, 178 (D.C. Cir. 2005)); see also El Rio Santa Cruz
Neighborhood Health Ctr., Inc. v. HHS, 396 F.3d 1265, 1278 (D.C.
Cir. 2005)(finding agency action “arbitrary and capricious
because [it] failed adequately to address relevant evidence
before it”). These considerations also apply to agency
adjudications. Allentown Mack Sales & Serv., Inc. v. NLRB, 522
U.S. 359, 374 (1998).
arbitrary and capricious because it failed to explain its
contrary change in position and failed to consider an important
aspect of the problem. See R&R, ECF No. 64 at 13–21. The Court
17 agrees. The Board’s decision was based on an interpretation of
the statute that focused solely on the source of payment. 2011
WL 1231544 at * 6. The Board concluded that “services to
Medicare beneficiaries enrolled in an HMO were paid under Part A
during the fiscal periods prior to the effective date of Part C,
the DSH statute requires those days be excluded from the
Medicaid percentage.” Id. Because the Federal Hospital Insurance
Trust Fund was established under Part A to fund services under
Part A, the Board reasoned, HMO inpatient hospital services were
paid pursuant to Part A and therefore the HMO patients were
“entitled to benefits under Part A.” Id. And because HMO
patients were entitled to benefits under Part A under this
interpretation of the statute, the Board excluded the HMO
patient days from the Medicaid fraction. See 42 U.S.C.
§ 1395ww(d)(5)(F)(vi)(II)(explaining numerator of Medicaid
fraction consists of patient days for individuals eligible for
medical assistance through a state plan, but not entitled to
benefits under Medicare Part A).
The problem with that reasoning, as Magistrate Judge Harvey
explained, is that this holding is based on an interpretation
that “flatly contradicts” the agency’s contemporaneous
interpretation offered in Northeast Hospital of the same
statutory provision. See R&R, ECF No. 64 at 13–14. In Northeast
Hospital, the Secretary argued that “entitled to benefits under
18 Part A” meant mere eligibility for benefits and not a right or
entitlement to payment. Northeast Hosp., 657 F.3d at 6; cf. 2011
WL 1231544 at * 6 (“[t]o be entitled to some benefit means that
one possesses the right or title to that benefit. Thus the
Medicare proxy fixes the calculation upon the absolute right to
receive an independent and readily defined payment.”).
The Board failed to consider, or even acknowledge, that it
was simultaneously arguing for contrary interpretations of the
same statutory provisions. In the administrative proceedings the
Board interpreted the phrase “entitled to benefits under Part A”
in the DSH calculation to mean having a right to payment for
care made under Part A. Medicare HMO Days Grps., 2011 WL
1231544, at *5–6. Whereas the agency’s interpretation offered
to the D.C. Circuit was eligibility for payment and not a right.
See Northeast Hosp., 657 F.3d at 6. The Board’s decision relied
solely on this contrary interpretation of the statute, without
any explanation of its change of position. As the Supreme Court
has stated, “the requirement that an agency provide reasoned
explanation for its action would ordinarily demand that it
display awareness that it is changing position.” F.C.C. v. Fox,
556 U.S. 502, 515 (2009). Without some recognition of a reason
for this contrary interpretation, the agency did not meet its
obligation under the APA to provide a reasoned explanation for
its actions. See id.
19 Similarly, the Board’s failure to address its change in
policy rendered its decision arbitrary and capricious. As the
D.C. Circuit explained in Northeast Hospital, during the fiscal
years at issue in this case, the agency’s practice was to
exclude the HMO patient days from the Medicare fraction.
Northeast Hosp., 657 F.3d at 16 (emphasis added). In responding
to the Secretary’s argument that the agency’s rulemaking in 1990
shows that the agency “interpreted the Medicare fraction to
include managed care days,” the D.C. Circuit explained that the
Secretary’s argument was belied by the agency’s actual practice
with regard to HMOs from at least as early as 1995. Id. The
Secretary’s actual practice of excluding HMO patient days from
the Medicare fraction was evidenced by the fact that “[the
Secretary] was not using the managed care field in the program
file for calculating Medicare fractions, making it impossible to
count HMO days in the Medicare fraction.” Id. (citing Baystate
Med. Ctr. v. Mut. of Omaha Ins. Co., PRRB Dec. No. 2006–D20,
2006 WL 752453, at *31 (Mar. 17, 2006)).
When presented with evidence of this prior policy of
excluding HMO patient days from the Medicare fraction in the
proceedings below, the Board ignored it. See Administrative
Record (“A.R.”), ECF No. 51-2 at 90–91. During the
administrative proceedings, plaintiffs referenced testimony and
government reports which supported its argument that the agency
20 “did not actually adopt or follow [a] policy to count Medicare
HMO days in the Medicare [fraction].” Id. In failing to respond
to this evidence, the Board failed to examine the “relevant data
and articulate a satisfactory explanation” for its determination
of the issue, and ignored contradictory evidence regarding a
critical factor in its decision. Alpharma, Inc., 460 F.3d at 6
(D.C. Cir. 2006). Based on these errors, the Board did not
adequately explain its reasoning and its decision was arbitrary
and capricious. See Atchinson Topeka and Sante Fe Railway Co.,
v. Wichita Bd. Of Trade, 412 U.S. 800 at 808 (1973)(“Whatever
the ground for the departure from prior norms . . . it must be
clearly set forth so that the reviewing court may understand the
basis of the agency’s actions.”)
Defendant responds by arguing Northeast Hospital was a
different case reviewing a different statutory scheme. Def.’s
Objection, ECF No. 69 at 5–10. The distinctions pointed out by
the defendant, however, are not legally significant. It is true
that Medicare Part C and the HMO statute are different systems,
however, the two systems are merely two types of managed care
programs. Each serves the same function within disputes over DSH
adjustments because enrollment in either program provides a
basis to claim that an enrollee is not “entitled to benefits
under Part A.” See Northeast Hosp., 657 F.3d at 6 (identical
argument with respect to Part C enrollment). In Northeast
21 Hospital, the Secretary offered the treatment of HMO patient
days as evidence that Medicare Part C patient days should be
treated the same because both HMO and Medicare Part C patient
days are types of “managed care days.” Id. at 16 (“The Secretary
argues that the 1990 rulemaking shows she has long interpreted
the Medicare fraction to include managed care days and has never
limited the calculation to reimbursements paid directly to
hospitals under Part A.”). Defendant now seeks to retreat from
this characterization to argue that the two programs should be
treated differently. To the extent that the Secretary seeks to
explain away the contrary position, this Court may not accept
defendant’s post-hoc rationalizations as a substitute for the
Board’s explanation, or lack thereof. See Remmie v. Mabus, 898
F. Supp. 2d 108, 120 (D.D.C. 2012)(stating agency’s purported
rationale of a final decision explained in its briefing to the
Court is no substitute for the agency’s actual explanation).
B. Plaintiffs’ Objections
Plaintiffs take issue with Magistrate Judge Harvey’s
recommendation to remand this case back to the Board, rather
than to direct the Board to include the HMO patient days in the
Medicaid fraction. Pls.’ Objection, ECF No. 68 at 8. As the D.C.
Circuit has explained, a remand to an agency with instructions
to reach a certain result is a “remedy reserved for rare cases
of an agency’s persistent failure to explain itself,” Checkosky
22 v. S.E.C., 139 F.3d 221, 222 (1998), or “in rare cases[] when
the reviewing court is convinced that remand would serve no
purpose,” Allina, 746 F.3d at 1111 n.6. Furthermore, “legitimate
concerns about judicial overreaching always militate in favor of
affording the agency just one more chance to explain its
decision.” Tennessee Gas Pipeline Co. v. F.E.R.C., 926 F.2d
1206, 1214 (D.C. Cir. 1991)(Thomas, J., concurring).
Plaintiffs argue that remand for further proceedings is not
necessary in this case because the Board “must apply the version
of the Secretary’s regulations in effect during the time periods
relevant to this dispute, which limited the Medicare fraction to
only those specific inpatient days actually paid by Part A.”
Pls.’ Objection, ECF No. 68 at 8. In other words, plaintiffs
request that the Court “rule on whether HMO days were actually
paid under Part A,” and if they were not paid, to order the
Board to count the HMO patient days under the Medicaid fraction.
Id.
Several cases in the D.C. Circuit counsel against this
option. In Tennessee Gas Pipeline Co. v. F.E.R.C., the D.C.
Circuit considered whether it was appropriate to remand for a
third time to an agency which twice failed to adequately explain
its decision. 926 F.2d 1206. Despite the fact that the case had
“dragged on for about eight years” and the agency had supplied
“woefully inadequa[te]” explanations in both the original and
23 the remand proceedings, the Court remanded the case back to
F.E.R.C. a third time because “ratemaking is for the Commission
and not for [the court].” Id. at 1206.
Conversely, in Greyhound Corp. v. ICC, the D.C. Circuit
found that, for the second time, the agency failed to justify
its conclusion to maintain securities jurisdiction over the
Greyhound Corporation although the agency’s own precedent seemed
to preclude such a ruling. 668 F.2d 1354 (D.C. Cir. 1981). The
D.C. Circuit concluded that since the agency had “ample time and
opportunity” during the first remand to “provide a reasoned
explanation” for the decision to maintain securities
jurisdiction, but failed to do so, the Court found “no useful
purpose to be served” by giving the agency a third opportunity
to supply a satisfactory explanation. Id. at 364.
Perhaps most relevant to this case is the D.C. Circuit’s
opinion in Allina Health Services v. Sebelius. 746 F.3d 1102. As
in this case, plaintiffs in Allina alleged the agency had
erroneously interpreted the term “entitled to benefits under
Part A” for the purposes of the DSH calculation. Id. at 1105.
The district court held, among other things, that the agency had
failed to sufficiently explain a change in policy of how the DSH
calculation was computed. Id. Rather than remand the case back
to the agency, however, the district court “ordered the
Secretary to recalculate the hospitals’ reimbursements by
24 counting Part C days under the Medicaid fraction.” Id. at 1107.
The D.C. Circuit reversed the portion of the district
court’s opinion directing the Secretary to recalculate the
hospitals’ reimbursements using an alternative methodology. Id.
at 1111. The D.C. Circuit stated that the district court erred
in not simply identifying the error and remanding for the agency
to address that error. Id. (citation omitted); see also Sec. &
Exch. Comm'n v. Chenery Corp., 332 U.S. 194, 201 (1947)(“After
the remand was made, therefore, the Commission was bound to deal
with the problem afresh, performing the function delegated to it
by Congress.”).
Plaintiffs argue that “[t]he Court would not be intruding
upon the agency’s prerogatives in making this determination,
because the Board has already ruled that HMO days are paid under
Part A.” Pls.’ Objection, ECF No. 68 at 10. This argument misses
the point. The Board’s determination was made under an
inconsistent interpretation of a statutory provision. Moreover,
the Board failed to recognize, let alone address, what seems to
be a clear change in policy during the fiscal years relevant to
this case. Magistrate Judge Harvey’s recommendation for remand
is a sound one because the Board may very well make a different
determination once it “aligns its interpretation of the DSH
calculation with that offered by the Secretary in Northeast
Hospital.” See R&R, ECF No. 64 at 15. Under such circumstances,
25 the Court is not convinced that the Board’s actions were
egregious enough “to trigger the once-in-a-decade” remedy of a
Court directing the agency on how to solve a particular problem.
Tennessee Gas Pipeline, 926 F.2d at 1214; see also Cty. of Los
Angeles v. Shalala, 192 F.3d 1005, 1011 (D.C. Cir. 1999)
(“[U]nder settled principles of administrative law, when a court
reviewing agency action determines that an agency made an error
of law, the court's inquiry is at an end: the case must be
remanded to the agency for further action consistent with the
corrected legal standards.”).
C. The Court Will Retain Jurisdiction Pending Completion of the Remand Proceedings
Plaintiffs request that in the event of a remand this Court
retain jurisdiction over this case. Pls.’ Objection, ECF No. 68
at 20–21. Defendants do not object to this request. See
generally Def.’s Objection, ECF No. 69.
The “norm” in administrative cases is to “vacate agency
action that is held to be arbitrary and capricious and remand
for further proceedings consistent with the judicial decision,
without retaining oversight over the remand proceedings.”
Baystate Med. Ctr. v. Leavitt, 587 F. Supp. 2d 37, 41 (D.D.C.
2008)(collecting cases). A court does have “discretion to retain
jurisdiction pending completion of a remand and to order
progress reports in the meantime” in unusual circumstances such
26 as “cases alleging unreasonable delay of agency action.” Alegent
Health-Immanuel Med. Ctr. v. Sebelius, 917 F. Supp. 2d 1, 3
(D.D.C. 2012).
In this case, plaintiffs argue the likelihood of extreme
agency delay is sufficient to warrant the retention of
jurisdiction over this case. The appeals in this case were filed
in 2004 and the Board rendered a decision seven years later. In
light of the long delay in its first appeals, plaintiffs request
semi-annual reports on the status of the case to this Court
during remand. Considering the lapse of time between the various
appeals and the decision during the original administrative
proceedings, and the fact that the government does not object to
this request, the Court will retain jurisdiction over this
action.
IV. Conclusion and Order
For the foregoing reasons, the Court adopts Magistrate
Judge Harvey’s R&R. Accordingly, the Court GRANTS IN PART and
DENIES IN PART plaintiffs’ motion for summary judgment, DENIES
defendant’s motion for summary judgment, and REMANDS this matter
to the agency. The Court shall retain jurisdiction over this
matter pending the completion of the remand proceedings.
SO ORDERED.
Signed: Emmet G. Sullivan United States District Judge February 28, 2019