UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
CHILDREN’S HOSPITAL ASSOCIATION OF TEXAS; CHILDREN’S HEALTH CARE d/b/a CHILDREN’S HOSPITAL AND CLINICS OF MINNESOTA; GILLETTE CHILDREN’S SPECIALTY HEALTHCARE; CHILDREN’S HOSPITAL OF THE KING’S DAUGHTERS, INCORPORATED; SEATTLE CHILDREN’S HOSPITAL,
Plaintiffs,
v. Civil Action No. 17-844 (EGS)
ALEX MICHAEL AZAR, II, in his official capacity, Secretary, Department of Health and Human Services; SEEMA VERMA, in her official capacity, Administrator, Centers for Medicare and Medicaid Services; and the CENTERS FOR MEDICARE AND MEDICAID SERVICES,
Defendants.
MEMORANDUM OPINION
Under the Medicaid Act (“Act”), the federal government
provides each state funds for distribution to hospitals that
treat significantly higher percentages of Medicaid-eligible
patients to help cover the costs of providing medical care to
such individuals. However, these supplemental payments are
subject to limits to ensure that no hospital receives payments
that would result in a profit, rather than covering only Medicaid-related costs. On May 8, 2017, Plaintiffs—one
children’s hospital association, whose members are eight free-
standing children’s hospitals in the state of Texas, and four
other free-standing children’s hospitals located in Minnesota,
Virginia, and Washington—filed suit in this Court challenging a
final rule that defines how “costs” are to be calculated for
purposes of determining the limit on the amount of the
supplemental payment a hospital serving a disproportionate share
of Medicaid-eligible individuals is entitled to receive. See
Medicaid Program; Disproportionate Share Hospital Payments –
Treatment of Third Party Payers in Calculating Uncompensated
Care Costs, 82 Fed. Reg. 16,114, 16,117 (Apr. 3, 2017) (“Final
Rule”). The Final Rule permits Defendants—the Secretary of
Health and Human Services (“the Secretary”), Centers for
Medicare and Medicaid Services (“CMS”), and the CMS
Administrator—to define “costs” as those “costs net of third-
party payments, including, but not limited to, payments by
Medicare and private insurance.” 42 C.F.R. § 447.299(c)(10)(i).
On March 6, 2018, this Court granted Plaintiffs’ motion for
summary judgment and vacated the Final Rule, holding that the
Final Rule’s definition of “costs” was inconsistent with the
2 Act. Mem. Op., ECF No. 34 at 30, 44-45. 1 Defendants timely
appealed, and the United States Court of Appeals for the
District of Columbia Circuit (“D.C. Circuit”) reversed this
Court’s ruling, finding that the Final Rule was “consistent with
the statute’s context and purpose” and that it was not arbitrary
or capricious. Children’s Hosp. Ass’n of Tex. v. Azar, 933 F.3d
764, 772, 774 (D.C. Cir. 2019). The Court reinstated the Final
Rule and remanded the case for further proceedings consistent
with the opinion. Id. at 774.
Pending before the Court is Plaintiffs’ motion to clarify
the effective date of the Final Rule, in view of the D.C.
Circuit’s reinstatement of the Final Rule. See Pls.’ Mot. Mem.
Clarify Effective Date Final Rule (“Pls.’ Mot.”), ECF No. 44.
Plaintiffs argue that the effective date of the Final Rule
should be no earlier than the date the D.C. Circuit’s mandate
issued on November 19, 2019. Id at 5. Defendants, on the other
hand, ask the Court to find that the Final Rule is effective as
of its initial effective date of June 2, 2017. Defs.’ Opp’n
Pls.’ Mot. Clarify Effective Date Final Rule (“Defs.’ Opp’n”),
ECF No. 46 at 7-8.
1 When citing electronic filings throughout this Opinion, the Court cites to the ECF page number, not the page number of the filed document. 3 Upon consideration of the parties’ submissions, the
applicable law, and the entire record herein, Plaintiffs’ motion
is DENIED.
I. Background
Medicaid is a “joint state-federal program in which
healthcare providers serve poor or disabled patients and submit
claims for government reimbursement.” Universal Health Servs.,
Inc. v. United States, 136 S. Ct. 1989, 1996-97 (2016). In
addition to serving low-income individuals, Medicaid also
provides benefits to children with certain serious illnesses,
without regard to family income. See, e.g., 42 U.S.C. §
1396a(a)(10)(A)(i)(II) (children are eligible for Medicaid if
they are eligible for Supplemental Security Income (“SSI”)); 20
C.F.R. § 416.934(j) (children born weighing less than 1,200
grams are presumptively eligible for SSI). Individual states,
subject to the federal government’s review and approval,
administer their own program. See 42 U.S.C. § 1396-1. Once the
Secretary or the Secretary’s designee approves a state plan, the
state receives federal financial participation to cover part of
the costs of its Medicaid program. Id. § 1396b(a)(1). If a state
fails to comply with the statutory or regulatory requirements
governing Medicaid, the federal government may recoup federal
funds from the state. See id. § 1316(a), (c)–(e).
4 The cost of treating Medicaid patients is high. To help
ease the financial strain, Congress authorized supplemental
payments (“DSH payments”) to hospitals that serve a
disproportionate share of low-income patients (“DSH hospitals”).
See 42 U.S.C. § 1396a(a)(13)(A)(iv). In 1993, to assuage
concerns that some hospitals were receiving DSH payments in
excess of “the net costs, and in some instances the total costs,
of operating the facilities,” Congress amended the Medicaid
program to cap DSH payments at each hospital’s costs incurred.
H.R. Rep. No. 103-111, at 211 (1993), as reprinted in 1993
U.S.C.C.A.N. 278, 538. For Medicaid patients, the Act sets the
hospital-specific limit (“HSL”) for DSH payments as “the costs
incurred during the year of furnishing hospital services” to
Medicaid-eligible individuals “as determined by the Secretary
and net of payments” under the Act (referred to as the “Medicaid
shortfall”). 42 U.S.C. § 1396r-4(g)(1)(A).
To ensure that DSH payments comply with statutory
requirements, the Medicaid Act was again amended in 2003 to
require that each state provide an annual report and an audit of
its DSH program. See id. § 1396r-4(j). The reports must identify
which hospitals receive DSH payments and the audits must verify
that the DSH payments comply with the statutory requirements.
Id. In 2008, CMS issued a final rule pursuant to notice-and-
comment rulemaking implementing the 2003 auditing requirements.
5 See Medicaid Program; Disproportionate Share Hospital Payments,
73 Fed. Reg. 77,904 (Dec. 19, 2008) (“2008 Rule”). The 2008 Rule
provided that each state must report to CMS the cost of each DSH
hospital’s “Total Medicaid Uncompensated Care,” but did not
state whether third-party payments, including payments by
Medicare and private insurers, were meant to be included in
calculating the amount. Id. at 77,950 (codified at 42 C.F.R. §
447.299(c)(11)).
On January 10, 2010, CMS posted answers to FAQs regarding
the audit and reporting requirements, clarifying that payments
made by Medicare and private insurers should be included. See
Mem. Op., ECF No. 34 at 11. The FAQs were subsequently
challenged in multiple courts as an unlawful amendment of the
2008 Rule and as inconsistent with the Medicaid Act, and each of
the courts to consider the issue found the FAQs invalid on
procedural grounds for failing to properly promulgate the policy
embodied in the FAQs in accordance with notice-and-comment
requirements. See id. at 11-13 (collecting cases).
On August 15, 2016, CMS issued a notice of proposed
rulemaking and subsequently promulgated the Final Rule. 81 Fed.
Reg. 53980, 53981 (Aug. 15, 2016). The Final Rule establishes
that payments by Medicare and private insurers are to be
included in calculating a hospital’s “costs incurred.” 82 Fed.
Reg. 16,114, 16,122 (Apr. 3, 2017) (codified at 42 C.F.R. §
6 447.299(c)(10)). It provides, among other things, that “costs .
. . [a]re defined as costs net of third-party payments,
including, but not limited to, payments by Medicare and private
insurance.” Id. The Final Rule went into effect on June 2, 2017.
Id. at 16,115. Defendants noted that, because the Final Rule
merely “provid[es] clarification to existing policy,” there is
“no issue of retroactivity, nor a need for a transition period.”
Id. at 16,118.
Plaintiffs filed suit on May 8, 2017, arguing that the
Final Rule violates the Administrative Procedure Act because it
exceeds the Secretary’s authority under the Medicaid Act and is
arbitrary and capricious. Compl., ECF No. 1. On May 15, 2017,
Plaintiffs filed a motion for a preliminary injunction
requesting the Court to “enjoin[] Defendants – on a nationwide
basis – from enforcing, applying, or implementing (or requiring
any state to enforce, apply, or implement)” the Final Rule. Mot.
Prelim. Inj., ECF No. 8 at 1. On May 23, 2017, in accordance
with the Court’s May 19, 2017 Order, the parties filed a joint
status report in which they agreed that Plaintiffs’ motion for a
preliminary injunction could “be combined with the merits and
treated also as a motion for summary judgment.” Joint Status
Report, ECF No. 11 at 2. The Court entered an order
consolidating Plaintiffs’ motion for a preliminary injunction
with a determination of the merits under Federal Rule of Civil
7 Procedure 65(a)(2) on May 24, 2017. Plaintiffs filed a combined
application for a preliminary injunction and summary judgment on
June 5, 2017. Pls.’ Combined Mem. Supp. Appl. Prelim. Inj. Summ.
J. (“Pls.’ Mem.”), ECF No. 12-1.
On March 6, 2018, this Court vacated the Final Rule and
entered summary judgment for Plaintiffs, holding that the Rule
“is inconsistent with the plain language of the Medicaid Act,”
which “clearly indicates which payments can be subtracted from
the total costs incurred during the year by hospitals” and
“nowhere mentions subtracting other third-party payments made on
behalf of Medicaid-eligible patients from the total costs
incurred.” Mem. Op., ECF No. 34 at 30, 34. Defendants timely
appealed. Notice Appeal, ECF No. 37.
While the appeal was pending, Defendants indicated on the
CMS website that “[i]n light of the decision in Children’s Hosp.
Ass’n of Texas v. Azar, No. 17-cv-844 (D.D.C. March 2, 2018),
appeal docketed, No. 18-5135 (D.C. Cir. May 9, 2018), CMS will
not be enforcing the 2017 rule (published at 82 Fed. Reg. 16114
and codified at 42 U.S.C. § 447.299(c)(10)), as long as the
Children’s Hospital Ass’n of Texas decision remains operative in
its current form. The government’s appeal of that decision is
pending at this time.” See Ex. A to Kenneally Decl., ECF No. 44-
3 at 5. States also continued to make DSH supplemental payments
8 to Plaintiffs using a formula that did not take into account the
Final Rule. Pls.’ Mot., ECF No. 44 at 8-9.
On August 13, 2019, the D.C. Circuit “reverse[d] the
judgment of [this Court], reinstate[d] the 2017 Rule and
remand[ed] the case for further proceedings consistent with
[its] opinion.” Children’s Hosp. Ass’n of Tex., 933 F.3d at 774.
The D.C. Circuit held that the Final Rule is “consistent with
the statute’s context and purpose, both of which suggest DSH
payments are meant to assist those hospitals that need them most
by covering only those costs for which DSH hospitals are in fact
uncompensated.” Id. at 772. The court further held that the
Final Rule was not the product of arbitrary and capricious
reasoning because CMS had adequately explained the reasons for
the departure from the 2008 Rule and the Secretary had tied the
Final Rule to the record. Id. at 773-74. The mandate issued on
November 19, 2019. Mandate, ECF No. 40.
On November 20, 2019, Plaintiffs moved to set a status
conference date or, in the alternative, a briefing schedule
concerning any outstanding questions following the D.C.
Circuit’s decision. Pls.’ Mot. Mem. Set Status Conf., ECF No.
39. Defendants opposed the motion. Mem. Opp’n, ECF No. 41. On
November 29, 2019, the Court denied Plaintiffs’ motion for a
hearing, but granted the motion for a briefing schedule to
resolve any remaining issues. Min. Order (Dec. 3, 2019).
9 On or around January 10, 2020, CMS updated its website to
indicate that it intended to enforce the Final Rule. Pls.’ Mot.,
ECF No. 44 at 9; Defs.’ Opp’n, ECF No. 46 at 9. The website
stated that “[i]n the absence of an operative judicial ruling
vacating or enjoining the 2017 rule, the 2017 rule applies with
respect to all hospital services furnished on or after June 2,
2017, and CMS intends to enforce it accordingly.” Ex. B to
Kenneally Decl., ECF No. 44-3 at 12 (excluding the state of
Mississippi from enforcement due to the litigation pending in
the United States Court of Appeals for the Fifth Circuit at that
time).
On January 13, 2020, Plaintiffs filed the pending motion.
III. Analysis
In view of the D.C. Circuit’s reversal of this Court’s
decision vacating the Final Rule, the parties ask the Court to
clarify the effective date of the Final Rule. Plaintiffs contend
that the Court should find that the Final Rule’s effective date
is no earlier than the issuance of the D.C. Circuit’s mandate on
November 19, 2019. Pls.’ Mot., ECF No. 44 at 12. Defendants, on
the other hand, contend that the reinstated Final Rule should be
effective as of the originally scheduled effective date of June
2, 2017. Defs.’ Opp’n, ECF No. 46 at 7-8. The Court agrees with
Defendants and holds that the effective date of the Final Rule
is June 2, 2017.
10 A. The Retroactivity Rule From Harper Applies
The Court finds that the retroactivity principles
articulated in Harper v. Virginia Department of Taxation, 509
U.S. 86 (1993), compels the conclusion that the D.C. Circuit’s
reinstatement of the Final Rule should apply with full
retroactive effect. Under the Supreme Court’s decision in
Harper, judicial decisions, as opposed to statutes and
regulations, presumptively apply retroactively. 509 U.S. at 97.
Accordingly, when the Supreme Court or federal court of appeals
for the circuit in question applies “a rule of federal law to
the parties before it, that rule is the controlling
interpretation of federal law and must be given full retroactive
effect in all cases still open on direct review and as to all
events, regardless of whether such events predate or postdate
[the] announcement of the rule.” Id. at 95, 97 (“‘[T]he nature
of judicial review’ strips us of the quintessentially
‘legislat[ive]’ prerogative to make rules of law retroactive or
prospective as we see fit.” (second alteration in original)
(quoting Griffith v. Kentucky, 479 U.S. 314, 322 (1987))); see
also James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 535-
36 (1991). “[T]he decision of a federal court must be given
retroactive effect regardless whether it is being applied by a
court or an agency.” Nat’l Fuel Gas Supply Corp. v. FERC, 59
F.3d 1281, 1289 (D.C. Cir. 1995). If a court of appeals
11 overrules a district court, then that district court decision is
rendered a “legal nullity” and “requires that it be treated
thereafter as though it never existed.” Khadr v. United States,
529 F.3d 1112, 1115-16 (D.C. Cir. 2008) (quoting Butler v.
Eaton, 141 U.S. 240, 244 (1891)). Thus, “a party against whom an
erroneous judgment or decree has been carried into effect is
entitled, in the event of a reversal, to be restored by his
adversary to that which he has lost thereby.” Arkadelphia
Milling Co. v. St. Louis Sw. Ry. Co., 249 U.S. 134, 145 (1919).
Plaintiffs concede that it is a “well-settled principle
that judicial decisions announce the law retroactively.” Pls.’
Reply, ECF No. 48 at 9. However, Plaintiffs argue that Harper is
inapplicable to the present situation for several reasons.
First, Plaintiffs argue that, because the Court’s vacatur
rendered the Final Rule void and Defendants did not seek a stay
pending appeal, the Final Rule may not be enforced any earlier
than the date of the D.C. Circuit’s mandate. Pls.’ Mot., ECF No.
44 at 12-14. Citing to Bowen v. Georgetown University Hospital,
488 U.S. 204 (1988), Plaintiffs contend that to hold otherwise
would constitute impermissible retroactive rulemaking. Id. But
in so arguing, Plaintiffs appear to conflate the retroactivity
principles of judicial decisions with the retroactivity
principles of regulations and statutes. In Bowen, the Supreme
Court explained that because statutes and regulations change the
12 law, they are presumptively not applied retroactively. See 488
U.S. at 208-09 (holding that HHS lacked statutory authority to
promulgate a rule requiring private hospitals to refund Medicare
payments for services rendered before promulgation of the rule).
Bowen did not address the situation here, where the dispute
instead centers on the retroactive effect and operation of a
judicial decision.
Indeed, the majority of federal courts faced with
circumstances closely mirroring the procedural posture in this
case have applied Harper’s retroactivity principles and have
concluded that an agency rule that is vacated but ultimately
reinstated on appeal has an effective date as of the agency’s
initially scheduled date. See, e.g., U.S. W. Commc’ns., Inc. v.
Jennings, 304 F.3d 950, 957 (9th Cir. 2002) (following Harper
and holding that, with respect to previously vacated rules, the
Supreme Court’s reinstatement of the rules meant that the court
“should apply those rules to all interconnection agreements
arbitrated under the Act, including agreements arbitrated before
the rules were reinstated”); GTE S., Inc. v. Morrison, 199 F.3d
733, 740 (4th Cir. 1999) (“[T]he Supreme Court’s determination
that the FCC has jurisdiction to issue pricing rules would
appear to compel the conclusion that the FCC always had such
jurisdiction and that the rules apply as of the effective date
originally scheduled.” (citation omitted)); Tagaeva v. BNV Home
13 Care Agency, Inc., No. 16-cv-6869 (RRM) (RLM), 2018 WL 1320661,
at *3 (E.D.N.Y. Mar. 13, 2018) (noting that the argument that a
judicial decision “applies only prospectively flies in the face
of the Supreme Court’s repeated warning that prospective
application of laws is a doctrine that ‘smack[s] of the
legislative process’” (quoting Harper, 509 U.S. at 108)
(alteration in original)); Green v. Humana at Home, Inc., No.
16-cv-7586 (AJN), 2017 WL 9916832, at *8 (S.D.N.Y. Sept. 29,
2017) (concluding that finding that a “judicial decision does
not create liability for an individual’s actions prior to the
issuance of the court’s mandate” would be “irreconcilable with
the very principle of retroactivity”).
The United States Court of Appeals for the Ninth Circuit’s
(“Ninth Circuit”) decision in Ray v. County of Los Angeles, 935
F.3d 703 (9th Cir. 2019), is instructive. In Ray, the Ninth
Circuit addressed whether a Department of Labor (“DOL”) rule—
which had been vacated by a court in this District and then
later reinstated by the D.C. Circuit—was effective as of the
original effective date or effective as of the date the mandate
issued. 935 F.3d at 713-14. The lower court in Ray had held
that, although the D.C. Circuit decision applied retroactively,
“that decision was merely that the DOL could amend the [statute]
and that those amendments were not arbitrary and capricious.
This . . . differed from ‘the retroactive application of the
14 amended regulations themselves.’” Id. at 707. The Ninth Circuit
disagreed, explaining that “[w]hen the D.C. Circuit held that
the DOL had the rulemaking authority to promulgate the new rule
and that its new rule was a reasonable exercise of that
authority, . . . it did not change the law but merely explained
what the law always was—the district court’s erroneous contrary
holding notwithstanding.” Id. at 714. The Ninth Circuit
emphasized that, though the lower court had found that it would
be unfair to act as if the vacatur of the regulations had never
occurred, “it would be equally unfair” to penalize the
plaintiffs “just because a single district court issued an
erroneous decision that another court reversed on appeal.” Id.
at 715. And although the decision to rely on the vacatur may
have been reasonable, “it created a monetary risk” because
defendants were “well aware that an appellate court might uphold
the regulations on appeal.” Id. The Ninth Circuit noted that to
hold that “an erroneous vacatur can[] postpone a rule’s
effective date until an appellate court corrects the error
sometime in the future” could “encourage dilatory appellate
litigation.” Id.
Plaintiffs, however, point out that not all courts have
followed Harper in determining the effective date of a
reinstated rule. Pls.’ Reply, ECF No. 48 at 12-13. For example,
Plaintiffs rely on the rationale in MCI Telecommunications Corp.
15 v. GTE Northwest, Inc., 41 F. Supp. 2d 1157 (D. Or. 1999), to
argue that courts are not required to “pretend that the binding
ruling depriving the regulation of legal force never happened.”
Pls.’ Reply, ECF No. 48 at 14-15. In MCI, the district court
declined to apply the reinstated regulations from their original
effective date because the “court perceive[d] a crucial
distinction between applying a new interpretation of a law that
admittedly was in effect during the relevant time period, versus
applying a substantive regulation that never was in effect to
begin with.” 41 F. Supp. 2d at 1163 (citation omitted).
Plaintiffs argue the same distinction applies here. However, the
Court is persuaded that “the distinction observed by the MCI
court between judicial decisions reversing a rule’s vacatur and
those reversing course on a prior, contrary interpretation of a
rule in fact makes no difference to the applicability of the
Harper retroactivity rule.” Brittmon v. Upreach, LLC, 285 F.
Supp. 3d 1033, 1040 (S.D. Ohio 2018); see Jennings, 304 F.3d at
956–58 (reversing U.S. W. Commc’ns, Inc. v. Jennings, 46 F.
Supp. 2d 1004, 1009 (D. Ariz. 1999), which had relied on MCI for
the proposition that the FCC regulations did not take effect
until the stay and vacatur orders were reversed); Morrison, 199
F.3d at 740–41 (finding that a straightforward analysis under
Harper “would appear to compel” the court to find that
reinstated agency rules applied as of the effective date
16 originally scheduled). When the D.C. Circuit reinstated the
Final Rule, this Court’s decision became a legal nullity. Thus,
the D.C. Circuit’s determination that the Final Rule was valid
requires the conclusion that it was always valid and that the
Final Rule applies as of the initial effective date. See
Brittmon, 285 F. Supp. 3d at 1040 (“Practically speaking,
adoption of the legal fiction that a former judicial decision
was never really the law in the first place is precisely what
the Harper rule requires.”).
Plaintiffs further attempt to distinguish the cases
applying Harper by noting that some of the cases were decided
“in the context in which private parties have a statutory right
to enforce the agency’s regulations through civil litigation.”
Pls.’ Mot., ECF No. 44 at 15 n.2 (citing Ray, 935 F.3d at 715)).
Plaintiffs argue that “[h]ere, where private parties lack any
right of action to enforce CMS’s Final Rule,” the D.C. Circuit’s
decision in Heartland Regional Medical Center v. Sebelius, 566
F.3d 193 (D.C. Cir. 2009), “is the most relevant authority to
guide this Court’s decision.” Id. In Heartland, the D.C. Circuit
was tasked with determining whether an ambiguous district court
order had intended to vacate an agency rule or to remand it to
the agency for further consideration. 566 F.3d at 195-96.
Because, among other things, “vacatur . . . would have raised
substantial doubt about HHS’s ability to recoup payments it made
17 for years prior to reinstatement” of the rule, the D.C. Circuit
held that the lower court had not vacated the rule. Id. at 197-
98. Thus, Plaintiffs argue, if this Court retroactively applied
the original effective date here, it would “conflict with the
Heartland court’s objective of avoiding disruptive
consequences.” Pls.’ Mot., ECF No. 44 at 16. Critically, though,
Heartland does not involve an agency rule that has been vacated
by a lower court and then later reinstated on appeal. Without
this key fact, Heartland is inapposite. As in Bowen, the primary
principles underlying the case concern those of regulatory
retroactivity, not judicial decision retroactivity.
Accordingly, the Court finds that the Harper retroactivity
principles apply to this case.
B. Equitable Considerations Do Not Warrant Departing From The Retroactivity Principles Set Forth In Harper
Even if the Harper retroactivity principles apply,
Plaintiffs argue that this Court still has the “equitable
discretion to limit the agency’s retroactive enforcement of the
Final Rule.” Pls.’ Reply, ECF No. 48 at 5 (citing Arkadelphia
Milling Co., 295 U.S. at 310; Atl. Coast Line R.R. Co. v.
Florida, 295 U.S. 301, 310 (1935)). In Plaintiffs’ view, the
Court retains this discretion, contending the “equitable nature
of this inquiry” explains the outcomes in many of the cases
concluding that the effective date of a reinstated rule is the
18 original date. Id. at 11. Relying on this rationale, Plaintiffs
argue that the “equities are decidedly against Defendants” here.
Id. at 6. Plaintiffs contend that “Defendants effectively
ratified this Court’s vacatur and shifted the effective date of
the Final Rule themselves” by posting the statement on the
Medicaid website providing that “[i]n light of the decision in
Children’s Hosp. Ass’n of Texas v. Azar, No. 17-cv-844 (D.D.C.
March 2, 2018) . . . CMS will not be enforcing the 2017 rule . .
. as long as the Children’s Hospital Ass’n of Texas decision
remains operative in its current form.” Pls.’ Mot., ECF No. 44
at 17-18 (citation omitted). Plaintiffs contend that states
relied on this statement and the fact that Defendants did not
seek a stay of the vacatur, and paid Plaintiffs more than $100
million in DSH interim payments while the Final Rule was
vacated. Id.; Pls.’ Reply, ECF No. 48 at 7-8. Moreover,
Plaintiffs argue that the initial effective date is now
inappropriate in view of the D.C. Circuit’s rejection of
Defendants’ justification for choosing that date, which omitted
a transition period. See Pls.’ Mot., ECF No. 44 at 16;
Children’s Hosp. Ass’n of Tex., 933 F.3d at 773 n.3 (explaining
that the Final Rule marked a departure from existing policy).
However, under Supreme Court precedent, equitable
considerations are largely irrelevant when considering the
19 retroactivity of judicial decisions. As the D.C. Circuit
explained in National Fuel Gas Supply Corp.:
where Harper is applicable, a remedy other than retroactive application can be awarded only in four specific circumstances: [A] court may find (1) an alternative way of curing the constitutional violation, (2) a previously existing, independent legal basis (having nothing to do with retroactivity) for denying relief, or (3) as in the law of qualified immunity, a well-established legal rule that trumps the new rule of law . . . , or (4) a principle of law . . . that limits the principle of retroactivity itself.
59 F.3d at 1288 (quoting Hyde, 514 U.S. at 751) (first and third
alteration in original). “[S]imple reliance . . . is
insufficient to warrant a departure from the rule of Harper.”
Id. at 1290 (citing Hyde, 514 U.S. at 757-58); see also Harper,
509 U.S. at 97 (explaining that to prevent the selective
application of federal law, courts “can scarcely permit ‘the
substantive law [to] shift and spring’ according to ‘the
particular equities of [individual parties’] claims’ of actual
reliance on an old rule and of harm from a retroactive
application of the new rule” (alterations in original) (quoting
Beam, 501 U.S. at 543)); Brittmon, 285 F. Supp. 3d at 1040
(“[T]he Supreme Court has expressly rejected the reliance
rationale . . . .”). Because Plaintiffs’ alleged harms
ultimately arise from their reliance and certain states’
reliance on the 2008 Rule, the Court will not be swayed by such
arguments. See York Assocs., Inc. v. Sec’y, Dep’t of Housing &
20 Urban Dev., 845 F. Supp. 24, 27 (D.D.C. 1994) (concluding that
under Harper, “equitable considerations,” including the cost to
the government of $40 million if the court applied a judicial
decision retroactively, were “irrelevant”); see also Hawknet,
Ltd. v. Overseas Shipping Agencies, 590 F.3d 87, 91 n.7 (2d Cir.
2009) (finding that despite the fact that “the parties relied on
[a prior overruled decision] when structuring their
transactions, the Supreme Court has held that a reliance
interest is insufficient to overcome the presumption of
retroactivity set forth in Harper”). To the extent Plaintiffs
argue that the statement on the Medicaid website misled them as
to Defendants’ true intentions, this Court also finds that a
fair reading of the statement does not indicate that Defendants
had precluded themselves from deciding to enforce the Final Rule
if the D.C. Circuit reversed this Court’s decision. Defendants,
after all, only stated that they would not enforce the Final
Rule as long as this Court’s decision “remain[ed] operative in
its current form” and that they had appealed. Ex. A to Keneally
Decl., ECF No. 44-3 at 5. Moreover, the retroactive application
of the D.C. Circuit’s decision does not fall into any of the
four circumstances described above. Thus, per Harper,
Plaintiffs’ circumstances do not warrant relief from
retroactivity.
21 Even were the Court not limited by Harper and its progeny,
the Court is not persuaded that “the equities are decidedly
against Defendants.” Pls.’ Reply, ECF No. 48 at 6. In reversing
this Court’s decision, the D.C. Circuit held that the Final Rule
is “consistent with the statute’s context and purpose, both of
which suggest DSH payments are meant to assist those hospitals
that need them most by covering only those costs for which DSH
hospitals are in fact uncompensated.” Children’s Hosp. Ass’n of
Tex., 933 F.3d at 772. In declining to apply the effective date
as of the original date, the Court would therefore be in danger
of thwarting the Act’s purpose and operation by keeping other
qualifying hospitals from receiving the full DSH payments to
which the D.C. Circuit found they are entitled. See Pls.’
Combined Mem. Law Supp. Appl. Prelim. Inj. Summ. J., ECF No. 12
at 49-50 (stating that application of the Final Rule will cause
funds to be recouped from Plaintiffs and redistributed to other
qualifying hospitals); see also Children’s Hosp. Ass’n of Tex.,
933 F.3d at 772 (“By requiring the inclusion of payments by
Medicare and private insurers, the 2017 Rule ensures that DSH
payments will go to hospitals that have been compensated least
and are thus most in need.”); Richert v. LaBelle HomeHealth Care
Service LLC, No. 16-cv-437, 2017 WL 4349084, at *3 (S.D. Ohio
Sept. 29, 2017) (finding the purpose of the statute “would be
thwarted if the legal error of the district court . . . caused
22 employees protected by the [statute] to be unable to recover for
over ten months of overtime wages”).
Despite the statement on the Medicaid website that
Defendants would not enforce the Final Rule while the Court’s
vacatur remained operative, Plaintiffs were aware that
Defendants had appealed the Court’s decision and that the D.C.
Circuit had the authority to reverse the decision. See Ex. A to
Kenneally Decl., ECF No. 44-3 at 5. In this situation, other
courts have likewise reasoned that “a party who relies upon the
wrong interpretation of the law should not be rewarded over a
party who relies upon the correct interpretation.” Dillow v.
Home Care Network, Inc., No. 1:16-cv-612, 2017 WL 749196, at *4
(S.D. Ohio Feb. 27, 2017); see also Lewis-Ramsey v. Evangelical
Lutheran Good Samaritan Soc'y, 215 F. Supp. 3d 805, 810 (S.D.
Iowa 2016) (“[I]t strikes the Court as far more ‘unfair’ to
allow Defendant to escape liability for nearly a year’s worth of
overtime wages based on a district court decision that was
ultimately deemed to be error.”). This is so even when it is a
third-party that relied on the old rule, as Plaintiffs allege
that certain states did here. See Ray, 935 F.3d at 715 (“The
State gambled that Weil I would be affirmed. The effect of that
gamble might be unfair to the County, but the County must seek
any recourse from the State. It is not fair for the homecare
23 providers to bear the financial consequences of the State’s
calculated risk.”).
Finally, although Plaintiffs correctly note that the D.C.
Circuit rejected Defendants’ justification underlying the reason
for the June 2, 2017 effective date, Plaintiffs do not argue
that the effective date itself caused harm or otherwise was in
violation of the Administrative Procedure Act. Without more, the
Court therefore does not find that the effective date is
inappropriate.
IV. Conclusion
For the reasons stated above, Plaintiffs’ Motion to Clarify
the Effective Date of the Final Rule, ECF No. 44, is DENIED. An
appropriate Order accompanies this Memorandum Opinion.
SO ORDERED.
Signed: Emmet G. Sullivan United States District Judge November 30, 2020