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Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 1 of 15
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`UNITED STATES DISTRICT COURT
`DISTRICT OF COLUMBIA
`
`20-3497
`Case No. ________________
`
`FRANCISCAN HEALTH DYER CAMPUS
`24 Joliet Street
`Dyer, IN 46311
`
`
`
`FRANCISCAN HEALTH LAFAYETTE
`EAST
`1701 South Creasy Lane
`Lafayette, IN 47905
`
`FRANCISCAN HEALTH INDIANAPOLIS
`8111 South Emerson Avenue
`Indianapolis, IN 46237
`
`
`
`vs.
`
`ALEX M. AZAR, II
`Secretary of the United States Department
`of Health and Human Services, Room 700-
`E
`200 Independence Avenue, S.W.
`Washington, D.C. 20201
`
`
`
`Defendant.
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`COMPLAINT
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`Plaintiffs (Hospitals) sue Defendant, Alex M. Azar II, in his official capacity as
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`Secretary of the United States Department of Health and Human Services (HHS) and seek
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`judicial review of dismissals of their appeals before the Provider Reimbursement Review
`
`Board (PRRB).
`
`STATEMENT OF THE CASE
`
`1.
`
`This action is an appeal of a final determination by the PRRB. 42 U.S.C. §
`
`1395oo(f)(1).
`
`4831-0739-5536v1
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 2 of 15
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`2.
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`The Hospitals appeal the PRRB’s dismissal of their reimbursement appeals
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`for lack of jurisdiction. The PRRB wrongly concluded that Congress had precluded
`
`administrative review of CMS’s action. See 42 U.S.C. § 1395ww(r)(3) (“the Review
`
`Preclusion Statute”). The Hospitals seek judicial review of the PRRB’s dismissal because
`
`it erred in finding that Congress precluded any administrative or judicial review of the
`
`challenged reimbursement.
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`3.
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`The PRRB’s analysis was flawed. Though Congress has precluded review of
`
`the estimates underlying the specific reimbursement at issue, it has not precluded review
`
`to ensure that CMS lawfully implements such changes under the Medicare Act and the
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`Administrative Procedures Act. 42 U.S.C. § 1395; 5 U.S.C. § 551.
`
`4.
`
`CMS violated the Medicare Act when it failed to submit the policy change
`
`impacting the Hospitals’ reimbursement through audits to Notice-and-Comment
`
`Rulemaking. See Azar v. Allina Health Servs., 139 S. Ct. 1804, 1809 (2019).
`
`5.
`
`The Medicare Act requires CMS to promulgate properly any policy—
`
`including audits—which may impact a hospital’s payment through Notice-and-Comment
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`Rulemaking. Id. at 1809. But here, CMS created a new policy to adjust the Hospitals’
`
`reimbursements without following the required Notice-and-Comment. Because CMS
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`failed to promulgate properly the audit policy—the audit policy is procedurally unlawful
`
`under the Medicare Act and its use to alter Hospitals’ payments was impermissible.
`
`6.
`
` CMS also violated the APA in two ways. First, CMS implemented audits
`
`applying the changed policy in an arbitrary and capricious manner, harming the
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`Hospitals. Second, CMS’s reliance on a procedurally improper policy to change hospital
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`reimbursement was contrary to the law.
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 3 of 15
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`7.
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`The APA requires the Secretary to refrain from acting arbitrarily or
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`capriciously when implementing CMS’s policies. But the Secretary implemented a new
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`reimbursement policy through audits that lacked standard auditing principles to calculate
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`the Hospitals’ Uncompensated Care Disproportionate Share Hospital (UC DSH)
`
`adjustments. The lack of standard principles resulted in disparities, inconsistencies, and
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`errors that negatively impacted many hospitals’ UC DSH payments. Such arbitrary and
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`capricious implementation of the new policy violated the APA.
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`8.
`
`The APA requires the Secretary to act consistently with the law. When CMS
`
`used the improper audits as the foundation for adjustments to the Hospitals’ UC DSH
`
`payments for Federal Fiscal Year 2020, he acted inconsistently. Thus, the FFY 2020 UC
`
`DSH adjustments returned to Hospitals in their Notices of Program Reimbursement are
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`contrary to the law and in violation of the APA.
`
`9.
`
`The PRRB’s jurisdictional dismissals are incorrect because the Preclusion
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`Statute does not apply to the Hospitals’ challenges. The Preclusion Statute only applies to
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`challenges of the substantive calculations made by CMS; not challenges to whether CMS
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`followed the law. Here, the Hospitals challenge the legality of CMS’s adjustments because
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`they were procedural violations of the Medicare Act and violated the APA.
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`10.
`
`The Hospitals thus request the Court:
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` vacate the PRRB’s jurisdictional dismissal;
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` vacate all UC DSH payments made - pursuant to the 2019 Final Rule
`– that incorporated or relied upon the procedurally unlawful S-10
`audits;
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` order the PRRB to exercise jurisdiction over the Hospitals’ appeals;
`and
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 4 of 15
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`11.
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` order the Secretary to recalculate the Hospitals’ UC DSH payments
`and pay the amounts owed in addition to the required statutory
`interest.
`
`JURISDICTION AND VENUE
`
`This Court has jurisdiction over this action and the parties under the
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`Medicare Act, the Administrative Procedure Act, or both. 42 U.S.C. § 1395oo(f)(1) and 28
`
`U.S.C. § 1331.
`
`12.
`
`The Secretary has a non-discretionary duty to promulgate all statements of
`
`policy that govern the payment for services through Notice-and-Comment Rulemaking.
`
`This Court has statutory jurisdiction to compel the Secretary to do so. 28 U.S.C. § 1361.
`
`13.
`
`Venue is proper in this judicial district. 28 U.S.C. § 1391(e); 42 U.S.C. §
`
`1395oo(f)(1).
`
`PARTIES
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`14.
`
`The Hospitals were, at all times relevant to this action, qualified as
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`Medicare-participating, general acute care hospital providers in the federal Medicare
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`program under the Medicare Act.
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`15.
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`The Hospitals appealed the Secretary’s action before the PRRB based on
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`Notices of Program Reimbursement that adjusted each Hospital’s UC DSH
`
`reimbursement.
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`16. Defendant Alex M. Azar, II is the Secretary of HHS. The Secretary delegated
`
`his responsibilities to administer the Medicare program to CMS.
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`STATUTORY AND REGULATORY BACKGROUND
`
`A. The Medicare Act and Disproportionate Share Hospital Programs
`
`17.
`
`The Medicare Act establishes a system of health insurance for the aged,
`
`disabled, and individuals with end-stage renal disease federally funded and administered
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 5 of 15
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`by the Secretary through CMS and its contractors. 42 U.S.C. § 1395c; 1395kk; 42 Fed. Reg.
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`13,282 (Mar. 9, 1977).
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`18.
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`CMS implements the Medicare program, in part, through issuing official
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`rulings, regulations in the Federal Register, manuals, and subregulatory guidance. See 42
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`C.F.R. § 401.108.
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`19.
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`The Medicare Act mandates that any rule, requirement, or other statement
`
`of policy that affects payment for services be “promulgated by the Secretary” through
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`Notice-and-Comment Rulemaking. 42 U.S.C. § 1395hh(a)); Allina Health Servs., 139 S.
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`Ct. at 1809. This includes any change that “is not a logical outgrowth of previous Notice-
`
`and-Comment Rulemaking.” 41 U.S.C. § 1395hh(a)(4).
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`20.
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`The Medicare program is divided into five parts: A, B, C, D, and E. Medicare
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`Part A provides coverage and payment for inpatient hospital services on a fee-for-service
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`basis. 42 U.S.C. § 1395c.
`
`21.
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`CMS pays Medicare Part A providers for covered services through Medicare
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`Administrative Contractors (MACs) that are agents of the Secretary. Each Medicare-
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`participating hospital is assigned to a MAC that determines the amount of Medicare Part
`
`A payments for the hospital under CMS instruction. 42 U.S.C. § 1395h.
`
`22.
`
`The hospital inpatient prospective payment system (IPPS) reimburses
`
`hospitals for inpatient hospital operating costs. Costs are determined based on
`
`predetermined, nationally applicable rates linked to the diagnosis of a patient at the time
`
`of discharge from an inpatient stay. These payments are subject to adjustments, including
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`the UC DSH adjustment. 42 U.S.C. § 1395ww(d)(5)(F).
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`B. DSH Adjustments
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`23. Hospitals that treat a disproportionately large number of low-income
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`patients are entitled to a DSH adjustment, in addition to standard Medicare payments.
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`42 U.S.C. § 1395ww(d)(5)(F). The DSH adjustment increases Medicare payments for
`
`hospitals to account for the increased costs associated for treating low-income patients.
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`24.
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`The Hospitals’ DSH calculations were made using the proxy method. Each
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`hospital’s DSH adjustment and DSH payment
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`is based on each hospital’s
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`Disproportionate Patient Percentage. 42 U.S.C. § 1395ww(d)(5)(F)(v); (vi).
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`25.
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`The Disproportionate Patient Percentage is the sum of two fractions that
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`capture the number of low-income patients a hospital serves on an inpatient basis by
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`counting the number of days that low-income patients receive inpatient services in a given
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`fiscal year (“inpatient days”). The sum of the fractions is a proxy to determine the number
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`of low-income patients, rather than having CMS count the actual number of patients.
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`26.
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`The Medicare/SSI Fraction is the percentage of a hospital’s inpatients who
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`are entitled both to Medicare Part A and Supplemental Security Income (SSI) benefits
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`during their stay:
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`Medicare/SSI Days
`
`Total Medicare Days
`
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`42 U.S.C. § 1395ww(d)(5)(F)(vi)(I).
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`27.
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`The Medicaid Fraction is the percentage of a hospital’s inpatients “who were
`
`not entitled to benefits under [Medicare] Part A” but are “eligible for medical assistance”
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`under a state plan during their stay:
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`6
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`Medicaid, Non-Medicare Days
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`Total Patient Days
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`42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).
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`C. Uncompensated Care DSH Payments
`
`28.
`
`Congress enacted the UC DSH payment system through the Affordable Care
`
`Act. 42 U.S.C. § 1395ww(r); 42 C.F.R. § 412.106(f)-(h). These payments expand a
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`hospital’s DSH payments to include uncompensated care provided to low-income
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`patients.
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`29.
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`Beginning with FFY 2014, a DSH hospital received two separate DSH
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`Payments:
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`
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`30.
`
`factors:
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` Traditional DSH payment: 25% of the amount due the hospital
`under the historical DSH methodology; and
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` UC DSH payment: 75% of CMS’s estimate of the traditional DSH
`payment that would be made for the coming FFY.
`
`
`CMS calculates the UC DSH payment for each DSH hospital based on three
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` Factor 1: 75% of CMS’s estimate of the traditional DSH payment for
`the coming FFY.
`
` 
`
` 
`
` Factor 2: An adjustment for CMS’s estimate of the percentage
`change in the national uninsured rate for “the most recent period for
`which data is available” versus a baseline uninsured rate for 2013,
`less a small statutory reduction.
`
` Factor 3: Each qualifying DSH hospital’s uncompensated care as a
`percentage of the total uncompensated care for all qualifying DSH
`hospitals.
`
`31.
`
`Factor 3 is the focus of this appeal and equals the amount of uncompensated
`
`
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`care reported by a UC DSH hospital divided by the “aggregate amount of uncompensated
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`care” for all UC DSH hospitals. 42 U.S.C. § 1395ww(r)(2)(C). Thus, if a hospital’s
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 8 of 15
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`uncompensated care is understated by an audit, it will receive a reduced percentage of the
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`“the aggregate amount of uncompensated care for all subsection (d) hospitals.”42 U.S.C.
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`§ 1395ww(r)(2)(C)(ii).
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`32.
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`CMS calculates UC DSH payments before each FFY as part of its annual
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`rulemaking. UC DSH payments for hospitals are posted on the IPPS website.
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`D. The Review Preclusion Statute
`
`33.
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`Congress included the Review Preclusion Statute under the UC DSH
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`payment system, limiting administrative or judicial review of “any estimate of the
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`Secretary [or] any period selected by the Secretary” used to determine the three factors.
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`42 U.S.C. § 1395ww(r)(3).
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`34. Not included in the Review Preclusion Statute is any language allowing CMS
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`to bypass the procedural and substantive requirements of the Medicare Act or the APA—
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`including Notice-and-Comment Rulemaking.
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`E. PRRB Review and Judicial Review of PRRB Decisions
`
`35.
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`The PRRB is an administrative tribunal appointed by the Secretary. 42
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`U.S.C. § 1395oo(h). Each of the appointed members of the PRRB must be “knowledgeable
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`in the field of payment to providers of services” under the Medicare program. Id.
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`36. A hospital may appeal to the PRRB if the hospital is dissatisfied with the
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`Secretary’s final determination on the amount of payment the hospital receives. 42 U.S.C.
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`§ 1395oo(a)(1)(A)(i).
`
`37.
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`A hospital may take an appeal to the PRRB individually or pursue a group
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`appeal of an issue that is common to two or more hospitals when the amount in
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`controversy is at least $50,000. 42 U.S.C. § 1395oo(a), (b); 42 C.F.R. § 405.1835;
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`405.1837.
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`38. A PRRB decision determination that it lacks authority to decide a question
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`of law is “a final decision and not subject to review by the Secretary.”42 U.S.C. §
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`1395oo(f)(1).
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`39. Hospitals have the right to obtain judicial review of that determination by
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`suing in this Court within 60 days of the PRRB’s determination. Id.
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`40.
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`Interest is to be awarded in favor of a hospital that prevails in such an action.
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`42 U.S.C. § 1395oo(f).
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`F. The Administrative Procedure Act
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`41. Under the APA, a reviewing court must invalidate an unlawful agency action
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`that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with
`
`law”; is beyond the agency’s authority; or is procedurally improper. 5 U.S.C. § 706(2)(A),
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`(C), (D).
`
`42.
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`The APA dictates procedural requirements for rulemaking, specifically
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`requiring the agency to provide notice of proposed rules, to allow interested parties to
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`comment on the proposed rules, and to consider the comments returned. 5 U.S.C. § 553.
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`G. The Medicare Act’s Notice-and-Comment Rulemaking requirement is
`independent of the APA’s similar requirement.
`
`43. The Supreme Court has held that the Medicare Act independently requires
`
`
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`“notice and [a] 60-day comment period – for any rule, requirement, or other statement
`
`of policy ... that establishes or changes a substantive legal standard governing the scope
`
`of benefits [or] the payment for services ... under [Medicare].” Allina Health Servs., 139
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`S. Ct. at 1809 (cleaned up).
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`44. Though similar to the APA’s requirements, the Medicare Act’s Notice-and-
`
`Comment requirement places additional procedural requirements on CMS.
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 10 of 15
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`H. CMS Failed to follow the Medicare Act or APA’s Notice-and-Comment
`Requirement when it implemented Worksheet S-10 audits.
`
`45.
`
` CMS’s audit protocol, as used by the MACs, was never submitted through
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`Notice-and-Comment rulemaking as required by the Medicare Act.
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`46.
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`CMS S-10 audits lacked standard audit protocols and were thus conducted
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`by CMS—through its MACs—in an arbitrary and capricious manner. This subjected
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`different hospitals within a MAC to differing adjustments based on the same facts.
`
`47.
`
`CMS required its MACs to change the values contained on Worksheet S-10
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`for hospitals eligible for UC DSH payments. For example:
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` Some audits led to disallowances and negative adjustments for bad
`debt and charity-care charges.
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` Some audits led to disallowances of charity discounts on copayments
`under a hospital’s financial assistance policy.
`
` CMS never published notice of these potential changes, through
`Notice-and-Comment, to Hospitals.
`
`The changes to the Worksheets S-10 reduced or otherwise altered the
`
`
`
`
`
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`48.
`
`amounts of payments made by CMS to Hospitals.
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`FACTUAL AND PROCEDURAL BACKGROUND
`
`I. The Hospitals Timely Appealed to the PRRB and Are Properly Before
`This Court.
`
`49. After the close of each fiscal year, a hospital must file a cost report with its
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`designated MAC. 42 C.F.R. §§ 413.20, 412.24.
`
`50.
`
` The MACs audit the cost report and issue a determination, called a Notice
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`of Program Reimbursement (NPR) that informs a hospital of the MAC’s final
`
`determination as for the amount of reimbursement the hospital will receive. 42 C.F.R. §
`
`405.1803. Issuance of an NPR is a final agency decision. Id.
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`51.
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`The Hospitals timely filed their appeals before the PRRB challenging the
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`MACs’ implementation of the improper audit protocol within 180 days of issuing their
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`NPRs or Revised NPRs.
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`52.
`
`The Hospitals appealed CMS’s improper procedure surrounding the
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`Worksheet S-10 audits under the Medicare Act and its unlawful application of the audits
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`under the APA. These audits substantially impacted the FFY 2020 UC DSH payments to
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`Hospitals.
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`53. On October 2, 2020, the Board incorrectly found that it lacked jurisdiction
`
`because it determined that administrative review of the UC DSH calculation is barred by
`
`statute and regulation.
`
`54.
`
`The Hospitals have timely sued for review by filing their appeals within 60
`
`days of that final determination. 42 U.S.C. § 1395oo(f)(1).
`
`J. The Review Preclusion Statute does not foreclose judicial review of
`CMS’s procedurally unlawful propagation of substantive law.
`
`55.
`
`The Review Preclusion Statute does not preclude review of CMS’s
`
`procedurally unlawful policy of using unpublished, audit protocols to affect UC DSH
`
`payments to Hospitals.
`
`56.
`
`The Hospitals do not challenge CMS’s use of an “estimate,” its underlying
`
`or intertwined data, or a “time period.” Instead, the Hospitals challenge CMS’s a
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`procedurally unlawful audit protocol.
`
`57.
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`CMS violated the Medicare Act by requiring the MACs to conduct
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`Worksheet S-10 audits. CMS never published this audit protocol through Notice-and-
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`Comment. Pursuant to this audit requirement, the MACs changed the Hospitals’
`
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 12 of 15
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`
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`Worksheets S-10. The MAC’s changes substantially impacted the UC DSH payments the
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`Hospitals received.
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`58. Remand to the PRRB would be futile; the PRRB has previously stated that
`
`it lacks the authority to grant the requested relief. DSH Regional Medical Center, Case
`
`No. 14-2097 (PRRB December 10, 2015) (Board denying hospital’s request for Expedited
`
`Judicial Review).
`
`59.
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`Additionally, reversal and remand to the Secretary would merely result in
`
`this matter being passed back to the PRRB, which would order expedited judicial review.
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`This Court must address this issue on the merits to avoid “convert[ing] judicial review of
`
`agency action into a ping-pong game.” NLRB v. Wyman-Gordon Co., 394 U.S. 759, 776
`
`n. 6 (1969) (plurality opinion).
`
`
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`BASES OF APPEAL
`
`Count I: Violation of the Medicare Act
`
`60.
`
`Plaintiffs incorporate the allegations from all previous paragraphs as if set
`
`forth fully above.
`
`61.
`
`The Medicare Act requires the Secretary to subject any policies impacting a
`
`provider’s payment to Notice-and-Comment Rulemaking. 42 U.S.C. § 1395); Allina
`
`Health Servs., 139 S. Ct. at 1809.
`
`62.
`
`The S-10 Audit protocol was such a policy but was not subjected to Notice-
`
`and-Comment Rulemaking.
`
`63.
`
`64.
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`The adjustments thus violated the Medicare Act.
`
`The unlawful S-10 Audit results were returned to the Hospitals.
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`12
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 13 of 15
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`65.
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`The PRRB’s dismissal of the Hospitals’ actions was incorrect because
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`nothing in the Review Preclusion Statute exempts the Secretary from adhering to the
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`Medicare Act or precludes the PRRB or a court from reviewing such procedurally unlawful
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`agency action.
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`Count II: Violations of the APA
`
`
`The Plaintiffs incorporate the allegations from all previous paragraphs as if
`
`66.
`
`set forth fully here.
`
`67.
`
`The Secretary cannot bypass his obligations under the APA to implement
`
`the Medicare Act in accordance with the law or to implement CMS policies in neither an
`
`arbitrary or capricious manner. 5 U.S.C. § 706(2). The Secretary violated the APA by doing
`
`both.
`
`68.
`
`First, the 2015 Worksheet S-10 Audits are procedurally improper under the
`
`Medicare Act and the APA because their protocol:
`
` was not the logical outgrowth of any policy presented in the FFY
`2020 IPPS Proposed Rule or any other earlier proposed rule;
`
` was not adopted as a regulation through Notice-and-Comment
`rulemaking; and
`
` deviated from long-standing agency policy without explanation or
`justification.
`
`The Secretary’s inclusion of the S-10 Audits in the adjustments that reduced
`
`
`
`
`
`
`69.
`
`the Hospitals’ UC DSH payments is thus contrary to the law. By acting contrary to the
`
`law, the Secretary violated the APA.
`
`70.
`
`Second, the Secretary’s implementation and application of the S-10 Audits
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`was arbitrary and capricious.
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 14 of 15
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`71.
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`The S-10 Audits were performed without standard measures or metrics. The
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`lack of standards created disparate, conflicting, and unpredictable results for the
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`Hospitals—including negatively impacting the UC DSH payments for the Hospitals.
`
`72. Moreover, the Secretary’s inclusion of an improperly created S-10 Audits
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`was itself arbitrary and capricious.
`
`73.
`
`The PRRB’s dismissal of the Hospitals’ actions was incorrect because
`
`nothing in the Review Preclusion Statute exempts the Secretary from adhering to the
`
`Medicare Act and APA’s requirements—nor precludes the review of such ultra vires
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`actions.
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`
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`REQUEST FOR RELIEF
`
`Therefore, the Hospitals request an Order:
`
`1.
`
`2.
`
`3.
`
`4.
`
`5.
`
`
`6.
`
`7.
`
`Declaring invalid and setting aside the final decisions precluding
`administrative and judicial review of the Plaintiff Hospitals’ appeals relating
`to their UC DSH payments for FFY 2020;
`
`Declaring invalid the unlawful audit protocol never published through
`Notice-and-Comment Rulemaking;
`
`Requiring the Secretary to recalculate the Hospitals’ UC DSH payments
`without reliance on any changes made as a result of the unlawful audit
`protocol;
`
`Requiring the Secretary to comply with the duty to promulgate all
`statements of policy that govern the payment for services through Notice-
`and-Comment Rulemaking;
`
`Requiring the Secretary to pay legal fees and costs of suit incurred by the
`Hospitals;
`
`Awarding interest to Hospitals pursuant to 42 U.S.C. § 1395oo(f)(2); and
`
`Such other relief as this Court may consider appropriate.
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`14
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`Case 1:20-cv-03497 Document 1 Filed 12/01/20 Page 15 of 15
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`Respectfully submitted,
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`HALL, RENDER, KILLIAN, HEATH & LYMAN, P.C.
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`/s/Andrew B. Howk
`Andrew B. Howk, Attorney No. IN0005
`N. Kent Smith, Attorney No. IN177749
`Lauren N. Rodriguez, Attorney No. IN0006
`500 North Meridian Street, Suite 400
`Indianapolis, IN 46204-1293
`Ph: (317) 429-3607
`Fax: (317) 633-4878
`Email: ahowk@hallrender.com
`Attorneys for Plaintiffs
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`15
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