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`THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`BROOKS-TLC HOSPITAL SYSTEM, INC. d/b/a
`BROOKS MEMORIAL HOSPITAL
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`529 Central Avenue
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`Dunkirk, New York 14048
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`DUKE UNIVERSITY HEALTH SYSTEM, INC. d/b/a
`DUKE REGIONAL HOSPITAL
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`3643 North Roxboro Road
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`Durham, North Carolina 27704
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`DUKE UNIVERSITY HEALTH SYSTEM, INC. d/b/a
`DUKE HEALTH RALEIGH HOSPITAL
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`3400 Wake Forest Road
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`Raleigh, North Carolina 27609
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`DUKE UNIVERSITY HEALTH SYSTEM, INC. d/b/a
`DUKE UNIVERSITY HOSPITAL
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`2301 Erwin Road
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`Durham, North Carolina 27710
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`Case No.
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`HENRY FORD HEALTH SYSTEM d/b/a HENRY FORD )
`HOSPITAL
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`2799 West Grand Boulevard
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`Detroit, Michigan 48202
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`LAKELAND HOSPITAL AT NILES AND ST. JOSEPH, )
`INC. d/b/a LAKELAND REGIONAL MEDICAL
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`CENTER
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`1234 Napier Avenue
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`St. Joseph, Michigan 49085
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`MOBILE INFIRMARY ASSOCIATION d/b/a MOBILE
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`INFIRMARY MEDICAL CENTER
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`5 Mobile Infirmary Circle
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`Mobile, Alabama 36607
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`GEISINGER MEDICAL CENTER
`100 North Academy Avenue
`Danville, Pennsylvania 17822
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`KALEIDA HEALTH
`100 High Street
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`Buffalo, New York 14203
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 2 of 34
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`ST. CLARE'S CORPORATION AS SUCCESSOR IN
`INTEREST TO ST. CLARE SCHENECTADY
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`40 North Main Avenue
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`Albany, New York 12203
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`ST. VINCENT’S MIDTOWN HOSPITAL f/k/a ST.
`CLARE'S HOSPITAL AND HEALTH CENTER
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`415 West 51st Street
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`New York, New York 10019
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`THE UNITY HOSPITAL OF ROCHESTER
`1555 Long Pond Road
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`Rochester, New York 14626
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`TRINITY HEALTH SYSTEM f/d/b/a
`MERCY HOSPITAL - DETROIT
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`5555 Conner Avenue
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`Detroit, Michigan 48213
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`TRINITY HOSPITAL HOLDING COMPANY d/b/a
`TRINITY HEALTH SYSTEM
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`380 Summit Avenue
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`Steubenville, Ohio 43952
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`VHS SINAI-GRACE HOSPITAL, INC. d/b/a SINAI
`GRACE HOSPITAL
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`6071 West Outer Drive
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`Detroit, Michigan 48235
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`v.
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`Plaintiffs,
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`ALEX M. AZAR, II Secretary,
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`United States Department of
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`Health and Human Services,
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`200 Independence Avenue S.W.
`Washington, District of Columbia 20201,
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`Defendant.
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`2
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 3 of 34
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`COMPLAINT FOR JUDICIAL REVIEW AND DECLARATORY
`AND INJUNCTIVE RELIEF UNDER THE MEDICARE ACT
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`NATURE OF ACTION
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`1.
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`This case concerns the proper treatment in the calculation of the Medicare Part A
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`disproportionate share hospital (“DSH”) payment of inpatient hospital days for patients who were
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`enrolled in Medicare Advantage plans under Part C of the Medicare Act. The Court of Appeals
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`has now ruled against the agency in three actions challenging the agency’s repeated attempts to
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`apply its Part C days policy change first adopted in 2004 to deny Medicare DSH payments to
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`hospitals. See Northeast Hosp. Corp. v. Sebelius, 657 F.3d 1, 16–17 (D.C. Cir. 2011) (finding
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`application of 2004 rule to prior periods impermissibly retroactive); Allina Health Services v.
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`Sebelius, 746 F.3d 1102, 1105 (D.C. Cir. 2014) (“Allina I”) (vacating 2004 rule because it was not
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`a logical outgrowth of proposed rule); Allina Health Servs. v. Price, 863 F.3d 937, 943–44 (D.C.
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`Cir. 2017) (“Allina II”) (holding that the agency must undertake notice-and-comment rulemaking
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`before the policy of the 2004 vacated rule can take effect). But the agency refuses to acquiesce in
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`those decisions or in the Supreme Court’s recent decision in Allina II affirming the Court of
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`Appeals’ decision. Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019). Instead, the agency has
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`continued to apply the Part C days policy adopted in the now-vacated 2004 rule in violation of
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`these decisions, including in the payment determinations at issue for the plaintiff hospitals in this
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`case, in a recently issued proposed rule seeking to re-adopt the same 2004 policy retroactively, and
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`in a ruling that would leave undisturbed the payment determinations from which hospitals have
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`appealed and, as construed by the agency’s administrative Board, not permit further administrative
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`or judicial review of those determinations. The agency’s continued attempts to apply the 2004
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`policy should be rejected because they are inconsistent with the Court of Appeals’ decision in
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`3
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 4 of 34
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`Northeast Hospital, fail any test of reasoned decision-making, and are inconsistent with
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`congressional intent in adopting the Medicare DSH statute.
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`JURISDICTION AND VENUE
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`2.
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`This action arises under the Medicare Act, Title XVIII of the Social Security Act,
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`42 U.S.C. § 1395 et seq.
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`3.
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`4.
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`5.
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`1)
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`2)
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`3)
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`4)
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`5)
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`6)
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`7)
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`8)
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`9)
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`Jurisdiction is proper under 42 U.S.C. § 1395oo(f)(l).
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`Venue is proper in this judicial district under 42 U.S.C. § 1395oo(f)(l).
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`PARTIES
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`The plaintiff hospitals in this action and hospital fiscal years at issue are as follows:
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`Brooks-TLC Hospital System, Inc. d/b/a Brooks Memorial Hospital, Provider No. 33-
`0229, fiscal year ending December 31, 1999;
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`Duke University Health System Inc. d/b/a Duke Regional Hospital, Provider No. 34-
`0155, fiscal years ending June 30, 2003 and June 30, 2004;
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`Duke University Health System, Inc. d/b/a Duke Health Raleigh Hospital, Provider
`No. 34-0073, fiscal year ending June 30, 2004;
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`Duke University Health System, Inc. d/b/a Duke University Hospital, Provider No.
`34-0030, fiscal years ending June 30, 2004 and June 30, 2005;
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`Geisinger Medical Center, Provider No. 39-0006, fiscal years ending June 30, 2004
`and June 30, 2005;
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`Henry Ford Health System d/b/a Henry Ford Hospital, Provider No. 23-0053, fiscal
`year ending December 31, 1999;
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`Kaleida Health, Provider No. 33-0005, fiscal year ending December 31, 2004;
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`Lakeland Hospital at Niles and St. Joseph, Inc. d/b/a Lakeland Regional Medical
`Center, Provider No. 23-0021, fiscal year ending September 30, 1999;
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`Mobile Infirmary Association d/b/a Mobile Infirmary Medical Center, Provider No.
`01-0113, fiscal year ending March 31, 2005;
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`10)
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`St. Clare's Corporation as successor in interest to St. Clare Schenectady, Provider No.
`33-0066, fiscal years ending December 31, 1999 and December 31, 2004;
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`4
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 5 of 34
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`11)
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`12)
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`13)
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`St. Vincent’s Midtown Hospital f/k/a St. Clare's Hospital and Health Center, Provider
`No. 33-0230, fiscal year ending December 31, 1999;
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`The Unity Hospital of Rochester, Provider No. 33-0226, fiscal year ending December
`31, 2004;
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`Trinity Health System f/d/b/a Mercy Hospital - Detroit, Provider No. 23-0147, fiscal
`year ending June 30, 1999;
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`14)
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`Trinity Hospital Holding Company d/b/a Trinity Health System, Provider No. 36-
`0211, fiscal year ending December 31, 2003; and
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`15) VHS Sinai-Grace Hospital, Inc. d/b/a Sinai Grace Hospital, Provider No. 23-0024,
`fiscal year ending December 31, 2004.
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`6.
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`The defendant is Alex M. Azar, in his official capacity as Secretary of the United
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`States Department of Health and Human Services (“Secretary”), the federal agency that
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`administers the Medicare program. References to the Secretary herein are meant to refer to him,
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`to his subordinates, and to his official predecessors or successors as the context requires.
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`7.
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`The Centers for Medicare & Medicaid Services (“CMS”) is the component of the
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`Secretary’s agency with responsibility for day-to-day operation and administration of the Medicare
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`program. CMS was formerly known as the Health Care Financing Administration. References to
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`CMS herein are meant to refer to the agency and its predecessors.
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`LEGAL AND REGULATORY BACKGROUND
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`Medicare Payment Determinations and Appeals
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`8.
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`Part A of the Medicare Act covers “inpatient hospital services.” 42 U.S.C.
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`§ 1395d(a)(l). Since 1983, the Medicare program has paid most hospitals for the operating costs
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`of inpatient hospital services under the prospective payment system (“PPS”). 42 U.S.C.
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`§ 1395ww(d); 42 C.F.R. Part 412. Under PPS, Medicare pays predetermined, standardized
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`amounts per discharge, subject to certain payment adjustments. Id. One of the PPS payment
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`adjustments is the DSH payment. See 42 U.S.C. § 1395ww(d)(5)(F); 42 C.F.R. § 412.106.
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`5
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 6 of 34
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`9.
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`After the close of each fiscal year, a hospital is required to file a “cost report” with
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`a Medicare Administrative Contractor designated by the agency. 42 C.F.R. §§ 413.20, 413.24.
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`10.
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`The Medicare Administrative Contractor analyzes a hospital’s cost report and
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`issues a year-end determination, called a Notice of Program Reimbursement (“NPR”), as to the
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`amount of Medicare program reimbursement due the hospital for services furnished to Medicare
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`patients during the fiscal year covered by the cost report. See 42 C.F.R. § 405.1803; see also In re
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`Medicare Reimbursement Litig., 309 F. Supp. 2d 89, 92 (D.D.C. 2004), aff’d, 414 F.3d 7 (D.C. Cir.
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`2005).
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`11.
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`A hospital may appeal a Medicare Administrative Contractor’s determination as to
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`the total amount of Medicare program reimbursement due the hospital for the fiscal year covered
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`by a cost report to the agency’s Provider Reimbursement Review Board (“Board”). See 42 U.S.C.
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`§ 1395oo(a)(1)(A); 42 C.F.R. §§ 405.1835–405.1877.
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`12.
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`A hospital has the right to a hearing before the Board if it is dissatisfied with the
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`contractor’s payment determination in a Notice of Program Reimbursement as to the total amount
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`of program reimbursement due to the hospital for its cost reporting period. 42 U.S.C.
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`§ 1395oo(a)(1); see also 42 C.F.R. §§ 405.1835; 405.1837. The statute further requires a minimum
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`amount in controversy and that the appeal be filed timely. 42 U.S.C. § 1395oo(a).
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`13.
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`A final decision by the Board, including a jurisdictional dismissal, is subject to
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`judicial review. 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. §1877(a).
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`Expedited Judicial Review
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`14.
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`The Medicare statute authorizes the Board to determine that it is without authority
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`to decide a question of law or regulations relevant to a matter in controversy in an appeal before
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`the Board and to grant the right to expedited judicial review. 42 U.S.C. § 1395oo(f)(1). Pursuant
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`6
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 7 of 34
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`to the Secretary’s regulations, the Board is bound by agency rules and rulings, like the 2004 rule
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`at issue. 42 C.F.R. § 405.1867. Accordingly, the statute allows a hospital to request a Board
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`determination as to its authority to decide a question of law or regulations and to initiate an action
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`in this Court if the Board determines that expedited judicial review is appropriate or fails to make
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`a determination as to its authority within 30 days after receipt of a request for such a determination.
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`See 42 U.S.C. § 1395oo(f)(1); Clarian Health W., LLC v. Hargan, 878 F.3d 346, 354 (D.C. Cir.
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`2017) (“The expedited judicial review provision makes it clear that ‘if the Board fails to render [a]
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`determination’ on its authority within 30 days, ‘the provider may bring a civil action . . . with
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`respect to the matter in controversy contained in such request for a hearing.’”); Allina II, 863 F.3d
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`at 941 (“A provider may bring suit in the district court even when the Board fails to make a timely
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`determination of its authority to decide a case.”). Accord Methodist Hosp. of Memphis v. Sullivan,
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`799 F. Supp. 1210, 1216 (D.D.C. 1992) rev’d on other grounds, Adm’rs of Tulane Educ. Fund v.
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`Shalala, 987 F.2d 790 (D.C. Cir. 1993).
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`15.
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`The regulation implementing the expedited judicial review (“EJR”) statute, 42
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`C.F.R. § 405.1842(f), sets forth an additional requirement for granting EJR, not found in the
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`statute, that the Board have “jurisdiction to conduct a hearing on the specific matter at issue.”
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`When presented with a request for EJR, the regulations require that the Board “must make a
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`preliminary determination of the scope of its jurisdiction (that is, whether the hearing request was
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`timely, and whether the amount in controversy has been met).” Id. § 405.1840(a)(2). The
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`regulation does not create any further conditions beyond those in the statute to establish
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`jurisdiction for a Board appeal. See 42 C.F.R. §§ 405.1835, 405.1837. Under the EJR regulations,
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`only after finding that the statutory requirements for jurisdiction have been met, as set forth in 42
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`7
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 8 of 34
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`C.F.R. § 405.1840(a)(2), does the Board then proceed to determine if it has the authority to decide
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`a legal question relevant to a matter at issue. Id. § 405.1842(e)(1).
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`Medicare DSH Payment
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`16.
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`A hospital that serves a disproportionate share of low-income patients is entitled to
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`an upward percentage adjustment to the standard PPS rates per discharge. See 42 U.S.C.
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`§ 1395ww(d)(5)(F); see also 42 C.F.R. § 412.106. A hospital may qualify for a DSH adjustment
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`based on its “disproportionate patient percentage.” See 42 U.S.C. §§ 1395ww(d)(5)(F)(i)(I) and
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`(d)(5)(F)(v); 42 C.F.R. § 412.106(c)(1). The disproportionate patient percentage determines both
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`a hospital’s qualification for the DSH payment and the amount of the payment. See 42 U.S.C.
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`§§ 1395ww(d)(5)(F)(iv) and (vii)–(xiii); 42 C.F.R. § 412.106(d). The disproportionate patient
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`percentage is defined as the sum of two fractions expressed as percentages. 42 U.S.C.
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`§ 1395ww(d)(5)(F)(vi).
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`17.
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`The first fraction that is used to compute the DSH payment is commonly known as
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`the “Medicaid fraction.” The statute defines the Medicaid fraction as:
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`the fraction (expressed as a percentage), the numerator of which 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 plan approved under [the
`Medicaid statute, title XIX of the Social Security Act], but who were not entitled to
`benefits under part A of [the Medicare statute, title XVIII of the Social Security
`Act], and the denominator of which is the total number of the hospital’s patient
`days for such period.
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`42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) (emphasis added). As reflected in the italicized language
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`above, the numerator of the Medicaid fraction consists of days for patients who were both eligible
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`for medical assistance under the Medicaid statute and “not entitled to benefits under Part A” of the
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`Medicare statute.
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`18.
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`The other fraction that is used to compute the DSH payment is the “Medicare part
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`A/SSI fraction” or “SSI fraction.” The statute defines this fraction as:
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`8
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 9 of 34
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`the fraction (expressed as a percentage), the numerator of which is the number of
`such hospital’s patient days for such period which were made up of patients who
`(for such days) were entitled to benefits under part A of [the Medicare statute] and
`were entitled to supplemental security income benefits (excluding any State
`supplementation) . . . , and the denominator of which is the number of such
`hospital’s patient days for such fiscal year which were made up of patients who (for
`such days) were entitled to benefits under part A of [the Medicare statute] . . . .
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`42 U.S.C. § 1395ww(d)(5)(F)(vi)(I) (emphasis added). As the italicized language indicates, the
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`Medicare Part A/SSI fraction consists solely of days for patients who were “entitled to benefits
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`under Part A” of Medicare. The denominator includes all Medicare Part A days, whereas the
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`numerator includes only those Part A days for patients who are also entitled to social security
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`income (“SSI”) benefits under title XVI of the Social Security Act. The Medicare Part A/SSI
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`fraction is computed for each federal fiscal year by the agency, and must be used to compute a
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`hospital’s DSH payment for the cost reporting period beginning in the federal fiscal year. 42 C.F.R.
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`§§ 412.106(b)(2)–(3). A hospital may elect to have the Medicare Part A/SSI fraction recalculated
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`based on patient days in its own cost reporting period instead of the federal fiscal year. See id.;
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`see also 42 U.S.C. § 1395ww(d)(5)(F)(vi), (vi)(I) (requiring calculation of Medicare Part A/SSI
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`fraction based on cost reporting period); 51 Fed. Reg. 16,772, 16,777 (May 6, 1986) (stating that
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`while the agency would rely on the federal fiscal year, it was “affording all hospitals the option to
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`determine their number of patient days of those dually entitled to Medicare Part A and SSI for their
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`own cost reporting periods”).
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`Medicare Part C
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`19.
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`Section 4001 of the Balanced Budget Act of 1997, Pub. Law No. 105-33, added a
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`new Part C to the Medicare statute to establish a Medicare program that was originally called the
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`Medicare+Choice (also known as “M+C”) program and is now called Medicare Advantage. A
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`Medicare beneficiary can elect to receive Medicare benefits either through the original fee-for-
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`service program under Medicare Parts A and B, or through enrollment in a Medicare Advantage
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`9
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 10 of 34
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`plan under Medicare Part C. 42 U.S.C. § 1395w-21(a)(1); 42 C.F.R. § 422.50; see also 63 Fed.
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`Reg. 34,968, 34,968 (June 26, 1998) (“Under section 1851(a)(1), every individual entitled to
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`Medicare Part A and enrolled under Part B . . . may elect to receive benefits through either the
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`existing Medicare fee-for-service program or a Part C M+C plan.”) (emphasis added).
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`20.
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`“Before 2004, [Defendant’s agency] had not treated Part C enrollees as ‘entitled to
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`benefits under Part A.’” Allina II, 863 F.3d at 939 (quoting Northeast Hosp., 657 F.3d at 15); see
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`also Allina I, 746 F.3d at 1106 (“Prior to 2003, the Secretary treated Part C patients as not entitled
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`to benefits under Part A.”); Allina I, 904 F. Supp. 2d at 78–80; Northeast Hosp., 657 F.3d at 16–
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`17. The DSH regulation prior to 2004 limited part-A-entitled days in the Medicare Part A/SSI
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`fraction to patient days that were “covered,” or paid, by Medicare Part A. See 42 C.F.R.
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`§ 412.106(b)(2)(i) (2003); 42 C.F.R. § 409.3 (defining “covered” as services for which payment is
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`authorized). The agency said as much when adopting the pre-2004 regulation, explaining that the
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`numerator of the Medicare Part A/SSI fraction included only “covered Medicare Part A inpatient
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`days.” 51 Fed. Reg. 16,772, 16,777 (May 6, 1986) (emphasis added); see also 51 Fed. Reg. 31,454,
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`31,460–61; Catholic Health Initiatives-Iowa Corp. v. Sebelius, 718 F.3d 914, 921 n.5 (D.C. Cir.
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`2013) (noting that the pre-2004 regulation limited the Medicare Part A/SSI fraction to “covered
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`Medicare Part A inpatient days”) (citing 51 Fed. Reg. at 16,777). Accordingly, the DSH regulation
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`prior to 2004 necessarily excluded Part C days from Part-A-entitled days because Part C days are
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`not covered or paid under Part A. See 42 U.S.C. § 1395w-21(a)(1), (i) (providing that payment of
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`Part C benefits is in lieu of benefits otherwise payable under Part A); see also Northeast Hosp.,
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`657 F.3d at 6.
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`21.
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`Further, written guidance prior to 2004 repeatedly expressed the agency’s policy
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`that Part C days, as days for which patients were not entitled to Part A payment, were to be
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`excluded from the Medicare Part A/SSI fraction. See Northeast Hosp., 657 F.3d at 15 (describing
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`prior instructions not to submit information related to services furnished to Part C patients that
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`would have been necessary to count Part C days in the Medicare Part A/SSI fraction). This
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`guidance included instructions to hospitals and program memoranda transmitting the Medicare
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`Part A/SSI fractions on an annual basis. See HCFA Pub. 60A, Transmittal No. A-98-36 (Oct. 1,
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`1998), reprinted in MEDICARE & MEDICAID GUIDE (CCH) ¶ 150, 103 (transmitting Medicare Part
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`A/SSI fractions that excluded Part C days, specifying that the fractions include only “covered
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`Medicare days,” and referring to the ratio of SSI days and “covered Medicare days” as “the ratio
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`of Medicare Part A patient days attributable to SSI recipients”); HCFA Pub. 60A, Transmittal No.
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`A-99-42 (Sept. 1, 1999), reprinted in id. ¶ 150,769 (same); HCFA Pub. 60A, Transmittal No. A-
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`00-54 (Aug. 17, 2000), reprinted in id. ¶ 151,363 (same); CMS Pub. 60A, Transmittal No. A-01-
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`109 (Sept. 13, 2001), reprinted in id. ¶ 152,216 (same); CMS Pub. 60A, Transmittal No. A-02-086
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`(Sept. 11, 2002), reprinted in id. ¶ 152,922 (same); CMS Pub. 60A, Transmittal No. A-03-067
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`(Aug. 8, 2003), reprinted in id. ¶ 153,554 (same); CMS Pub. 100-04, Transmittal 275 (Aug. 13,
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`2004), reprinted in id. ¶ 154,468 (same).
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`22.
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`In a 2003 proposed rule, the agency proposed “to clarify” its long-held position that
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`“once a beneficiary elects Medicare Part C, those patient days attributable to the beneficiary should
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`not be included in the Medicare fraction of the DSH patient percentage.” 68 Fed. Reg. 27,154,
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`27,208 (May 19, 2003). Further, the agency explained that “[t]hese days should be included in the
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`count of total patient days in the Medicaid fraction (the denominator), and the patient’s days for a
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`[Part C] beneficiary who is also eligible for Medicaid would be included in the numerator of the
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`Medicaid fraction.” Id. The agency explained that “once a beneficiary has elected to join a
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`Medicare Advantage plan, that beneficiary’s benefits are no longer administered under Part A.”
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`Id.
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`23.
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`In a final rule published in August 2004, however, the agency engaged in a “volte-
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`face” and “abruptly announced a change in policy.” Allina I, 904 F. Supp. 2d 75, 78 (D.D.C. 2012);
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`Allina I, 746 F.3d at 1107–10. That 2004 rule announced that the agency would “adopt a policy”
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`to include Part C days in the Medicare Part A/SSI fraction and exclude them from the Medicaid
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`fraction effective October 1, 2004. 69 Fed. Reg. 48,916, 49,099 (Aug. 11, 2004); see also
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`Northeast Hosp., 657 F.3d at 16 (“[I]n the 2004 rulemaking [the agency] announced that [it] was
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`‘adopting a policy’ of counting [Part C] days in the Medicare fraction”).
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`24.
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`In the 2004 final rule, the agency amended the regulation text by deleting the word
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`“covered.” 69 Fed. Reg. at 49,246. When the agency initially transmitted the Medicare Part A/SSI
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`fractions for federal fiscal years 2005 and 2006, however, those fractions continued to exclude Part
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`C days. See CMS Pub. 100-04, Transmittal 1091 (Oct. 27, 2006), reprinted in MEDICARE &
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`MEDICAID GUIDE (CCH) ¶ 156,277 (transmitting federal fiscal year 2005 Medicare Part A/SSI
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`fractions and specifying that the fractions include only “covered Medicare days,” and referring to
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`the ratio of SSI days and “covered Medicare days” as “the ratio of Medicare Part A patient days
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`attributable to SSI recipients”); CMS Pub. 100-04, Transmittal 1396 (Dec. 14, 2007), reprinted in
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`id. ¶ 156,930 (same for federal fiscal year 2006 fractions).
`
`25.
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`In July 2007, the agency issued a revision to a Medicare program manual, with a
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`“purported ‘effective date’ of October 1, 2006,” that permitted hospitals to submit the data
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`necessary to implement the new policy regarding Part C days. Allina I, 904 F. Supp. 2d at 82.
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`Thereafter, in August 2007, the agency further amended the text of the DSH regulation governing
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`Part C days without affording hospitals prior notice or opportunity for comment. 72 Fed. Reg.
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`
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`12
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`47,130, 47,384 (Aug. 22, 2007). Following the amendments in 2004 and 2007, the regulation
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`provided that the Medicare Part A/SSI fraction includes all patient days (not just “covered” days)
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`for “patients entitled to Medicare Part A (or Medicare Advantage (Part C)).” Id. at 47,411
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`(amending §§ 412.106(b)(2)(i)(B) and (iii)(B)) (emphasis added). The amendment of the
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`regulation was made effective October 1, 2007, the beginning of federal fiscal year 2008. Id. at
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`47,130; see also Allina I, 904 F. Supp. 2d at 82. The agency further amended the regulation “in
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`2010 to use the word ‘including’ in place of ‘or,’ in an apparent attempt to bolster further” the
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`agency’s position on the treatment of Part C days. Allina I, 904 F. Supp. 2d at 82 n.5.
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`Northeast Hospital
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`26.
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`The agency’s change to the DSH payment calculation first adopted in 2004 has
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`given rise to substantial litigation that continues to this day. Initially, the agency attempted to
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`apply the 2004 rule change retroactively to cost years prior to the October 1, 2004 effective date
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`of the 2004 rule. The Court of Appeals found that the agency’s retroactive application of its current
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`rule to periods prior to October 1, 2004 violated the Supreme Court’s longstanding decision in
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`Bowen v. Georgetown University Hospital, 488 U.S. 204, 208 (1988). See Northeast Hosp., 657
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`F.3d at 16. The Court held that “the Secretary’s present interpretation, which marks a substantive
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`departure from his prior practice of excluding [Part C] days from the Medicare fraction, may not
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`be retroactively applied” to the fiscal years at issue. Id. at 17.
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`27.
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`Following the D.C. Circuit’s decision, the Secretary issued TDL-12391, which
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`stated that in light of the Northeast decision, the agency was instructing its contractors to “include
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`any disallowed patient days attributable to patients who were enrolled in a Medicare Part C Plan
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`and also eligible for Medicaid for discharges occurring on or after January 1, 1999 through
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`September 30, 2004 in the Medicaid fraction” of the DSH calculation. This instruction specified
`
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`this relief should be applied to any cost reports that were not yet settled, as well as settled cost
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`reports where the Provider had filed a proper appeal. Id. at 1–2.
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`The Allina I Litigation
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`28.
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`In July 2009, the agency first published Medicare Part A/SSI fractions for hospital
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`cost reporting periods beginning in federal fiscal year 2007.1 These fractions for the first time
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`included Part C days.
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`29.
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`In Allina I, a group of hospitals challenged the 2004 rule change through
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`administrative appeals initiated in 2009, arguing (1) that the new Part C days policy was not the
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`“logical outgrowth” of the 2003 proposed rule “clarifying” the agency’s former policy, and (2) that
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`the rule was arbitrary and capricious because the agency’s “cursory explanation in the 2004 Final
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`Rule” failed to acknowledge its departure from past policy and practice and ignored the “financial
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`impact” of that departure. Allina I, 904 F. Supp. 2d at 89, 83, 92–94.
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`30.
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`This Court agreed and held that the policy announced in the 2004 final rule
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`regarding Part C days was not the logical outgrowth of the 2003 proposed rule. Id. at 89–92. This
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`Court also held that the “cursory explanation in the 2004 Final Rule failed to meet the requirements
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`of the APA” because “the Secretary[] fail[ed] to acknowledge her ‘about-face,’” and “her reasoning
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`for the change was brief and unconvincing.” Id. at 93 (quoting Northeast Hosp., 657 F.3d at 15).
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`Accordingly, this Court concluded that “[t]he portion of the 2004 Final Rule . . . that announced
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`the Secretary’s interpretation of the Medicare Disproportionate Share Hospital Fraction, as
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`codified in 2007 at 42 C.F.R. § 412.106(b)(2) and as further modified in 2010, will be vacated, and
`
`
`1 The agency did not even begin to collect “all the data necessary to implement its new policy
`until 2007,” and the FFY 2005 and 2006 Medicare Part A/SSI fractions did not include Part C
`days. Allina I, 904 F. Supp. 2d at 81–82.
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`
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`14
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`the case will be remanded to the Secretary for further action consistent with this Opinion.” Id. at
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`95.
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`31. While the agency’s appeal from this Court’s decision in Allina I was pending before
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`the Court of Appeals, the agency engaged in a new rulemaking on the treatment of Part C days
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`effective only prospectively, beginning October 1, 2013. In that rulemaking, the agency “in an
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`abundance of caution . . . proposed to readopt the policy of counting the days of patients enrolled
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`in [Part C] plans in the Medicare fraction . . . .” 78 Fed. Reg. 50,496, 50,615 (Aug. 19, 2013).
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`Accordingly, effective as of October 1, 2013, the rule governing the DSH calculation is the same
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`as the 2004 rule had been. See id. at 50,619 (rule “readopt[ion]” applies to “FY 2014 and
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`subsequent years” only).
`
`32.
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`On April 1, 2014, the Court of Appeals affirmed this Court’s Allina I decision on
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`the merits, “agree[ing] with the district court that the Secretary’s final rule was not a logical
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`outgrowth of the proposed rule.” 746 F.3d at 1109. The Court explained that “a party reviewing
`
`the Secretary’s notice of proposed rulemaking understandably would have assumed that the
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`Secretary was proposing to ‘clarify’ a then-existing policy, i.e., one of excluding Part C days from
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`the Medicare fraction and including them in the Medicaid fraction.” Id. at 1108. Because this
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`procedural failure was a sufficient basis to vacate the rule, the Court of Appeals did not reach the
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`arbitrariness of the agency’s explanation. Id. at 1111.
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`33. With respect to remedy, the Court of Appeals held that this Court “correctly
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`concluded that vacatur was warranted.” Id. The court reversed, however, a part of this Court’s
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`order that required “the Secretary to recalculate the hospitals’ reimbursements ‘without using the
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`interpretation set forth in the 2004 Final Rule.’” Id. (quoting the Post-Judgment Order). The Court
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`of Appeals instead remanded, noting that the “question whether the Secretary could reach the same
`
`
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`15
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`Case 1:20-cv-03760 Document 1 Filed 12/21/20 Page 16 of 34
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`result” on remand as would have applied under the vacated rule “was not before the district court”
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`and therefore this Court should have simply “remand[ed] after identifying the error.” Id. at 1111.
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`The Allina II Litigation
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`34.
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`In mid-June 2014, sixteen days after the Court of Appeals’ mandate in Allina I
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`vacating the 2004 rule, the agency published Medicare Part A/SSI fractions for Federal fiscal year
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`2012, including Part C days for all hospitals in the country. The agency proceeded without notice
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`or comment opportunity and provided no explanation at all for its decision to include Part C days
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`in the Medicare Part A/SSI fractions for fiscal year 2012 but instead issued those fractions just as
`
`it had for prior years, as if the vacatur of that rule in Allina I had never happened. Certain plaintiff
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`hospitals in the Allina I litigation filed a separate action in this Court challenging the 2014
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`determination. The agency moved to dismiss the action, asserting that the Board incorrectly
`
`granted expedited judicial review in that case, but this Court rejected that motion. This Court then
`
`granted the agency’s motion for summary judgment. Allina Health Servs. v. Burwell, 201 F. Supp.
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`3d 94 (D.D.C. 2016), which the hospitals appealed.
`
`35.
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`In 2017, the Court of Appeals unanimously reversed the District Court, agreeing
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`with the hospitals that the agency “violated the Medicare Act by failing to provide for notice and
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`comment” before readopting the 2004 policy. Allina II, 863 F.3d at 942. The Court of Appeals
`
`concluded that the Medicare Act, 42 U.S.C. § 1395hh(a)(2), required rulemaking for any “(1) ‘rule,
`
`requirement, or other statement of policy’ that (2) ‘estab