Case 1:21-cv-00904 Document 1 Filed 04/02/21 Page 1 of 27
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`Civil Action No. _______________
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`PRESENCE CHICAGO HOSPITALS
`NETWORK D/B/A PRESENCE SAINT
`JOSEPH HOSPITAL-CHICAGO
`2900 North Lake Shore Drive, Chicago, IL
`60657-5640
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`PRESENCE CHICAGO HOSPITALS
`NETWORK D/B/A PRESENCE SAINT
`FRANCIS HOSPITAL
`355 Ridge Avenue, Evanston, IL 60693-
`3328
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`OSF HEALTHCARE SYSTEM D/B/A
`OSF SACRED HEART MEDICAL
`CENTER
`812 North Logan Avenue, Danville, IL
`61832
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`OSF HEALTHCARE SYSTEM D/B/A
`OSF HEART OF MARY MEDICAL
`CENTER
`1400 West Park Street, Urbana, IL 61801
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`AURORA HEALTH CARE METRO,
`INC. D/B/A AURORA SINAI MEDICAL
`CENTER
`945 N. 12th St., Milwaukee, WI 53233
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`WEST ALLIS MEMORIAL HOSPITAL,
`INC. D/B/A AURORA WEST ALLIS
`MEDICAL CENTER
`8901 W. Lincoln Ave., West Allis, WI
`53227
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`AURORA MEDICAL CENTER OF
`OSHKOSH, INC. D/B/A AURORA
`MEDICAL CENTER OSHKOSH
`855 N. Westhaven Dr., Oshkosh, WI 54904
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`NORTHWESTERN MEMORIAL
`HOSPITAL
`251 East Huron Street, Chicago, IL 60611
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`309457031.1
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`Case 1:21-cv-00904 Document 1 Filed 04/02/21 Page 2 of 27
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` Plaintiffs,
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`v.
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`XAVIER BECERRA, in his official
`capacity as Secretary, United States
`Department of Health and Human
`Services,
`200 Independence Ave. S.W.
`Washington, District of Columbia 20201,
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`Defendant.
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`
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`COMPLAINT FOR JUDICIAL REVIEW AND DECLARATORY
`AND INJUNCTIVE RELIEF UNDER THE MEDICARE ACT
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`Plaintiffs, Presence Chicago Hospitals Network d/b/a Presence Saint Joseph Hospital-
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`Chicago; Presence Chicago Hospitals Network d/b/a Presence Saint Francis Hospital; OSF
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`Healthcare System d/b/a OSF Sacred Heart Medical Center; OSF Healthcare System d/b/a OSF
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`Heart of Mary Medical Center; Aurora Health Care Metro, Inc. d/b/a Aurora Sinai Medical
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`Center; West Allis Memorial Hospital, Inc. d/b/a Aurora West Allis Medical Center; Aurora
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`Medical Center Of Oshkosh, Inc. d/b/a Aurora Medical Center Oshkosh; and Northwestern
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`Memorial Hospital (collectively “Plaintiffs”) bring this Complaint for Judicial Review and
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`Declaratory and Injunctive Relief against Defendant Xavier Becerra, in his official capacity as
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`Secretary of Health and Human Services (“HHS”) and allege as follows:
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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
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`disproportionate share hospital (“DSH”) payment of inpatient hospital days for patients who were
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`enrolled in a Medicare Advantage plan under Part C of the Medicare Act. The ultimate issue is
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`whether Medicare “enrollees in Part C are ‘entitled to benefits’ under Part A, such that they should
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`Case 1:21-cv-00904 Document 1 Filed 04/02/21 Page 3 of 27
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`be counted in the Medicare [part A/SSI] fraction [one part of the DSH payment formula], or
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`whether, if not regarded as ‘entitled to benefits under Part A,’ they should instead be included in
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`the Medicaid fraction [the second part of the DSH payment calculus].” Allina Health Services v.
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`Sebelius, 746 F.3d 1102, 1105 (D.C. Cir. 2014) (“Allina I”). In Allina I, the D.C. Circuit affirmed
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`this Court’s decision declaring invalid and vacating a procedurally invalid rule, adopted in 2004,
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`which changed the defendant Secretary’s policy on the treatment of Part C days to include them
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`in the Medicare Part A/SSI fraction and exclude them from the numerator of the Medicaid fraction
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`used to calculate the DSH payment. Id. at 1111.
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`2.
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`On June 3, 2019, the Supreme Court issued another decision in the Allina litigation,
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`upholding the Court of Appeals’ further ruling, in Allina Health Servs. v. Price, 863 F.3d 937, 944
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`(D.C. Cir. 2017) (“Allina II”), that the Secretary’s continued application after Allina I of the Part C
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`days policy adopted in the 2004 rule is a procedurally invalid “change” from the rule in effect
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`before the now-vacated 2004 rulemaking because the Secretary did not engage in the notice-and-
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`comment rulemaking procedure required under the Medicare Act, 42 U.S.C. § 1395hh. Azar v.
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`Allina Health Services, 139 S. Ct. 1804 (2019).
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`3.
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`Although the D.C. Circuit has now twice ruled against the Secretary’s 2004 policy,
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`the Secretary has not acquiesced in either of those decisions. Instead, the Secretary’s agency has
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`continued to apply the Part C days policy adopted in the now-vacated 2004 rule, including in the
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`payment determinations at issue for the Plaintiffs in this case. Most recently, the Secretary is
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`seeking an end-run around the D.C. Circuit’s rulings through an improper attempt to resurrect the
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`vacated 2004 rule via proposed retroactive rulemaking.
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`4.
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`The continued application of the 2004 rule and the Part C policy adopted in that
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`rule is both procedurally invalid, as the D.C. Circuit has now twice ruled, and is substantively
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`Case 1:21-cv-00904 Document 1 Filed 04/02/21 Page 4 of 27
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`invalid as well. The Part C policy adopted in the 2004 rule and applied here fails any test of
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`reasoned decision-making and is inconsistent with congressional intent. The Plaintiffs, therefore,
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`seek an order setting aside the Secretary’s DSH payment determinations and directing the
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`Secretary to recalculate the Plaintiffs’ DSH payments by excluding Part C days from the Medicare
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`Part A/SSI fraction and including the Medicaid-eligible portion of those days in the numerator of
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`the Medicaid fraction.
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`JURISDICTION AND VENUE
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`5.
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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., and the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq.
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`6.
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`7.
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`8.
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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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`Plaintiff Presence Chicago Hospitals Network d/b/a Presence Saint Joseph
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`Hospital-Chicago (“Saint Joseph”) is a hospital located in Chicago, Illinois that participates in the
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`Medicare program (provider number 14-0224). Saint Joseph has been underpaid for DSH
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`payments in the manner described in this complaint for the fiscal year ending 2007 (Provider
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`Reimbursement Review Board Case Number (“PRRB Case No.”) 14-1397GC).
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`9.
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`Plaintiff Presence Chicago Hospitals Network d/b/a Presence Saint Francis
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`Hospital (“Saint Francis”) is a hospital located in Evanston, Illinois that participates in the
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`Medicare program (provider number 14-0080). Saint Francis has been underpaid for DSH
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`payments in the manner described in this complaint for the fiscal year ending 2007 (PRRB Case
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`No. 14-1397GC).
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`10.
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`Plaintiff OSF Healthcare System d/b/a OSF Sacred Heart Medical Center (“OSF
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`Sacred Heart”), is a hospital located in Danville, Illinois that participates in the Medicare program
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`(provider number 14-0093). OSF Sacred Heart has been underpaid for DSH payments in the
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`manner described in this complaint for the fiscal year ending 2007 (PRRB Case No. 14-1397GC).
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`11.
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`Plaintiff OSF Healthcare System d/b/a OSF Heart of Mary Medical Center (“OSF
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`Heart of Mary”), is a hospital located in Urbana, Illinois that participates in the Medicare program
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`(provider number 14-0113). OSF Heart of Mary has been underpaid for DSH payments in the
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`manner described in this complaint for the fiscal year ending 2007 (PRRB Case No. 14-1397GC).
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`12.
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`Plaintiff Aurora Health Care Metro, Inc. d/b/a Aurora Sinai Medical Center
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`(“Aurora Sinai”) is a hospital located in Milwaukee, Wisconsin that participates in the Medicare
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`program (provider number 52-0064). Aurora Sinai has been underpaid for DSH payments in the
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`manner described in this complaint for the fiscal year ending 2006 (PRRB Case Nos. 14-1991GC
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`and 14-1992GC).
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`13.
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`Plaintiff West Allis Memorial Hospital, Inc. d/b/a Aurora West Allis Medical
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`Center (“Aurora West Allis”) is a hospital located in West Allis, Wisconsin that participates in the
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`Medicare program (provider number 52-0139). Aurora West Allis has been underpaid for DSH
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`payments in the manner described in this complaint for the fiscal year ending 2006 (PRRB Case
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`Nos. 14-1991GC and 14-1992GC).
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`14.
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`Plaintiff Aurora Medical Center Of Oshkosh, Inc. d/b/a Aurora Medical Center
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`Oshkosh (“Aurora Oshkosh”) is a hospital located in Oshkosh, Wisconsin that participates in the
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`Medicare program (provider number 52-0198). Aurora Oshkosh has been underpaid for DSH
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`payments in the manner described in this complaint for the fiscal year ending 2006 (PRRB Case
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`Nos. 14-1991GC and 14-1992GC).1
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`1 Plaintiffs Aurora Sinai, Aurora West Allis, and Aurora Oshkosh previously sought expedited judicial review (“EJR”)
`before the Board for Medicare DSH underpayments as described in this complaint for fiscal year ending 2006. Those
`EJR requests were denied, and these Plaintiff appealed those EJR denials to this Court in Thorek Memorial Hospital,
`et. al. v. Cochran, 21-cv-0205. For the avoidance of doubt and to preserve all rights in case the Secretary elects at
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`15.
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`Plaintiff Northwestern Memorial Hospital (“Northwestern”) is a hospital located in
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`Chicago, Illinois that participates in the Medicare program (provider number 14-0281).
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`Northwestern has been underpaid for DSH payments in the manner described in this complaint for
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`the fiscal year ending 2013 (PRRB Case No. 20-1599).
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`16.
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`The defendant is Xavier Becerra, 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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`17.
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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 DSH Payment
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`18.
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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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`some point in these proceedings to argue that only the remand constituted the appealable final determination, these
`plaintiffs hospital are filing this action appealing the separate remand decisions issued by the Board. While there is
`currently some degree of flux in litigation involving either Part C days and/or the Ruling described herein, the plaintiffs
`will potentially consolidate this action with the matter already in Federal court, if feasible to do so.
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`19.
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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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`20.
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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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`21.
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`The other fraction that is used to compute the DSH payment is the “Medicare
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`part A/SSI fraction” or “SSI fraction.” The statute defines this fraction as:
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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
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`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 CMS, and must be used to compute a hospital’s
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`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).
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`Medicare Part C
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`22.
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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 program and is now called Medicare Advantage. A Medicare beneficiary can
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`elect to receive Medicare benefits either through the original fee-for-service program under
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`Medicare Parts A and B, or through enrollment in a Medicare Advantage plan under Medicare
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`Part C. 42 U.S.C. § 1395w-21(a)(1); 42 C.F.R. § 422.50; see also 63 Fed. Reg. 34,968, 34,968
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`(June 26, 1998) (“Under section 1851(a)(1), every individual entitled to Medicare Part A and
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`enrolled under Part B ... may elect to receive benefits through either the existing Medicare fee-for-
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`service program or a Part C M+C plan.”) (emphasis added).
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`23.
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`Prior to the 2004 rulemaking at issue, in which the agency attempted to adopt a new
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`policy on the treatment of Part C days in the Medicare DSH payment calculation, “the Secretary
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`treated Part C patients as not entitled to benefits under Part A.” Allina I, 746 F.3d at 1106. The
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`pre-2004 regulation limited the Medicare Part A/SSI fraction to Medicare patient days that were
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`covered, or paid, by Medicare Part A and included other Medicare patient days (not covered under
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`Part A) in the numerator of the Medicaid fraction to the extent that those patients were also eligible
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`for Medicaid. See 42 C.F.R. § 412.106(b)(2)(i) (2003); see also 42 C.F.R. § 409.3 (defining
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`“covered” as services for which payment is authorized). As the Secretary explained when he
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`adopted it, the pre-2004 regulation mandated that only “covered Medicare Part A inpatient days”
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`be included in the Part A/SSI fraction. 51 Fed. Reg. 16,772, 16,788 (May 6, 1986); see also 51
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`Fed. Reg. 31,454, 31,460-61 (Sept. 3, 1986) (stating that limiting the Medicaid fraction to days
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`where “the Medicaid program is the primary payor” was “consistent with” the Part A/SSI fraction
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`being limited to “covered days”); Catholic Health Initiatives-Iowa Corp. v. Sebelius, 718 F.3d
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`914, 921 n.5 (D.C. Cir. 2013) (noting that the pre-2004 regulation unambiguously limited the
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`Part A/SSI fraction to “covered Medicare Part A inpatient days”).
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`24.
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`Further, written guidance prior to 2004 repeatedly expressed the Secretary’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 Part A/SSI fraction. This guidance included instructions to hospitals and
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`program memoranda transmitting the Part A/SSI fractions on an annual basis. See, e.g., Northeast
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`Hosp. Corp. v. Sebelius, 657 F.3d 1, 15 (D.C. Cir. 2011) (describing written guidance).
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`25.
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`The agency’s consistent policy and practice, before the adoption of the 2004 rule,
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`was to treat Part C days as not Part A days. Northeast Hosp., 657 F.3d at 16-17 (policy announced
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`in 2004 “contradicts [Secretary’s] former practice of excluding M+C days from the Medicare
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`fraction”); Sw. Consulting DSH Medicare + Choice Days Grps. v. BlueCross BlueShield Ass’n,
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`PRRB Dec. No. 2010-D52, 2010 WL 4211391, at *12 (Sept. 30, 2010), reprinted in MEDICARE
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`& MEDICAID GUIDE (CCH) 182,679 (reviewing evidence that from 1999 to 2004, the Secretary
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`“never count[ed] M+C days in the [Medicare] fraction except rarely, and then by mistake”).
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`26.
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`In a 2003 proposed rule, the Secretary proposed “to clarify” his long-held position
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`that “once a beneficiary elects Medicare Part C, those patient days attributable to the beneficiary
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`should not be included in the Medicare fraction of the DSH patient percentage.” 68 Fed. Reg.
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`27,154, 27,208 (May 19, 2003). Further, the agency explained that “[t]hese days should be
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`included in the count of total patient days in the Medicaid fraction (the denominator), and the
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`patient’s days for a [Part C] beneficiary who is also eligible for Medicaid would be included in the
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`numerator of the Medicaid fraction.” Id. The Secretary explained that “once a beneficiary has
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`elected to join a Medicare Advantage plan, that beneficiary’s benefits are no longer administered
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`under Part A.” Id.
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`27.
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`In the preamble to a final rule adopted in 2004, however, the Secretary reversed
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`course and “abruptly announced a change in policy.” Allina Health Servs. v. Sebelius, 904 F. Supp.
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`2d 75, 78 (D.D.C. 2012), aff’d, 746 F.3d at 1107-10. That 2004 rule announced that the Secretary
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`would “adopt a policy” to include Part C days in the Medicare Part A/SSI fraction and exclude
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`them from the Medicaid fraction effective October 1, 2004. 69 Fed. Reg. 48,916, 49,099 (Aug. 11,
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`2004); see also Northeast Hosp., 657 F.3d at 16 (“[I]n the 2004 rulemaking [the Secretary]
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`announced that she was ‘adopting a policy’ of counting [Part C] days in the Medicare fraction”).
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`28.
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`In the 2004 final rule, the Secretary amended the regulation text by deleting the
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`word “covered.” 69 Fed. Reg. at 49,246. When CMS initially transmitted the Part A/SSI fractions
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`for federal fiscal years 2005 and 2006, however, those fractions continued to exclude Part C days.
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`See CMS Pub. 100-04, Transmittal 1091 (Oct. 27, 2006), reprinted in MEDICARE & MEDICAID
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`GUIDE (CCH) 1156,277 (transmitting federal fiscal year 2005 Part A/SSI fractions and specifying
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`that the fractions include only “covered Medicare days,” and referring to the ratio of SSI days and
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`“covered Medicare days” as “the ratio of Medicare Part A patient days attributable to SSI
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`recipients”); CMS Pub. 100-04, Transmittal 1396 (Dec. 14, 2007), reprinted in id. 1156,930 (same
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`for federal fiscal year 2006 fractions).
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`29.
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`In July 2007, CMS 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 Health Servs., 904 F. Supp.
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`2d at 82. Thereafter, in August 2007, the Secretary further amended the text of the DSH regulation
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`governing Part C days without affording hospitals prior notice or opportunity for comment.
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`72 Fed. Reg. 47,130, 47,384 (Aug. 22, 2007). Following the amendments in 2004 and 2007, the
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`regulation provided that the 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 Health Servs., 904 F. Supp. 2d at 82.
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`The Allina I Litigation
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`30.
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`In July 2009, the Secretary first published Part A/SSI fractions for hospital cost
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`reporting periods beginning in federal fiscal year 2007. These fractions for the first time included
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`Part C days.
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`31.
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`In Allina I, hospitals challenged the applicability of the 2004 rule on the treatment
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`of Part C days in the DSH payment calculation for cost reporting periods beginning in federal
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`fiscal year 2007, contending, among other things, that the abrupt reversal in policy did not meet
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`notice and comment requirements and was not the product of reasoned decision making because
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`the agency failed to acknowledge or explain its departure from past policy.
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`32.
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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. 904 F. Supp. 2d at
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`89-92. This Court also held that the “cursory explanation in the 2004 Final Rule failed to meet the
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`requirements of the APA” because “the Secretary[] fail[ed] to acknowledge her ‘about-face,’” and
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`“her reasoning for the change was brief and unconvincing.” Id. at 93 (quoting Northeast Hosp.,
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`657 F.3d at 15). Accordingly, this Court concluded that “[t]he portion of the 2004 Final Rule ...
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`that announced the Secretary’s interpretation of the Medicare Disproportionate Share Hospital
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`Fraction, as codified in 2007 at 42 C.F.R. § 412.106(b)(2) and as further modified in 2010, will be
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`vacated, and the case will be remanded to the Secretary for further action consistent with this
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`Opinion.” Id. at 95.
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`33. While the Secretary’s appeal from this Court’s decision in Allina I was pending
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`before the Court of Appeals, the agency engaged in a new rulemaking on the treatment of Part C
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`days effective only prospectively, beginning October 1, 2013. In that rulemaking, the agency
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`“proposed to readopt the policy of counting the days of patients enrolled in [Part C] plans in the
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`Medicare fraction” “in an abundance of caution.” 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).
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`34.
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`On April 1, 2014, the D.C. Circuit affirmed this Court’s Allina I decision on the
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`merits, “agree[ing] with the district court that the Secretary’s final rule was not a logical outgrowth
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`of the proposed rule.” 746 F.3d at 1109. Because this procedural failure was a sufficient basis to
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`vacate the rule, the D.C. Circuit did not reach the arbitrariness of the Secretary’s explanation.
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`Id. at 1111.
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`35. With respect to remedy, the D.C. Circuit held that this Court “correctly concluded
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`that vacatur was warranted.” Id. The court reversed, however, a part of this Court’s order that
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`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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`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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`36.
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`In mid-June 2014, the agency published 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 provided no explanation
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`at all for its decision to include Part C days in the Part A/SSI fractions for fiscal year 2012 but
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`instead issued those fractions just as it had for prior years, either applying the 2004 rule as if the
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`vacatur of that rule in Allina I never happened, or issuing a new rule without notice-and-comment
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`rulemaking. Certain plaintiff hospitals in the Allina I litigation filed a separate action in this court
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`challenging the 2014 determination. The Secretary moved to dismiss the action, asserting that his
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`Board incorrectly granted expedited judicial review in that case, but this court rejected that motion.
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`This court then granted the Secretary’s motion for summary judgment. Allina Health Servs. v.
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`Burwell, 201 F. Supp. 3d 94 (D.D.C. 2016), which the hospitals appealed.
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`37.
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`In 2017, the Court of Appeals issued its decision in Allina II, agreeing with the
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`hospitals that the Secretary “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
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`concluded that the Medicare Act, 42 U.S.C. § 1395hh(a)(2), required rulemaking for any “(1) ‘rule,
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`requirement, or other statement of policy’ that (2) ‘establishes or changes’ (3) a ‘substantive legal
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`standard’ that (4) governs ‘payment for services,’” and that the Secretary’s issuance of the fiscal
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`year 2012 Part A/SSI fractions including Part C days satisfied each of these factors. Id. The Court
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`also found that the Secretary violated another provision of the Medicare Act, 42 U.S.C.
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`§ 1395hh(a)(4), which provides that “if a regulation includes ‘a provision that is not a logical
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`outgrowth of a previously published notice of proposed rulemaking,’ that provision may not
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`become legally operative until it has gone through notice-and-comment rulemaking.” Id. at 945.
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`38.
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`On June 3, 2019, the Supreme Court affirmed the Court of Appeals’ ruling in
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`Allina II. Azar v. Allina Health Services, 139 S. Ct. 1804 (2019). The Supreme Court held that the
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`Secretary’s 2014 application of the 2004 Part C days policy required notice-and-comment
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`rulemaking under section 1395hh(a)(2) of the Medicare statute. Id. at 1810-14. In addition, the
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`Supreme Court’s decision did not disturb the Court of Appeals’ ruling that the readopted 2004
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`policy is invalid under 42 U.S.C. § 1395hh(a)(4) because the Secretary failed to engage in notice-
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`and-comment rulemaking. Id. at 1816.
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`39.
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`Subsequent to and in defiance of the Supreme Court’s ruling in Allina II, CMS has
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`refused to revert to the prior policy that was in place on this issue under the preexisting regulation
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`that the Secretary had applied for many years prior to the adoption of the invalid 2004 policy. See
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`Northeast Hosp. v. Sebelius, 657 F.3d 1, 16–17 (D.C. Cir. 2011); Allina I, 746 F.3d at 1106.
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`Instead, the Defendant issued a Notice of Proposed Rulemaking through which it seeks to achieve
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`by retroactive rulemaking the same policy change that the Supreme Court has already rejected.
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`85 Fed. Reg. 47,723, 47,725 (Aug. 6, 2020) (claiming that it is in the “public interest” for the
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`overturned rule to be implemented retrospectively).
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`Agency’s Proposed Retroactive Rule and CMS Ruling 1739-R
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`Subsequent to and in defiance of the Supreme Court’s ruling in Allina II, CMS has
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`40.
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`refused to revert to the prior policy that was in place on this issue under the preexisting regulation
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`that the Secretary had applied for many years prior to the adoption of the invalid 2004 policy. See
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`Northeast Hosp. v. Sebelius, 657 F.3d 1, 16–17 (D.C. Cir. 2011); Allina I, 746 F.3d at 1106.
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`Instead, the Defendant issued a Notice of Proposed Rulemaking through which it seeks to achieve
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`by retroactive rulemaking the same policy change that the Supreme Court has already rejected.
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`85 Fed. Reg. 47,723, 47,725 (Aug. 6, 2020) (claiming that it is in the “public interest” for the
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`overturned rule to be implemented retrospectively).
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`41.
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`On August 6, 2020, nearly a year after this Court entered judgment in the Allina II
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`plaintiffs’ favor, the agency published in the Federal Register a notice of proposed rulemaking
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`announcing a proposal to adopt retroactively for periods prior to October 1, 2013 (and even prior
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`to the vacated 2004 rule) the same Part C policy change as that previously adopted in the
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`publications vacated in Allina I and Allina II. 85 Fed. Reg. 47,723.
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`42.
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`The proposed rule claims that, due to the vacatur of the 2004 rule, the agency has
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`no rule governing the treatment of Part C days and must, under the Supreme Court opinion
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`requiring notice-and-comment rulemaking, engage in retroactive rulemaking. Id. at 47,424–25.
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`The proposed rule, however, ignores the pre-2004 rule that still governs the treatment of Part C
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`days in the DSH payment following the 2004 rule’s vacatur. Id. at 47,725. The Proposed Rule
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`claims two grounds for its use of retroactive rulemaking: first, that retroactive rulemaking is
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`necessary to comply with the statutory requirement to calculate Medicare DSH payments, and
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`second, that retroactive rulemaking is in the “public interest” because, absent retroactive
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`rulemaking, the agency “would be unable to calculate and confirm proper DSH payments for the
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`time periods before FY 2014 . . . .” Id.
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`43.
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`On August 17, 2020, shortly after the Secretary issued the Notice of Proposed
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`Rulemaking in defiance of Allina II, the Secretary issued CMS Ruling CMS-1739-R (“CMS
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`Ruling”). Within the CMS Ruling, the Secretary—without citing to any legal authority authorizing
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`it to do so—purports to strip the Provider Reimbursement Review Board (the “Board”) of
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`jurisdiction of all provider appeals regarding treatment of Medicare Part C days for purposes of
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`DSH reimbursement for all appeals with discharge dates before October 1, 2013. Under the CMS
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`Ruling, the Secretary would instead require the Board to remand all such appeals back to the
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`applicable Medicare contractor to await a final rule. Ruling at 1-2.2 The Ruling addresses appeals
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`of the “Part C day DSH issue” for periods prior to October 1, 2013, including for periods prior to
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`the enactment of the 2004 rule. Id. at 7–8. The Ruling, which purports to be “binding” and affects
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`hospitals’ substantive Medicare payment and appeal rights, was not adopted through notice- and-
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`comment rulemaking. See id. at 1; see also 42 C.F.R. § 405.1867 (requiring the Board to comply
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`with CMS rulings); id. § 401.108 (defining CMS ruling and explaining they are binding on agency
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`adjudicators).
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`44.
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`Before taking any action on an appea