Case 1:21-cv-01410 Document 1 Filed 05/24/21 Page 1 of 33
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`EMORY UNIVERSITY,
`dba Emory University Hospital Midtown
`550 Peachtree Street, NE
`Atlanta, GA 30308,
`
`HOSPITAL GENERAL MENONITA (AIBONITO),
`Calle José C. Vázquez
`Aibonito, PR 00705,
`
`HOSPITAL GENERAL MENONITA (CAYEY),
`Bo. Rincón Sector Lomas Carr. #14
`Cayey, PR 00737,
`
`INTEGRIS BASS BAPTIST HEALTH CENTER,
`600 S. Monroe
`Enid, OK 73701,
` Plaintiffs,
`
`v.
`
`XAVIER BECERRA, Secretary, United States
`Department of Health and Human Services
`200 Independence Avenue, S.W.
`Washington, D.C. 20201,
`
`Defendant.
`
`Case No.
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`COMPLAINT
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`The above-captioned Plaintiff-hospitals (collectively, “the Hospitals”), by and through
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`their undersigned attorneys, bring this action against defendant Xavier Becerra, in his official
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`capacity as the Secretary (“the Secretary”) of the Department of Health and Human Services
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`(“HHS”), and state as follows:
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`INTRODUCTION
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`1.
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`This action arises under Title XVIII of the Social Security Act, 42 U.S.C. §§1395
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`et seq. (the “Medicare Act”), and the Administrative Procedure Act (“APA”), 5 U.S.C. §§551 et
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`7055541.7
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`

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`Case 1:21-cv-01410 Document 1 Filed 05/24/21 Page 2 of 33
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`seq. The Medicare payment issue in this action is how inpatient hospital days should be counted
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`for Medicare disproportionate share hospital (“DSH”) payment purposes when the Medicare
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`beneficiary patient was eligible for Medicare, and enrolled in a Medicare Part C plan (as opposed
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`to participating in fee-for-service Medicare), during the inpatient stay.
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`2.
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`The Hospitals seek judicial review of the final orders issued by the Provider
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`Reimbursement Review Board (“Board” or “PRRB”) remanding the Hospitals’ Medicare appeals
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`at issue to the Secretary’s contractors in accordance with an agency issuance known as Centers
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`for Medicare & Medicaid Services (“CMS”) Ruling 1739-R (“the Ruling”) (Exhibit A) for
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`recalculation of their DSH payments. The PRRB’s remand orders, which followed the PRRB’s
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`finding that it had jurisdiction over the appeals at issue, are the final agency decisions of the
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`Secretary for purposes of judicial review.
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`3.
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`The PRRB’s remand decisions must be set aside because, inter alia, the Ruling
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`unilaterally, arbitrarily, and otherwise unlawfully (a) declares the Hospitals’ long-pending
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`jurisdictionally-proper PRRB appeals moot, (b) remands them for recalculation of the DSH
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`payments at issue using criteria that were set forth in a proposed notice-and-comment rule that
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`purports to have retroactive effect but that has not yet been finalized while, at the same time,
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`prohibits reopening, which is the action necessary to issue the recalculated payments, and (c)
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`declares that the PRRB lacks jurisdiction over the appeals while, at the same time, requiring the
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`PRRB to find that it has jurisdiction before remanding the appeals. Further, there are no
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`provisions in the Ruling that provide for review of the final payment calculations, as required
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`by Medicare’s statutory appeal provisions. Nor does the Ruling establish any definitive time
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`period for the contractors to act. Simply put, the Ruling requires remands for recalculated
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`2
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`payments that apparently will never be made, thus effectively extinguishing the Hospitals’
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`statutory appeal rights for the payments at issue.
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`4.
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`The Ruling’s stated purpose is “to resolve in an orderly manner pending
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`administrative appeals of the Part C days SSI fraction issue” in light of the decision of the United
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`States Supreme Court in Allina Health Services v. Price (“Allina II”), 863 F.3d 937 (D.C. Cir.
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`2017), aff’d sub nom, Azar v. Allina Health Services, 139 S. Ct. 1804 (2019), by requiring the
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`Secretary’s contractors to “recalculate the provider’s DSH payment adjustment in accordance
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`with CMS’s forthcoming rule.” Exhibit A at 7-8. But the remands required under the Ruling are
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`premature, in part because CMS has not yet issued the final rule setting forth the actual payment
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`criteria to be used when making the recalculated payments.
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`5.
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`Moreover, even if the Secretary issues the payment criteria to be used when
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`making the recalculated payments in a final rule, the remands required under the Ruling
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`unlawfully prejudice the Hospitals by limiting (if not depriving them entirely of) their statutory
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`right under 42 U.S.C. §1395oo and other authorities to (a) challenge the effect of the finalized
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`payment criteria on the DSH payments at issue in the remanded appeals by prohibiting the
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`issuance of recalculated DSH payments that the Hospitals could appeal to the PRRB, and (b)
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`seek interest for their incorrect DSH payments, some of which extend back more than 15 years
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`(the fiscal periods at issue all predate October 1, 2013, but some go back much further in time).
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`The Ruling is also unlawful procedurally because it was not adopted using notice-and-comment
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`rulemaking, as required by statute, despite its substantive impact on the Hospitals’ Medicare
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`payment rights, and has an unlawful retroactive effect.
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`6.
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`Because the Ruling is unlawful procedurally and substantively, the Hospitals seek
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`an order (a) setting aside the provisions of the Ruling that declare the Hospitals’ appeals to the
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`3
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`PRRB moot and require the PRRB to remand their Allina II claims to the Secretary’s contractors
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`for recalculation of the Hospitals’ DSH payments, (b) reversing the PRRB’s remand orders, and
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`(c) instructing the PRRB to reinstate the Hospitals’ appeals.
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`JURISDICTION AND VENUE
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`7.
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`This Court has jurisdiction under 42 U.S.C. §1395oo(f) (appeal of final Medicare
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`program agency decision) and 28 U.S.C. §§1331 (federal question) and 1361 (mandamus).
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`8.
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`Venue lies in this judicial district under 42 U.S.C. §1395oo(f) and 28 U.S.C.
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`§1391.
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`PARTIES
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`9.
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`At all times relevant to this action, the Hospitals were qualified as Medicare-
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`participating, general acute-care hospital-providers under the federal Medicare program pursuant
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`to the Medicare Act. The Plaintiff-Hospitals in this action are listed below with their unique
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`Medicare provider numbers and their cost reporting periods at issue in this action, as set forth in
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`their administrative appeals:
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`a. Emory University, d/b/a Emory University Hospital Midtown, Medicare Provider
`Number 11-0078, FY 2013.
`b. Hospital General Menonita (Aibonito), Medicare Provider Number 40-0018, FYs
`2002, 2003 and 2004.
`c. Hospital General Menonita (Cayey), Medicare Provider Number 40-0013, FYs
`2003 and 2004.
`Integris Bass Baptist Health Center, Medicare Provider Number 37-0016, FY
`2011.
`The PRRB appeals at issue are listed in Exhibit B hereto with the date of the final remand orders.
`
`d.
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`10.
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`Defendant Xavier Becerra is the Secretary of HHS. The Secretary, the federal
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`official responsible for administration of the Medicare program, has delegated that responsibility
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`to CMS. Before June 14, 2001, CMS was known as the Health Care Financing Administration
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`4
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`(“HCFA”). In this Complaint, the Hospitals refer to the agency as CMS, even for events arising
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`before June 14, 2001.
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`GENERAL BACKGROUND OF THE MEDICARE PROGRAM
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`11.
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`The Medicare Act establishes a system of health insurance for the aged, disabled,
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`and individuals with end-stage renal disease. 42 U.S.C. §1395c. The Medicare program is
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`federally funded and administered by the Secretary through CMS and its contractors. 42 U.S.C.
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`§1395kk; 42 Fed. Reg. 13,282 (Mar. 9, 1977).
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`12.
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`CMS implements the Medicare program, in part, through the issuance of official
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`Rulings. See 42 C.F.R. §401.108. In addition to the substantive rules published by the Secretary
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`in the Code of Federal Regulations and the Rulings, CMS publishes numerous other
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`interpretative rules implementing the Medicare program, which are compiled in one or more
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`CMS Manuals. The Secretary also issues other subregulatory documents to implement the
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`Medicare program, which generally do not have the force and effect of law.
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`13.
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`The Medicare Act, at 42 U.S.C. §1395hh(a), prohibits the application of any rule
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`or policy that establishes or changes a substantive legal standard governing the payment for
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`service unless it is promulgated by the Secretary by notice-and-comment rulemaking. In
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`addition, the Medicare Act specifies that where a final rule “is not a logical outgrowth of a
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`previously published notice of proposed rulemaking . . ., such provision shall be treated as a
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`proposed regulation and shall not take effect.” 42 U.S.C. §1395hh(a)(4). Allina II, 139 S. Ct. at
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`1816.
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`14.
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`The Medicare program is divided into five parts: A, B, C, D, and E. Part A of the
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`Medicare program provides for coverage and payment for, among others, inpatient hospital
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`services on a fee-for-service basis. 42 U.S.C. §§1395c et seq. Part A services are furnished to
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`Medicare beneficiaries by “providers” of services, including the Hospitals, that have entered into
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`5
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`written provider agreements with the Secretary, pursuant to 42 U.S.C. §1395cc, to furnish
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`hospital services to Medicare beneficiaries.
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`15.
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`CMS pays providers participating in Part A of the Medicare program for covered
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`services rendered to Medicare beneficiaries through “Medicare Administrative Contractors”
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`(“MACs”), which are agents of the Secretary. Each Medicare-participating hospital is assigned
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`to a MAC. 42 U.S.C. §1395h. The amount of the Medicare Part A payment to a hospital for
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`services furnished to Medicare beneficiaries is determined by its MAC based on instructions
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`from CMS.
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`16.
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`Part C of the Medicare program addresses how Medicare beneficiaries can obtain
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`their Medicare benefits through a health plan, as opposed to under fee-for-service Medicare.
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`Medicare beneficiaries that join Part C plans still have Medicare, but they get their coverage and
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`payment for hospital services from the plan, and not fee-for-service Medicare.
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`THE MEDICARE HOSPITAL INPATIENT PROSPECTIVE PAYMENT SYSTEM
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`17.
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`Effective with cost reporting years beginning on or after October 1, 1983,
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`Congress adopted the hospital inpatient prospective payment system (“IPPS”) to reimburse
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`hospitals, including the Hospitals, for inpatient hospital operating costs. Under IPPS, Medicare
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`payments for hospital operating costs are not based directly on the costs actually incurred by the
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`hospitals. Rather, they are based on predetermined, nationally applicable rates based on the
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`diagnosis of the patient determined at the time of discharge from the inpatient stay, subject to
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`certain payment adjustments. One of these adjustments is the Medicare “disproportionate share
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`hospital” or “DSH” payment. See 42 U.S.C. §1395ww(d)(5)(F). This Complaint addresses DSH
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`payments based on the rules that were in place before October 1, 2013.
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`THE MEDICARE DSH ADJUSTMENT
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`6
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`18.
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`Hospitals that treat a disproportionately large number of low-income patients are
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`entitled by statute to a DSH adjustment, in addition to standard Medicare payments. 42 U.S.C.
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`§1395ww(d)(5)(F). Congress enacted the DSH adjustment in recognition of the relatively higher
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`costs associated with providing services to low-income patients. These higher costs have been
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`found to result from the generally poorer health of low-income patients. The DSH adjustment
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`provides additional Medicare reimbursement to hospitals for the increased cost of providing
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`services to their low-income patients.
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`19.
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`There are two methods of determining qualification for a DSH adjustment: the
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`more common “proxy method” (42 U.S.C. §1395ww(d)(5)(F)(i)(I)) and the less common “Pickle
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`method” (42 U.S.C. §1395ww(d)(5)(F)(i)(II)). The Hospitals’ DSH calculations at issue were
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`made using the proxy method, under which entitlement to a DSH adjustment, as well as the
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`amount of the DSH payment, is based on the hospital’s “disproportionate patient percentage”
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`(“DPP”). 42 U.S.C. §1395ww(d)(5)(F)(v) and (vi).
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`20.
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`The DPP is the sum of two fractions, which are designed to capture the number of
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`low-income patients a hospital serves on an inpatient basis by counting the number of days that
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`low-income patients receive inpatient services in a given fiscal year (“inpatient days”). Thus, the
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`two fractions serve as a “proxy” to determine low-income patients, rather than having CMS
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`count the actual number of such patients.
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`21.
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`The first fraction, referred to as the “Medicare/SSI fraction,” accounts for
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`inpatients who are current Medicare Part A recipients and also entitled to benefits under SSI, a
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`federal low-income supplement. The Medicare/SSI fraction is defined by statute as follows:
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`[T]he 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 this subchapter and
`were entitled to supplementary security income benefits (excluding any State
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`supplementation) under subchapter XVI of this chapter, 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 this subchapter.
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`42 U.S.C. §1395ww(d)(5)(F)(vi)(I) (emphasis added). The Medicare/SSI fraction, therefore, is
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`the percentage of a hospital’s Medicare Part A-entitled inpatients who were also entitled to SSI
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`benefits at the time that they were receiving inpatient services at the hospital. The terms
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`“Medicare” and “SSI,” and “ratio,” “fraction,” “proxy” and “percentage” are all used
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`interchangeably throughout various sources to describe the fraction set forth in 42 U.S.C.
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`§1395ww(d)(5)(F)(vi)(I). For consistency, the term “Medicare/SSI fraction” is used herein.
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`22.
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`The second fraction, referred to as the “Medicaid fraction,” is defined by statute
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`as follows:
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`[T]he 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
`title XIX, but who were not entitled to benefits under Part A of this title, 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). The Medicaid fraction, therefore, is
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`intended to account for hospital inpatients “who were not entitled to benefits under [Medicare]
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`Part A,” but who were “eligible for medical assistance” under the Medicaid State plan at the time
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`that they were receiving inpatient services at the hospital.
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`MEDICARE PART C
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`23.
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`Section 4001 of the Balanced Budget Act of 1997 (“BBA”), Pub. Law No. 105-
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`33, added a new Part C to Title XVIII of the Social Security Act to establish the
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`Medicare+Choice program to allow Medicare beneficiaries to obtain their Medicare benefits
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`through a private health plan, instead of through fee-for-service Medicare. The Medicare
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`Case 1:21-cv-01410 Document 1 Filed 05/24/21 Page 9 of 33
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`Prescription Drug, Improvement, and Modernization Act of 2003, Pub. Law No. 108-173,
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`replaced the Medicare+Choice program with the new Medicare Advantage program, also under
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`Part C. For consistency, all plans authorized under Part C are referred to herein as “Part C
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`plans.”
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`24.
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`A Medicare beneficiary can elect to receive Medicare benefits either through the
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`original fee-for-service program under Medicare Part A, or through enrollment in a Part C plan,
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`but not both simultaneously. 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 (June 26, 1998) (“Under section 1851(a)(1), every individual entitled to Medicare
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`Part A and enrolled under Part B . . . may elect to receive benefits through either the existing
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`Medicare fee-for-service program or a Part C [Medicare Advantage] plan.”) (emphasis added).
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`In order to be eligible to enroll in a Part C plan, an individual must be entitled to benefits under
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`Part A. 42 U.S.C. §1395w-21(a)(3)(A). Once a Medicare beneficiary individual enrolls in a Part
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`C plan, the beneficiary “is entitled to elect to receive benefits under [the Medicare
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`statute] . . . through enrollment in a [Medicare Advantage] plan under this part [C]” and, thus, is
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`no longer entitled to payment of benefits under Medicare Part A. 42 U.S.C. §1395w-
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`21(a)(1)(B).
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`25.
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`The Secretary makes Part C payments to the Part C plan “instead of the amounts
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`which (in the absence of the contract) would otherwise be payable under parts A and B of this
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`subchapter for items and services furnished to the individual.” 42 U.S.C. §1395w-21(i)(1); see
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`also 63 Fed. Reg. 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 plan.”). It is the responsibility of the Part
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`Case 1:21-cv-01410 Document 1 Filed 05/24/21 Page 10 of 33
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`C plan to pay the amount due to providers for the services provided to Medicare beneficiaries
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`enrolled in the Part C plan.
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`26.
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`Thus, payments for Part C enrollees are made under Part C, rather than under
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`Parts A or B. 42 U.S.C. §1395w-21(a)(1)(B). Accordingly, Medicare patients who elect to
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`receive Medicare benefits through enrollment in a Part C plan are no longer “entitled to benefits
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`under part A,” because they are not entitled to have payment made under part A. See 42 U.S.C.
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`§426(c) (defining entitlement to benefits under Part A as “entitlement to have payment made
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`under, and subject to the limitations in, part A”) and 42 U.S.C. §1395d(a) (stating that the
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`benefits provided under Medicare Part A “consist of [an individual’s] entitlement to have
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`payment made on his behalf” for services covered under Part A).
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`HOW THE SECRETARY HAS ACCOUNTED FOR PART C DAYS IN THE
`MEDICARE/SSI FRACTION AND THE MEDICAID FRACTION
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`27. When a hospital provides inpatient services to a Part C plan enrollee, these
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`inpatient days are referred to as “Part C days” for DSH purposes. Prior to 2003, it was the
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`Secretary’s policy and practice not to include Part C days in the Medicare/SSI fraction. Allina
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`Health Services v. Sebelius (“Allina I”), 746 F.3d 1102, 1106 (D.C. Cir. 2014) (Before May
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`2003, “the Secretary treated Part C patients as not entitled to benefits under Part A.”).
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`28.
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`Consistent with that long-standing practice, in the Federal fiscal year (“FFY”)
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`2004 (FFYs start on October 1 and end the next September 30) IPPS Proposed Rule, which CMS
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`published in the Federal Register in May 2003, the Secretary “propos[ed] to clarify” that Part C
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`days “should not be included in the Medicare fraction.” 68 Fed. Reg. 27,154, 27,208 (May 19,
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`2003) (emphasis added). In that proposed rule, CMS reasoned 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. CMS also proposed to permit hospitals to count inpatient days for Medicaid-
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`eligible Medicare Part C plan enrollees in the numerator of the Medicaid fraction. Id.
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`29.
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`The Secretary did not act on this proposal in the FFY 2004 IPPS Final Rule. See
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`68 Fed. Reg. 45,346, 45,422 (August 1, 2003). The Secretary also did not address this proposal
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`in the FFY 2005 IPPS Proposed Rule, which was published in the Federal Register in May 2004.
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`Despite not addressing the proposal in the FFY 2005 IPPS Proposed Rule, and in a complete
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`reversal of the policy in the FFY 2004 IPPS Proposed Rule, in the FFY 2005 IPPS Final Rule,
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`CMS “adopt[ed] a policy” to include Part C days in the Medicare/SSI fraction, and exclude these
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`days from the numerator of the Medicaid fraction, and stated that it was “revising” its regulations
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`to reflect this policy effective October 1, 2004. 69 Fed. Reg. 48,916, 49,099 (August 11, 2004).
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`The Secretary’s sole explanation for this 180-degree reversal was that Part C plan enrollees “are
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`still, in some sense, entitled to benefits under Part A.” Id. But contrary to the Secretary’s
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`assertion, CMS did not “revise” the DSH regulation at that time to include Part C days in the
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`Medicare/SSI fraction. Nor did the agency implement that new policy at that time.
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`30.
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`Thereafter, in Change Request 5647, Transmittal No. 1311 (Jul. 20, 2007) at 8,
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`CMS stated that “[p]atients who are enrolled in Medicare Advantage . . . should also be included
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`in the Medicare fraction.” With an implementation date of January 7, 2008, the change request
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`directed that “hospitals . . . begin to submit ‘no pay’ bills to their Medicare contractor for the MA
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`beneficiaries they treat, in order for these days to be eventually captured in the DSH . . .
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`calculations." Id. at 1 (emphasis added). CMS revised the Medicare Claims Processing Manual
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`to state: “[H]ospitals may go back and submit claims with discharge dates on or after October 1,
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`2006 (FY 2007), so that SSI data for FY 2007 and beyond will include MA [i.e., Medicare
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`Advantage or Medicare Part C] patient days.” Id. at 2 (emphasis added); see also Medicare
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`11
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`Claims Processing Manual (CMS Pub. 100-04) Ch. 3 §20.3, (requiring hospitals to submit
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`informational only bills to “ensure that these days are included in the SSI [fraction] for Fiscal
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`Year 2007 and beyond”).
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`31.
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`In the FFY 2008 IPPS Final Rule, which CMS published in the Federal Register
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`in August 2007, the agency stated that it had “inadvertently” failed to revise the regulation in
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`2004 and was doing so at that time to conform to the alleged 2004 “policy change.” 72 Fed.
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`Reg. 47,130, 47,384 (August 22, 2007) (amending portions of the DSH regulation to include in
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`the numerator and denominator of the Medicare/SSI fraction days relating to patients who are
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`“entitled to Medicare Part A (or Medicare Advantage (Part C)).” Id. at 47,411 (amending
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`§412.106(b)(2)(i)(B) and (iii)(B)) (emphasis added). By revising the DSH regulation in the FFY
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`2008 IPPS Final Rule, without first explaining the rationale for doing so in the FFY 2008 IPPS
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`Proposed Rule, the Secretary did not meet the notice-and-comment provisions of the APA.
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`32.
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`In the FFY 2014 IPPS Proposed Rule, which was published in the Federal
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`Register in May 2013, CMS presented its proposal to “readopt” the 2004 rule (with the 2007
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`revisions), to attempt to satisfy the APA’s notice-and-comment rulemaking requirements for
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`FFY 2014 and subsequent FFYs. 78 Fed. Reg. 27,486, 27,578 (May 10, 2013). CMS asserted in
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`the FFY 2014 IPPS Final Rule that the agency was, indeed, “readopting” the 2004 rule (allegedly
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`codified in 2007). 78 Fed. Reg. 50,496, 50,614 (August 19, 2013). This new rule applied only
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`prospectively.
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`LITIGATION ABOUT HOW THE SECRETARY HAS ACCOUNTED FOR PART C
`DAYS IN THE MEDICARE/SSI FRACTION AND THE MEDICAID FRACTION
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`33.
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`The Secretary’s 2004 change in policy (effective with the start of FFY 2005) has
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`been subject to several legal challenges. In Northeast Hospital Corporation v. Sebelius, 657
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`F.3d 1 (D.C. Cir. 2011), a hospital appealed the application of the new policy of including Part C
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`12
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`days in the Medicare/SSI fraction retroactively to the hospital’s DSH payments for FFYs 1999–
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`2002. The D.C. Circuit held that CMS had changed its practice and policies concerning
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`including Part C days in the Medicare/SSI fraction in 2004 and the 2004 policy could not be
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`applied retroactively to periods before the October 1, 2004 effective date. Id. at 17.
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`34.
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`In Allina I, supra, which involved FFY 2007, the D.C. Circuit held that CMS had
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`failed to follow the APA and the Medicare Act when attempting to adopt a regulation in 2004
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`that suggested Part C inpatient days will be (or should be) included in the Medicare/SSI fraction
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`and excluded from the Medicaid fraction, because it was not a “logical outgrowth” of the
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`proposed rule suggesting the opposite. Allina I, however, arguably left open the possibility that
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`CMS could attempt to “repair” the identified deficiencies in the 2004 rulemaking process by
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`implementing the new policy through an adjudicatory process. Allina I was remanded to the
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`Secretary for further proceedings.
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`35.
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`On remand in Allina I, the December 2, 2015 final “Decision of the [CMS]
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`Administrator” purported to explain why the 2004 rule change had been properly supported by
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`the administrative record of the rulemaking and why, in any event, the “change” in CMS policy
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`was not actually a substantive modification of policy, but rather a clarification of the agency’s
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`interpretation, which could be applied even in the absence of notice-and-comment rulemaking.
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`See Allina Health Servs., et al., v. Sebelius, No. 1:10-cv-01463-RMC, CMS Adm’r Dec. (D.D.C.
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`Dec. 2, 2015). In response, the Allina I plaintiff-hospitals filed a new lawsuit in this Court to
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`challenge this 2015 CMS Administrator’s final decision.
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`36. Meanwhile, the Allina hospital plaintiff group had already filed a separate lawsuit
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`in this Court, Allina II, to challenge the Secretary’s application of the 2004 rule (already vacated
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`by Allina I) to the hospitals’ DSH payments for FFY 2012. The hospitals in Allina II contended
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`Case 1:21-cv-01410 Document 1 Filed 05/24/21 Page 14 of 33
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`that the Secretary violated two independent provisions of the Medicare Act by including Part C
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`days in the hospitals’ Medicare/SSI fractions for FFY 2012. The D.C. Circuit agreed, not only
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`reiterating that the 2004 rule was invalid but also stating that “HHS violated the Medicare Act
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`when it changed its reimbursement adjustment formula without providing notice and opportunity
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`for comment.” Allina II, 863 F.3d at 938.
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`37.
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`Significantly, the D.C. Circuit also suggested that the Secretary could not “repair”
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`the deficiencies in the 2004 rulemaking process by implementing the new policy through an
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`adjudicatory process, stating, contrary to the earlier decision in Allina I, that the Secretary “could
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`not circumvent this requirement [to conduct notice and comment rulemaking] by claiming that it
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`was acting by way of adjudication rather than rulemaking.” Id. at 945. The D.C. Circuit also
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`noted that, because its prior ruling vacated the 2004 rule, “HHS can no longer rely on the 2004
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`interpretation.” Allina II, 863 F.3d at 939.
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`38.
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`The Secretary petitioned for both panel rehearing and rehearing en banc in Allina
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`II, both of which petitions were denied. On April 27, 2018, the Secretary filed a petition for
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`certiorari to the Supreme Court of the United States, and the Supreme Court granted the
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`Secretary’s petition on September 27, 2018. On June 3, 2019, the Supreme Court affirmed the
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`decision of the D.C. Circuit in Allina II. Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019).
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`39.
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`On remand from the Supreme Court and the D.C. Circuit, this Court entered
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`judgment in favor of the plaintiffs in Allina II, vacated the Medicare/SSI fractions to be used in
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`calculating the plaintiffs’ DSH payments, and remanded the case to the Secretary for further
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`proceedings consistent with the law established by the Allina II case. See Order, Allina Health
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`Servs. v. Azar, No. 14-cv-1415 (TJK) (D.D.C. Sept. 4, 2019), ECF No. 58 at 2.
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`40.
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`Although Allina II was remanded to the Secretary, numerous actions are still
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`pending in this Court, which have been consolidated under In Re: Alina II-Type DSH Adjustment
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`Cases, No. 19-mc-0190 (D.D.C.). The Secretary’s motion for remand and the plaintiff hospitals’
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`opposition is currently pending in that consolidated case.
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`THE PROPOSED RULE TO ADDRESS ALLINA
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`41.
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`In response to Allina II, on August 6, 2020, CMS issued a proposed rule entitled
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`“Treatment of Medicare Part C Days
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`in
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`the Calculation of a Hospital’s Medicare
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`Disproportionate Patient Percentage,” 85 Fed. Reg. 47,723 (August 6, 2020) (“the Proposed
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`Rule”). The purpose of the Proposed Rule is to “create a policy governing the treatment of days
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`associated with [Medicare] beneficiaries enrolled in Medicare Part C for discharges occurring
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`prior to October 1, 2013, for purposes of determining” DSH payments in light of the decision of
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`the Supreme Court in Allina II. Id. at 47,723.
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`42.
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`The Proposed Rule asserts that, as a result of vacatur of the 2004 rule, CMS has
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`no rule governing the treatment of Part C days and must, under Allina II, engage in retroactive
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`rulemaking. Id. at 47,424–25. The Proposed Rule thus fails to account for the pre-2004 rule that
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`still governs the treatment of Part C days in the DSH payment in light of the 2004 rule’s vacatur.
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`Id. at 47,725. Also, the Proposed Rule asserts retroactive rulemaking is (a) necessary to comply
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`with the statutory requirement to calculate Medicare DSH payments, and (b) in the “public
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`interest” because, absent retroactive rulemaking, CMS “would be unable to calculate and
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`confirm proper DSH payments for the time periods before FY 2014 . . . .” Id.
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`43.
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`The Proposed Rule has not yet been finalized. If finalized as proposed, the new
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`rule would effectively reinstate CMS’s vacated 2004 rule and expand its retroactive effect to
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`cover all dates of service prior to October 1, 2013, including dates of service prior to the October
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`1, 2004 effective date of the 2004 rule. If that occurs, the Hospitals expect to challenge that final
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`rule for several reasons, including that it (a) is inconsistent with the plain reading of the DSH
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`Statute, which requires Part C Days to be excluded from the Medicare/SSI Fraction and included
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`in the numerator of the Medicaid Fraction (for dually-eligible Medicare Part C enrollees), and (b)
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`does not meet the statutory requirements for retroactive rulemaking.
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`CMS RULING 1739-R
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`44.
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`On August 17, 2020, as a direct result of the Proposed Rule, and in clear
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`coordination with it and reliance on it, CMS issued Ruling CMS-1739-R without using notice-
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`and-comment rulemaking. This was improper under 42 U.S.C. §1395hh(a) because the Ruling
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`establishes the procedural policy by which the Hospitals’ DSH payments will be changed and,
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`thus, requires the Secretary to use notice-and-comment rulemaking.
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`45.
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`The Ruling (Exhibit A at 2) states that it applies only to appeals that include the
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`Allina II issue “regarding patient days with discharge dates before October 1, 2013 that arise
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`from Notices of Program Reimbursement (“NPRs”) that are issued before CMS issues a new
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`final rule to govern the treatment of patient days with discharge dates before October 1, 2013.”
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`Thus, the Ruling purports to have an improper retroactive effect, including for dates of service
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`prior to the October 1, 2004 effective date of the 2004 rule.
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`46.
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`The Ruling (Exhibit A at 8) requires the PRRB to remand jurisdictionally-proper
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`appeals that include the Allina II issue to the applicable MACs to “recalculate the provider’s
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`DSH payment adjustment in accordance with CMS’s forthcoming rule”:
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`If the administrative tribunal finds that the applicable jurisdictional and procedur-
`al requirements are satisfied for a given claim on the Part C day DSH issue and
`that any NPR that is the basis for the claim issued before CMS’s forthcoming fi-
`nal rule or that arise from an appeal based on an untimely NPR under 42 U.S.C.
`1395oo(a)(1)(B) or (C) and any subsequently issued NPR for that fiscal year pre-
`dates the new final rule then the appeals tribunal will issue a brief written order,
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`1