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`THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`Case No.
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`CATAWBA VALLEY MEDICAL CENTER
`810 Fairgrove Church Road S.E.
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`Hickory, North Carolina 28602
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`GRADY MEMORIAL HOSPITAL CORPORATION
`d/b/a GRADY MEMORIAL HOSPITAL
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`80 Jesse Hill Jr. Drive
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`Atlanta, Georgia 30303
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`HOUSTON HOSPITALS, INC. d/b/a HOUSTON
`MEDICAL CENTER
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`1601 Watson Boulevard
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`Warner Robins, Georgia 31093
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`JACKSON HOSPITAL & CLINIC, INC.
`1725 Pine Street
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`Montgomery, Alabama 36106
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`NORTH MEMORIAL HEALTH CARE d/b/a NORTH
`MEMORIAL MEDICAL CENTER
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`3300 Oakdale Avenue North
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`Robbinsdale, Minnesota 55422
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`REGENTS OF THE UNIVERSITY OF MICHIGAN,
`ON BEHALF OF THE UNIVERSITY OF MICHIGAN
`HOSPITALS AND HEALTH CENTERS
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`1500 East Medical Center Drive
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`Ann Arbor, Michigan 48109
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`SAMPSON REGIONAL MEDICAL CENTER, INC.
`607 Beaman Street
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`Clinton, North Carolina 28328
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`THE BROOKLYN HOSPITAL CENTER
`121 Dekalb Avenue
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`Brooklyn, New York 11201
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`Plaintiffs,
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`v.
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`XAVIER BECERRA, Secretary,
`United States Department of
`Health and Human Services,
`200 Independence Ave. S.W.
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 2 of 31
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`Washington, DC 20201,
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`Defendant.
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`COMPLAINT FOR JUDICIAL REVIEW AND DECLARATORY
`AND INJUNCTIVE RELIEF UNDER THE MEDICARE ACT
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`NATURE OF ACTION
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`1.
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`This case concerns the proper treatment in the calculation of the Medicare Part A
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`disproportionate share hospital (“DSH”) payment of inpatient hospital days for patients who were
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`enrolled in Medicare Advantage plans under Part C of the Medicare Act. The Court of Appeals
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`has now ruled against the agency in three actions challenging the agency’s repeated attempts to
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`apply its Part C days policy change first adopted in 2004 to deny Medicare DSH payments to
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`hospitals. See Northeast Hosp. Corp. v. Sebelius, 657 F.3d 1, 16–17 (D.C. Cir. 2011) (finding
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`application of the 2004 rule to prior periods impermissibly retroactive); Allina Health Services v.
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`Sebelius, 746 F.3d 1102, 1105 (D.C. Cir. 2014) (“Allina I”) (vacating the 2004 rule because it was
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`not a logical outgrowth of the proposed rule); Allina Health Servs. v. Price, 863 F.3d 937, 943–44
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`(D.C. Cir. 2017), aff’d sub nom. Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019) (“Allina II”)
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`(holding that the agency must undertake notice-and-comment rulemaking before the policy of the
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`2004 vacated rule can take effect). But the agency refuses to acquiesce in those decisions or in the
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`Supreme Court’s recent decision in Allina II affirming the Court of Appeals’ decision. Allina II,
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`139 S. Ct. 1804. Instead, the agency has continued to apply the Part C days policy adopted in the
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`now-vacated 2004 rule in violation of these decisions, including in the payment determinations at
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`issue for the plaintiff hospitals in this case, in a recently issued proposed rule seeking to re-adopt
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`the same 2004 policy retroactively, and in a ruling that would leave undisturbed the payment
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`determinations from which hospitals have appealed and, as construed by the agency’s
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`2
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 3 of 31
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`administrative Board, not permit further administrative or judicial review of those determinations.
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`The agency’s continued attempts to apply the 2004 policy should be rejected because they are
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`procedurally invalid, as the Court of Appeals has now twice ruled, fail any test of reasoned
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`decision-making, and are inconsistent with congressional intent in adopting the Medicare DSH
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`statute.
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`JURISDICTION AND VENUE
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`2.
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`This action arises under the Medicare Act, Title XVIII of the Social Security Act,
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`42 U.S.C. § 1395 et seq.
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`3.
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`4.
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`5.
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`Jurisdiction is proper under 42 U.S.C. § 1395oo(f)(l).
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`Venue is proper in this judicial district under 42 U.S.C. § 1395oo(f)(l).
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`PARTIES
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`The plaintiff hospitals in this action and hospital fiscal years (or portions thereof)
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`at issue are as follows:
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`(1)
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`(2)
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`(3)
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`(4)
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`(5)
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`(6)
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`(7)
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`Catawba Valley Medical Center, Provider No. 34-0143, fiscal years ending June
`30, 2013 and June 30, 2014;
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`Grady Memorial Hospital Corporation d/b/a Grady Memorial Hospital, Provider
`No. 11-0079, fiscal year ending December 31, 2012;
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`Houston Hospitals, Inc. d/b/a Houston Medical Center, Provider No. 11-0069,
`fiscal year ending December 31, 2013;
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`Jackson Hospital & Clinic, Inc., Provider No. 01-0024, fiscal year ending
`December 31, 2013;
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`North Memorial Health Care d/b/a North Memorial Medical Center, Provider No.
`24-0001, fiscal year ending December 31, 2013;
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`Regents of the University of Michigan, on behalf of the University of Michigan
`Hospitals and Health Centers, Provider No. 23-0046, fiscal years ending June 30,
`2013 and June 30, 2014;
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`Sampson Regional Medical Center, Inc., Provider No. 34-0024, fiscal year ending
`September 30, 2013; and
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`3
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 4 of 31
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`(8)
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`The Brooklyn Hospital Center, Provider No. 33-0056, fiscal year ending
`December 31, 2013.
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`6.
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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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`7.
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`The Centers for Medicare & Medicaid Services (“CMS”) is the component of the
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`Secretary’s agency with responsibility for day-to-day operation and administration of the Medicare
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`program. CMS was formerly known as the Health Care Financing Administration. References to
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`CMS herein are meant to refer to the agency and its predecessors.
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`LEGAL AND REGULATORY BACKGROUND
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`Medicare Payment Determinations and Appeals
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`8.
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`Part A of the Medicare Act covers “inpatient hospital services.” 42 U.S.C.
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`§ 1395d(a)(l). Since 1983, the Medicare program has paid most hospitals for the operating costs
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`of inpatient hospital services under the prospective payment system (“PPS”). 42 U.S.C.
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`§ 1395ww(d); 42 C.F.R. Part 412. Under PPS, Medicare pays predetermined, standardized
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`amounts per discharge, subject to certain payment adjustments. Id. One of the PPS payment
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`adjustments is the DSH payment. See 42 U.S.C. § 1395ww(d)(5)(F); 42 C.F.R. § 412.106.
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`9.
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`After the close of each fiscal year, a hospital is required to file a “cost report” with
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`a Medicare Administrative Contractor designated by the agency. 42 C.F.R. §§ 413.20, 413.24.
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`10.
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`The Medicare Administrative Contractor analyzes a hospital’s cost report and
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`issues a year-end determination, called a Notice of Program Reimbursement (“NPR”), as to the
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`amount of Medicare program reimbursement due the hospital for services furnished to Medicare
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`patients during the fiscal year covered by the cost report. See 42 C.F.R. § 405.1803; see also In re
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`4
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 5 of 31
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`Medicare Reimbursement Litig., 309 F. Supp. 2d 89, 92 (D.D.C. 2004), aff’d, 414 F.3d 7 (D.C. Cir.
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`2005).
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`11.
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`A hospital may appeal a Medicare Administrative Contractor’s determination as to
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`the total amount of Medicare program reimbursement due the hospital for the fiscal year covered
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`by a cost report to the agency’s Provider Reimbursement Review Board (“Board”). See 42 U.S.C.
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`§ 1395oo(a)(1)(A); 42 C.F.R. §§ 405.1835–405.1877.
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`12.
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`A hospital has the right to a hearing before the Board if it is dissatisfied with the
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`contractor’s payment determination in an NPR as to the total amount of program reimbursement
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`due to the hospital for its cost reporting period. 42 U.S.C. § 1395oo(a)(1); see also 42 C.F.R.
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`§§ 405.1835; 405.1837. The statute further requires a minimum amount in controversy and that
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`the appeal be filed timely. 42 U.S.C. § 1395oo(a).
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`13.
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`The Board’s regulations at 42 C.F.R. § 405.1801(d)(2) provide that in computing
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`deadlines for appeals, days where the Board is “unable to conduct business in the usual manner
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`due to extraordinary circumstances beyond its control” are not included in the calculation of
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`deadlines. The regulation instead provides that the clock on a deadline resumes when the Board
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`is “able to conduct business in the usual manner.” Id.
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`14.
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`In response to the COVID-19 public health emergency, the Board published “Alert
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`19.”1 This Alert states that the Board is “maximizing telework” due to COVID-19, but further
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`states that the Board is “continuing to operate in the most efficient manner possible.” Nonetheless,
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`in this Alert, the Board states that it is temporarily suspending all appeal deadlines set by the Board,
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`invoking 42 C.F.R § 405.1801(d) for the authority to do so. Alert 19 ¶ 2. The Board also makes
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`1 Available at https://www.cms.gov/Regulations-and-Guidance/Review-Boards/PRRBReview/
`PRRB-Alerts.
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`5
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 6 of 31
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`clear in the Alert, however, that the suspended deadlines do not include the “deadlines established
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`by statute or CMS regulations.” Id. ¶ 2 n.1.
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`Expedited Judicial Review
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`15.
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`The Medicare statute authorizes the Board to determine that it is without authority
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`to decide a question of law or regulations relevant to a matter in controversy in an appeal before
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`the Board and to grant the right to expedited judicial review (“EJR”). 42 U.S.C. § 1395oo(f)(1).
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`Pursuant to the Secretary’s regulations, the Board is bound by agency rules and rulings, like the
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`2004 rule at issue. 42 C.F.R. § 405.1867. Accordingly, the statute allows a hospital to request a
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`Board determination as to its authority to decide a question of law or regulations and to initiate an
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`action in this Court if the Board determines that EJR is appropriate or fails to make a determination
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`as to its authority within 30 days after receipt of a request for such a determination. See 42 U.S.C.
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`§ 1395oo(f)(1); Clarian Health W., LLC v. Hargan, 878 F.3d 346, 354 (D.C. Cir. 2017) (“The
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`expedited judicial review provision makes it clear that ‘if the Board fails to render [a]
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`determination’ on its authority within 30 days, ‘the provider may bring a civil action . . . with
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`respect to the matter in controversy contained in such request for a hearing.’”); Allina II, 863 F.3d
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`at 941 (“A provider may bring suit in the district court even when the Board fails to make a timely
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`determination of its authority to decide a case.”); accord Methodist Hosp. of Memphis v. Sullivan,
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`799 F. Supp. 1210, 1216 (D.D.C. 1992), rev’d on other grounds, Adm’rs of Tulane Educ. Fund v.
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`Shalala, 987 F.2d 790 (D.C. Cir. 1993).
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`16.
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`The regulation implementing the EJR statute, 42 C.F.R. § 405.1842(f), sets forth an
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`additional requirement for granting EJR, not found in the statute, that the Board have “jurisdiction
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`to conduct a hearing on the specific matter at issue.” When presented with a request for EJR, the
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`regulations require that the Board “make a preliminary determination of the scope of its
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`6
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 7 of 31
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`jurisdiction (that is, whether the hearing request was timely, and whether the amount in controversy
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`has been met).” Id. § 405.1840(a)(2). The regulation does not create any further conditions
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`beyond those in the statute to establish jurisdiction for a Board appeal. See 42 C.F.R. §§ 405.1835,
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`405.1837. Under the EJR regulations, only after finding that the statutory requirements for
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`jurisdiction have been met, as set forth in 42 C.F.R. § 405.1840(a)(2), does the Board then proceed
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`to determine if it has the authority to decide a legal question relevant to a matter at issue. Id.
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`§ 405.1842(e)(1).
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`Medicare DSH Payment
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`17.
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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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`18.
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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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`7
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 8 of 31
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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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`19.
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`The other fraction that is used to compute the DSH payment is the “Medicare part
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`A/SSI fraction” or “SSI fraction.” The statute defines this fraction as:
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`the fraction (expressed as a percentage), the numerator of which is the number of
`such hospital’s patient days for such period which were made up of patients who
`(for such days) were entitled to benefits under part A of [the Medicare statute] and
`were entitled to supplemental security income benefits (excluding any State
`supplementation) . . . , and the denominator of which is the number of such
`hospital’s patient days for such fiscal year which were made up of patients who (for
`such days) were entitled to benefits under part A of [the Medicare statute] . . . .
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`42 U.S.C. § 1395ww(d)(5)(F)(vi)(I) (emphases 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 (“FFY”) by the agency, and must be used to
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`compute a hospital’s DSH payment for the cost reporting period beginning in the federal fiscal
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`year. 42 C.F.R. §§ 412.106(b)(2)–(3). A hospital may elect to have the Medicare Part A/SSI
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`fraction recalculated based on patient days in its own cost reporting period instead of the federal
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`fiscal year. See id.; see also 42 U.S.C. § 1395ww(d)(5)(F)(vi), (vi)(I) (requiring calculation of
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`Medicare Part A/SSI fraction based on the cost reporting period); 51 Fed. Reg. 16,772, 16,777
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`(May 6, 1986) (stating that while the agency would rely on the federal fiscal year, it was “affording
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`all hospitals the option to determine their number of patient days of those dually entitled to
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`Medicare Part A and SSI for their own cost reporting periods”).
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`8
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 9 of 31
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`Medicare Part C
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`20.
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`Section 4001 of the Balanced Budget Act of 1997, Pub. Law No. 105–33, added a
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`new Part C to the Medicare statute to establish a Medicare program that was originally called the
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`Medicare+Choice (also known as “M+C”) program and is now called Medicare Advantage. A
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`Medicare beneficiary can elect to receive Medicare benefits either through the original fee-for-
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`service program under Medicare Parts A and B, or through enrollment in a Medicare Advantage
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`plan under Medicare Part C. 42 U.S.C. § 1395w–21(a)(1); 42 C.F.R. § 422.50; see also 63 Fed.
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`Reg. 34,968, 34,968 (June 26, 1998) (“Under section 1851(a)(1), every individual entitled to
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`Medicare Part A and enrolled under Part B . . . may elect to receive benefits through either the
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`existing Medicare fee-for-service program or a Part C M+C plan.”) (emphasis added).
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`21.
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`“Before 2004, [Defendant’s agency] had not treated Part C enrollees as ‘entitled to
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`benefits under Part A.’” Allina II, 863 F.3d at 939 (quoting Northeast Hosp., 657 F.3d at 15); see
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`also Allina I, 746 F.3d at 1106 (“Prior to 2003, the Secretary treated Part C patients as not entitled
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`to benefits under Part A.”); Allina I, 904 F. Supp. 2d at 78–80; Northeast Hosp., 657 F.3d at 16–
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`17. The DSH regulation prior to 2004 limited part-A-entitled days in the Medicare Part A/SSI
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`fraction to patient days that were “covered,” or paid, by Medicare Part A. See 42 C.F.R.
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`§ 412.106(b)(2)(i) (2003); 42 C.F.R. § 409.3 (defining “covered” as services for which payment is
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`authorized). The agency said as much when adopting the pre-2004 regulation, explaining that the
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`numerator of the Medicare Part A/SSI fraction included only “covered Medicare Part A inpatient
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`days.” 51 Fed. Reg. 16,772, 16,777 (May 6, 1986) (emphasis added); see also 51 Fed. Reg. 31,454,
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`31,460–61; Catholic Health Initiatives-Iowa Corp. v. Sebelius, 718 F.3d 914, 921 n.5 (D.C. Cir.
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`2013) (noting that the pre-2004 regulation limited the Medicare Part A/SSI fraction to “covered
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`Medicare Part A inpatient days”) (citing 51 Fed. Reg. at 16,777). Accordingly, the DSH regulation
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`prior to 2004 necessarily excluded Part C days from Part-A-entitled days because Part C days are
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`9
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`not covered or paid under Part A. See 42 U.S.C. § 1395w-21(a)(1), (i) (providing that payment of
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`Part C benefits is in lieu of benefits otherwise payable under Part A); see also Northeast Hosp.,
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`657 F.3d at 6.
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`22.
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`Further, written guidance prior to 2004 repeatedly expressed the agency’s policy
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`that Part C days, as days for which patients were not entitled to Part A payment, were to be
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`excluded from the Medicare Part A/SSI fraction. See Northeast Hosp., 657 F.3d at 15 (describing
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`prior instructions not to submit information related to services furnished to Part C patients that
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`would have been necessary to count Part C days in the Medicare Part A/SSI fraction). This
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`guidance included instructions to hospitals and program memoranda transmitting the Medicare
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`Part A/SSI fractions on an annual basis. See HCFA Pub. 60A, Transmittal No. A-98-36 (Oct. 1,
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`1998), reprinted in MEDICARE & MEDICAID GUIDE (CCH) ¶ 150,103 (transmitting Medicare Part
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`A/SSI fractions that excluded Part C days, specifying that the fractions include only “covered
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`Medicare days,” and referring to the ratio of SSI days and “covered Medicare days” as “the ratio
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`of Medicare Part A patient days attributable to SSI recipients”); HCFA Pub. 60A, Transmittal No.
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`A-99-42 (Sept. 1, 1999), reprinted in id. ¶ 150,769 (same); HCFA Pub. 60A, Transmittal No. A-
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`00-54 (Aug. 17, 2000), reprinted in id. ¶ 151,363 (same); CMS Pub. 60A, Transmittal No. A-01-
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`109 (Sept. 13, 2001), reprinted in id. ¶ 152,216 (same); CMS Pub. 60A, Transmittal No. A-02-086
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`(Sept. 11, 2002), reprinted in id. ¶ 152,922 (same); CMS Pub. 60A, Transmittal No. A-03-067
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`(Aug. 8, 2003), reprinted in id. ¶ 153,554 (same); CMS Pub. 100-04, Transmittal 275 (Aug. 13,
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`2004), reprinted in id. ¶ 154,468 (same).
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`23.
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`In a 2003 proposed rule, the agency proposed “to clarify” its long-held position that
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`“once a beneficiary elects Medicare Part C, those patient days attributable to the beneficiary should
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`not be included in the Medicare fraction of the DSH patient percentage.” 68 Fed. Reg. 27,154,
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`10
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 11 of 31
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`27,208 (May 19, 2003). Further, the agency explained that “[t]hese days should be included in the
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`count of total patient days in the Medicaid fraction (the denominator), and the patient’s days for a
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`[Part C] beneficiary who is also eligible for Medicaid would be included in the numerator of the
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`Medicaid fraction.” Id. The agency explained that “once a beneficiary has elected to join a
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`Medicare Advantage plan, that beneficiary’s benefits are no longer administered under Part A.”
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`Id.
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`24.
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`In a final rule published in August 2004, however, the agency engaged in a “volte-
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`face” and “abruptly announced a change in policy.” Allina I, 904 F. Supp. 2d 75, 78 (D.D.C. 2012);
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`Allina I, 746 F.3d at 1107–10. That 2004 rule announced that the agency would “adopt a policy”
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`to include Part C days in the Medicare Part A/SSI fraction and exclude them from the Medicaid
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`fraction effective October 1, 2004. 69 Fed. Reg. 48,916, 49,099 (Aug. 11, 2004); see also
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`Northeast Hosp., 657 F.3d at 16 (“[I]n the 2004 rulemaking [the agency] announced that [it] was
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`‘adopting a policy’ of counting [Part C] days in the Medicare fraction.”).
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`25.
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`In the 2004 final rule, the agency amended the regulation text by deleting the word
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`“covered.” 69 Fed. Reg. at 49,246. When the agency initially transmitted the Medicare Part A/SSI
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`fractions for FFYs 2005 and 2006, however, those fractions continued to exclude Part C days. See
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`CMS Pub. 100-04, Transmittal 1091 (Oct. 27, 2006), reprinted in MEDICARE & MEDICAID GUIDE
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`(CCH) ¶ 156,277 (transmitting FFY 2005 Medicare Part A/SSI fractions and specifying that the
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`fractions include only “covered Medicare days,” and referring to the ratio of SSI days and “covered
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`Medicare days” as “the ratio of Medicare Part A patient days attributable to SSI recipients”); CMS
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`Pub. 100-04, Transmittal 1396 (Dec. 14, 2007), reprinted in id. ¶ 156,930 (same for FFY 2006
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`fractions).
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`11
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`26.
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`In July 2007, the agency issued a revision to a Medicare program manual, with a
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`“purported ‘effective date’ of October 1, 2006,” that permitted hospitals to submit the data
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`necessary to implement the new policy regarding Part C days. Allina I, 904 F. Supp. 2d at 82.
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`Thereafter, in August 2007, the agency further amended the text of the DSH regulation governing
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`Part C days without affording hospitals prior notice or opportunity for comment. 72 Fed. Reg.
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`47,130, 47,384 (Aug. 22, 2007). Following the amendments in 2004 and 2007, the regulation
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`provided that the Medicare Part A/SSI fraction includes all patient days (not just “covered” days)
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`for “patients entitled to Medicare Part A (or Medicare Advantage (Part C)).” Id. at 47,411
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`(amending §§ 412.106(b)(2)(i)(B) and (iii)(B)) (emphasis added). The amendment of the
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`regulation was made effective October 1, 2007, the beginning of FFY 2008. Id. at 47,130; see also
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`Allina I, 904 F. Supp. 2d at 82. The agency further amended the regulation “in 2010 to use the
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`word ‘including’ in place of ‘or,’ in an apparent attempt to bolster further” the agency’s position
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`on the treatment of Part C days. Allina I, 904 F. Supp. 2d at 82 n.5.
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`Northeast Hospital
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`27.
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`The agency’s change to the DSH payment calculation first adopted in 2004 has
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`given rise to substantial litigation that continues to this day. Initially, the agency attempted to
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`apply the 2004 rule change retroactively to cost years prior to the October 1, 2004 effective date
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`of the 2004 rule. The Court of Appeals found that the agency’s retroactive application of its current
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`rule to periods prior to October 1, 2004 violated the Supreme Court’s longstanding decision in
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`Bowen v. Georgetown University Hospital, 488 U.S. 204, 208 (1988). See Northeast Hosp., 657
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`F.3d at 16. The Court held that “the Secretary’s present interpretation, which marks a substantive
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`departure from his prior practice of excluding [Part C] days from the Medicare fraction, may not
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`be retroactively applied” to the fiscal years at issue. Id. at 17.
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`12
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 13 of 31
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`28.
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`Following the D.C. Circuit’s decision, the Secretary issued TDL-12391, which
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`stated that in light of the Northeast decision, the agency was instructing its contractors to “include
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`any disallowed patient days attributable to patients who were enrolled in a Medicare Part C Plan
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`and also eligible for Medicaid for discharges occurring on or after January 1, 1999 through
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`September 30, 2004 in the Medicaid fraction” of the DSH calculation. This instruction specified
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`this relief should be applied to any cost reports that were not yet settled, as well as settled cost
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`reports where the Provider had filed a proper appeal. Id. at 1–2.
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`The Allina I Litigation
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`29.
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`In July 2009, the agency first published Medicare Part A/SSI fractions for hospital
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`cost reporting periods beginning in FFY 2007.2 These fractions for the first time included Part C
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`days.
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`30.
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`In Allina I, a group of hospitals challenged the 2004 rule change through
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`administrative appeals initiated in 2009, arguing (1) that the new Part C days policy was not the
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`“logical outgrowth” of the 2003 proposed rule “clarifying” the agency’s former policy, and (2) that
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`the rule was arbitrary and capricious because the agency’s “cursory explanation in the 2004 Final
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`Rule” failed to acknowledge its departure from past policy and practice and ignored the “financial
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`impact” of that departure. Allina I, 904 F. Supp. 2d at 89, 83, 92–94.
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`31.
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`This Court agreed and held that the policy announced in the 2004 final rule
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`regarding Part C days was not the logical outgrowth of the 2003 proposed rule. Id. at 89–92. This
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`Court also held that the “cursory explanation in the 2004 Final Rule failed to meet the requirements
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`of the APA” because “the Secretary[] fail[ed] to acknowledge her ‘about-face,’” and “her reasoning
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`2 The agency did not even begin to collect “all the data necessary to implement its new policy
`until 2007,” and the FFYs 2005 and 2006 Medicare Part A/SSI fractions did not include Part C
`days. Allina I, 904 F. Supp. 2d at 81–82.
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`13
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 14 of 31
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`for the change was brief and unconvincing.” Id. at 93 (quoting Northeast Hosp., 657 F.3d at 15).
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`Accordingly, this Court concluded that “[t]he portion of the 2004 Final Rule . . . that announced
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`the Secretary’s interpretation of the Medicare Disproportionate Share Hospital Fraction, as
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`codified in 2007 at 42 C.F.R. § 412.106(b)(2) and as further modified in 2010, will be vacated, and
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`the case will be remanded to the Secretary for further action consistent with this Opinion.” Id. at
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`95.
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`32. While the agency’s appeal from this Court’s decision in Allina I was pending before
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`the Court of Appeals, the agency engaged in a new rulemaking on the treatment of Part C days
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`effective only prospectively, beginning October 1, 2013. In that rulemaking, the agency “in an
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`abundance of caution . . . proposed to readopt the policy of counting the days of patients enrolled
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`in [Part C] plans in the Medicare fraction . . . .” 78 Fed. Reg. 50,496, 50,615 (Aug. 19, 2013).
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`Accordingly, effective as of October 1, 2013, the rule governing the DSH calculation is the same
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`as the 2004 rule had been. See id. at 50,619 (rule “readopt[ion]” applies to “FY 2014 and
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`subsequent years” only).
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`33.
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`On April 1, 2014, the Court of Appeals affirmed this Court’s Allina I decision on
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`the merits, “agree[ing] with the district court that the Secretary’s final rule was not a logical
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`outgrowth of the proposed rule.” 746 F.3d at 1109. The Court explained that “a party reviewing
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`the Secretary’s notice of proposed rulemaking understandably would have assumed that the
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`Secretary was proposing to ‘clarify’ a then-existing policy, i.e., one of excluding Part C days from
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`the Medicare fraction and including them in the Medicaid fraction.” Id. at 1108. Because this
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`procedural failure was a sufficient basis to vacate the rule, the Court of Appeals did not reach the
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`arbitrariness of the agency’s explanation. Id. at 1111.
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`14
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 15 of 31
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`34. With respect to remedy, the Court of Appeals held that this Court “correctly
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`concluded that vacatur was warranted.” Id. The court reversed, however, a part of this Court’s
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`order that required “the Secretary to recalculate the hospitals’ reimbursements ‘without using the
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`interpretation set forth in the 2004 Final Rule.’” Id. (quoting the Post-Judgment Order). The Court
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`of Appeals instead remanded, noting that the “question whether the Secretary could reach the same
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`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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`35.
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`In mid-June 2014, sixteen days after the Court of Appeals’ mandate in Allina I
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`vacating the 2004 rule, the agency published Medicare Part A/SSI fractions for FFY 2012,
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`including Part C days for all hospitals in the country. The agency proceeded without notice or
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`comment opportunity and provided no explanation at all for its decision to include Part C days in
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`the Medicare Part A/SSI fractions for FFY 2012 but instead issued those fractions just as it had for
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`prior years, as if the vacatur of that rule in Allina I had never happened. Certain plaintiff hospitals
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`in the Allina I litigation filed a separate action in this Court challenging the 2014 determination.
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`The agency moved to dismiss the action, asserting that the Board incorrectly granted EJR in that
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`case, but this Court rejected that motion. This Court then granted the agency’s motion for summary
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`judgment. Allina II, 201 F. Supp. 3d 94 (D.D.C. 2016), which the hospitals appealed.
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`36.
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`In 2017, the Court of Appeals unanimously reversed the District Court, agreeing
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`with the hospitals that the agency “violated the Medicare Act by failing to provide for notice and
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`comment” before readopting the 2004 policy. Allina II, 863 F.3d at 942. The Court of Appeals
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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 agency’s issuance of the FFY 2012
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`15
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`Case 1:21-cv-01998 Document 1 Filed 07/23/21 Page 16 of 31
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`Medicare Part A/SSI fractions including Part C days satisfied each of these factors. Id. at 945.
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`The court also found that the agency 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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`37.
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`The Court of Appeals also ruled on the Board’s EJR authority in Allina II. Pertinent
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`here, the Court of Appeals ruled that the Medicare “statute conditions expedited judicial review in
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`the district court on the existence of [a] no-authority determination, not on whether that
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`determination is correct,” and the Court explained that a hospital “may bring suit in the district
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`court even when the Board fails to make a timely determination of its authority to decide a case.”
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`Allina II, 863 F.3d at 941.
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`38.
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`On June 3, 2019, the Supreme Court affirmed the Court of Appeals’ ruling in Allina
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`II as to the notice-and-comment requirement under 42 U.S.C. § 1395hh(a)(2). Allina II, 139 S. Ct.
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`1804. The Supreme Court held that the agency’s 2014 application of the 2004 Part