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`THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
`
`Case No.
`
`) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )
`
`)
`)
`)
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`) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )
`
`SHANDS JACKSONVILLE MEDICAL CENTER,
`INC. d/b/a UF HEALTH JACKSONVILLE
`
`655 West 8th Street
`Jacksonville, Florida 32209
`
`SHANDS TEACHING HOSPITAL AND CLINICS,
`INC. d/b/a UF HEALTH SHANDS HOSPITAL
`1600 Southwest Archer Road
`Gainesville, Florida 32608
`
`ALLINA HEALTH SYSTEM d/b/a ABBOTT
`NORTHWESTERN HOSPITAL
`
`800 East 28th Street
`Minneapolis, Minnesota 55407
`
`ALLINA HEALTH SYSTEM d/b/a
`
`BUFFALO HOSPITAL
`
`303 Catlin Street
`Buffalo, Minnesota 55313
`
`ALLINA HEALTH SYSTEM d/b/a
`CAMBRIDGE MEDICAL CENTER
`701 South Dellwood Street
`Cambridge, Minnesota 55008
`
`ALLINA HEALTH SYSTEMd/b/a MERCY HOSPITAL
`4050 Coon
`Rapids Boulevard
`Coon
`Rapids, Minnesota 55433
`
`ALLINA HEALTH SYSTEM d/b/a
`
`OWATONNAHOSPITAL
`2250 NW 26th Street
`Owatonna, Minnesota 55060
`
`ALLINA HEALTH SYSTEM d/b/a UNITED HOSPITAL
`333 North Smith Avenue
`St. Paul, Minnesota 55102
`
`ALLINA HEALTH SYSTEM d/b/a UNITY HOSPITAL
`480 Osborne Road NE
`Fridley, Minnesota 55432
`
`

`

`NomeeneNeeNeeNeeNeNeeeeneeeeeee”Nee”ee”eeeNaeee”eeee”ee”Neee”eeee”ee”
`
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`HENRY FORD HEALTH SYSTEMd/b/a
`
`HENRY FORD HOSPITAL
`2799 West Grand Boulevard
`48202
`
`Detroit, Michigan
`
`HENRY FORD HEALTH SYSTEMf/d/b/a HENRY
`FORD MACOMB HOSPITAL-WARREN CAMPUS
`
`One Ford Place 5F
`48202
`
`Detroit, Michigan
`
`HENRY FORD WYANDOTTE HOSPITAL
`
`2333 Biddle Ave
`
`Wyandotte, Michigan
`
`48192
`
`Plaintiffs,
`
`Vv.
`
`XAVIER BECERRA,
`Secretary,
`United States Department of
`Health and Human Services,
`200
`Ave. S.W.
`Independence
`DC 20201,
`Washington,
`
`Defendant.
`
`COMPLAINT FOR JUDICIAL REVIEW AND DECLARATORY
`AND INJUNCTIVE RELIEF UNDER THE MEDICARE ACT
`
`NATURE OF ACTION
`
`1.
`
`This case concerns the proper treatmentin the calculation of the Medicare Part A
`
`disproportionate share hospital (“DSH”) paymentof inpatient hospital days for patients who were
`
`enrolled in Medicare Advantage plans under Part C of the Medicare Act. The Court of Appeals
`
`has now ruled against the agency in three actions challenging the agency’s repeated attempts to
`
`apply its Part C
`
`days policy change first adopted
`
`in 2004 to
`
`deny Medicare DSH payments to
`
`hospitals.
`
`See Northeast Hosp. Corp.
`
`v.
`
`Sebelius, 657 F.3d 1, 16-17
`
`(D.C. Cir. 2011) (finding
`
`application of the 2004 rule to
`
`prior periods impermissibly retroactive); Allina Health Services v.
`
`Sebelius, 746 F.3d 1102, 1105
`
`(D.C. Cir. 2014) (“Allina P’) (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
`
`(D.C. Cir. 2017), aff'd sub nom. Azary. Allina Health Servs., 139 S. Ct. 1804 (2019) (“Allina IP’)
`
`(holding that the agency must undertake notice-and-comment rulemaking before the policy of the
`
`2004 vacated rule can take effect).
`
`But the agency refuses to
`
`acquiesce in those decisionsor in the
`
`Supreme Court’s recent decision in Allina I
`affirming the Court of Appeals’ decision. Allina I,
`
`139 S. Ct. 1804. Instead, the agency has continuedto apply the Part C
`
`days policy adopted in the
`
`now-vacated 2004 rule in violation of these decisions, including in the payment determinationsat
`
`issue for the plaintiff hospitals in this case, in a
`
`recently issued proposed rule seeking
`
`to
`
`re-adopt
`
`the same 2004
`
`policy retroactively, and in a
`
`ruling that would leave undisturbed the payment
`
`determinations from which hospitals have appealed and,
`
`as construed by the agency’s
`
`administrative Board,
`
`not
`
`permit further administrative or
`
`judicial review of those determinations.
`
`The agency’s continued attempts to
`
`apply the 2004
`
`policy should be rejected because they
`
`are
`
`procedurally invalid,
`
`as the Court of Appeals has now twice ruled, fail any test of reasoned
`
`decision-making, and are inconsistent with congressional intent in adopting the Medicare DSH
`
`statute.
`
`JURISDICTION AND VENUE
`
`2.
`
`This action arises under the Medicare Act, Title XVIII of the Social Security Act,
`
`42 U.S.C. § 1395 et seq.
`
`3.
`
`4.
`
`5.
`
`(1)
`
`Jurisdiction is proper under 42 U.S.C. § 139500(f)(1) and 28 U.S.C. § 1331.
`
`Venueis properin this judicial district under 42 U.S.C. § 139500(f)().
`
`PARTIES
`
`The plaintiff hospitals in this action and hospital fiscal years at issue are as follows:
`
`Allina Health System d/b/a Abbott Northwestern Hospital, Provider No. 24-0057,
`fiscal year ending 12/31/2007;
`
`

`

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`(2)
`
`(3)
`
`(4)
`
`(5)
`
`(6)
`
`(7)
`
`(8)
`
`(9)
`
`Allina Health System d/b/a Buffalo Hospital, Provider No. 24-0076, fiscal year
`ending 12/31/2007;
`
`Allina Health System d/b/a Cambridge Medical Center, Provider No. 24-0020,
`fiscal year ending 12/31/2007;
`
`Allina Health System d/b/a Mercy Hospital, Provider No. 24-0115, fiscal year
`ending 12/31/2007;
`
`Allina Health System d/b/a Owatonna
`ending 12/31/2007;
`
`Hospital, Provider No. 24-0069,fiscal year
`
`Allina Health System d/b/a United Hospital, Provider No. 24-0038, fiscal year
`ending 12/31/2007;
`
`Allina Health System d/b/a Unity Hospital, Provider No. 24-0132, fiscal year
`ending 12/31/2007;
`
`Henry Ford Health System d/b/a Henry Ford Hospital, Provider No. 23-0053, fiscal
`year ending 12/31/2007;
`
`Henry Ford Health System f/d/b/a Henry Ford Macomb Hospital-
`Provider No. 23-0204,fiscal year ending 12/31/2007;
`
`Warren Campus,
`
`(10) Henry Ford Wyandotte Hospital, Provider No. 23-0146,
`12/31/2007;
`
`fiscal year ending
`
`(11)
`
`Shands Jacksonville Medical Center, Inc. d/b/a UF Health Jacksonville, Provider
`June 30, 2008, June 30, 2009, and June 30, 2010;
`No. 10-0001, fiscal years ending
`and
`
`(12)
`
`Shands Teaching Hospital and Clinics, Inc. d/b/a UF Health Shands Hospital,
`June 30, 2008.
`Provider No. 10-0113, fiscal year ending
`
`6.
`
`The defendant is Xavier Becerra,in his official capacity
`
`as
`
`Secretary of the United
`
`States Department of Health and Human Services (“Secretary”),
`
`the federal agency that
`
`administers the Medicare program. References to the Secretary herein are meantto refer to him,
`
`to his subordinates,
`
`andto his official predecessors
`
`or successors as the context
`
`requires.
`
`7.
`
`The Centers for Medicare & Medicaid Services (“CMS”) is the component of the
`
`Secretary’s agency with responsibility for day-to-day operation and administration ofthe Medicare
`
`

`

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`program. CMSwas
`
`formerly known as the Health Care
`
`Financing Administration. References to
`
`CMSherein are meantto refer to the agency andits predecessors.
`
`LEGAL AND REGULATORY BACKGROUND
`
`Medicare
`
`Payment
`
`Determinations and
`
`Appeals
`
`8.
`
`Part A of the Medicare Act covers
`
`“inpatient hospital services.” 42 U.S.C.
`
`§ 1395d(a)(1). Since 1983, the Medicare program has paid
`
`most
`
`hospitals for the operating
`
`costs
`
`of inpatient hospital services under the prospective payment system (“PPS”).
`
`42 U.S.C.
`
`§ 1395ww(d);
`
`42 C.F.R. Part 412. Under PPS, Medicare pays predetermined, standardized
`
`amounts per discharge, subject
`
`to certain payment adjustments.
`
`Jd. One of the PPS payment
`
`adjustments is the DSH payment. See 42 U.S.C. § 1395ww(d)(5)(F);
`
`42 C.F.R. § 412.106.
`
`9.
`
`After the close of each fiscal year, a
`
`hospital is required
`
`to file a “cost report” with
`
`a Medicare Administrative Contractor
`
`designated by the agency. 42 C.F.R. §§ 413.20, 413.24.
`
`10.
`
`The Medicare Administrative Contractor
`
`a
`
`analyzes
`
`hospital’s
`
`cost report and issues
`
`a
`
`year-end determination, called a Notice of Program Reimbursement (“NPR”),
`
`as to the amount
`
`of Medicare program reimbursement due the hospital for services furnished to Medicare patients
`
`during the fiscal year covered by the cost report. See 42 C.F.R. § 405.1803;
`
`see also Inre Medicare
`
`ReimbursementLitig., 309 F.
`
`Supp. 2d 89, 92 (D.D.C. 2004), aff'd,
`
`414 F.3d 7
`
`(D.C. Cir. 2005).
`
`11.
`
`A
`
`hospital may appeal
`
`a Medicare Administrative Contractor’s determination as to
`
`the total amount of Medicare program reimbursement due the hospital for the fiscal year covered
`
`acost report to the agency’s Provider Reimbursement Review Board (“Board”).
`
`by
`
`See 42 U.S.C.
`
`§ 139500(a)(1)(A);
`
`42 C.F.R.
`
`§§
`
`405.1835-405.1877.
`
`12.
`
`A
`
`hospital has the right
`
`to a
`
`hearing before the Boardif it is dissatisfied with the
`
`contractor’s payment determination in an NPRasto the total amount of program reimbursement
`
`due to the hospital for its cost
`
`reporting period.
`
`42 U.S.C. § 139500(a)(1);
`
`see also 42 C.F.R.
`
`5
`
`

`

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`§§ 405.1835; 405.1837. The statute further requires
`
`a minimum amountin controversy and that
`
`the appeal befiled timely.
`
`42 U.S.C. § 139500(a).
`
`13.
`
`The Board’s regulations
`
`at 42 C.F.R. § 405.1801(d)(2) provide that in computing
`
`deadlines for appeals, days where the Board is “unable to conduct business in the usual manner
`
`due to
`
`extraordinary circumstances beyond its control” are not included in the calculation of
`
`deadlines. The regulation instead provides that the clock on a deadline resumes when the Board
`
`is “able to conduct business in the usual manner.” Jd.
`
`14.
`
`In response to the COVID-19
`
`public health emergency, the Board published “Alert
`
`19.”! This Alert states that the Board is “maximizing telework” due to COVID-19, but further
`
`states that the Board is “continuing
`
`to operate in the mostefficient manner
`
`possible.” Nonetheless,
`
`in this Alert, the Boardstates that it is temporarily suspendingall appeal deadlines set
`
`by the Board,
`
`invoking
`
`42 C.F.R § 405.1801(d) for the authority
`
`to do so. Alert 19
`
`42.
`
`The Board also makes
`
`clear in the Alert, however, that the suspended deadlines do notinclude the “deadlines established
`by statute or CMSregulations.” Jd. § 2 n.1
`
`{ws1]{B12]
`
`Expedited
`
`Judicial Review
`
`15.
`
`The Medicare statute authorizes the Board to determinethat it is without authority
`
`to decide a
`
`question of law or
`
`regulations relevant to a matter in controversy in an
`
`appeal before
`
`the Board and to grant the right
`
`to
`
`expedited judicial review (““EJR”). 42 U.S.C. § 139500(f)(1).
`
`Pursuant to the Secretary’s regulations, the Board is bound by agencyrules
`
`and
`
`rulings,like the
`
`2004 rule at issue. 42 C.F.R. § 405.1867.
`
`Accordingly, the statute allows a
`
`hospital
`
`to request
`
`a
`
`Board determination asto its authority
`
`to decide a
`
`question of law or
`
`regulations
`
`andto initiate an
`
`!
`
`Available at
`
`PRRB-Alerts.
`
`https://www.cms.gov/Regulations-and-Guidance/Review-Boards/PRRBReview/
`
`

`

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`action in this Court if the Board determines that EJR is appropriate
`
`or fails to make a determination
`
`as to its authority within 30
`
`days after receipt of a
`
`request for such a determination. See 42 U.S.C.
`
`§ 139500(f)(1); Clarian Health W., LLC v.
`
`Hargan, 878 F.3d 346, 354 (D.C. Cir. 2017) (“The
`
`expedited judicial review provision makes it clear that ‘if the Board fails to render
`
`[a]
`
`determination’ on its authority within 30
`
`days, ‘the provider may bring
`
`a civil action... with
`
`respect to the matter in controversy contained in such request for a
`
`hearing.’”’); Allina IT, 863 F.3d
`
`at 941 (“A provider
`
`
`
`bring suit in the district court even when the Board fails to make amay
`
`timely
`
`determination ofits authority
`
`to decide a
`
`case.”); accord Methodist Hosp. ofMemphis
`
`v.
`
`Sullivan,
`
`799 F.
`
`Supp. 1210, 1216 (D.D.C. 1992), rev'd on other grounds, Adm’rs of Tulane Educ. Fundv.
`
`Shalala, 987 F.2d 790 (D.C. Cir. 1993).
`
`16.
`
`The regulation implementing the EJR statute, 42 C.F.R. § 405.1842(f),
`
`sets forth an
`
`additional requirement for granting EJR, not foundin the statute, that the Board have “jurisdiction
`
`to conduct a
`
`hearing
`
`on the specific
`
`matter at issue.” When presented with a
`
`request for EJR, the
`
`regulations require that the Board “make a
`
`preliminary determination of the scope of its
`
`jurisdiction (that is, whether the hearing request
`
`was
`
`timely, and whether the amount in controversy
`
`has been met).” Jd. § 405.1840(a)(2). The regulation does not create any further conditions
`
`beyondthosein the statute to establish jurisdiction for a Board appeal.
`
`See 42 C.F.R. §§ 405.1835,
`
`405.1837. Under the EJR
`
`regulations, only after finding that the statutory requirements for
`
`jurisdiction have been met,
`
`as set forth in 42 C.F.R. § 405.1840(a)(2), does the Board then proceed
`
`to determine if it has the authority
`
`to decide a
`
`legal question relevant to a matter at issue.
`
`Id.
`
`§ 405.1842(e)(1).
`
`Medicare DSH Payment
`
`17.
`
`Ahospital that serves a
`
`disproportionate share of low-incomepatients is entitled to
`
`an
`
`upward percentage adjustment
`
`to the standard PPS rates per discharge.
`
`See 42 U.S.C.
`
`7
`
`

`

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`§ 1395ww(d)(5)(F);
`
`see also 42 C.F.R. § 412.106. A
`
`hospital may qualify for a DSH
`
`adjustment
`
`based onits “disproportionate patient percentage.” See 42 U.S.C. §§ 1395ww(d)(5)(F)@)() and
`
`(d)(5)(F)(v);
`
`42 C.F.R. § 412.106(c)(1). The disproportionate patient percentage determines both
`
`a
`
`hospital’s qualification for the DSH payment and the amount of the payment. See 42 U.S.C.
`
`§§ 1395ww(d)(5)(F)Gv) and (vii){(xiii);
`
`42 C.F.R. § 412.106(d). The disproportionate patient
`
`percentage is defined as the sum of two fractions expressed
`
`as
`
`percentages.
`
`42 U.S.C.
`
`§ 1395ww(d)(5)(F)(vi).
`
`18.
`
`Thefirst fraction that is used to compute the DSH payment is commonly known as
`
`the “Medicaid fraction.” The statute defines the Medicaid fraction as:
`
`as a
`percentage), the numerator of which is the numberof
`the fraction (expressed
`the hospital’s patient days for such period which consist of patients who (for such
`were
`eligible for medical assistance under a State
`plan approved under[the
`days)
`Medicaid statute, title XIX of the Social Security Act], but who were notentitled to
`benefits under part A of [the Medicare statute, title XVIII of the Social Security
`Act], and the denominator ofwhichis the total numberofthe hospital’s patient days
`for such period.
`
`42 U.S.C. § 1395ww(d)(5)(F)(vi)(I]) (emphasis added).
`
`As reflected in the italicized language
`
`above, the numerator of the Medicaid fraction consists of days for patients who were both eligible
`
`for medical assistance under the Medicaid statute and “not entitled to benefits under part A”of the
`
`Medicarestatute.
`
`19.
`
`The other fraction that is used to compute the DSH paymentis the “Medicare part
`
`A/SSI fraction” or “SSI fraction.” The statute defines this fraction as:
`
`as a
`percentage), the numerator of which is the numberof
`the fraction (expressed
`such hospital’s patient days for such period which were made up of
`patients who
`were entitled to
`benefits under part A of [the Medicare statute] and
`(for such days)
`were entitled to
`supplemental security income benefits (excluding any State
`.
`.
`.
`, and the denominator of which is the number of such
`supplementation)
`hospital’s patient days for such fiscal year which were made up of
`patients who(for
`....
`were entitled to
`benefits under part A of [the Medicarestatute]
`such days)
`
`

`

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`42 U.S.C. § 1395ww(d)(5)(F)(vi)() (emphases added).
`
`Astheitalicized language indicates, the
`
`Medicare Part A/SSI fraction consists solely of days for patients who were “entitled to benefits
`
`under part A” of Medicare. The denominator includes all Medicare Part A
`
`days, whereas the
`
`numerator includes only those Part A
`
`days for patients who are also entitled to social security
`
`income (“SSI”) benefits under title XVI of the Social Security
`
`Act. The Medicare Part A/SSI
`
`fraction is computed for each federal fiscal year (“FFY”) by the agency, and must be used to
`
`compute
`
`a
`
`hospital’s
`
`DSH payment for the cost
`
`reporting period beginning in the federal fiscal
`
`year. 42 C.F.R. §§ 412.106(b)(2)}-(3).
`
`A
`
`hospital may elect to have the Medicare Part A/SSI
`
`fraction recalculated based on
`
`patient days in its own cost
`
`reporting period instead of the federal
`
`fiscal year. See id.;
`
`see also 42 U.S.C. § 1395ww(d)(5)(F)(vi), (vi)() (requiring calculation of
`
`Medicare Part A/SSI fraction based on the cost
`
`reporting period);
`
`51 Fed. Reg. 16,772, 16,777
`
`(May6, 1986) (stating that while the agency would rely
`
`on the federalfiscal year, it was
`
`“affording
`
`all hospitals the option
`
`to determine their number of patient days of those dually entitled to
`
`Medicare Part A and SSI for their own cost
`
`reporting periods”).
`
`Medicare Part C
`
`20.
`
`Section 4001 of the Balanced Budget
`
`Act of 1997, Pub. Law No. 105-33, added a
`
`new Part C to the Medicare statute to establish a Medicare program that was
`
`originally called the
`
`Medicare+Choice (also known as
`
`“M+C”) program and is now called Medicare Advantage.
`
`A
`
`Medicare beneficiary
`
`can elect to receive Medicare benefits either through the original fee-for-
`
`service program under Medicare Parts A and B, or through enrollment in a Medicare Advantage
`
`plan under Medicare Part C. 42 U.S.C. § 1395w-21(a)(1);
`
`42 C.F.R. § 422.50;
`
`see also 63 Fed.
`
`Reg. 34,968, 34,968 (June 26, 1998) (“Under section 1851(a)(1), every individual entitled to
`.
`.
`.
`
`Medicare Part A and enrolled under Part B
`
`may elect to receive benefits through either the
`
`existing Medicare fee-for-service program or a Part C M+C
`
`plan.”) (emphasis added).
`
`9
`
`

`

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`21.
`
`“Before 2004, [Defendant’s agency] had not treated Part C enrollees as ‘entitled to
`
`benefits under Part A.’” Allina IT, 863 F.3d at 939
`
`(quoting Northeast Hosp., 657 F.3d at
`
`15);
`
`see
`
`also Allina I, 746 F.3d at 1106
`
`(“Prior
`
`to 2003, the Secretary treated Part C
`
`patients
`
`as not entitled
`
`to benefits under Part
`
`A.”); Allina I, 904 F.
`
`Supp. 2d at 78-80; Northeast Hosp., 657 F.3d at 16—
`
`17. The DSH
`
`regulation prior
`
`to 2004 limited part-A-entitled days in the Medicare Part A/SSI
`
`fraction to
`
`patient days that were
`
`“covered,”
`
`or
`
`paid, by Medicare Part A.
`
`See 42 C.F.R.
`
`§ 412.106(b)(2)(i) (2003); 42 C.F.R. § 409.3
`
`(defining “covered”as services for which paymentis
`
`authorized). The agency said as much when adopting the pre-2004 regulation, explaining that the
`
`numerator of the Medicare Part A/SSI fraction included only “covered Medicare Part A
`
`inpatient
`
`days.”
`
`51 Fed. Reg. 16,772, 16,777 (May 6, 1986) (emphasis added);
`
`see also 51 Fed. Reg. 31,454,
`
`31,460—-61; Catholic Health Initiatives-Iowa
`
`v.
`
`Corp.
`
`Sebelius, 718 F.3d 914, 921 n.5
`
`(D.C. Cir.
`
`2013) (noting that the pre-2004 regulation limited the Medicare Part A/SSI fraction to “covered
`
`Medicare Part A
`
`inpatient days”) (citing
`
`51 Fed. Reg.
`
`at
`
`16,777). Accordingly, the DSH
`
`regulation
`
`to 2004
`
`prior
`
`necessarily excluded Part C
`
`days from Part-A-entitled days because Part C
`
`days
`
`are
`
`not covered or
`
`paid under Part A. See 42 U.S.C. § 1395w-21(a)(1), G) (providing that payment of
`
`Part C benefits is in lieu of benefits otherwise payable under Part
`
`A);
`
`see also Northeast Hosp.,
`
`657 F.3d at 6.
`
`22.
`
`Further, written guidance prior
`
`to 2004
`
`repeatedly expressed the agency’s policy
`
`that Part C
`
`as
`
`days,
`
`days for which patients
`
`were not entitled to Part A payment,
`
`were to be
`
`excluded from the Medicare Part A/SSI fraction. See Northeast Hosp., 657 F.3d at 15
`
`(describing
`
`prior instructions not to submit information related to services furnished to Part C
`
`patients that
`
`would have been necessary to count Part C
`
`days in the Medicare Part A/SSI fraction). This
`
`guidance included instructions to
`
`hospitals and program memoranda transmitting the Medicare
`
`10
`
`

`

`Case 1:21-cv-02504 Document 1 Filed 09/24/21 Page 11 of 33
`11 of 33
`Case 1:21-cv-02504 Document1 Filed 09/24/21 Page
`
`Part A/SSI fractions on an annual basis. See HCFA Pub. 60A, Transmittal No. A-98-36 (Oct. 1,
`
`1998), reprinted
`
`in MEDICARE & MEDICAID GUIDE (CCH) 4 150,103 (transmitting Medicare Part
`
`A/SSIfractions that excluded Part C
`
`days, specifying that the fractions include only “covered
`
`Medicare days,” and referring
`
`to the ratio of SSI
`
`days and “covered Medicare days”
`
`as “the ratio
`
`of Medicare Part A
`
`patient daysattributable to SSI
`
`recipients”);
`
`HCFA Pub. 60A, Transmittal No.
`
`A-99-42 (Sept. 1, 1999), reprinted
`
`in id. § 150,769 (same); HCFA Pub. 60A, Transmittal No. A-
`
`00-54 (Aug. 17, 2000), reprinted
`
`in id. § 151,363 (same); CMS Pub. 60A, Transmittal No. A-01-
`
`109 (Sept. 13, 2001), reprinted
`
`in id. { 152,216 (same); CMSPub. 60A, Transmittal No. A-02-086
`
`(Sept. 11, 2002), reprinted
`
`in id. § 152,922 (same); CMS Pub. 60A, Transmittal No. A-03-067
`
`(Aug. 8, 2003), reprinted
`
`in id. § 153,554 (same); CMS Pub. 100-04, Transmittal 275 (Aug. 13,
`
`2004), reprinted
`
`in id. § 154,468 (same).
`
`23.
`
`Ina2003 proposedrule, the agency proposed
`
`“‘to
`
`clarify”its long-held position that
`
`“once a
`
`beneficiary elects Medicare Part C, those patient daysattributable to the beneficiary should
`
`not be included in the Medicare fraction of the DSH
`
`patient percentage.” 68 Fed. Reg. 27,154,
`
`27,208 (May 19, 2003). Further, the agency explained that “[t]hese days should be includedin the
`
`count of total patient days in the Medicaid fraction (the denominator), and the patient’s days for a
`
`[Part C] beneficiary whois also eligible for Medicaid would be included in the numerator of the
`
`Medicaid fraction.” Jd. The agency explained that “once a
`
`beneficiary has elected to
`
`join
`
`a
`
`Medicare Advantage plan, that beneficiary’s benefits are no
`
`longer administered under Part A.”
`
`Id.
`
`24.
`
`‘Ina final rule published in August 2004, however, the agency engagedin a “volte-
`
`face” and “abruptly announced a
`
`changein policy.” Allina I, 904 F.
`
`Supp. 2d 75, 78 (D.D.C. 2012);
`
`Allina I, 746 F.3d at 1107-10. That 2004 rule announced that the agency would “adopt
`
`a
`
`policy”
`
`11
`
`

`

`Case 1:21-cv-02504 Document 1 Filed 09/24/21 Page 12 of 33
`12 of 33
`Case 1:21-cv-02504 Document1 Filed 09/24/21 Page
`
`to include Part C
`
`days in the Medicare Part A/SSI fraction and exclude them from the Medicaid
`
`fraction effective October 1, 2004.
`
`69 Fed. Reg. 48,916, 49,099 (Aug. 11, 2004);
`
`see also
`
`Northeast Hosp., 657 F.3d at 16 (“[I]n the 2004
`
`rulemaking [the agency] announced that [it]
`
`was
`
`‘adopting
`
`a
`
`policy’ of counting [Part C] days in the Medicarefraction.”).
`
`25.
`
`Inthe 2004 final rule, the agency amendedthe regulation
`
`text
`
`by deleting the word
`
`“covered.” 69 Fed. Reg.
`
`at 49,246. When the agencyinitially transmitted the Medicare Part A/SSI
`
`fractions for FFYs 2005 and 2006, however, those fractions continued to exclude Part C
`
`days.
`
`See
`
`CMSPub. 100-04, Transmittal 1091 (Oct. 27, 2006), reprinted
`
`in MEDICARE & MEDICAID GUIDE
`
`(CCH) ¥ 156,277 (transmitting
`
`FFY 2005 Medicare Part A/SSI fractions and specifying that the
`
`fractions include only “covered Medicare days,” and referring
`
`to the ratio of SSI
`
`days and “covered
`
`Medicare days”
`
`as “the ratio of Medicare Part A
`
`patient days attributable to SSI
`
`recipients”);
`
`CMS
`
`Pub. 100-04, Transmittal 1396 (Dec. 14, 2007), reprinted
`
`in id. | 156,930 (same for FFY 2006
`
`fractions).
`
`26.
`
`In
`
`July 2007, the agency issued a revision to a Medicare program manual, with a
`
`“purported ‘effective date’ of October 1, 2006,” that permitted hospitals
`
`to submit the data
`
`necessary to
`
`implement the new
`
`policy regarding
`
`Part C
`
`days. Allina I, 904 F.
`
`Supp. 2d at 82.
`
`Thereafter, in August 2007, the agency further amendedthe text of the DSH
`
`regulation governing
`
`Part C
`
`days without affording hospitals prior notice or
`
`opportunity for comment. 72 Fed. Reg.
`
`47,130, 47,384 (Aug. 22, 2007). Following the amendments in 2004 and 2007, the regulation
`
`provided that the Medicare Part A/SSI fraction includesall patient days (not just “covered” days)
`
`for “patients entitled to Medicare Part A (or Medicare Advantage (Part C)).”
`
`Id. at 47,411
`
`(amending §§ 412.106(b)(2)i)(B) and (i11)(B)) (emphasis added). The amendment of the
`
`regulation
`
`was made effective October 1, 2007, the beginning of FFY 2008. Id. at 47,130;
`
`see also
`
`12
`
`

`

`Case 1:21-cv-02504 Document 1 Filed 09/24/21 Page 13 of 33
`Case 1:21-cv-02504 Document1 Filed 09/24/21 Page 13 of 33
`
`Allina I, 904 F.
`
`Supp. 2d at 82. The agency further amendedthe regulation “in 2010 to use the
`
`word ‘including’ in place of ‘or,’ in an
`
`apparent attempt to bolster further” the agency’s position
`
`on the treatment of Part C
`
`days. Allina I, 904 F.
`
`Supp. 2d at 82 n.5.
`
`Northeast
`
`Hospital
`
`27.
`
`The agency’s change
`
`to the DSH paymentcalculation first adopted in 2004 has
`
`given rise to substantial litigation that continues to this day.
`
`Initially, the agency attempted
`
`to
`
`apply the 2004 rule changeretroactively
`
`to cost years prior
`
`to the October 1, 2004 effective date
`
`ofthe 2004 rule. The Court ofAppeals found that the agency’s retroactive application
`
`ofits current
`
`rule to
`
`periods prior
`
`to October 1, 2004 violated the Supreme Court’s
`
`longstanding decision in
`
`Bowen v.
`
`Georgetown University Hospital,
`
`488 U.S. 204, 208 (1988). See Northeast Hosp., 657
`
`F.3d at 16. The Court held that “the Secretary’s present interpretation, which marksa substantive
`
`departure from his prior practice of excluding [Part C] days from the Medicare fraction, may not
`
`be retroactively applied”
`
`to the fiscal years at issue. Jd. at 17.
`
`28.
`
`Following the D.C. Circuit’s decision, the Secretary issued TDL-12391, which
`
`stated that in light of the Northeast decision, the agency was
`
`instructing its contractors to “include
`
`any disallowed patient days attributable to
`
`patients who were enrolled in a Medicare Part C Plan
`
`and also eligible for Medicaid for discharges occurring
`
`on or after January 1, 1999
`
`through
`
`September 30, 2004 in the Medicaid fraction” of the DSH calculation. This instruction specified
`
`this relief should be applied
`
`to any cost reports that were not yet settled,
`
`as well as settled cost
`
`reports where the Provider hadfiled a proper appeal. Jd. at 1-2.
`
`13
`
`

`

`Case 1:21-cv-02504 Document 1 Filed 09/24/21 Page 14 of 33
`14 of 33
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`The Allina I
`
`Litigation
`
`29.
`
`In
`
`July 2009, the agency first published Medicare Part A/SSI fractions for hospital
`
`cost
`
`reporting periods beginning in FFY 2007.7 These fractionsfor the first time included Part C
`
`days.
`
`30.
`
`In Allina I,
`
`a group of hospitals challenged the 2004 rule change through
`
`administrative appeals initiated in 2009, arguing (1) that the new Part C
`
`days policy
`
`was not the
`
`“logical outgrowth” of the 2003 proposedrule “clarifying” the agency’s formerpolicy, and (2) that
`
`the rule was
`
`arbitrary and capricious because the agency’s “cursory explanation
`
`in the 2004 Final
`
`Rule”failed to
`
`acknowledge its departure from past policy and practice and ignored the “financial
`
`impact” of that departure. Allina I, 904 F. Supp. 2d at 89, 83, 92—94.
`
`31.
`
`This Court
`
`agreed and held that the policy announced in the 2004 final rule
`
`regarding
`
`Part C
`
`days
`
`wasnotthe logical outgrowth of the 2003
`
`proposed rule. Jd. at 89-92. This
`
`Court also held that the “cursory explanation
`
`in the 2004 Final Rule failed to meet the requirements
`
`ofthe APA”because“the Secretary|] fail[ed]
`
`to
`
`acknowledge her ‘about-face,’” and “her reasoning
`
`for the change
`
`wasbrief and unconvincing.” Jd. at 93
`
`(quoting Northeast Hosp., 657 F.3d at
`
`15).
`
`Accordingly, this Court concluded that “[t]he portion of the 2004 Final Rule... that announced
`
`the Secretary’s interpretation of the Medicare Disproportionate Share Hospital Fraction,
`
`as
`
`codified in 2007 at 42 C.F.R. § 412.106(b)(2) and as further modified in 2010, will be vacated, and
`
`the case will be remandedto the Secretary for further action consistent with this Opinion.” Jd.at
`
`95.
`
`*
`
`implement its new
`The agency did not even
`to collect “all the data necessary to
`policy
`begin
`until 2007,” and the FFYs 2005 and 2006 Medicare Part A/SSI fractions did not include Part C
`Supp. 2d at 81-82.
`days. Allina I, 904 F.
`
`14
`
`

`

`Case 1:21-cv-02504 Document 1 Filed 09/24/21 Page 15 of 33
`Case 1:21-cv-02504 Document1 Filed 09/24/21 Page 15 of 33
`
`32.
`
`While the agency’s appeal from this Court’s decision in Allina I was
`
`pending before
`
`the Court of Appeals, the agency engaged in a new rulemakingonthe treatment of Part C
`
`days
`
`effective only prospectively, beginning October 1, 2013.
`.
`.
`.
`
`In that rulemaking, the agency “in an
`
`readopt the policy of counting the days of patients enrolled
`
`abundance of caution
`
`proposed
`
`to
`
`in [Part C] plans in the Medicare fraction... .” 78 Fed. Reg. 50,496, 50,615 (Aug. 19, 2013).
`
`Accordingly, effective as of October 1, 2013, the rule governing the DSH calculation is the same
`
`as the 2004 rule had been. See id. at 50,619 (rule “readopt[ion]” applies
`
`to “FY 2014 and
`
`subsequent years”only).
`
`33.
`
`On
`
`April 1, 2014, the Court of Appeals affirmed this Court’s Allina I decision on
`
`the merits, “agree[ing] with the district court that the Secretary’s final rule was not a
`
`logical
`
`outgrowth of the proposed rule.” 746 F.3d at 1109. The Court
`
`explained that “a party reviewing
`
`the Secretary’s notice of proposed rulemaking understandably would have assumed that the
`
`Secretary
`
`was
`
`proposingto ‘clarify’
`
`a
`
`then-existing policy, i.e.,
`
`one of excluding
`
`Part C
`
`days from
`
`the Medicare fraction and including them in the Medicaid fraction.” Jd at 1108. Because this
`
`procedural failure wasa sufficient basis to vacate the rule, the Court of Appeals did not reach the
`
`arbitrariness of the agency’s explanation.
`
`/d. at 1111.
`
`34.
`
`With respect to
`
`remedy, the Court of Appeals held that this Court
`
`“correctly
`
`concluded that vacatur was warranted.” Jd. The court
`
`reversed, however,
`
`a
`
`part of this Court’s
`
`order that required “the Secretary
`
`to recalculate the hospitals’ reimbursements ‘without using the
`
`interpretation
`
`set forth in the 2004 Final Rule.’” Jd. (quoting the Post-Judgment Order). The Court
`
`ofAppeals instead remanded, noting that the “question whether the Secretary could reach the same
`
`result” on remand as would have applied underthe vacated rule “was not before the district court”
`
`and therefore this Court should have simply “remand|[ed] after identifying the error.” Jd. at 1111.
`
`15
`
`

`

`Case 1:21-cv-02504 Document 1 Filed 09/24/21 Page 16 of 33
`Case 1:21-cv-02504 Document1 Filed 09/24/21 Page 16 of 33
`
`The Allina IT
`
`Litigation
`
`35.
`
`In mid-June 2014, sixteen days after the Court of Appeals’ mandate in Allina I
`
`vacating the 2004 rule, the agency published Medicare Part A/SSI fractions for FFY 2012,
`
`including
`
`Part C
`
`days for all hospitals
`
`in the country. The agency proceeded without notice or
`
`comment
`
`opportunity and provided
`
`no
`
`explanation
`
`at all for its decision to include Part C
`
`in
`
`days
`
`the Medicare Part A/SSI fractions for FFY 2012 but instead issued those fractionsjust
`
`as it had for
`
`prior years, as if the vacatur of that rule in Allina I had never
`
`happened. Certain plaintiff hospitals
`
`in the Allina
`
`litigation filed a
`
`separate action in this Court
`
`challenging the 2014 determination.
`
`The agency movedto dismiss the action, asserting that the Board incorrectly granted
`
`EJR in that
`
`case, but this Court
`
`rejected that motion. This Court then granted the agency’s motion for summary
`
`judgment. Allina IT, 201 F. Supp. 3d 94
`
`(D.D.C. 2016), which the hospitals appealed.
`
`36.
`
`In 2017, the Court of Appeals unanimously reversed the District Court, agreeing
`
`with the hospitals that the agency “violated the Medicare Act
`
`by failing
`
`to
`
`provide for notice and
`
`comment” before readopting the 2004
`
`policy. Allina I, 863 F.3d at 942. The Court of Appeals
`
`concluded that the Medicare Act, 42 U.S.C. § 1395hh(a)(2), required rulemakingfor any “(1) ‘rule,
`
`requirement,
`
`or other statement of policy’ that (2) ‘establishes or
`
`changes’ (3)
`
`a ‘substantive legal
`
`standard’ that (4) governs ‘paymentfor services,” and that the agency’s issuance of the FFY 2012
`
`Medicare Part A/SSI fractions including
`
`Part C
`
`days satisfied each of these factor