Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 1 of 28
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`MASSENA MEMORIAL HOSPITAL
`1 Hospital Drive
`Massena, NY 13662
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`
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`Plaintiff,
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`
`
`
` vs.
`
`
`XAVIER BECERRA, as SECRETARY OF
`THE UNITED STATES DEPARTMENT OF
`HEALTH AND HUMAN SERVICES
`200 Independence Avenue, S.W.
`Washington, D.C. 20201
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`
`
`
`
`Defendant.
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`
`
`Civil Action No. 1:21-cv-3291
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`
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`COMPLAINT
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`Plaintiff Massena Memorial Hospital (the “Hospital”) brings this action against
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`Defendant Xavier Becerra, in his official capacity as Secretary (the “Secretary”) of the United
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`States Department of Health and Human Services (“HHS”), and states as follows:
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`1.
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`Plaintiff Hospital provides essential acute care hospital services for patients in a
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`rural and economically challenged region of upstate New York. At all relevant times, the
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`Hospital has been designated by the Medicare program as a “Sole Community Hospital”
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`(“SCH”).
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`2.
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`During its fiscal years that ended December 31, 2009 (“FY 2009”), December 31,
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`2012 (“FY 2012”) and December 31, 2013 (“FY 2013”), the Hospital experienced substantial
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`decreases in its inpatient cases due to circumstances beyond its control, which by law required
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 2 of 28
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`the Secretary to adjust the Hospital’s usual Medicare inpatient payments. This adjustment is
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`known as the Medicare Volume Decrease Adjustment (“VDA”) payment.
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`3.
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`For each of FY 2009, FY 2012 and FY 2013, the Hospital filed timely
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`applications for a VDA payment, and the Secretary, acting through the Centers for Medicare and
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`Medicaid Services (“CMS”) and its Medicare Administrative Contractor (“MAC”) issued a final
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`determination for each fiscal year. By letter dated February 25, 2015, the MAC approved a
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`VDA payment to the Hospital in the amount of $99,257 for FY 2009. By letter dated September
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`16, 2013, the MAC approved a VDA payment of $1,175,965 for FY 2012. By letter dated
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`October 23, 2015, the MAC approved a VDA payment of $1,818,093 for FY 2013. These
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`approvals are collectively referred to as the “Original VDA Approvals.” The Hospital did not
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`appeal the Original VDA Approvals because they were determined correctly.
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`4.
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`Well after the Original VDA Approvals were received, by letters dated January
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`29, 2016, the MAC notified the Hospital of its intent to “reopen” all three Original VDA
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`Approvals, i.e., to recalculate the Hospital’s original VDA payments. On October 11, 2016, the
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`MAC issued revised determinations for FY 2009, FY 2012 and FY 2013 which reduced the
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`Hospital’s FY 2009 VDA payment to $0, its FY 2012 VDA payment to $558,051 and its FY
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`2013 VDA Payment to $891,737. These are collectively referred to as the “Revised VDA
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`Approvals.” As a result of the Revised VDA Approvals, and because the Hospital had already
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`received the original VDA payments, the Hospital was required to repay the Medicare program
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`$99,257 for FY 2009, $617,914 for FY 2012 and $926,365 for FY 2013.
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`5.
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`The Secretary has conceded that the Hospital experienced a decrease in inpatient
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`volume greater than 5% and is therefore entitled to a VDA payments for FY 2009, FY 2012 and
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`FY 2013. The questions to be decided in this appeal are (a) whether the MAC properly reopened
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 3 of 28
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`the Original VDA Approvals; and alternatively (b) whether the VDA payment set forth in the
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`Revised VDA Approvals was correctly calculated.
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`6.
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`The Original VDA Approvals were calculated exactly as described in the
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`Medicare Provider Reimbursement Manual (“PRM”) and CMS’ comments during rulemaking,
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`that is, by subtracting total MS DRG payments (defined and discussed below) from the lesser of
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`(a) the Provider’s total Medicare inpatient operating costs (less any adjustment for excess
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`staffing); or (b) the prior year’s total Medicare inpatient operating costs updated for inflation
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`(less any adjustment for excess staffing) (the “Historical VDA Approval Methodology”). See
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`CMS Pub. 15-1, PRM § 2810.1.D; 71 Fed. Reg. 47,870, 48,056 (Aug. 18, 2006); 73 Fed. Reg.
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`48433, 48631 (Aug. 19, 2008). This is the methodology the MAC consistently applied and
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`reported to CMS from the time it began calculating VDA payments until 2016, a period of over
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`25 years. Because the Historical VDA Approval Methodology compares similar concepts – total
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`costs and total payments – the Hospital refers to this methodology as an “apples-to-apples”
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`approach.
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`7.
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`In 2016, the MAC abruptly changed its calculation method (the “Revised VDA
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`Approval Methodology”). The MAC continued to subject the Hospital’s total Medicare inpatient
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`costs to the “prior year” and “excess staffing” tests, but added a new step which removed from
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`the Hospital’s total inpatient operating costs certain costs now alleged to be “variable.”
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`However, the MAC continued to subtract from this amount the Hospital’s total MS DRG
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`payments, even though a portion of those payments were intended to reimburse the Hospital for
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`its variable costs. As a result, the MAC’s Revised VDA Approval Methodology improperly
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 4 of 28
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`compares dissimilar concepts – “fixed” costs and total payments. For that reason, the Hospital
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`refers to this methodology as an “apples-to-oranges” approach.1
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`8.
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`The Original VDA Approvals utilized the Historical VDA Approval
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`Methodology, which correctly applied an apples-to-apples comparison of total costs to total
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`payments. The Revised VDA Approvals applied the Revised VDA Approval Methodology,
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`which improperly compared dissimilar concepts – “fixed” costs and total payments. The
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`application of the Revised VDA Approval Methodology resulted in significantly smaller VDA
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`payments to the Hospital.
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`9.
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`Put more simply, for over twenty-five years, the MAC properly applied the
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`applicable law and program instructions one way and reported the resulting determinations to
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`CMS. Starting in 2016, the MAC began to apply the applicable law and program instructions
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`differently – without any intervening changes to the law or explicit notice from CMS. The
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`Secretary, by allowing the MAC to reopen properly issued final determinations and then
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`adopting this new methodology through adjudication, has violated the Medicare statute and the
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`Administrative Procedures Act.
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`As explained herein, in response to the Revised VDA Approval Methodology, the Board
`1
`fashioned a third approach (“Board’s VDA Methodology”). Recognizing that MS-DRG
`payments include a component designed to reimburse a hospital for its variable costs, the
`Board’s VDA Methodology reduces MS-DRG payments to exclude the “variable” cost
`component. Because this third methodology compares similar concepts - “fixed” costs and
`“fixed” payments - a continuation of the first analogy would suggest an “oranges-to-oranges”
`approach. CMS has adopted this methodology through rulemaking prospectively for fiscal years
`beginning on or after October 1, 2017. 82 Fed. Reg. 37990, 38179-83 (Aug. 14, 2017).
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`4
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 5 of 28
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`PARTIES
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`10.
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`Plaintiff Massena Memorial Hospital is a Medicare participating acute care
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`hospital located in Massena, New York. At all relevant times, the Hospital was classified as a
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`SCH under Section 1886(d)(5)(D)(iii) of the Social Security Act (the “Act”).
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`11.
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`Defendant Xavier Becerra is the Secretary of HHS and is the federal official
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`responsible for administering the Medicare program under Title XVIII of the Act.
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`JURISDICTION AND VENUE
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`12.
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`This action arises under the Medicare Act (Title XVIII of the Act, 42. U.S.C.
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`§§ 1395 et seq.)(the “Medicare Act”) and the Administrative Procedure Act (5 U.S.C. §§ 551 et
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`seq.). This court has jurisdiction under 28 U.S.C. § 1331 and § 1361, and 42 U.S.C. §
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`1395oo(f)(1).
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`13.
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`Venue is proper in this judicial district under 42 U.S.C. § 1395oo(f)(l) and 28
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`U.S.C. § 1391(c).
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`STATUTORY AND REGULATORY BACKGROUND
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`The Medicare Program and the Appeal Process
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`The Hospital is provider of medical services to beneficiaries of the federally
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`A.
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`14.
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`administered Medicare Program as set forth in the Medicare Act.
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`15.
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`CMS is the agency within HHS charged with administrating the Medicare
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`program.
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`16.
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`CMS’s hospital payment functions are contracted to organizations known as
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`MACs.
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`17.
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`During each cost reporting period, a MAC determines the payment amounts due
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`to providers under the Medicare statutes, regulations, and interpretive guidelines published by
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`CMS. After the MAC makes a final determination, it sends to the provider a Notice of Program
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`Reimbursement (“NPR”).
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`18.
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`In addition to issuing NPRs, a MAC may make other final determinations,
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`including a VDA payment determination. 42 C.F.R. § 412.92(e)(3); 54 Fed. Reg. 36452, 36480
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`(Sep. 1, 1989).
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`19.
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`A hospital may appeal the MAC’s final determination to the Provider
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`Reimbursement Review Board (“PRRB” or “Board”) pursuant to 42 U.S.C. § 1395oo(a) and 42
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`C.F.R. § 405.1835. The PRRB is a sub-agency within HHS that serves as an administrative
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`review panel for final determinations made by CMS or the MAC. The members of the PRRB
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`must be “knowledgeable in the field of payment to providers of service” under the Medicare
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`program. See 42 U.S.C. § 1395oo(h).
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`20.
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`The decision of the PRRB is final unless the Secretary reverses, affirms, or
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`modifies the PRRB’s decision within 60 days of the provider being notified of the PRRB’s
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`decision. See 42 U.S.C. § 1395oo(f)(1). A hospital has the right to obtain judicial review of any
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`final decision of the PRRB, or any reversal, affirmance, or modification of the PRRB’s decision
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`by the Secretary. See 42 U.S.C. § 1395oo(f); 42 C.F.R. § 405.1877.
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`B. Medicare Reimbursement
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`21. Medicare’s hospital insurance program, known as Part A, provides certain
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`benefits covering inpatient hospital, nursing facility, home health and hospice services. Until
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`October 1983, Medicare paid participating hospitals for the “reasonable costs” that they actually
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`incurred in providing inpatient services. To address the increasing costs of inpatient services,
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`Congress amended the Medicare Act in 1983 to create a new payment system for virtually all
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`acute care hospitals known as the inpatient prospective payment system (“IPPS”).
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`6
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`22.
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`Under IPPS, hospitals are no longer paid for the reasonable costs incurred in
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`providing inpatient care. Instead, CMS pays a fixed, prospectively determined amount assigned
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`to the applicable diagnosis-related group (“DRG”) for each patient discharge, subject to special
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`rules for certain supplemental payments. Specifically, the fixed DRG-based per discharge rates
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`under IPPS are designed to be payment in full for the hospital’s inpatient operating costs, 42
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`U.S.C. § 1395ww(d)(1)(A), which include “all routine operating costs … and includes the costs
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`of all services for which payment may be made under this subchapter that are provided by the
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`hospital …,” 42. U.S.C. § 1395ww(a)(4).
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`23.
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`The DRG payments compensate a hospital for all such costs – whether fixed or
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`variable – incurred in providing care to an inpatient, regardless of the hospital’s actual operating
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`costs. 42 U.S.C. § 1395ww(d)(1). Therefore, hospitals are generally at financial risk that their
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`costs for treating a particular patient may exceed the IPPS rates.
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`24. Medicare’s IPPS assumes that fixed DRG payments based on cases of average
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`complexity and typical inpatient volume will on average adequately compensate efficiently run
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`hospitals.
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`C.
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`25.
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`The VDA Methodology and Payment
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`Recognizing these assumptions may unfairly burden SCHs, which are often a rural
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`community’s only source of necessary inpatient healthcare, Congress mandated special payment
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`exceptions and adjustments for those hospitals “to take into account … the special needs of
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`[SCH] …or essential community services, and to take into account extraordinary circumstances
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`beyond the hospital’s control, … significantly fluctuating population in the services area of the
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`hospital, and unusual labor costs…” 42 U.S.C. § 1395ww(a)(2)(A).
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`26.
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`For example, Medicare pays a SCH’s inpatient operating costs at “an amount
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`based on 100 percent of the hospital’s target amount for the cost reporting period, as defined in
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`subsection (b)(3)(C),” or “the amount determined under paragraph (1)(A)(iii)[DRG based
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`payments], whichever results in greater payment to the hospital.” 42 U.S.C. §
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`1395ww(d)(5)(D)(i)(I) and (II)(emphasis added).
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`27.
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`Another example is the VDA payment. Pursuant to the Act, certain hospitals that
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`experience significant, uncontrollable decreases in inpatient volume, are entitled to an additional
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`payment adjustment known as the VDA payment. See 42 U.S.C. § 1395ww(d)(5)(D)(ii).
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`28.
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`The VDA statute provides:
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`In the case of a sole community hospital that experiences, in a cost
`reporting period compared to the previous cost reporting period, a
`decrease of more than 5 percent in its total number of inpatient cases
`due to circumstances beyond its control, the Secretary shall provide
`for such adjustment to the payment amounts under this subsection. .
`. as may be necessary to fully compensate the hospital for the
`fixed costs it incurs in the period in providing inpatient hospital
`services, including the reasonable cost of maintaining necessary
`core staff and services.
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`42 U.S.C. § 1395ww(d)(5)(D)(ii) (emphasis added).
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`29.
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`The Secretary’s implementing regulations provide that, in order to qualify for the
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`VDA payment, a hospital must:
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`(i) Submit to the intermediary documentation demonstrating the
`size of the decrease in discharges, and the resulting effect on per
`discharge costs; and
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`(ii) Show that the decrease is due to circumstances beyond the
`hospital's control.
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`42 C.F.R. § 412.92(e)(2).
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`30.
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`Once a hospital demonstrates that it qualifies for a VDA payment, the MAC
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`calculates the amount of the payment. The regulations in effect when the MAC issued the
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`Original VDA Approval and the Revised VDA Approval read as follows:
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`(3) The [MAC] determines a lump sum adjustment amount not to
`exceed the difference between the hospital’s Medicare inpatient
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 9 of 28
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`operating costs and the hospital’s total DRG revenue for inpatient
`operating costs based on DRG-adjusted prospective payment rates
`for inpatient operating costs . . . .
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`(i) In determining the adjustment amount, the [contractor]
`considers --
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`(A) The individual hospital’s needs and
`circumstances, including the reasonable cost of maintaining
`necessary core staff and services in view of minimum
`staffing requirements imposed by State agencies;
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`(B) The hospital’s fixed (and semi-fixed) costs,
`other than those costs paid on a reasonable cost basis under
`part 413 of this chapter; and
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`(C) The length of time the hospital has experienced
`a decrease in utilization.
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`42 C.F.R. § 412.92(e)(3).
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`31.
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`During several separate notice-and-comment rulemaking processes, CMS
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`specifically interpreted and explained the payment calculation as follows: “The adjustment
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`amount [VDA] is determined by subtracting the second year’s DRG payment from the lesser of:
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`(a) the second year’s costs minus any adjustment for excess staff; or (b) the previous year’s costs
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`multiplied by the appropriate IPPS update factor minus any adjustment for excess staff. The
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`[hospital] receives the difference in a lump-sum payment. 71 Fed. Reg. 47,870, 48,056 (Aug.
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`18, 2006); 73 Fed. Reg. 48433, 48631 (Aug. 19, 2008) (emphasis added).
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`32.
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`The Secretary has provided an additional interpretation of the VDA statute and
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`related regulation in the PRM. The PRM provides “guidelines and policies to implement
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`Medicare regulations.” PRM Forward. The PRM in effect when the MAC issued the Original
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`VDA Approval and the Revised VDA Approval contained the following example:
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`EXAMPLE A: Hospital C has justified an adjustment to its DRG payment
`for FYE September 30, 1987. The adjustment is calculated as follows:
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 10 of 28
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`Hospital C
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`PPS Payment Adjustment
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`Fiscal Year Ended 09/30/87
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`FY 1986 Program Operating Cost
`PPS Update Factor
`FY 1987 Maximum Allowable Cost
`
`x
`
`FY 1987 Program Inpatient Operating Cost
`FY 1987 DRG Payment
`–
`FY 1987 Payment Adjustment
`
`$2,900,000
`1.0115
`$2,933,350
`
`$2,800,000
`$2,500,000
`$ 300,000
`
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`PRM § 2910.1.D.
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`33.
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`The PRM identifies the sources for “Program Operating Cost” as Worksheet D-1,
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`Part II of the Medicare cost report and “DRG Payment” as Worksheet E, Part A of the Medicare
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`cost report, respectively.
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`34. With respect to this example, the PRM provides that “Since Hospital C’s FY 1987
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`Program Inpatient Operating Cost was less than that of FY 1986 increased by the PPS update
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`factor, its adjustment is the entire difference between FY 1987 Program Inpatient Operating Cost
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`and FY 1987 DRG payments.” Id. (emphasis added).
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`35. Again, the exact approach identified in this example has been endorsed by the
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`Secretary in the Federal Register. 71 Fed. Reg. 47,870, 48,056 (Aug. 18, 2006); 73 Fed. Reg.
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`48433, 48631 (Aug. 19, 2008).
`
`36.
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`In short, the PRM and guidance from the Secretary instructs that the VDA
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`payment be calculated by subtracting total DRG payments from total inpatient operating costs
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`(adjusted for the PPS update factor and excess staffing). This is the Historical VDA Approval
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`Methodology used by the MAC.
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`37.
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`The MAC applied Historical VDA Approval Methodology when issuing the
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`Original VDA Approvals at issue in this appeal.
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`38.
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`In 2016, the MAC reopened the Original VDA Approvals and recalculated the
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`amount of the Hospital’s VDA payments. The recalculations adjusted total inpatient operating
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`costs but did not adjust the total DRG payments (which are subtracted from the inpatient
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`operating costs to determine the VDA payment). This is the Revised VDA Approval
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`Methodology.
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`39.
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`In a series of prior cases, including the instant cases below, the PRRB concluded
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`that the Revised VDA Approval Methodology fails to account for the important fact that IPPS
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`payments include reimbursement for both fixed and variable costs. The PRRB has concluded that
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`accounting for that fact is necessary “so there is an ‘apples-to-apples’ comparison” of the costs
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`and payments required by the statute. See FY 2009 PRRB Decision, attached as Exhibit 1, at
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`9; FY 2012 PRRB Decision, attached as Exhibit 2, at 9; FY 2013 PRRB Decision, attached
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`as Exhibit 3, at 9.
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`40.
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`The Secretary has recognized the PRRB’s concerns with the Revised VDA
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`Methodology:
`
`[W]e understand why hospitals might take the view that CMS
`should make an effort, in some way, to ascertain whether a portion
`of MS-DRG payments can be allocated or attributed to fixed costs
`in order to fulfill the statutory mandate to “fully compensate” a
`qualifying SCH for its fixed costs. [T]he main issue raised by the
`PRRB and individual hospitals is that, under the current calculation
`methodology, if the hospital’s total MS-DRG revenue for treating
`Medicare beneficiaries for which it incurs inpatient operating costs
`(consisting of fixed, semifixed, and variable costs) exceeds the
`hospital’s fixed costs, the calculation by the MACs results in no
`volume decrease adjustment for the hospital. In some recent
`decisions, the PRRB has indicated that it believes it would be more
`appropriate for the MACs to adjust the hospital’s total MS-DRG
`revenue from Medicare by looking at the ratio of a hospital’s fixed
`costs to its total costs (as determined by the MAC) and applying that
`ratio as a proxy for the share of the hospital’s MS-DRG payments that
`it assumes are attributable (or allocable) to fixed costs, and then
`comparing that estimate of the fixed portion of MS-DRG payments
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 12 of 28
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`to the hospital’s fixed costs. In this way, the calculation would
`compare estimated Medicare revenue for fixed costs to the hospital’s
`fixed costs when determining the volume decrease adjustment.
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`82 Fed. Reg. 37,990, 38,180 (Aug. 14, 2017).
`
`41.
`
`In the 2018 IPPS final rule, the Secretary adopted the PRRB’s position, but only for
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`cost reporting periods beginning after October 1, 2017. See 82 Fed. Reg. at 38,511. The
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`Secretary’s “new” methodology – which is the Board’s VDA Methodology – calculates the VDA
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`payment by taking fixed inpatient operating costs and subtracting estimated Medicare payments
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`attributable to the fixed costs a hospital incurs in treating inpatient Medicare beneficiaries. The
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`result is the amount of an eligible hospital’s VDA payment.
`
`42.
`
`The Secretary refuses to apply the Board VDA Methodology to cost reporting
`
`periods beginning before October 1, 2017.
`
`Reopening Regulations
`
`The Original VDA Approvals constituted final determinations under 42 C.F.R. §
`
`D.
`
`43.
`
`405.1801.
`
`44.
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`Final determinations may be reopened only in the specific circumstances and
`
`pursuant to the process set forth in 42 C.F.R. §§ 405.1885-1889. A determination may be
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`reopened either on the “own motion” of the CMS or the MAC or at the request of the provider.
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`42 C.F.R. § 405.1885(a)(2).
`
`45.
`
`If a final determination is reopened by the MAC, the MAC must adhere to the
`
`procedures for reopening set forth in the regulations. See 42 C.F.R. § 105.1885.
`
`46.
`
`There are two kinds of reopenings – discretionary reopenings and mandatory
`
`reopenings. Mandatory reopenings are governed by 42 C.F.R. § 405.1885(c)(1)(i), which
`
`provides:
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`12
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 13 of 28
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`A contractor determination … must be reopened and revised if CMS
`provides explicit notice to the contractor that the contractor
`determination or the contractor hearing decision is inconsistent with
`the applicable law, regulations, CMS ruling, or other interpretive
`rules, general statements of policy, and rules of agency organization,
`procedure, or practice established by CMS in effect, and as CMS
`understood those legal provisions, at the time the determination or
`decision was rendered by the contractor. CMS may also direct the
`contractor to reopen a particular contractor determination or
`decision in order to implement a final agency decision … a final,
`non-appealable court judgment … or an agreement to settle an
`administrative appeal or a lawsuit, regarding the same determination
`or decision.
`
`47.
`
`This provision has been further interpreted by the PRM, which provides that
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`“determination and a decision will be reopened and corrected by [a MAC] if … [CMS] notifies
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`the [MAC] in writing that such determination or such decision is inconsistent with the applicable
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`law, regulations, or general instructions issued by [CMS].” PRM Section 2931.1(C).
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`FACTUAL AND PROCEDURAL BACKGROUND
`
`
`
`Fiscal Year 2009
`
`48.
`
`In the Hospital’s 2009 fiscal year, the Hospital, through no fault of its own,
`
`experienced a greater than five percent decline in inpatient discharges from the prior cost
`
`reporting period. By letter dated January 31, 2014, the Hospital submitted a timely request to the
`
`MAC for a VDA payment.
`
`49.
`
`By letter dated February 25, 2015, the MAC approved a VDA payment of
`
`$99,257 for FY 2009 (the Original VDA Approval). The MAC agreed that the Hospital
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`(i) demonstrated a decrease in discharges greater than five percent and identified the resulting effect
`
`on per-discharge costs, and (ii) showed that the decrease was due to circumstances beyond the
`
`hospital’s control. 42 C.F.R. § 412.108(d)(3).
`
`50.
`
`The MAC calculated the Original VDA Approval payment for FY 2011 using the
`
`Historical VDA Approval Methodology as follows:
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`13
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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 14 of 28
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`Total Inpatient Operating Costs
`PPS Update Factor
`
`
`Maximum Allowable Cost
`
`
`
`
`
`
`$7,578,710
` 1.0360
`$7,851,544 A
`
`Settled Program Inpatient Oper Costs
`Adjusted Program Inpatient Oper Costs
`
`$7,473,879
`$7,473,879 B
`
`
`Lesser of A or B
`Total DRG Payments
`Final Payment Adjustment
`
`
`
`
`
`
`
`
`
`$7,473,879
`$7,374,622
`$ 99,257
`
`51.
`
`Because the Historical VDA Methodology was consistent with the plain language
`
`of the applicable statute, regulation, and CMS program instructions, the Hospital did not appeal
`
`the Original VDA Approval for FY 2009 pursuant to 42 U.S.C. § 1395oo.
`
`52.
`
`By letter dated January 22, 2016, the MAC purported to reopen the Original VDA
`
`Approval for FY 2009. The MAC’s letter stated:
`
`This letter is to notify your facility that a revised determination of
`the submitted Volume Decrease Adjustment (VDA) is being made
`based on direction from the Centers for Medicare and Medicaid
`Services (CMS). We have been directed to review and recalculate
`the VDA to revise all variable expenses.
`
`53.
`
`The language contained in the MAC’s letter makes clear that this reopening is a
`
`mandatory reopening.
`
`54.
`
`Despite the MAC’s assertion that it had been “directed to review and recalculate
`
`the VDA,” the MAC failed to include in the administrative record any evidence that CMS
`
`provided any such direction in writing or that such written direction identified the applicable law
`
`which CMS understood to be inconsistent with the MAC’s Original VDA Approval for FY 2009,
`
`as required by 42 C.F.R. § 405.1885(c)(1)(i) and PRM Section 2931.1(C) .
`
`55.
`
`The Hospital objected to the MAC’s purported reopening of the Original VDA
`
`Approval for FY 2009, but provided the MAC with certain, additional information that it had
`
`requested in its reopening notice.
`
`14
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`

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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 15 of 28
`
`56.
`
`By letter dated October 11, 2016, the MAC issued the Revised VDA Approval for
`
`FY 2009. The workpapers attached to the MAC’s Revised VDA Approval demonstrate that the
`
`MAC applied the Revised VDA Approval Methodology.
`
`57.
`
`In applying the Revised Approval Methodology, the MAC reduced the Hospital’s
`
`FY 2009 inpatient operating costs by 8.6% to reflect the portion of the Hospital’s total inpatient
`
`operating costs allegedly attributable to variable costs. From that adjusted inpatient operating
`
`costs number, the MAC subtracted the Hospital’s total DRG payments for FY 2009.
`
`58.
`
`Based on this calculation, the MAC’s Revised VDA Approval for FY 2009
`
`determined that no payment was due to the Hospital. Because the MAC had already paid the
`
`Provider $99,257 following the Original VDA Approval, the Hospital was required to repay that
`
`entire amount to the MAC.
`
`59.
`
`The Hospital filed a timely appeal of the FY 2009 Revised VDA Approval with
`
`the PRRB.
`
`60.
`
`Before the PRRB, the parties stipulated to the following facts, among others:
`
`a.
`
`b.
`
`c.
`
`d.
`
`e.
`
`By a letter dated January 31, 2014, the Provider timely filed a request for a VDA
`payment (“VDA Request”) with the MAC.
`
`By a letter dated July 30, 2014, the MAC requested that the Provider submit
`additional information related to the VDA Request.
`
`By a letter dated August 29, 2014, the Provider submitted the additional
`information requested by the MAC.
`
`The MAC reviewed the Provider’s VDA Request, and the additional information
`requested in accordance with its historical process. Based on this review, the
`MAC determined that the Provider had experienced a decrease of more than 5
`percent in its total number of inpatient cases due to circumstances beyond its
`control and was therefore entitled to a VDA payment.
`
`By a letter dated February 25, 2015, the MAC issued a final determination
`approving the Provider’s VDA Request (“Original VDA Approval”).
`
`
`
`
`
`
`
`
`
`
`
`15
`
`

`

`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 16 of 28
`
`
`
`
`
`
`
`f.
`
`Subsequently, the MAC sent the Provider a letter dated January 29, 2016, which
`included the following statement:
`
`This letter is to notify your facility that a revised determination of the submitted
`Volume Decrease Adjustment (VDA) is being made based on direction from the
`Centers for Medicare and Medicaid Services (CMS). We have been directed to
`review and recalculate the VDA to remove all variable expenses.
`
`By a letter dated October 11, 2016, the MAC issued a revised final adjustment
`amount (“Revised VDA Approval”). The Revised VDA Approval awarded a
`VDA payment in the amount of $0.
`
`As a result of the Revised VDA Approval, the Provider was required to repay the
`MAC $99,257.
`
`On September 24, 2021, after a hearing on the record, the PRRB issued its
`
`g.
`
`h.
`
`
`61.
`
`decision. The PRRB found that the MAC had improperly calculated the Revised VDA Approval
`
`payment for FY 2009, finding:
`
`Critical to the proper application of the statute, regulation and PRM
`provisions related to the VDA, are the unequivocal facts that: (1) the
`Medicare patients to which a provider furnished actual services in
`the current year are not part of the volume decrease, and (2) the DRG
`payments made to the hospital for services furnished to Medicare
`patients in the current year are payments for both the fixed and
`variable costs of the actual services furnished to those patients.
`Therefore, in order to fully compensate a hospital for its fixed costs
`in the current year, the hospital must receive a payment for the
`variable costs related to its actual Medicare patient load in the
`current year, as well as its full fixed costs in that year.
`
`FY 2009 PRRB Decision (Ex. 1), at 13.
`
`62.
`
`The PRRB determined that the MAC should have applied the Board VDA
`
`Methodology, pursuant to which the Hospital would receive a VDA payment of $85,302 for FY
`
`2009. Because the Hospital had previously reimbursed the MAC for its full FY 2009 VDA
`
`payment, the PRRB held that the Hospital was entitled to receive an additional amount equal to
`
`$85,302 for FY 2009.
`
`16
`
`

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`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 17 of 28
`
`63.
`
`On October 1, 2021, the CMS Administrator notified the Hospital that it would
`
`review the PRRB’s decision. The CMS Administrator issued its decision on November 5, 2021.
`
`The Administrator reversed the decision of the PRRB and upheld the MAC’s Revised VDA
`
`Approval. See FY 2009 Administrator Decision, attached here as Exhibit 4.
`
`Fiscal Year 2012
`
`64.
`
`In the Hospital’s 2012 fiscal year, the Hospital, through no fault of its own,
`
`experienced a greater than five percent decline in inpatient discharges from the prior cost
`
`reporting period. By letter dated June 11, 2013, the Hospital submitted a timely request to the
`
`MAC for a VDA payment.
`
`65.
`
`By letter dated September 16, 2013, the MAC approved a VDA payment of
`
`$1,175,965 for FY 2012 (the Original VDA Approval). The MAC agreed that the Hospital
`
`(i) demonstrated a decrease in discharges greater than five percent and identified the resulting effect
`
`on per-discharge costs, and (ii) showed that the decrease was due to circumstances beyond the
`
`hospital’s control. 42 C.F.R. § 412.108(d)(3).
`
`66.
`
`The MAC calculated the Original VDA Approval payment for FY 2012 using the
`
`Historical VDA Approval Methodology as follows:
`
`Total Inpatient Operating Costs
`PPS Update Factor
`
`
`Maximum Allowable Cost
`
`
`
`
`
`
`$7,902,432
` 1.0190
`$8,052,578 A
`
`Settled Program Inpatient Oper Costs
`Adjusted Program Inpatient Oper Costs
`
`$8,361,532
`$8,361,532 B
`
`
`Lesser of A or B
`Total DRG Payments
`Final Payment Adjustment
`
`
`
`
`
`
`
`
`
`$8,052,578
`$6,876,613
`$1,175,965
`
`17
`
`

`

`Case 1:21-cv-03291 Document 1 Filed 12/15/21 Page 18 of 28
`
`67.
`
`Because the Historical VDA Methodology was consistent with the plain language
`
`of the applicable statute, regulation, and CMS program instructions, the Hospital did not appeal
`
`the Original VDA Approval pursuant to 42 U.S.C. § 1395oo.
`
`68.
`
`By letter dated Januar