Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 1 of 20
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
`
`Civil Action No.
`
`EJ NOBLE HOSPITAL
`77 West Barney Street
`Gouverneur, NY 13642
`
`Plaintiff,
`
` vs.
`
`
`
`XAVIER BECERRA, as SECRETARY OF
`THE UNITED STATES DEPARTMENT OF
`HEALTH AND HUMAN SERVICES
`200 Independence Avenue, S.W.
`Washington, D.C. 20201
`
`Defendant.
`
`COMPLAINT
`
`Plaintiff EJ Noble Hospital (the “Hospital”) brings this action against Defendant Xavier
`
`Becerra, in his official capacity as Secretary (the “Secretary”) of the United States Department of
`
`Health and Human Services (“HHS”), and states as follows:
`
`1.
`
`Plaintiff Hospital provides essential acute care hospital services in a rural and
`
`economically challenged region of upstate New York. At all relevant times, the Hospital has
`
`been designated by the Medicare program as a “Sole Community Hospital” (“SCH”).
`
`2.
`
`During its fiscal year that ended December 31, 2011 (“FY 2011”), the Hospital
`
`experienced a substantial decrease in its inpatient cases due to circumstances beyond its control,
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`which by law required the Secretary to adjust the Hospital’s usual Medicare inpatient payments.
`
`This adjustment is known as the Medicare Volume Decrease Adjustment (“VDA”) payment.
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 2 of 20
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`3.
`
`The Hospital filed a timely application for a VDA payment, and the Secretary,
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`acting through the Centers for Medicare and Medicaid Services (“CMS”) and its Medicare
`
`Administrative Contractor (“MAC”) issued a determination on November 21, 2013 approving a
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`VDA payment to the Hospital in the amount of $478,324 (the “Original VDA Approval”). The
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`Hospital did not appeal the Original VDA Approval because it was determined correctly.
`
`4.
`
`Over two years later, on February 5, 2016, the MAC notified the Hospital of its
`
`intent to “reopen” the Original VDA Approval, i.e., to recalculate the Hospital’s original VDA
`
`payment. On July 22, 2016, the MAC issued a revised determination which reduced the
`
`Hospital’s VDA payment to $0 (the “Revised VDA Approval”). As a result of the Revised VDA
`
`Approval, and because the Hospital had already received the original VDA payment, the
`
`Hospital was required to repay the Medicare program $478,324.
`
`5.
`
`The Secretary has conceded that the Hospital experienced a decrease in inpatient
`
`volume greater than 5% and is therefore entitled to a VDA payment for FY 2011. The questions
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`to be decided in this appeal are (a) whether the MAC properly reopened the Original VDA
`
`Approval; and alternatively (b) whether the VDA payment set forth in the Revised VDA
`
`Approval was correctly calculated.
`
`6.
`
`The Original VDA Approval was calculated exactly as described in the Medicare
`
`Provider Reimbursement Manual (“PRM”) and CMS’s comments during rulemaking, that is, by
`
`subtracting total MS DRG payments (defined and discussed below) from the lesser of (a) the
`
`Provider’s total Medicare inpatient operating costs (less any adjustment for excess staffing); or
`
`(b) the prior year’s total Medicare inpatient operating costs updated for inflation (less any
`
`adjustment for excess staffing) (the “Historical VDA Approval Methodology”). See CMS Pub.
`
`15-1, PRM § 2810.1.D; 71 Fed. Reg. 47,870, 48,056 (Aug. 18, 2006); 73 Fed. Reg. 48433,
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 3 of 20
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`48631 (Aug. 19, 2008). This is the methodology the MAC consistently applied and reported to
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`CMS from the time it began calculating VDA payments until 2016, a period of over 25 years.
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`Because the Historical VDA Approval Methodology compares similar concepts – total costs and
`
`total payments – the Hospital refers to this methodology as an “apples-to-apples” approach.
`
`7.
`
`In 2016, the MAC abruptly changed its calculation method (the “Revised VDA
`
`Approval Methodology”). The MAC continued to subject the Hospital’s total Medicare inpatient
`
`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
`
`payments, even though a portion of those payments were intended to reimburse the Hospital for
`
`its variable costs. As a result, the MAC’s Revised VDA Approval Methodology improperly
`
`compares dissimilar concepts – “fixed” costs and total payments. For that reason, the Hospital
`
`refers to this methodology as an “apples-to-oranges” approach.1
`
`8.
`
`The Original VDA Approval utilized the Historical VDA Approval Methodology,
`
`which correctly applied an apples-to-apples comparison of total costs to total payments. The
`
`Revised VDA Approval applied the Revised VDA Approval Methodology, which improperly
`
`compared dissimilar concepts – “fixed” costs and total payments. The application of the Revised
`
`VDA Approval Methodology resulted in a significantly smaller VDA payment to the Hospital.
`
`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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`9.
`
`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
`
`CMS. Starting in 2016, the MAC began to apply the applicable law and program instructions
`
`differently – without any intervening changes to the law or explicit notice from CMS. The
`
`Secretary, by allowing the MAC to reopen a properly issued final determination and then
`
`adopting this new methodology through adjudication, has violated the Medicare statute and the
`
`Administrative Procedures Act.
`
`PARTIES
`
`10.
`
`Plaintiff EJ Noble Hospital is a Medicare participating acute care hospital located
`
`in Gouverneur, New York. At all relevant times, the Hospital was classified as a SCH under
`
`Section 1886(d)(5)(D )(iii) of the Social Security Act (the “Act”).
`
`11.
`
`Defendant Xavier Becerra is the Secretary of HHS and is the federal official
`
`responsible for administering the Medicare program under Title XVIII of the Act.
`
`JURISDICTION AND VENUE
`
`12.
`
`This action arises under the Medicare Act (Title XVIII of the Act, 42 U.S.C.
`
`§§ 1395 et seq. and the Administrative Procedure Act 5 U.S.C. §§ 551 et seq. This court has
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`jurisdiction under 28 U.S.C. § 1331 and § 1361, and 42 U.S.C. § 1395oo(f)(1).
`
`13.
`
`Venue is proper in this judicial district under 42 U.S.C. § 1395oo(f)(l) and 28
`
`U.S.C. § 1391(c).
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`STATUTORY AND REGULATORY BACKGROUND
`
`The Medicare Program and the Appeal Process
`
`The Hospital is provider of medical services to beneficiaries of the federally
`
`A.
`
`14.
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`administered Medicare Program as set forth in 42 U.S.C. § 1395 et seq. (“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.
`
`17.
`
`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
`
`CMS. After the MAC makes a final determination, it sends to the provider a Notice of Program
`
`Reimbursement (“NPR”).
`
`18.
`
`In addition to issuing NPRs, a MAC may make other final determinations,
`
`including a VDA payment determination. 42 C.F.R. § 412.92(e)(3); 54 Fed. Reg. 36452, 36480
`
`(Sep. 1, 1989).
`
`19.
`
`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
`
`C.F.R. § 405.1835. The PRRB is a sub-agency within HHS that serves as an administrative
`
`review panel for final determinations made by CMS or the MAC. The members of the PRRB
`
`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).
`
`20.
`
`The decision of the PRRB is final unless the Secretary reverses, affirms, or
`
`modifies the PRRB’s decision within 60 days of the provider being notified of the PRRB’s
`
`decision. See 42 U.S.C. § 1395oo(f)(1). A hospital has the right to obtain judicial review of any
`
`final decision of the PRRB, or any reversal, affirmance, or modification of the PRRB’s decision
`
`by the Secretary. See 42 U.S.C. § 1395oo(f); 42 C.F.R. § 405.1877.
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 6 of 20
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`B.
`
`Medicare Reimbursement
`
`21. Medicare’s hospital insurance program, known as Part A, provides certain
`
`benefits covering inpatient hospital, nursing facility, home health and hospice services. Until
`
`October 1983, Medicare paid participating hospitals for the “reasonable costs” that they actually
`
`incurred in providing inpatient services. To address the increasing costs of inpatient services,
`
`Congress amended the Medicare Act in 1983 to create a new payment system for virtually all
`
`acute care hospitals known as the inpatient prospective payment system (“IPPS”).
`
`22.
`
`Under IPPS, hospitals are no longer paid for the reasonable costs incurred in
`
`providing inpatient care. Instead, CMS pays a fixed, prospectively determined amount assigned
`
`to the applicable diagnosis-related group (“DRG”) for each patient discharge, subject to special
`
`rules for certain supplemental payments. Specifically, the fixed DRG-based per discharge rates
`
`under IPPS are designed to be payment in full for the hospital’s inpatient operating costs, 42
`
`U.S.C. § 1395ww(d)(1)(A), which include “all routine operating costs … and includes the costs
`
`of all services for which payment may be made under this subchapter that are provided by the
`
`hospital …,” 42 U.S.C. § 1395ww(a)(4).
`
`23.
`
`The DRG payments compensate a hospital for all such costs – whether fixed or
`
`variable – incurred in providing care to an inpatient, regardless of the hospital’s actual operating
`
`costs. 42 U.S.C. § 1395ww(d)(1). Therefore, hospitals are generally at financial risk that their
`
`costs for treating a particular patient may exceed the IPPS rates.
`
`24. Medicare’s IPPS assumes that fixed DRG payments based on cases of average
`
`complexity and typical inpatient volume will on average adequately compensate efficiently run
`
`hospitals.
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 7 of 20
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`C.
`
`25.
`
`The VDA Methodology and Payment
`
`Recognizing these assumptions may unfairly burden SCHs, which are often a rural
`
`community’s only source of necessary inpatient healthcare, Congress mandated special payment
`
`exceptions and adjustments for those hospitals “to take into account … the special needs of
`
`[SCH] …or essential community services, and to take into account extraordinary circumstances
`
`beyond the hospital’s control, … significantly fluctuating population in the services area of the
`
`hospital, and unusual labor costs…” 42 U.S.C. § 1395ww(a)(2)(A).
`
`26.
`
`For example, Medicare pays a SCH’s inpatient operating costs at “an amount
`
`based on 100 percent of the hospital’s target amount for the cost reporting period, as defined in
`
`subsection (b)(3)(C),” or “the amount determined under paragraph (1)(A)(iii)[DRG based
`
`payments], whichever results in greater payment to the hospital.” 42 U.S.C. §
`
`1395ww(d)(5)(D)(i)(I) and (II)(emphasis added).
`
`27.
`
`Another example is the VDA payment. Pursuant to the Act, certain hospitals that
`
`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).
`
`28.
`
`The VDA statute provides:
`
`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.
`
`42 U.S.C. § 1395ww(d)(5)(D)(ii) (emphasis added).
`
`29.
`
`The Secretary’s implementing regulations provide that, in order to qualify for the
`
`VDA payment, a hospital must:
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 8 of 20
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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
`
`(ii) Show that the decrease is due to circumstances beyond the
`hospital's control.
`
`42 C.F.R. § 412.92(e)(2).
`
`30.
`
`Once a hospital demonstrates that it qualifies for a VDA payment, the MAC
`
`calculates the amount of the payment. The regulations in effect when the MAC issued the
`
`Original VDA Approval and the Revised VDA Approval read as follows:
`
`(3) The [MAC] determines a lump sum adjustment amount not to
`exceed the difference between the hospital’s Medicare inpatient
`operating costs and the hospital’s total DRG revenue for inpatient
`operating costs based on DRG-adjusted prospective payment rates
`for inpatient operating costs . . . .
`
`(i) In determining the adjustment amount, the [contractor]
`considers --
`
`(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;
`
`(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
`
`(C) The length of time the hospital has experienced
`a decrease in utilization.
`
`42 C.F.R. § 412.92(e)(3).
`
`31.
`
`During several separate notice-and-comment rulemaking processes, CMS
`
`specifically interpreted and explained the payment calculation as follows: “The adjustment
`
`amount [VDA] is determined by subtracting the second year’s DRG payment from the lesser of:
`
`(a) the second year’s costs minus any adjustment for excess staff; or (b) the previous year’s costs
`
`multiplied by the appropriate IPPS update factor minus any adjustment for excess staff. The
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 9 of 20
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`[hospital] receives the difference in a lump-sum payment. 71 Fed. Reg. 47,870, 48,056 (Aug.
`
`18, 2006); 73 Fed. Reg. 48433, 48631 (Aug. 19, 2008) (emphasis added).
`
`32.
`
`The Secretary has provided an additional interpretation of the VDA statute and
`
`related regulation in the PRM. The PRM provides “guidelines and policies to implement
`
`Medicare regulations.” PRM Forward. The PRM in effect when the MAC issued the Original
`
`VDA Approval and the Revised VDA Approval contained the following example:
`
`EXAMPLE A: Hospital C has justified an adjustment to its DRG payment
`for FYE September 30, 1987. The adjustment is calculated as follows:
`
`Hospital C
`
`PPS Payment Adjustment
`
`Fiscal Year Ended 09/30/87
`
`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
`
`PRM § 2910.1.D.
`
`33.
`
`The PRM identifies the sources for “Program Operating Cost” as Worksheet D-1,
`
`Part II of the Medicare cost report and “DRG Payment” as Worksheet E, Part A of the Medicare
`
`cost report, respectively.
`
`34. With respect to this example, the PRM provides that “Since Hospital C’s FY 1987
`
`Program Inpatient Operating Cost was less than that of FY 1986 increased by the PPS update
`
`factor, its adjustment is the entire difference between FY 1987 Program Inpatient Operating Cost
`
`and FY 1987 DRG payments.” Id. (emphasis added).
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 10 of 20
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`35.
`
`Again, the exact approach identified in this example has been endorsed by the
`
`Secretary in the Federal Register. 71 Fed. Reg. 47,870, 48,056 (Aug. 18, 2006); 73 Fed. Reg.
`
`48433, 48631 (Aug. 19, 2008).
`
`36.
`
`In short, the PRM and guidance from the Secretary instructs that the VDA
`
`payment be calculated by subtracting total DRG payments from total inpatient operating costs
`
`(adjusted for the PPS update factor and excess staffing). This is the Historical VDA Approval
`
`Methodology used by the MAC.
`
`37.
`
`The MAC applied Historical VDA Approval Methodology when issuing the
`
`Original VDA Approval at issue in this appeal.
`
`38.
`
`In 2016, the MAC reopened the Original VDA Approval and recalculated the
`
`amount of the Hospital’s VDA payment. The recalculation adjusted total inpatient operating
`
`costs but did not adjust the total DRG payments (which are subtracted from the inpatient
`
`operating costs to determine the VDA payment). This is the Revised VDA Approval
`
`Methodology.
`
`39.
`
`In a series of prior cases, including the instant case below, the PRRB concluded
`
`that the Revised VDA Approval Methodology fails to account for the important fact that IPPS
`
`payments include reimbursement for both fixed and variable costs. The PRRB has concluded that
`
`accounting for that fact is necessary “so there is an ‘apples-to-apples’ comparison” of the costs
`
`and payments required by the statute. See PRRB Decision, attached as Exhibit 1, at 11.
`
`40.
`
`The Secretary has recognized the PRRB’s concerns with the Revised VDA
`
`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
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 11 of 20
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`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
`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.
`
`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
`
`payment by taking fixed inpatient operating costs and subtracting estimated Medicare payments
`
`attributable to the fixed costs a hospital incurs in treating inpatient Medicare beneficiaries. The
`
`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 Approval constituted a final determination under 42 C.F.R. §
`
`D.
`
`43.
`
`405.1801.
`
`44.
`
`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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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 12 of 20
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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:
`
`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
`
`“determination and a decision will be reopened and corrected by [a MAC] if … [CMS] notifies
`
`the [MAC] in writing that such determination or such decision is inconsistent with the applicable
`
`law, regulations, or general instructions issued by [CMS].” PRM Section 2931.1(C).
`
`FACTUAL AND PROCEDURAL BACKGROUND
`
`48.
`
`In the Hospital’s 2011 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 13, 2013, the Hospital submitted a timely request to the
`
`MAC for a VDA payment.
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 13 of 20
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`49.
`
`By letter dated November 21, 2013, the MAC approved a VDA payment of
`
`$478,324 (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).
`
`50.
`
`The MAC calculated the Original VDA Approval payment using the Historical
`
`VDA Approval Methodology as follows:
`
`Total Inpatient Operating Costs
`PPS Update Factor
`
`Maximum Allowable Cost
`
`
`
`$3,004,718
` 1.0235
`$3,075,329 A
`
`Settled Program Inpatient Oper Costs
`Adjusted Program Inpatient Oper Costs
`
`$3,437,442
`$3,437,442 B
`
`Lesser of A or B
`Total DRG Payments
`Final Payment Adjustment
`
`
`
`$3,075,329
`$2,597,050
`$ 478,324
`
`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 pursuant to 42 U.S.C. § 1395oo.
`
`52.
`
`By letter dated February 5, 2016, the MAC purported to reopen the Original VDA
`
`Approval. 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.
`
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 14 of 20
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`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, 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, but provided the MAC with certain, additional information that it had requested in its
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`reopening notice.
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`56.
`
`By letter dated July 22, 2016, the MAC issued the Revised VDA Approval. The
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`workpapers attached to the MAC’s Revised VDA Approval demonstrate that the MAC applied
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`the Revised VDA Approval Methodology.
`
`57.
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`In applying the Revised Approval Methodology, the MAC reduced the Hospital’s
`
`inpatient operating costs by 8.9% to reflect the portion of the Hospital’s total inpatient operating
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`costs allegedly attributable to variable costs. From that adjusted inpatient operating costs
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`number, the MAC subtracted the Hospital’s total DRG payments.
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`58.
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`Based on this calculation, the MAC’s Revised VDA Approval awarded no VDA
`
`payment. Because the MAC had already paid the Provider $478,324 following the Original
`
`VDA Approval, the Hospital was required to repay the MAC $478,324.
`
`59.
`
`60.
`
`a.
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`b.
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`The Hospital filed a timely appeal of the Revised VDA Approval with the PRRB.
`
`Before the PRRB, the parties stipulated to the following facts, among others:
`
`By a letter dated June 13, 2013, the Provider timely filed a request for a VDA
`payment (“VDA Request”) with the MAC.
`
`On November 4, 2013, November 5, 2013, and November 6, 2013, the MAC
`requested that the Provider submit additional information related to the VDA
`Request.
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 15 of 20
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`c.
`
`d.
`
`e.
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`f.
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`g.
`
`h.
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`On November 4, 2013, November 5, 2013, and November 6, 2013, 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 November 21, 2013, the MAC issued a final determination
`approving the Provider’s VDA Request (“Original VDA Approval”).
`
`Subsequently, the MAC sent the Provider a letter dated February 5, 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 July 22, 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 $478,324.
`
`61.
`
`On March 17, 2022, after a hearing on the record, the PRRB issued its decision.
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`The PRRB found that the MAC had improperly calculated the Revised VDA Approval payment,
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`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.
`
`PRRB Decision (Ex. 1), at 15.
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`62.
`
`The PRRB determined that the MAC should have applied the Board VDA
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`Methodology, pursuant to which the Hospital would receive a VDA payment of $177,121.
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`Because the Hospital had reimbursed the Original VDA Approval payment of $478,324, the
`
`PRRB held that the Hospital was entitled to receive a payment of $177,121.
`
`63.
`
`On March 29, 2022, the CMS Administrator notified the Hospital that it would
`
`review the PRRB’s decision. The CMS Administrator issued its decision on May 13, 2022. The
`
`Administrator reversed the decision of the PRRB and upheld the MAC’s Revised VDA
`
`Approval. See Administrator Decision, attached here as Exhibit 2.
`
`COUNT I
`(Violation of the Medicare Statute and Administrative Procedure Act)
`
`64.
`
`The Hospital repeats the allegations in paragraphs 1 through 63 as if set forth fully
`
`herein.
`
`65.
`
`The Medicare statute provides for judicial review of a final agency decision in
`
`cases like the one before this court pursuant to the provisions of the Administrative Procedure
`
`Act (“APA”). 42 U.S.C. § 1395oo(f)(1).
`
`66.
`
`The applicable provisions of the APA provide that the “reviewing court shall . . .
`
`hold unlawful and set aside agency action . . . found to be . . . (A) arbitrary, capricious, an abuse
`
`of discretion, or otherwise not in accordance with law; . . .(C) in excess of statutory jurisdiction,
`
`authority, or limitations, or short of statutory right; (D) without observance of procedure required
`
`by law; [or] (E) unsupported by substantial evidence[.]” 5 U.S.C. § 706(2).
`
`Improper Reopening of the Original VDA Approval
`
`67.
`
`The MAC reopened its Original VDA Approval to apply the Revised VDA
`
`Approval Methodology in violation of the regulations relating to reopenings.
`
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`68.
`
`The MAC’s reopening was mandatory, as set forth in its reopening notice. That
`
`notice stated that the MAC had “been directed to review and recalculate the VDA to revenue all
`
`variable expenses.”
`
`69.
`
`Under 42 C.F.R. § 405.1885(c)(1)(i) and the PRM, mandatory reopenings require
`
`written direction from CMS that states that the MAC’s original determination was “inconsistent
`
`with the applicable law, regulations, or general instructions issued by [CMS].”
`
`70.
`
`The administrative record contains no written direction from CMS to reopen the
`
`Original VDA Approval that meets the requirements of 42 C.F.R. § 405.1885(c)(1)(i) and the
`
`PRM.
`
`71.
`
`The MAC’s reopening cannot meet the requirements of a discretionary reopening,
`
`as the Original VDA Approval was issued at the MAC’s discretion, reported to CMS, and
`
`complied with the applicable regulations and PRM provisions, as interpreted by CMS during the
`
`relevant time period. 71 Fed. Reg. 47,870, 48,056 (Aug. 18, 2006); 73 Fed. Reg. 48433, 48631
`
`(Aug. 19, 2008).
`
`Application of the VDA Statute
`
`72.
`
`The purpose of the VDA adjustment is to “fully compensate” the hospital for the
`
`fixed costs it incurs in the period in providing inpatient hospital services. The Revised VDA
`
`Approval Methodology used in this case by the MAC and the Secretary does not satisfy this
`
`statutory requirement.
`
`73.
`
`The Medicare Act makes clear that DRG payments are intended to be
`
`compensation for all inpatient operating costs, whether fixed and variable. 42 U.S.C. §
`
`1395ww(a)(4). The Revised VDA Approval Methodology adopted by the Secretary in this
`
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`Case 1:22-cv-01760-RCL Document 1 Filed 06/20/22 Page 18 of 20
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`appeal disregards this undispu