Case 1:21-cv-21616-BB Document 1 Entered on FLSD Docket 04/27/2021 Page 1 of 15
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`UNITED STATES DISTRICT COURT
`FOR THE SOUTHERN DISTRICT OF FLORIDA
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`FLORIDA AGENCY FOR HEALTH CARE
`ADMINISTRATION,
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`Plaintiff,
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`v.
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`UNITED STATES DEPARTMENT OF
`HEALTH AND HUMAN SERVICES
`200 Independence Avenue, SW
`Washington, DC 20201
`
`and
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`XAVIER BECERRA
`Secretary of the United States Department
`of Health and Human Services,
`in his official capacity,
`200 Independence Avenue, SW
`Washington, DC 20201
`
`Defendants.
`
`Case No. 21-cv-21616
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`COMPLAINT
`INTRODUCTION
`The Florida Agency for Health Care Administration (“AHCA,” “Florida,” or “the
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`1.
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`State”), seeks review of a final administrative decision by the United States Department of
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`Health and Human Services (“HHS”) Departmental Appeals Board (“Board”) disallowing
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`$97,570,183 in federal reimbursement for certain payments that the State made to hospitals
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`and other health care providers through the Medicaid program from July 1, 2006 to June 30,
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`2013 (State Fiscal Years (“SFYs”) 2007 – 2013, also known as Demonstration Years (“DYs”)
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`1-7). The disallowance was taken by the Centers for Medicare & Medicaid Services (“CMS”),
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`which is the constituent agency within HHS tasked with oversight of the Medicaid program.
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`2.
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`The dispute involves the interplay between two types of Medicaid payments that
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`AHCA makes for which it is entitled to federal reimbursement: Disproportionate Share
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`Hospital (“DSH”) payments and Low-Income Pool (“LIP”) payments.
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`3.
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`Both DSH and LIP payments are intended to provide additional support to hospitals
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`that provide services to the State’s most vulnerable populations. In this case, almost all of the
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`funds that HHS seeks to recover involve payments to Jackson Memorial Hospital, the State’s
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`largest provider of safety net services to Medicaid patients, the uninsured, and the
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`underinsured.
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`4.
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`DSH payments are authorized under Title XIX of the Social Security Act (“SSA”),
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`but each State is limited in the amount of DSH payments that it can distribute. First, each
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`hospital has a “hospital-specific” DSH cap, which limits the amount of DSH payments that a
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`state can make to a specific hospital for the costs incurred by the hospital in furnishing inpatient
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`and outpatient services to Medicaid-eligible individuals and the uninsured, after deductions of
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`Medicaid payments. 42 U.S.C. § 1396r-4(g). Second, federal law imposes an annual aggregate
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`cap on the amount of DSH payments that each state can distribute to hospitals. 42 U.S.C. §
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`1396r-4(f).
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`5.
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`LIP payments are authorized under the special terms and conditions of Florida’s
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`“demonstration project” or “waiver” that the Secretary of HHS first approved in 2005, effective
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`in 2006, pursuant to Section 1115 of the Social Security Act, 42 U.S.C. § 1316. Like DSH,
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`the purpose of LIP payments during the time period at issue is to “ensure continued government
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`support for the provision of health care services to Medicaid, underinsured, and uninsured
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`populations.”
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`6.
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`Like DSH, LIP has a provider-specific cap equal to the costs of medical services
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`for Medicaid patients and the underinsured, net of Medicaid payments. Also, like DSH, LIP
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`payments are subject to an annual aggregate cap. In addition, LIP permitted inclusion of costs
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`of medical services related to underinsured patients.
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`7.
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`From its inception, the purpose of the LIP program has been to provide support to
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`hospitals and other providers beyond the DSH caps, and LIP was intended to be more flexible
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`than DSH. However, HHS is now taking the position that a hospital’s uncompensated costs
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`must be calculated for LIP purposes using a much more conservative methodology than the
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`Medicaid statute permitted the State to use to calculate uncompensated costs for DSH purposes
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`during the same period. This does not make any sense, and it is inconsistent with both the
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`terms of the Section 1115 demonstration project and the Medicaid statute. The HHS
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`Departmental Appeals Board’s decision upholding the disallowance of $97,570,183 in federal
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`funds is arbitrary, capricious, an abuse of discretion, and not in accordance with the text or the
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`purpose of Section 1115 of the Social Security Act or the terms and conditions of Florida’s
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`Section 1115 demonstration project. The Court should set aside the Board’s decision and the
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`underlying disallowance.
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`JURISDICTION AND VENUE
`This action arises under Section 1116 of the Social Security Act, 42 U.S.C.
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`8.
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`§ 1316(e)(2)(C), and Section 10 of the Administrative Procedures Act, 5 U.S.C. § 704. This
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`Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1361.
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`9.
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`Venue is proper under 28 U.S.C. § 1319(e)(1) and 42 U.S.C. § 1316(e)(2)(C).
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`PARTIES
`Plaintiff Florida Agency for Health Care Administration is the “single State
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`10.
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`agency” responsible for administration of the State of Florida’s participation in the federal
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`Medicaid program. See 42 U.S.C. § 1396a(a)(5).
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`11.
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`Defendant United States Department of Health and Human Services (“HHS”),
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`through its constituent agency the Centers for Medicare & Medicaid Services, is the federal
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`department responsible for administering the Medicaid program.
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`12.
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`Defendant Xavier Becerra is the Secretary of HHS and is responsible for the overall
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`administration of the agency. He is sued in his official capacity.
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`13.
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`The HHS Departmental Appeals Board acts for the Secretary in disputes involving
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`Medicaid disallowances. See 42 U.S.C. § 1316(e)(2)(A).
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`BACKGROUND
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`The Medicaid Program and Medicaid Funding
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`14. Medicaid is a cooperative federal-state program in which the federal government
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`provides financial assistance to participating States in connection with the provision of health
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`care – referred to as “medical assistance” – to lower-income individuals and families. Under
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`the federal Medicaid statute (Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq.),
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`States are entitled to federal reimbursement for a percentage of their expenditures on medical
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`assistance made pursuant to a state plan approved by CMS. See id. § 1396a-b.
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`15.
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`The federal government’s share of a State’s expenditures under the Medicaid
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`program is called “federal financial participation” (“FFP”). 42 C.F.R. § 400.203.
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`16.
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`Section 1115 of the SSA permits the Secretary, acting through CMS, to waive
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`compliance with certain statutory requirements applicable to the Medicaid program to approve
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`experimental, pilot or demonstration projects that, in the judgment of the Secretary, are likely
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`to assist in promoting the objectives of the Medicaid program. 42 U.S.C. § 1315. Expenditures
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`authorized under a Section 1115 demonstration project are “regarded as expenditures under
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`the state plan,” and also qualify for federal financial participation. 42 U.S.C. § 1315(a)(2).
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`17.
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`CMS’s approval of a waiver under Section 1115 is subject to special terms and
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`conditions that are negotiated between CMS and the State.
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`Medicaid DSH Payments
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`18.
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`Since 1981, Section 1902(a)(13)(A)(iv) of the SSA has required that State Medicaid
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`programs make Disproportionate Share Hospital or “DSH” payments to qualifying hospitals
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`that serve a “disproportionate number of low-income patients with special needs.” 42 U.S.C.
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`§ 1396a(a)(13)(A). The purpose of the DSH provision is to improve the financial stability of
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`these hospitals and preserve access to quality health services for low-income patients. H.R.
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`Rep. No. 97-208, at 962 (1981).
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`19.
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`Section 1923 of the SSA establishes an annual “DSH allotment” for each State that
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`limits the amount of federal financial participation for total statewide DSH payments made to
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`hospitals. 42 U.S.C. § 1396r-4(f)(3).
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`20.
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`Section 1923 also establishes a “hospital-specific” limit for DSH payments. 42
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`U.S.C. § 1396r-4(g)(1)(A). This provision is captioned “amount of adjustment subject to
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`uncompensated costs.” Id.
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`21.
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`Section 1923(g)(1)(A) provides that DSH payments made to a hospital cannot
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`exceed:
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`The costs incurred during the year of furnishing hospital services (as
`determined by the Secretary and net of payments under this title,
`other than under this section, and by uninsured patients) by the
`hospital to individuals who either are eligible for medical assistance
`under the State plan or have no health insurance (or other source of
`third party coverage) for services provided during the year.
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`In 2008, CMS by regulation defined the hospital-specific DSH limit as “total annual
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`22.
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`uncompensated care costs,” to be calculated as follows:
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`The total annual uncompensated care cost equals the total cost of
`care for furnishing inpatient hospital and outpatient hospital services
`to Medicaid eligible individuals and to individuals with no source of
`third party coverage for the hospital services they receive less the
`sum of regular Medicaid rate payments, Medicaid managed care
`organization
`payments,
`supplemental/enhanced Medicaid
`payments, uninsured revenues, and Section 1011 payments. . . .
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`42 C.F.R. § 447.299(c)(16).
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`23.
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`In 2017, CMS amended this rule to define the “total cost of care” for Medicaid
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`inpatient and outpatient services as “net of third-party payments, including, but not limited to,
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`payments by Medicare and private insurance.” See 82 Fed. Reg. 16122 (Apr. 3, 2017).
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`24.
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`Before amending its regulations, CMS had attempted to apply this definition of
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`uncompensated care through a “frequently asked questions” guidance issued in 2010, in which
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`CMS stated that third-party payments to hospitals must be deducted from costs in calculating
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`the Medicaid “total cost of care.” This requirement was contrary to the practice many States
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`and hospitals had followed in calculating uncompensated costs and the hospital-specific DSH
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`payment limit, and hospitals and hospital associations brought actions against CMS in a series
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`of lawsuits across the country.
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`25.
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`CMS’s attempt to change the definition of uncompensated costs through
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`“frequently asked questions” was uniformly rejected by courts as not independently required
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`by the statute and violative of the notice-and-comment mandates of the Administrative
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`Procedures Act. See, e.g., Children’s Hosp. of the King’s Daughters v. Price, 258 F. Supp. 3d
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`672, 682 (E.D. Va. 2017); Tenn. Hosp. Ass’n v. Price, 2017 WL 2703540 (M.D. Tenn. 2017);
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`Children’s Health Care v. CMS, 2017 WL 3668758 (D. Minn. 2017), aff’d, 900 F.3d 1022 (8th
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`Cir. 2018); N.H. Hosp. Ass’n v. Burwell, 2017 WL 822094 (D.N.H. 2017), aff’d, 887 F.3d 62
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`(1st Cir. 2018); Tex. Children’s Hosp. v. Burwell, 76 F. Supp. 3d 224 (D.D.C. 2014).
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`26.
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`In December 2018, CMS announced that, in light of these decisions, it was
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`withdrawing its “frequently asked questions” and would not require third-party payments to
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`be deducted from Medicaid costs in determining the hospital-specific DSH limit for any period
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`prior to the effective date of its amended regulation, which was June 2, 2017. See CMS,
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`Medicaid Bulletin, Updated FAQs: Additional Information on the DSH Reporting and Audit
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`Requirements (Dec. 31, 2018) (attached as Exh. 1); see also CMS, Informational Bulletin,
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`Treatment of Third Party Payers (TPP) in Calculating Uncompensated Care Costs (UCC), at 2
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`(Aug. 18, 2020) (attached as Exh. 2).
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`27.
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`As a result, prior to June 2, 2017, a State could make Medicaid DSH payments to
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`a hospital as long as the payments did not exceed a hospital-specific cap that was calculated
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`as: costs of providing care to Medicaid patients and the uninsured, minus Medicaid payments
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`and payments from uninsured persons.
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`Florida’s Section 1115 Waiver to Implement Medicaid Reform
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`28.
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`Based on its authority under Section 1115 of the SSA, HHS through CMS approved
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`Florida’s Medicaid Reform demonstration waiver (“demonstration” or “waiver”) in 2005. The
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`waiver began in 2006, and was extended in 2011, 2014, 2017, and 2021. It is now known as
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`the Florida Managed Medical Assistance demonstration and is approved through June 30,
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`2030.
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`29.
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`Structural changes to Florida’s Medicaid program as part of the waiver had the
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`potential to significantly reduce payments the State made to hospitals and other safety net care
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`providers to help cover some of the uncompensated costs these providers incurred in serving
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`Medicaid, underinsured, and uninsured populations.
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`30.
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`Therefore, the waiver project included a Low Income Pool (“LIP”) to ensure
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`“continued governmental support for the provision of health care services to Medicaid,
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`underinsured and uninsured populations.” CMS, Special Terms and Conditions (STC) for the
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`Florida Medicaid Reform Section 1115 Demonstration, July 1, 2006 Through June 30, 2011,
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`at STC 91 (“Original STCs”) (attached as Exh. 3). The LIP program was intended to increase
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`payments to providers for uncompensated care and expand the type of providers eligible to
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`receive these payments. Id. at STC 94.
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`31.
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`The Original STCs described LIP permissible expenditures as follows:
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`Funds from the LIP may be used for health care expenditures
`(medical care costs or premiums) that would be within the definition
`of medical assistance in Section 1905(a) of the Act. These health
`care expenditures may be incurred by the State, by hospitals, clinics,
`or by other provider types for uncompensated medical care costs of
`medical services for the uninsured, Medicaid shortfall (after all other
`Title XIX payments are made) may include premium payments,
`payments for provider access systems (PAS) and insurance products
`for such services provided to otherwise uninsured individuals, as
`agreed upon by the State and CMS.
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`Id. at STC 97.
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`32. When the waiver was extended in 2011, the terms and conditions of the extension
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`described LIP permissible expenditures as:
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`Funds for the LIP may be used for health care costs (medical costs
`or premiums) that would be within the definition of medical
`assistance in Section 1905(a) of the Act. These health care costs
`may be incurred by the State, by hospitals, clinics, or by other
`provider types to furnish medical care for the uninsured and
`underinsured for which compensation is not available from other
`payors, including other Federal or State programs. Such costs may
`include premium payments, payments for provider access systems
`(PAS) and insurance products for such services provided to
`otherwise uninsured individuals, as agreed upon by the State and
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`CMS. These health care costs may also include costs for Medicaid
`services that exceed Medicaid payments (after all other title XIX
`payments are made, including disproportionate share hospital
`payments).
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`CMS, Special Terms and Conditions for the Florida Medicaid Reform Section 1115
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`Demonstration, Dec. 16, 2011 Through June 30, 2014, at STC 54 (“Extension STCs”)
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`(attached as Exh. 4).
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`33.
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`The STCs also provided that the State would “not receive FFP for Medicaid and
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`LIP payments to hospitals in excess of cost.” Exh. 3, at STC 97; Exh. 4, at STC 57.
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`34.
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`In order to comply with these provisions, the State required hospitals and other
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`providers receiving LIP distributions to calculate a “LIP Cost Limit” according to a
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`methodology set forth in a “Reimbursement and Funding Methodology Document” reviewed
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`and approved by CMS.
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`35.
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`Given the similarities between the DSH hospital-specific cap and the LIP Cost
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`Limit, after CMS issued its “frequently asked questions” in 2010, most hospitals deducted
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`third-party payments from Medicaid costs for purposes of the LIP calculation, as they had been
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`instructed to do for DSH. This resulted in a lower LIP Cost Limit than would have been the
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`case if third-party payments had not been deducted.
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`36.
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`AHCA provided the results of the LIP Cost Limit calculations to CMS.
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`Disallowance
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`37.
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`On September 28, 2016, CMS issued a disallowance in the amount of $146,113,363
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`in FFP, relating to LIP payments in excess of the calculated LIP Cost Limits for the first seven
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`years of the Medicaid Reform waiver project (July 2006 through June 2013).
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`38.
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`Florida sought reconsideration of the disallowance, and CMS revised the amount
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`to $97,570,183 in FFP by letter dated January 19, 2017. The State timely appealed the revised
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`disallowance to the Departmental Appeals Board.
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`39.
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`As noted above, in December 2018, CMS rescinded its guidance requiring that
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`third-party payments be deducted in establishing DSH hospital-specific limits for any period
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`prior to June 2, 2017. See Exh. 1. However, it continued to take the position, in the
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`Departmental Appeals Board action, that third-party payments should be deducted for purposes
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`of determining the LIP cost limit. See Florida Agency for Health Care Admin., DAB No. 3031
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`(2021).
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`40.
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`All of the disallowance period is before June 2, 2017.
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`Impact on Jackson Memorial Hospital
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`41. More than $92 million of the $97 million disallowance relates to LIP payments
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`made to Jackson Memorial Hospital in 2012 and 2013. Jackson Memorial’s DSH payments
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`during those years did not exceed the calculated DSH limits, which were inclusive of LIP
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`payments made to the hospital, indicating that the hospital incurred substantial uncompensated
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`care as calculated following CMS guidelines for the period. The cost of this uncompensated
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`care for each year exceeded both the LIP and DSH combined payments.
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`42.
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`Jackson Memorial Hospital is part of Jackson Health, a public, non-profit tertiary
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`care teaching hospital and health system located in Miami-Dade County, which is governed
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`and operated by the Public Health Trust of Miami-Dade County pursuant to county ordinance
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`and Florida law.
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`43.
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`As a public hospital and health system, Jackson Health receives funding from
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`Miami-Dade County to support its charitable mission to build the health of the community by
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`providing a single, high standard of quality care for the residents of Miami-Dade County
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`regardless of their ability to pay for services. The funding Jackson Health receives is used to
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`provide care for the underinsured and uninsured population in Miami-Dade County.
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`44.
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`Jackson Memorial Hospital is closely affiliated with the University of Miami
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`Health System, which owns and operates the University of Miami Hospital, the Anne Bates
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`Leach Eye Hospital, and the University of Miami Hospitals and Clinics/Sylvester
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`Comprehensive Cancer Center (“University of Miami Health System”). Jackson Memorial
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`and the University of Miami Health System have a variety of arrangements designed to
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`facilitate cooperation and coordination. For example:
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`a. Since 1952, the Public Health Trust has maintained an affiliation agreement with the
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`University of Miami Leonard M. Miller School of Medicine, supplemented by an
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`annual operating agreement, which together set forth the responsibilities of and the
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`services to be provided by each party.
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`b. Jackson Memorial’s graduate medical education program is predominantly staffed with
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`residents from the University of Miami.
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`c. Of the nearly 1,000 full-time faculty members of the medical school, more than 600
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`are doctors engaged in clinical practice who have been granted medical staff privileges
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`and can admit patients to Jackson Memorial.
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`d. Jackson Memorial and the University of Miami Health System also cooperate in
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`providing services in a number of specialized facilities and centers, including the Ryder
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`Trauma Center, Holtz Children’s Hospital, UM/JM Burn Center, Newborn Intensive
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`Care Center, Jackson Transplant Center and Jackson Rehabilitation Hospital.
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`e. In addition, indigent Jackson Memorial patients receive ophthalmological services
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`when needed through the Anne Bates Leach Eye Hospital.
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`45.
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`The University of Miami Health Systems hospitals were paid well under their LIP
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`Cost Limits during the years for which CMS alleges that Jackson received LIP overpayments.
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`46.
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`Treating Jackson Memorial and the University of Miami Health System on a
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`combined basis would result in aggregate LIP payments being less than aggregate LIP Cost
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`Limits during the years at issue in the disallowance, even with the deduction of third-party
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`payments that CMS advocates.
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`47.
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`AHCA has interpreted the STCs as permitting it to consider the University of
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`Miami Health System together with Jackson Memorial in determining Jackson Memorial’s
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`LIP payments and LIP Cost Limits because of the close integration of the services and
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`programs between Jackson Memorial and the University of Miami Health System.
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`48.
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`49.
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`AHCA proposed this approach to CMS, who rejected it.
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`On March 29, 2019, while the disallowance was pending before the Departmental
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`Appeals Board, the Public Health Trust of Miami-Dade County brought suit against HHS and
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`its Secretary seeking to enjoin application of CMS’s withdrawn guidance regarding third-party
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`payors to Florida’s LIP Cost Limit calculations as set forth in the disallowance. See Compl.,
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`Public Health Trust of Miami-Dade County v. HHS, Case No. 1:19-cv-21206-CMA (S.D. Fla.
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`Mar. 29, 2019), Doc. 1. The Complaint noted that Jackson Health depends upon LIP payments
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`to carry out its critical mission to provide health care to those most in need.
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`50.
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`On August 2, 2019, U.S. District Court Judge Cecilia Altonaga issued an order
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`dismissing the case for lack of subject matter jurisdiction, holding that because the
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`Departmental Appeals Board had not yet ruled on Florida’s appeal, the disallowance “[fell]
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`short of final agency action subject to APA review,” because “reversal of the policy is still
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`possible.” See Order at 10, Public Health Trust of Miami-Dade County, Case No. 1:19-cv-
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`21206-CMA, Doc. 50.
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`51.
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`The court noted that “[i]f the appeal is concluded and the disallowance affirmed,
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`Florida may still seek judicial review of that decision under 42 U.S.C. section 1316(e), further
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`delaying any injury to Plaintiff.” Order at 10.
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`The Departmental Appeals Board Disallowance Decision
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`52.
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`On February 25, 2021, the HHS Departmental Appeals Board issued a decision
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`sustaining the disallowance of $97,570,183 in FFP for LIP payments in excess of costs during
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`DYs 1-7. See Florida Agency for Health Care Admin., DAB No. 3031 (2021). In its decision,
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`the Board agreed with CMS that the STCs require that the cost of uncompensated care for
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`Medicaid patients, as well as for the uninsured and underinsured, must be offset by third-party
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`payments, including from Medicare, in calculating the LIP Cost Limits. Id.
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`53.
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`The Board reached this decision even though the STCs, like the DSH statute, only
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`specify the deduction of Medicaid payments from Medicaid costs. Id.
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`54.
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`Under the decision of the Departmental Appeals Board, funds that Jackson
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`Memorial is entitled to keep under its DSH calculation are considered overpayments subject
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`to recoupment under the LIP Cost Limit Calculation. Id.
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`55.
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`The Board also held that the STCs do not allow Florida to consider Jackson
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`Memorial Hospital’s LIP Cost Limit and payments in conjunction with the University of
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`Miami Health System hospitals’ LIP Cost Limit and payments to determine if the cost limit
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`was exceeded. Id.
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`COUNT I
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`(Administrative Procedure Act: Violation of the Social Security Act and Arbitrary and
`Capricious Agency Action)
`
`
`1.
`
`Paragraphs 1 through 55 above are incorporated herein by reference.
`
`2.
`
`The decision that the terms and conditions of Florida’s Section 1115 waiver project
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`require the State in calculating the LIP Cost Limit, to offset the uncompensated cost of
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`providing care to Medicaid patients by deducting third-party payments, including from
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`Medicare, is arbitrary and capricious, an abuse of discretion, and contrary to law.
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`COUNT II
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`(Administrative Procedure Act: Violation of the Social Security Act and Arbitrary and
`Capricious Agency Action)
`
`Paragraphs 1 through 55 above are incorporated herein by reference.
`
`3.
`
`4.
`
`The decision that the terms and conditions of Florida’s Section 1115 waiver project
`
`prohibit the State from considering Jackson Memorial Hospital and the University of Miami
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`Health System hospitals together for purposes of calculating the LIP Cost Limit is arbitrary
`
`and capricious, an abuse of discretion, and contrary to law.
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`REQUEST FOR RELIEF
`
`WHEREFORE, Plaintiff the Florida Agency for Health Care Administration requests that this
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`Court grant the following relief:
`
`A.
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`Set aside HHS Departmental Appeals Board Decision No. 3031, and the underlying
`
`disallowance upheld by that decision;
`
`B.
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`Permanently enjoin Defendants and their agents, employees, successors in office,
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`and all persons acting in concert or participation with them, from disallowing the $97,570,183
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`at issue;
`
`
`
`14
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`

`

`Case 1:21-cv-21616-BB Document 1 Entered on FLSD Docket 04/27/2021 Page 15 of 15
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`C.
`
`D.
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`Award Florida such declaratory and other relief as may be just and proper;
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`Retain jurisdiction over this action for such additional and supplemental relief as
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`may be required to enforce the order and judgement.
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`Respectfully Submitted,
`
`s/ Nicholas Adam Merlin
`Nicholas Adam Merlin (Fla Bar No. 29236)
`Tracy Lee Cooper George (Fla Bar No.
`879231)
`Florida Agency
`Administration
`2727 Mahan Dr.
`Tallahassee, FL 32308
`(850) 412-3667
`Nicholas.merlin@ahca.myflorida.com
`Tracy.george@ahca.myflorida.com
`
`for Health Care
`
`Of Counsel
`
`Caroline M. Brown (pro hac vice petition
`pending)
`Julia Siegenberg (pro hac vice petition
`pending)
`Brown & Peisch PLLC
`1233 20th Street NW, Suite 505
`Washington, DC 20036
`(202) 499-4258
`cbrown@brownandpeisch.com
`jsiegenberg@brownandpeisch.com
`
`Attorneys for Florida Agency for Health
`Care Administration
`
`April 27, 2021
`
`15
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`