Opinion
CIVIL ACTION NO. 18-9088
2020-03-25
NORTH OAKS MEDICAL CENTER, LLC, Plaintiff v. Alex M. AZAR, II, Defendant
Daniel Michael Mulholland, III, Pro Hac Vice, Joshua Adam Hodges, Pro Hac Vice, Horty, Springer & Mattern, PC, Pittsburgh, PA, Harry Joseph Philips, Jr., Taylor, Porter, Brooks & Phillips LLP, Baton Rouge, LA, for Plaintiff Peter M. Mansfield, U.S. Attorney's Office (New Orleans), New Orleans, LA, for Defendant
Daniel Michael Mulholland, III, Pro Hac Vice, Joshua Adam Hodges, Pro Hac Vice, Horty, Springer & Mattern, PC, Pittsburgh, PA, Harry Joseph Philips, Jr., Taylor, Porter, Brooks & Phillips LLP, Baton Rouge, LA, for Plaintiff
Peter M. Mansfield, U.S. Attorney's Office (New Orleans), New Orleans, LA, for Defendant
SECTION: "E"
SUSIE MORGAN, UNITED STATES DISTRICT JUDGE ORDER AND REASONS
Before the Court is a motion to dismiss for lack of subject-matter jurisdiction filed by Defendant Alex M. Azar II, in his official capacity as Secretary (the "Secretary") of Health and Human Services ("HHS"). Plaintiff North Oaks Medical Center, LLC ("North Oaks") opposes this motion. The Secretary filed a reply.
R. Doc. 37.
R. Doc. 42.
R. Doc. 45.
GENERAL BACKGROUND
Through Medicare, the federal government pays for health care for elderly and disabled individuals. Hospitals receive increased payments if they serve "a significantly disproportionate number of low-income patients." These increases are known as disproportionate share hospital payments, or "DSH payments." The payment at issue in this case is the "additional payment" described in 42 U.S.C. § 1395ww(r), which is made annually to each disproportionate share hospital. The payment is the product of three statutory "factors" estimated by the Secretary of HHS. The third factor, or "Factor 3," measures an individual hospital's share of all nationwide uncompensated care. Factor 3 is a percent that represents the quotient of:
42 U.S.C. § 1395 et seq.
Id. § 1395ww(d)(5)(F)(i)(I).
Id. § 1395ww(r).
(i) the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines that alternative data is available which is a better proxy for the costs of [DSHs] for treating the uninsured, the use of such alternative data)); and
(ii) the aggregate amount of uncompensated care for all [DSHs] that receive a payment under this subsection for such period (as so estimated, based on such data).
In August 2013, HHS promulgated a rule setting forth the "data sources and methodologies for computing" the three factors for fiscal year 2014. The rule was later corrected in October 2013 by Centers for Medicare & Medicaid Services ("CMS"), which is a component of HHS. HHS decided to use data from 2010 or 2011, as provided on hospitals' then-most recent Medicare cost reports. In the regulatory preamble, HHS explained "a hospital's Factor 3 is calculated based on the data tied to its [certification number]." Thus, "[d]ata associated with a [hospital's certification number] that is no longer in use are not used to determine ... hospital payments under the surviving [hospital's certification number." For instance, "in the case of a merger between two hospitals ... Factor 3 will be calculated based on the [data] under the surviving [hospital's certification number]."
78 Fed. Reg. 50,496, 50,627 (Aug. 19, 2013).
78 Fed. Reg. 61,197 -202 (Oct. 3, 2013)).
78 Fed. Reg. 50,640.
Id. at 50,642.
Id.
Id.
LEGAL STANDARD
The instant motion is a motion to dismiss based on lack of jurisdiction. "Federal courts are courts of limited jurisdiction; without jurisdiction conferred by statute, they lack the power to adjudicate claims." A motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure challenges a federal court's subject-matter jurisdiction. Under Rule 12(b)(1), "[a] case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case." The burden of proof on a motion to dismiss under Rule 12(b)(1) is on the party asserting subject matter jurisdiction exists. In considering a Rule 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction "a court may evaluate: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Accordingly, in this case, the Court may consider Plaintiff's complaint as well as the Administrative Record on Review. The Court must accept all factual allegations in the plaintiff's complaint as true.
R. Doc. 37.
In re FEMA Trailer Formaldehyde Products Liab. Litig. (Mississippi Plaintiffs) , 668 F.3d 281, 286 (5th Cir. 2012).
Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss. , 143 F.3d 1006, 1010 (5th Cir. 1998) (internal quotation marks and citation omitted).
Ramming v. United States , 281 F.3d 158, 161 (5th Cir. 2001) ; Stockman v. Fed. Election Comm'n , 138 F.3d 144, 151 (5th Cir. 1998).
Den Norske Stats v. HeereMac Vof , 241 F.3d 420, 424 (5th Cir. 2001) (citing Barrera-Montenegro v. United States , 74 F.3d 657, 659 (5th Cir. 1996) ).
Plaintiff filed its complaint on October 1, 2018. R. Doc. 1. Plaintiff filed a "supplemental complaint" on March 15, 2019. R. Doc. 22. The Court notes Plaintiff's "supplemental" complaint is in reality an amended complaint, as it completely replaces the prior complaint filed by Plaintiff. Compare R. Doc. 1 with R. Doc. 22.
R. Doc. 33. On May 21, 2019, the Secretary filed an unopposed motion to file and lodge the administrative record on review in this matter filed under the Administrative Procedure Act (APA), 5 U.S.C. §§ 701 et seq. R. Doc. 33. The parties agreed to file the administrative record on review so that their motions "could cite to portions of the administrative record for the Court's review" and allow the Court "to consult other portions of the record for context and completeness." R. Doc. 29 at 1. The Secretary's unopposed motion expressly provided: "Plaintiff, North Oaks Medical Center, LLC, has no objection to the present motion." Id. The Court granted the motion on June 10, 2019, R. Doc. 32, and the administrative record on review was accordingly filed into the record, R. Doc. 33.
See Williamson v. Tucker , 645 F.2d 404, 412 (5th Cir. 1981).
In this action, Plaintiff seeks, among other things, an order from the Court "[a]djudg[ing] and declar[ing] that the actions of the Secretary through CMS in determining the Medicare DSH payment rates of North Oaks for FFY 2015 and 2016 were arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law." Although courts "presume" agency action is judicially reviewable, "that presumption, like all presumptions used in interpreting statutes, may be overcome by specific language that is a reliable indicator of congressional intent." For instance, when Congress provides "there shall be no administrative or judicial review" of specified agency actions, its intent to bar review is clear, and, accordingly, the Court determines only whether the challenged action falls "within the preclusive scope" of the statute. In this case, Congress has barred review of "[a]ny estimate" used by the Secretary to calculate a DSH additional payment. In interpreting a provision that precludes judicial review, courts "must determine whether the challenged agency action is of the sort shielded from review" and "may not inquire whether a challenged agency decision is arbitrary, capricious, or procedurally defective."
R. Doc. 22 at ¶ 54.
Knapp Med. Ctr. v. Hargan , 875 F.3d 1125, 1128 (D.C. Cir. 2017) (internal quotation marks and ellipses omitted).
Id.
Amgen, Inc. v. Smith , 357 F.3d 103, 113 (D.C. Cir. 2004).
FACTUAL AND PROCEDURAL BACKGROUND
This section is based on the facts alleged by Plaintiff. R. Doc. 22.
Plaintiff North Oaks is an acute care hospital in Hammond, Louisiana participating in the federal government's Medicare program, and serves a significantly disproportionate number of low-income patients. As such, Plaintiff receives DSH payments. Plaintiff alleges it underwent a corporate restructuring effective January 1, 2012. Prior to the corporate restructuring, Hospital Service District No. 1 of Tangipahoa Parish (the "Hospital Service District") owned and operated the North Oaks hospital. The corporate restructuring transferred control of operations of the hospital from the Hospital Service District to a limited liability company, North Oaks Medical Center, LLC. As a result, North Oaks Medical Center, LLC now owns and operates the North Oaks hospital. The Hospital Service District is the sole member of the North Oaks limited liability company.
R. Doc. 22 at ¶ 14.
Id. at ¶ 26.
Id.
Id. at ¶ 7.
Id. at ¶ 8.
After the corporate restructuring, Plaintiff used the certification number previously used by the Hospital Service District. North Oaks Medical Center, LLC filed a cost report for the first six months of 2012, from January 1 through June 30, reporting 8,889 Medicaid days, and the Hospital Service District filed a six-month cost report for July 1, 2011 to December 31, 2011. Plaintiff alleges CMS used the Medicaid days from the six-month cost report period of North Oaks from January 1 through June 30, 2012 to calculate Factor 3 for the North Oaks' DSH payments for FFY 2014. Plaintiff alleges CMS relied upon "incorrect information" in calculating Factor 3, because CMS should have used the full year in calculating the DSH adjustment for FFY 2014. By using the cost report reflecting a half year, the number of Medicaid days was substantially less than what it would have been for a full year, thereby reducing Factor 3 and reducing Plaintiff's Medicare reimbursement for FFY 2014 by roughly $2,093,000.
Id. at ¶ 26.
Id. at ¶ 27.
Id. at ¶ 28.
Id. at ¶ 1.
Id. at ¶ 24. In asserting CMS should have used the number of Medicaid days from cost report data for the full year of the Medical Center's operations from July 1, 2011 through June 30, 2012, North Oaks contends its position "was consistent with guidance set forth in the August 19, 2013 Federal Register." R. Doc. 22 at ¶ 30. "The guidance" to which North Oaks is referring is a comment CMS made regarding a hospital that merged (the "Merged Hospital Policy"). In that comment, CMS provided: "Data associated with a CCN that is no longer in use are not used to determine those IPPS hospital payments under the surviving CCN. Furthermore, data reported on the Medicare hospital cost report under the CCN associated with the old provider agreement would not necessarily be used to determine hospital payments for the CCN associated with the surviving provider agreement." Id. Based on this comment, North Oaks concludes: "The North Oaks CCN did not change as a result of the corporate restructuring. Thus, either the Medicaid days tied to the CCN of North Oaks for the full year of July 1, 2011 through June 30, 2012 or those reported on the last full year cost report filed by the Medical Center for July 1, 2010 through June 30, 2011 should have been used. But under no circumstances should the calculation have been based on a partial year." Id. The Court notes the Merged Hospital Policy is no longer in use. In August 2014, the Secretary provided: "As HHS explained in the FY2015 rulemaking, ‘the data systems used to calculate Factor 3 do not identify hospitals that have merged,’ and therefore it was necessary to ‘establish a process to identify hospitals that have merged after the period of the historical data that are being used to calculate Factor 3,’ which would involve querying Medicare contractors." 79 Fed. Reg. 49,854, 50,020 -21.
R. Doc. 22 at ¶ 28.
On February 10, 2014, Plaintiff filed an appeal with the Provider Reimbursement Review Board ("PRRB") of CMS's determination of the FFY 2014 DSH payment for Plaintiff. The PRRB is an independent panel established pursuant to Section 1878 of the Medicare Act. On April 29, 2014, CMS corrected its determination of the DSH payment for Plaintiff, using the 18,981 Medicaid days reported on the last full year cost report filed by North Oaks for July 1, 2010 through June 30, 2011. Plaintiff then withdrew its appeal of the FFY 2014 DSH payment determination. As a result, Plaintiff's FFY 2014 DSH payment is not at issue in this case.
Id. at ¶ 31.
R. Doc. 22 at ¶ 32.
Id. at ¶ 33.
In August 2014, CMS promulgated rules for determining DSH payments for FFY 2015. The rule was later corrected in October 2014. Plaintiff alleges CMS again incorrectly determined the DSH payment rate for North Oaks for FFY 2015 by using the 8,889 Medicaid days from the half-year period reported by North Oaks on its cost report for its Fiscal Year Ending December 31, 2011. Plaintiff argues that, had this estimate been calculated correctly, the estimate for Plaintiff would have been based on the cost report for July 1, 2010 through June 30, 2011.
79 Fed. Reg. 50,354.
79 Fed. Reg. 59,675 et seq.
R. Doc. 22 at ¶ 34.
Id.
In August 2015, CMS promulgated rules for determining DSH payments for FFY 2016. The rule was later corrected in October 2015. In responding to comments on the proposed rule, CMS stated:
80 Fed. Reg. 49,825 et seq.
80 Fed. Reg. 60,055 et seq.
With regard to the comments from hospitals that found their Factor 3 was calculated using a cost report that was less than 12 months, we are finalizing our proposal to use the 2012 cost report, unless that cost report is unavailable or reflects less than a full 12-month year. In the event the 2012 cost report is for less than 12 months, we will use the cost report from 2012 or 2011 that is closest to being a full 12-month cost report. In the case where a less than 12-month cost report is used to calculate a hospital's Factor 3, this would indicate that both the 2012 and 2011 cost reports were less than 12 months. In such a case, we will use the longer of the two cost reports to calculate a hospital's Factor 3.
Id. at 49,528.
Plaintiff alleges CMS once again used the 8,889 Medicaid days reported by North Oaks on its cost report for the reporting period ending on December 31, 2011 to calculate Factor 3 for FFY 2016. Plaintiff "pointed this out to CMS and asked that the correct cost report data be used to calculate its Factor 3 for FFY 2016." In response, CMS "adjust[ed] the Factor 3 calculation for North Oaks in the Supplemental Data File published with the Final Rule and Correction on October 5, 2015," but, "instead of using the 2011 full year cost report data as called for by the regulations, CMS used the full year cost report data from 2013, which resulted in an estimated negative reimbursement impact on North Oaks of $380,996.53."
R. Doc. 22 at ¶ 38.
Id. at ¶ 39.
Id. (citing 80 Fed. Reg. 60,055 et seq.).
Id.
Plaintiff filed appeals with the PRRB of both CMS's determination of Plaintiff's FFY 2015 DSH payment (the "FFY 2015 appeal") and CMS's determination of Plaintiff's FFY 2016 DSH payment (the "FFY 2016 appeal"). Plaintiff filed the FFY 2015 appeal on January 28, 2015. While this appeal was still pending, on March 28, 2016, Plaintiff filed the FFY 2016 appeal. On May 16, 2016, Novitas Solutions, Inc., the Medicare Administrative Contractor serving the Secretary's audit and payment agent for Plaintiff, filed a jurisdictional challenge to the FFY 2016 appeal, arguing review was precluded by 42 U.S.C. § 1395ww(r)(3). Section 1395ww(r)(3) precludes judicial and administrative review under §§ 1395ff and 1395oo for:
Id. at ¶ 37.
Id. at ¶ 41.
R. Doc. 33-1 at 67. The Administrative Record is located at R. Doc. 33. The pagination cited corresponds to the pagination assigned to each record document by CM/ECF.
(A) Any estimate of the Secretary for purposes of determining the factors described in paragraph (2).
(B) Any period selected by the Secretary for such purposes.
On August 2, 2018, the PRRB ruled that it did not have jurisdiction over the FFY 2015 appeal because jurisdiction is precluded by 42 U.S.C. § 1395ww(r)(3). In making this holding, the PRRB relied upon the United States Court of Appeals for the District of Columbia's opinion, Florida Health Sciences Center, Inc. v. Secretary of Health and Human Services . The PRRB explained that in Florida Health , the D.C. Circuit held "the bar on judicial review [contained in 42 U.S.C. § 1395ww(r)(3) ] of the Secretary's estimates precludes review of the underlying data," and the court "rejected the hospital's argument that it could challenge the underlying data" because the underlying data is "inextricably intertwined" with the Secretary's estimate of uncompensated care. The PRRB found:
R. Doc. 22 at ¶ 43.
89 F.Supp.3d 121 (D.D.C. 2015) aff'd 830 F.3d 515 (D.C. Cir. 2016).
R. Doc. 33-1 at 68-69.
[T]he same findings are applicable to [Plaintiff's] challenge of their [FFY 2015 DSH payments]. As in [ Florida Health ], the [Plaintiff] here is challenging the calculation of the amount they received for uncompensated care for FY 2015 ... [Plaintiff] is seeking review of an ‘estimate’ used by the Secretary to determine the factors used to calculate their final payments ... therefore, ... [Plaintiff] is challenging the underlying data relied on by the Secretary to obtain those final payment amounts ... [ Florida Health ] held the bar on judicial review of the Secretary's estimates precludes review of the underlying data as well. Furthermore, in challenging [CMS's] use of a six-month cost report covering one time period, rather than a twelve-month cost report covering a different period, [Plaintiff] is challenging the ‘period selected by the Secretary’ used in creating those estimates, which is also barred from review.
Id. at 69.
On February 28, 2019, the PRRB ruled it likewise not have jurisdiction over the FFY 2016 appeal because jurisdiction is precluded by 42 U.S.C. § 1395ww(r)(3).
R. Doc. 33-1 at 71-72.
Plaintiff filed the instant lawsuit on October 1, 2018. Plaintiff contends: "[a]s a result of the Secretary's incorrect determination of its DSH payment rates for FFY 2015, North Oaks was unlawfully denied Medicare payments in the amount of $1,748,902.20 for services that it provided to Medicare beneficiaries during FFY 2015." Plaintiff further contends: "As a result of the Secretary's incorrect determination of its DSH payment rates for FFY 2016, North Oaks was unlawfully denied Medicare payments in the amount of $353,849.83 for services that it provided to Medicare beneficiaries during FFY 2016." Plaintiff seeks judgment in its favor: (1) declaring the actions of the Secretary through CMS in determining the Medicare DSH payment rates of North Oaks for FFY 2015 and 2016 were arbitrary, capricious, an abuse of discretion; and (2) granting a permanent injunction mandating that the Secretary correct his determination of the Medicare DSH payment rates of North Oaks for FFY 2015 and FFY 2016 by relying on the most recent full year cost report of North Oaks for which data was available, "i.e., its cost report for FYE December 31, 2011," and making such retroactive adjustments to Medicare payments due to North Oaks as a result of said correction. In the alternative, North Oaks seeks an order reversing the jurisdictional decisions of the PRRB dismissing Plaintiff's appeals of the FFY 2015 and 2016 DSH payment rates and remanding the matters to the PRRB with instructions to enter a ruling in favor of Plaintiff. In its opposition to Defendant's motion to dismiss, North Oaks requests leave to amend its complaint to add a claim challenging "whether the Secretary complied with the notice and comment requirements of the Administrative Procedure Act and the Medicare statute."
R. Doc. 1. Thereafter, on March 15, 2019, Plaintiff filed its supplemental complaint. R. Doc. 22.
R. Doc. 22 at ¶ 50.
Id. at ¶ 51.
Id. at ¶ 54.
Id. at ¶¶ 55-56.
R. Doc. 42 at 8.
On August 7, 2019, Defendant filed the instant motion to dismiss the lawsuit for lack of subject matter jurisdiction, arguing (1) 42 U.S.C. § 1395ww(r)(3) expressly precludes judicial review of HHS's calculation of North Oaks' DSH payments in FFY 2015 and FFY 2016, and (2) the ultra vires exception to preclusion does not apply in this case. Defendant also contends Plaintiff should not be granted leave to amend its complaint to add a claim challenging the Secretary's compliance with notice and comment requirements.
R. Doc. 37.
R. Doc. 37-3 at 1.
R. Doc. 45 at 2.
LAW AND ANALYSIS
I. 42 U.S.C. § 1395ww(r)(3) Precludes Judicial Review of HHS's Calculation of North Oaks' DSH Payments in FY2015 and FY2016
Defendant argues "North Oaks' claim and requested relief fall squarely under the plain language of [ 42 U.S.C. § 1395ww(r)(3) ]." Plaintiff argues § 1395ww(r)(3) does not preclude judicial review of the Secretary's use of a half-year cost report rather than a full-year cost report to calculate Plaintiff's DSH payment for FFY 2015. Plaintiff also appears to argue § 1395ww(r)(3) does not preclude judicial review of the Secretary's use of North Oaks' full-year cost report data from 2013 rather than 2011 to calculate Plaintiff's DSH payment for FFY 2016.
R. Doc. 37-3 at 11.
R. Doc. 42 at 3.
Section 1395ww(r)(3) provides:
There shall be no administrative or judicial review under section 1395ff of this title, section 1395oo of this title, or otherwise of the following:
(A) Any estimate of the Secretary for purposes of determining the factors described in paragraph (2).
(B) Any period selected by the Secretary for such purposes.
"When Congress provides that "there shall be no administrative or judicial review" of specified agency actions ... its intent to bar review is clear, so [courts] determine only whether the challenged action falls ‘within the preclusive scope’ of the statute." By enacting section 1395ww(r)(3), Congress has barred review of "[a]ny estimate" used and "[a]ny period" selected by the Secretary to calculate a DSH payment. Accordingly, the Court determines only whether Plaintiff's challenge is a challenge to an "estimate" of the Secretary or a "period selected by the Secretary," as used in section 1395ww(r)(3). The Court has found no Fifth Circuit opinions interpreting "any estimate" and "any period," and the parties have pointed to no such opinions. Accordingly, the Court looks to the two leading D.C. Circuit cases interpreting the terms.
DCH Medical Ctr. v Azar , 925 F.3d 503, 505-06 (D.C. Cir. 2019) (citing Knapp , 875 F.3d at 1128 (D.C. Cir. 2017) ).
In Florida Health, supra , the plaintiff hospital, Tampa General, sought review of its DSH payment for FFY 2014. As discussed above, in August 2013, HHS promulgated a rule setting forth the "data sources and methodologies for computing" the three factors for fiscal year 2014. HHS decided to use data from 2010 or 2011, which offered the "most recently available" information. HHS provided that if hospitals determined the initial figures they submitted were inaccurate, they could amend their annual reports. HHS picked the March 2013 updates as the most recent data it would use for all hospitals. However, the plaintiff hospital, Tampa General, sought to give the Secretary new data in April 2013. When the Secretary refused to use the data, the plaintiff filed suit in district court, arguing the Secretary's reliance on "obsolete" data rather than "the most recent data available" violated the Administrative Procedure Act and the Medicare statute. The district court dismissed the hospital's claim for lack of subject matter jurisdiction pursuant to 42 U.S.C. § 1395ww(r)(3), and the D.C. Circuit affirmed. The plaintiff argued that although § 1395ww(r)(3) precludes judicial review of "estimates," it does not bar judicial review of the "underlying data" upon which the Secretary relied, "because an ‘estimate’ is not the same thing as the ‘data’ on which it is based." The D.C. Circuit rejected this argument, explaining:
78 Fed. Reg. 50,496, 50,627 (Aug. 19, 2013).
78 Fed. Reg. 50,640.
Id. at 50,641 -42.
Id.
Id.
Id. at 519.
A challenge to the data would eviscerate the bar on judicial review ... [T]he underlying data here are ‘indispensable’ and ‘integral’ to, and ‘inextricably intertwined’ with, the Secretary's estimate of Tampa General's amount of uncompensated care. Indeed, the data are the entire basis for the estimate. The bar on judicial review in section 1395ww(r)(3) therefore expressly precludes Tampa General's challenge to the data, and we lack jurisdiction to consider it.
Id. (internal quotation marks and citation omitted).
In DCH, supra , the plaintiff sought review of its DSH payment for FFY 2014. The plaintiff hospital, DCH Regional Medical Center, merged with Northport Regional Medical Center on May 1, 2011. The merged entity operated under DCH's name and certification number. The plaintiff hospital received a DSH payment for FFY 2014 based on DCH's share of uncompensated care, but not Northport's. The plaintiff challenged "the methodology adopted and employed" by HHS to calculate the third factor bearing on its DSH payment. The district court held § 1395ww(r)(3) barred judicial review of the plaintiff's claims, so it dismissed the case for lack of jurisdiction. In affirming the district court's decision, the D.C. Circuit explained:
925 F.3d 503, 505 (D.C. Cir. 2019).
Id.
Id.
Id.
Id.
Id.
In this statutory scheme, a challenge to the methodology for estimating uncompensated care is unavoidably a challenge to the estimates themselves. The statute draws no distinction between the two. Instead, it simply provides for payments under a formula consisting of three factors estimated by the Secretary. 42 U.S.C. § 1395ww(r)(2). There is also no way to review the Secretary's method of estimation without reviewing the estimate itself ...
Moreover, DCH's proposed distinction between methodology and estimates would eviscerate the statutory bar, for almost any challenge to an estimate could be recast as a challenge to its underlying methodology ... The third factor turns on each individual hospital's share of uninsured care, measured relative to a denominator of ‘the aggregate amount of uncompensated care’ provided by all disproportionate share hospitals, ‘as estimated by the Secretary.’ Under this statutory structure, which plainly bars review of estimates made across-the-board and by rule, estimates cannot be separated from the methodology used to generate them.
Id. at 506.
Like the plaintiff in DCH , after a corporate restructuring that became effective on January 1, 2012, North Oaks retained the Hospital Service District's certification number. In calculating the number of Medicaid days to estimate Plaintiff's FFY 2015 DSH payments, CMS used only the cost report data reported by the Hospital Service District covering the period July 1, 2011 to December 31, 2011. CMS did not combine the number of days from this cost report with the number of Medicaid days reported by North Oaks covering the period from January 1, 2012 to June 30, 2012, leading to Plaintiff's grievance that HHS calculated its DSH payments for FFY 2015 based on a half year of data rather than a full year. As the D.C. Circuit held in DCH , such a challenge is a challenge to the methodology for estimating uncompensated care, which is "unavoidably a challenge to the estimates themselves." Further, like the plaintiff in Florida Health , which attempted to argue its challenge was against the "underlying data" relied upon by the Secretary, Plaintiff in this case attempts to frame its challenges to the Secretary's use of a half-year cost report for FFY 2015 and North Oaks' 2013 cost report (rather than the 2011 cost report) for FFY 2016 as challenges to HHS's reliance on "incorrect information to determine ... DSH payments." However, as the D.C. Circuit held in Florida Health , the "underlying data" or the "incorrect information" is "indispensable and integral to," and "inextricably intertwined with," the Secretary's estimate of Plaintiff's amount of uncompensated care.
Id.
R. Doc. 22 at ¶ 1.
Accordingly, Plaintiff has not established the Court has jurisdiction to review the Secretary's use of underlying information, namely, a half-year cost report for FFY 2015 and the 2013 cost report for FFY 2016, without also reviewing the estimates for FFY 2015 and FFY 2016. Because the underlying data and the estimates are inextricably intertwined, § 1395ww(r)(3)(A) precludes review of both. II. The Ultra Vires Exception to Preclusion Does Not Apply
Plaintiff argues "the ultra vires doctrine set forth by Leedom v. Kyne , 358 U.S. 184, 79 S.Ct. 180, 3 L.Ed.2d 210 (1958) and its progeny provide an alternative basis for jurisdiction in this matter." Specifically, Plaintiff alleges the Secretary acted ultra vires "when the Secretary used a half-year cost report for North Oaks while using a full year for all the other hospitals [in calculating the DSH payments for FFY 2015], it violated the clear statutory mandate that the numerator and denominator in the DSH Factor 3 formula be the same for all the hospitals." Plaintiff also appears to argue the Secretary acted ultra vires by using North Oaks' full-year cost report data from 2013 rather than 2011 to calculate Plaintiff's DSH payment for FFY 2016. Defendant argues the ultra vires exception to preclusion identified in Kyne does not apply because "[t]he ACA's bar on judicial review is express, clear, and direct," and, further, North Oaks has failed to identify a violation of the statute of the magnitude that would allow judicial review.
R. Doc. 42 at 7.
Id. at 8.
R. Doc. 37-3 at 15.
To challenge agency action on the ground that it is ultra vires , Plaintiff must show a "patent violation of agency authority." A violation is "patent" if it is "[o]bvious" or "apparent." In Florida Health , the D.C. Circuit addressed a very similar argument to Plaintiff's, namely, that because 42 U.S.C. § 1395ww(r) directs the Secretary to base his estimates on "appropriate" data, any estimate based on inappropriate data is ultra vires . The D.C. Circuit swiftly rejected this argument, explaining:
Fla. Health , 830 F.3d at 522 (citing Indep. Cosmetic Mfrs. & Distribs., Inc. v. U.S. Dep't of Health, Educ. & Welfare , 574 F.2d 553, 555 (D.C. Cir. 1978) ; Qwest Corp. v. FCC , 482 F.3d 471, 476 (D.C. Cir. 2007) (defining "ultra vires" action as "patently in excess of [the agency's] authority" (quoting Wash. Ass'n for Television & Children v. FCC , 712 F.2d 677, 682 (D.C. Cir. 1983) ))).
Id. (quoting BLACK'S LAW DICTIONARY (10th ed. 2014)).
Id.
[T]he Secretary's choice of data is not obviously beyond the terms of the statute. It is far from apparent that choosing March instead of April as the cutoff date for hospitals to update their Medicaid data was ‘inappropriate.’ By asking us to review the appropriateness of the data the Secretary used to calculate [the plaintiff hospital's] DSH payment, [the plaintiff hospital] urges us to engage in the kind of ‘case-by-case review of the reasonableness or procedural propriety of the Secretary's individual applications’ that Congress intended to bar. We will not permit [the plaintiff] to ‘couch’ this type of reasonableness challenge ‘in terms of the agency's exceeding its statutorily-defined authority.’
Id. at 522-23 (internal citations omitted).
As provided in Florida Health , section 1395ww(r) provides the period to be used in the calculation of Factor 3 is the "period selected by the Secretary (as estimated by the Secretary, based on appropriate data ...)." Section 1395ww(r) makes no reference to full-year or half-year cost reports, or the time period from which the appropriate data is drawn, for the calculation of Factor 3. The Secretary's choice of data representing a half year instead of a full year for the FFY 2015 calculation is thus not so obviously or apparently a violation of the Secretary's agency authority as to warrant judicial review. Likewise, the Secretary's choice of data representing North Oak's 2013 cost report rather than North Oak's 2011 cost report for the FFY 2016 calculation is not so obviously or apparently a violation of the Secretary's agency authority as to warrant judicial review.
See id.
In arguing the ultra vires exception to statutory preclusion applies, Plaintiff relies on the Supreme Court's decision in Kyne . Kyne involved section 9(b)(1) of the National Labor Relations Act (the "NLRA"), which provides the National Labor Relations Board (the "NLRB") "shall not" certify a bargaining unit including professionals and other employees "unless a majority of such professional employees vote for inclusion in such unit." The NLRA further permits court-of-appeals review of any "final order of the Board," a term the Supreme Court previously construed not to encompass certification orders. In Kyne , the NLRB certified a bargaining unit absent a majority of employees voting for inclusion in said unit. The Supreme Court held the NLRB's action was one "made in excess of its delegated powers and contrary to a specific prohibition in the Act." The Supreme Court further held the district court had jurisdiction to set aside this unlawful agency action because the NLRA's specific-review scheme did not oust the district court of jurisdiction under 28 U.S.C. § 1337, which otherwise applied.
Am. Fed'n of Labor v. NLRB , 308 U.S. 401, 60 S.Ct. 300, 84 L.Ed. 347 (1940).
Id. at 187, 191, 79 S.Ct. 180.
As the D.C. Circuit stated in DCH , in Board of Governors of the Federal Reserve System v. MCorp Financial, Inc. , "the Supreme Court cautioned against overreading Kyne 's jurisdictional holding." In MCorp , a court of appeals read Kyne "as authorizing judicial review of any agency action that is alleged to have exceeded the agency's statutory authority," but the Supreme Court disagreed. The Supreme Court explained that in Kyne , the bar on district court review was "implied" from the "silence" of a statute permitting review in the courts of appeals. The Supreme Court further explained Kyne merely stood for the "familiar proposition" that judicial review is presumed to be available absent a clear statute to the contrary. As the D.C. Circuit stated in DCH , "[f]ollowing MCorp , there is not much room to contend that courts may disregard statutory bars on judicial review just because the underlying merits seem obvious."
502 U.S. 32, 112 S.Ct. 459, 116 L.Ed.2d 358 (1991).
Id. at 44, 112 S.Ct. 459.
Id.
In DCH , the D.C. Circuit addressed the plaintiff hospital's challenge arguing the Secretary's actions in selecting data from only one of the two merged hospitals was ultra vires . The D.C. Circuit distinguished the plaintiff's challenge from the plaintiff's challenge in Kyne :
Id.
Here, the bar on judicial review is express. Moreover, [the plaintiff hospital] fails to allege any obvious violation of a clear statutory command. To the contrary, it invokes only the requirement that the Secretary, in calculating the DSH additional payment, must choose ‘appropriate data.’ [The plaintiff] makes no attempt to explain why the Secretary's treatment of hospital mergers violates this open-ended provision at all, much less obviously so. Instead, [the plaintiff] argues only that the Secretary treats hospital mergers differently in different contexts and that, in calculating DSH additional payments, the Secretary treated hospital mergers differently in fiscal years 2014 and 2015. At most, that suggests that the 2014 treatment may have been arbitrary and capricious. And even that point is debatable, for the Secretary, in discussing the choice of data for the 2014 payment calculations, suggested possible administrability problems with the rule urged by [the plaintiff]. Whatever the merits of [the plaintiff's] objection, it is worlds apart from the obvious violation of the clear statutory command at issue in Kyne .
Id. at 509-10 (internal citations omitted).
This case involves the exact same statute as the one in DCH , which the D.C. Circuit held creates an express bar on judicial review. Like the plaintiff hospital in DCH , Plaintiff argues the Secretary "used a half-year cost report for North Oaks while using a full year for all the other hospitals." Even if this suggests the Secretary's calculation of Plaintiff's DSH payments for FFY 2015 was arbitrary and capricious, it is a far cry from the obvious violation at issue in Kyne . Similarly, even if the Secretary's use of North Oaks' 2013 cost report in calculating Plaintiff's DSH payments for FFY 2016 was arbitrary and capricious, it is not clearly the type of violation in Kyne that constitutes ultra vires action.
R. Doc. 42 at 8.
III. Plaintiff's Request for Leave to Amend is Granted
Rule 15(a) of the Federal Rules of Civil Procedure "requires the trial court to grant leave to amend freely, and the language of this rule evinces a bias in favor of granting leave to amend." A district court must possess a "substantial reason" to deny a motion under Rule 15(a). In deciding whether to grant leave under Rule 15(a), courts may consider factors such as "undue delay, bad faith or dilatory motive on the part of the movant, repeated failures to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, and futility of the amendment."
Lyn-Lea Travel Corp. v. Am. Airlines, Inc. , 283 F.3d 282, 286 (5th Cir. 2002) (internal quotation marks omitted).
Smith v. EMC Corp. , 393 F.3d 590, 595 (5th Cir. 2004).
Jones v. Robinson Prop. Grp., L.P. , 427 F.3d 987, 994 (5th Cir. 2005).
In this case, Plaintiff requests leave to amend its supplemental complaint to plead that the Secretary violated the notice and comment requirements of the Administrative Procedure Act (the "APA") and the Medicare Act:
North Oaks would also urge the Court to find jurisdiction to resolve whether the Secretary complied with the notice and comment requirements of the Administrative Procedure Act and the Medicare statute as the court in
Yale New Haven did. Although North Oaks has not plead this in its Complaint, fairness and adherence to the basic tenets of administrative law would warrant consideration of this issue. In the alternative, North Oaks would request leave to amend its Complaint to plead this issue. In response, the Secretary appears to argue "[a]ny late amendment to add [these claims] now would be futile" because "precluded DSH claims repackaged under a due-process rubric" are still precluded under § 1395ww(r)(2).
R. Doc. 42 at 8.
R. Doc. 45 at 2.
Contrary to the Secretary's position, it is possible to allege a challenge to notice and comment requirements distinct from a precluded challenge to the Secretary's estimates. In Yale New Haven Hospital v. Azar , the District of Connecticut found the plaintiff's challenge to the promulgation of the Secretary's rule was judicially reviewable because, unlike the plaintiff's other claims, this challenge "does not challenge the Secretary's estimate of [the plaintiff hospital's] DSH payment, any of the underlying data, or the Secretary's choice of such data. Instead, it is a challenge to the procedure by which the Secretary established the FFY 2014 Merged Hospital Policy." In so holding, the District of Connecticut:
409 F.Supp.3d 3, 14 (D. Conn. 2019).
[R]ecognize[d] that this is a very close question. The preclusion of any ‘estimate’ can be argued, as the Secretary does, to include anything that results in the ‘estimate.’ However, [the plaintiff hospital] is seeking review of the promulgation of the Secretary's rules and policies, separate from the substance of any such rules or policies or the determination of its estimates based on the substance of those rules or policies.
Id. at 15 (emphasis in original).
As evidenced by Yale New Haven , a challenge to the promulgation of the Secretary's rules distinct from a challenge to the estimates used by the Secretary to determine DSH payments may be judicially reviewable. Accordingly, Plaintiff's amendment would not be futile.
CONCLUSION
IT IS ORDERED that Defendant's motion to dismiss for lack of subject matter jurisdiction is GRANTED. Plaintiff's claims for relief resulting from (1) "the Secretary's incorrect determination of its DSH payment rates for FFY 2015" and (2) "the Secretary's incorrect determination of its DSH payment rates for FFY 2016," are hereby DISMISSED WITHOUT PREJUDICE, for lack of subject matter jurisdiction.
R. Doc. 37.
R. Doc. 22 at ¶ 51.
Id. at ¶ 52.
North Oaks filed a motion for summary judgment on its claims brought against the Secretary in its supplemental complaint. R. Doc. 36. Because the Court has found judicial review of these claims is barred by section 1395ww(r)(3), North Oaks' motion for summary judgment is accordingly DISMISSED AS MOOT .
IT IS FURTHER ORDERED that Plaintiff is GRANTED LEAVE to file a second amended complaint challenging whether "the Secretary complied with the notice and comment requirements of the Administrative Procedure Act and the Medicare statute." Plaintiff must file its second amended complaint by Friday, April 24, 2020 .
R. Doc. 42 at 8.
The Court is allowing Plaintiff to amend its supplemental complaint, rather than file an entirely new complaint, for the sake of judicial economy.