Shands Jacksonville Medical Center, Inc. et al v. Sebelius

MOTION for Summary Judgment and Opposition to Plaintiffs' Motions for Summary Judgment

D.D.C.June 30, 2017

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA SHANDS JACKSONVILLE MEDICAL ) CENTER, INC. et al., ) ) Plaintiffs, ) ) v. ) No. 1:14-cv-263 ) (consolidated) THOMAS E.PRICE, M.D., ) Secretary of Health and Human ) Services,1 ) ) Defendant. ) ____________________________________) DEFENDANT’S MOTION FOR SUMMARY JUDGMENT Pursuant to Fed. R. Civ. P. 56, Defendant moves the Court for summary judgment affirming the legality of the Secretary’s action in response this Court’s Remand Order (Dkt.53). The basis for this motion is set forth in the attached Memorandum of Points and Authorities and in the Administrative Record (Dkt. 76). Respectfully submitted, CHAD A. READLER Acting Assistant Attorney General CHANNING D. PHILLIPS United States Attorney /s/ Daniel Bensing JOEL McELVAIN Assistant Branch Director DANIEL BENSING Senior Trial Counsel 1 Pursuant to Fed. R. Civ. P. 25(d), Secretary Price is substituted as the defendant in his official capacity. Case 1:14-cv-00263-RDM Document 89 Filed 06/30/17 Page 1 of 2 D.C. Bar No. 334268 United States Department of Justice Civil Division Federal Programs Branch 20 Massachusetts Ave., N.W. Rm. 6114 Washington, D.C. 20530 Telephone: (202) 305-0693 Telefacsimile: (202) 616-8460 Daniel.Bensing@USDOJ.gov Counsel for Defendant Case 1:14-cv-00263-RDM Document 89 Filed 06/30/17 Page 2 of 2 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA SHANDS JACKSONVILLE MEDICAL ) CENTER, INC. et al., ) ) Plaintiffs, ) ) v. ) No. 1:14-cv-263 ) (consolidated) THOMAS E.PRICE, M.D., ) Secretary of Health and Human ) Services,1 ) ) Defendant. ) ___________________________________ ) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT’S MOTION FOR SUMMARY JUDGMENT AND OPPOSITION TO PLAINTIFFS’ MOTIONS FOR SUMARY JUDGMENT 1Pursuant to Fed. R. Civ. P. 25(d), Secretary Price is substituted as the defendant in his official capacity. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 1 of 31 i TABLE OF CONTENTS Introduction ..................................................................................................................................... 1 STATUTORY AND REGULATORY BACKGROUND .............................................................. 2 A. The Medicare Hospital Inpatient Prospective Payment System (“IPPS”) ....................... 2 B. Judicial Review of Medicare Claim Denials. .................................................................. 4 FACTUAL AND PROCEDURAL BACKGROUND.................................................................... 5 PLAINTIFFS’ CLAIMS ................................................................................................................. 7 ARGUMENT .................................................................................................................................. 8 STANDARD OF REVIEW ............................................................................................................ 8 A. The FY 2017 Final IPPS Rule Prospectively “Removed” the 0.2 Percent Downward Adjustment and Hence there is Nothing for the Court to “Vacate”. ................................ 8 B. The “Exceptions and Adjustments” Authority in Section 1395ww(d)(5)(I)(i) Is Committed to Agency Discretion by Law ..................................................................... 10 C. Defendant Acted Reasonably in Adopting a One-Time Upward Adjustment of 0.6 Percent in the FY 2017 Final IPPS Rule to Address the Effect of the Prior Downward Adjustment. .................................................................................................................... 13 D. Under Medicare’s prospective payment system, there is a presumption against making retroactive adjustments to Medicare payment rates as requested by the Plaintiffs. ........................................................................................................................ 16 E. The Secretary Acted Reasonably in Declining to Make the Upward Adjustment Requested by the Athens Plaintiffs. ............................................................................... 19 CONCLUSION ............................................................................................................................. 24 Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 2 of 31 ii TABLE OF AUTHORITIES Cases Page(s) Adirondack Med. Ctr.. v. Sebelius, 740 F.3d 692 (D.C. Cir. 2014) .............................................................................................4, 11 AEP Texas North Co. v. Surface Trans. Bd., 609 F.3d 432 (D.C. Cir. 2010) .................................................................................................24 Allied Local & Reg’l Mfrs. Caucus v. EPA, 215 F.3d 61 (D.C. Cir. 2000) ...................................................................................................22 Anna Jacques Hosp. v. Burwell, 797 F.3d 1155 (D.C. Cir. 2015) ...............................................................................................17 Cape Cod Hosp. v. Sebelius, 630 F.3d 203 (D.C. Cir. 2011) ...........................................................................................15, 16 Chaves Cty. Home Health Service, Inc. v. Sullivan, 931 F.2d 914 (D.C. Cir. 1991) .................................................................................................15 Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) ............................................................................................................8, 11 Claybrook v. Slater, 111 F.3d 904 (D.C. Cir. 1993) .................................................................................................12 County of Los Angeles v. Shalala, 192 F.3d 1005 (D.C. Cir. 1999) .................................................................................................2 District Hospital Partners, L.P. v. Burwell, 786 F.3d 46 (D.C. Cir. 2015) ..................................................................................................23 Florida Dep’t of Legal Affairs v. Tenet Healthcare Corp., 420 F. Supp. 2d 1288 (S.D. Fla. 2005) ..................................................................................2, 3 Food Marketing Institute v. ICC, 587 F.2d 1285 (D.C. Cir. 1978) .................................................................................................9 Georgetown Univ. Hosp. v. Bowen, 862 F.2d 323 (D.C. Cir. 1988) .................................................................................................17 Heckler v. Chaney, 470 U.S. 821 (1985) ................................................................................................................11 Lincoln v. Vigil, 508 U.S. 182 (1993) ................................................................................................................11 Marsh v. Or. Nat. Res. Council, 490 U.S. 360 (1989) ..................................................................................................................8 Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 3 of 31 iii Marshall County Health Care Auth. v. Shalala, 988 F.2d 1221(D.C. Cir. 1993) ..........................................................................................12, 18 Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225 (D.C. Cir. 1994) .................................................................................................17 Mexichem Specialty Resins, Inc. v. EPA, 787 F.3d 544 (D.C. Cir. 2015) .................................................................................................22 Mississippi Comm’n on Environmental Quality v. EPA, 790 F.3d 138 (D.C. Cir. 2015) .................................................................................................22 Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) ....................................................................................................................8 Nat’l Hospice & Palliative Care Org. v. Weems, 587 F. Supp. 2d 184 (D.D.C. 2008) ...........................................................................................3 Newspaper Ass’n of Am. v. Postal Regulatory Comm’n, 734 F.3d 1208 (D.C. Cir. 2013) ...............................................................................................22 NTCH, Inc. v. FCC, 841 F.3d 497 (D.C. Cir. 2016) .................................................................................................12 Oil, Chemical & Atomic Workers v. Richardson, 214 F.3d 1379 (D.C. Cir. 2000) ...............................................................................................12 Pub. Citizen, Inc. v. NHTSA, 374 F.3d 1251 (D.C. Cir. 2004) ...............................................................................................22 Ratanasen v. Calif. Dept. of Health Servs., 11 F.3d 1467 (9th Cir. 1993) ...................................................................................................15 Shands Jacksonville Med. Cent. v. Burwell, 139 F. Supp. 3d 240 (D.D.C. 2015) ...........................................................................................5 Sierra Club v. EPA, 353 F.3d 976 (D.C. Cir. 2004) ...................................................................................................8 Steenholdt v. FAA, 314 F.3d 633 (D.C. Cir. 2003) .................................................................................................11 Tallahassee Mem. Regional Med. Ctr. v. Bowen, 815 F.2d 1435 (11th Cir. 1987) .........................................................................................15, 16 United States v. Life Care Ctr. of Am., Inc, 114 F.Supp.3d 549 (E.D. Tenn. 2014) .....................................................................................15 Washington Hosp. Center v. Bowen, 795 F.2d 139 (D.C. Cir. 1986) .................................................................................................16 Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 4 of 31 iv Webster v. Doe, 486 U.S. 592 (1988) ................................................................................................................11 Statutes 5 U.S.C. § 701 ...........................................................................................................................4, 11 5 U.S.C. § 706 .............................................................................................................................4, 8 42 U.S.C. § 1395 .............................................................................................................................2 42 U.S.C. § 1395c ...........................................................................................................................2 42 U.S.C. § 1395d(a) ......................................................................................................................2 42 U.S.C. § 1395ff(b) ...................................................................................................................14 42 U.S.C. § 1395h ...........................................................................................................................4 42 U.S.C. § 1395k(a)(2)(B) ............................................................................................................2 42 U.S.C. § 1395x(s) .......................................................................................................................2 42 U.S.C. § 1395oo ...............................................................................................................4, 8, 14 42 U.S.C. 1395ww ............................................................................................................... passim Legislative Materials S. Rep. No. 752, 79th Cong., 1st Sess. 26 (1945) .........................................................................11 Administrative and Executive Materials 42 C.F.R. § 405.1801(b)(1) .............................................................................................................4 42 C.F.R. § 405.1803 ......................................................................................................................4 42 C.F.R. § 412.2(a) ......................................................................................................................17 42 C.F.R. § 412.3(d)(1) ...................................................................................................................5 42 C.F.R. § 412.60 ..........................................................................................................................2 42 C.F.R. § 412.64 ..........................................................................................................................3 42 C.F.R. § 413.24(f) ......................................................................................................................4 42 C.F.R. § 424.44 ........................................................................................................................14 Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Fiscal Year 2014 Rates; Quality Reporting Requirements for Specific Providers; Hospital Conditions of Participation; Payment Policies Related to Patient Status, 78 Fed. Reg. 50,496 (Aug. 19, 2013) ........................................................................................4 Medicare Program; Inpatient Prospective Payment Systems; 0.2 Percent Reduction, 80 Fed Reg. 75,107 (Dec. 1, 2015) ...........................................................................................5 Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 5 of 31 v Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates; Quality Reporting Requirements for Specific Providers; Graduate Medical Education; Hospital Notification Procedures Applicable to Beneficiaries Receiving Observation Services; and Technical Changes Relating to Costs to Organizations and Medicare Cost Reports, 81 Fed. Reg. 24,946 (Apr. 27, 2016) ...................................................................................6, 20 Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2017 Rates; Quality Reporting Requirements for Specific Providers; Graduate Medical Education; Hospital Notification Procedures Applicable to Beneficiaries Receiving Observation Services; Technical Changes Relating to Costs to Organizations and Medicare Cost Reports; Finalization of Interim Final Rules With Comment Period on LTCH PPS Payments for Severe Wounds, Modifications of Limitations on Redesignation by the Medicare Geographic Classification Review Board, and Extensions of Payments to MDHs and Low-Volume Hospitals 81 Fed. Reg. 56,762 (Aug. 22, 2017) ............................................................................. passim Other Authorities Dep’t of Health & Human Services, Center for Medicare & Medicare Services, Inpatient Prospective Payment System Final Rule for Fiscal Year 2017 https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-18476.pdf ..................6 Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 6 of 31 1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA SHANDS JACKSONVILLE MEDICAL ) CENTER, INC. et al., ) ) Plaintiffs, ) ) v. ) No. 1:14-cv-263 ) (consolidated) THOMAS E.PRICE, M.D., ) Secretary of Health and Human ) Services,2 ) ) Defendant. ) ___________________________________ ) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT’S MOTION FOR SUMMARY JUDGMENT AND OPPOSITION TO PLAINTIFFS’ MOTIONS FOR SUMARY JUDGMENT Introduction The Athens and Bakersfield plaintiffs’ separate challenges to the legality of the Secretary’s action in response to the Court’s remand order should be rejected by the Court. The Athens plaintiffs’ argument that the Court should remand and order consideration of a retroactive upward adjustment in the standardized amount finds no support in the administrative record and is inconsistent with the prospective nature of the Medicare reimbursement system. The Bakersfield plaintiffs’ objection to the Secretary’s one-time 0.6 percent upward adjustment in Fiscal Year 2017 is also inconsistent with Medicare’s prospective nature and fails to demonstrate that the Secretary’s remedial approach was unreasonable. Instead, the Court should grant defendant’s Motion for Summary Judgment as to these parties’ claims. 2Pursuant to Fed. R. Civ. P. 25(d), Secretary Price is substituted as the defendant in his official capacity. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 7 of 31 2 STATUTORY AND REGULATORY BACKGROUND Title XVIII of the Social Security Act, commonly known as the Medicare statute, see 42 U.S.C. §§ 1395 et seq., establishes a federal health insurance program for the elderly and disabled – the Medicare program. See id. § 1395c. Medicare Part A provides beneficiaries coverage for inpatient hospital services. Id. § 1395d(a). Medicare Part B supplements Part A and covers, among other things, physicians’ services and hospital outpatient services. See id. §§ 1395k(a)(2)(B), 1395x(s)(1), (2)(B). Responsibility for determining the amount of these payments has been entrusted by Congress to the Secretary of Health and Human Services, who, in turn, has delegated that authority to the Centers for Medicare & Medicaid Services (“CMS”). A. The Medicare Hospital Inpatient Prospective Payment System (“IPPS”) The Medicare program generally does not reimburse hospitals for the actual operating costs that they incur in providing inpatient care. Instead, most hospitals are paid fixed rates under a methodology known as the “inpatient prospective payment system” (“IPPS”). See County of Los Angeles v. Shalala, 192 F.3d 1005, 1008 (D.C. Cir. 1999); 42 U.S.C. § 1395ww(d). The calculations to establish prospective payment rates are performed annually through extensive and complex rulemakings to establish both inpatient and outpatient prospective payment policy under Medicare. Payment under the IPPS is governed by a complex statutory and regulatory regime. In general, IPPS pays hospitals based on the primary diagnosis of each specific patient they discharge from inpatient care. See 42 U.S.C. § 1395ww(d)(3)(D)(iii). Each patient diagnosis has a corresponding Diagnosis-Related Group (“DRG”) “ to which CMS has assigned a numeric weight reflecting the amount of resources needed, on average, to treat a patient with the corresponding diagnosis,” relative to other diagnoses. Florida Dep’t of Legal Affairs v. Tenet Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 8 of 31 3 Healthcare Corp., 420 F. Supp. 2d 1288, 1293 (S.D. Fla. 2005); see 42 U.S.C. § 1395ww(d)(4); 42 C.F.R. § 412.60. Hospitals receiving IPPS payments are paid what the regulations call the “federal rate,” (42 C.F.R. § 412.64), and the statute calls the “national adjusted [diagnosis related group] payment rate,” (42 U.S.C. § 1395ww(d)(1)(A)(iii)(I)), for each Medicare beneficiary they discharge. The methodology for calculating the federal rate is the same across hospitals paid under this method, but the final amount a given hospital receives varies. The starting point in calculating a hospital’s payment under the federal rate is the “average standardized amount” for the current year. See 42 U.S.C. § 1395ww(d)(3)(A). The standardized amount is “based on the average resources used to treat cases in all DRG’s,” Florida, 420 F. Supp. 2d at 1294, and is adjusted each year for inflation base on the percentage increase in the hospital “market basket,” which is a price index used by the Secretary to measure the costs of hospital goods and services. Nat’l Hospice & Palliative Care Org. v. Weems, 587 F. Supp. 2d 184, 188 n.3 (D.D.C. 2008); see 42 U.S.C. § 1395ww(b)(3)(B)(ii)(VIII), ((iii), (d)(3)(A); 42 C.F.R. § 412.64(d). The DRG budget neutrality adjustment for the current year is then applied, see 42 U.S.C. 1395ww(d)(4)(c)(iii),3 together with other statutory adjustments, see 42 U.S.C. § 1395ww(d)(3)(B)-(C), (E). The Medicare statute also authorizes the Secretary to “provide by regulation for such other exceptions and adjustments . . . as the Secretary deems appropriate.” 42 U.S.C. 3 This factor requires that any adjustments the Secretary makes to DRG classifications and weighting attributable to “changes in treatment patterns, technology . . . and other factors which may change the relative use of hospital resources” be “made in a manner that assures that the aggregate payments under this subsection for discharges in the fiscal year are not greater or less than those that would have been made for discharges in the year without such adjustment.” 42 U.S.C. § 1395ww(d)(4)(c)(i), (iii). Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 9 of 31 4 § 1395ww(d)(5)(I)(i). This provision has been characterized as a “broad spectrum grant of authority to ensure all hospitals” are treated equitably. Adirondack Med. Ctr.. v. Sebelius, 740 F.3d 692, 694 (D.C. Cir. 2014). In Adirondack, the Court recognized that section 1395ww(d)(5)(I)(i) would apply where narrower grants of adjustment authority did not reach, since it “fills a space that the specific provisions do not occupy.” Id. at 699. ADD To calculate the payment amount for a particular discharged beneficiary, the amount following the adjustments described above is further adjusted to reflect the average resources associated with treating that beneficiary, using the applicable DRG weighting factor. See 42 U.S.C. § 1395ww(d)(3)(D). The final product of that calculation is the hospital’s federal rate payment for the beneficiary. B. Judicial Review of Medicare Claim Denials. Hospitals submit claims for payment to CMS for each discharged patient covered by Medicare. Hospitals then submit cost reports at the end of each Fiscal Year (“FY”) to Medicare contractors, generally private insurance companies acting on behalf of the Secretary. See 42 U.S.C. § 1395h(a); 42 C.F.R. §§ 405.1801(b)(1), 413.24(f). Working from the hospitals’ as- submitted cost report, the contractor determines the total payment due the hospital for the period covered by the report and issues a Notice of Program Reimbursement (“NPR”), informing the provider how much it should have been paid for that particular period. 42 C.F.R. § 405.1803. Hospitals dissatisfied with an NPR must first appeal to the Provider Reimbursement Review Board (“PRRB”). If denied by the PRRB, or the Secretary if he chooses to review a decision of the PRRB, the hospital may seek judicial review of the final decision under the standards of the Administrative Procedure Act (“APA”). See 42 U.S.C. § 1395oo(f)(1) (incorporating 5 U.S.C. §§ 701–706). Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 10 of 31 5 FACTUAL AND PROCEDURAL BACKGROUND In 2013, CMS established a “two-midnight” benchmark, under which hospital stays extending over two midnights would presumptively be treated as inpatient cases, thereby qualifying for greater payments under Medicare Part A. 78 Fed. Reg. 50,496, 50,965 (Aug. 19, 2013), codified as amended at 42 C.F.R. § 412.3(d)(1). Previously, many such short hospitalization stays were treated as outpatient cases, and qualified only for lesser payments under Part B. CMS anticipated that its new policy would lead to increased payments to providers, and it exercised its “exceptions and adjustments” authority under 42 U.S.C. § 1395ww(d)(5)(I)(i) to impose a downward adjustment of 0.2 percent on all IPPS payments for FY 2014. CMS retained this adjustment in its 2015 and 2016 IPPS rules, applicable to those Fiscal Years. A number of hospitals brought suit in this Court to challenge the adjustment, asserting that CMS lacked statutory authority under section 1395ww(d)(5)(I)(i) to adopt the adjustment and that the agency had acted arbitrarily. Those suits were consolidated, with Shands Jacksonville Medical Center v. Burwell, (D.D.C. No. 14-263), as the lead action. On September 21, 2015, this Court entered a decision partially granting the plaintiffs’ motions for summary judgment. Shands Jacksonville Med. Cent. v. Burwell, 139 F. Supp. 3d 240 (D.D.C. 2015). The Court held that CMS had the statutory authority to impose the adjustment under its “exceptions and adjustments” authority, id. at 260, but that CMS had not adequately explained the data on which it relied in calculating the 0.2% adjustment in advance of the notice-and-comment period, id. at 266. The district court declined to vacate the 2014 rule, on the condition that CMS proceed promptly to re-open a comment period for the rule and issue a new decision within six months. Id. at 270. CMS published a notice describing, in greater detail, the basis for the decision to adopt the 0.2 percent downward adjustment and requesting public comment in 60 days. 80 Fed Reg. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 11 of 31 6 75,107 (Dec. 1, 2015). After reviewing the comments received, and the updated analysis provided by CMS actuaries and other staff, CMS tentatively concluded that “relatively small changes would have a disproportionate effect on the estimated net costs, the estimate was subject to a much greater degree of uncertainty than usual, and the actual results could differ significantly from the estimate. 81 Fed. Reg. 24,969, 25,137-38 (Apr. 27, 2016), A.R. 265-66. CMS noted that its most recent analysis showed that the impact of the rule had varied from a reduction in Medicare inpatient payments in the first year to an underestimated increase in the second year. Id. Furthermore, CMS noted that while its original estimate was reasonable at the time it was made, statutory, regulatory, and operational changes to the two midnight rule since that time had created a much greater degree of uncertainty than could have been anticipated and that made it very difficult to continue to estimate the impact of the rule. Id. Consequently, CMS used the rulemaking proceedings on the Fiscal Year 2017 IPPS rule as a vehicle to issue its decision in response to the Court’s Remand Order, providing the public with an additional opportunity to comment on the issues in the remand and Secretary’s proposed response to the remand order. That rule finalized Defendant’s proposal to remove the 0.2 percent downward adjustment for FY 2017 and future years. CMS also exercised its discretionary authority under 42 U.S.C. § 1395ww(d)(5(I)(i) to adopt a one-time upward adjustment in the IPPS rate for FY 2017 of 0.6% to “address the effects” of the 0.2 percent downward adjustment that had been applied in FY 2014, 2015 and 2016. 81 Fed. Reg. 56,7662, 57,059 (Aug. 22, 2016).4 CMS recognized that this approach would not precisely match the amount each hospital lost due to the downward adjustment over three Fiscal Years because some would be over-compensated, some under-compensated, but CMS concluded that this was “the 4 The IPPS final rule for FY 2017 was posted electronically on August 1, 2016. https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-18476.pdf. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 12 of 31 7 most transparent, expedient, and administratively feasible method to accomplish” its goal. 81 Fed. Reg. at 57,059. PLAINTIFFS’ CLAIMS After several months of settlement discussions, the course of which was generally described in periodic reports to the Court, see e.g. Dkt. 61, 62, 63, the Athens and Bakersfield plaintiffs5 elected to pursue their separate challenges to the CMS remand order. Defendant does not challenge the Court’s jurisdiction to consider these separate challenges to defendant’s decision on remand. The Athens plaintiffs allege that the information that their counsel (King & Spalding) provided in annual comments supports the conclusion that not only was the downward adjustment unsupportable, but instead there should have been a substantial upward adjustment, presumably in all of the years in which King & Spalding provided comments arguing for an upward adjustment. Athens Regional Motion for Summary Judgment (“Athens MSJ”), Dkt. 84, at 18-24.6 The Bakersfield plaintiffs argue that the Secretary’s one-time 0.6 percent upward adjustment may be insufficient to compensate hospitals and that instead, “the Secretary [should] be required to pay hospitals the amount of money hospitals lost for FY 2014-2016 due to the 0.5 percent payment reduction.” Bakersfield Plaintiffs’ Renewed Motion for Summary Judgment (“Bakersfield MSJ”), Dkt. 82, at 22.7 5 The Athens plaintiffs are the plaintiffs in Athens Regional Medical Center, et al. v. Burwell, (D.D.C. No.14-503). The Bakersfield plaintiffs are identified in footnote 1 of the Bakersfield motion, Dkt. 82. 6 Although the Athens MSJ is vague on the point, it appears that they are arguing for a retroactive upward adjustment applicable to Fiscal Years 2014-2016, as well as prospectively. 7 The Bakersfield plaintiffs identify three alternative forms of relief that they would seek. First, they seek a payment equal to “the amount of money hospitals lost for FY 2014-2016 due to the 0.2 percent payment reduction. Bakersfield MSJ at 22. In the alternative, they seek that amount “minus any amounts already paid” as part of the one-time 0.6 percent upward adjustment in FY 2017. Id. at 21. Finally, they also “join the request for relief sought by” the Athens plaintiffs. Id. at n. 9. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 13 of 31 8 The Secretary filed the Administrative Record (“AR”) of her action on remand on February 22, 2017, Dkt. 76. ARGUMENT STANDARD OF REVIEW Ffinal decisions denying claims for Medicare provider reimbursement are subject to the judicial review under the Administrative Procedure Act (“APA”). 42 U.S.C. § 1395oo(f)(1). Under the “arbitrary and capricious” standard, 5 U.S.C. § 706(2)(A), as applied in the typical APA action, the reviewing court should reverse only “if the agency has relied on factors which Congress has not intended it to consider, [has] entirely failed to consider an important aspect of the problem, [or has] offered an explanation for [that] decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983); see also Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). Review under the arbitrary and capricious standard is searching and careful, but narrow. Marsh v. Or. Nat. Res. Council, 490 U.S. 360, 377-78 (1989). “The ‘arbitrary and capricious’ standard deems the agency action presumptively valid provided the action meets a minimum rationality standard.” Sierra Club v. EPA, 353 F.3d 976, 978 (D.C. Cir. 2004) (citation omitted). A. The FY 2017 Final IPPS Rule Prospectively “Removed” the 0.2 Percent Downward Adjustment and Hence there is Nothing for the Court to “Vacate”. Both the Bakersfield and Athens plaintiffs devote an extensive portion of their briefs demolishing a straw man. Both sets of plaintiffs renew their attack the reasonableness of the initial agency decision to adopt the 0.2 percent downward adjustment, Bakersfield MSJ at 2-8; Athens MSJ at 18-19, argue that a further remand without vacatur is not justified, Bakersfield MSJ at 8-13; Athens MSJ at 26-27, and finally insist that the Court must enter an order “vacating” the 0.2 percent downward adjustment, Bakersfield MSJ at 13-21; Athens MSJ at 27. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 14 of 31 9 But, of course, defendant has already expressly withdrawn the 0.2 percent downward adjustment that prompted this litigation in the FY 2017 final IPPS rule, and hence there is nothing left for the court to “vacate.”8 Plaintiffs’ confusion about the status of the 0.2 percent downward adjustment is reflected in the Athens plaintiffs’ discussion of the Court’s standard of review of the agency’s action on remand. See Athens MSJ at 17-18. The Athens plaintiffs cite with approval Circuit authority warning that in acting on a remand, “we must recognize the danger that an agency, having reached a particular result, may become so committed to that result as to resist engaging in any genuine reconsideration of the issues.” Food Marketing Institute v. ICC, 587 F.2d 1285, 1290 (D.C. Cir. 1978). That, of course, is the precise opposite of what has occurred. Here, far from resisting any “genuine reconsideration,” CMS accepted and reviewed additional public comments, considered many other changes affecting hospital admission rates since 2014 and then reversed course, withdrawing the downward adjustment. 81 Fed. Reg. at 57,058-60. That action can scarcely be characterized as a failure “to comply with this Court’s remand order,” Athens MSJ at 17, and indeed underscores the reasonableness of CMS’s response. The discussion of this issue in the FY 2017 IPPS rule removes all doubt that CMS has removed the 0.2 percent downward adjustment in that Rule. The preamble accompanying the final FY 2017 IPPS rule discussed the history of the 0.2 percent downward adjustment, the remand order in this litigation and in particular, the difficulty CMS had in attempting to predict the actual impact of the 2-midnight policy independent of other statutory and regulatory changes affecting inpatient admissions. 81 Fed. Reg. at 57,059-60. Based upon analysis by CMS’s 8 Plaintiffs occasionally recognize reality, as when the Bakersfield plaintiffs admit that after remand, “the Secretary abandoned defense of the rate reduction.” Bakersfield MSJ at 9. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 15 of 31 10 Office of the Actuary, CMS noted that “relatively small changes” in inpatient and outpatient admissions “would have a disproportionate effect on the estimated net costs,” and therefore “the estimate was subject to a much greater degree of uncertainty than usual.” 81 Fed. Reg. at 56,059. Public comments received in response to the December 1, 2015 remand notice made the same point. Consequently, CMS elected to “prospectively remove” the downward adjustment: Nevertheless, taking all the foregoing factors into account, we stated in the FY 2017 IPPS/LTCH PPS proposed rule that we believe it would be appropriate to use our authority under sections 1886(d)(5)(I)(i) and 1886(g) of the Act to prospectively remove, beginning in FY 2017, the 0.2 percent reduction to the rates put in place beginning in FY 2014. Id. (emphasis added). In effect, CMS unconditionally and unequivocally terminated the 0.2 percent downward adjustment. Consequently, there is no need for the Court to revisit plaintiffs’ argument opposing the now-withdrawn adjustment or to “vacate” any provisions of the Fiscal Year 2014, 2015 and 2016 IPPS rules. B. The “Exceptions and Adjustments” Authority in Section 1395ww(d)(5)(I)(i) Is Committed to Agency Discretion by Law The Athens plaintiffs profess to be dissatisfied with the Secretary’s decision to remove the 0.2 percent downward adjustment prospectively, and to give effect to the removal of that adjustment for FY 2014 through FY 2016 by providing for a one-time upward adjustment of 0.6 percent for FY 2017. They assert that the two-midnight rule had actually cost hospitals money (by resulting in a shift of patients from inpatient to outpatient status, where reimbursement rates are significantly lower), and ask the Court to “direct the agency to consider whether to issue a rate increase consistent with the King & Spalding comments and data.” Athens MSJ at 28.9 Plaintiffs fail to meet their burden to explain the legal basis for their challenge, and that is reason enough for this Court to deny it. But it is possible that they mean to argue that the Court should 9 The Bakersfield plaintiffs seek the same relief, but do not present any argument in support of that claim, merely seeking to piggyback on the arguments of the Athens plaintiffs. Bakersfield MSJ at 2. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 16 of 31 11 compel the Secretary to exercise his adjustments and exceptions authority under 42 U.S.C. § 1395ww(d)(5)(I)(i). That “broad spectrum grant of authority,” Adirondack, 740 F.3d at 694, authorizes the Secretary to make “such other exceptions and adjustments to such payment amounts under this subsection as the Secretary deems appropriate.” 42 U.S.C. § 1395ww(d)(5)(I)(i). (emphasis added). An important limitation on the APA’s waiver of sovereign immunity is contained in 5 U.S.C. § 701(a)(2) which bars APA review of agency action to the extent that the agency action is “committed to agency discretion by law.” Section 701(a)(2) applies “in those rare instances where 'statutes are drawn in such broad terms that in a given case there is no law to apply.” Overton Park, 401 U.S. at 410 (quoting S. Rep. No. 752, 79th Cong., 1st Sess. 26 (1945)). In Heckler v. Chaney, 470 U.S. 821 (1985), the Court further explained that §701(a)(2) provides that “review is not to be had if the statute is drawn so that a court would have no meaningful standard against which to judge the agency’s exercise of discretion.” Id. at 830. “In such a case, the statute (‘law’) can be taken to have ‘committed’ the decision making to the agency’s judgment absolutely.” Id. See also Lincoln v. Vigil, 508 U.S. 182, 191 (1993); Webster v. Doe, 486 U.S. 592, 599-600 (1988). The “deems appropriate” language in section 1395ww(d)(5)(I)(i) is precisely the sort of vague statutory formulation that courts have routinely held to be unreviewable. For example, in Steenholdt v. FAA, 314 F.3d 633 (D.C. Cir. 2003), the Court considered a challenge to the decision of the Federal Aviation Administration (“FAA”) to terminate the authority of the plaintiff to certify aircraft as compliant with FAA requirements. Because the FAA elected not to renew that authority pursuant to a regulation that authorized termination “[f]or any reason the Administration considers appropriate,” the Court held that the agency’s authority was “drawn in such broad terms that . . . there is no law to apply.” Id. at 638 (quoting Overton Park, 401 U.S. at 410). Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 17 of 31 12 In numerous other cases, the Court of Appeals has consistently applied section 701(a)(2) to bar judicial review where the statute that a plaintiff seeks to enforce provides no judicially- manageable standards to determine if agency action is arbitrary and capricious. See e.g. NTCH, Inc. v. FCC, 841 F.3d 497, 502-04 (D.C. Cir. 2016) (FCC decision not to initiate license revocation proceedings unreviewable as “equivalent” to a decision not to initiate an enforcement action); Oil, Chemical & Atomic Workers v. Richardson, 214 F.3d 1379, 1382 (D.C. Cir. 2000) (adequacy of agency’s contract enforcement not reviewable); Claybrook v. Slater, 111 F.3d 904, 908 (D.C. Cir. 1993) (“Adjourning a meeting in ‘the public interest’ is the kind of decision that resists judicial review”). In contrast, in Marshall County Health Care Auth. v. Shalala, 988 F.2d 1221 (D.C. Cir. 1993), the Court of Appeals addressed a separate provision that accorded “exceptions and adjustments” authority to the Secretary as he “deems appropriate to take into account the special needs of regional and national referral centers,” 42 U.S.C. § 1395ww(d)(5)(C)(i). The Court described that provision as “a broad delegation of discretion to the Secretary,” but rejected the government’s section 701(a)(2) argument. The Court held that the agency’s exercise of its adjustment authority there was reviewable, because elsewhere in that statute “Congress has provided a rather specific norm – the OMB model – to guide the Secretary’s judgment concerning the definition of urban areas.” Marshall County, 988 F.2d at 1224. The rationale for the decision only demonstrates why the Athens plaintiffs’ argument for a retroactive adjustment here does not does not provide the necessary “judicially manageable standards” to permit APA review. The adjustment that plaintiffs ask the Secretary to make is dramatically different than that in Marshall County. The adjustment in Marshall County presented a narrow issue, where the discretionary authority that Congress granted to the Secretary allowed only the binary choice of treating a provider as urban or as rural. The Secretary made a choice, and Marshall County Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 18 of 31 13 allowed review of that decision. This is analogous to this Court’s review of the Secretary’s decision to employ the open-ended exceptions and adjustment authority in the context of implementing the 0.2% reduction, but is very different from the Secretary’s decision to not continue to use that authority. Furthermore, by directing the government to use the OMB model as its guideline, 42 U.S.C. § 1395ww(d)(2)(D), that provision of the Medicare statute provided the court with sufficient “law to apply” to make an informed determination of the reasonableness of the agency’s decision. Here, by contrast, the Secretary is considering the dozens of provisions (primarily contained in 42 U.S.C. § 1395ww(d)(2) through (d)(5)) that must be applied to determine the standardized amount, the polestar for calculating inpatient reimbursement rates. The Secretary must consider and weigh virtually all of the elaborate provisions of the Medicare statute governing inpatient reimbursement rates with no Congressional guidance as to how those many factors should be weighed or balanced to support an adjustment. The exceptions and adjustments authority under section 1395ww(d)(2)(I), unlike the provision at issue in Marshall County, does not meaningfully constrain the Secretary’s discretion in the decision of whether to impose an adjustment. Consequently, here, unlike in Marshall County, there are no judicially-manageable standards for the court to determine whether, for example, the decision by CMS not to reopen prior years to increase inpatient reimbursement rates, or to provide a smaller upward adjustment than plaintiffs seek, constitutes a reasonable exercise of agency discretion. C. Defendant Acted Reasonably in Adopting a One-Time Upward Adjustment of 0.6 Percent in the FY 2017 Final IPPS Rule to Address the Effect of the Prior Downward Adjustment. As discussed in Argument A, given its recognition that the 0.2 percent downward adjustment “had a much greater degree of uncertainty than usual,” 81 Fed. Reg. at 57,059, CMS elected to “prospectively remove” the downward adjustment in reimbursement rates beginning in FY 2017. Id. CMS also elected to use its section 1395ww(d)(5)(I)(i) adjustment authority to Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 19 of 31 14 “address the effect” of the 0.2 percent downward adjustment in Fiscal Years 2014, 2015 and 2016 – effectively to “reimburse” hospitals for the reduced payments received in those years due to the downward adjustment. In effectuating that relief, CMS could have taken the approach demanded by the Bakersfield plaintiffs – calculate the precise amount that each of the roughly 3,000 hospitals receiving Medicare payments “lost” due to the downward adjustment in each of Fiscal Years 2014, 2015 and 2016. However, for a variety of reasons, that exercise would have been exceedingly complex, time-consuming and administratively burdensome. Moreover, due to the time required to appeal claim denials and to respond to audits, the total amount “lost” to hospitals could not have been definitively determined for several years.10 Therefore, it would be still be months or, more likely, years before HHS could complete the type of audit requested by the Bakersfield plaintiffs. Instead, CMS elected a different means to effectuate this “reimbursement.” In contrast to the time-consuming and resource-intensive approach the Bakersfield plaintiffs advocate, which would require recalculation of every inpatient claim payment for every plaintiff for Fiscal Years 2014 through 2016, CMS concluded that a single year, percentage- based upward adjustment was “the most transparent, expedient and administratively feasible method to accomplish this is a temporary one-time prospective increase to the FY 2017 rates to 0.6 percent.” 81 Fed. Reg. at 57,059. This “rough justice” approach admittedly will not precisely identify the adverse effect on each hospital of the downward adjustment in each of the three years at issue and hence some may be over-compensated and others under-compensated. CMS recognized that “these differential impacts are an appropriate consequence” of its use of the 10The 0.2 percent downward adjustment was in effect through federal Fiscal Year 2016, which ended on September 30, 2016. Under 42 C.F.R. § 424.44, hospitals have one year after a discharge to submit a claim for payment. Therefore, claims for payment for inpatient services occurring through 2016 could be filed as late as through September, 2017, and would not be paid until sometime after that. Moreover, once a claim has been submitted, the Secretary could deny payment in part or in total. That decision is subject to both administrative and judicial appeal, 42 U.S.C. §§ 1395ff(b), 1395oo(f)(1), a process that usually takes years to resolve. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 20 of 31 15 0.6 percent formula, i.e., that administrative precision is not always required to effectuate a reasonable monetary remedial scheme. In exercising its highly discretionary authority under section 1395ww(d)(5)(I)(i) in this manner, CMS was certainly not arbitrary or capricious. The Court of Appeals has specifically affirmed that this type of “rough justice” approach under the APA generally, and in the Medicare context in particular, constitutes a reasonable approach to making any necessary retroactive adjustment for the common sense reason that “any minor errors will tend to balance out in the end.” Chaves Cty. Home Health Service, Inc. v. Sullivan, 931 F.2d 914, 919 (D.C. Cir. 1991). The Chaves Court recognized the “potential for unfairness in the abstract in particular cases” but again recognized “that any arbitrariness evens out in the long run.” Id. See also Ratanasen v. Calif. Dept. of Health Servs., 11 F.3d 1467, 1471 (9th Cir. 1993). United States v. Life Care Ctr. of Am., Inc, 114 F.Supp.3d 549, 560 (E.D. Tenn. 2014) (statistical sampling acceptable in False Claims Act action). Moreover, as discussed in more detail in Argument D below, the central rationale of the IPPS payment methodology is that hospitals are not reimbursed dollar-for-dollar based on their actual costs. Consistent with that principle, the .02 percent downward adjustment was not calculated or applied in such a fashion. It was not an attempt to reduce payment on a hospital- specific basis depending on how much an individual provider’s reimbursement would increase by reason of the 2-midnight policy; rather, it was applied as a single adjustment to every hospital’s standardized amount to account for increased IPPS payments system-wide. It was certainly not unlawful for CMS to make the remedial payments required by its decision on remand in a similar fashion. The Bakersfield plaintiffs’ reliance on Cape Cod Hosp. v. Sebelius, 630 F.3d 203 (D.C. Cir. 2011) and Tallahassee Mem. Regional Med. Ctr. v. Bowen, 815 F.2d 1435 (11th Cir. 1987) for the proposition that a case is not moot where the agency’s subsequent action does not provide complete financial “compensation” for underpayments in a prior year, Bakersfield MSJ at 18-21, Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 21 of 31 16 mis-understands the nature of the Secretary’s remedial action. In each of those cases, the Court specifically found that, as noted in Cape Cod, “the 2008 rule in no way compensated for any underpayments that might have been made in 2007,” 630 F.3d at 210; see also Tallahassee Mem., 815 F.3d at 1450, presupposing an entitlement to a complete repayment. But here the Secretary has specifically undertaken to make such compensation. The question presented is simply whether the method she has chosen to do so is lawful. Defendant recognizes that after several years of audits some hospitals might be found to have received less under the Secretary’s 0.6 percent remedial approach than they actually “lost” due to the 0.2 percent downward adjustment. And likely other hospitals might be found to have received more. But the fact that the amounts may not reconcile perfectly does not render the Secretary’s remedial approach, adopted through the exercise of his discretionary adjustment authority, arbitrary or capricious, particularly in this unique context.11 Thus, CMS acted reasonably in exercising its discretionary adjustment authority under section 1395ww(d)(5)(I)(i) to provide a fair “reimbursement” to hospitals for sums withheld during the three Fiscal Years that the 0.2 percent downward adjustment was in effect. D. Under Medicare’s prospective payment system, there is a presumption against making retroactive adjustments to Medicare payment rates as requested by the Plaintiffs. The fundamental rationale of the prospective payment system, adopted for Medicare by Congress in 1983, was to avoid the complications of attempting to make repeated adjustments based on past events in exchange for a system that would ensure finality and predictability in payments. See, e.g., Washington Hosp. Center v. Bowen, 795 F.2d 139, 148 (D.C. Cir. 1986) 11 The cases are also inapt because the Secretary is not contending that the Bakersfield plaintiffs’ challenge to the Secretary’s remedial approach is moot. The Secretary acknowledges that those plaintiffs can challenge that approach here. The Secretary’s position is not that the issue has been mooted, but rather, again, simply that the remedial approach he has chosen is lawful. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 22 of 31 17 (“Because the key to the PPS system is the hospital’s advance knowledge of the amount of payment it will receive, payment rates must be determined with finality prior to the beginning of the hospital’s cost year.”). The D.C. Circuit explained this rationale in one of its earliest decisions affirming this policy. . . . hospitals, like other businesses, do make projections about future costs and service levels based on their experience and historical patterns. To the extent that the Secretary’s prospectivity policy permits hospitals to rely with certainty on one additional element in the PPS calculation rate – the wage index value – the Secretary could reasonably conclude that it will promote efficient and realistic cost-saving targets. Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1232 (D.C. Cir. 1994). See also Georgetown Univ. Hosp. v. Bowen, 862 F.2d 323, 324 (D.C. Cir. 1988) (“IPPS establishes prospectively fixed rates that do not vary according to cost in individual cases”).12 Most recently, the Court of Appeals reaffirmed that “the Secretary’s policy, upheld by this court, is that retroactive corrections . . . undermine the statutory purpose to base Medicare reimbursement rates on predetermined rates.” Anna Jacques Hosp. v. Burwell, 797 F.3d 1155, 1169 (D.C. Cir. 2015) (citing Methodist Hospital). The Court noted that the Secretary acted “sensibly” in “concluding that ‘the interests in finality and administrative efficiency outweighed the value of increased accuracy.’” Id. (quoting Methodist Hospital). The Court also recognized that one retroactive adjustment, years after the events in question, could lead to the need for other retroactive adjustments (for reasons of budget neutrality, among others), which could “profoundly unsettle[e] the system and the reliance interests of countless hospitals nationwide.” Id. 12 Indeed, where the Medicare statute refers to the prospective payment system, it describes it as “the DRG prospective payment rate.” E.g. 42 U.S.C. §§ 1395ww(d)(1)(A)(i)(II); 1395ww(d)(1)(A)(ii)(II). The Secretary’s regulations further reinforce this point. E.g. 42 C.F.R. § 412.2(a) (“Under the prospective payment system, hospitals are paid a predetermined amount per discharge for inpatient hospital services furnished to Medicare beneficiaries.”). Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 23 of 31 18 Notwithstanding this clear and repeated direction from the Court of Appeals, both the Athens and Bakersfield plaintiffs ask the Court to order a remand to the Secretary to exercise his highly discretionary authority under section 1395ww(d)(5)(I)(i) to ignore the fundamental principle of the prospective payment system and instead enter into a series of elaborate, retroactive recalculations of claims incurred over three Fiscal Years, offset by claims submitted in one Fiscal Year, and further altered by additional years of appeals and re-determinations. Specifically, the Athens plaintiffs ask for a remand and an order to “direct the agency to consider whether to issue a rate increase consistent with the King & Spalding comments and data.” Athens MSJ at 28.13 The Bakersfield plaintiffs ask that defendant “pay hospitals the amount of money hospitals lost for FY 2014-2016 due to the 0.2 percent payment reduction,” Bakersfield MSJ at 22, or, in the alternative, to join in the relief sought by the Athens plaintiffs, id. at 22, n. 9. Neither plaintiff group has offered a viable justification for making such an unprecedented retroactive adjustment. As noted, CMS has broad discretion in its exercise of the adjustment authority in 42 U.S.C. § 1395ww(d)(5)(I)(i). Adirondack Med. Ctr, 740 F.3d at 700 (describing the statute as “handing [the Secretary] a palette sufficiently sophisticated to capture the full spectrum of . . . possibility”); Marshall County, 988 F.2d at 1224 (“the language and structure of the statute suggest a broad delegation of authority to the Secretary”). In these highly unusual circumstances, the plaintiffs asked the Secretary to exercise her discretionary adjustment authority under section 1395ww(d)(5)(I)(I) to make complex and highly unusual retroactive 13 Since the Athens plaintiffs have argued in their comments that hospitals have been adversely affected in each of the past four fiscal years, we interpret their motion, in seeking an adjustment “consistent” with those comments, to seek a retroactive upward adjustment. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 24 of 31 19 adjustments to IPPS rates over three years. In declining to accept that invitation, CMS was certainly not arbitrary or capricious. E. The Secretary Acted Reasonably in Declining to Make the Upward Adjustment Requested by the Athens Plaintiffs. The primary claim of the Athens plaintiffs is that the failure of CMS to adopt an upward adjustment on remand (presumably retroactive to FY 2014 when the two-midnight rule went into effect) was arbitrary and capricious. Athens MSJ at 18-24. Therefore, the Athens plaintiffs contend, the case is not moot because they continue to challenge the failure to provide an upward adjustment to account for the impact of the 2-midnight rule. Id. at 15-16. But their challenge to the original downward adjustment is clearly moot, as that ruling has been withdrawn by CMS. The only remaining issue is the legality of the decision on remand, incorporated in the final FY 2017 IPPS rule, not to adopt a retroactive, upward adjustment. The Athens plaintiffs contend that as a result of the 2-midnight rule, there was “a substantial net decrease in inpatient admissions far greater than the net increase CMS predicted.” Athens MSJ at 18. In particular, plaintiffs point to actual claims data for FY 2014 and 2015 which show, they contend a 6.7% drop in inpatient admissions in FY 2015 compared to FY 2013. Id. at 21. But the actual data were more ambiguous, as CMS noted that “our actuaries’ most recent estimate of the impact of the 2-midnight policy varies between a savings and a cost over the FY 2014 to FY 2015 time period.” 81 Fed. Reg. at 57,059.14 But even if there was a slight drop in inpatient admissions after the adoption of the 2-midnight policy, plaintiffs point to no basis for concluding that this was caused by the 2-midnight policy as opposed to any of the 14In fact, there was a 0.13 percent reduction in inpatient admissions in FY 2014, while there was a 0.38 percent increase in FY 2015 over the prior year. AR at 1095. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 25 of 31 20 many other changes in Medicare reimbursement policies during the same time period. In short, plaintiffs confuse correlation with causation. The Medicare program is constantly evolving with new legislation, program changes and judicial rulings reflected in the extensive and often very significant changes adopted in the detailed and complex annual IPPS and Outpatient Prospective Payment System rules (typically over 500 Federal Register pages). The CMS response to the Court’s remand Order recognized the many factors that bear on the question of patient status: The underlying question of patient status, which resulted in the creation of the 2-midnight policy, is a complex on with a long history, including large improper payment rates in short-stay hospital inpatient claims, requests to provide additional guidance regarding the proper billing of those services, and concerns about increasingly long stays of Medicare beneficiaries as outpatients due to hospital uncertainties about payment. 81 Fed. Reg. at 57,058. During the period that the 2-midnight rule has been in effect (FY 2014 through the present) there have been many other significant changes in Medicare inpatient admissions policies that would also have contributed to a reduction in inpatient admissions, as well as a reduction in hospital admissions generally. In the background discussion leading up to its determination that the data was not sufficiently reliable to justify any adjustment, CMS reviewed the significant changes affecting patient admissions since the initiation of the 2- midnight policy. Id. at 57,058-59. Those changes include, among other things, a modification of the 2-midnight policy’s “rare and unusual exceptions policy” to allow payment for inpatient claims even if they do not satisfy the 2-midnight benchmark, 81 Fed. Reg. at 25,137, a new role for Quality Improvement Organizations (QIOs) in medical review of short stay inpatient claims, 81 Fed. Reg. at 57,058-59, changes to medical reviews brought about by the Protecting Access to Medicare Act of 2014, Pub. L. No. 113-93, and the Medicare Access and CHIP Reauthorization Act of 2015, Pub. L. No. 114-10. 81 Fed. Reg. at 25,137. Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 26 of 31 21 In light of these other factors affecting hospital admissions, and the inherent uncertainty of estimating how hospitals had responded to the 2-midnight policy, CMS concluded that the data was insufficient to permit reliable estimate of the independent impact of the 2-midnight rule on hospital admissions, compared to all other factors that affect admission decisions. CMS explained that in attempting to calculate the impact of the 2-midnight rule, “relatively small changes would have a disproportionate effect on the estimated net costs, [and hence] the estimate was subject to a much greater degree of uncertainty than usual.” 81 Fed. Reg. at 57,059. In light of this conclusion, CMS concluded that under these circumstances, “we no longer are confident that the effect of the 2-midnight policy on the number of discharges paid under the IPPS may be measured in this context,” and therefore “we proposed to make no adjustment . . . not to make a new adjustment.” Id. at 57,060. CMS noted that its lack of confidence in any estimate was based, in part, on “many of the reasons commenters presented to us in prior rulemaking,” 81 Fed. Reg. at 57,060, calling into question the underlying rationale for the 0.2 percent downward adjustment – or indeed any adjustment to address the effects of the 2-midnight policy. For example, one commenter noted the difficulty in making predictions about hospital behavior in response to “a payment system based on the virtually archaic ‘inpatient’ vs. ‘outpatient’ status definitions which are now relevant only because the payment system was set up that way many years ago.” AR at 5573. Another commenter stressed the uncertainty caused by “the many assumptions associated with other aspects of the IPPS and OPPS rates (outliers for example).” AR at 5590. Certainly it was not unreasonable for CMS to conclude that it could not adopt a new estimate of the impact of the 2-midnight policy where public comments echoed the conclusions of its own staff that the Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 27 of 31 22 critical question was too uncertain to justify a further modification of the Medicare standardized amount. The Court of Appeals has recognized that it is appropriate to defer to agency judgment on the question of whether there is sufficient data to take regulatory action. “We defer to EPA’s judgments about data insufficiency, at least in the absence of further information or explanation from Petitioners regarding why deference is inappropriate.” Mexichem Specialty Resins, Inc. v. EPA, 787 F.3d 544, 559 (D.C. Cir. 2015). See also Mississippi Comm’n on Environmental Quality v. EPA, 790 F.3d 138, 155 (D.C. Cir. 2015) (“substantial deference accorded the EPA in evaluating the soundness of data available to it.”); Allied Local & Reg’l Mfrs. Caucus v. EPA, 215 F.3d 61, 71 (D.C. Cir. 2000) (“[w]e generally defer to an agency’s decision to proceed on the basis of imperfect scientific information”).15 Indeed, Plaintiffs’ argument is very similar to that presented in Mexichem Specialty Resins, where the Court of Appeals rejected a challenge to the agency’s decision not to attempt to establish a particular value during rulemaking due to “data insufficiency.” 787 F.3d at 559. Plaintiffs in that case faulted EPA for “failing to create an alternate method of measuring output” from a particular source of emissions. Id. But EPA explained that “did not have sufficient information provided from industry” to create an alternative method of measuring emissions. While plaintiffs insisted that EPA did have sufficient information, the Court held that it would defer to EPA’s judgment about whether to regulate where data was deemed to be insufficient. 15 Moreover, and more broadly, agency predictive judgments about the expected responses of an industry, such as hospitals, are entitled to particular deference. See Pub. Citizen, Inc. v. NHTSA, 374 F.3d 1251, 1260 (D.C. Cir. 2004) (deferring to “NHTSA's prediction that manufacturers will not likely reduce the protectiveness of current air bags”); Newspaper Ass’n of Am. v. Postal Regulatory Comm’n, 734 F.3d 1208, 1216 (D.C. Cir. 2013) (“When, as here, an agency is making “predictive judgments about the likely economic effects of a rule,’ we are particularly loath to second-guess its analysis.” (citation omitted)). Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 28 of 31 23 Id. See also District Hospital Partners, L.P. v. Burwell, 786 F.3d 46, 61-62 (D.C. Cir. 2015) (“even if this dataset was less than perfect, imperfection alone does not amount to arbitrary decision-making”) (collecting cases). The Athens plaintiffs quote CMS’s statement from the FY 2014 IPPS rule where it originally adopted the 0.2 percent downward adjustment that, in light of the then-predicted net shift of 40,000 admissions from outpatient to inpatient, it “would be inappropriate to ignore [that shift] in the development of the IPPS rates.” Athens MSJ at 5-6, (quoting 78 Fed. Reg. 50,496, 50,954 (Aug. 19, 2013) (final FY 2014 IPPS rule)). Repeatedly citing what they evidently view as a crucial concession, the Athens plaintiffs contend that it would also be “inappropriate to ignore” their evidence in support of an upward adjustment. Athens MSJ at 1, 3. Leaving aside Athens plaintiffs’ inability to distinguish between correlation and causation, it is obvious that CMS’s statement was premised on its assumption in 2013 that it had a reliable basis for concluding that a significant shift inpatient admissions was attributable to the 2-midnight policy and it could predict the size of that shift. Not surprisingly under those circumstances, CMS concluded that it “would be inappropriate to ignore” that conclusion and the effect it could have on overall Medicare payments to hospitals. Now, after several years of the operation of multiple independent factors affecting hospital admissions, and growing uncertainty about its ability to make any reliable judgment about the impact of the 2-midnight rule, CMS has concluded that it simply lacks an adequate basis to justify any adjustment to address the effects of the 2-midnight policy. Finally, contrary to the assertion of the Athens plaintiffs, this is not a case where an agency has chosen to use a particular “model” to support its decision without permitting public comment on or providing an explanation of that methodology. Athens MSJ at 19 (quoting AEP Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 29 of 31 24 Texas North Co. v. Surface Trans. Bd., 609 F.3d 432, 443 (D.C. Cir. 2010)). Thus, CMS’s conclusion that the data were too limited and unambiguous to make any adjustment does not constitute the adoption of a new “model” but instead merely a recognition that the limited data does not permit it to make any predictive judgment, based on any model about the impact of the 2-midnight policy on hospital admissions. In sum, defendant’s actions in the FY 2017 IPPS rule provided appropriate relief to the plaintiffs, and a further upward adjustment is not supportable. CONCLUSION Wherefore, Plaintiffs’ Motions for Summary Judgment should be denied and Defendant’s Motion for Summary Judgment should be granted. Respectfully submitted, CHAD A. READLER Acting Assistant Attorney General CHANNING D. PHILLIPS United States Attorney /s/ Daniel Bensing JOEL McELVAIN Assistant Branch Director DANIEL BENSING Senior Trial Counsel D.C. Bar No. 334268 United States Department of Justice Civil Division Federal Programs Branch 20 Massachusetts Ave., N.W. Rm. 6114 Washington, D.C. 20530 Telephone: (202) 305-0693 Telefacsimile: (202) 616-8460 Daniel.Bensing@USDOJ.gov Counsel for Defendant Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 30 of 31 1 Certificate of Service I hereby certify that on the 30th day of June, 2017, I caused the forgoing Defendant’s Motion for Summary Judgment and Opposition to Plaintiffs’ Motions for Summary Judgment to be served on counsel for plaintiffs by filing with the court’s electronic case filing system. /s/ Daniel Bensing Daniel Bensing Case 1:14-cv-00263-RDM Document 89-1 Filed 06/30/17 Page 31 of 31 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA SHANDS JACKSONVILLE MEDICAL ) CENTER, INC. et al., ) ) Plaintiffs, ) ) v. ) No. 1:14-cv-263 ) (consolidated) THOMAS E.PRICE, M.D., ) Secretary of Health and Human ) Services, ) ) Defendant. ) ____________________________________) [PROPOSED] ORDER UPON CONSIDERATION of Defendant’s Motion for Summary Judgment and Opposition to Plaintiffs’ Motion for Summary Judgment, Plaintiffs’ Motions for Summary Judgment and the whole record herein, it is hereby ORDERED that Defendant’s Motion for Summary Judgment is granted and it is FURTHER ORDERED that the Motions for Summary Judgment filed by the Athens plaintiffs and the Bakersfield plaintiffs are denied. _________ _______________________________ Date UNITED STATES DISTRICT JUDGE Case 1:14-cv-00263-RDM Document 89-2 Filed 06/30/17 Page 1 of 1