Allina Health Services v. Burwell
201 F. Supp. 3d 94
| D.D.C. | 2016Background
- Plaintiffs are nine hospitals challenging CMS's calculation of Medicare DSH (disproportionate share hospital) payments for FY2012, arguing CMS improperly included Part C (Medicare Advantage/M+C) inpatient days in the Medicare (Part A/SSI) fraction.
- The DSH percentage is statutory and consists of a Medicaid fraction and a Medicare (Part A/SSI) fraction; dispute hinges on whether Part C enrollees remain "entitled to benefits under Part A."
- CMS had issued a 2004 Final Rule (counting Part C days in the Medicare fraction), which was vacated in Allina I for procedural defects; courts remanded rather than dictating a calculation.
- After remand, CMS published FY2012 DSH calculations including Part C days; plaintiffs claim those calculations relied on the vacated 2004 rule and required notice-and-comment rulemaking and are arbitrary and capricious.
- The Administrator later issued a 2015 decision and CMS issued a 2013 prospective rule (applying only forward), both reflecting the interpretation that Part C enrollees are still "entitled" to Part A; this administrative history factors into review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CMS relied on the vacated 2004 Final Rule in the 2012 DSH calculations | 2012 calculations were based on the vacated 2004 rule and thus procedurally defective | 2012 calculations reflect CMS's interpretation of the statute, not reliance on the vacated rule | No convincing evidence CMS relied on the vacated rule; court accepts statutory-interpretation basis |
| Whether notice-and-comment rulemaking was required for the 2012 DSH calculations | Inclusion of Part C days reflected a binding, ongoing policy change (legislative rule) requiring notice-and-comment | The calculations were an interpretive application of an ambiguous statute (not a legislative rule) and/or part of adjudicatory discretion | CMS's action was interpretive, not legislative; notice-and-comment not required |
| Whether CMS could adopt the interpretation via adjudication or calculation without prior rulemaking | Prior practice/policy required rulemaking; change to interpretation should trigger notice-and-comment | Agencies may adopt new interpretations in adjudication and need not use notice-and-comment for interpretive rules (Perez) | Agency discretion to interpret statute in this context; adjudicative/ad hoc application permissible but here treated as interpretive |
| Whether including Part C days is arbitrary and capricious or contrary to statute | Inclusion is unexplained, arbitrary, and inconsistent with statutory scheme (entitled means payable under Part A) | CMS's interpretation (entitlement = meeting statutory criteria even if enrolled in Part C) is reasonable and supported by agency decisions | Not arbitrary and capricious; court defers to CMS interpretation as reasonable under Chevron framework and precedents |
Key Cases Cited
- Allina Health Servs. v. Burwell, 746 F.3d 1102 (D.C. Cir. 2014) (appellate remand holding agency could reconsider DSH interpretation)
- Northeast Hosp. Corp. v. Sebelius, 657 F.3d 1 (D.C. Cir. 2011) (statute does not clearly foreclose including Part C days as "entitled to Part A")
- Catholic Health Initiatives v. Sebelius, 718 F.3d 914 (D.C. Cir. 2013) (deference to agency that "entitlement" can mean meeting statutory criteria rather than receipt of Part A payment)
- Perez v. Mortgage Bankers Ass'n, 135 S. Ct. 1199 (2015) (agencies need not use notice-and-comment to change prior interpretations of regulations)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary-and-capricious standard requires reasoned explanation)
- SEC v. Chenery Corp., 318 U.S. 80 (1943) (agency must articulate contemporaneous reasons; courts generally may not accept post-hoc rationalizations)
- Global Crossing Telecomms., Inc. v. Metrophones Telecomms., Inc., 550 U.S. 45 (2007) (context can make an agency's rationale apparent despite gaps in contemporaneous record)
- Am. Min. Cong. v. Mine Safety & Health Admin., 995 F.2d 1106 (D.C. Cir. 1993) (factors for distinguishing legislative rules from interpretive rules)