410 F.Supp.3d 142
D.D.C.2019Background
- Medicare Part B reimburses hospital outpatient department (OPD) services under the Outpatient Prospective Payment System (OPPS), which groups services into APCs with relative weights multiplied by a uniform conversion factor; most OPPS adjustments must be budget neutral.
- Off‑campus provider‑based departments (PBDs) historically were paid OPPS rates; similar visits at physician offices are paid under the lower Physician Fee Schedule (PFS), producing higher payments for many PBD E&M visits.
- The Bipartisan Budget Act of 2015 preserved OPPS payment for PBDs billing as of Nov. 2, 2015 ("excepted" PBDs) and required a different regime for newer ("nonexcepted") PBDs.
- CMS issued a 2018 Final Rule applying PFS-equivalent E&M payments to excepted off‑campus PBDs (to curb alleged ‘‘financially unnecessary’’ volume growth), implementing the cut non‑budget‑neutrally and estimating substantial savings.
- Hospital plaintiffs challenged the rule as ultra vires (outside CMS authority); CMS defended under its authority to develop a "method" to control unnecessary OPD volume. The district court held CMS exceeded its statutory authority, vacated the rule, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CMS may use §1395l(t)(2)(F) "method" authority to set service‑specific, non‑budget‑neutral payment cuts | §1395l sets a detailed, budget‑neutral APC/weight process; a §(t)(2)(F) "method" cannot override that scheme to set unilateral, service‑specific rates | §(t)(2)(F) broadly authorizes the Secretary to develop methods to control unnecessary volume; "method" is not defined and can include rate equalization targeted at problematic services | CMS exceeded its statutory authority; a §(t)(2)(F) "method" cannot be used to directly set non‑budget‑neutral, service‑specific OPPS rates—such changes must proceed through the statutory APC/weight or conversion‑factor processes |
| Whether the court lacks jurisdiction because §1395l(t)(12)(A) precludes review of methods under (t)(2)(F) | The Final Rule is not a protected "method" within the meaning of the preclusion clause; characterization cannot shield ultra vires action | The rule implements a "method" and is thus non‑reviewable under (t)(12)(A) | Court may review because whether an agency action is a protected "method" is intertwined with the ultra vires question; here CMS’s action is not a §(t)(2)(F) method for preclusion purposes |
| Whether plaintiffs must exhaust administrative remedies before suit | Exhaustion would be futile: CMS adopted the policy by rulemaking and administrative review cannot alter binding regulations; further administrative steps would not aid agency decisionmaking | Statute (42 U.S.C. §405(g)) requires presentment and exhaustion; plaintiffs have not completed administrative process | Exhaustion excused as futile: further administrative review would be formalistic and not likely to change the agency’s settled rulemaking position |
| Remedy—whether court should order payments withheld under the Final Rule | Plaintiffs seek vacatur and payment of withheld amounts | CMS cautions about complex OPPS adjustments and ripple effects of directing payments | Court vacated the rule and remanded for further proceedings; denied an immediate directive ordering payments and called for a joint status report on remedies |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984) (establishes two‑step deference framework for agency statutory interpretation)
- Whitman v. Am. Trucking Ass'ns, 531 U.S. 457 (2001) (agencies may not read vague provisions to override detailed statutory schemes)
- Amgen, Inc. v. Smith, 357 F.3d 103 (D.C. Cir. 2004) (presumption of judicial review and review of agency action exceeding statutory authority)
- Block v. Cmty. Nutrition Inst., 467 U.S. 340 (1984) (statutory preclusion of review must be assessed from text, structure, and objectives)
- United States v. Mead Corp., 533 U.S. 218 (2001) (limits on Chevron deference and when agency interpretations merit deference)
- Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005) (agency interpretations through notice‑and‑comment rulemaking can receive Chevron deference)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (deference appropriate in complex technical regulatory programs)
- Mount Royal Joint Venture v. Kempthorne, 477 F.3d 745 (D.C. Cir. 2007) (application of Chevron in the D.C. Circuit)