55 F. Supp. 3d 1
D.D.C.2014Background
- Twenty-nine hospital organizations challenged HHS/Secretary Burwell’s (formerly Sebelius/Thompson) methodology for Medicare outlier payments and annual fixed-loss thresholds for FYs 1998–2006, alleging over $350 million in lost outlier payments.
- Plaintiffs contend pre-2003 Outlier Payment Regulations had vulnerabilities that allowed improper claims, prompting the Secretary to increase fixed-loss thresholds as a misguided corrective, reducing legitimate outlier payments to plaintiffs.
- A February 2003 draft Interim Final Rule (IFR) submitted to OMB proposed lowering the FY2003 fixed-loss threshold from $33,560 to $20,760 and contained analysis contrary to the Secretary’s later published rulemaking; Plaintiffs obtained the IFR via FOIA in Feb 2012.
- The district court ordered supplementation of the administrative record to include the IFR, finding unusual circumstances that warranted adding documents the agency had excluded for purposes of reviewing the substantive rulemaking.
- Plaintiffs moved to further amend their complaint to (a) add claims under 5 U.S.C. § 553 for failure to disclose the IFR and thereby deny meaningful notice-and-comment, and (b) add factual allegations about when they learned of the IFR.
- The court granted leave to add factual allegations about the IFR but denied leave to add new § 553 claims as futile because Plaintiffs failed to show the agency ‘‘relied on’’ the IFR in a way that would trigger the Portland Cement doctrine.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs may add § 553 claim that HHS violated notice-and-comment by not disclosing the IFR | The IFR contained critical, adverse data/analysis used (or considered) by HHS; nondisclosure prevented meaningful public comment | D.C. Circuit precedent limits Portland Cement doctrine to undisclosed materials the agency actually relied on; plaintiffs cannot show reliance | Denied — amendment futile; plaintiffs failed to allege the agency relied on IFR such that § 553 relief is warranted |
| Whether plaintiffs may add factual allegations regarding discovery/timing and content of the IFR | IFR facts are relevant background and bolster existing arbitrary-and-capricious claims | Late amendment but defendant shows no prejudice or bad faith; futility argument only targets new legal claim | Granted — court permits addition of specified factual allegations about IFR |
| Whether addition of factual allegations prejudices defendant or reflects bad faith/delay | N/A (plaintiffs argue facts are timely after obtaining IFR via FOIA) | Defendant asserts undue delay and tactical motive but cites no concrete prejudice | Denied defendant’s prejudice/bad-faith objection; court finds delay not prejudicial and no bad faith |
| Whether inclusion of IFR in administrative record proves agency reliance for § 553 purposes | Plaintiffs point to court’s order to include IFR as evidence the agency considered it | Court and defendant argue inclusion for record completeness does not show agency relied on IFR in promulgating final rule | Court treats record supplementation as distinct from § 553 reliance requirement; inclusion does not establish reliance |
Key Cases Cited
- County of Los Angeles v. Shalala, 192 F.3d 1005 (D.C. Cir.) (describing statutory outlier payment framework and agency role)
- Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375 (D.C. Cir. 1973) (agency must disclose critical material relied upon in rulemaking)
- American Radio Relay League, Inc. v. Federal Communications Comm’n, 524 F.3d 227 (D.C. Cir. 2008) (FTC/FCC violated § 553 by relying on redacted/undisclosed studies; doctrine limited to materials agency actually relied on)
- Allina Health Services v. Sebelius, 746 F.3d 1102 (D.C. Cir.) (discussing disclosure doctrine and careful application given Vermont Yankee tension)
- EchoStar Satellite LLC v. Federal Communications Comm’n, 457 F.3d 31 (D.C. Cir.) (distinguishing undisclosed staff cogitations not relied upon by agency)