300 F. Supp. 3d 190
D.C. Cir.2018Background
- Medicaid provides federal-state funding; Congress created Disproportionate Share Hospital (DSH) payments to help hospitals that treat unusually large numbers of Medicaid and uninsured patients.
- The 1993 Medicaid amendment limited hospital-specific DSH payments to the hospital's costs "net of payments under this subchapter . . . and by uninsured patients," 42 U.S.C. § 1396r-4(g)(1)(A).
- CMS issued a 2008 rule implementing audit/reporting requirements and later published FAQs (33 & 34) and a 2017 Final Rule clarifying that "costs" for the HSL are "costs net of third-party payments, including . . . Medicare and private insurance." 82 Fed. Reg. 16114 (2017).
- Plaintiffs (12 free‑standing children’s hospitals) sued to vacate the Final Rule, arguing it conflicts with the Medicaid Act and is arbitrary and capricious; defendants defended under Chevron deference as a permissible interpretation.
- The court consolidated the preliminary-injunction request with summary judgment, granted plaintiffs’ summary judgment, struck certain extra-record exhibits, denied defendants’ summary judgment, and vacated the Final Rule nationwide.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CMS lawfully interpreted the Medicaid statute to permit subtracting third‑party (Medicare/private) payments by defining "costs" net of such payments | The statute unambiguously prescribes which "payments" are subtracted (Medicaid payments and payments by uninsured patients); Congress did not authorize subtracting other third‑party payments | The statute requires uncompensated costs; Secretary has discretion to define "costs" and may account for third‑party payments to avoid "double payment" | Court: statute unambiguous; CMS exceeded statutory authority by redefining "costs" to net out third‑party payments; Final Rule invalid under Chevron step one |
| Whether extra‑record materials submitted by plaintiffs should be considered (motion to strike) | Extra‑record declarations and studies were necessary for standing and to show administrative insufficiency | Review is confined to the administrative record; extra material not presented to agency should be excluded | Court: struck numerous extra‑record exhibits; standing was self‑evident so extra‑record evidence unnecessary |
| Whether vacatur is appropriate remedy if rule is unlawful | Plaintiffs: vacatur appropriate because rule is beyond statutory authority | Defendants: remedy (if any) should be limited to plaintiffs; vacatur is disruptive and unnecessary given other courts addressing the issue | Court: vacatur appropriate and ordinary remedy when regulations exceed statutory authority; vacated Final Rule nationwide |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) (framework for reviewing agency statutory interpretations)
- National Mining Ass'n v. U.S. Army Corps of Eng'rs, 145 F.3d 1399 (D.C. Cir. 1998) (vacatur of unlawful agency regulation and scope of injunctive relief)
- Allied‑Signal, Inc. v. U.S. Nuclear Regulatory Comm'n, 988 F.2d 146 (D.C. Cir. 1993) (factors for deciding whether to vacate an invalid rule)
- Hill Dermaceuticals, Inc. v. Food & Drug Admin., 709 F.3d 44 (D.C. Cir. 2013) (administrative‑record review principles)
- Sierra Club v. E.P.A., 292 F.3d 895 (D.C. Cir. 2002) (standing in administrative review)
- Children's Hosp. of the King's Daughters, Inc. v. Price, 258 F. Supp. 3d 672 (E.D. Va. 2017) (concluding statute unambiguous against CMS interpretation)