Dignity Health v. Burwell, Civil Action No. 2015-0804

Background

Dignity Health (Dominican Hospital) challenged the Secretary of HHS’s 2004 Medicare wage index for the Santa Cruz MSA, which used fiscal-year-2000 data and affected Medicare PPS payments.
Watsonville Community Hospital’s reported wage data showed a large year-to-year variance; its fiscal intermediary (UGS) adjusted Watsonville’s wages downward pending documentation because the variance exceeded confidential edit thresholds.
Watsonville did not provide auditable payroll documentation during the desk review or the subsequent public-file correction windows; CMS and UGS denied late requests to revise Watsonville’s data.
Dignity and the other Santa Cruz hospitals appealed to the Provider Reimbursement Review Board; the Board found Watsonville failed to exhaust remedies and also held it lacked authority to grant a remedy to other hospitals harmed by a nonresponsive reporting hospital.
The Board alternatively resolved the factual dispute against the hospitals on the merits. Dignity filed this suit within 60 days of the Board’s final decision.
The district court dismissed for lack of Article III standing, holding Dignity’s injury was not redressable because (1) Watsonville might not supply the missing documentation if ordered to do so, and (2) the Board’s unchallenged alternative holding—that the regulatory scheme does not authorize correction of one hospital’s data at another hospital’s request—would preclude relief even if Dignity prevailed on the merits.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Dignity has Article III standing to challenge the 2004 Santa Cruz wage index	Dignity argued it suffered a concrete injury from the lowered wage index and that a court order setting aside the Secretary’s reliance on Watsonville’s adjusted data would redress the injury	The Secretary argued relief is not redressable because any meaningful correction depends on Watsonville producing longstanding documentation and because regulations limit who may challenge another provider’s data	Held: No standing. Injury and causation present, but redressability fails because independent actor uncertainty (Watsonville) and the Board’s unchallenged alternative holding preclude relief
Whether the Secretary must permit a late submission of Watsonville’s missing documentation	Dignity implied a court order could require acceptance of Watsonville’s documentation and correction of the index	Secretary stressed Watsonville failed to exhaust administrative remedies and there is no evidence it would now provide documentation; regulatory deadlines govern corrections	Held: Court refused to assume Watsonville would supply documentation; standing to seek such relief lacking
Whether the Board erred in concluding it lacked authority to grant relief to hospitals harmed by another hospital’s nonresponsive reporting	Dignity contended it challenged the Secretary’s wage-index methodology and thus could obtain relief	Secretary pointed to Final 2004 Rule and the correction process that confines data challenges to the reporting hospital	Held: Because Dignity did not challenge the Board’s alternative ruling that the correction process does not authorize third-party challenges, that unchallenged ground is assumed valid for standing analysis and blocks redress
Whether the Board’s factual determination that Watsonville failed to provide sufficient documentation was reviewable and would entitle Dignity to relief	Dignity sought judicial review of the Board’s factual findings about data accuracy	Secretary relied on the Board’s factual findings and procedural bar; argued overturning factual finding would not cure the jurisdictional defect	Held: Court did not reach merits; even overturning factual finding would not redress Dignity because of the Board’s unchallenged authority holding

Key Cases Cited

Shands Jacksonville Med. Ctr. v. Burwell, 139 F. Supp. 3d 240 (D.D.C. 2015) (describing IPPS wage-index context)
Anna Jacques Hosp. v. Burwell, 797 F.3d 1155 (D.C. Cir. 2015) (explaining purpose of PPS and wage-index adjustments)
Regents of the Univ. of Cal. v. Burwell, 155 F. Supp. 3d 31 (D.D.C. 2016) (discussing variability of hospital wage costs and wage-index calculation)
Se. Ala. Med. Ctr. v. Sebelius, 572 F.3d 912 (D.C. Cir. 2009) (referencing wage-index terminology and framework)
Sierra Club v. EPA, 292 F.3d 895 (D.C. Cir. 2002) (standing can be evident from the administrative record)
Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (setting three-part constitutional standing test)
Cnty. of Del., Pa. v. Dep’t of Transp., 554 F.3d 143 (D.C. Cir. 2009) (unchallenged alternative agency grounds may be assumed valid for standing analysis)
West v. Lynch, 845 F.3d 1228 (D.C. Cir. 2017) (courts should not speculate about independent actors’ choices when assessing redressability)
Renal Physicians Ass’n v. U.S. Dep’t of Health and Human Servs., 489 F.3d 1267 (D.C. Cir. 2007) (redressability and standing principles in administrative-review context)