Florida Health Sciences Center, Inc. v. Azar
Civil Action No. 2019-3487
D.D.C.Jul 7, 2021Background
- Medicare’s DSH adjustment raises hospital payments based on a hospital’s disproportionate patient percentage (DPP), calculated as the sum of a Medicare fraction and a Medicaid fraction; the disputed statutory phrase is whether the Medicare fraction’s numerator—patients “entitled to benefits under Part A”—includes beneficiaries enrolled in Medicare Part C plans.
- HHS historically excluded Part C days from the Medicare fraction in practice; in 2004 HHS promulgated a rule including Part C days in the Medicare fraction, but that 2004 Rule was later vacated on procedural grounds after litigation.
- In 2013 HHS promulgated a new rule (the 2013 Rule) readopting the 2004 interpretation that Part C enrollees are still “entitled to benefits under Part A”; HHS offered statutory-interpretation rationale and addressed public comments.
- A coalition of hospitals (Plaintiffs) challenged the 2013 Rule under the Administrative Procedure Act, arguing it was arbitrary and capricious because (1) HHS failed to acknowledge/explain a change in policy; (2) HHS failed to consider the rule’s substantial adverse financial impact on safety-net hospitals (and failed an RFA analysis); and (3) HHS inadequately responded to comments about an alleged inconsistent statutory interpretation.
- The district court reviewed the administrative record and the cross-motions for summary judgment, applying APA standards (deference for agency statutory interpretation and requirements for reasoned explanation when changing policy).
- Holding: the court denied plaintiffs’ motion and granted the Secretary’s motion for summary judgment, finding the 2013 Rule neither arbitrary nor capricious on the asserted grounds and dismissing the RFA claim for lack of a demonstrated small-entity showing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2013 Rule was invalid because HHS failed to acknowledge or explain a change in policy regarding Part C days | The 2013 Rule reversed pre-2004 practice and HHS failed to acknowledge or adequately explain the change | HHS either did not change policy (it readopted the 2004 Rule) or, even if it changed course, it expressly acknowledged past practice and gave reasoned statutory explanations | Court: HHS satisfied Fox/APA requirements—it acknowledged precedent and provided adequate reasons; not arbitrary or capricious |
| Whether HHS arbitrarily failed to consider the rule’s substantial fiscal impact on safety-net hospitals | The rule has hundreds of millions in effects and HHS ignored that important factor, undermining reasoned decisionmaking | The rule was a statutory-interpretation exercise; HHS addressed fiscal impact and its longstanding policy baseline meant no additional costs; economic effects were not a required or dispositive factor | Court: HHS’s factual conclusion was supported and economic consequences were not a required consideration for resolving the statutory question; not arbitrary |
| Whether plaintiffs may proceed on an RFA claim for failure to perform a regulatory flexibility analysis | Plaintiffs say HHS failed required RFA analysis of impacts on small entities | HHS contends plaintiffs did not plead or prove they are “small entities” under the RFA (and other procedural defenses) | Court: Plaintiffs failed to show they qualify as small entities under RFA; RFA claim dismissed for lack of cause of action |
| Whether HHS inadequately responded to comments alleging inconsistent uses of the term “entitled to benefits” (Medicare Part A vs SSI) | Commenters said HHS treated “entitled to” inconsistently and HHS failed to meaningfully respond | HHS responded in the rule explaining the difference between continuous Part A entitlement and SSI cash-payment entitlement and cited prior rulemaking explaining the point | Court: HHS reasonably addressed the comments; response adequate under APA |
Key Cases Cited
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (arbitrary-and-capricious standard and factors agency must consider)
- FCC v. Fox Television Stations, 556 U.S. 502 (agency must acknowledge and explain a change in position)
- Dickinson v. Zurko, 527 U.S. 150 (substantial-evidence review for agency factual findings)
- Universal Camera Corp. v. NLRB, 340 U.S. 474 (standard for reviewing agency factfinding)
- Allina Health Servs. v. Sebelius, 746 F.3d 1102 (D.C. Cir.) (prior litigation on Part C days and rulemaking flaws)
- Northeast Hosp. Corp. v. Sebelius, 657 F.3d 1 (D.C. Cir.) (discussion of agency practice and financial stakes in Part C dispute)
- Allina Health Servs. v. Price, 863 F.3d 937 (D.C. Cir.) (deference to agency Medicare interpretations)
- Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914 (D.C. Cir.) (context on DSH purpose)
- Azar v. Allina Health Servs., 139 S. Ct. 1804 (Supreme Court reference to financial stakes and procedural posture)
- Metropolitan Hosp. v. U.S. Dep't of Health & Human Servs., 712 F.3d 248 (6th Cir.) (treating apparent statutory inconsistencies between SSI and Medicare entitlement definitions)