346 F. Supp. 3d 43
D.C. Cir.2018Background
- Twelve Massachusetts hospitals challenged HHS’s refusal to count patient days of Commonwealth Care enrollees for FY 2009 DSH (disproportionate share hospital) adjustment, seeking about $6 million more under Medicare.
- The dispute turned on 42 C.F.R. § 412.106(b)(4)(i): whether patients are “deemed eligible for Medicaid” if they are "eligible for inpatient hospital services … under a waiver authorized under section 1115(a)(2)."
- Massachusetts operated Commonwealth Care pursuant to an approved § 1115 waiver; Commonwealth Care beneficiaries received subsidized private plans that in practice covered inpatient hospital services.
- A fiscal intermediary excluded Commonwealth Care patient days from the Medicaid fraction numerator; the PRRB reversed, finding the waiver made expenditures reimbursable; the CMS Administrator reversed that decision, requiring an explicit waiver term stating inpatient eligibility.
- The hospitals sued under the APA; the district court reviewed cross-motions for summary judgment and concluded HHS’s interpretation was arbitrary and capricious, vacated the agency decision, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 412.106(b)(4)(i) requires the §1115 waiver text to explicitly state beneficiaries are "eligible for inpatient hospital services" before counting their patient days in the Medicaid fraction | Hospitals: Regulation’s plain text deems patients eligible if they are capable of receiving inpatient services under an approved waiver; waiver terms need not expressly state inpatient eligibility | HHS: Fiscal intermediary must look to the waiver’s terms; only waivers that expressly authorize inpatient services make enrollees "eligible" for counting | Court: Rejected HHS. Regulation’s plain language requires counting patient days when beneficiaries are eligible to receive inpatient services under an approved waiver; waiver silence is irrelevant |
| Whether Commonwealth Care enrollees actually were eligible for inpatient hospital services during the period at issue | Hospitals: Record shows every Commonwealth Care enrollee had insurance that covered inpatient services | HHS: Argued Commonwealth Care did not itself provide inpatient services and beneficiaries purchased plans that might vary | Court: Found undisputed record evidence that Commonwealth Care beneficiaries received inpatient coverage; their patient days must be counted |
| Whether the agency’s post-hoc rationale and change in position rendered the decision arbitrary | Hospitals: Agency changed prior practice and advanced a post-hoc reading inconsistent with regulation and rulemaking history | HHS: Relied on textual/waiver-term interpretation and purported rulemaking statements | Court: Did not need to decide all ancillary arguments; held agency action inconsistent with regulation and statutory structure and thus arbitrary and capricious |
| Whether Auer deference applies to HHS’s interpretation | Hospitals: Interpretation is plainly erroneous and inconsistent with statute and regulation so deference is unwarranted | HHS: Agency interpretation should receive deference | Court: Declined Auer deference because HHS’s reading conflicted with regulatory text and statutory scheme |
Key Cases Cited
- Allina Health Servs. v. Sebelius, 746 F.3d 1102 (D.C. Cir.) (describing Medicare DSH adjustment computation)
- Billings Clinic v. Azar, 901 F.3d 301 (D.C. Cir.) (Medicare inpatient payment framework and importance of patient counts)
- Cookeville Regional Medical Ctr. v. Leavitt, 531 F.3d 844 (D.C. Cir.) (§1115 expansion waivers and demonstration projects)
- Banner Health v. Sebelius, 715 F. Supp. 2d 142 (D.D.C.) (earlier agency practice on counting expansion waiver populations)
- Baystate Medical Ctr. v. Leavitt, 545 F. Supp. 2d 20 (D.D.C.) (context on §412.106(b) as method for computing disproportionate patient percentage)
- Auer v. Robbins, 519 U.S. 452 (1997) (deference to agency interpretations of its own regulations)
- Decker v. Northwest Environmental Defense Center, 568 U.S. 597 (2013) (limits on deference when an agency’s interpretation is not the best reading)