Lee Memorial Hospital v. Sebelius
109 F. Supp. 3d 40
| D.D.C. | 2015Background
- Plaintiffs are nonprofit hospital systems challenging HHS/Secretary Burwell’s fixed loss threshold and outlier payment calculations for FYs 2008–2011 as arbitrary and capricious under the APA.
- Outlier payments depend on three key inputs: hospital cost-to-charge ratios (CCRs), the fixed loss threshold (FLT), and the DRG-based outlier threshold (FLT + DRG rate). HHS targets total outlier payments ≈ 5.1% of DRG payments when setting the FLT.
- Plaintiffs contend HHS knowingly applied flawed rules and projections (including 2003 regulatory changes) that depressed outlier payments and refused to account for reconciliation of CCRs after cost-report settlements.
- Plaintiffs moved to compel supplementation of the Administrative Record to include: the 2003 draft Interim Final Rule, the 2003 Impact File, formulas HHS used to calculate FLTs and estimated outlier payments, data-trim/inclusion/exclusion instructions, and various underlying source data (MedPAR, market-basket source data, contractor data).
- The Secretary produced a certified administrative record and argued it already contains sufficient rulemaking materials (proposed/final rules, comments, and Impact Files for FYs 2008–2011) and that some requested materials are deliberative, unnecessary, or not before decisionmakers.
- The Court applied D.C. Circuit standards for supplementation (supplementation allowed only in narrow circumstances: deliberate/neglectful exclusion of adverse materials; need for background to assess factors considered; or agency failure to explain action), and granted supplementation in part and denied in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Inclusion of 2003 draft Interim Final Rule | The signed 2003 draft was considered by decisionmakers and shows HHS knew lowering the FLT was warranted; it is central to arbitrariness claim | The draft is pre-decisional/deliberative and may be withheld | Court: Draft must be included; OMB-posted draft loses deliberative privilege and was before agency decisionmakers |
| 2003 Impact File (modeling spreadsheet) | Impact File contains data/analysis used to justify 2003 choices and to set later FLTs; necessary to assess factors considered | HHS already included later Impact Files; 2003 file unnecessary or deliberative | Court: 2003 Impact File must be produced; it was part of agency consideration and necessary for review |
| Formulas used to calculate FLTs and estimated outlier payments | HHS used simulation algorithms/software/formulas; without them Court and hospitals cannot test agency reasoning; formulas are necessary to determine if all factors were considered | Presumption of regularity and general rule against supplementing record; plaintiffs cannot identify specific filenames | Court: Must supplement with formulas and documentation of calculations (if such formulas exist) because they are necessary to test agency action |
| Data trims / exclusion rules (instructions) | Plaintiffs do not seek raw trimmed files but the systematic instructions describing which data were excluded; HHS told third parties trimming caused simulation discrepancies | HHS: trims merely exclude points and do not produce new data; unnecessary to include | Court: HHS must produce all instructions applied to exclude data (data-trim rules) because they were used and are relevant to review |
| Raw source data (MedPAR early updates, market-basket raw inputs, contractor data, Provider Specific Files discrepancies) | Plaintiffs seek raw underlying data used to compute inflation factors, CCR adjustments, and Impact Files to replicate/verify calculations | HHS: final market-basket figures, cost reports, and Impact Files are in record; raw underlying sources are unnecessary, sometimes not relied on by decisionmakers, and are updated/unstable | Court: Denied—Court will not compel production of underlying raw source data (MedPAR early updates, market-basket raw data, contractor source data, Provider Specific raw files) as not required for meaningful review |
| Reconciliation documents re: CCR adjustments after cost-report settlement | Plaintiffs point to OIG report showing unreconciled outlier payments and argue HHS wrongly ignored reconciliation when setting FLTs; seek documents showing HHS considered or rejected reconciliation effects | HHS: explained policy reasons for not including reconciliation effects (expected few reconciliations after 2003 rule changes); plaintiffs have not identified specific omitted documents | Court: Denied—plaintiffs failed to identify specific materials or show unusual circumstances warranting supplementation; merits may be addressed later |
Key Cases Cited
- Walter O. Boswell Mem’l Hosp. v. Heckler, 749 F.2d 788 (D.C. Cir. 1984) (courts should review the same record before the agency)
- Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402 (1971) (APA requires review of the full administrative record)
- Banner Health v. Sebelius, 945 F. Supp. 2d 1 (D.D.C. 2013) (standards for supplementation and treatment of Impact Files and OMB drafts)
- Dist. Hosp. Partners, L.P. v. Sebelius, 971 F. Supp. 2d 15 (D.D.C. 2013) (limits on compelling underlying source data and trimmed files)
- American Wildlands v. Kempthorne, 530 F.3d 991 (D.C. Cir. 2008) (three narrow circumstances allowing supplementation)
- City of Dania Beach v. FAA, 628 F.3d 581 (D.C. Cir. 2010) (supplementation standards; background information exception)
- San Luis Obispo Mothers for Peace v. U.S. Nuclear Regulatory Comm’n, 789 F.2d 26 (D.C. Cir. 1986) (deliberative process privilege principles)
- Formaldehyde Inst. v. Dep’t of Health & Human Servs., 889 F.2d 1118 (D.C. Cir. 1989) (standard for deliberative process privilege)