206 F.Supp.3d 307
D.D.C.2016Background
- Hospitals challenge CMS’s calculation of the Medicare “fixed-loss threshold” (FLT) for FYs 2008–2011 and the 2003 outlier-payment amendments, alleging underpayments for outlier reimbursements.
- The FLT is the statutory “fixed dollar amount determined by the Secretary” that, with the DRG payment, defines the outlier threshold; outlier payments equal 80% of costs exceeding that threshold and the statute directs aggregate outlier payments be between 5% and 6% of projected DRG payments.
- CMS set FLTs each year via rulemaking using simulations that incorporate cost-to-charge ratios (CCRs), an annual CCR adjustment factor, charge inflation, MedPAR claims data, and other inputs; CMS declined to adjust for reconciliation effects in these years.
- Plaintiffs raise five main challenges: (1) CCR adjustment factor too small, (2) inconsistent rising inflation vs. falling FLT, (3) flawed modeling of historical outlier payments, (4) failure to account for prior underpayments/trends, and (5) failure to consider reconciliation and to respond adequately to comments.
- The PRRB certified expedited judicial review; the consolidated action reached the district court on cross-motions for summary judgment. The court reviews under the APA (arbitrary-and-capricious standard).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| CCR adjustment factor | CMS used a token/synthetic factor instead of better/historical CCR trend, making FLTs too high | CMS reasonably chose and explained its projection method (market basket & cost per discharge); not obliged to use "best" data | CMS’s methodology and responses to comments were adequate; not arbitrary or capricious |
| Rising inflation vs. falling FLT | Positive inflation factors make falling FLTs unexplained and arbitrary | FLT results from many simulation inputs (CCRs, mix of DRGs, wage index, etc.); inflation is only one factor | No unexplained inconsistency; CMS provided a satisfactory explanation |
| Consideration of past outlier payments/trends | CMS ignored multi-year underpayments and should have adjusted FLT methodology | CMS considered prior-year estimates, adjusted methodology in 2007, and reasonably continued the model to evaluate efficacy | CMS’ treatment of past payments was reasonable and not arbitrary |
| Accounting for reconciliation | CMS failed to account for reconciliation effects and ignored comments | Reconciliation was optional under the 2003 rule; CMS explained why reconciliation was not incorporated and responded adequately to comments | CMS permissibly declined to factor reconciliation and its explanations suffice |
Key Cases Cited
- Dist. Hosp. Partners, L.P. v. Burwell, 786 F.3d 46 (D.C. Cir.) (agency not required to use best available data; review focuses on whether agency arbitrarily used deficient data)
- Banner Health v. Burwell, 126 F. Supp. 3d 28 (D.D.C.) (upholding CMS’s methodology and holding agency need not account for reconciliation in FLT calculations)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (U.S. 1983) (standard for arbitrary and capricious review under the APA)