Tennessee Hospital Association v. Burwell
3:16-cv-03263
M.D. Tenn.Jun 21, 2017Background
- Plaintiffs: Tennessee Hospital Association and three member hospitals challenged CMS guidance (FAQs 33 and 34) that required states to subtract private-insurance and Medicare payments when calculating hospital-specific Medicaid DSH payment limits.
- Statutory/regulatory framework: 42 U.S.C. § 1396r-4(g)(1)(A) caps DSH payments at costs "net of payments under this subchapter," and 42 C.F.R. § 447.299(c)(16) defines "total annual uncompensated care costs" by listing specific payments to be subtracted (Medicaid FFS, Medicaid MCO, supplemental Medicaid, uninsured revenues, Section 1011 payments) — none mention private insurance or Medicare.
- CMS posted FAQ responses in 2010 (Nos. 33–34) interpreting the DSH calculation to require subtraction of private and Medicare payments; the same policy was later incorporated into a 2017 regulatory provision.
- Plaintiffs were audited (FY2012) and notified of alleged DSH overpayments computed under the FAQ rule; they sued under the APA alleging the FAQs unlawfully changed statute/regulation without notice-and-comment.
- The parties agreed the dispute presented purely legal questions; the district court enjoined Tennessee from imposing DSH recoupment on the plaintiffs pending decision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CMS's FAQ responses lawfully interpret the DSH statutory formula or unlawfully amend it | FAQ 33/34 unlawfully amend statute/regulation by adding subtraction of private-insurance and Medicare payments | FAQs are reasonable interpretations of the statute and regulation entitled to deference | FAQs (and CMS enforcement based on them) are unlawful: they conflict with unambiguous statutory and regulatory text and therefore exceed authority |
| Whether CMS guidance required notice-and-comment rulemaking | Guidance effectually created a substantive rule and thus required APA notice-and-comment | The FAQs were interpretive guidance, not substantive rulemaking | Because the FAQs substantively changed the pre-existing formula, notice-and-comment was required and not followed, rendering the action procedurally invalid |
| Whether the statute/regulation is ambiguous on whether to subtract private-insurance and Medicare payments | Statute/regulation unambiguously limit subtractions to payments under the Medicaid subchapter and the specific list in the regulation (excluding private and Medicare) | The term "uncompensated costs" contemplates all third-party payments that actually compensate costs (including private and Medicare) | The court held the statute and regulation are clear and do not authorize subtraction of private insurance or Medicare payments |
| Challenge to the 2016 proposed rule (Count III) | Plaintiffs sought a declaratory judgment that the proposed 2016 rule was unlawful and lacked statutory authority | Defendants noted the proposal later became a final 2017 rule and represent it is not retroactive | Claim was dismissed as moot/otherwise denied: the proposed rule matured into a final rule not before the court and Plaintiffs did not obtain relief against the 2017 rule here |
Key Cases Cited
- Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498 (1990) (describing Medicaid as a cooperative federal-state program and states' obligations)
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) (framework for judicial deference to agency statutory interpretations)
- United States v. Mead Corp., 533 U.S. 218 (2001) (limitations on Chevron deference where agency action lacks force of law)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016) (procedurally defective regulations are not entitled to deference)
- Texas Children's Hosp. v. Burwell, 76 F. Supp. 3d 224 (D.D.C. 2014) (preliminary injunction against enforcement of CMS FAQ interpretation excluding private-insurance subtraction from DSH calculation)