Texas Children's Hospital v. Burwell
2014 U.S. Dist. LEXIS 177644
D.D.C.2014Background
- Texas Children’s Hospital and Seattle Children’s challenge CMS FAQ No. 33 and its inclusion of private-insurance payments in hospital-specific DSH limits under the Medicaid program.
- Plaintiffs allege the 2008 final rule defines offsets and calculations for DSH limits, but FAQ 33 expands inputs beyond those enumerated in the regulation, conflicting with the statute and regulation.
- Washington and Texas Medicaid agencies' recoupment actions based on the FAQ 33 interpretation threaten substantial, irrevocable receivable reductions to plaintiffs’ funds.
- Plaintiffs filed suit December 5, 2014 seeking a preliminary injunction to enjoin FAQ 33 and to require CMS to notify state programs of the injunction.
- The court evaluates APA finality, notice-and-comment requirements, standing, irreparable harm, balance of equities, and public interest in granting relief.
- The court grants a preliminary injunction, finding FAQ 33 likely invalid absent proper notice-and-comment procedures and that plaintiffs face imminent irreparable harm.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FAQ 33 has independent legal effect | FAQ 33 creates a substantive change. | FAQ 33 merely interprets the 2008 rule. | FAQ 33 likely has independent effect and is a final agency action. |
| Whether plaintiffs have standing to challenge FAQ 33 | Injury arises from enforcement of FAQ 33 by CMS and state recoupments. | Injury may be caused by third-party state actions not before court. | Plaintiffs have standing; injury likely redressable via relief against CMS. |
| Whether FAQ 33 is final agency action and subject to notice-and-comment | FAQ 33 alters the regulatory regime and binds state agencies. | FAQ 33 is interpretive and not subject to notice-and-comment. | FAQ 33 constitutes final agency action and likely required notice-and-comment. |
| Whether irreparable harm, balance of equities, and public interest support injunction | Recoupments are imminent and irreparable, threatening hospital services. | Administrative processes and potential recoveries are not irreparable harm. | Irreparable harm; balance of equities and public interest favor injunction. |
Key Cases Cited
- N/A, N/A (N.D. Cir. 2014) (canonical APA and finality principles referenced; see opinion text for full citations)
- Bennett v. Spear, 520 U.S. 154 (1997) (final agency action requires consummation of decisionmaking; rights or obligations determined)
- Nat’l Mining Ass’n v. McCarthy, 758 F.3d 243 (D.C. Cir. 2014) (notice-and-comment if force and effect of law; interpretative rules vs legislative rules)
- Mendoza v. Perez, 754 F.3d 1002 (D.C. Cir. 2014) (distinguishes interpretive rules from legislative rules for APA notice and comment)
- Appalachian Power Co. v. EPA, 208 F.3d 1015 (D.C. Cir. 2000) (agency documents binding in practice can be final agency action)
- Shalala v. Guernsey Mem’l Hosp., 514 U.S. 87 (1995) (rulemaking and regulatory changes implicating existing regulations treated as legislative when altering regime)
- Tozzi v. U.S. Dep’t of Health & Hum. Servs., 271 F.3d 301 (D.C. Cir. 2001) (agency action as substantial factor motivating third-party actions and standing considerations)