164 F. Supp. 3d 56
D.D.C.2016Background
- Plaintiffs: 35 acute care hospitals challenged HHS/CMS regulations setting the Medicare IPPS outlier fixed loss threshold (FLT) and related simulations used to estimate outlier payments.
- FLT is set annually so projected outlier payments equal a statutory target (between 5%–6% of IPPS payments); CMS simulates payments using two‑year‑old MedPAR data adjusted for inflation and hospital CCRs.
- Plaintiffs moved to compel supplementation of the administrative record, arguing CMS had not produced the formulas/algorithms used to simulate payments prospectively (to set FLT) or to estimate prior years’ outlier payments.
- The Court’s Nov. 9, 2015 opinion ordered supplementation for five categories, including the payment‑simulation formulas; CMS thereafter submitted a detailed declaration (Second Cheng Decl.) explaining that the 2003 outlier payment regulations and related rulemaking materials contain the formulas and how CMS applies them.
- CMS also explained it could not locate certain FY2007 cost report working files due to data retention/overwriting; it produced other years’ cost report data. Plaintiffs do not dispute the agency’s inability to locate FY2007 files.
- The Court treated CMS’s filing as a Rule 54(b) motion for reconsideration, granted it, and concluded the administrative record (as supplemented) contains the formulas CMS actually used; it rejected Plaintiffs’ post‑hoc rationalization claim and left substantive arbitrariness challenges for merits review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the administrative record lacked the formulas/algorithms CMS used to simulate outlier payments and set the FLT | Plaintiffs: rulemaking notices are insufficient; the actual formulas used are absent and must be produced | CMS: the 2003 outlier payment regulations, the annual rulemaking records, and the Second Cheng Decl. disclose and show application of the formulas; no additional, separate formulas exist | Court: granted reconsideration; Cheng declaration plus the 2003 regs and rulemaking record sufficiently show the formulas CMS used; no further supplementation required |
| Whether CMS’s Cheng declaration is an improper post‑hoc rationalization | Plaintiffs: Cheng decl. attempts to justify agency action after the fact; should be disregarded | CMS: declaration illuminates and explains methods implicit in the administrative record; agencies may supply amplified articulations | Court: declaration permissible to illuminate reasons implicit in the record; not barred as post‑hoc when provided by the agency itself |
| Whether CMS must create or locate missing working files (FY2007 cost report data) | Plaintiffs: ordered production; CMS must produce the cost report data used | CMS: due to mainframe storage/overwriting, FY2007 working files cannot be located despite diligent search; produced other years’ data | Court: accepted CMS’s explanation and treated inability to produce FY2007 files as conceded; parties may address significance at merits |
| Whether CMS’s modeling choices (e.g., treatment of hospitals receiving reduced updates or exclusion of certain Sole Community Hospital payments) undermine the record sufficiency | Plaintiffs: record omits details on which hospitals received reduced updates and which SCH claims were excluded | CMS: annual rules and impact files identify counts and how simulations modeled reduced updates; exclusions are explained in rulemaking rationales; simulation uses the 2003 formula once universe of claims is set | Court: these implementation questions do not defeat that the formulas are in the record; details about modeling choices are matters for merits/arbitrary‑and‑capricious review |
Key Cases Cited
- Cape Cod Hosp. v. Sebelius, 630 F.3d 203 (D.C. Cir.) (explaining IPPS standardized amount and payment scheme)
- Cnty. of Los Angeles v. Shalala, 192 F.3d 1005 (D.C. Cir.) (background on outlier payment program)
- Marcum v. Salazar, 751 F. Supp. 2d 74 (D.D.C. 2010) (standard for identifying materials considered by agency but omitted from record)
- Alpharma, Inc. v. Leavitt, 460 F.3d 1 (D.C. Cir.) (limits on post‑hoc rationalization; agency may supplement/clarify its own record)
- Clifford v. Pena, 77 F.3d 1414 (D.C. Cir.) (declarations may illuminate reasons obscured but implicit in administrative record)
- Camp v. Pitts, 411 U.S. 138 (U.S.) (judicial review focuses on administrative record in existence at time of agency decision)