Lee Memorial Hospital v. SebeliusLee Memorial Hospital v. Sebelius
Case Information
*1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA )
LEE MEMORIAL HOSPITAL, et al ., )
)
Plaintiffs, )
) v. ) Civil Action No. 13-643 (RMC) )
SYLVIA M. BURWELL, Secretary, )
U.S. Department of Health and Human )
Services, )
)
Defendant. ) )
MEMORANDUM OPINION
Plаintiffs, a group of non-profit organizations that own and operate acute care hospitals participating in the Medicare program, [1] contend that the Department of Health and Human Services has underpaid them for Medicare services provided during the fiscal years ending in 2008-2010. The dispute requires a huge leap into Medicare and its regulations, but, in essence, Plaintiffs allege that the Secretary knew that her basic approach and formulas produced the wrong results but continued to underpay them for years, notwithstanding.
At issue here is Plaintiffs’ Motion to Compel: the Secretary has produced an Administrative Record, which Plaintiffs complain is incomplete. The Secretary of Health and Human Services repeatedly insists the record is more than sufficient for judicial review. For the reasons set forth below, Plaintiffs’ motion will be granted in part and denied in part.
I. BACKGROUND
It is not necessary to take a reader through the underlying dispute in this case.
There are, however, a few fundamental points. Under Medicare, certain hospitals may be
reimbursed in part for their operating costs per patient. “Because different illnesses entail
varying costs of treatment, the Secretary uses diagnosis-related groups (DRGs) to ‘modif[y]’ the
average rate.’”
Dist. Hosp. Partners, L.P. v. Burwell
, No. 14-5061,
“[T]hree particular numbers are important” in calculating outlier payments:
“(1) the cost-to-charge ratio, (2) the fixed loss threshold, and (3) the outlier threshold.”
Dist.
Hosp. Partners,
Second, as noted above, a hospital can request an outlier payment if its charges exceed the sum of the DRG payment rate and a “fixed dollar amount.” 42 U.S.C.
§ 1395ww(d)(5)(A)(ii). The “fixed dollar amount” is otherwise known as the “fixed loss
threshold.” The fixed loss threshold “‘acts like an insurance deductible because the hospital is
responsible for that portion of the treatment’s excessive cost’ above the applicable DRG rate.”
Dist. Hosp. Partners,
The third relevant number—the outlier threshold—is the sum of the fixed loss
threshold and the DRG rate.
Dist. Hosp. Partners,
In their Motion to Compel, Plaintiffs argue that HHS failed to produce
information used by the agency in determining the fixed loss threshold. They seek the following
materials: (1) the draft Interim Final Rule from the 2003 amendments to the payment regulations;
(2) the formulas used to calculate the fixed loss thresholds; (3) data used to calculate a cost-to-
charge adjustment factor and an inflation factor, which were then used to calculate the fixed loss
thresholds; (4) the formulas and data that HHS used to calculate estimated outlier payments,
made during previous fiscal years, which HHS сonsidered in determining the fixed loss
thresholds for the relevant years; (5) the supporting data which HHS used to determine certain
key assumptions for projected outlier payment calculations as set forth in HHS’s Impact Files;
(6) materials supporting HHS’s regulatory impact analysis considered in each of the fixed loss
threshold regulations; and (7) materials supporting HHS’s statements in the fixed loss threshold
caused the hospital to impose $23,000 in cost-adjusted charges. If no other statutory factor is
triggered . . . the hospital is eligible for an outlier payment of $8,000, which is 80% of the
difference between its cost-adjusted charges ($23,000) and the outlier threshold ($13,000).”
Dist. Hosp. Partners,
regulations that it would not consider the mandatory reconciliation of outlier payments in setting the fixed loss thresholds. [3] Pl. Mem. at 3. The parties conferred extensively but were unable to resolve this dispute. HHS contends that the materials sought were properly excluded from the Administrative Record and avers that “HHS has provided certified administrative records of the rulemaking proceedings for regulations concerning the establishment of fixed loss thresholds for 2008 through 2011 which contain: the agency’s proposed rule and final rule; the comments received; and the data that the agency considered in developing the outlier payment amount and rule and the fixed-loss threshold.” Def. Opp. at 8 (citing Ex. A, Decl. of Ing-Jye Cheng, Director, Division of Acute Care, Hospital and Ambulatory Care Group, Centers for Medicare and Medicaid Services (CMS), HHS [Dkt. 53-1] (Cheng Decl.) ¶¶ 2–3).
II. LEGAL STANDARDS
A. Jurisdiction and Venue
This Court has jurisdiction to review Plaintiffs’ challenge to the agency regulations under the Medicare Act, which incorporates the Administrative Procedure Act (APA). See 42 U.S.C. § 1395oo(f)(1); 5 U.S.C. § 706. Venue is proper under 42 U.S.C. § 1395oo(f) and 28 U.S.C. § 1391(c).
*6
B. Standard of Review for Supplementation of Administrative Record
The Administrative Procedure Act requires reviewing courts to “set aside agеncy
action, findings, and conclusions found to be . . . arbitrary, capricious, abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706. In reviewing agency rulemakings, the
APA requires courts to “review the whole record or those parts of it cited by a party.” “If a
court is to review an agency’s action fairly, it should have before it neither more nor less
information than did the agency when it made its decision.”
Walter O. Boswell Mem’l Hosp. v.
Heckler
,
“The ‘whole’ administrative record . . . consists of all documents and materials
directly or indirectly considered by agency decision-makers and includes evidence contrary to
the agency’s position.”
Stainback v. Sec’y of Navy
,
“Although an agency may not unilaterally determine what constitutes the
administrative record, the agency enjoys a presumption that it properly designated the
administrative record absent clear evidence to the contrary.” ;
Pac. Shores Subdivision, Cal.
Water Dist. v. U.S. Army Corps of Eng’rs
,
The D.C. Circuit has held that supplementation of the record is only permitted in
one of three “unusual circumstances”: “‘(1) the agency deliberately or negligently excluded
documents that may have been adverse to its decision; (2) the district court needed to supplement
the record with background information in order to determine whether the agency considered all
of the relevant factors; or (3) the agency failed to explain administrative action so as to frustrate
judicial review.’”
Dist. Hosp. Partners,
III. ANALYSIS
Plaintiffs seek to compel several types of information from HHS, arguing that the materials should be supplemented to the Administrative Record because they meet one or more of the Kempthorne criteria.
A. 2003 Draft Interim Rule
In 2003, HHS initiated a rulemaking for Medicare payment regulations in order to
more accurately compensate hospitals for their costs exceeding the fixed loss threshold. In
February 2003, then-HHS Secretary Tommy H. Thompson executed a draft Interim Rule and
sent it to the Office of Management and Budget (OMB) for its review. The Interim Rule
recognized that a small group of hospitals had gamed the system by rapidly inflating charges,
making it appear that they had incurred greater costs, so that they would obtain greater outlier
payments. As a result, HHS set falsely high fixed loss thresholds, thereby causing insufficient
payments to be made to other hospitals that had not inflated their charges but that still provided
care that was more expensive than the set Medicare rate.
[4]
According to Plaintiffs, the Interim
Rule concluded that HHS should immediately lower the 2003 fixed loss threshold. However, the
Interim Rule was never implemented and the Rule that was ultimately proposed did not lower the
threshold or include any of the analysis or data that had underscored the Interim Rule.
*9
HHS has failed repeatedly to include the Interim Rule in the Administrative
Record on challenges to outlier рayments.
See Banner Health
,
HHS argues that inter-agency documents should be granted the same
“predecisional” and deliberative status as internal agency documents. Def. Opp. at 11-16. While
it is settled law that “materials reflecting an agency’s internal deliberations should not be part of
an administrative record unless there is a strong showing of bad faith or improper behavior,”
see
id.
at 13 (citing
San Luis Obispo Mothers for Peace v. U.S. Nuclear Regulatory Comm’n
, 789
F.2d 26, 44 (D.C. Cir. 1986)), that argument carries no weight with respect to proposed drafts of
agency rules that are submitted to OMB and then publicly posted on OMB’s website.
See
Executive Order (E.O.) 12,866, 58 Fed. Reg. 51,735 (Sept. 30, 1993) (requiring that after a
regulation becomes final, OMB make available to the public all documents exchanged between it
and agency during the inter-agency review). The deliberative process privilege is intended to
*10
“ensure open communication between subordinates and superiors, prevent premature disclosure
of policies before final adoption, and to avoid public confusion if grounds for policies that were
not part of the final adopted agency policy happened to be exposed to the public.”
Ctr. for
Medicare Advocacy, Inc. v. Dep’t of Health and Human Servs.
,
Here, neither HHS nor Secretary Thompson would have anticipated that the
Department’s Interim Final Rule would remain confidential. Indeed, protecting the document as
privileged would not further the purpose behind the rule because the draft would be seen by the
public. This Court concurs with
Banner Health
that there is no way that “inclusion of the
Interim Final Rule from the administrative record would in any way ‘expose’ HHS’s
decisionmaking process in a manner that would discourage candid discussion within the agency
or otherwise contravene the purpose of the deliberative process privilege.”
Health v. Sebelius
,
Civil Case No. 10-1638 (CKK),
B. Impact File for 2003 Rulemaking
Plaintiffs also argue that HHS improperly excluded the Impact File for 2003
Rulemaking. Pl. Reply at 7. Impact Files are Microsoft Excel spreadsheets that contain “‘data
used to estimate payments under Medicare’s hospital inpatient prospective payment systems for
operating and capital-related costs,’ including the outlier fixed loss thresholds.” at 16
(quoting 72 Fed. Reg. 24,680 at 24,828 (AR at 150)). HHS has included in the record the Impact
Files for FY 2008-2011 and acknowledges that they, along with other data, “are the bases for
HHS’s determination of the fixed loss thresholds.” Def. Mem. at 16 (citing Cheng Decl. ¶¶ 2–3,
18) (“These are the materials that the Secretary has determined properly comprise the
administrative record for each of the fixed loss threshold rulemakings at issue, and they are
sufficient for meaningful judicial review.”). Indeed, Impact Files are a fundamental part of the
HHS process as they contain the data used to estimate outlier payments and fixed loss thresholds.
Cheng Decl. ¶¶ 2, 11. Accordingly, now that HHS has also now supplemented the record with
the 2003 rulemaking,
see infra
n.3, so too should it provide the 2003 Impact File as Plaintiffs
have made a non-speculative showing thаt the Secretary considered such information. Further,
the Court finds that the material is necessary “to determine whether the agency considered all the
relevant factors” in taking the challenged actions,
see City of Dania Beach
,
C. Raw Data, Formulas, Other Materials Underlying Fixed Loss Thresholds and Outlier Payments
1. Formulas
HHS describes its process for determining fixed loss thresholds as follows: HHS (i) simulate[s] payments to hospitals at different possible fixed loss threshold amounts by applying the particular fiscal year’s rates and policies to actual MedPAR files from two years prior, then inflating the charges on the MedPAR claims by two years, and estimating costs based on cost-to-charge ratios, and then (ii) select[s] the fixed loss threshold at which projected total outlier payments would equal 5.1 percent of total DRG payments.
Def. Opp. at 19. MedPAR files are “data files, which contain records, by FY, relating to claims paid on each Medicare beneficiary inpatient hospital encounter; they establish the universe of hospital inpatient claims which HHS uses to model claims for the upcoming FY.” Pl. Mem. at 8- 9.
Plaintiffs allege that HHS failed to file the relevant formulas that it “necessarily” relied on in setting the fixed loss thresholds and outlier payments. Pl. Mem. at 26-27. They argue that HHS “superficially” described its process, id. at 26, and that without the formulas “neither the hospitals nor the Court can test . . . whether HHS considered all relevant factors.” Pl. Reply аt 14.
HHS insists that the information provided in the Administrative Record is
sufficient for judicial review of its annual Fixed Loss Thresholds without supplementation of the
record. It relies on the “presumption of agency regularity and the general rule against
supplementation,”
see Banner Health
,
While affording HHS the presumption of regularity, it is also true that “[o]f
course the Hospitals cannot identify, by file name, the specific documents containing the
formulas, because only HHS knows those file names.” Pl. Reply at 13. However, Plaintiffs here
have met their burden of showing an “unusual circumstance” justifying supplementation of the
record.
Kempthorne
,
[Data from HHS’s published rulemakings] shows a consistent trend of HHS assuming pоsitive (upward) inflation in hospital costs during all the FYs at issue, but a consistent downward trend (in all FYs but one) of deflation in the fixed loss threshold. The fact that the FLT shrunk each year means that some unknown factor was applied during HHS’s described step two (“select[ing] the fixed loss threshold at which projected total outlier payments would equal 5.1 percent of total DRG payments”), to counter the effect of the charge inflation factor. Without any explanation as to how HHS projected increased estimated charges and costs but nevertheless lowered the fixed loss threshold, HHS’s path in setting the threshold remains hidden.
Pl. Reply at 14 (quoting Def. Opp. at 19). Moreover, Plaintiffs point to “concrete proof,” noting that in setting the formulas and running “simulations,” “HHS used computer algorithms embedded in one or more software applications.” Pl. Reply at 13 (citing 72 Fed. Reg. 47,417 (AR 1145) (FY 2008)).
Because Plaintiffs contest the annual fixed loss thresholds as аrbitrary and
capricious, the Court agrees that the Administrative Record must include formulas used to derive
those numbers, if such formulas exist. As indicated above, the basic contention here is that HHS
knew or had reason to know that its annual fixed loss threshold calculations were inaccurate,
thereby depriving Plaintiffs (and other hospitals) of legitimate outlier payments, but HHS
repeatedly failed to make necessary adjustments. Without these calculations, this dispute cannot
*14
be decided. Plaintiffs have provided a reasonably specific showing that the Agency relied on
such formulas in making decisions about the fixed loss thresholds and outlier payments which
are directly challenged in this case and have thus met their burden to support supplementation of
the record because review of the formulas is necessary for the Court “to determine whether the
agency considered all the relevant factоrs” in taking the challenged actions.
City of Dania
Beach
,
2. Data Trims
In setting fixed loss thresholds, HHS engages in a process known as “trimming,” which “‘refers to the practice of disregarding data records that are invalid or otherwise may unduly distort the analysis.’” Def. Opp. at 19 (quoting Cheng Decl. ¶ 19). HHS argues that Plaintiffs are not entitled to supplementation of such materials because “[d]ata trims do not modify data files or produce new data, and instead exclude certain data points from analysis, e.g., Medicare Advantage managed care enrollee data and critical access hospital (‘CAH’) data, without expunging them from the data set.” at 19-20.
Plaintiffs recognize that the data trims do not modify or produce new data. They argue that HHS “misapprehended” their supplementation request because they do not seek “new data,” but instead seek “the systematic instructions which HHS applied to ‘exclude certain data points from analysis.’” Pl. Reply at 13 (quoting Def. Opp. at 19). While HHS provided two examples of certain excluded data—“Medicare Advantage managed care enrollee data and critical access hospital data,” Def. Opp. at 19—Plaintiffs request “a complete list of such exclusionary principles” that HHS used in setting fixed loss thresholds. Pl. Reply at 13. Plaintiffs also point out that HHS, in responding to a commenter who discovered a discrepancy *15 when attempting to simulate outlier payments for FY 2008, stated that the discrepancy could be because the commenter used different data trims than those used by HHS. Pl. Mem. at 27.
Plaintiffs have thus pointed to “concrete evidence” that HHS relied upon various “exclusionary principles” in determining fixed loss thresholds. Id. Understanding how HHS applied its methodology is necessary for the Court to weigh the merits of Plaintiffs’ case and to understand whether HHS considered all the relevant factors in making its decisions. [5] Accordingly, HHS will be required to supplement the record with all instructions applied by HHS to exclude data from its analysis in conducting data trims.
3. Formulas and Data used to Calculate Estimated Outlier Payments Plaintiffs further argue that HHS failed to include formulas and data used to calculate the estimated outlier payments made during previous fiscal years. Pl. Mem. at 28. Specifically, Plaintiffs quote an HHS statement explaining that, in estimating FY 2006 outlier payments, the Agency originally relied on “simulations using the FY 2005 MedPAR file,” that is, the Agency applied FY 2006 rates and policies to available FY 2005 bills. Id. (quoting 72 Fed. Reg. at 47,420 (AR at 1148)). However, HHS subsequently updated its estimate using FY *16 2006 bills. Plaintiffs contend that “[d]espite the fact that HHS expressly relied on data and formulas (‘simulations’) to estimate past payments, the agency has refused to provide any of these data and formulas with the administrative records.” Id. Plaintiffs also maintain that HHS relies on estimated prior ovеrpayments when calculating the annual fixed loss threshold. Id. at 29.
HHS argues that its notices of final rulemaking adequately explain that in calculating outlier payments, it applied the past fiscal year rates and policies to the bill information in that year’s MedPAR files. Def. Opp. at 21. With respect to the formulas used to calculate estimated outlier payments, the Court cannot adequately determine if HHS applied the relevant factors in determining past outlier payments without knowing how it came up with those calculations. Plaintiffs point to the fact that HHS relied on specific documents to make such estimates. Pl. Reply at 16 (“HHS stated that its estimates were based on ‘simulations’ (i.e., formulas) using the FYs 2005-2006 MedPAR files and FYs 2006-07 ‘rates and policies.’ In the same rulemaking, HHS also described using ‘the [Provider Specific File] for this final rule’ in combination with the FY 2006 MedPAR file to estimate FY 2007 outlier payments.”) (internal citations omitted). This conсrete data demonstrates HHS’s consideration of such formulas and such information is needed to determine whether HHS considered relevant factors in taking the challenged actions. Therefore, just as the formulas underlying the calculation of fixed loss thresholds, HHS must supplement the record with formulas or documentation of HHS’s calculations of estimated outlier payments in previous fiscal years.
However, as for the data underlying those calculations, “requiring an agency to
produce source data upon source data so that its analysis can be replicated in minute detail would
appear, in most instances, to exceed the bounds of arbitrary and capricious review.”
Banner
*17
Health
,
D. Data Used to Calculate Annual Cost-to-Charge Adjustment Factors Plaintiffs also seek data used to calculate a cost-to-charge adjustment factor (used to determine the fixed loss threshold) that was implemented in FY 2007 to account for a consistent decline in cost-to-charge ratios that happened after each projection of the threshold and payment during upcoming fiscal years. Pl. Mem. at 30. Plaintiffs contend that the adjustment factor is small as compared to the actual rate of decline in ratios and that they need the underlying data to undеrstand HHS’s methodology. at 30-31. Plaintiffs quote HHS explaining how it calculated the FY 2008 cost-to-charge adjustment factor:
For FY 2008, we calculated the [cost-to-charge] adjustment [factor] by using the operating cost per discharge increase in combination with the final market basket increase determined by Global Insight, Inc., as well as the charge inflation factor described above to estimate the adjustment to the [cost-to-charge ratios]. We determined the operating [cost-to-charge] adjustment by taking the percentage increase in the operating costs per discharge from FY 2004 to FY 2005 (1.0564) from the cost report and dividing it by the final market basket increase from FY 2005 (1.043). We repeated this calculation for 2 prior years to determine the 3 year average of the rate of adjusted change in costs between the market basket rate of increase and the increase in cost рer case from the cost report (FY 2002 to FY 2003 percentage increase of operating costs per discharge of 1.0715 divided by FY 2003 final market basket increase of 1.041, FY 2003 to FY 2004 percentage increase of operating costs per discharge of 1.0617 divided by FY 2004 final *18 market basket increase of 1.04). For FY 2008, we averaged the differentials calculated for FY 2003, FY 2004, and FY 2005 which resulted in a mean ratio of 1.0210. We multiplied the 3 year average of 1.0210 by the 2006 market basket percentage increase of 1.0430, which resulted in an operating cost inflation factor of 6.49 percent or 1.0649. We then divided the operating cost inflation factor by the 1 year average change in charges (1.062) and applied an adjustment factor of 1.0027 to the operating CCRs from the PSF.
Pl. Mem. at 31 (quoting
HHS argues that the quoted explanation above clearly delineates how it determines the cost-to-charge adjustment factor. The rulemaking records for the fiscal loss thresholds include the final market basket increase and the costs per discharge based on cost reports, which were used to adjust the cost-to-charge ratios. Def. Opp. at 23 (citing Cheng Decl. ¶ 20). What Plaintiffs seek, HHS asserts, is underlying source data that is unnecessary for judicial review. Further, HHS argues, there is no evidence that unspecified data were before HHS decisionmakers: the Federal Register indicates only that HHS considered the final market basket increase and cost reports in setting the fixed loss thresholds.
HHS is correct. While Plaintiffs argue that HHS considered Global Insight data,
HHS’s explanation clearly states that it only relied upon the “final market basket increase” and
relevant cost reports; those havе already been provided to Plaintiffs in the Administrative
Record. Def. Opp. at 23. Ms. Cheng further confirms that “[f]or purposes of outlier policy,
[HHS] does not review raw data used in setting market baskets” but instead “applies the final
adjustment factors to adjust the CCRs”—“the raw data used in deriving the market basket
inflation factor is not considered in setting the outlier threshold.” Cheng Decl. ¶ 20. Thus,
Plaintiffs fail to overcome the presumption of regularity afforded to HHS in this respect.
*19
Plaintiffs do not present evidence sufficient to show that such documents “were ‘before the
actual decisionmakers’ involved in the challenged agency action.”
Banner Health
, 945 F. Supp.
2d at 17 (quoting
Pac. Shores
,
E. Data Used to Calculate Inflation Factors
Plaintiffs also seek to supplement the Administrative Record with all MedPAR
data relied upon by HHS in calculating annual inflation factors used for setting the fixed loss
thresholds. According to HHS, in calculating thе proposed FY 2008 outlier threshold, it
“simulated payments by applying FY 2008 rates and policies using cases from the FY 2006
MedPAR files” thereby “inflat[ing] the charges on the MedPAR claims by 2 years, from FY
2006 to FY 2008.” Pl. Mem. at 32 (quoting
Plaintiffs contend that HHS has refused to produce MedPAR data that was used to calculate “the 1 year average annualized rate of change in charges per case,” as described above, and that HHS should be required to supplement the record with such data as it was used to calculate annual inflation fаctors. Id . HHS responds that it has included in rulemaking records for the fixed loss thresholds the MedPAR data for each of the fiscal years between FY 2006 and FY 2011, which is the data used by the agency. Pl. Opp. at 24 (citing Cheng Decl. ¶ 21). HHS further explains “the MedPAR data that [HHS] used for the charge inflation calculation is from an early update of MedPAR that is not publicly available, and that the MedPAR data that is used in the final rules (which is the MedPAR data that can be made available publicly for limited uses and is included in the rulemaking records produced to Plaintiffs) could be used to closely approximate the inflation factor that [HHS] calculated.” Id. Plaintiffs counter that they are entitled to the data that was before the agency.
Again, this Court agrees with
District Hospitals,
F. Data Underlying Cost-to-Charge Ratios in Impact Files While the Administrative Record contains the Impact Files for the fiscal years at issue here, it does not include the “underlying assumptions and associated data used to compute the conclusory data contained in the Impact Files.” Pl. Mem. at 34. According to Plaintiffs, the cost-to-charge ratios in the Impact Files were drawn from data in the “Provider Specific Files,” which are available to the public on the Centers for Medicare and Medicaid Services (CMS) website, but there are material discrepancies between the cost-to-charge ratios set forth in the Impact Files and those in the Provider Specific Files. Id.
HHS argues that there is no evidence that the Provider Specific Files requested by Plaintiffs, or any other data from which the impact files were derived, were relied on by HHS decisionmakers. To the contrary, Ms. Cheng’s Declaration states that the Provider Specific Files were used to derive cost-to-charge ratios contained in the impact files. Cheng Decl. ¶¶ 12-13. However, Plaintiffs fail to establish how such underlying source data is necessary to assist the Court in determining whether the Agency considered all the relevant factors. Plaintiffs contend that the material discrepancies between the cost-to-charge ratios in the Impact Files and the Provider Specific Files сonstitute “unusual circumstances” warranting supplementation of the record. The Court disagrees. Ms. Cheng explains that Provider Specific Files are updated quarterly and may also be subject to data trims. Cheng Decl. ¶¶ 10, 15, 19. As the Court in Banner Health explained on reconsideration, in denying Plaintiffs’ request to supplement the record with source data underlying the Impact Files:
the Provider Specific File data on the CMS website is updated ( and may be retroactively corrected ) by fiscal intermediaries and therefore cannot be relied upon to mirror the data that was used to generate the Impact Files. Accordingly, because any alleged inconsistences between the Provider Specific File data on the CMS website and the Impact Files do not undermine the Secretary’s account, as stated in the Federal Register, of how the Impact Files were created, the ostensibly “unusual circumstances” on which the Court relied are non-existent.
Health v. Sebelius
, Civil Case No. 10-1638 (CKK)
G. Regulatory Impact Analyses
Plaintiffs also request that the record be supplemented with the regulatory impact analyses for each of the rulemakings at issue here, as well as all underlying data. For every major rule, agencies must assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity), after which they must prepare a regulatory impact analysis (RIA) detailing their findings. Pl. Mem. at 38. Plaintiffs cite to a statement in the RIA section of the FY 2008 Threshold Regulation stating that FY 2007 outlier payments were lower than projected, which they argue shows that HHS directly considered the RIA in implementing outlier payment regulations. Id. at 39.
HHS explains thаt it already “included with each fixed loss threshold notice of final rule a robust RIA as an appendix to the notice” and argues that what Plaintiffs really seek is underlying source data that is “beyond the scope of what the Court needs for meaningful judicial review.” Def. Opp. at 29-30. The Court agrees. There is no suggestion that data underlying each *23 RIA would help the Court determine whether HHS acted arbitrarily and capriciously, and thus Plaintiffs’ motion to compel with respect to such data will be denied.
H. Documents Relating to Reconciliation
When HHS implemented the 2003 amendment to the outlier payment regulations,
it also required the reconciliation of outlier payments made to providers upon the settlement of
cost reports. This process was intended to have the excess outlier payments of those hospitals
that had engaged in “turbocharging” reconciled and recouped, with interest, by HHS. Pl. Mem.
at 12. HHS ultimately stated that it would not be “‘making any adjustments [tо its fixed loss
threshold] for the possibility that hospitals’ CCRs and outlier payments may be reconciled upon
cost report settlement.’”
Id.
at 40 (quoting
due to the policy implemented in the outlier final rule (68 FR 34494,
June 9, 2003), CCRs will no longer fluctuate significantly and,
therefore, few hospitals will actually have these ratios reconciled
upon cost report settlement. In addition, it is difficult to predict the
specific hospitals that will have CCRs and outlier payments
reconciled in any given year. We also noted that reconciliation
occurs because hospitals’ actual CCRs for the cost reporting period
are different than the interim CCRs used to calculate outlier
payments when a bill is processed. Our simulations assume that
CCRs accurately measure hospital costs based on information
available to us at the time we set the outlier threshold. For these
reasons, we are not making any assumptions about the effects of
reconciliation on the outlier threshold calculation.
at 13 (quoting
Plaintiffs maintain that HHS has failed to file any documents underlying its assertion that few hospitals had their CCR ratios reconciled after cost settlement. This position, Plaintiffs contend, is contradicted by a report from the HHS Office of Inspector General (OIG) identifying $664 million in outlier payments made in FYs 2004-2009 which were not reconciled *24 in accordance with HHS regulations. Pl. Mem. at 41. Plaintiffs seek either documents adverse to HHS’s original statement or documents showing why it refused to account for the impact of reconciliation when setting the fixed loss thresholds at issue here.
HHS argues that the above-quoted language explains why HHS did not factor the effects of cost-to-charge reconciliation into its calculation of the fixed loss thresholds:
as a result of the policy implemented through the outlier payment regulation [in 2003], (i) HHS expected that “cost-to-charge ratios [would] no longer fluctuate significantly,” (ii) consequently it expected that “few hospitals [would] actually have these ratios reconciled upon cost report settlement,” (iii) predicting the specific hospitals that would undergo reconciliation in any given year would be difficult, and (iv) the rationale for reconciliation (which is based on the time interval between interim cost-to-charge ratios and actual cost-to-charge ratios) did not apply to the fixed loss thresholds because HHS’s simulations assumed accurate measures of hospital costs.
Def. Opp. at 31 (quoting
Plaintiffs have not met their burden of demonstrating why supplementation is
warranted with respect to their vague request for missing documents regarding reconciliation—
they have pointed to no specific documents and fail to “identify the materials allegedly omitted
from the record with sufficient specificity, as oрposed to merely proffering broad categories of
documents and data that are ‘likely’ to exist as a result of other documents that are included in
the administrative record.”
Banner Health
,
IV. CONCLUSION
For the reasons set forth above, Plaintiffs’ Motion to Compel [Dkt. 51] will be granted in part and denied in part. No later than July 2, 2015, HHS will be required to supplement the record with the following materials: (1) the draft Interim Final Rule from the 2003 amendments to the payment regulations; (2) the Impact File for the 2003 Rulemaking; (3) the formulas used to calculate the fixed lоss thresholds; (4) all instructions applied by HHS to exclude data from its analysis in conducting data trims; and (5) the formulas used to calculate estimated outlier payments, made during previous FYs, which HHS considered in determining the fixed loss thresholds for the relevant years.
A memorializing Order accompanies this Memorandum Opinion.
Date: June 11, 2015 /s/ ROSEMARY M. COLLYER
United States District Judge
Notes
[1] While Plaintiffs’ Memorandum in Support of its Motion to Compel the Administrative Record [Dkt. 51] states that Plaintiffs “are thirty-four acute care hospitals participating in the Medicare program,” id. at 1, the Third Amended Complaint [Dkt. 58] states that Plaintiffs are a group of non-profit organizations that own and operate thirty-three acute care hospitals, id. ¶ 1.
[2] An example is instructive: “Assume that the Secretary sets the fixed loss threshold at $10,000. Assume also that a hospital treats a Medicare patient for a broken bone and that the DRG rate for the treatment is $3,000. The Medicare patient required unusually extensive treatment which
[3] Plaintiffs originally also sought the administrative record for the 2003 amendments to the payment regulations as well as the Medicare Claims Processing Manual in effect for FYs 2008- 2011. The Secretary has now agreed to supplement the record with those materials, with the exception of the Interim Rule and the Impact File for the 2003 rulemaking. See Def. Opp. at 9, 11. Defendants also note that they have supplemented the record with MedPAR data for FYs 2006 and 2007, which had been inadvertently omitted from the rulemaking records for FYs 2008 and 2009, respectively. Plaintiffs also requested a comment to the FY 2009 fixed loss threshold regulations, but subsequently withdrew their request upon receipt of HHS’s representation that it did not consider the comment for outlier policy purposes. See Pl. Reply in Support of Motion to Compel Administrative Record (Pl. Reply) at 21.
[4] The higher the fixed loss threshold, the more expensive patient care must be to qualify for an outlier payment.
[5] The Circuit’s decision in
District Hospitals Partners
,