United States District Court, D. New Hampshire
New Hampshire Hospital Association, et al.
Sylvia Matthews Burwell et al. Opinion No. 2017 DNH 040 P
McCafferty District Judge.
New Hampshire hospitals and the New Hampshire Hospital
Association (“NHHA”), a non-profit trade
association, bring this suit against the Secretary of Health
and Human Services (the “Secretary”), the Centers
for Medicare and Medicaid Services (“CMS”), and
the Administrator of CMS, alleging that defendants have set
forth certain “policy clarifications” that
contradict the plain language of the Medicaid Act and violate
the Administrative Procedure Act (“APA”). The
court granted plaintiffs' motion for a preliminary
injunction barring defendants from enforcing the policy
clarifications during the pendency of this litigation. See
doc. no. 31. The parties now cross-move for summary judgment.
parties agree that because this is an action for review of
agency action under the APA, the case can and should be
resolved on summary judgment. See 5 U.S.C. § 706;
Atieh v. Riordan, 727 F.3d 73, 76 (1st Cir. 2013).
The First Circuit has observed that the summary judgment
“rubric has a special twist in the administrative law
context.” Assoc. Fisheries of Me., Inc. v.
Daley, 127 F.3d 104, 109 (1st Cir. 1997). The
court's job on summary judgment “is only to
determine whether the Secretary's [policy] was consonant
with [her] statutory powers, reasoned, and supported by
substantial evidence in the record.” Id. On
cross motions for summary judgment, the standard of review is
applied to each motion separately. See Am. Home Assurance
Co. v. AGM Marine Contractors, Inc., 467 F.3d 810, 812
(1st Cir. 2006) (applying the standard to each motion where
cross motions were filed); see also Mandel v. Bos. Phoenix,
Inc., 456 F.3d 198, 205 (1st Cir. 2006).
is a cooperative federal-state program designed to provide
medical services to those members of society who, because
they lack the necessary financial resources, cannot otherwise
obtain medical care. See Wilder v. Virginia Hosp.
Ass'n, 496 U.S. 498, 502 (1990). That is, the
program provides medical care to a population generally
consisting of the poor, including dependent children, the
disabled, and the elderly. See 42 C.F.R. § 430.0.
Legislation creating the program, the Medicaid Act, 42 U.S.C.
§§ 1396 et seq., “provides financial support
to states that establish and administer state Medicaid
programs in accordance with federal law.” Long Term
Care Pharm. All. v. Ferguson, 362 F.3d 50, 51 (1st Cir.
participation in the Medicaid program is entirely optional,
once a State elects to participate, it must comply with the
requirements of [the Medicaid Act].” Harris v.
McRae, 448 U.S. 297, 301 (1980). In order to qualify for
Medicaid funding, a state must adopt a Medicaid “plan,
” 42 U.S.C. § 1396a(a), which must be approved by
CMS, a subdivision of the United States Department of Health
and Human Services. See Ferguson, 362 F.3d at 51. “The
state plan is required to establish, among other things, a
scheme for reimbursing health care providers for the medical
services provided to needy individuals.” Wilder, 496
U.S. at 502. If CMS approves a state's plan, the federal
government provides reimbursements to the state for a portion
of the expenditures that it incurs for Medicaid benefits, and
for necessary and proper costs of administering the state
plan. See 42 U.S.C. § 1396b(a). The state is responsible
for the remainder of its Medicaid expenditures. See §
with the “greater costs it found to be associated with
the treatment of indigent patients, ” D.C. Hosp.
Ass'n v. District of Columbia, 224 F.3d 776, 777 (D.C.
Cir. 2000), Congress amended the Medicaid Act in 1981 to
ensure that payments to hospitals providing Medicaid-eligible
services to indigent patients “take into account . . .
the situation of hospitals which serve a disproportionate
number of low-income patients with special needs.”
§ 1396a(a)(13)(A)(iv). Congress's “intent was
to stabilize the hospitals financially and preserve access to
health care services for eligible low-income patients.”
Va., Dep't of Med. Assistance Servs. v. Johnson,
609 F.Supp.2d 1, 3 (D.D.C. 2009).
the Medicaid Act, states must ensure that such hospitals
receive an “appropriate increase in the rate or amount
of payment for such services” and that the
reimbursements “reflect not only the cost of caring for
Medicaid recipients, but also the cost of charity care given
to uninsured patients.” Louisiana Dep't of
Health & Hosps. v. Ctr. for Medicare & Medicaid
Servs., 346 F.3d 571, 573 (5th Cir. 2003) (discussing 42
U.S.C. § 1396r-4(b)(1), (3)). Such increased payments
are available to any hospital that treats a disproportionate
share of Medicaid patients (a “disproportionate-share
hospital” or “DSH”). §
1993, Congress amended the DSH program to limit DSH payments
on a hospital-specific basis. See § 1396r-4(g). Congress
enacted the hospital-specific limit in response to reports
that some hospitals received DSH payment adjustments that
exceeded “the net costs, and in some instances the
total costs, of operating the facilities.” Omnibus
Budget Reconciliation Act of 1993, H.R. Rep. No. 103-111, at
211-12 (1993). The hospital-specific limit was established in
§ 1396r-4(g)(1), which is captioned: “Amount of
adjustment subject to uncompensated costs.” That
section provides that DSH payments made to a hospital cannot
the costs incurred during the year of furnishing hospital
services (as determined by the Secretary and net of payments
under this subchapter, other than under this section, and by
uninsured patients) by the hospital to individuals who either
are eligible for medical assistance under the State
[Medicaid] plan or have no health insurance (or other source
of third party coverage) for services provided during the
§ 1396r-4(g)(1)(A). Thus, for Medicaid patients (as opposed
to uninsured patients), the Medicaid Act sets the
hospital-specific DSH limit as the costs a hospital incurs in
furnishing hospital services to Medicaid-eligible patients
“as determined by the Secretary and net of
payments” under the Medicaid Act.
Audit and Reporting Requirements
2003, to monitor DSH payments, Congress enacted into law a
requirement that each state provide to the Secretary an
annual report and audit on its DSH program. See §
1396r-4(j). The audit must confirm, among other things, that
“[o]nly the uncompensated care costs of providing
inpatient hospital and outpatient hospital services to
individuals described in [§ 1396r-4(g)(1)(A)] . . . are
included in the calculation of the hospital-specific
limits.” § 1396r-4(j)(2)(C). Any overpayments that
an audit reveals must be recouped by the state within one
year of their discovery or the federal government may reduce
its future contribution. See § 1396b(d)(2)(C).
December 19, 2008, CMS promulgated a final rule implementing
the statutory reporting and auditing requirement (the
“2008 Rule”). See Disproportionate Share Hospital
Payments, 73 Fed. Reg. 77904 (Dec. 19, 2008). The 2008 Rule
requires that states annually submit information “for
each DSH hospital to which the State made a DSH
payment.” 42 C.F.R. § 447.299(c). One such piece
of required information is the hospital's “total
annual uncompensated care costs, ” which is defined as
The total annual uncompensated care cost equals the total
cost of care for furnishing inpatient hospital and outpatient
hospital services to Medicaid eligible individuals and to
individuals with no source of third party coverage for the
hospital services they receive less the sum of regular
Medicaid [fee-for-service] rate payments, Medicaid managed
care organization payments, supplemental/enhanced Medicaid
payments, uninsured revenues, and Section 1011 payments . . .
§ 447.299(c)(16). This section establishes a formula for
a state to determine whether the hospital-specific DSH limit,
as set forth in § 1396r-4(g)(1)(A), was calculated
2008 Rule also provides that any audits of DSH payments made
prior to Fiscal Year 2011 would not result in the recoupment
or reduction of federal funds used for DSH payments. See 73
Fed. Reg. 77906. Beginning with payments made in Fiscal Year
2011, any DSH overpayments must be recovered by the state and
returned to the federal government, unless they “are
redistributed by the State to other qualifying
FAQs 33 and 34
January 10, 2010, CMS posted answers on its website to
“frequently asked questions” regarding the audit
and reporting requirements of the 2008 Rule. See Additional
Information on the DSH Reporting and Auditing Requirement,
(last visited March 2, 2017). Two of the frequently asked
questions, FAQ 33 and FAQ 34, and CMS's responses to
those questions are at issue in this case. FAQ 33 and
CMS's response thereto are as follows:
33: Would days, costs, and revenues associated with patients
that have both Medicaid and private insurance coverage (such
as Blue Cross) also be included in the calculation of the ...
DSH limit in the same way States include days, costs and
revenues associated with individuals dually eligible for
Medicaid and Medicare?
Days, cost[s], and revenues associated with patients that are
dually eligible for Medicaid and private insurance should be
included in the calculation of the Medicaid inpatient
utilization rate (MIUR) for the purposes of determining a
hospital eligible to receive DSH payments. Section
1923(g)(1) does not contain an exclusion for
individuals eligible for Medicaid and also enrolled in
private health insurance. Therefore, days, costs, and
revenues associated with patients that are eligible for
Medicaid and also have private insurance should be included
in the calculation of the hospital-specific DSH limit.
Id. at 18. FAQ 34 and CMS's response thereto
34. The regulation states that costs for dual eligibles
should be included in uncompensated care costs. Could you
please explain further? Under what circumstances should we
include Medicare payments?
Section 1923(g) of the Act defines hospital-specific limits
on FFP for Medicaid DSH payments. Under the hospital-specific
limits, a hospital's DSH payment must not exceed the
costs incurred by that hospital in furnishing services during
the year to Medicaid and uninsured patients less payments
received for those patients. There is no exclusion in section
1923(g)(1) for costs for, and payment made, on behalf of
individuals dually eligible for Medicare and Medicaid.
Hospitals that include dually-eligible days to determine DSH
qualification must also include the costs attributable to
dual eligibles when calculating the uncompensated costs of
serving Medicaid eligible individuals. Hospitals must also
take into account payment made on behalf of the individual,
including all Medicare and Medicaid payments made on behalf
of dual eligibles. In calculating the Medicare payment for
service, the hospital would have to include the Medicare DSH
adjustment and any other Medicare payments (including, but
not limited to Medicare IME and GME) with respect to that
service. This would include payments for Medicare allowable
bad debt attributable to dual eligibles.
CMS's responses to FAQs 33 and 34 provide that in
calculating the hospital-specific DSH limit, a state must
subtract payments received from private health insurance (FAQ
33) and Medicare (FAQ 34) for dually-eligible Medicaid
patients from the costs incurred in providing hospital
services to those patients. In the remainder of this order,
the court uses “FAQ 33” and “FAQ 34”
to refer to CMS's responses to those FAQs and the
requirements stated in the responses.
Texas Children's Hospital v. Burwell
December 5, 2014, two disproportionate-share hospitals, Texas
Children's Hospital and Seattle Children's Hospital,
brought suit against the same defendants named in this case
in the District Court for the District of Columbia. See
Texas Children's Hospital v. Burwell, Civil Action
No. 14-2060 (EGS) (D.D.C. 2014). The plaintiffs in Texas
Children's Hospital assert that FAQ 33 is contrary to the
provisions of the Medicaid Act and that CMS's publication
of FAQ 33 violates the procedural requirements of the APA. On
December 29, 2014, the court in Texas Children's Hospital
granted the plaintiffs' motion for preliminary injunction
and entered an order enjoining CMS from enforcing, applying,
or implementing FAQ 33 pending further order of the court.
Texas Children's Hosp. v. Burwell, 76 F.Supp.3d
224, 246-47 (D.D.C. 2014). The court further ordered CMS to
notify the Texas and Washington State Medicaid programs that,
pending further order by the court, the enforcement of FAQ 33
is enjoined and CMS will take no action to recoup federal DSH
funds provided to Texas and Washington based on the
states' noncompliance with FAQ 33. Id. The
plaintiffs in that case have not challenged FAQ 34 or
CMS's policy regarding patients dually eligible for
Medicare and Medicaid.
Plaintiffs' Petition to CMS
17, 2015, plaintiffs petitioned CMS requesting that the
agency repeal the policies referenced in FAQs 33 and 34
regarding the inclusion of private health insurance and
Medicare payments in the calculation of the Medicaid
Shortfall. See doc. no. 10-24. Plaintiffs submitted a
supplement to the petition dated June 24, 2015. See doc. no.
10-25. The petition and the supplement asserted that FAQs 33
and 34 operate as substantive amendments to existing federal
law and regulations, as well as to the New Hampshire State
Medicaid Plan. See doc. nos. 10-24 and 10-25. The petition
and supplement also asserted that the policies are illegal
and void and requested that CMS repeal and revoke them.
letter dated October 6, 2015, CMS Acting Administrator Andrew
Slavitt responded to plaintiffs' petition. See doc. no.
10-26. In the letter, Slavitt stated:
The CMS continues to maintain that this longstanding,
consistent policy, which is reflected in FAQ No. 33 with
respect to private insurance payments, and is discussed
elsewhere in the FAQs and in the preamble to the December
2008 regulation with respect to Medicare payments for
dually-eligible beneficiaries, reflects a valid
interpretation of the statute governing the calculation of
uncompensated care costs for purposes of the DSH
hospital-specific limit, 42 U.S.C. § 1396r-4, and the
Id. at 2 (citations omitted). Slavitt acknowledged
the preliminary injunction in Texas Children's Hospital,
For all other states, including New Hampshire, CMS may
disallow federal financial participation if a state does not
comply with the policy articulated in FAQ No. 33.
Moreover, for state plan rate year 2011 and thereafter, any
other audit-identified DSH payments that exceed documented
hospital-specific DSH limits may be treated as provider
overpayments that, pursuant to 42 CFR Part 433, Subpart F,
trigger the return of the federal share to the federal
Id. at 2-3.
filed this lawsuit on January 15, 2016. That same day, they
filed a motion for preliminary injunction, which sought to
enjoin defendants from enforcing or applying FAQs 33 and 34
during the pendency of this case. Defendants objected to the
motion, plaintiffs filed a reply, and defendants filed a
surreply. On February 18, 2016, the court held an evidentiary
hearing, during which the court heard oral argument and
plaintiffs submitted evidence.
March 11, 2016, the court granted plaintiffs' motion for
a preliminary injunction. See N.H. Hosp. Assoc. v.
Burwell, 15-cv-460-LM, 2016 WL 1048023 (D.N.H. Mar. 11,
2016). The court held that plaintiffs had carried their
burden to show that they were likely to prove that defendants
violated the APA and that they would suffer irreparable harm
absent a preliminary injunction, and that the remaining
factors weighed in favor of granting a preliminary
injunction. The parties now cross-move for summary judgment.
complaint sets forth four counts, all of which allege
violations of the APA: (1) violation of 5 U.S.C. §
706(2)(C) (Count I); (2) violation of 5 U.S.C. §§
706(2)(A), (D) (Count II); (3) violation of 5 U.S.C.
§§ 706(2)(A), (D) (Count III); and (4) violation of
5 U.S.C. § 706(2)(A) (Count IV). Plaintiffs state in
their summary judgment memorandum that they “are no
longer pressing Count IV of their complaint.” Doc. no.
33-1 at n.1. The parties move for summary judgment on each of
the three remaining counts.
threshold matter, defendants argue in their summary judgment
motion that they are entitled to summary judgment because
plaintiffs lack standing to pursue their claims. Plaintiffs
argue in their summary judgment motion and objection to
defendants' motion that they do have standing to pursue
their claims. Therefore, the court addresses the parties'
arguments as to standing before proceeding to the merits of
each claim. See Pagan v. Calderon, 448 F.3d 16, 26
(1st Cir. 2006) (“A federal court must satisfy itself
as to its jurisdiction, including a plaintiff's Article
III standing to sue, before addressing his particular claims
. . . .”).
III of the Constitution limits the jurisdiction of federal
courts to ‘Cases' and
‘Controversies.'” Susan B. Anthony List v.
Driehaus, 134 S.Ct. 2334, 2341 (2014) (quoting U.S. Const.,
Art. III, § 2). “The doctrine of standing gives
meaning to these constitutional limits by
‘identify[ing] those disputes which are appropriately
resolved through the judicial process.'”
Id. (quoting Lujan v. Defenders of Wildlife, 504
U.S. 555, 560 (1992)). To establish Article III standing,
“a plaintiff must show (1) it has suffered an
‘injury in fact' that is (a) concrete and
particularized and (b) actual or imminent, not conjectural or
hypothetical; (2) the injury is fairly traceable to the
challenged action of the defendant; and (3) ...