United States District Court, D. New Hampshire
New Hampshire Hospital Association et al.
Alex M. Azar,  Secretary, U.S. Department of Health and Human Services et al.
B. McCafferty United States District Judge
November 2015, several New Hampshire hospitals and the New
Hampshire Hospital Association (“NHHA”), a
non-profit trade association, brought 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. Plaintiffs alleged that defendants set forth certain
“policy clarifications” regarding the method of
calculating supplemental Medicaid payments to certain
hospitals. They alleged these policy clarifications were
issued in responses to frequently asked questions posted on
medicaid.gov, and that both the policies themselves and the
manner in which they were promulgated contradicted the plain
language of the Medicaid Act and violated the Administrative
Procedure Act (“APA”).
March 2, 2017, the court granted in part plaintiffs'
motion for summary judgment, holding that defendants'
enforcement of the policy clarifications set forth in the
responses to the frequently asked questions violated the
APA. N.H. Hosp. Ass'n v. Burwell, No.
15-cv-460-LM, 2017 WL 822094, at *8-14 (D.N.H. Mar. 2, 2017)
(“March 2 Order”). The court permanently enjoined
defendants from enforcing the policies in the responses to
the frequently asked questions. Id. at *12 n.16.
Defendants appealed the March 2 Order, and the First Circuit
Court of Appeals affirmed. N.H. Hosp. Ass'n v. Azar,
887 F.3d 62 (1st Cir. 2018).
the appeal concluded, NHHA moved for an award of
attorneys' fees (doc. no. 64), arguing that it is
entitled to recover such fees under the Equal Access to
Justice Act (“EAJA” or “Act”), 28
U.S.C. § 2412. Defendants objected, arguing that NHHA is
not entitled to attorneys' fees under the EAJA and, if it
is, that those fees must be substantially reduced.
NHHA's motion was pending, defendants moved for
“modification or, in the alternative, clarification of
March 2017 permanent injunction” (doc. no. 69). In that
motion, defendants argued that the First Circuit's
decision affirming the March 2 Order was “based on
reasoning that differed from the reasoning of this
Court's decision.” Doc. no. 69 at 8. Defendants
requested that the court modify or clarify its permanent
injunction to be in conformance with the First Circuit's
objected to defendants' motion. In addition, NHHA filed a
supplement to its motion for attorneys' fees (doc. no.
77), in which it seeks additional fees incurred in responding
to defendants' motion to modify or clarify the injunction
and in preparing the motion for fees. In response to the
supplement, defendants reiterate their arguments that NHHA is
not entitled to fees under the EAJA or, in the alternative,
that the court should significantly reduce those fees.
court addresses defendants' motion first before turning
to NHHA's request for attorneys' fees.
Motion to Clarify or Modify Injunction
the court has set forth the background of this case in other
orders, it assumes a general level of familiarity with the
facts and provides only a brief summary. Because Medicaid
payments received from the government often do not cover the
full costs of an indigent patient's care, the Medicaid
Act, 42 U.S.C. §§ 1396 et seq., authorizes the
payment of additional funds to hospitals that serve a high
number of such patients. Those payments to the hospitals are
limited to each hospital's “costs incurred”
in providing services to the indigent patients.The phrase
“costs incurred” includes two specific sources of
payment that must be offset against the total cost of care,
neither of which is relevant to this case. Costs incurred may
further be defined “as determined by the
Secretary” of the United States Department of Health
and Human Services.
are required to provide to the Secretary an annual report and
audit on their DSH program. In 2008, the Secretary
promulgated a final rule implementing the statutory reporting
and auditing requirement (“2008 Rule”). The 2008
Rule did not elaborate on the meaning of the phrase
“costs incurred” as it is contained in the
2010, the Secretary announced, in the form of answers to
“Frequently Asked Questions” posted on
medicaid.gov (“FAQs 33 and 34”), that the
payments to be offset against total costs in calculating
“costs incurred” also included reimbursements
from Medicare and private insurance. Plaintiffs brought this
suit, alleging that the policies set forth in the responses
to FAQs 33 and 34 conflicted with the plain language of the
Medicaid Act and were promulgated in violation of the APA.
order granting in part plaintiffs' motion for summary
judgment, the court held that defendants' actions in
promulgating and enforcing the policies set forth in the
responses to FAQs 33 and 34 violated the APA. The court
permanently enjoined defendants from enforcing those policies
and stated that defendants “shall follow the policies
and procedures in effect before defendants issued FAQs 33 and
34, until and unless those policies and procedures are
replaced by an enforceable and properly promulgated
regulation.” Burwell, 2017 WL 822094 at *16.
The First Circuit affirmed the court's decision.
their motion to modify or clarify the court's permanent
injunction, defendants note that the First Circuit agreed
with this court's holding in the March 2 Order that the
policies set forth in the responses to FAQs 33 and 34
“represented a substantive policy decision that could
not be adopted without notice and comment” under the
APA. Azar, 887 F.3d at 66. They argue, however, that the
First Circuit's decision relied on different reasoning
than the March 2 Order, and that this alternate reasoning
requires modification or clarification of the court's
defendants point to this court's directive in the March 2
Order that they must “follow the policies and
procedures in effect before defendants issued FAQs 33 and 34,
until and unless those policies and procedures are replaced
by an enforceable and properly promulgated regulation.”
Burwell, 2017 WL 822094 at *16 (emphasis added).
According to defendants, the court must modify or clarify
that portion of its injunction because that statement
suggests that CMS had a specific policy of not including
Medicare or private insurance payments in the costs-incurred
calculation. Defendants argue that the First Circuit's
order, in contrast, made it clear that “CMS did not
have any lawfully adopted policy governing the proper
treatment of third-party payments.” Doc. no. 69 at 12.
Thus, defendants ask the court to modify or clarify the
permanent injunction “to make clear that the injunction
only prohibits the defendants from enforcing the
defendants' preferred policy of requiring subtraction of
Medicare and private insurance payments, and does not
additionally direct the defendants to ‘follow' the
plaintiffs' preferred policy of requiring that such
payments be disregarded.” Id.
base their motion on Federal Rule of Civil Procedure
60(b)(5), which provides that a court may relieve a party or
its legal representative from a final judgment or order if
“applying it prospectively is no longer
equitable.” The Supreme Court explained in Horne v.
Flores, 557 U.S. 433 (2009), that:
Rule 60(b)(5) may not be used to challenge the legal
conclusions on which a prior judgment or order rests, but the
Rule provides a means by which a party can ask a court to
modify or vacate a judgment or order if “a significant
change either in factual conditions or in law” renders
continued enforcement “detrimental to the public
interest.” The party seeking relief bears the burden of
establishing that changed circumstances warrant relief . . .
Id. at 447 (citations omitted).
have not met their burden of showing that relief under Rule
60(b)(5) is warranted. The First Circuit's decision,
which affirmed this court's decision on the “same
ground, ” Azar, 887 F.3d at 66, does not represent a
significant change, or any change at all, in the law.
Medicaid Act specifies that a DSH payment cannot exceed:
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 plan or
have no health insurance (or other source of third party
coverage) for services provided during the year.
42 U.S.C. § 1396r-4(g)(1)(A) (emphases added). Thus, the
Medicaid Act specifies the two types of payments that can be
subtracted from the total costs incurred during the year by
hospitals: (1) “payments under this subchapter, ”
i.e., payments made by Medicaid; and (2) payments made by
Medicaid Act also delegates to the Secretary the authority to
determine “costs incurred.” As this court and
every other court to consider the issue has held, the
Secretary may only make such a determination through a
properly-promulgated regulation. And, as this court and every
other court to consider the issue has held, the 2008 Rule did
not change the definition of “costs incurred.”
after repeatedly and unsuccessfully litigating that issue,
defendants now seek to backdoor their preferred policy with
an argument that the First Circuit's decision changed the
governing law. Defendants do not hide their motive in doing
so-they intend to leave open the possibility that state
governments could choose, if they so desire, to require
disproportionate-share hospitals to subtract payments from
Medicare and private insurance in the costs-incurred
calculation. See doc. no. 69 at 12-13 (“If the
requested modification or clarification is granted, CMS
intends to advise the New Hampshire State Government that
there is no operative federal policy governing the treatment
of Medicare and private insurance payments for the time
periods governed by this suit.”); Id. at 13
(“It will then be left to the New Hampshire State
Government to determine how such payments should be treated
in the absence of a federal policy in the calculation of the
attempt to navigate around what amounts to black-letter law
is unpersuasive. The argument that the First Circuit's
order satisfies the Rule 60(b)(5) standard is without merit.
Defendants' motion is denied.
Motion for Attorneys' Fees
requests an award of attorneys' fees and costs under the
Equal Access to Justice Act, 28 U.S.C. § 2412(a)(1) and
(d). The EAJA “departs from the general rule that each
party to a lawsuit pays his or her own legal fees.”
Scarborough v. Principi, 541 U.S. 401, 404 (2004).
“The EAJA renders the United States liable for
attorney's fees for which it would not otherwise be
liable, and thus amounts to a partial waiver of sovereign
immunity.” Ardestani v. I.N.S., 502 U.S. 129,
137 (1991). Consequently, this waiver must be strictly
construed in favor of the government. Id. The
Act's purpose is “to ensure that certain
individuals, partnerships, corporations or other
organizations will not be deterred from seeking review of, or
defending against, unjustified governmental action because of
the expense involved.” Scarborough, 541 U.S. at 407
(internal quotation marks and ellipsis omitted).
relevant here, the EAJA provides:
a court shall award to a prevailing party other than the
United States fees and other expenses . . . incurred by that
party in any civil action . . . including proceedings for
judicial review of agency action, brought by or against the
United States in any court having jurisdiction of that
action, unless the court finds that the position of the
United States was substantially justified or that special
circumstances make an award unjust.
28 U.S.C. § 2412(d)(1)(A). The Act requires that a party
seeking an award of fees under this section submit an
application establishing: (1) that it is a prevailing party;
(2) that it is “eligible to receive an award”;
and (3) the amount sought, “including an itemized
statement from any attorney representing . . . the
party.” 28 U.S.C. § 2412(d)(1)(B); see also
Scarborough, 541 U.S. at 414. The party seeking fees must
also allege that the government's position was not
“substantially justified.” 28 U.S.C. §
2412(d)(1)(B); see also Scarborough, 541 U.S. at 414. Once
that party makes such an allegation, however, the burden of
demonstrating that the government's position was indeed
substantially justified shifts to the government.
Scarborough, 541 U.S. at 414-15.
moves for attorneys' fees under the EAJA, arguing that it
meets the Act's requirements. Defendants object, arguing
that NHHA is not “eligible to receive an award”
under the EAJA because it litigated the suit in cooperation
with and for the benefit of member hospitals that are not
eligible for fees.Defendants also contend that, even if NHHA
is eligible to receive attorneys' fees, its motion should
be denied because defendants' position was substantially
justified. In addition, defendants argue that if the court
awards NHHA attorneys' fees, those fees should be
significantly reduced for several reasons.
Entitlement to Fees
argue that NHHA is not entitled to an award of attorneys'
fees because it is not an eligible party under the EAJA and
because defendants' position was substantially justified.
The court addresses each argument in turn.
EAJA defines an eligible party as “any partnership,
corporation, association, unit of local government, or
organization, the net worth of which did not exceed $7, 000,
000 at the time the civil action was filed, and which had not
more than 500 employees at the time the civil action was
filed.” 28 U.S.C § 2412(d)(2)(B)(ii) (emphasis
added). Where the party seeking EAJA fees is an association,
a majority of courts addressing the issue have held that the
association's eligibility is premised upon its net worth
and number of employees, regardless of the net worth or
employment figures of its members, either individually or
collectively. See Diamond Sawblades Mfrs. Coal. v. United
States, 816 F.Supp.2d 1342, 1351 (Ct. Int'l Trade
2012) (collecting cases); see also Nat'l Ass'n of
Mfrs. v. Dep't of Labor, 159 F.3d 597, 602 (D.C.
Cir. 1998); Texas Food Indus. Ass'n v. United States
Dep't of Agric., 81 F.3d 578, 581 (5th Cir. 1996);
Love v. Reilly, 924 F.2d 1492, 1494 (9th Cir. 1991).
But see Nat'l Truck Equip. Ass'n v. Nat'l
Highway Traffic Safety Admin., 972 F.2d 669, 670 (6th
Cir. 1992) (interpreting EAJA as requiring aggregation of
trade association's members' net worth and employment
figures to determine whether it was an eligible party).
do not dispute, and the court agrees, that the majority
approach is more reasoned and that NHHA meets the
requirements under that approach. NHHA is a not-for-profit
trade association that advocates on behalf of its member
hospitals and health care delivery systems. Doc. no. 64-2 at
2. It is registered in New Hampshire as a nonprofit
corporation. Id. At the time this action was filed,
NHHA had approximately eight employees and its net worth did
not exceed $5, 000, 000. Id. Therefore, NHHA
satisfies the definition of an eligible party under 28 U.S.C
defendants argue that NHHA is not eligible for fees because
it is not the “real party in interest” for the
purposes of awarding such fees. Doc. no. 68 at 9-10. They
contend that the four plaintiff hospitals-which they assert
do not qualify as eligible parties under the EAJA-essentially
controlled the litigation. NHHA counters that it is the real party
in interest because it paid all the attorneys' fees
incurred on behalf of plaintiffs in this litigation. It also
asserts that there is insufficient evidence in the record
that the plaintiff hospitals actually controlled the
parties do not cite, and the court is not aware of, any First
Circuit case applying the real-party-in-interest test to the
EAJA. Because both parties assume that the
real-party-in-interest test is relevant here, however, the
court conducts it. To determine the real party in interest
for purposes of fees, the court considers whether there is a
clear arrangement among the plaintiffs regarding the
responsibility for fees. See Am. Ass'n of Retired
Persons v. E.E.O.C.,873 F.2d 402, 405-06 (D.C. Cir.
1989). Absent a clear fee agreement among the plaintiffs, a
district court may consider a “variety of
factors” to determine the real party in interest.