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New Hampshire Hospital Association v. Azar

United States District Court, D. New Hampshire

March 28, 2019

New Hampshire Hospital Association et al.
v.
Alex M. Azar, [1] Secretary, U.S. Department of Health and Human Services et al.

          ORDER

          Landya B. McCafferty United States District Judge

         In November 2015, several New Hampshire hospitals[2] 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”).

         On 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.[3] N.H. Hosp. Ass'n v. Azar, 887 F.3d 62 (1st Cir. 2018).

         After 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.[4] 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.

         While 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 decision.

         Plaintiffs 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.

         The court addresses defendants' motion first before turning to NHHA's request for attorneys' fees.

         I. Motion to Clarify or Modify Injunction

         A. Background

         Because 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.[5]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.

         States 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 Medicaid Act.

         In 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.

         In its 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.

         B. Discussion

         In 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 permanent injunction.

         Specifically, 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.

         Defendants 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).

         Defendants 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.

         The 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 uninsured patients.

         The 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.”

         Nevertheless, 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 hospital-specific limit.”).

         Defendants' 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.

         II. Motion for Attorneys' Fees

         NHHA 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).

         As 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.

         NHHA 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.[6]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.

         A. Entitlement to Fees

         Defendants 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.

         1. Eligible Party

         The 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).

         Defendants 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 § 2412(d)(2)(B)(ii).

         Nevertheless, 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.[7] 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 litigation.

         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. Id ...


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