Bayshore Community Hospital v. Burwell ( 2018 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_________________________________________
)
BAYSHORE COMMUNITY HOSPITAL, et al., )
)
Plaintiffs, )
)
v. ) Case No. 16-cv-02353 (APM)
)
ALEX M. AZAR II, 1 )
)
Defendant. )
_________________________________________ )
MEMORANDUM OPINION AND ORDER
I.
This matter is before the court in an unusual posture. Strictly speaking, the court has before
it the parties’ cross-motions for summary judgment and a suggestion of mootness filed by
Defendant Secretary of Health and Human Services. But it is not the merits of Plaintiffs’ claims
that are at issue in these motions; rather, what the parties vigorously contest is the proper remedy
to afford these Plaintiffs.
Plaintiffs are five acute care hospitals who brought this action to seek review of a
determination by the U.S. Department of Health and Human Services’ Provider Reimbursement
Review Board that it lacked jurisdiction to hear Plaintiffs’ appeal. Plaintiffs’ appeal to the Board
challenged the amount of “outlier” payments Plaintiffs received in fiscal years 2008, 2009, and
2012 on the ground that the federal Medicare regulations governing those payments violated the
Administrative Procedure Act (“APA”) and, as relevant here, requested that the Board grant
1
Pursuant to Rule 25(d) of the Federal Rules of Civil Procedure, the court substitutes the current Secretary of Health
and Human Services as the defendant in this case.
“expedited judicial review” of Plaintiffs’ APA challenge. 2 The Board denied Plaintiffs’ request
for expedited judicial review, however, under what is known as the “self-disallowance”
regulation. 3 It is this decision by the Board that forms the basis for Plaintiffs’ lawsuit, at least in
its current form. Plaintiffs’ challenge to the outlier regulations is not presently before the court.
Defendant does not seek to defend the Board’s determination that it lacked jurisdiction to
grant Plaintiffs’ request for expedited judicial review. Instead, he asks the court—for a second
time—to remand this matter to the Board so that it can confirm its jurisdiction and grant these
Plaintiffs the expedited judicial review finding that the Board previously withheld. Plaintiffs, on
the other hand, do not want a remand. They ask for greater relief. They want the court to vacate
the self-disallowance regulation that the Board relied upon to deny them expedited judicial review.
Such relief is warranted, they say, following this court’s decision in Banner Heart Hospital v.
Burwell, 201 F. Supp. 3d 131 (D.D.C. 2016), in which the court held that applying the self-
disallowance regulation to dissatisfied providers, like these Plaintiffs, who assert a legal challenge
to an agency regulation or policy that cannot be addressed by a fiscal intermediary is contrary to
the Medicare statute. After the regulation is vacated, Plaintiffs maintain, the court could retain
2
See generally 42 U.S.C. § 1395oo(f)(1); 42 C.F.R. § 405.1842(f)(1) (requiring the Board to grant expedited judicial
review if it has jurisdiction to conduct a hearing on a legal question relevant to a specific matter at issue on appeal,
but lacks the authority to decide that question “because the legal question is a challenge either to the constitutionality
of a provision of a statute, or to the substantive or procedural validity of a regulation or CMS Ruling”); id.
§ 405.1842(g)(2) (“If the Board grants [expedited judicial review], the provider may file a complaint in a Federal
district court in order to obtain [expedited judicial review] of the legal question.”).
3
“The self-disallowance regulation, which was in effect for fiscal years 2008, 2009, and 2012, deprives a provider of
its right to a hearing before the Board if the provider did not report to the fiscal intermediary a cost that it believed
should be reimbursable, but which it knew was barred by Medicare regulations.” Bayshore Cmty. Hosp. v. Hargan,
285 F. Supp. 3d 9, 14 (D.D.C. 2017) (citing 42 C.F.R. § 408.1835(a)(1)(ii) (effective August 21, 2008, through
September 30, 2014); and 42 C.F.R. § 405.1835(a)(1)(ii) (effective October 1, 2014, through December 31, 2015)).
In this case, “Plaintiffs did not present to their fiscal intermediaries for reimbursement amounts they believed would
be withheld by operation of the challenged outlier regulations. In other words, they did not comply with the self-
disallowance regulation before filing their appeal to the Board.” Id.
2
jurisdiction, freeing Plaintiffs to amend their Complaint to challenge the outlier regulation on the
merits.
The court previously rejected Defendant’s request for a remand. See generally Bayshore
Cmty. Hosp. v. Hargan, 285 F. Supp. 3d 9 (D.D.C. 2017). 4 The court ruled that a remand was
inappropriate because (1) Defendant had not offered a “substantial and legitimate” reason
warranting remand; (2) a remand would prejudice Plaintiffs by causing extensive delay; and
(3) remand would be futile, as the law unambiguously requires the Board to grant expedited
judicial review. See id. at 16. The landscape has changed, however, since the court’s ruling.
Three things have occurred. First, in his motion for summary judgment and remand,
Defendant has offered a more fulsome explanation for why the Board did not apply Banner Heart
to Plaintiffs’ appeal in the first instance. Defendant explains that the Board had no choice but to
apply the self-disallowance regulation to Plaintiffs’ appeal, notwithstanding the court’s decision
in Banner Heart, because “the Board is constrained by the agency’s existing regulations, which it
lacks the power to overrule.” Def.’s Cross-Mot. for Summ. J. & Remand, ECF No. 29 [hereinafter
Def.’s Mot.], at 19 (citing 42 C.F.R. § 405.1867). 5 In other words, the Board was not at liberty to
apply Banner Heart even if it wanted to do so. In denying Defendant’s first motion for remand,
the court did not appreciate this limitation on the Board’s authority. Cf. Bayshore Cmty. Hosp.,
285 F. Supp. 3d at 16–17.
Second, on April 23, 2018, the Centers for Medicare and Medicaid Services (“CMS”)
issued a ruling formally acquiescing in the court’s decision in Banner Heart. See Notice of Suppl.
4
For a detailed recitation of the factual and procedural history of this matter, see Bayshore Cmty. Hosp., 285 F. Supp.
3d at 13–14.
5
As Defendant filed his motion and memorandum in support in a single record, the court uses the page numbers
electronically generated by CM/ECF when citing to that pleading.
3
Authority, ECF No. 33, Ex. 1, ECF No. 33-1 [hereinafter CMS Ruling No. 1727-R]. The ruling
“states the policy of [CMS] concerning [its] decision to follow the U.S. District Court for the
District of Columbia’s holding in [Banner Heart] for appeals of cost reporting periods that ended
on or after December 31, 2008[,] and began before January 12, 2016[,] that were pending or filed
on or after April 23, 2018.” Id. at 1–2. 6 In practical terms, the new CMS ruling means that the
Board, generally speaking, now has jurisdiction to grant expedited judicial review to providers
who, like Plaintiffs, did not follow the self-disallowance regulation by including a challenged item
on a cost report “due to a good faith belief that the [challenged] item was subject to a payment
regulation or other policy” as to which the fiscal intermediary had “no authority or discretion to
make payment in the manner . . . sought.” Id. at 2. Plaintiffs candidly acknowledge that CMS’
acquiescence to Banner Heart negates at least one form of relief that they originally sought: an
injunction prohibiting the Board from applying the self-disallowance regulation to similarly
situated providers in the future. See Pls.’ Resp. to Def.’s Suggestion of Mootness, ECF No. 37
[hereinafter Pls.’ Resp.], at 2 (“Although CMS Ruling 1727 does not moot the request for vacatur,
it does effectively remove the need for injunctive relief barring prospective application of the
offending portions of the self-disallowance regulation.”).
Third, the D.C. Circuit recently decided Billings Clinic v. Azar, No. 17-5006, 2018 WL
3910505 (D.C. Cir. Aug. 10, 2018). In that case, multiple hospitals brought suit to challenge the
agency’s methodology for calculating a particular component of their Medicare reimbursements.
See id. at *1. The Board granted expedited judicial review to some hospitals, but declined to
exercise jurisdiction as to others, concluding that it lacked jurisdiction to grant expedited review
because those hospitals failed to comply with the self-disallowance regulation. See id. at *8–9.
6
Citations to CMS Ruling No. 1727-R are to the page numbers electronically generated by CM/ECF.
4
With respect to the hospitals in the former category, the Circuit found that “the district court
properly exercised jurisdiction over [their] claims.” Id. at *9. With respect to the hospitals in the
latter category, however, the Circuit observed that while the Secretary “ha[d] since disavowed the
Board’s procedural objection to [their] claims in that case, that [left] unanswered whether the
district court could proceed without first remanding for either a final decision or certification for
expedited review from the Board.” Id. Ultimately, the Circuit did not need to untangle this
“jurisdictional quandary,” because some of the hospitals did have expedited-review certifications
from the Board and because “only non-individualized injunctive relief [was] sought.” Id. Billings
Clinic has obvious relevance to this case. Although the Circuit passed on resolving the
jurisdictional inquiry, it clearly telegraphed that jurisdictional complications might arise should a
substantive challenge to an agency policy or regulation arrive on appeal without proper Board
certification. Cf. id. It would be careless for this court not to heed the Circuit’s warning.
In view of these events, and for the reasons that follow, the court reconsiders its denial of
Defendant’s initial motion for remand and finds that a remand to the Board, with instructions to
follow Banner Heart, as Defendant has agreed to do, is the appropriate remedy in this case.
II.
Federal Rule of Civil Procedure 54(b) provides that “[a] court may revise its own
interlocutory orders at ‘any time before the entry of a judgment adjudicating all the claims and all
the parties’ rights and liabilities.’” Ofisi v. BNP Paribas, S.A., 285 F. Supp. 3d 240, 243 (D.D.C.
2018) (quoting Fed. R. Civ. P. 54(b)). Relief under Rule 54(b) is available “as justice requires,” a
standard that reflects the flexibility afforded courts under the rule. Cobell v. Jewell, 802 F.3d 12,
25 (D.C. Cir. 2015) (internal quotation mark omitted). Reconsideration “may be warranted where
the court has patently misunderstood the parties, made a decision beyond the adversarial issues
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presented, made an error in failing to consider controlling decisions or data, or where a controlling
or significant change in the law has occurred.” U.S. ex rel. Westrick v. Second Chance Body
Armor, Inc., 893 F. Supp. 2d 258, 269 (D.D.C. 2012) (cleaned up). “These considerations leave a
great deal of room for the court’s discretion and, accordingly, the ‘as justice requires’ standard
amounts to determining ‘whether [relief upon] reconsideration is necessary under the relevant
circumstances.’” Lewis v. District of Columbia, 736 F. Supp. 2d 98, 102 (D.D.C. 2010) (alteration
in original) (quoting Cobell v. Norton, 224 F.R.D. 266, 272 (D.D.C. 2004)).
III.
With these principles in mind, the court turns to the factors that a court must evaluate in
deciding whether to grant an agency’s request for voluntary remand. “Courts have found voluntary
remand to be appropriate when new evidence comes to light after the agency made its decision,
intervening events beyond the agency’s control arise after the agency has acted and could affect
the validity of the agency’s decision, or other ‘substantial and legitimate concerns’ warrant a
remand.” Bayshore Cmty. Hosp., 285 F. Supp. 3d at 15 (quoting FBME Bank Ltd. v. Lew, 142
F. Supp. 3d 70, 73 (D.D.C. 2015)).
Substantial and legitimate concerns warrant a remand here. As noted, when the court first
denied Defendant’s request for voluntary remand, the court did not recognize that the Board’s
decision not to apply Banner Heart was appropriate. Accordingly, the concern that animated the
court’s initial decision—that “Defendant is giving these Plaintiffs the run-around, rather than
applying the law in a fair and just manner”—is now alleviated. See id. at 16. If anything, the
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Secretary’s recent acquiescence to Banner Heart and issuance of a new CMS ruling demonstrates
the agency’s good faith.
Nor would remand be futile, as the court initially held. See id. at 18–19. It remains true
that, upon remand, the Board would be constrained—both under binding precedent and this court’s
order to follow Banner Heart—to exercise jurisdiction and grant Plaintiffs expedited judicial
review. See Allina Health Servs. v. Price, 863 F.3d 937, 942 (D.C. Cir. 2017) (“[T]he Board ‘must
grant’ expedited judicial review if the legal question raised ‘is a challenge either to the
constitutionality of a provision of a statute, or to the substantive or procedural validity of a
regulation.’” (emphasis added) (quoting 42 C.F.R. § 405.1842(f)(1)); see also Bayshore Cmty.
Hosp., 285 F. Supp. 3d at 18 (explaining how logic of Banner Heart would operate on remand).
The court, however, was mistaken when it found that remanding for that purpose would constitute
an “empty formality.” Bayshore Cmty. Hosp., 285 F. Supp. 3d at 19. Billings Clinic plainly signals
that a district court may in fact lack jurisdiction to hear a challenge to a policy or regulation if the
provider has not first secured a certification of expedited judicial review. See 2018 WL 3910505,
at *8–9 (noting the “jurisdictional quandary” created by the district court’s decision to exercise
jurisdiction under 42 U.S.C. § 1395oo(f) after the district court concluded that the Board had
jurisdiction to grant the plaintiffs expedited judicial review). A remand here would avoid creating
a “jurisdictional quandary.” See id. at *9. And, importantly, all indications are that if the Circuit
were to resolve the “jurisdictional quandary,” it would conclude that the absence of a certification
from the Board would mean that the district court lacks jurisdiction to hear the case. As Defendant
points out, see Def.’s Mot. at 27, the Circuit in Allina Health Services observed that the pertinent
Medicare statute, 42 U.S.C. § 1395oo(f)(1), “conditions expedited judicial review in the district
court on the existence of [the Board’s] no-authority determination, not on whether that
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determination is correct,” Allina Health Servs., 863 F.3d at 941 (first emphasis added). The
Circuit’s use of the word “condition” leaves little doubt about the jurisdictional significance of
securing expedited judicial review from the Board.
To be certain, a remand will prejudice Plaintiffs, as even more time will pass before they
receive judicial review of their underlying APA challenge to the validity of the outlier regulations.
But that additional time is warranted. It will immunize Plaintiffs against jurisdictional challenges
in this District Court—and before the Circuit—that would prove fatal to Plaintiffs’ cause if
successful. A remand for that purpose is time well spent. Moreover, the court, too, will benefit
from returning this case to the Board. A remand will allow the case to “come before the court in
a posture that facilitates review on the merits,” thereby obviating the need for “judicial effort” on
jurisdictional issues. See Ryan v. Bentsen, 12 F.3d 245, 249 (D.C. Cir. 1993). In other words,
completing the administrative review process will facilitate more focused judicial review.
IV.
Notwithstanding the foregoing discussion, Plaintiffs express concern that a remand will
still leave them jurisdictionally at sea. They point out that the temporal restrictions of CMS Ruling
1727 could create an obstacle to receiving Board certification. See Pls.’ Resp. at 5 (noting that
Defendant “expressly limited the applicability of CMS Ruling 1727 ‘only to administrative appeals
pending on or after, or appeals initiated on or after, . . . April 23, 2018’” (alteration in original)
(quoting CMS Ruling No. 1727-R at 5)). They also fear that regulations prohibiting the reopening
of Board determinations to apply new rulings will prevent the Board from issuing an expedited-
review certification in this case. See id. at 5–6; see also CMS Ruling No. 1727-R at 9 (stating that
the ruling “is not an appropriate basis for the reopening . . . of any decision by the [Board] or other
reviewing entity” under 42 C.F.R. § 405.1885(c)(1)–(2) and, therefore, that “reviewing entities
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may not reopen any . . . decision with respect to the question of whether application of the self-
disallowance jurisdictional requirement . . . is foreclosed by any provision” of the ruling). These
concerns might be warranted if the court were to remand the case to the Board to apply CMS
Ruling 1727. But that is not what the court intends to do. Rather, as Defendant has agreed, this
matter will be remanded “for further proceedings consistent with this Court’s August 19, 2016,
Memorandum Opinion in Banner Heart Hospital v. Burwell, No. 14-cv-01195 (D.D.C.).” Def.’s
Mot. for Voluntary Remand, ECF No. 10, Proposed Order, ECF No. 10-1; see also Def.’s Reply
Mem. in Supp. of Suggestion of Mootness, ECF No. 38, at 5–6 (“Because the Board [will] already
be bound by the Court’s order requiring it to conduct further proceedings consistent with the
Banner Heart decision, the applicability of CMS Ruling 1727 to the present case is irrelevant.”
(internal quotation marks omitted)). Therefore, just as the Board did on remand in Banner Heart,
the Board here will be required to accept jurisdiction and grant expedited judicial review.
Plaintiffs also protest a remand because “the Board will remain bound to apply the self-
disallowance regulation and/or CMS Ruling as written,” as “it lacks any authority to do otherwise.”
See Pls.’ Resp. at 6. Plaintiffs describe this result as creating as a “dilemma” for the Board. Id.
But a remand presents no dilemma as to these Plaintiffs: the Board will grant their request for
expedited judicial review. To the extent Plaintiffs’ concern is for similarly situated providers, that
worry is purely speculative and, in any event, is better resolved based on the factual circumstances
of each individual case.
Finally, although Plaintiffs have pressed aggressively for vacatur as the proper remedy,
such relief exceeds what is required to resolve the parties’ dispute. For starters, as the court noted
in Banner Heart, under Circuit precedent, remand—not vacatur—is the preferred remedy where,
as here, the agency has committed a legal error. See Banner Heart, 201 F. Supp. 3d at 143; see
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also Ne. Hosp. Corp. v. Sebelius, 699 F. Supp. 2d 81, 96 (D.D.C. 2010) (“[W]hen a court reviewing
agency action determines that an agency made an error of law, the court’s inquiry is at its end: the
case must be remanded to the agency for further action consistent with the correct legal standards.”
(quoting Palisades Gen. Hosp., Inc. v. Leavitt, 426 F.3d 400, 403 (D.C. Cir. 2005))). Moreover,
the need for vacatur is diminished substantially by Defendant’s acquiescence to Banner Heart and
its issuance of CMS Ruling 1727. The self-disallowance regulation does not present the
jurisdictional roadblock that it once did for those providers similarly situated to Plaintiffs. And,
given Defendant’s response to Banner Heart, vacatur at this point is only likely to create
unnecessary administrative confusion. See Allina Health Servs. v. Sebelius, 746 F.3d 1102, 1110
(D.C. Cir. 2014) (stating that vacatur is improper when it “would lead to disruptive
consequences”). Thus, vacatur is not an appropriate remedy in this case.
V.
For the foregoing reasons, the court reconsiders its October 25, 2017, decision denying
Defendant’s original motion for voluntary remand, ECF No. 10, see Mem. Op. & Order, ECF No.
21, and remands the case to the Board for further proceedings consistent with this opinion and with
this court’s August 19, 2016, Memorandum Opinion in Banner Heart Hospital v. Burwell, No. 14-
cv-01195 (D.D.C.). Furthermore, the court dismisses the parties’ cross-motions for summary
judgment, ECF Nos. 28 and 29, as moot.
To mitigate the prejudice to Plaintiffs arising from this remand order, the court directs the
Board to act on Plaintiffs’ request for expedited judicial review within 30 days from this date.
Dated: September 6, 2018 Amit P. Mehta
United States District Judge
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