District Hospital Partners, L.P. v. Burwell

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)
DISTRICT HOSPITAL PARTNERS, L.P., )
d/b/a The George Washington University )
Hospital, et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 16-cv-528 (ESH)
)
ALEX M. AZAR II, )
Secretary, Department of Health and )
Human Services, )
)
Defendant. )
)

MEMORANDUM OPINION

I. BACKGROUND

Plaintiffs, owners and operators of hospitals that participate in the federal Medicare

program, first brought suit to challenge the Medicare Inpatient Prospective Payment System

(IPPS) outlier thresholds for the federal fiscal years (FFY) 2004, 2005, and 2006 in the prior case

of District Hospital Partners, L.P. v. Sebelius, No. 11-cv-116 (D.D.C.). In that proceeding, the

Court granted defendant Secretary of Health and Human Services (“HHS”)’s motion for

summary judgment. See Dist. Hosp. Partners, L.P. v. Sebelius, 973 F. Supp. 2d 1, 23 (D.D.C.

2014). On appeal, the Court of Appeals affirmed in part and reversed in part. Dist. Hosp.

Partners, L.P. v. Burwell, 786 F.3d 46, 63 (D.C. Cir. 2015) (“District Hospital I”). The Court of

Appeals affirmed this Court in rejecting plaintiffs’ challenges to the 2005 and 2006 outlier

thresholds. Id. at 60–63. However, the Court of Appeals reversed with respect to the FFY 2004
rule, remanding to HHS for additional explanation regarding its rulemaking for that year. Id. at

60. In particular, the Court of Appeals instructed:

On remand, the Secretary [of HHS] should explain why she
corrected for only 50 turbo-charging hospitals in the 2004
rulemaking rather than for the 123 she had identified in the NPRM.
She should also explain what additional measures (if any) were
taken to account for the distorting effect that turbo-charging
hospitals had on the dataset for the 2004 rulemaking. And if she
decides that it is appropriate to recalculate the 2004 outlier
threshold, she should also decide what effect (if any) the
recalculation has on the 2005 and 2006 outlier and fixed loss
thresholds.

Id.

On January 22, 2016, HHS issued further explanation regarding its 2004 rulemaking in

accordance with this directive. See Explanation of FY 2004 Outlier Fixed-Loss Threshold as

Required by Court Rulings, 81 Fed. Reg. 3,727 (Jan. 22, 2016) (“Remand Explanation”).

Because the prior action had been terminated upon remand to HHS, plaintiffs filed the above-

captioned case. In this second suit, plaintiffs again alleged that HHS’s outlier threshold

determinations for FFY 2004, 2005, and 2006 were arbitrary and capricious in violation of the

Administrative Procedure Act (“APA”). (Compl. ¶ 39.)

On May 27, 2016, defendant filed a motion to dismiss in part under Federal Rule of Civil

Procedure Rule 12(b)(6), “seek[ing] dismissal of all the claims in the complaint except the

claims that contest the Secretary’s fiscal year 2004 fixed loss threshold determination based on

the issues identified for remand in District Hospital Partners, L.P. v. Burwell, 786 F.3d 46 (D.C.

Cir. 2015).” (Def.’s Mot. to Dismiss in Part, ECF No. 8.) The Court granted this motion on

November 18, 2016, concluding that plaintiffs’ challenge to the FFY 2005 and 2006 outlier

determinations—as well as any new arguments regarding the FFY 2004 determination—were

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barred by the doctrines of claim and issue preclusion. (Memorandum Opinion at 6–7, ECF No.

21 (“Mem. Op.”); Order, ECF No. 20 (collectively “2016 Partial Dismissal Order”).)

On November 29, 2016, plaintiffs filed an unopposed motion to stay given the pendency

of Banner Health v. Price, No. 16-5129, in the Court of Appeals. Banner Health involved

challenges brought by different plaintiff hospitals to the same FFY 2004 outlier threshold being

challenged in the case at hand, as well as challenges to the calculations in years 1997-2003 and

2005-2007. Banner Health v. Price, 867 F.3d 1323, 1328 (D.C. Cir. 2017).

The Court of Appeals considered three principal challenges to the 2004 rulemaking in

Banner Health, which were addressed in Part VI of its opinion. See id. at 1342–49. In Part

VI.B, the Court considered the adequacy of HHS’s explanation regarding its assumption “that

the rate at which charges had inflated between FYs 2000 and 2002 would accurately approximate

charge growth” and its failure to “exclude charge data for the 123 historical turbo-chargers from

its FY 2004 charge-inflation calculation.” Id. at 1345–46. The Court held that HHS had acted

arbitrarily and capriciously, finding the agency’s explanation on this point to be insufficient. Id.

In Part VI.C, the Court of Appeals addressed the plaintiffs’ challenge to HHS’s

“explanation for adjusting the projection cost-to-charge ratios of only 50 turbo-chargers in order

to account for the possibility of reconciliation.” Id. at 1346. The Court determined that HHS’s

explanation was adequate on this point and rejected the plaintiffs’ challenge. Id. at 1348.

Part VI.D examined the plaintiffs’ third challenge to the 2004 rule, which “contend[ed]

that it was irrational for HHS to appl[y] a charge[-]inflation factor when predicting hospital

charges for the 2004 fiscal year without adjusting [hospitals’ cost-to-charge ratios][.]” Id. at

1348 (internal quotation marks omitted). The Court of Appeals found the plaintiffs’ challenge

on this point to be meritorious, holding that “HHS acted arbitrarily and capriciously in failing to

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adequately explain why it did not adjust its projection cost-to-charge ratios downward.” Id. at

1349. The Court of Appeals also determined that the 2005 and 2006 rulemaking suffered from

this same flaw. Id at 1352–53.

In light of the Court of Appeals’ decision in Banner Health, defendant proposed that the

Court lift the stay in this matter and enter a final order remanding to HHS. (Apr. 9, 2018 Joint

Status Report at 2, ECF No. 29.) Plaintiffs did not oppose this proposal. (Id.). On April 23,

2018, the Court directed the parties to submit proposed final orders with supporting briefs.

(Order at 4, ECF No. 31.)

In response, the parties filed competing submissions that request several alternate forms

of relief. (Pls.’ Submission, ECF No. 35; Def.’s Submission, ECF No. 36.) Plaintiffs ask the

Court to reconsider the 2016 Partial Dismissal Order in light of the Court of Appeals’ decision in

Banner Health. (Pls.’ Submission at 2, 5–6.) In the alternative, plaintiffs seek clarification of

that ruling. (Id. at 6–7.) Meanwhile, defendant requests partial summary judgment based on

Part VI.C of Banner Health, where the Court of Appeals rejected the hospitals’ arbitrary-and-

capricious challenge to HHS’s selection of only 50 hospitals as likely to be subject to

reconciliation. (Def.’s Submission at 6 (citing Banner Health, 867 F.3d 1346–48).)

Lastly, the parties dispute the scope of the remand to HHS. Plaintiffs argue that the

remand should encompass the full scope of the issues identified for remand by the Court of

Appeals in Banner Health. (Pls.’ Submission at 2–3 (requesting remand “consistent with Banner

Part VI in its entirety for the Hospitals with claims for 2004, and Banner Parts VI, VII, and VIII

in their entirety for the Hospitals with claims for 2005 and 2006”).) By contrast, defendant

argues that only the issue discussed in Part VI.B of Banner Health remains in this case after the

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Court’s November 2016 ruling, and thus only this issue should be remanded to HHS. (Def.’s

Submission at 5–6.)

II. ANALYSIS

A. Plaintiffs’ Motion for Reconsideration of the 2016 Partial Dismissal Order

Plaintiffs ask the Court to reconsider its 2016 Partial Dismissal Order, arguing that

reconsideration is warranted because the ruling conflicts with the subsequent Circuit decision in

Banner Health v. Price, 867 F.3d 1323 (D.C. Cir. 2017). (See Pls.’ Submission at 2, 5–6.)

Plaintiffs’ argument appears to be that a conflict exists because Banner Health recognized that

certain arbitrary-and-capricious challenges to the FFY 2005 and 2006 thresholds were

meritorious, while the 2016 Partial Dismissal Order dismissed those challenges in this case. (Id.

at 5–6.)

Plaintiffs are mistaken in their assertion that there is a conflict. The Court’s

Memorandum Opinion did not analyze the merits of arbitrary-and-capricious challenges to the

FFY 2005 and 2006 rulemaking. (See Mem. Op. at 6–7.) Instead, it dismissed those challenges

on the basis of claim and issue preclusion. (Id.) The Court of Appeals’ decision in Banner

Health does not alter the analysis described by the Court regarding the effects of claim and issue

preclusion on plaintiffs’ claims. See Hardison v. Alexander, 655 F.2d 1281, 1288–89 (D.C. Cir.

1981) (explaining that subsequent judicial decisions are not a basis to override the doctrine of res

judicata in civil cases, absent extraordinary circumstances such as “paramount questions of

constitutional law or exclusive jurisdiction”). The Court thus denies plaintiffs’ request to

reconsider its 2016 Partial Dismissal Order.

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 B. Plaintiffs’ Request for Clarification of the 2016 Partial Dismissal Order

Plaintiffs alternatively request that this Court clarify the preclusionary effects of its

November 18, 2016 ruling in regards to the claims of some plaintiffs, HCA Hospitals, who have

claims currently pending before another district court judge in Galen Hospital Alaska, Inc. v.

Azar, No. 18-cv-728-RBW (D.D.C.). (See Pls.’ Submission at 6–7.) Plaintiffs explain that in

Galen a subset of the plaintiffs here, HCA Hospitals, have brought a challenge to the 2005 and

2006 outlier threshold rulemaking. (Id.) They seek for this Court to clarify that HCA Hospitals’

2005 and 2006 claims in Galen are not precluded by the 2016 Partial Dismissal Order. (Id.)

The preclusive effect of this Court’s ruling is a determination to be made by the judge

before whom the Galen case is pending. See, e.g., Smith v. Bayer Corp., 564 U.S. 299, 307

(2011) (“[A] court does not usually ‘get to dictate to other courts the preclusion consequences of

its own judgment.’ Deciding whether and how prior litigation has preclusive effect is usually the

bailiwick of the second court[.]”) (quoting 18 C. Wright, A. Miller, & E. Cooper, Federal

Practice and Procedure § 4405, p. 82 (2d ed. 2002)). Therefore, the issue of whether the HCA

Hospitals are barred from bringing their 2005 and 2006 outlier threshold claims in Galen is not

properly before this Court. Accordingly, the Court denies plaintiffs’ request.

C. Defendants’ Request for Partial Summary Judgment

Given the Court of Appeals’ decision in Part VI.C of Banner Health, which concluded

that HHS provided an adequate explanation in its Remand Explanation “for adjusting the

projection cost-to-charge ratios of only 50 turbo-chargers in order to account for the possibility

of reconciliation,” 867 F.3d at 1346, defendant has requested partial summary judgment with

respect to plaintiffs’ challenge on this basis. (See Def.’s Submission at 6.) The Banner Health

decision forecloses plaintiffs’ challenge to the FFY 2004 determination that is based on the

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argument described in Part VI.C of Banner Health, and thus the Court grants defendant partial

summary judgment only with respect to the challenges articulated in Part VI.C of Banner.1

D. Scope of Remand to HHS

The parties’ submissions also disagree as to the scope of this Court’s remand to HHS.

The parties agree that the topic discussed in Part VI.B of Banner Health remains at issue in this

matter and should be remanded to HHS for additional explanation. (See Pls.’ Submission at 3;

Def.’s Submission at 5–6.) However, the parties dispute whether the issue discussed in Part

VI.D of Banner Health is an appropriate subject for remand from this Court: the application of a

“charge[-]inflation factor when predicting hospital charges for the 2004 fiscal year without

adjusting [hospitals’ cost-to-charge ratios].” 867 F.3d at 1348 (internal quotation marks

omitted). Plaintiffs argue that the Court should remand to HHS for explanation on this issue,

while the defendants argue that it should not. (See Pls.’ Submission at 3–5; Def.’s Submission at

6–7.)2

The FFY 2004 cost-to-charge ratios calculations discussed in Banner Health Part VI.D

would only be appropriate for remand from this Court if this claim remained in this case after the

Court’s grant of defendant’s partial motion to dismiss, which had sought “dismissal of all the

claims in the complaint except the claims that contest HHS’s fiscal year 2004 fixed threshold

determination based on the issues identified for remand in District Hospital Partners, L.P. v.

1
To the extent defendant’s submission may be construed as a request for summary judgment
with respect to the challenges discussed in Part VI.D of Banner Health, the Court denies that
request without prejudice. As explained supra, the FFY 2004 calculation of cost-to-charge ratios
discussed in Part VI.D of Banner Health is within the scope of the Court’s remand to HHS.
2
Plaintiffs also request that the Court’s remand include the FFY 2005 and 2006 determinations.
(Pls.’ Submission at 5–6.) Given that the Court denies plaintiffs’ request for reconsideration of
the 2016 Partial Dismissal Order, the Court denies plaintiffs’ request to remand to HHS for
further explanation regarding its determinations from those years. Plaintiffs’ 2005 and 2006
challenges are no longer part of this case.
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Burwell, 786 F.3d 46 (D.C. Cir. 2015).” (Def.’s Mot. to Dismiss in Part.) Thus, the parties’

dispute lies at whether the argument discussed in Part VI.D of Banner Health is within the issues

identified for remand in District Hospital I.

Defendant argues that the issues encompassed by the District Hospital I remand are

“exclusively . . . whether and how [HHS] adjusted [its] methods for calculating projected

Medicare payments to account for past improper charging practices known as ‘turbocharging.’”

(Def. Submission at 6.) Defendant asserts that the adjustment of cost-to-charge ratios discussed

in Part VI.D is a separate issue from turbocharging. (Id.) By contrast, plaintiffs argue that

HHS’s discussion of cost-to-charge ratios in its Remand Explanation—which in turn was the

subject of discussion in Part VI.D of Banner Health—was a direct response to the remand

instruction in District Hospital I that HHS explain, inter alia, the “measure[s] . . . taken to

account for the distorting effect that turbo-charging hospitals had on the dataset for the 2004

rulemaking.” (Pls.’ Submission at 3 (quoting District Hospital I, 786 F.3d at 60).)

The Court concludes that the issue discussed in Part VI.D of Banner Health is properly

within the scope of the matters that remain in this case, as that portion of Banner Health relates

to the FFY 2004 determination and focused on a section of HHS’s Remand Explanation, 81 Fed.

Reg. at 3,729, that is a response to the remand instruction from District Hospital I. See Banner

Health, 867 F.3d at 1349. Banner Health Part VI.D discussed a paragraph of the Remand

Explanation that begins with “[t]he court rulings also called for an explanation of other steps

taken to account for any ‘distorting effect’ associated with the 123 [turbocharging] hospitals”

and proceeds to explain HHS’s calculation of cost-to-charge ratios. See id. (citing 81 Fed. Reg.

at 3,729). It is perplexing why HHS would discuss its calculation of cost-to-charge ratios in its

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Remand Explanation only to now argue here that this issue was never within the scope of the

remand from District Hospital I.

The Court thus remands to HHS for further explanation of the FFY 2004 determination

consistent with Parts VI.B and VI.D of Banner Health, 867 F.3d at 1345–46, 1348–49.

III. CONCLUSION
For the reasons stated herein, this Court denies plaintiffs’ motion for reconsideration,

denies plaintiffs’ request for clarification, grants partial summary judgment to defendant with

respect to the challenge to the FFY 2004 rule that was rejected by the Court of Appeals in Part

VI.C of Banner Health, 867 F.3d at 1346–48, and remands to HHS for further proceedings

consistent with Parts VI.B and VI.D of Banner Health, id. at 1345–46, 1348–49. A separate

Order accompanies this Memorandum Opinion.

_______________________
ELLEN S. HUVELLE
United States District Judge

Date: August 2, 2018

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