University of Colorado Health at Memorial Hospital v. Burwell

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNIVERSITY OF COLORADO HEALTH, :
AT MEMORIAL HOSPITAL, et al., : Civil Action No.: 14-1220 (RC)
:
Plaintiffs, : Re Document Nos.: 139, 141
:
v. :
:
ALEX M. AZAR II, Secretary of Health :
and Human Services, :
:
Defendant. :

MEMORANDUM OPINION

GRANTING IN PART AND DENYING IN PART DEFENDANT’S PARTIAL MOTION TO DISMISS;
GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION TO SUPPLEMENT THE
ADMINISTRATIVE RECORDS

I. INTRODUCTION

Plaintiffs in these consolidated cases are a group of fifty-one hospitals. They are

challenging the implementation of the Medicare outlier-payment program by the Secretary of

Health and Human Services (“HHS” or “the Secretary”).

The Secretary now moves to dismiss some of the hospitals’ claims, arguing that they are

precluded based on prior litigation or are otherwise deficient. Separately, the hospitals move to

supplement the administrative records. For the reasons discussed below, the Court will grant

both motions in part and deny them in part.

II. FACTUAL BACKGROUND

A. Statutory Framework

This Court assumes familiarity with its prior opinions in this case, which provide detailed

background on the Medicare outlier-payments program. See Mem. Op. Granting Def.’s Mot.
Leave to Suppl. Answer (“Mem. Op. Suppl.”), ECF No. 89; Mem. Op. Granting Def.’s Mot. for

Clarification (“Clarification Op.”), ECF No. 57; Mem. Op. Granting in Part and Denying in Part

Pls.’ Mot. to Compel Produc. of Complete Admin. R. (“Suppl. Rec. Op.”), ECF No. 47. A

simplified summary is provided here for orientation; additional detail will be provided as needed.

1. The Outlier-Payments Program

Under Medicare, the federal government reimburses hospitals for supplying medical

services to the elderly and disabled. See Social Security Amendments of 1965 (“Medicare Act”),

Pub. L. No. 89–97, tit. XVIII, 79 Stat. 286, 291. 1 Providers are not reimbursed for the full costs

that they incur; instead, they are paid at fixed rates for different categories of services and

treatments, known as “diagnosis-related groups” (“DRGs”). See Billings Clinic v. Azar, 901

F.3d 301, 303 (D.C. Cir. 2018) (citation omitted). However, hospitals are also eligible for

certain outlier payments as a form of protection against unusually complicated and costly cases.

Id. at 303–04 (citing 42 U.S.C. § 1395ww(d)(5)(A)(ii)). These payments become available when

the provider’s (1) “cost-adjusted charges” for a case exceed (2) the sum of (2a) the default

reimbursement payment and (2b) a fixed dollar amount (known as the “outlier threshold” or the

“fixed loss threshold” (FLT) and determined by the Secretary through an annual rulemaking

process). Id. at 304 (citation omitted).

That first figure—the provider’s “cost-adjusted charges”—is intended to estimate the

provider’s real cost of care, without any markups, and is calculated by multiplying a provider’s

actual charges by a historical “cost-to-charge ratio.” Id. at 304–05 (citation omitted). The

second figure—the sum of the base reimbursement plus the fixed loss threshold—is known as

the “fixed-loss cost threshold.” Id. at 304 (citation omitted). Cost-adjusted charges above the

1
Codified as amended in 42 U.S.C. § 1395 et seq.

2
fixed-loss cost threshold are reimbursed at a rate intended to approximate the marginal cost of

care, currently set at 80 percent in most cases. Id. at 305 (citation omitted).

As an example: imagine a hospital charges $100,000 for an unusually complicated

procedure. 2 The $100,000 will be multiplied by a cost-to-charge ratio (imagine it’s 72:100 or 72

percent, which HHS will have calculated based on historical data), leaving $72,000 of cost-

adjusted charges. Imagine too that the standard DRG reimbursement rate for this kind of

procedure is $8,000, and the fixed loss threshold set by the Secretary that year is $11,000. The

hospital will automatically receive the base reimbursement of $8,000. And because the cost-

adjusted charges ($72,000) are greater than the fixed-loss cost threshold ($19,000), the hospital is

also eligible for an outlier payment. That payment will be 80 percent of the difference between

the cost-adjusted charges ($72,000) and the fixed-loss cost threshold ($19,000), or $42,400.

That leaves an important question: how does the Secretary determine each fiscal year’s

fixed loss threshold? Well, Congress has limited the aggregate amount of Medicare outlier

payments to a narrow range: it “may not be less than 5 percent nor more than 6 percent of the

total payments projected or estimated to be made based on DRG prospective payment rates for

discharges in that year.” 42 U.S.C. § 1395ww(d)(5)(A)(iv). To satisfy this directive, HHS

conducts an annual rulemaking to set the fixed loss threshold at a level that it estimates will

result in total payments within the statutorily-determined range. See Billings Clinic, 901 F.3d at

306–07 (citation omitted). (Specifically, since 1989, HHS has attempted to set an annual

threshold that will result in total outlier payments being 5.1 percent of all Medicare payments.

2
This is based on example offered in the Secretary’s opening brief, see Def.’s Mem.
Supp. Mot. Dismiss at 6, ECF No. 139-1, which is in turn drawn from an August 29, 1997,
Federal Register notice: Changes to the Hospital Inpatient Prospective Payment Systems and
Fiscal Year 1998 Rates, 62 Fed. Reg. 45,966, 46,011 (Aug. 29, 1997).

3
Id. at 307.) Crucial to the Secretary’s projections are the providers’ estimated future cost-to-

charge ratios. Id. For instance, if HHS overestimates a future year’s cost-to-charge ratios

(expecting, say, 90 percent when it turns out to be 72 percent), then reimbursable, cost-adjusted

charges will be lower than expected—meaning that HHS may have set the fixed loss threshold

too high and therefore be at risk of undershooting its 5.1 percent payment target.

This is all the more important because, in order to fund outlier payments, the Secretary

withholds the predicted 5.1 percent from all other standard reimbursements. See 42 U.S.C. §

1395ww(d)(3)(B). And the Secretary need not take corrective action when the actual outlier

payments differ from the 5.1 percent target. See Dist. Hosp. Partners L.P. v. Burwell, 786 F.3d

46, 51 (D.C. Cir. 2015) (citing Cty. of Los Angeles v. Shalala, 192 F.3d 1005, 1020 (D.C. Cir.

1999)). As a result, undershooting the 5.1 percent target results in a net loss of payments to

providers as a whole.

2. Judicial Review

Procedurally, healthcare providers are reimbursed on a rolling basis, but at the end of

their fiscal years, they submit annual cost reports to so-called “medicare administrative

contractors” or “fiscal intermediaries.” 3 See 42 U.S.C. § 1395h(a); 42 U.S.C. § 1395kk-1; 42

C.F.R. § 413.20. Fiscal intermediaries then issue a total reimbursement determination for the

entire year 4 through a Notice of Program Reimbursement (“NPR”). 42 C.F.R. § 405.1803.

Hospitals are permitted to challenge an NPR by appealing to the Provider Reimbursement

3
“Medicare administrative contractor” is the current statutory terminology. See 42
U.S.C. § 1395h(a). Fiscal intermediary is an older term, see Palisades General Hospital Inc. v.
Leavitt, 426 F.3d 400, 401 (D.C. Cir. 2005), but it remains in usage, see, e.g., 42 U.S.C. §
1395oo(a). The Court will use both terms interchangeably to refer to the kind of entities
described in 42 U.S.C. § 1395h(a).
4
Note that a hospital’s fiscal year may not align with the federal fiscal year, meaning that
a single NPR may be governed by two different fiscal year thresholds.

4
Review Board (“PRRB”), a specialized administrative body. 42 U.S.C. § 1395oo(a). Hospitals

can in turn seek judicial review of a PRRB’s final decision. § 1395oo(f)(1). Providers also “have

the right to obtain judicial review of any action of the fiscal intermediary which involves a

question of law or regulations relevant to the matters in controversy whenever the [PRRB]

determines . . . that it is without authority to decide the question”; such determinations for

expedited review can be made sua sponte by the PRRB or at the request of a provider. Id. In

either case, a district court reviews the challenged action “pursuant to the applicable provisions”

of the Administrative Procedure Act (“APA”). Id.

B. Procedural History

Many of the plaintiff hospitals here were plaintiffs in two other related cases. Banner

Health v. Azar, No. 10-cv-1638 (D.D.C.) was filed in 2010. In addition to advancing some other

claims, the Banner Health plaintiffs challenged the fixed loss threshold determinations for

federal fiscal years 1997 through 2007. Banner Health v. Burwell, 126 F. Supp. 3d 28, 43

(D.D.C. 2015). The district court disposed of the plaintiffs’ claims through various motions to

dismiss and for summary judgment. See Banner Health v. Burwell, 174 F. Supp. 3d 206, 207

(D.D.C. 2016). The Circuit largely affirmed, though it reversed the district court’s grant of

summary judgment as to fiscal years 2004 through 2006 on the grounds that HHS inadequately

explained certain aspects of those threshold calculations. See Banner Health v. Price, 867 F.3d

1323, 1337–39 (D.C. Cir. 2017). The case remains pending in the district court.

Another group of cases were filed in 2013 and 2014 and were consolidated in Lee

Memorial Hospital v. Burwell, No. 13-cv-643 (D.D.C.). The Lee Memorial plaintiffs challenged

certain rulemaking actions taken in 2003 and the fixed loss threshold determinations for federal

fiscal years 2008 through 2011. The court granted summary judgment for the Secretary on all

5
the plaintiffs’ claims. Lee Mem’l Health Sys. v. Burwell, 206 F. Supp. 3d 307, 336 (D.D.C.

2016). On appeal of those cases (under the caption Billings Clinic v. Azar), the Circuit affirmed,

finding that that the calculations were reasonable and that the challenge to the 2003 rulemaking

actions was precluded by Banner Health. See Billings Clinic v. Azar, 901 F.3d 301, 302–03

(D.C. Cir. 2018).

This case, University of Colorado Health at Memorial Hospital v. Azar, No. 14-cv-1220,

was consolidated for all purposes with seven later-filed cases. See Dec. 19, 2018 Order, ECF

No. 108; Feb. 15, 2019 Order, ECF No. 112; April 1, 2019 Order, ECF No. 131. There are

therefore eight currently operative complaints, each containing similar allegations:

• Am. Compl., Bayshore Community Hospital v. Azar, ECF No. 114
• Second Am. Compl., Riverview Medical Center v. Azar, ECF No. 115
• Second Am. Compl., West Virginia University Hospital v. Azar, ECF No. 116-5 5
• Second Am. Compl., Charleston Area Medical Center v. Azar, ECF No. 126
• Fifth Am. Compl., University of Colorado Health at Memorial Hospital v. Azar,
ECF No. 127
• Second Am. Compl., Grady Memorial Hospital v. Azar, ECF No. 128 6
• Compl., Cabell Huntington Hosp. v. Azar, No. 19-cv-722, ECF No. 1
• Compl., Sarasota Mem’l Hosp. v. Azar, No. 19-cv-860, ECF No. 1

Together, they challenge various aspects of the fixed loss threshold rulemakings for fiscal years

2007 to 2016. Because the claims are complex and at times overlapping, they are worth spelling

out in more detail.

5
This Complaint was never posted separately on the docket, but was accepted by the
Court during the March 22, 2019 status conference. See Tr. of Status Conference at 5:7–8, ECF
No. 130.
6
Plaintiffs at some points refer to ECF No. 113, which is the Amended Complaint in
Grady Memorial Hospital v. Azar. See, e.g., Pls.’ Opp’n to Def.’s Mot. Dismiss (“Pls.’ Opp’n
MTD”) at 6, ECF 143. It appears to have been superseded by the Second Amended Complaint
in Grady, ECF No. 128, so the Court refers to that as the operative complaint.

6
 First, Plaintiffs challenge (at least) the threshold rulemakings for fiscal years 2012–2016.

See Pls.’ Opp’n to Def.’s Mot. Dismiss at 7 (“Pls.’ Opp’n MTD”), ECF 143 (“The Hospitals will

show that HHS’s rulemakings setting the fixed loss thresholds during FYs 2012 through 2016,

which governed the Hospitals’ outlier payments for their cost reporting years at issue, were

performed in a manner that is contrary to the Medicare Act and the intent of Congress and [the

APA].”) (footnote omitted). Again, these rulemakings (FYs 2012–2016) postdate the ones at

issue in Banner Health and Billings Clinic. At other points, however, Plaintiffs more broadly

characterize their complaints as challenging threshold rulemakings dating back to 2006. See

Mot. to Suppl. Administrative Records (“Pls.’ MTS”), ECF No. 141 (“The Hospitals contend

that HHS’s rulemakings setting the fixed loss thresholds during FYs 2006 through 2016, which

governed the Hospitals’ outlier payments for their cost reporting years at issue, were performed

[contrary to law].” (emphasis added)). These rulemakings overlap with the ones upheld in

Banner Health and Billings Clinic, but Plaintiffs clarify that, in challenging them, they “do not

intend to present arguments that are foreclosed by the law of the circuit established in [Banner

Health], or [Billings Clinic].” Id. at 3 n.3. 7

Second, Plaintiffs allege “[t]he fixed loss thresholds for FYs 2007 through 2013 were

also unlawful because HHS promulgated them ‘without observance of procedure required by

law.’” Pls.’ Opp’n MTD at 7 (quoting 5 U.S.C. § 706)(2)(D) (citing Am. Compl., ECF No. 113,

¶ 95–103); see also Am. Compl. ¶¶ 94–104 (“Count Two”), ECF No. 114. The claim here is that

7
See also Am. Compl. ¶ 93 n.7, ECF No. 114 (“In alleging that the FYs 2008-2011 FLTs
are arbitrary and capricious, the Hospitals do not intend to present arguments that are foreclosed
by the law of the circuit established in [Banner Health], or [Billings Clinic].”); Second Am.
Compl. ¶ 93 n.7, ECF No. 115 (“In alleging that the FYs 2007 and 2008 FLTs are arbitrary and
capricious, the Hospitals do not intend to present arguments that are foreclosed by the law of the
circuit established in [Banner Health], or [Billings Clinic].”)

7
the particular methods used to project cost-to-charge ratios were independent “rules” or

“statements of policy” requiring their own notice and comment procedures, which they were not

accorded. See, e.g., Am. Compl. ¶ 98, ECF No. 114 (“[B]efore using the method used to project

CCR decreases when setting the FLT, HHS was required to follow the notice and comment

procedures of the Medicare Act and/or the Administrative Procedure Act.”) (citing 42 U.S.C. §

1395hh, 5 U.S.C. § 553).

Third, Plaintiffs claim that “the Hospitals will also show that HHS’s rulemakings in FYs

2012 and 2013 were arbitrary and capricious because HHS ignored six years of data, described

by commenters, showing the adjustment factor for cost-to-charge ratios was a poor and

unreliable model.” Pls.’ Opp’n MTD at 7. These are essentially an extension of claims

discussed in Billings Clinic (which, again, only considered the FY 2008–2011 thresholds).

Billings Clinic rejected the claim that HHS acted arbitrarily in using a particular model for

forecasting cost-to-charge ratios during those three years, but noted that “a methodology used for

prediction ‘can look more arbitrary the longer it is applied.’” 901 F.3d at 314 (quoting American

Petroleum Inst. v. EPA, 706 F.3d 474, 477 (D.C. Cir. 2013)). Because HHS switched to a new

methodology starting with the FY 2014 rulemaking, this challenge applies only to FYs 2012 and

2013. See FY 2014 Final Rule, 78 Fed. Reg. 50,496, 50,978 (Aug. 19, 2013).

Most of the consolidated cases here were stayed pending the issuance of the D.C.

Circuit’s mandates in Banner Heath and Billings Clinic. See, e.g., Min. Order (Oct. 4, 2018).

After those rulings, the Plaintiffs in the as-then consolidated cases filed a notice identifying

matters that they no longer intended to pursue in light of the D.C. Circuit’s decisions in those

cases. See Notice of Matters No Longer to Be Pursued Post Consolidation (“Notice”), ECF No.

8
107. Plaintiffs provided further clarity in a March 22, 2019 status conference. See Min. Entry

(Mar. 22, 2019); Tr. of Status Conference, ECF No. 130.

Two motions are now ripe for disposition. The Secretary is moving to dismiss the

consolidated action in part, see Def.’s Mem. Support Mot. Dismiss (“Def.’s MTD”), ECF 139-1,

and the plaintiffs oppose, Pls.’ Opp’n MTD. 8 Plaintiffs are moving to supplement the

administrative records, Mot. Suppl. Administrative Records (“Pls.’ MTS”), ECF No. 141, and

the Secretary opposes, Secretary’s Mem. Opp’n Pls.’ Mot. Suppl. Administrative Records

(“Def.’s Opp’n MTS”), ECF No. 142. After reviewing the general legal standards applicable to

each, the Court will discuss each motion in turn.

III. LEGAL STANDARDS

A. Motion to Dismiss

When a defendant moves to dismiss for failure to state a claim under Federal Rule of

Civil Procedure 12(b)(6), a court must accept all of the complaint’s factual allegations as true

and must draw all reasonable inferences in the plaintiff’s favor. Momenian v. Davidson, 878

F.3d 381, 387 (D.C. Cir. 2017) (citation omitted). If the allegations plausibly demonstrate that

the plaintiff may be entitled to relief, dismissal is inappropriate. Id. at 390; see also Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (“[A] complaint must contain sufficient factual matter, accepted

as true, to state a claim to relief that is plausible on its face.”) (internal quotation marks and

citation omitted). In determining whether a complaint fails to state a claim, a court may consider

“the facts alleged in the complaint, any documents either attached to or incorporated in the

8
After the motion to dismiss was fully briefed, Plaintiffs also objected to certain
evidence cited in the Secretary’s reply. See Pls.’ Objs. to Evidence in Def.’s Reply in Supp.
Mot. Dismiss, ECF No. 148. The Court notes the objection, but does not resolve it, as it relates
to the question of issue preclusion, which the Court does not reach.

9
complaint and matters of which [the court] may take judicial notice.” EEOC v. St. Francis

Xavier Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997) (citation omitted).

In considering a Rule 12(b)(1) motion to dismiss for a lack of subject-matter jurisdiction,

a court must similarly accept all of the factual allegations in the complaint as true. See Jerome

Stevens Pharm., Inc. v. Food & Drug Admin., 402 F.3d 1249, 1253 (D.C. Cir. 2005) (citation

omitted). The court is, however, also permitted to consider materials outside the pleadings to

determine whether it has jurisdiction. Scolaro v. D.C. Bd. of Elections & Ethics, 104 F. Supp. 2d

18, 22 (D.D.C. 2000) (citations omitted). Additionally, “[b]ecause Rule 12(b)(1) concerns a

court’s ability to hear a particular claim, the court must scrutinize the plaintiff's allegations more

closely when considering a motion to dismiss pursuant to Rule 12(b)(1) than it would under a

motion to dismiss pursuant to Rule 12(b)(6).” Schmidt v. U.S. Capitol Police Bd., 826 F. Supp.

2d 59, 65 (D.D.C. 2011) (citations omitted).

B. Motion to Supplement the Records

When a court reviews an agency’s action under the APA, it must “review the whole

record or those parts of it cited by a party.” 5 U.S.C. § 706; see also Citizens to Preserve

Overton Park, Inc. v. Volpe, 401 U.S. 402, 420 (1971) (“[R]eview is to be based on the full

administrative record that was before the Secretary at the time he made his decision.”). Agencies

bear the responsibility of compiling the administrative record, which must include all of the

information that the agency considered “either directly or indirectly.” Marcum v. Salazar, 751 F.

Supp. 2d 74, 78 (D.D.C. 2010). Once produced by the agency, the record “is entitled to a strong

presumption of regularity.” Id. (citations omitted).

A party may seek to supplement the record produced by the agency, however, in “one of

two ways.” WildEarth Guardians v. Salazar, 670 F. Supp. 2d 1, 5 n.4 (D.D.C. 2009). First, a

10
party may seek to include “evidence that should have been properly a part of the administrative

record but was excluded by the agency.” Id. Where a plaintiff follows this first route,

supplementation is appropriate if the agency “did not include materials that were part of its

record, whether by design or accident.” Marcum, 751 F. Supp. 2d at 78. But to overcome the

presumption of regularity, “a plaintiff must put forth concrete evidence that the documents it

seeks to ‘add’ to the record were actually before the decisionmakers.” Id. (citation omitted). To

make that showing, a plaintiff must do more than simply assert “that materials were relevant or

were before an agency when it made its decision.” Id. (citations omitted). “Instead, the plaintiff

‘must identify reasonable, non-speculative grounds for its belief that the documents were

considered by the agency and not included in the record.’” Id. (emphasis in original) (quoting

Pac. Shores Subdivision Cal. Water Dist. v. U.S. Army Corps of Eng’rs, 448 F. Supp. 2d 1, 6

(D.D.C. 2006)). The plaintiff must also “identify the materials allegedly omitted from the record

with sufficient specificity, as opposed to merely proffering broad categories of documents and

data that are ‘likely’ to exist as a result of other documents that are included in the administrative

record.” Banner Health, 945 F. Supp. 2d at 17 (citation omitted).

Alternatively, a party may seek to supplement the record with “extra-judicial evidence

that was not initially before the agency but [which] the party believes should nonetheless be

included in the administrative record.” WildEarth Guardians, 670 F. Supp. 2d at 5 n.4. In these

circumstances, a more stringent standard applies. To “justify[] a departure from [the] general

rule” that review “is to be based on the full administrative record that was before the Secretary at

the time he made his decision,” a party must demonstrate one of three “unusual circumstances.”

Am. Wildlands v. Kempthorne, 530 F.3d 991, 1002 (D.C. Cir. 2008) (internal quotation marks

omitted). These circumstances include: (1) when “the agency ‘deliberately or negligently

11
excluded documents that may have been adverse to its decision,’” (2) when “background

information [is] needed ‘to determine whether the agency considered all the relevant factors,’”

and (3) when the “agency failed to explain administrative action so as to frustrate judicial

review.” City of Dania Beach v. FAA, 628 F.3d 581, 590 (D.C. Cir. 2010) (quoting Am.

Wildlands, 530 F.3d at 1002).

IV. ANALYSIS

A. Motion to Dismiss

The Secretary raises multiple arguments, each of which only applies to a certain subset of

claims.

1. Voluntarily-Abandoned Claims

First, the Secretary argues that Plaintiffs have “voluntarily abandoned” some of their

claims in the wake of decisions in Banner Health and Billings Clinic. As mentioned, on

December 10, 2018, the plaintiffs in the five as-then consolidated cases 9 indicated that they did

not intend to pursue certain claims “to the extent they depend on challenges to the identified

federal fiscal year (‘FY’) threshold rulemakings.” Notice at 2. Plaintiffs then proceeded to list

various claims based on the mid-year 2003 rulemaking and the 2007–2011 annual rulemakings.

Id. at 3–7. The apparent logic was that claims depending on challenges to these rulemakings,

which had been upheld in Banner Health and Billings Clinic, would be fruitless. The Notice

concluded by noting that “the Hospitals intend to submit appropriate filings to effect the

respective, relevant withdrawals.” Id. at 7. At a later status conference, Plaintiffs’ counsel

further clarified that the Hospitals were “not challenging the 2003 rules.” Tr. of Status

9
Cabell Huntington Hosp., No. 19-cv-722, and Sarasota Mem’l Hosp., No. 19-cv-860,
had not yet been filed. Bayshore Community Hospital, No. 18-cv-2684, was consolidated with
the main group of cases on February 15, 2019. See Order (Feb. 15, 2019), ECF No. 112.

12
Conference, 13:14 (Mar. 22, 2019). The Secretary argues, simply enough, that “the plaintiffs

should be held to their statements.” Def.’s MTD at 2.

Plaintiffs respond that such a dismissal would be unduly harsh. Pls.’ Opp’n MTD at 12–

13. They explain that they filed the Notice based on their understanding of the legal issues at the

time, and their promised later filings (namely, their amended complaints) clarified more

precisely the issues they intended to press even after Banner Health and Billings Clinic. Id.

Plaintiffs concede that they are abandoning challenges to the mid-2003 rulemaking, but

acknowledge that they are “continuing to pursue certain challenges, not foreclosed by circuit

precedent, that could be understood to be among those the Notice said they intended to

withdraw.” Id.

Under Rule 41(b), a district court can dismiss a case for failure to prosecute a claim. See

Fed. R. Civ. P. 41(b). “A Rule 41(b) dismissal is proper if, in view of the entire procedural

history of the case, the litigant has not manifested reasonable diligence in pursuing the cause.”

Bomate v. Ford Motor Co., 761 F.2d 713, 714 (D.C. Cir. 1985) (citations omitted). Here, the

Court finds it would inappropriate to dismiss the claims depending on challenges to the FY

2007–2011 rulemakings. The Notice was just that—a notice of future intent. Plaintiffs indicated

that they would make later filings to “effect” the withdrawals, which they did with relative

promptness (the amended complaints were filed in February and March of 2019). Those

complaints made clear that they had reassessed the viability of certain claims based on the FY

2007–2011 rulemakings and wanted to pursue those claims. The challenges to the 2003

rulemaking, however, present different considerations. At the March 22, 2019 status conference

(after amended complaints in all eight cases had been finalized), Plaintiffs’ counsel indicated

definitively on the record that the Hosp were not challenging the 2003 rules. Tr. of Status

13
Conference at 13:14. Based on that representation, the Secretary prepared and filed a motion to

dismiss, reasonably assuming that the 2003 rules were not at issue. Def.’s Reply in Supp. of

Mot. Dismiss (“Def.’s MTD Reply”) at 3–4, ECF No. 146. And the complaints do not clearly

articulate a challenge to any 2003 rulemaking procedure. As a result, it is difficult for the

Plaintiffs to argue that they have manifested “reasonable diligence” in claims related to the mid-

2003 rules and, in any case, they do not object to dismissal. The Court will therefore grant the

Secretary’s motion in this respect.

2. Claims Barred by Prior Litigation in Banner Health and Billings Clinic

The Secretary’s main argument is that many of Plaintiffs’ claims in this case are barred

by the prior litigation in Banner Health and Billings Clinic. This Court had previously allowed

the Secretary to amend his answer in University of Colorado Health at Memorial Hospital v.

Azar to assert these kinds of preclusion defenses, judging that it would not be futile to assert

them. See Mem. Op. Suppl. at 1.

a. Claim Preclusion

“Under the doctrine of claim preclusion, a final judgment forecloses ‘successive

litigation of the very same claim, whether or not relitigation of the claim raises the same issues as

the earlier suit.’” Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (quoting New Hampshire v.

Maine, 532 U.S. 742, 748 (2001)). “A subsequent lawsuit is barred by [claim preclusion] if there

has been prior litigation (1) involving the same claims or cause of action, (2) between the same

parties or their privies, and (3) there has been a final, valid judgment on the merits, (4) by a court

of competent jurisdiction.” Alaska Forest Ass’n v. Vilsack, 883 F. Supp. 2d 136, 141 (D.D.C.

2012) (internal quotation marks and citations omitted). The parties do not contest the final three

14
elements, but they do disagree about whether the current case and Banner Health and Billings

Clinic involve “the same claims or causes of action.”

Specifically, the Secretary argues that “plaintiffs’ challenge to the fixed loss threshold

rule for each year is a discrete ‘claim’ for purposes of claim preclusion”; as a result, he

maintains, Plaintiffs here that also brought claims in Banner Health and Billings Clinic cannot

challenge the validity of the rules upheld in those cases (specifically, FYs 2007–2011). 10 Def.’s

MTD at 18–19. The contention is that the underlying challenge to each fiscal year’s rule defines

the claim. Id. at 18.

Plaintiffs disagree, arguing that this approach defines “claim” at the wrong level of

generality. They maintain that each separate dispute over a particular annual cost report

constitutes a separate claim. Pls.’ Opp’n MTD at 14. It cannot be, they say, that “a hospital

must be governed by a rule that turns out to be invalid, simply because the hospital contested the

rule in a previous reimbursement appeal.” Id. at 21. As an example, Plaintiffs invite

consideration of “a hypothetical Hospital X that was a plaintiff in Billings Clinic, where it

litigated over its 2007 cost report. Hospital X’s cost reporting period aligns with the calendar

year, so its 2007 reimbursement depended on the FY 2007 and 2008 thresholds. Now Hospital X

is appealing its 2008 cost report—which implicates the FYs 2008 and 2009 fixed-loss

thresholds.” Id. at 14. Under these circumstances, Plaintiffs say, claim preclusion does not bar

a fresh attack on the already-litigated FY 2008 threshold. Id.; see also id. at 32.

What constitutes a “claim” or “cause of action” for purposes of claim preclusion is,

unfortunately, “rather ambiguous.” 18 Wright & Miller, Federal Practice and Procedure § 4407

10
Of course, claims in this case based on challenges to the FY 2012–2016 threshold
rulemakings, which were not at issue in either Banner Health or Billings Clinic, would not be
barred.

15
(3d ed. 2019). Our Circuit has said that the test is “whether [the claims] share the same nucleus

of facts.” NRDC v. EPA, 513 F.3d 257, 261 (D.C. Cir. 2008) (quoting Apotex, Inc. v. FDA, 393

F.3d 210, 217 (D.C. Cir. 2004)). Elsewhere, applying D.C. law to determine the preclusive

effect of a D.C. Court of Appeals decision, the Circuit has explained: “The District of Columbia,

like the majority of jurisdictions, has adopted the Second Restatement’s ‘transactional’ approach

under which a ‘cause of action, for purposes of claim preclusion, comprises all rights of the

plaintiff to remedies against the defendant with respect to all or any part of the transaction, or

series of connected transactions, out of which the action arose.’” Stanton v. D.C. Court of

Appeals, 127 F.3d 72, 78 (D.C. Cir. 1997) (citations omitted). 11 What facts constitute a

“transaction” or “series of transactions” is to be determined “pragmatically.” Id. (quoting

Restatement (Second) of Judgments § 24(1) (1982)). Of course, “[a]dmonitions to pragmatism

do not decide cases, and this standard is obviously far from self-explanatory.” Id.

As the Court explained previously, see Mem. Op. Suppl. at 12–16, in NRDC v. EPA, the

D.C. Circuit applied the “same nucleus of facts” test in analogous circumstances. In its first suit,

the NRDC unsuccessfully challenged EPA’s 2005 final rule on use of methyl bromide, which

was based on a 2004 “Framework Rule.” Id. at 258–59. EPA subsequently relied on the same

Framework Rule to issue final rules on methyl bromide in 2006 and 2007. Id. at 259. Then, in a

second case, NRDC challenged the 2007 rule, presenting somewhat different arguments against

the 2004 Framework Rule. Id. at 259–61. The D.C. Circuit held that this second suit was barred

11
Although Stanton was discussing claim preclusion as a matter of D.C. law, it noted that
“[t]he D.C. law of claim preclusion does not differ significantly from the federal [version]. D.C.
courts articulating the doctrine commonly cite federal cases applying federal law.” 127 F.3d at
78 n.4 (citations omitted); see also U.S. Industries, Inc. v. Blake Construction Co., 765 F.2d 195,
204 n.20 (D.C. Cir. 1985) (“[W]e can discern no material differences in the District of
Columbia’s law of res judicata and the federal common law of res judicata.”).

16
by claim preclusion because “NRDC’s claim has not changed: in the first case it argued that the

2004 framework was invalid as adopted and applied to determine the 2005 exemption, and now

it challenges the 2004 framework—which EPA left unchanged—as applied to determine the

2007 exemption.” Id. at 258. The D.C. Circuit characterized the two cases as “simply offer[ing]

different legal theories to support the same claim: that . . . the Framework Rule [was] unlawful.

NRDC doesn’t get a second bite at that same apple.” Id. at 261 (citations omitted). The court

held that the “nucleus of facts” was the same, because both claims were based on problems with

the 2004 Framework Rule. See id. (“None of the underlying facts has changed; in defining the

2007 critical use exemption, EPA applied the same principles that it had established—

unlawfully, according to NRDC—in its Framework Rule.”).

Applied to this case, NRDC v. EPA suggests that the proper measure of Plaintiffs’ claim

is the challenge to each year’s particular rule: that the particular threshold is unlawful. As a

result, Plaintiffs’ challenge to the same year’s rule (based on a cost report from a different year)

represents only an opportunity to present “different legal theories” in support of that claim. See

id.

Plaintiffs, obviously, disagree with this interpretation of NRDC v. EPA. They argue that

the relevant “nucleus of facts” is the dispute over a particular year’s reimbursement, and draw

analogies to other areas of law where a subsequent act of “enforcement” can animate a new

claim. See Pls.’ Opp’n MTD at 16–17, 21 (discussing, inter alia, Comm’r v. Sunnen, 333 U.S.

591 (1948) (tax enforcement), United States v. Stone & Downer Co., 274 U.S. 225 (1927)

(customs), and Tesoro Alaska Petroleum Co. v. FERC, 234 F.3d 1286 (D.C. Cir. 2000)

(ratemaking), as well as Stanton, 127 F.3d at 78 (“[E]ach successive enforcement of a statute—

such as each year a taxpayer is subjected to a tax—creates a new cause of action.”) and

17
Burlington N. Santa Fe R.R. v. Assiniboine & Sioux Tribe, 323 F.3d 767, 770 (9th Cir. 2003)

(“The core of Sunnen is the holding that tax cases by their nature raise different claims

concerning different tax years, although the issues may be precisely the same.”). Relying on

Sunnen in particular, they point out the similarities between tax and Medicare reimbursement

disputes. See Pls.’ Opp’n MTD at 18–19 (noting that both are based on annual assessments and

channeled through similar processes for administrative and judicial review). And continuing to

echo Sunnen, they also argue on policy grounds that “[i]f a hospital loses a challenge to a rule

while disputing one year’s cost report, applying claim preclusion to that challenge would mean

the hospital is subject to the rule forevermore, even if a court later decides the rule is invalid.”

Id. at 20.

The Court is not persuaded that these examples—which are drawn from specialized areas

of the law and do not purport to articulate general rules of claim preclusion—are enough to

undermine the application of NRDC v. EPA to the circumstances here. The Circuit has explained

that Tesoro’s ratemaking exception, for example, is justified by particular concerns specific to

that context. See Sorenson Communications, LLC v. FCC, 897 F.3d 214, 225-227 (D.C. Cir.

2018) (“Claim preclusion has a limited application in the ratemaking context because new rates

and new rate orders are almost always based on new facts and circumstances that were not

present at the time of the earlier judgment[.]”). Similarly, the Circuit has cited Stanton for the

more limited proposition that “claim preclusion [does not] bar a subsequent suit based on events

and circumstances that post-date and materially differ from those previously at issue.” Id.

(emphasis added) (citing 127 F.3d at 79). Here, in contrast, the circumstances giving rise to the

renewed challenges to the previously-challenged rulemakings are not only materially similar

(claim underpayment), but also legally irrelevant: the core of Plaintiffs’ dispute is with the

18
general rulemaking itself. Said differently, the underlying reimbursement cost reports trigger

Plaintiffs’ ability to seek judicial review, but have no relationship to the merits of the Plaintiffs’

claims. It would likely be different if Plaintiffs were alleging something like an as-applied

challenge—for example, that the Secretary had made “a unique calculational error” in applying

an already-upheld rule to a new cost report. Mem. Op. Suppl. at 14. But here, in contrast,

Plaintiffs are merely offering “new legal theor[ies]” against already-challenged and upheld

rulemakings. They, in a meaningful sense, already had their bite at the apple. Indeed, the case

resembles the “packag[ing] of successive facial attacks in successive retrospective litigations,”

which the Circuit has disapproved of. Stanton, 127 F.3d at 79. Finally, the Court is reluctant, in

the absence of further authority, to extend Sunnen beyond its taxpaying context. This is

particularly so because the practical concerns expressed in Sunnen—that a taxpayer could be

subjected to a faulty tax decision ad infinitum, with competition-hindering effects—do not apply

here, where a hospital is free to challenge future annual rulemakings (subject, of course, to the

separate doctrine of issue preclusion).

As a result, the Court finds that Plaintiffs who have previously challenged particular

year’s rulemakings are barred from raising subsequent challenges to the same year’s fixed loss

threshold determinations. 12

b. Broader Preclusion

The Secretary also moves for two further, more aggressive applications of preclusion

doctrines.

12
Because this holding resolves the Secretary’s preclusion claims (with the exception of
two broader arguments discussed below), the Court does not discuss whether the separate,
related claim of issue preclusion would apply in these circumstances.

19
 First, the Secretary suggests that “any hospital that was a plaintiff in Banner Health or

Billings Clinic is barred from challenging any fixed loss threshold determination that was challenged

and upheld in the earlier case, regardless of whether that hospital’s participation in the earlier case

was based on payment claims for the same federal fiscal year.” Def.’s MTD at 16. Thus, under the

Secretary’s view, even if a party in Billings Clinic did not challenge the 2008 threshold in that

case, it would be precluded from challenging it here because a different plaintiff did so there.

Def.’s MTD at 20. For this proposition, the Secretary primarily relies on the Restatement

(Second) of Judgments, see id., which states that a party is generally “bound [b]y . . . the rules of

res judicata with respect to determinations made while he was a party.” 1 Restatement (Second)

of Judgments § 34(2) (1982). But that simply reframes the question: what do the rules of res

judicata require?

The situation is complicated by the jurisdictional requirements of 42 U.S.C. §

1395oo(f)(1). Before presenting a claim to a federal court, a hospital has to submit payment

claims involving that fiscal year’ rules. Id. Under the Secretary’s theory, this limitation is

irrelevant: even if a hospital is jurisdictionally unable to challenge a particular year’s rule, it

would nevertheless be bound by another hospital’s challenge of that rule in the same case. In

effect, then, a hospital could be precluded from contesting a threshold rule even though it

previously had no power to do so. The Secretary has not cited any cases that apply preclusion in

such a context, and the Court is reluctant to apply the doctrine in such circumstances. It is

reasonably well settled that claim preclusion does not bar a claim which could not have been

brought in the earlier action. See 18 Wright & Miller, Federal Practice and Procedure § 4412 (3d

ed. 2019) (“Limitations on the jurisdiction or the nature of the proceedings brought in a first

court may justify relaxation of the general requirement that all parts of a single claim or cause of

20
action be advanced. It is clear enough that a litigant should not be penalized for failing to seek

unified disposition of matters that could not have been combined in a single proceeding.”).

Second, the Secretary now “asserts preclusion defenses not only against hospitals that

were plaintiffs in Banner Health or Billings Clinic, but also against hospitals under common

control with those hospitals”—even if they were not parties in either suit. Def.’s MTD at 17. To

support this theory, the Secretary relies on references in the complaints indicating that certain

hospitals are subject to the “common ownership and control” of certain hospital groups that were

plaintiffs in those prior cases. See, e.g., Am. Compl. at ¶ 6.h, ECF No. 114 (“Plaintiff Banner

Casa Grande Medical Center, is a non-profit organization . . . under the common ownership and

control of Banner Health.”). Because Banner Health was, obviously enough, a plaintiff in

Banner Health, Banner Casa Grande (the Secretary maintains) should not be able to challenge

the 2007 threshold. See Def.’s MTD at 24.

The Court is unwilling to reach such a conclusion on the basis of the pleadings alone. A

boilerplate recital that a new claimant is currently subject to the “common ownership and

control” of a previous claimant is insufficient basis to invoke issue preclusion against the new

claimant. As the Secretary himself recognizes, our Circuit has “cautioned that common

ownership ‘may not always show sufficient control.’” Id. at 24 (quoting Gulf Power Co. v.FCC,

669 F.3d 320, 324 (D.C. Cir. 2012)). Gulf Power goes on to suggest that the inquiry is fact-

specific and context-dependent. See 669 F.3d at 324 (citing evidence that the two companies

under common control also operated as part of a single integrated electric system). Here, there is

not comparable evidence that the parents and subsidiary were so integrated at the relevant time

periods.

21
 The Secretary suggests that “if the Court were to find that the plaintiffs’ allegations are

not enough to establish common control, then it should authorize discovery into who has

controlled the litigation on behalf of the plaintiffs, or it should conduct its own inquiry.” Def.’s

MTD Reply at 16. But it is not clear to the Court how this would be possible or desirable. It

would not, for instance, promote “the avoidance of unnecessary judicial waste,” because the

challenges to each year’s threshold would continue, regardless. Arizona v. California, 530 U.S.

392, 412 (2000) (quoting United States v. Sioux Nation of Indians, 448 U.S. 371, 432 (1980)

(Rehnquist, J., dissenting)).

For these reasons, the Court will only grant the Secretary’s motion to dismiss as to

entities that actually challenged the relevant year’s rulemakings in previous cases.

3. Claims that Certain Methods Amount to a “Rule” Requiring Separate Notice and Comment

Plaintiffs’ operative complaints in this case also specifically challenge the Secretary’s

method for computing projected cost-to-charge ratios (“CCRs”) in the FY 2007–2013

rulemakings. See, e.g., Am. Compl. ¶ 94–104 (“Count Two”), ECF No. 114. Specifically, the

claim is that the CCR calculation methods constitute a separate “rule, requirement or other

statement of policy,” 42 U.S.C. § 1395hh(a), or “rule,” 5 U.S.C. § 551(3), requiring independent

notice and comment procedures. See, e.g., Am. Compl. ¶ 102, ECF No. 114 (“HHS’s failures to

follow notice and comment procedures with respect to the agency’s method to project CCR

decreases violated the Medicare Act and the Administrative Procedure Act.”). The Secretary

argues that there is no jurisdiction to hear this kind of claim, that notice and comment procedures

are not required for these particular methods, and that certain Plaintiffs who were plaintiffs in

Banner Health should be judicially estopped from advancing such challenges. Def.’s MTD

22
Reply at 16–22. The Court agrees with the Secretary’s first argument and therefore declines to

address the second and third.

As explained above, providers have the right to obtain expedited judicial review (“EJR”)

of “any action of the fiscal intermediary which involves a question of law or regulations relevant

to the matters in controversy whenever the [PRRB] determines . . . that it is without authority to

decide the question[.]” 42 U.S.C. § 1395oo(a); see also 42 C.F.R. § 405.1842(g)(2) (“If the

Board grants EJR, the provider may file a complaint in a Federal district court in order to obtain

EJR of the legal question.”). This requirement—that issues for judicial review be articulated as a

particular question of law, which the PRRB approves—helps insure that the PRRB “has a role in

shaping the controversy that is subject to judicial review.” Bethesda Hospital Ass’n v. Bowen,

485 U.S. 399, 407 (1988). It is also consistent with ordinary exhaustion principles. See Am.

Chiropractic Ass’n, Inc. v. Leavitt, 431 F.3d 812, 816 (D.C. Cir. 2005) (stating that, under the

Medicare Act, “[j]udicial review may be had only after the claim has been presented to the

Secretary and administrative remedies have been exhausted”).

It follows that a district court lacks jurisdiction over claims outside the scope of PRRB’s

order authorizing a provider’s request for expedited review. 13 This jurisdictional requirement

was applied in District Hospital Partners, L.P. v. Sebelius, 794 F. Supp. 2d 162 (D.D.C.), mot.

for reconsideration denied, No. 11-cv-0116, 2011 WL 13248160 (D.D.C. Sept. 1, 2011). There,

the plaintiffs’ complaint alleged that the Secretary acted arbitrarily and capriciously by failing to

13
Judicial review can also be obtained through two other pathways: (1) if an EJR request
is submitted to the board and the PRRB fails to render a determination within 30 days, or (2) if
the PRRB determines “on its own motion” that there is a legal question that it is without
authority to decide. See 42 U.S.C. § 1395oo(f)(1). In either case, the legal question is still
limited to a particular universe of claims: what the provider has asked the Board to review, or
what the Board itself has decided to determine.

23
make midyear adjustments to the outlier threshold. Id. at 168. The court found that this claim

was “not a part of the ‘action’ plaintiffs ha[d] brought under the Medicare Act” because it had

not been presented to the PRRB, unlike the other claims in the complaint. Id. As a result, the

court lacked subject matter jurisdiction. See id. at 168–69.

Here, Plaintiffs’ requests for EJR are broadly articulated, but they are nonetheless

focused on a particular set of regulations. For example, an illustrative request frames the “[i]ssue

[u]nder [a]ppeal” as follows:

Whether the specific regulations governing Outlier Case Payments as set forth in
the two regulatory sources—the Outlier Payment Regulations and the fixed loss
threshold (“FLT”) Regulations (collectively, the “Medicare Outlier
Regulations”)—. . . are contrary to the Outlier Statute and/or are otherwise
substantively or procedurally invalid?

Riverview Medical Center v. Azar, Second Am. Compl. Ex. A at 1, ECF No. 115 (footnotes

omitted). Citing the providers’ own definition of “outlier payment regulations,” the PRRB

understood this request to mean that “the Providers are challenging the validity of the outlier

regulations, 42 C.F.R. §§ 412.80–412.86.” Second Am. Compl. Ex. A at 4. The “fixed loss

threshold” regulations appear to refer to the annual rulemaking that sets the threshold for the

applicable fiscal year. Noticeably absent is any suggestion that the providers were challenging

the cost-to-charge methods as a further, separate category of rule or policy. Compare Banner

Health v. Burwell, 126 F. Supp. 3d 28, 67 (D.D.C. 2015) (finding jurisdiction in part because the

“the legal question presented to the PRRB . . . referr[ed] to each of the revisions to the outlier

payment regulations and each of the fixed loss threshold regulations at issue for the payment

years in question—that is, each of the regulations challenged in th[e] action”) , rev’d in part on

other grounds, 867 F.3d 1323 (D.C. Cir. 2017).

24
 The Plaintiffs here argue that, nevertheless, their requests for EJR were broad enough to

encompass a challenge to the cost-to-charge ratio methodologies as a standalone action. See

Pl.’s Opp’n MTD at 10 (arguing that the EJRs in this case “encompass[] a range of issues,

[including] anything establishing whether a given fixed loss threshold is ‘substantively and/or

procedurally invalid.’”). But they do not point to any language indicating a specific challenge to

cost-to-charge methods as a particular rule, requirement, or statement of policy. Instead, they

suggest that it is permissible to “disput[e] a policy embedded in the [the FY 2007-2013 outlier]

thresholds that the EJRs address.” Id. at 11 (emphasis added). Or, to use a different formulation,

“[t]he EJR-approved question of whether the thresholds were ‘procedurally valid’ easily

encompasses the Hospitals’ contention that notice and comment on the thresholds was deficient

with respect to this policy.” Id. at 11–12. But claims that (1) a particular regulation is invalid

and (2) a particular methodology mentioned by that regulation is a policy or regulation separately

subject to notice and comment are two different things. The latter question was not presented to

or approved by the PRRB.

This does not mean, however, that the cost-to-charge methodologies are immune from

scrutiny. As explained above, projected cost-to-charge ratios are a crucial element in the overall

calculation of a given year’s fixed lost threshold. See also Pls.’ Opp’n MTD at 37 (“[T]he

forecasting of cost-to-charge ratios is half the work.”). And Plaintiffs are on firm ground in

arguing that “[n]otice-and-comment on a proposed threshold means notice and comment on the

methods and facts supporting the choice of threshold.” Id. at 35. Indeed, “[i]ntegral” to the APA

“is the agency’s duty ‘to identify and make available technical studies and data that it has

employed in reaching the decisions to propose particular rules. . . . An agency commits serious

procedural error when it fails to reveal portions of the technical basis for a proposed rule in time

25
to allow for meaningful commentary.’” Solite Corp. v. EPA, 952 F.2d 473, 484 (D.C. Cir. 1991)

(quoting Connecticut Light & Power Co. v. NRC, 673 F.2d 525, 530–31 (D.C. Cir. 1982)). Thus,

for example, at least when “the output of [a] model was central” to an agency’s decision to adopt

a rule, “[t]he failure to provide an opportunity for comment on the model’s methodology . . .

constitute[d] a violation of the APA’s notice-and-comment requirements.” Owner-Operator

Indep. Drivers Ass’n, Inc. v. Fed. Motor Carrier Safety Admin., 494 F.3d 188, 201 (D.C. Cir.

2007).

Importantly, though, the Secretary does not appear to take issue with this line of

argumentation. See Def.’s MTD Reply at 18 (“This . . . type of argument—disputing the

adequacy of the notice and comment provided for a fixed loss threshold, but not positing the

existence of any ‘rule’ other than the dollar amount of the fixed loss threshold—is not within the

scope of the Secretary’s present motion to dismiss.”). As a result, Plaintiffs remain free to argue,

if it is otherwise appropriate and within the scope of their complaints to do so, that the

challenged fixed loss thresholds regulations are deficient because the cost-to-charge

methodology in particular was not adequately made available or explained.

4. Claims that Are Untimely

Finally, the Secretary argues that certain claims introduced in some of Plaintiffs’

amended complaints (specifically, Charleston Area Medical Center and West Virginia University

Hospital) should be dismissed because they were added by amendment under Rule 15(a),

without this Court’s approval. Def.’s MTD at 37. The Secretary suggests that, because these

particular claims had been approved for expedited judicial review after the filing of the original

complaints, they should have been added by supplementation under Rule 15(d) (which requires

court approval). Id. (citing Fed. R. Civ. P. 15(d)). As a result, according to the Secretary, these

26
claims were filed “without legal effect” and are now barred, because they were not actually

submitted within 60-day period for filing a district court action under § 1395oo(f)(1). Id. at 38.

The difference between supplementation and amendment is that an amendment “typically

rest[s] on matters in place prior to the filing of the original pleading,” while a supplement “sets

forth ‘transactions or occurrences or events which have happened since the date of the pleading

sought to be supplemented.’” United States v. Hicks, 283 F.3d 380, 385 (D.C. Cir. 2002)

(quoting Fed. R. Civ. P. 15(d) (amended 2007)); see also Hall v. C.I.A., 437 F.3d 94, 100 (D.C.

Cir. 2006) (finding that a filing, insofar as it added a claim based on a set of FOIA requests made

after the filing of the original complaint, was “plainly a supplemental pleading” because it

concerned post-complaint events). As a result, the filings of these claims here seem to have

required leave of this Court.

In response, Plaintiffs cite a few cases that have allowed the introduction of new facts by

amendment. See, e.g., Scahill v. District of Columbia, 909 F.3d 1177, 1184 (D.C. Cir. 2018)

(holding “that a plaintiff may cure a standing defect under Article III through an amended

pleading alleging facts that arose after filing the original complaint”); Northstar Fin. Advisors

Inc. v. Schwab Investments, 779 F.3d 1036, 1044, 1048 (9th Cir. 2015), as amended on denial of

reh’g and reh’g en banc (Apr. 28, 2015) (allowing plaintiff to file a supplemental pleading

alleging post-complaint facts that established standing). But neither case suggests that a plaintiff

can add entirely new claims without court approval—and in any case, as Plaintiffs’

acknowledge, “[i]n Scahill and Northstar the amended complaints were by leave of court,”

which made the distinction between supplementation and amendment less meaningful. Pls.’

Opp’n MTD at 44.

27
 The only case cited by plaintiffs addressing the actual addition of claims is Feldman v.

Law Enforcement Associates Corp., 752 F.3d 339 (4th Cir. 2014). There, the court mentioned

that at some point, “[plaintiffs] amended the complaint, adding their respective . . . claims that

had since become ripe.” Id. at 343 (footnote omitted). But again, Feldman appears to have

assumed that the amendments were made with permission of the district court, which made the

mislabeling less significant. See id. at 347 (noting that “although [plaintiff] presented his [post-

complaint] claim in the form of an amended pleading, he clearly sought and was allowed by the

court—with [defendants’] consent—to add this claim”). Plaintiffs suggest this is a

misinterpretation of the actual record. See Pls.’ Opp’n MTD 44 n.18 (arguing that “the district

court docket [in Feldman] demonstrates that the court simply extended the deadline for an

amendment by right, rather than giving leave for the amendment itself”). But even granting this,

it is difficult to read Feldman as meaningful authority for the affirmative position Plaintiffs are

trying to establish.

Given that the claims were not properly added to the complaints, what is the result?

Plaintiffs argue that, unlike some other cases where a filing was refused or disallowed, the Court

here “accepted the filings as submitted” and the Secretary actually answered one of the amended

complaints and “largely admitted the fresh allegations.” Pls.’ Opp’n at 44–45 (citing Charleston

Area Med. Ctr. v. Burwell, Answer to the Am. Comp., No. 15-3031, ECF No. 12, at ¶ 6(x)–6(ii)

(Feb. 22, 2016)). Relatedly, Plaintiffs argue that the Secretary waived any statute of limitations

offense by not raising it in the first pleading or motion responding to the complaint. Id. at 45.

But the Clerk’s “acceptance” of a filing is not equivalent to leave of Court, as the

Secretary notes. Def.’s MTD Reply at 25. And the waiver argument falls short as a technical

matter, because the Defendant’s present motion to dismiss is the initial response to the relevant

28
claims. Pinson v. U.S. Dep’t of Justice, 69 F. Supp. 3d 108, 113 (D.D.C. 2014) (“It is well

established that once an amended complaint is filed, it supersedes the original complaint, thereby

making the first complaint a ‘dead letter’ devoid of any legal effect and making the new

complaint the operative document moving forward.”) (citations omitted). The Secretary

deserves a chance to assert new defenses, even if they were not offered before.

Despite these considerations, the Court is not inclined to dismiss these claims on these

highly technical grounds. See 6A Wright & Miller, Federal Practice and Procedure § 1504 (3d

ed. 2019) (“Parties and courts occasionally confuse supplemental pleadings with amended

pleadings and mislabeling is common. . . . Indeed, the distinction between amended and

supplemental pleadings is sometimes ignored completely.”). Even though the difference does

become salient when, as here, “a supplemental pleading is interposed by a party without leave of

court in the mistaken belief it is a Rule 15(a) amendment that may be made as a matter of

course,” it is generally “doubtful” that any prejudice “accrue[s] to the opposing party” in such a

situation. Id. That is “because the time during which amendments as of right may be filed is

relatively short and comes early in the action,” and “[a]n opposing party who does feel aggrieved

may move to strike the mislabeled pleading, which would have the practical effect of bringing

the question of its propriety before the court as if it had been raised on a motion under Rule

15(d).” Id.

Here, instead of filing a motion to strike and bringing the labelling issue before the Court,

as Wright and Miller suggest, the Secretary waited many months—until after the end of the 60-

day period for filing claims in district court—before asserting this argument for the first time.

Thus, while the Secretary’s argument was not technically waived, it does have a distinct

“gotcha” quality. Moreover, there is no reason to think the Court would not have granted the

29
motion to supplement, given the interests in judicial economy. And finally, the Secretary has not

pointed to any undue prejudice that has resulted from the mislabeling. For these reasons, the

Court exercises its discretion to treat the mislabeled amended complaint as a supplemental

complaint, nunc pro tunc. See Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1337 n.5

(Fed. Cir. 2008) (suggesting that “[u]nder Rule 15(d) the district court had discretion to decide

whether or not to allow [a] supplemental complaint” that had been improperly filed as an

amended complaint as a matter of right).

B. Motion to Supplement the Records

Separately, Plaintiffs seek to add a variety of additional materials to the administrative

record. Their requests encompass both (1) materials that they claim “clearly were before the

agency in its decisionmaking” during the FY 2007 and FY 2014–16 rulemakings and (2)

“additional materials that merit extra-record consideration.” Pls.’ MTS at 1. Each request is

discussed in turn below.

But first, one note: not all of these requests present issues of first impression. In the lead

case here (University of Colorado Health), this Court has already ruled on disputes regarding the

scope of the administrative record. See Suppl. Rec. Op.; Clarification Op. And similar issues

were litigated in related cases. See Suppl. Rec. Op. at 1 (noting that the issues raised by the

plaintiffs’ motion contesting the records were “well-traveled ground”); Mem. Op. at 1,

Charleston Area Med. Ctr. v. Burwell, No. 15-cv-2031 (“Charleston Area Med. Ctr. Suppl. Rec.

Op.”), ECF No. 27 (finding that the plaintiffs’ motion contesting the administrative records

presented “well-worn legal disputes” that “have been rigorously and persuasively examined in

numerous other opinions”). The Court will refer to related rulings as necessary, keeping in mind

Plaintiffs’ well-taken suggestion that the Court “consider, on their own terms, the arguments that

30
the parties have presented here.” Pls.’ Reply Supp. Mot. Suppl. (“Pls.’ MTS Reply”) at 2, ECF

No. 147.

1. Materials Allegedly Before the Agency during the FY 2007 and FY 2014–16 Rulemakings

a. FY 2007 Rulemaking

Plaintiffs first seek “a specific document for which HHS has provided only an attachment

labeled ‘Attachment A’ and the rest of the actuarial analysis on which HHS relied to derive its

pivotal CCR adjustment factor method in the FY 2007 rulemaking.” Pls.’ MTS at 12. As

explained above, projected cost-to-charge ratios (CCRs) form an important part of the outlier

threshold calculation. Beginning in 2007, HHS began using a new “adjustment factor” to help

project hospitals’ historical CCRs by “account[ing] for cost and charge inflation.” FY 2007

Final Rule, 71 Fed. Reg. at 48,150. Broadly speaking, that methodology involves comparing two

different measures of cost inflation—the average increase in hospitals’ costs per discharge and a

“market basket increase” determined by Global Insight, Inc., a government consultant—over a

three year period and then dividing that three year average measure of cost inflation by the one

year average change in charges. Id. HHS explained that it “worked with our actuarial office in

deriving the methodology . . . to develop the CCR adjustment factor.” Id.

Plaintiffs’ core contention is that, beyond the bare description of the methodology

offered in the rulemaking notice itself, HHS “offered scant explanation for choosing its method.”

Pls.’ MTS at 14. To substantiate this charge, they point to a document in the FY 2007

rulemaking record (a one-page printout captioned “Attachment A”), which they contend

indicates the existence of additional analysis. The relevant excerpt from Attachment A is

reproduced here:

31
Pls.’ MTS Ex. A, ECF No. 141-1 (AR 14403). As Plaintiffs argue, the “Attachment” label

implies the existence of a relevant main document that was not supplied as part of the

administrative record. Pls.’ MTS at 16. Additionally, Plaintiffs say, the content of the table is

itself suggestive. The last column (“2005 ‘Projected’ Cost Increase”) shows different estimates

for projected cost increases, depending, in part, on how many years of historical cost inflation are

included in the calculation (ranging from one to seven, as indicated in the “Num Years in Mean”

column). Pls.’ MTS at 15. As mentioned, the Secretary opted to use an average based on three

years’ worth of data, which, in the table, corresponds to the highest projected cost increase

(1.0761). This—not coincidentally, Plaintiffs suggest—is the option that is “least favorable to

hospitals.” Pls.’ MTS at 15. Overall, considering Attachment A alongside HHS’s own

admission that it “worked with [its] actuarial office in deriving the methodology,” 71 Fed. Reg.

at 48,150, Plaintiffs suggest that HHS must have conducted but has not disclosed “some larger

analysis.” Pls.’ MTS at 17.

In response, the Secretary first contends that this Court rejected a similar request in its

earlier opinion, Suppl. Rec. Op. at 27–28, as did two other district courts in related opinions,

Banner Health, 945 F. Supp. at 27–30, 36–38; Charleston Area Med. Ctr. Suppl. Rec. Op. at 14–

15. But to the Court’s knowledge, no decision has discussed “Attachment A” as evidence of

32
additional documentation or analysis. See also Def.’s Opp’n MTS at 10 (conceding that “[t]he

Court’s ruling in Banner Health did not specifically discuss the significance of the ‘Attachment

A’ label”). As to the import of the label, the Secretary argues that it “at most suggests that the

document was at one time attached to some other document,” not that “that the other document

contained material that should have been included in the fiscal year 2007 record.” Id. at 10.

The Court finds that Plaintiffs have offered enough here to overcome the presumption of

regularity accorded to the Secretary. In plain terms, a free-floating attachment strongly indicates

the existence of a primary document. And, though it is not guaranteed, it is reasonable to

conclude that the primary document contained relevant material considered by the agency in its

deliberations. As a result, the disclosure of “Attachment A” offers a “reasonable, non-

speculative ground[]” to believe that at least one other document was “considered by the agency

and not included in the record.” Pac. Shores Subdivision Cal. Water Dist., 448 F. Supp. 2d at 6.

And finally, insofar as it seeks just the “missing” main document, Plaintiffs’ request “identif[ies]

the materials allegedly omitted from the record with sufficient specificity, as opposed to merely

proffering broad categories of documents and data that are ‘likely’ to exist” Banner Health, 945

F. Supp. 2d at 17. As to other “rest of the actuarial analysis” sought by the Plaintiffs, the Court

adheres to its prior conclusion that they have not “describe[d] with specificity” any other

information or analysis supposedly considered or relied up by HHS. See Suppl. Rec. Op. at 28.

For these reasons, the Court will direct the Secretary to disclose to Plaintiffs the full

document with which “Attachment A” is associated. Once such document is disclosed, Plaintiffs

may, if appropriate, renew their argument that this document should be part of the administrative

record.

33
 b. FY 2014–2016 Rulemakings

Trivial impact of reconciliation. Beginning in 2003, HHS implemented a procedure

under which excess payments could be recouped through a “reconciliation” process. See 68 Fed.

Reg. 34,494. Hospitals have maintained that the annual threshold rulemakings should take into

account funds recovered through this process, but HHS has declined to do so. See, e.g., FY 2014

Final Rule, 78 Fed. Reg. 50,980 (“[W]e continue to believe that [due to the 2003 rules] CCRs

will no longer fluctuate significantly and, therefore, few hospitals will actually have these ratios

reconciled upon cost report settlement as demonstrated by the total outlier payments provided by

the commenter.”). Hospitals seek here some basis—calculations or other analysis—for the

Secretary’s conclusion that the impact of reconciliation would be trivial. See Pls.’ MTS at 18.

Plaintiffs note that the Court declined a similar request in its earlier opinion as to the FY

2007–2008 and 2011–2012 rulemakings. See Pls.’ MTS at 18 (citing Suppl. Rec. Op. at 37).

But now, they point to additional data offered by commenters during the FY 2014–2016

rulemakings, including evidence that $12 to $14 million in outlier payments were reconciled

annually and a statement from the HHS Office of the Inspector General suggesting that

potentially $664 million of outlier payments were subject to reconciliation. See id. at 18–19. As

they explain, HHS repeatedly stuck to its guns in response to these new comments, maintaining

that “[w]e do not believe that this relatively small annual amount would have an impact on the

outlier threshold because total outlier payments are approximately $4.3 billion.” FY 2014 Final

Rule, 78 Fed. Reg. at 50,980; see also FY 2015 Final Rule, 79 Fed. Reg. at 50,377; FY 2016

Final Rule, 80 Fed. Reg. at 49,781. Plaintiffs infer from this that HHS had—finally—conducted

some analysis to verify the impact of reconciliation. See Pls.’ MTS at 19.

34
 The Court does not see how HHS’s statements fairly imply the existence of additional

analysis, much less specific documents containing that analysis. As the Secretary points out,

HHS’s determination could rest on the straightforward observation that reconciliation amounts of

$12–14 million annually “would represent only a small fraction of the $4.3 billion per year total

of outlier payments.” Def.’s Opp’n MTS at 14. If that conclusion is unreasonable, Plaintiffs can

address it on the merits. See Suppl. Rec. Op. at 37 (“To the extent that Plaintiffs argue that

HHS’s stated rational[e] does not adequately support its chosen path, that claim is better left for

this Court’s merits consideration of whether the challenged rules are arbitrary and capricious.”);

Lee Mem’l Hosp. (Billings Clinic), 109 F. Supp. 3d at 57 (“Whether HHS’s decision may be

deemed unreasonable . . . is a question to be addressed upon the Court’s review of the merits.”);

Charleston Area Med. Ctr. Suppl. Rec. Op. at 16–17 (“[T]he Hospitals’ claim that the Secretary

made a bare, unsupported assumption in its fixed-loss-threshold regulations is better left to the

merits.”).

Estimates of Total Outlier Payments Made During Prior Fiscal Years. In its FY 2014–

2016 rulemakings, HHS reported that it estimated the total actual outlier payments for the

preceding two fiscal years and compared those estimates to its original projections for each year.

For example, in its FY 2014 rulemaking, HHS estimated the total outlier payments for FYs 2012

and 2013 and noted that both were lower than the projections. See, e.g., FY 2014 Final Rule, 78

Fed. Reg. at 50,983 (“We currently estimate that . . actual outlier payments for FY 2013 will be

approximately 4.77 percent of actual total MS-DRG payments, approximately 0.33 percentage

point lower than the 5.1 percent we projected when setting the outlier policies for FY 2013.”).

Plaintiffs contend that HHS did not adequately explain how it computed these estimates of

outlier payments. Pls.’ MTS at 20. As they point out, the rulemakings themselves only identify

35
data sources and refer generally to “simulations.” See, e.g., FY 2014 Final Rule, 78 Fed. Reg. at

50,983 (“This estimate of 4.77 percent is based on simulations using the FY 2012 MedPAR file

(discharge data for FY 2012 claims).”). According to Plaintiffs, “[b]y the time of the FY 2014

rulemaking, this matter of estimating the payments made had become quite contentious, because

commenters were unable to reproduce HHS’s conclusion using any available data and sought

clarification regarding HHS’s method.” Pls.’ MTS at 21.

Plaintiffs have previously raised similar concerns regarding prior rulemakings. In an

earlier opinion in the University of Colorado case, this Court agreed that, as to the “estimated

outlier payments for previous fiscal years,” “the administrative record fails to fully delineate the

formula used to conduct those acknowledged simulations.” Suppl. Rec. Op. at 27. However,

upon the Secretary’s motion for reconsideration (which included a statement from a declarant

further explaining HHS’s methodology), the Court was satisfied that HHS “did not fail to include

in the administrative record all ‘materials that were part of its record, whether by design or

accident.’” See Clarification Op. at 11 (quoting Marcum, 751 F. Supp. 2d at 78).

To distinguish their earlier requests, Plaintiffs clarify that they are not seeking any new

“formulas” or “explanations.” See Pls.’ MTS at 22 (“To be clear, the Hospitals are not asking

that HHS create anything, or that it supply an explanation for the simulations if the record did not

contain one.”). Instead, “the Hospitals seek only the calculations themselves that produced

HHS’s estimates of the preceding two years’ actual outlier payments for FYs 2014, 2015, and

2016.” Id. The Hospitals suggest that, based on the declarant’s earlier statement, “those

calculations necessarily were actually before HHS at the time of each rulemaking.” Id.

The Secretary does not deny that these calculations exist. Instead, the Secretary suggests

that the estimates were provided for informational purposes only: that is, “to facilitate assessment

36
of the Secretary’s past actions, not as justification for the next year’s fixed loss threshold rule.”

Pls.’ MTS Opp’n at 16. And “[i]n any event,” he continues, “the Secretary adequately explained

his calculation methods.” Id. at 17.

The Court is not persuaded by the Secretary’s responses. The question is not whether the

Secretary specifically “relied” on the calculated estimates as justifications for the relevant rule;

rather, it is simply whether the calculations were “before the Secretary at the time he made his

decision.” Citizens to Preserve Overton Park, 401 U.S. at 420; see also Ad Hoc Metals Coal. v.

Whitman, 227 F. Supp. 2d 134, 139 (D.D.C. 2002) (noting that a particular document “will not

be excluded simply because defendants claim that they did not ‘rely’ upon it”). Similarly, the

adequacy of the Secretary’s explanation of its calculation method is not directly at issue;

Plaintiffs simply seek “HHS’ actual calculations of outlier payments in past years—in whatever

form they were originally prepared.” Pls.’ MTS at 22. Assuming they exist and were part of the

record considered by the Secretary, these materials are appropriately part of the administrative

record.

Cost-to-charge Adjustment Factors. As mentioned above, in its FY 2014 rulemaking,

HHS began using a new method to calculate projected cost-to-charge ratios. 78 Fed. Reg. at

50,978. The new method involved multiplying hospitals’ recent cost-to-charge ratios by an

adjustment factor computed by measuring recent changes in the national average hospital cost-

to-charge ratio. 78 Fed. Reg. at 50,978; see also Def.’s Opp’n MTS at 18. Plaintiffs seek “the

calculations HHS performed and used to compute its adjustment factors [that] were before HHS

during the [FY 2014–2016] rulemakings.” Pls.’ MTS at 23.

The Secretary maintains that the Federal Register already provides sufficient explanation

of how the Secretary computed the adjustment factors. See Def.’s Opp’n MTS at 18 (citing 78

37
Fed. Reg. at 50,982; 79 Fed. Reg. at 50,379–80; 80 Fed. Reg. at 49,784). And, relying on

Banner Health, the Secretary maintains that “a proper administrative record generally does not

need to include all the materials and information that the plaintiffs or the court would need to

fully replicate the agency’s calculations.” Id. (citing Banner Health, 945 F. Supp. 2d at 28–32).

Rather, the Secretary maintains that “a record is generally adequate for judicial review if it

‘delineates the path by which [the agency] reached its decision.’” Id. (quoting Occidental

Petroleum Corp. v. SEC, 873 F.2d 325, 338 (D.C. Cir. 1989)).

Yet here again, the Secretary’s objections appear misplaced. Plaintiffs here are not

seeking all the data or materials necessary to “fully replicate” a set of calculations, nor are they

suggesting that the methodology is insufficiently explained; rather, they are (1) pointing to

evidence suggesting that certain calculations were made and (2) asking that those specific

calculations be disclosed. In this fashion, Plaintiffs have “identif[ied] alleged omissions with

sufficient specificity.” Banner Health, 945 F. Supp. 2d at 28. And the Court does not read

Occidental Petroleum as the Secretary seems to—namely, as allowing an agency to omit records

that were before it as long as it has otherwise explained its decision. The language from that

opinion is, in fact, quite modest, and does not excuse the omission of material that was actually

before the agency. See Occidental Petroleum Corp., 873 F.2d at 338 (“[I]n order to allow for

meaningful judicial review, the agency must produce an administrative record that delineates the

path by which it reached its decision.”). That “path by which [HHS] reached its decision”—no

more, no less—is what Plaintiffs seek here. As a result, again assuming these calculations exist

and were part of the record considered by the Secretary, the administrative record must be

supplemented to include these materials.

38
 Updated Medicare Claims Processing Manual. Plaintiffs also seek the inclusion of the

“then-applicable versions of Chapter 3, Section 20.1.2 of the Medicare Claims Processing

Manual,” which concerns the outlier reconciliation process. Pls.’ MTS at 24. Plaintiffs point out

that Chapter 3 of the Manual was repeatedly cited in the rulemaking records for FYs 2011–2013.

Pls.’ MTS Reply at 12. The Secretary responds that he “cited the Manual purely for

informational purposes,” not “as support for his decisions or to identify information or factors

that he considered or relied on.” Def.’s Opp’n MTS at 20. The Secretary also acknowledges that

he had previously agreed to include material from the Manual in the administrative records in

some prior cases, but, in doing so, “did not concede that the documents were properly part of the

administrative records.” Def.’s MTS at 21.

As the Secretary emphasizes, “mere mention of [i]tems . . . in the Federal Register” does

not show the agency considered them. Banner Health, 945 F. Supp. 2d at 37; see also WildEarth

Guardians v. Salazar, 670 F. Supp. 2d 1, 6 (D.D.C. 2009) (“Although citation to a document

may, as Plaintiff urges, indicate consideration of the contents of the document, the fact that a

document is merely mentioned does not lead to the same conclusion.”). But the references here

go beyond mere citations or mentions. For example, the Federal Register describes and responds

to a comment mentioning Chapter 3, Section 20.1.2 of the Manual. See 80 Fed. Reg. at 49,781.

And it directs readers to consult an updated version of the Manual. Id. at 49,785. The natural

inference is that the Manual was before the Secretary and considered as part of the rulemaking

process. Particularly in light of the principle that a document “will not be excluded simply

because defendants claim that they did not ‘rely’ upon it,” Ad Hoc Metals Coal., 227 F. Supp. 2d

at 139, the Court finds that the requested section of the Manual should be included in the record.

39
 2. Evidence Concededly Not Before the Agency

a. Evidence of Reconciliation Recoveries

As noted above, one particular argument pressed by Plaintiffs is that the Secretary, in

setting the fixed loss thresholds, did not sufficiently take account of funds that would be

recouped through the so-called reconciliation process, including through litigation. See Pls.’

MTS at 25. To support this argument, Plaintiffs seek the inclusion of a variety of specific

documents that—they claim—indicate that the amounts recovered would likely be substantial

and, as a result, undermine the Secretary’s decision to discount the impact of reconciliation. Id.

at 26–29. These include three subcategories of documents: (1) certain reports from HHS’s

Office of the Inspector General (“OIG”), 14 (2) certain annual reports from the Health Care Fraud

and Abuse Control Program (“HCFAC”), 15 and (3) “litigation documents and court decisions” in

outlier fraud cases described in those HCFAC reports. Id. Plaintiffs do not suggest that that

these documents were actually considered by the Secretary; rather, the claim is that they qualify

as adverse information that was inappropriately excluded or ignored by the agency. Id. at 25–26.

14
The Secretary points out that one of the requested OIG reports, No. A-07-10-02764, is
already in the rulemaking records for 2015 and 2016, as it was attached to comments. See Def.’s
MTS Opp’n at 23. Plaintiffs have not challenged this assertion. The Court will therefore deny
as moot the request to add OIG Report No. A-07-10-02764 to the administrative records of the
2015 and 2016 rulemakings.
15
The Secretary makes a particular procedural objection to the requests for the HCFAC
reports: he argues that Plaintiffs did not comply with the local meet-and-confer requirements as
to these requests. See Def.’s Opp’n MTS at 26. But it appears that, within the deadline set by
the Court, the Plaintiffs asked HHS to supplement the record with “[e]vidence of positions taken
by HHS on recovering outlier overpayments in False Claims Act and similar actions” and cited a
particular HCFAC report as an illustrative example. See Def.’s Opp’n MTS Ex. A at 5, ECF
142-1. More specificity would certainly have been preferable, but the Court finds that Plaintiffs
satisfied their obligations by “trying in good faith to achieve [their] objectives” and taking “real
steps to confer.” U.S. ex rel. K & R Ltd. P’ship v. Mass. Hous. Fin. Agency, 456 F. Supp. 2d 46,
52 (D.D.C. 2006), aff’d, 530 F.3d 980 (D.C. Cir. 2008).

40
 As Plaintiffs note, extra-record evidence can be added to the administrative record only

under unusual circumstances, such as when “the agency ‘deliberately or negligently excluded

documents that may have been adverse to its decision.’” City of Dania Beach v. FAA, 628 F.3d

581, 590 (D.C. Cir. 2010) (quoting Am. Wildlands, 530 F.3d at 1002); see also Kent Cty., Del.

Levy Court v. EPA, 963 F.2d 391, 396 (D.C. Cir. 1992) (finding it appropriate to supplement the

record with adverse evidence when it appeared the agency was “at least negligent in failing to

discover” certain internal documents). Some district court cases in this district have concluded

that “[a] plaintiff can make a prima facie showing that an agency excluded adverse information

from the record by proving that the documents at issue (1) were known to the agency at the time

it made its decision, (2) ‘are directly related to the decision,’ and (3) ‘are adverse to the agency’s

decision.’” Fund for Animals v. Williams, 391 F. Supp. 2d 191, 198 (D.D.C. 2005) (quoting

Public Citizen v. Heckler, 653 F. Supp. 1229, 1237 (D.D.C. 1986)).

The Court does not find that Plaintiffs have made even the prima facie showing

recognized in Fund for Animals and Public Citizen. As to the first two categories of documents

(the OIG and HCFAC reports), it is true that they, as high-level, official agency documents, were

plausibly “known to the agency.” 16 Cty. of San Miguel v. Kempthorne, 587 F. Supp. 2d 64, 72

16
This is subject to some clarifications. Plaintiffs’ proposed order indicates that
“following materials are deemed part of the administrative records for judicial review, for each
document in the rulemakings that postdated that document.” See Pls.’ Proposed Order at 2, ECF
No. 141-2 (emphasis added). It then proceeds to list the various OIG reports and the annual
HCFAC Reports for FYs 2007–2014. Id. at 2–4. The Secretary interprets the italicized language
to mean that Plaintiffs want supplementation “only where the report postdates the issuance of the
final rule.” Def.’s MTS Opp’n at 21 n.6. This is likely a misunderstanding or misstatement on
the Secretary’s part; the Court understands Plaintiffs’ request to mean, more reasonably, that
only if the report existed at the time of the rulemaking should it be included in the record for that
rulemaking. Otherwise, of course, it would be difficult to show that the report was “known to
the agency at the time it made its decision.” Fund for Animals, 391 F. Supp. 2d at 198. The rest
of the Secretary’s discussion makes clear that the Secretary understood the request in this more
logical way. See Def’s MTS Opp’n at 21 n.6. Additionally, the Secretary points out that one of

41
(D.D.C. 2008); see id. at 76 (“[I]t is axiomatic that documents created by an agency itself or

otherwise located in its files were before it.”). And at least as Plaintiffs argue, they contained

data that was “adverse” to the Secretary’s decision in a loose sense, insofar as they indicated that

reconciliation was more significant than the Secretary maintained. But Plaintiffs have not

demonstrated that the documents were “directly related to the decision”; at most, they contained

data related to one aspect of the subject of the decision. Both Fund for Animals and Public

Citizen illustrate the difference: in those cases, documents that were ordered to be added to the

record contained internal conclusions directly contrary to the relevant agency’s final decision.

See Fund for Animals, 391 F. Supp. 2d at 198 (discussing documents warning about the negative

environmental effects of opening refuges to hunting when final rule opened refuges to hunting);

Public Citizen, 653 F. Supp. at 1237 (discussing internal document that concluded raw milk was

a public health risk when the agency refused to engage in related rulemaking). The data and

reports cited by Plaintiffs are not so directly relevant or conclusive. Additionally, the Circuit has

generally required the documents to have been excluded either negligently or deliberately,

neither of which has been shown here. See City of Dania Beach, 628 F.3d at 590; Kent Cty., Del.

Levy Court, 963 F.2d at 396.

As to the third subcategory of documents—namely, the litigation documents including

“pleadings and briefs in the cases described in the HCFAC reports,” Pls.’ MTS at 29—the Court

similarly declines to order supplementation. Plaintiffs do not describe these documents with any

particular specificity and the scope of the request is (potentially, at least) exceedingly broad. See

City of Dania Beach, 628 F.3d at 590–91 (denying supplementation in part because the

the reports requested for inclusion is dated September 28, 2015, which is after the publication of
the fiscal year 2016 rule. As a result, the Secretary argues, it does not fall within any of the
Plaintiffs’ requests. Id. at 23 n.6. Plaintiffs did not challenge that argument.

42
plaintiffs’ “vague proffer” of hundreds of pages of material was “too generalized”).

Additionally, it is unclear that these individual case filings—as opposed to the OIG and HCFAC

reports discussed above—would have been “known to the agency at the time it made its

decision.” Fund for Animals, 391 F. Supp. 2d at 198. As Plaintiffs note, “they are Justice

Department litigation documents and court decisions,” not internal HHS documents. Pls.’ MTS

at 29. As a result, the Court does not find it appropriate to add them to the administrative record,

even as “background information.” City of Dania Beach, 628 F.3d at 590.

While supplementation is not appropriate, Plaintiffs are, of course, free to argue on the

merits that the Secretary’s decision to discount the impact of reconciliation was arbitrary and

capricious. Charleston Area Med. Ctr. Suppl. Rec. Op. at 16–17 (concluding that “the Hospitals’

claim that the Secretary made a bare, unsupported assumption in its fixed-loss threshold

regulations [with respect to reconciliation] is better left to the merits”).

b. Proposed FY 2020 Rule

Finally, Plaintiffs request that the Court “consider, as background material” HHS’s

proposed rule setting the fixed loss threshold for the 2020 fiscal year. Pls.’ MTS at 30. They

acknowledge that the proposal was not before the agency during the relevant time periods, but

explain that it “describes plans to take account of reconciliation, as commenters asked it to do

repeatedly in the years at issue here.” Id. (citing FY 2020 Proposed Rule, 84 Fed. Reg. 19,158,

19,593 (May 3, 2019)). Accordingly, Plaintiffs suggest, consideration of the new proposal is

helpful because it shows that it was “quite feasible” for HSS to do what commenters had long

urged. Id. at 31. Plaintiffs’ legal rationale for the inclusion of a later rulemaking is somewhat

unclear, but Plaintiffs clarify in their reply that otherwise “the administrative record itself is so

43
deficient as to preclude effective review.” See Pls.’ MTS Reply at 22 (quoting Am. Bar Ass’n v.

U.S. Dep’t of Educ., 370 F. Supp. 3d 1, 38 (D.D.C. 2019)). 17

The Court is not convinced that supplementation of the record with a future rulemaking is

justified. As a basic matter, when a particular agency action is challenged as arbitrary and

capricious, the focus should be on the evidence that was “before the Secretary at the time he

made his decision.” Citizens to Preserve Overton Park, 401 U.S. at 420. Limited exceptions are

available, as discussed above, but generally are limited to evidence and arguments that should

have been considered by the Secretary. See SIH Partners LLLP v. Comm’r, 923 F.3d 296, 302

(3d Cir. 2019) (declining to deem regulations arbitrary and capricious when the challenger had

not shown that particular “insights were known or, perhaps, at least should have been known to

the agency at the time of the regulations’ promulgation”). While HHS’s “concession” in the

2020 rulemaking is potentially helpful to Plaintiffs’ case, that is not the standard for

supplementation. Additionally, as the Secretary points out, the Court remains free to take

judicial notice of the 2020 rules as appropriate. See Banner Health, 126 F. Supp. at 61 (“The

Court agrees—as does Defendant—that parties may cite to publicly available documents and that

the Court may take judicial notice of such documents.”).

V. CONCLUSION

For the foregoing reasons, Defendant’s partial motion to dismiss, ECF No. 139, is

GRANTED IN PART and DENIED IN PART. Plaintiffs’ motion to supplement the

administrative records, ECF No. 141, is likewise GRANTED IN PART and DENIED IN

17
In their reply, Plaintiffs also note that HHS has since finalized the 2020 proposal. See Pls.’
MTS Reply at 23 n.8 (citing 84 Fed. Reg. 42,044, 42,630 (Aug. 16, 2019)).

44
PART. An order consistent with this Memorandum Opinion is separately and

contemporaneously issued.

Dated: March 31, 2020 RUDOLPH CONTRERAS
United States District Judge

45