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. 16-528 (ESH)
)
SYLVIA M. BURWELL, )
Secretary, Department of Health and )
Human Services, )
)
Defendant. )
)
MEMORANDUM OPINION
Plaintiffs own and operate 186 hospitals that provide medical services under the federal
Medicare program. They have sued the Secretary of the Department of Health and Human
Services (the “Secretary”) in her official capacity, challenging as “arbitrary, capricious, [and] in
violation of the Medicare Act” the Inpatient Prospective Payment System rules setting fixed-loss
thresholds for Medicare outlier payments to their hospitals for federal fiscal years (“FFYs”)
2004, 2005, and 2006. (Compl. ¶ 39, ECF No. 1.) In essence, plaintiffs argue that the fixed-loss
thresholds for Medicare outlier reimbursements were set too high, and that the hospitals therefore
should have recouped more money for the treatment they provided under the Medicare program.
Before this Court are the Secretary’s motion to dismiss in part for failure to state a claim
(Def.’s Mot., May 27, 2016, ECF No. 8), plaintiffs’ opposition (Pls.’ Opp’n, June 24, 2016,
ECF No. 14), and defendant’s reply (Def.’s Reply, June 27, 2016, ECF No. 15). The Secretary
argues that, with the exception of one issue properly before the Court relating to the Secretary’s
determination of outlier payments for FFY 2004, plaintiffs’ claims “were either resolved or
forfeited in [] earlier litigation and should be dismissed from this case based on principles of
issue preclusion and claim preclusion.” (Def.’s Mot. at 1.) The Court agrees with the Secretary,
and, for the reasons that follow, the motion will be granted.
BACKGROUND
The relevant contours of the Medicare program at issue here, as well as the facts
underlying plaintiffs’ challenge, have been detailed in this Court’s opinion granting summary
judgment in favor of the Secretary in the prior lawsuit between the same parties, Dist. Hosp.
Partners, L.P., et al. v. Sebelius, 973 F. Supp. 2d 1, 8–18 (D.D.C. 2014) (“Dist. Hosp. I”),
aff’d in part, rev’d in part sub nom. Dist. Hosp. Partners, L.P., et al. v. Sebelius, 786 F.3d 46
(D.C. Cir. 2015) (“Dist. Hosp. II”), and in the D.C. Circuit’s opinion reviewing that decision,
Dist. Hosp. II, 786 F.3d at 49–54. The prior lawsuit between the parties involved the same cause
of action and the same issues that plaintiffs raise in this case.
On January 19, 2011, plaintiffs filed their original lawsuit against the Secretary,
challenging the final rules setting the fixed-loss thresholds for FFYs 2004, 2005, and 2006.
See Dist. Hosp. Partners, L.P. v. Sebelius, 794 F. Supp. 2d 162, 167 (D.D.C. 2011) (granting in
part and denying in part the Secretary’s motion to dismiss). In that action, plaintiffs claimed that
the Secretary’s “determination of outlier payments from 2004–2006 was ‘arbitrary, capricious,
an abuse of discretion or otherwise not in accordance with law.’” Id. at 167 (citation omitted).
Specifically, plaintiffs alleged that
when setting the outlier thresholds and calculating outlier payments for federal
fiscal years 2004, 2005 and 2006,” the Secretary: 1) “failed to take into account
the established pattern of declining cost-to-charge ratios . . . despite this problem
being repeatedly pointed out in comments and despite proposed methods to
account for this phenomenon and to more accurately estimate outlier payments;”
2) “failed to consider use of the ‘cost methodology,’ rather than the ‘charge
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methodology,’ in setting the outlier thresholds” even though the cost methodology
had been more accurate in the past; 3) “failed to require mid-year adjustments;”
and 4) “failed to consider adjustments to the reconciliation process.”
Id. (citations omitted).
This Court granted in part and denied in part the Secretary’s motion to dismiss, id. at 172,
before ruling in favor of the Secretary on the parties’ cross-motions for summary judgment,
Dist. Hosp. I, 973 F. Supp. 2d at 23. In finding for the Secretary, the Court “conclude[d] that the
Secretary made reasonable methodological choices in determining the fixed-loss threshold for
FFYs 2004–2006.” Id. at 5. Plaintiffs appealed, and the D.C. Circuit affirmed in part and
reversed in part this Court’s decision. Dist. Hosp. II, 786 F.3d at 63. The Court of Appeals held
that this Court properly rejected plaintiffs’ challenges to the fixed loss thresholds for FFYs 2005
and 2006. Id. However, the Court of Appeals held that “the Secretary’s promulgation of the
2004 outlier threshold violated the [Administrative Procedure Act].” Id. at 58.
Accordingly, the D.C. Circuit ordered that the case be remanded to the agency and
ordered the Secretary to provide additional explanations in three areas:
the Secretary 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. at 60. Following the issuance of the mandate, this Court remanded the matter to the
Department of Health and Human Services for further proceedings consistent with the opinion of
the Court of Appeals. (Order, August 13, 2015, Civil Action No. 11-116, ECF No. 129). The
Court did not expressly or implicitly retain jurisdiction over the case. (See id.)
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On January 22, 2016, the Secretary published an explanation to address the deficiencies
identified by the Court of Appeals. Medicare Program; Explanation of FY 2004 Outlier Fixed-
Loss Threshold as Required by Court Rulings, 81 Fed. Reg. 3727 (Jan. 22, 2016). Plaintiffs then
moved for a new briefing schedule to consider the then-complete administrative proceedings.
Because this Court had not retained jurisdiction, it denied the motion, reasoning that the prior
lawsuit “was terminated upon remand” to the agency, but that plaintiffs were “free to ‘come back
to the district court’ when they file[d] a new civil action.” (Order, February 22, 2016, Civil
Action No. 11-116, ECF No. 133).
On March 18, 2016, Plaintiffs filed the present civil action. Like the 2011 lawsuit,
plaintiffs again allege that “[t]he Secretary’s final determinations of the outlier thresholds for
FFYs 2004–2006 . . . are arbitrary, capricious, in violation of the Medicare Act and/or otherwise
in violation of the law.” (Compl. at 41). Specifically, plaintiffs contend that the Secretary
(1) “failed to consider relevant factors and data,” (2) “failed to consider alternative
methodologies,” and (3) “failed to demonstrate a reasonable connection between the thresholds
and the factors considered.” (Id.) The issue before the Court is whether these claims as to FFYs
2005 and 2006 are barred by the doctrines of issue and claim preclusion.
ANALYSIS
I. LEGAL STANDARD
Claim preclusion and issue preclusion are affirmative defenses that “prevent[] repetitious
litigation involving the same causes of action or the same issues.” I.A.M. Nat. Pension Fund,
Ben. Plan A v. Indus. Gear Mfg. Co., 723 F.2d 944, 946 (D.C. Cir. 1983). “By ‘preclud[ing]
parties from contesting matters that they have had a full and fair opportunity to litigate,’ these
two doctrines protect against ‘the expense and vexation attending multiple lawsuits, conserv[e]
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judicial resources, and foste[r] reliance on judicial action by minimizing the possibility of
inconsistent decisions.’” Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (alteration in original)
(quoting Montana v. United States, 440 U.S. 147, 153–154, (1979)).
“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.’” Id. (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.” Nat. Res. Def.
Council v. E.P.A., 513 F.3d 257, 260 (D.C. Cir. 2008) (citing Smalls v. United States, 471 F.3d
186, 192 (D.C. Cir. 2006)). Claim preclusion “precludes the relitigation of claims, not just
arguments.” Id. Thus, the doctrine also “prevent[s] litigation of matters that should have been
raised in an earlier suit.” Id. (quoting SBC Commc'ns Inc. v. FCC, 407 F.3d 1223, 1230
(D.C. Cir. 2005)).
“Whereas claim preclusion forecloses all that which might have been litigated previously,
issue preclusion treats as final only those questions actually and necessarily decided in the prior
suit.” I.A.M. Nat. Pension Fund, 723 F.2d at 949 (citing Brown v. Felsen, 442 U.S. 127, 139
n.10 (1979)). Under the doctrine of issue preclusion, “a final judgment on the merits in a prior
suit precludes subsequent relitigation of issues actually litigated and determined in the prior suit,
regardless of whether the subsequent suit is based on the same cause of action.” I.A.M. Nat.
Pension Fund, 723 F.2d at 947. In order for issue preclusion to apply, the following conditions
must be met:
First, the same issue now being raised must have been contested by the parties
and submitted for judicial determination in the prior case. Second, the issue must
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have been actually and necessarily determined by a court of competent
jurisdiction in that prior case. Third, preclusion in the second case must not work
a basic unfairness to the party bound by the first determination.
Yamaha Corp. of Am. v. United States, 961 F.2d 245, 254 (D.C. Cir. 1992).
II. APPLICATION
The Secretary argues that the prior lawsuit between the parties bar plaintiffs’ current
challenges as to the 2005 and 2006 outlier determinations, either because plaintiffs failed to raise
the arguments in the earlier lawsuit (claim preclusion) or because plaintiffs previously raised
those arguments and lost on the merits (issue preclusion). Plaintiffs respond that the D.C.
Circuit’s opinion “does not preclude [plaintiffs] from arguing . . . that the Secretary’s
supplemental explanation with regard to the FY 2004 threshold also affects the FYs 2005 and
2006 thresholds,” and that they “have every right to include their challenges to the Secretary’s
refusal to adjust the FYs 2005 and 2006 thresholds in the 2016 Notice.” (Pls.’ Opp’n at 3.)
Both the parties and the subject matter in the 2011 lawsuit and the present lawsuit are
identical, and the 2011 lawsuit was decided on the merits by a court of competent jurisdiction.
Thus, the doctrine of claim preclusion bars plaintiffs from raising any new claims or arguments
that could have been raised in the prior action but were not, and the doctrine of issue preclusion
prevents this Court from revisiting any issues that were actually decided on the merits in the
prior action. The narrow and clear mandate of the Court of Appeals in the 2011 action forecloses
plaintiffs’ arguments that it should be allowed to challenge the 2005 and 2006 outlier
determinations again.
The D.C. Circuit explained that, on remand, the Secretary was to provide an additional
explanation of two matters related to the Secretary’s determination of the 2004 outlier thresholds.
Dist. Hosp. II, 786 F.3d at 60. The Secretary provided those explanations. See 81 Fed. Reg.
3727. Further, the D.C. Circuit mandated that, “if [the Secretary] decide[d] that it is appropriate
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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.” Dist. Hosp. II, 786
F.3d at 60 (emphasis added). The Secretary did not decide to recalculate the 2004 outlier
threshold. See 81 Fed. Reg. 3727 (“We are not recalculating the FY 2004 fixed-loss threshold.”).
Thus, there was no effect on the 2005 and 2006 outlier-payment calculations that the Secretary
needed to address.
In sum, the Court agrees with the Secretary that only one issue remains in this case–
whether on remand the Secretary adequately explained the outlier-threshold determination for
FFY 2004 by addressing the deficiencies identified by the Court of Appeals. (See Def.’s Mot.
at 1). The Court of Appeals’ decision as to the 2005 and 2006 outlier thresholds is final and
cannot be relitigated in this matter. To the extent that plaintiffs raise new arguments as to the
outlier thresholds for FFYs 2004–2006, those new arguments are also foreclosed by principles of
claim preclusion.
CONCLUSION
Accordingly, and for the reasons stated above, the Secretary’s motion to dismiss in part
for failure to state a claim is GRANTED. A separate Order accompanies this Memorandum
Opinion.
.
/s/ Ellen Segal Huvelle
ELLEN SEGAL HUVELLE
United States District Judge
Date: November 18, 2016
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