Yale New Haven Hospital v. Azar

          RULING ON DEFENDANT'S MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION (DOC NO. 16) AND PLAINTIFF'S MOTION FOR LEAVE TO FILE A SUR-REPLY (DOC. NO. 26).

          Janet C. Hall Judge.

         I. INTRODUCTION

         Plaintiff, Yale New Haven Hospital (“YNH”), brought this action against defendant, Alex M. Azar II, Secretary of the United States Department of Health and Human Services, pursuant to Title XVIII of the Social Security Act, section 1395 et seq. of title 42 of the United States Code (“Medicare Act”), and the Administrative Procedure Act (“APA”), section 551 et seq. of title 5 of the United States Code. Complaint (“Compl.”) ¶ 1. YNH seeks, inter alia, (1) an order reinstating its appeal of the Centers for Medicare and Medicaid Services (“CMS”) policy concerning Disproportionate Share Hospital (“DSH”) payments to merged hospitals under Medicare for the 2014 Federal Fiscal Year (“FFY”); (2) an order invalidating said policy; (3) an order requiring the Secretary to recalculate YNH's DSH payment for FFY 2014; and (4) the issuance of a writ of mandamus requiring the same recalculation. See Compl. at 24.

         Before the court is the Secretary's Motion to Dismiss for Lack of Subject Matter Jurisdiction (“Mot. to Dismiss”) (Doc. No. 16) and YNH's Motion for Leave to File a Sur- Reply (Doc. No. 26). For the reasons stated below, the Motion to Dismiss is granted in part and denied in part, and the Motion for Leave to File a Sur-Reply is denied.

         II. STANDARD OF REVIEW

         A. F.R.C.P. 12(b)(1)

         Under Federal Rule of Civil Procedure 12(b)(1), “[a] case is properly dismissed for lack of subject matter jurisdiction . . . when the district court lacks the statutory or constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). The plaintiff bears the burden of proving the existence of subject matter jurisdiction. Id. In determining whether the plaintiff has met this burden, the court must accept as true all factual allegations in a complaint and draw all reasonable inferences in favor of the plaintiff. Carter v. Healthport Techs., LLC, 882 F.3d 47, 57 (2d Cir. 2016); Aurecchione v. Schoolman Transp. Sys., Inc., 426 F.3d 635, 638 (2d Cir. 2005). In addition, a district court “may refer to evidence outside the pleadings” when resolving a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1). Makarova, 201 F.3d at 113.

         B. Statutory Preclusion

         The Administrative Procedure Act “embodies the basic presumption of judicial review to one ‘suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute.” Abbott Labs. v. Gardner, 387 U.S. 136, 140 (1967), abrogated on other grounds, Califano v. Sanders, 430 U.S. 99 (1977). Therefore, “[i]n determining whether a statute precludes judicial review, the court must heed the APA's basic presumption of judicial review that will not be cut off unless there is persuasive reason to believe that such was the purpose of Congress.” Texas All. for Home Care Servs. v. Sebelius, 681 F.3d 402, 408 (D.C. Cir. 2012). “The presumption favoring judicial review of administrative action, ” however, “is just that-a presumption” and, “like all presumptions used in interpreting statutes, may be overcome by specific language or specific legislative history that is a reliable indicator of congressional intent.” Id. (quoting Block v. Cmty. Nutrition Inst., 467 U.S. 340, 349 (1984)).

         III. STATUTORY BACKGROUND

         The Medicare Act establishes a system of insurance for qualifying beneficiaries. See 42 U.S.C. § 1395c. The Medicare program is administered by the Secretary through CMS and its contractors. 42 U.S.C. § 1395kk. The Medicare program is split into five parts: A, B, C, D, and E. Relevant to this case, CMS pays providers, including YNH, for covered services under Part A. In 1983, Congress adopted the inpatient prospective payment system (“IPPS”) to reimburse providers for inpatient hospital operating costs. See Social Security Amendments of 1983, Pub.L. No. 98-21, 97 Stat. 65 (1983). Under the IPPS, CMS makes payments to providers for operating costs based on nationally applicable rates, subject to certain payment adjustments. One such adjustment is the DSH payment.

         As part of the Patient Protection and Affordable Care Act (“ACA”), Congress enacted the Uncompensated Care DSH (“UC DSH”) payment system. See 42 U.S.C. § 1395ww(r). Pursuant to the UC DSH payment system, beginning in FFY 2014, a disproportionate share hospital^[1] received two DSH payments. The first payment was equal to 25% of the amount due to the hospital under the DSH system that existed prior to the enactment of the ACA. The second payment, known as the UC DSH payment, is the hospital's share of 75% of the national total DSH payment, calculated using a methodology outlined in section 3133 of the ACA. Under the new methodology, CMS calculates the UC DSH payment for each eligible hospital based on the product of three factors: Factors 1, 2, and 3. Factor 3, which is the only factor relevant in this case, is equal to a fraction, where the numerator is the amount of uncompensated care for [an eligible] hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data (including, in the case where the Secretary determines that alternative data is available which is a better proxy for the costs of subsection (d) hospitals for treating the uninsured, the use of such alternative data)), and the denominator is “the aggregate amount of uncompensated care for all [eligible] hospitals that receive a payment . . . for such period (as so estimated, based on such data).” 42 U.S.C. § 1395ww(r)(2)(C). Put simply, Factor 3 is equal to each eligible hospital's uncompensated care, stated as a percentage of the total national uncompensated care for all qualifying hospitals. Compl. ¶ 24.

         CMS calculates UC DSH payments in advance of each FFY, as part of the annual IPPS rulemaking. Id. ¶ 25. CMS uses historical data to estimate UC DSH payments. For FFY 2014, CMS used data submitted by hospitals for the 2010 and 2011 Medicare cost reports, depending on which reporting period yielded more recent data. Id. ¶ 26.

         Central to the pending Motion to Dismiss is that the ACA includes a review preclusion statute, codified at section 1395ww(r)(3) of title 42 of the United States Code, that limits judicial review of the Secretary's DSH payment estimates. See 42 U.S.C. § 1395ww(r)(3). The preclusion statute states:

         There shall be no administrative or judicial review under section 1395ff of this title, section 1395oo of this title, or otherwise of the following:

(A) Any estimate of the Secretary for purposes of determining the factors described in paragraph (2).

(B) Any period selected by the Secretary for such purposes.

Id. The question before the court is whether this provision precludes judicial review of the Secretary's actions in calculating the UC DSH payment.

         IV. FACTS

         YNH merged with another hospital, Hospital of Saint Raphael (“HSR”), effective September 12, 2012. Compl. ¶ 35. As a result of the transaction, YNH assumed HSR's Medicare provider agreement, and HSR's CMS certification number (“CCN”) was subsumed under YNH's CCN. Id. In the IPPS Proposed Rule for FFY 2014, CMS announced its proposed methodology to calculate UC DSH payments for FFY 2014. Id. ¶ 36; see 78 Fed. Reg. 27, 486. CMS did not mention, in either the preamble or text of the proposed rule, that it intended to change from the prior policy of calculating post-merger Medicare payments using data from both the surviving and non-surviving hospital. Compl. ¶ 36. Furthermore, in the data table published by CMS with the FFY 2014 IPPS Proposed Rule, data for both YNH and HSR appeared, and a projected UC DSH payment was calculated for both hospitals.^[2] Id. ¶ 37.

         YNH did not submit a comment to CMS on the calculation of FFY 2014 UC DSH payments. Id. at ¶ 38. However, another hospital, which, like YNH, had completed a merger during the relevant time period, submitted a comment noting its concern that CMS had “calculated Factor 3 using only the surviving hospital's cost report data, ” and “requesting that [CMS] account for the merger and include both hospitals' data.” Id. ¶ 39. CMS responded to that comment, in its publication of the IPPS Final Rule, that Factor 3 would be calculated using only the surviving hospital's data, because use of such data was “consistent with the treatment of other IPPS payment factors.” Reply at 9. YNH contacted CMS to request a correction rule be issued to include the data of both parties to a merger in calculating Factor 3. Compl. ¶ 40. CMS declined. Id. As a result, CMS excluded the inpatient days from HSR when calculating YNH's FFY 2014 UC DSH payment. Id. ¶ 41.^[3]

         YNH timely appealed its FFY 2014 UC DSH payment through a letter dated January 24, 2014. Id. ¶ 48. The appeal was dismissed for lack of jurisdiction, based on the preclusion statute, and the CMS Administrator has not responded to an appeal of that dismissal. Id.

         V. DISCUSSION

         YNH alleges six claims against the Secretary. Counts I, II, and III arise under the Medicare Act and the APA. Compl. at 20-22. Count IV is brought pursuant to the mandamus statute, Count V pursuant to the All Writs Act, and Count VI under the Due Process Clause of the United States Constitution. Id. at 22-23. The Secretary argues that all of the claims are subject to dismissal.

         A. Medicare and APA Claims (Counts I, II, and III).

         In Count I, YNH alleges that the Secretary violated the APA and the Medicare Act by calculating the UC DSH payment “without including HSR's data.” Id. ¶ 57. In Count II, YNH alleges that “[t]he FFY 2014 Merged Hospital Policy and the Hospital's FFY 2014 DSH payment are procedurally unlawful and should be set aside because that payment was calculated using the FFY 2014 Merged Hospital Policy, which the Secretary did not adopt properly under the APA and the Medicare Act.” Id. ¶ 60. In Count III, YNH alleges that the FFY 2014 Merged Hospital Policy and YNH's resultant DSH payment ...