Alexander v. Azar

370 F.Supp.3d 302

Christina ALEXANDER, et al., Plaintiffs,

v.Alexander M. AZAR, II, Secretary of Health and Human Services, Defendant.

No. 3:11-cv-1703 (MPS)

United States District Court, D. Connecticut.

Signed March 27, 2019

Alice Bers, Gill W. Deford, Center for Medicare Advocacy, Wey-Wey Kwok, Willimantic, CT, David J. Berger, Dylan G. Savage, Pro Hac Vice, Luke A. Liss, Pro Hac Vice, Alexander Kenneth Brehnan, Steven D. Guggenheim, Wilson Sonsini Goodrich & Rosati P.C., Palo Alto, CA, Eric Matthew Carlson, Pro Hac Vice, National Senior Citizens Law Center, Oakland, CA, Jason B. Mollick, Pro Hac Vice, Wilson Sonsini Goodrich & Rosati, New York, NY, Judith A. Stein, Center for Medicare Advocacy, Inc., Mansfield, CT, Regan Bailey, Pro Hac Vice, Carol Wong, Justice in Aging, Lindsey Edwards, Washington, DC, for Plaintiffs.

Carolyn Aiko Ikari, U.S. Attorney's Office, Hartford, CT, Joel L. McElvain, Justin M. Sandberg, Elizabeth Tulis, Garrett Coyle, Jason Lee, Jennie Leah Kneedler, Kieran Gavin Gostin, U.S. Department of Justice, Civil Division, Federal Programs Brach, Washington, DC, Kelley Hauser, U.S. Attorney's Office, Boston, MA, for Defendant.

MEMORANDUM OF DECISION

Michael P. Shea, U.S.D.J.

In this class action, Medicare beneficiaries seek to require the Secretary of Health and Human Services to afford them a hearing to challenge a critical decision made by others when they are hospitalized—whether to admit them as inpatients or whether to place them on "observation status." That decision does not always affect the types of medical services they receive at the hospital, but it can have an enormous impact on their pocketbooks. If they are discharged from the hospital to a skilled nursing facility (SNF), Medicare will cover their stay only if they spent at least three consecutive days as a hospital inpatient. The named Plaintiffs in this class action spent multiple days in the hospital and were discharged to SNFs, but were designated as outpatients receiving observation services for some or all of their hospital stays. As a result, they were forced to pay for their SNF care out of pocket. The Plaintiffs brought this action against the Secretary on their own behalf and on behalf of all beneficiaries placed on observation status, claiming that his failure to afford any hearing or other administrative review of the decision to deny them inpatient status violates the Due Process Clause of the Fifth Amendment. The history of this case is protracted, and I summarize some of it below. Now before me are the Secretary's (1) second motion for summary judgment; (2) motion for class decertification; and (3) motion to dismiss for lack of subject matter jurisdiction. For reasons I will explain, the motions are DENIED. After almost eight years of litigation, this case will finally proceed to trial.

PROCEDURAL HISTORY

I assume familiarity with the allegations in the complaints, (ECF Nos. 1, 53, 123), my ruling on the parties' earlier cross motions for summary judgment, Alexander v. Cochran , 2017 WL 522944 (D. Conn. Feb. 2, 2017), ECF No. 196, my ruling on the Plaintiffs' motion for class certification, Alexander v. Price , 275 F.Supp.3d 313 (D. Conn. 2017), ECF No. 242, and reconsideration of that ruling, (ECF No. 250). I summarize some of the procedural history below to provide context for my analysis of the present motions.

I. Dismissal and Appeal

On November 3, 2011, seven Medicare beneficiaries or their estates filed a complaint challenging the Secretary's use of observation status. (ECF Nos. 1, 2.) They alleged violations of the Medicare Act, Administrative Procedure Act, and Due Process Clause. The Secretary moved to dismiss the complaint. (ECF No. 23.) Seven intervenor plaintiffs joined the case on April 9, 2012. (ECF No. 53.) On September 23, 2013, I granted the Secretary's motion to dismiss the Plaintiffs' original complaint and first intervenor complaint for failure to state a claim on which relief could be granted. With respect to their Due Process claims, I concluded that the Plaintiffs had not alleged facts sufficient to show that they had a protected property interest in being admitted as inpatients rather than placed on observation status. In particular, I determined that the Secretary, acting through the Centers for Medicare and Medicaid Services ("CMS"), left the decision to admit a Medicare beneficiary as an inpatient to the medical judgment of treating physicians. Bagnall v. Sebelius , 2013 WL 5346659, at *1 (D. Conn. Sept. 23, 2013). Concluding that CMS's Medicare Policy Manual did not mandate that a physician order admission, but instead left the decision to the doctor's discretion, I held that the Plaintiffs had failed to allege a property interest in being admitted as inpatients. Id. at *21–*22. The Plaintiffs appealed.

The Second Circuit affirmed in part, vacated in part, and remanded the case.¹ The Court of Appeals held that, notwithstanding the discretionary language in the Medicare Policy Manual, the Plaintiffs had alleged facts suggesting that the decision to admit a patient to the hospital was "made through rote application of ‘commercially available screening tools,’ as directed by [CMS], which substitute[d] for the medical judgment of treating physicians." Barrows , 777 F.3d at 114. The court explained:

If plaintiffs can prove their allegation that CMS "meaningfully channels" the discretion of doctors by providing fixed or objective criteria for when patients should be admitted, then they could arguably show that qualifying Medicare beneficiaries have a protected property interest in being treated as "inpatients." However, if the Secretary is correct and, in fact, admission decisions are vested in the medical judgment of treating physicians, then Medicare beneficiaries would lack any such property interest.

Id. at 115.

II. Proceedings on Remand

On remand, as directed by the Court of Appeals, I ordered a period of discovery "focused on ... whether [the P]laintiffs possessed a property interest in being admitted to their hospitals as ‘inpatients’ ...." Id. at 116 ; (ECF No. 120 at 1). Shortly after discovery began, Dorothy Goodman filed a motion to intervene. (ECF No. 121.) Her motion stated that she had been placed on observation status in 2014 under policies the Secretary had adopted after the case had been dismissed and while the appeal was pending. (Id. at 2–3.) The Secretary did not object, and I granted the motion on May 8, 2015 (ECF No. 122). Ms. Goodman filed the Second Intervenor Complaint three days later. (Second Intervenor Compl., ECF No. 123.) The Second Intervenor Complaint alleged that the Secretary had promulgated new regulations governing inpatient admissions in October 2013. (Id. ¶¶ 37–42.) The regulations established the Two Midnight Rule, which allegedly created a new standard by which the Secretary would evaluate the propriety of inpatient admission orders for reimbursement under Medicare Part A. (Id. ¶ 37.) The Second Intervenor Complaint also alleged that the Secretary's evaluation under the Two Midnight Rule was, in practice, guided by commercial screening tools. (Id. ¶¶ 44, 72.)

After the initial period of discovery closed, the parties filed cross motions for summary judgment addressing whether the Plaintiffs had a protected property interest in being admitted as inpatients. (ECF Nos. 160, 164.) The Secretary also moved to dismiss the Plaintiffs' complaints, arguing that the Plaintiffs had failed to allege facts sufficient to support an inference of state action or to show that they were entitled to additional procedural protections. (See ECF No. 160-1 at 27–33.) I held oral argument on the motions, at which I raised concerns about standing and mootness in light of the fact that several Plaintiffs had passed away or had been reimbursed for their hospitalizations under Medicare Part A after pursuing administrative appeals. I directed the parties to file supplemental briefs addressing those concerns. (See ECF Nos. 189, 190.)

On February 8, 2017, I denied both parties' motions for summary judgment and granted in part and denied in part the Secretary's motion to dismiss. First, I found that all named Plaintiffs had standing, and their claims were not moot. See Alexander v. Cochran , 2017 WL 522944, at *4–*6 (D. Conn. Feb. 8, 2017) Second, I found that neither party was entitled to summary judgment because there were material disputes of fact about (1) the extent to which inpatient admission decisions were dictated by the application of commercial screening tools and (2) the extent to which the Secretary directed hospitals to use those screening tools in making admission decisions. See Id. at *10–*14. Third, I held that the Plaintiffs' complaints "plausibly alleged that the inpatient admission decision is the result of ‘significant encouragement’ from the Secretary, through CMS," and denied the Secretary's motion to dismiss on state action grounds. Id. at *15–*16. Fourth, I found that the NOTICE Act, which required hospitals to provide written and oral notice to patients receiving observation services for more than 24 hours, 42 U.S.C. § 1395cc(a)(1)(Y), had rendered moot the Plaintiffs' claim seeking expedited notice about their observation status. Id. at *17–*18. Finally, I held that the Plaintiffs had adequately alleged a deprivation of Due Process by pleading that "there are no administrative review procedures for Medicare beneficiaries who seek to challenge their placement on observation status." Id. at *18.

On February 28, 2017, I held a telephonic status conference to discuss scheduling for the remainder of the case. On the call, both parties agreed that they were not seeking additional discovery in connection with class certification, and the record was sufficient to allow me to decide whether a class should be certified. (Transcript of Conf., ECF No. 251 at 12:23–13:10.) Three days later, the Plaintiffs filed a motion for class certification and appointment of class counsel. (...