New Lifecare Hosps. of N.C. LLC v. Azar, Case No. 1:17-cv-00237 (TNM)

466 F.Supp.3d 124

NEW LIFECARE HOSPITALS OF NORTH CAROLINA LLC, et al., Plaintiffs,

v.Alex M. AZAR, II, Secretary of the U.S. Department of Health and Human Services, in his official capacity, Defendant.

Case No. 1:17-cv-00237 (TNM)

United States District Court, District of Columbia.

Signed May 29, 2020

Jason M. Healy, Law Office of Jason M. Healy, PLLC, Washington, DC, for Plaintiffs.

Brian J. Field, Diana Viggiano Valdivia, Doris Denise Coles-Huff, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendant.

MEMORANDUM OPINION

TREVOR N. McFADDEN, U.S.D.J.

Four long-term care hospitals ("the Providers") sued the Secretary of Health and Human Services alleging that portions of their Medicare reimbursements were improperly denied. After considering the parties’ cross-motions for summary judgment, the Court granted judgment to the Secretary. See New LifeCare Hosps. of N.C. v. Azar ("New LifeCare I "), 416 F. Supp. 3d 11 (D.D.C. 2019).¹ Among other findings, the Court held that the Providers had waived one of their arguments when they raised it at an intermediate administrative review, but then failed to re-raise it with the Administrator of the Centers for Medicare and Medicaid Services ("CMS") upon her review. See id. at 19–20. Now the Providers move for reconsideration under Federal Rules of Civil Procedure 59(e) and 60(b). They urge the Court to reverse course because of "clear error" in the Court's opinion "and to prevent manifest injustice." Pls.’ Mot. Recons. ("Pls.’ Mot.") at 2, ECF No. 52. The Court will deny the motion.

I.

In New LifeCare I , the Court surveyed the background of the Providers’ claims, so a detailed review is unnecessary here. See 416 F. Supp. 3d at 14–17. The sole issue on reconsideration is the Providers’ argument about the so-called Bad Debt Moratorium. At summary judgment, the Providers argued that CMS's decision not to reimburse their "bad debts" violated the congressionally enacted moratorium providing that " ‘the Secretary of Health and Human Services shall not make any change in the policy in effect on August 1, 1987, with respect to payment ... for reasonable costs relating to unrecovered costs associated with unpaid deductible and coinsurance amounts incurred under [the Medicare program] ....’ " See New LifeCare I , 416 F. Supp. 3d at 17 (quoting Omnibus Budget Reconciliation Act of 1987 ("OBRA"), Pub. L. No. 100–203, tit. IV, § 4008(c), 101 Stat. 1330–55, as amended by Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100–647, tit. VIII, § 8402, 102 Stat. 3342, 3798, reprinted as amended at 42 U.S.C. § 1395f note (2012)).

The Providers had raised the Bad Debt Moratorium as one of several arguments before the Provider Reimbursement Review Board ("PRRB" or "Board"). A.R. 57. There, the Providers argued that the Bad Debt Moratorium imposed two limits on CMS: "First, CMS cannot change its bad debt policy from the policy that was in effect on August 1, 1987. Second, CMS cannot require a provider to change the bad debt procedures that provider had in place on August 1, 1987." A.R. 113. "Despite the prohibitions imposed by the moratorium," the Providers argued that "CMS ... communicated to the Providers ... beginning in April 2008 an abrupt change ... whereby the policy would now apply to non-Medicaid-participating providers." A.R. 149. That, the Providers said, was "contrary to pre-moratorium CMS policy." A.R. 114 (cleaned up). See also A.R. 657–58, 673–74 (similar arguments in Providers’ Final Position Paper to Board). The Providers had other arguments before the Board, too. These included: (1) That it was impossible for the Providers to comply with the must-bill policy; (2) The Secretary's application of the must-bill policy was arbitrary and capricious for various reasons; (3) The must-bill policy effectively forced Providers to enroll in Medicaid in every state; and (4) The must-bill policy imposed illegal cost-shifting on the Providers. See A.R. 65–168.

The Board ended up ruling for some Providers but against others, splitting them into two groups based on the governing state regulations where they operate. A.R. 51–62; see New LifeCare I , 416 F. Supp. 3d at 17. And while the Board discussed the Providers’ Bad Debt Moratorium argument at length, see A.R. 54–59, it still ruled against the hospitals that "could have enrolled in their state Medicaid programs but ‘made a business decision not to participate.’ " New LifeCare I , 416 F. Supp. 3d at 17 (quoting A.R. 59–60).

But that was not the end of the matter. Two weeks after the Board issued its mixed decision, the Administrator notified the parties that she had decided to review it, and she invited comments from the parties. A.R. 2, 47; see 42 U.S.C. § 1395oo(f) ; 42 C.F.R. § 405.1875(c)(4) (parties "may tender written submissions" if the Administrator accepts review). The Providers capitalized on this opportunity in a seven-page, single-spaced letter. A.R. 37–45.

This detailed submission, however, never mentioned their Bad Debt Moratorium argument. Instead, the Providers focused on the central issue in the Board's decision—the unresolved question "of whether the CMS must-bill policy applies to dual-eligible bad debts of providers that did not participate in Medicaid. " A.R. 40 (emphasis in original). The Providers strenuously argued "this core issue that non-Medicaid-participating providers are in a Catch-22." A.R. 40 (emphasis added). And the Providers urged the Administrator to affirm the Board's decision "for Providers in states where the Medicaid program would not enroll" Providers, and "reverse the portion of the PRRB Decision that affirmed the Medicare Contractors’ dual eligible bad debt adjustments for the remaining Providers[.]" A.R. 38.

Ultimately, the Administrator was unconvinced, and she reversed even the partial win the Providers achieved below. Not surprisingly given the Providers’ arguments before her, the Administrator's decision did not address the Bad Debt Moratorium issue. See generally A.R. 2–22 (CMS Administrator's Decision). Yet when the Providers sued here over the Administrator's denial decision, they resurrected their Bad Debt Moratorium argument. See New LifeCare I , 416 F. Supp. 3d at 19–20. Reviewing this record, the Court held in New LifeCare I that the Providers might have had a "potent argument" that CMS violated the Moratorium, but that they "waived it by failing to raise it to the Administrator." Id. at 19.

Now the Providers argue that reconsideration is required "to prevent manifest injustice." Pls.’ Mot. at 2. More, they suggest the Court's waiver holding was "clear error." Id. The Secretary opposes reconsideration and argues the Court "was entirely correct in concluding that Plaintiffs waived the argument ... by not raising it before the Administrator." Defs.’ Opp'n at 5. The Providers have replied, see Pls.’ Reply, ECF No. 54, the Court heard the parties’ oral arguments, and the issue is now ripe for decision.

II.

"Although the court has considerable discretion in ruling on a Rule 59(e) motion, the reconsideration or amendment of a judgment is nonetheless an extraordinary measure." Leidos v. Hellenic Republic , 881 F.3d 213, 217 (D.C. Cir. 2018). Reconsideration is only appropriate because of "an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." Firestone v. Firestone , 76 F.3d 1205, 1208 (D.C. Cir. 1996) (citation omitted). " Rule 59(e) permits a court to alter or amend a judgment, but it may not be used to relitigate old matters, or to raise arguments or present evidence that could have been raised prior to the entry of judgment." Exxon Shipping v. Baker , 554 U.S. 471, 486 n.5, 128 S.Ct. 2605, 171 L.Ed.2d 570 (2008) (quotation omitted).

On a claim of clear error or manifest injustice, the question is whether the decision would "upset settled expectations—expectations on which a party may reasonably place reliance." Qwest Servs. Corp. v. FCC , 509 F.3d 531, 540 (D.C. Cir. 2007). A "manifest injustice requires at least (1) a clear and certain prejudice to the moving party that (2) is fundamentally unfair in light of governing law.’ " Leidos , 881 F.3d at 217 (cleaned up). The Court will also apply the same clear error standard for the Providers’ Rule 60(b) claims. See Smalls v. United States , 471 F.3d 186, 191 (D.C. Cir. 2006) ; Owens v. Rep. of Sudan , 864 F.3d 751, 818 (D.C. Cir. 2017).

The underlying summary judgment standard is a familiar one. And it favors the Secretary. The Court considers whether the agency action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(A). "The arbitrary and capricious standard is deferential; it requires that agency action simply be reasonable and reasonably explained." Comtys. for a Better Env't v. E.P.A. , 748 F.3d 333, 335 (D.C. Cir. 2014) (cleaned up). So CMS must "articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made." Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) (cleaned up).

III.

The issue is whether the Providers waived arguments here that they failed to press throughout the agency review process. The caselaw on issue exhaustion "emphasizes the need for parties seeking judicial review of agency action to raise their issues before the agency during the administrative process in order to preserve those issues for judicial review." Advocs. for Hwy. & Auto Safety v. Fed. Motor Carrier Safety Admin. , 429 F.3d 1136, 1148 (D.C. Cir. 2005) (citing United States v. L.A. Tucker Truck Lines, Inc. , 344 U.S. 33, 37, 73 S.Ct. 67, 97 L.Ed. 54 (1952) ).

A.

The seminal case in this area is Sims v. Apfel , in which the Supreme Court considered issue exhaustion in a Social Security appeal. 530 U.S. 103, ...