Knapp Medical Center v. Burwell , 192 F. Supp. 3d 129 ( 2016 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________
)
KNAPP MEDICAL CENTER, )
et al. )
)
Plaintiffs, )
)
v. ) Civil Action No. 15-cv-1663 (RMC)
)
SYLVIA MATTHEWS BURWELL, )
in her official capacity as Secretary of the )
Department of Health & Human Services )
)
Defendant. )
_________________________________ )
OPINION
Plaintiff hospitals challenge a final decision by the Department of Health and
Human Services to approve the expansion of a physician-owned hospital in Hidalgo County,
Texas. The Court will not reach the merits because Congress has specifically foreclosed judicial
review of these decisions. Defendants’ motions to dismiss will be granted and the case
dismissed.
I. FACTS
Plaintiffs Knapp Medical Center, McAllen Hospitals, L.P., and Cornerstone
Regional Hospital, L.P. (Plaintiffs) are hospitals in Hidalgo County, Texas. Compl. [Dkt. 4]
¶¶ 2-4. They compete with Doctors Hospital at Renaissance, Ltd. (DHR), also in Hidalgo
County. See id. The County is located in the Rio Grande Valley in Texas, across the Rio Grande
River from Mexico. DHR is located in Edinburg, Texas in the middle of the county. See DHR
Mot. to Dismiss (DHR Mot.) [Dkt. 17] at 5. Hidalgo County was designated a “medically
underserved area” by the Department of Health and Human Services (HHS) in 1994. U.S. Dep’t
1
of Health & Human Services, Health Resources and Services Administration Data Warehouse
(6/20/2016), http://datawarehouse.hrsa.gov/tools/analyzers/MuaSearchResults.aspx. 1
DHR is an acute care hospital with a Level III trauma facility. There are no Level
I or Level II trauma centers in the area so that patients with greater needs must be transported
long distances to such centers. DHR Mot. at 1. DHR is owned by the physicians who practice
there, which presents particular issues under the Medicare Act, 42 U.S.C. § 1395 et seq. As
relevant here, a physician-owned hospital must obtain permission from HHS before the hospital
can expand. Compl. ¶¶ 15-16. This requirement arises from the Stark Law, codified at 42
U.S.C. § 1395nn, which generally forbids referrals by physicians to care facilities in which the
physicians have a financial interest. 2 Obviously, when physicians own the hospital, self-referral
is an immediate issue; the Stark Law allows a limited exception in such circumstances, 42 U.S.C.
§ 1395nn(d)(3), provided that the hospital meets the requirements of § 1395nn(i)(1).
As amended by the Affordable Care Act of 2010, the Stark Law also closely
oversees whether and when physician-owned hospitals may expand. Id. § 1395nn(i)(3). 3 It
imposes no restrictions on the expansion of non-physician owned hospitals. With permission,
1
This Court appropriately takes judicial notice of the publicly available information on HHS’s
website. See Linchpins of Liberty v. United States, 71 F. Supp. 3d 236, 242 (D.D.C. 2014)
(“among the documents subject to judicial notice on a motion to dismiss are public records”)
(citation and internal quotations omitted).
2
The purpose of the Stark Law is to guard against physician referral to a care provider in which
the physician has a financial interest so as to prevent unnecessary referrals and the income they
produce to the physician. The law is named after Representative Pete Stark of California who
sponsored the original bill in 1989. See Omnibus Budget Reconciliation Act of 1989 (OBRA
1989), P.L. 101-239. The scope of the Stark Law prohibitions has been expanded multiple times
since 1989.
3
Subsection (i) was added by the Patient Protection and Affordable Care Act, Pub. L. 111-148,
§ 6001(a)(3), 124 Stat. 119, 685-89 (2010) (ACA).
2
physician-owned hospitals are permitted to expand up to 100%. Id. § 1395nn(i)(3)(C)(ii). HHS
has established a process and regulations under which physician-owned hospitals may apply for
authority to expand. Id. §§ 1395nn(i)(3)(A)(i), (iv); 42 C.F.R. § 411.362(c).
DHR filed an application with HHS on March 20, 2014, seeking to expand by
100% to enable DHR to establish the infrastructure needed to support a Level 1 trauma center.
See Compl. ¶ 24; DHR Mot. at 1. That application was never acted upon because HHS was in
the middle of formal rulemaking on the issue. Compl. ¶ 24. HHS published an amended Final
Rule on November 10, 2014. 79 Fed. Reg. 66,770, 66,987-97 (Nov. 10, 2014). Among other
things, the new Rule expanded the universe of evidence that could be offered by applicant
physician-owned hospitals that want to expand. The Final Rule went into effect on January 1,
2015. Compl. ¶ 25.
DHR filed an “amended and restated” application on January 2, 2015. Id. ¶ 26.
The application was published in the Federal Register on May 8, 2015 and made available on an
HHS website. Id. ¶ 27. Interested parties filed a total of 21 comments on DHR’s application.
Id. ¶ 28. Several assailed DHR’s eligibility under the statutory or regulatory criteria. After
DHR’s rebuttal was publicized, another round of public comments was received. Id. ¶¶ 29-30.
HHS approved DHR’s request to expand the hospital on September 11, 2015. Id.
¶ 31. Notice was published in the Federal Register on September 17, 2015. 80 Fed. Reg. 55,851
(Sep. 17, 2015). After considering the information tendered by DHR and the public commenters,
HHS made the following predicate findings:
• DHR is located in Hidalgo County, which has a percentage increase in
population that is at least 150 percent of the percentage increase in Texas’
population during the most recent 5-year period for which data was
available as of the date that DHR submitted its request;
3
• DHR has an annual percentage of total inpatient admissions under
Medicaid that is equal to or greater than the average percentage with
respect to such admissions for all hospitals located in Hidalgo County
during the most recent 12-month period for which data are available as
of the date that DHR submitted its request;
• DHR certified and provided satisfactory documentation that it does not
discriminate against beneficiaries of Federal health care programs and
does not permit physicians practicing at the hospital to discriminate
against such beneficiaries;
• DHR is located in Texas, which has an average bed capacity that is less
than the national average bed capacity during the most recent fiscal year
for which HCRIS, 4 as of the date that the hospital submitted its request,
contained data from a sufficient number of hospitals to determine Texas’
average bed capacity and the national average bed capacity; and
• DHR has an average bed occupancy rate that is greater than the average
bed occupancy rate in Texas during the most recent fiscal year for which
HCRIS, as of the date that DHR submitted its request, contained data
from a sufficient number of hospitals to determine its average bed
occupancy rate and Texas’ average bed occupancy rate.
Id. at 55,853. Based on these findings, HHS concluded “DHR satisfied the Medicaid inpatient
admissions, bed capacity and bed occupancy criteria” under the relevant statutory and regulatory
scheme. Id. It granted permission for DHS to double in size, adding a total of 551 operating
rooms, procedure rooms, and beds. Id.
Plaintiffs filed suit in this Court on October 12, 2015. Compl. [Dkt. 1].5 The sole
count alleges that HHS’s decision was contrary to the statutory criteria governing the application
4
HCRIS, Healthcare Cost Report Information System, contains annual reports submitted by
Medicare Administrative Contractors. See CMS.gov Centers for Medicare & Medicaid Services,
Cost Reports (April 21, 2016), www.cms.gov/Research-Statistics-Data-and-Systems/
Downloadable-Public-Use-Files/Cost-Reports/. The reports include facility-level data on
utilization, costs, charges, Medicare payments, and other financial information.
5
Plaintiffs filed a “corrected” complaint the next day, Dkt. 4, which the Court will treat as the
operative complaint. All other cites to “Compl.” reference Dkt. 4.
4
process. Compl. ¶¶ 32-42. First, Plaintiffs allege that HHS’s failure to publish DHR’s first
application deprived the public of its right to comment on it. See id. ¶ 34 (citing 42 U.S.C.
§ 1395nn(i)(3)(A)(ii)). Second, Plaintiffs allege that DHR violated the “two-year rule” in
§ 1395nn(i)(3)(B) by applying to expand more than once within a two-year period. Compl. ¶ 35.
Third, Plaintiffs allege that DHR cannot qualify as a “high Medicaid Facility” because it “is not
the hospital with the highest annual percent of inpatient admissions under Medicaid in Hidalgo
County for any year since 2007” and because it “permits physicians practicing at the hospital to
discriminate against Medicaid beneficiaries.” Id. ¶ 36 (citing 42 U.S.C. §§ 1395nn(i)(3)(F)(ii),
(iii)). Fourth, Plaintiffs allege that DHR cannot qualify as an “applicable hospital” because it “is
not located in a county with a percentage increase in population that is 150% of the percentage
increase of the population of the State in which the county is located”; because it “does not have
a higher annual percent of inpatient admissions under Medicaid than the average annual percent
of inpatient admissions for hospitals in Hidalgo County”; and because it “permits physicians
practicing at the hospital to discriminate against Medicaid beneficiaries.” Compl. ¶ 37 (citing 42
U.S.C. §§ 1395nn(i)(3)(E)(i), (ii), (iii)).
Plaintiffs assert jurisdiction under three statutes: the Administrative Procedure
Act, 5 U.S.C. § 706(2) (APA); the Mandamus Act, 28 U.S.C. § 1361; and the Declaratory
Judgment Act, 28 U.S.C. §§ 2201-02. DHR has intervened as a Defendant and it and HHS filed
motions to dismiss. They both argue that the Court lacks jurisdiction under these or any other
statute and DHR argues that Plaintiffs lack standing to sue Secretary Sylvia Matthews Burwell of
HHS. See HHS Mot. to Dismiss [Dkt. 10] (Mot.); DHR Mot. Plaintiffs oppose. See Plaintiffs’
Opposition [Dkt. 16] (Opp’n). The motions are ripe for resolution.
5
II. LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 12(b)(1), a defendant may move to
dismiss a complaint, or any portion thereof, for lack of subject matter jurisdiction. Fed. R. Civ.
P. 12(b)(1). No action of the parties can confer subject matter jurisdiction on a federal court
because subject matter jurisdiction is both a statutory requirement and an Article III requirement.
Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C. Cir. 2003). The party claiming
subject matter jurisdiction bears the burden of demonstrating that such jurisdiction exists. Khadr
v. United States, 529 F.3d 1112, 1115 (D.C. Cir. 2008); see Kokkonen v. Guardian Life Ins. Co.
of Am., 511 U.S. 375, 377 (1994) (noting that federal courts are courts of limited jurisdiction and
“[i]t is to be presumed that a cause lies outside this limited jurisdiction, and the burden of
establishing the contrary rests upon the party asserting jurisdiction”) (internal citations omitted).
However, there is also a “‘strong presumption that Congress intends judicial review of
administrative action,’” which “can only be overcome by a ‘clear and convincing evidence’ that
Congress intended to preclude the suit.” Amgen, Inc. v. Smith, 357 F.3d 103, 111 (D.C. Cir.
2004) (citing Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667, 670 (1986) and Abbott
Labs. v. Gardner, 387 U.S. 136, 141 (1967)).
When reviewing a motion to dismiss for lack of jurisdiction under Rule 12(b)(1),
a court must review the complaint liberally, granting the plaintiff the benefit of all inferences that
can be reasonably derived from the facts alleged. Barr v. Clinton, 370 F.3d 1196, 1199 (D.C.
Cir. 2004). Nevertheless, “the Court need not accept factual inferences drawn by plaintiffs if
those inferences are not supported by facts alleged in the complaint, nor must the Court accept
plaintiffs’ legal conclusions.” Speelman v. United States, 461 F. Supp. 2d 71, 73 (D.D.C. 2006).
A court may consider materials outside the pleadings to determine its jurisdiction. Settles v. U.S.
Parole Comm’n, 429 F.3d 1098, 1107 (D.C. Cir. 2005); Coal. for Underground Expansion v.
6
Mineta, 333 F.3d 193, 198 (D.C. Cir. 2003). A court has “broad discretion to consider relevant
and competent evidence” to resolve factual issues raised by a Rule 12(b)(1) motion. Finca Santa
Elena, Inc. v. U.S. Army Corps of Eng’rs, 873 F. Supp. 2d 363, 368 (D.D.C. 2012) (citing 5B
Charles Wright & Arthur Miller, Fed. Prac. & Pro., Civil § 1350 (3d ed. 2004)); see also
Macharia v. United States, 238 F. Supp. 2d 13, 20-21 (D.D.C. 2002), aff’d, 334 F.3d 61 (2003)
(in reviewing a factual challenge to the truthfulness of the allegations in a complaint, a court may
examine testimony and affidavits). In these circumstances, consideration of documents outside
the pleadings does not convert the motion to dismiss into one for summary judgment. Al-Owhali
v. Ashcroft, 279 F. Supp. 2d 13, 21 (D.D.C. 2003).
III. ANALYSIS
The lower federal courts are creatures of Congress. Just as Congress “from time
to time ordain[s] and establish[es]” such courts under Article III, Section 1 of the Constitution,
Congress likewise confers their jurisdiction. Commodity Futures Trading Comm’n v. Nahas,
738 F.2d 487, 492 (D.C. Cir. 1984) (“A federal court’s subject-matter jurisdiction,
constitutionally limited by article III, extends only so far as Congress provides by statute.”).
When it comes to judicial review of agency action, that jurisdiction may be as wide or as narrow
as Congress chooses. 6 Since Congress expressly foreclosed judicial review in this case, the
Court must dismiss Plaintiffs’ challenge to HHS’s final decision.
6
The presumption of reviewability “‘may be overcome by,’ inter alia, ‘specific language or
specific legislative history that is a reliable indicator of congressional intent,’ or a specific
congressional intent to preclude judicial review that is ‘“fairly discernible” in the detail of the
legislative scheme.’” Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667, 673 (1986)
(quoting Block v. Cmty. Nutrition Inst., 467 U.S. 340, 349-51 (1984)); see also Tex. Alliance for
Home Care Servs. v. Sebelius, 681 F.3d 402, 408 (D.C. Cir. 2012); Amgen, Inc. v. Smith, 357
F.3d 103, 112 (D.C. Cir. 2004); Am. Soc’y of Dermatology v. Shalala, 116 F.3d 941 (D.C. Cir.
1997).
7
There is no doubt that Congress has insulated HHS decisions approving
expansion of physician-owned hospitals from review. When the application process was added
to Medicare by the Affordable Care Act, the same provision in the ACA added:
(I) Limitation on review
There shall be no administrative or judicial review under section
1395ff of this title, section 1395oo of this title, or otherwise of the
process under this paragraph (including the establishment of such
process). 7
42 U.S.C. § 1395nn(i)(3)(I). This language “clearly and convincingly” reflects a congressional
intent to preclude review of the process itself and decisions resulting from the process. Not only
does the provision apply to substantive and procedural objections, but review is foreclosed under
Medicare “or otherwise,” under other statutes. Id. In short, there is no judicial review of these
decisions.
Plaintiffs would read § 1395nn(i)(3)(I) narrowly. They disclaim any “challenge
to the process or the establishment of the process for the expansion exceptions that are defined
by Congress.” Compl. ¶ 11. Rather, they challenge HHS’s “faulty and arbitrary application of
the congressionally-mandated criteria and its own rules to the DHR expansion application.” Id.
In this, they err.
The consideration of Medicare’s statutory criteria, when HHS decides whether to
approve an expansion, is part of the “process.” Plaintiffs cannot survive a motion to dismiss by
attempting to separate the process itself from a decision arrived at through that process. The
D.C. Circuit has addressed a similar contention in Texas Alliance for Home Care Servs. v.
7
Section 1395ff addresses determinations of benefits to individuals and appeals therefrom.
Section 1395oo addresses the Provider Reimbursement Review Board’s authority over
reimbursement challenges raised by service providers, i.e., doctors, hospitals and others, and
judicial appeals therefrom.
8
Sebelius, 681 F.3d 402 (D.C. Cir. 2012), determining that 42 U.S.C. § 1395w-3(b) prohibited
review of the development and application of appropriate financial standards used in awarding
contracts and the actual contract award itself. Section 1395w-3(b)(11) states “[t]here shall be no
administrative or judicial review under section 1395ff of this title, section 1395oo of this title, or
otherwise, of . . . (B) the awarding of contracts under this section.” Texas Alliance found that the
“financial standards are indispensable to ‘the awarding of contracts’” and interpreted the statute
to prohibit review of those standards. 681 F.3d at 409. The Circuit refused to draw a distinction
between the actual award of a contract and the financial standards which are part of the decision
whether or not to award a contract. Id. This Court similarly refuses to separate the process for
approving expansion of physician-owned hospitals from a decision arrived at under that process.
The Texas Alliance plaintiffs’ argument that they sought review of the financial
standards, and not the award of a contract, is comparable to the Plaintiffs’ argument here that
they are challenging the application of the process, but not the process itself. The D.C. Circuit
held that the financial standards were inseparable from the contract award because the financial
standards “determine[d] whether or not a contract may be awarded to a bidder.” Id. The
similarity in language between the provision at issue in Texas Alliance and § 1395nn(i)(3)(I) is
immediately apparent. This Court’s interpretation of that language must align with Texas
Alliance. Any other result is untenable.
Plaintiffs’ claims — that HHS (1) erred by failing to publish DHR’s original
application in the public record, (2) failed to bar DHR’s amended application as filed too soon,
and (3) acted arbitrarily in assessing DHR’s compliance with the statutory requirements — are
plainly attacks on HHS’s application of the process established in 42 U.S.C. § 1395nn(i)(3)(A)(i)
and, thus, barred from judicial review.
9
Attempting to avoid this result, Plaintiffs argue that without judicial review, HHS
could easily exceed its authority to grant requests by physician-owned hospitals to expand under
42 U.S.C. § 1395nn(i)(1)(B). Plaintiffs’ concern is unwarranted. Judicial review of agency
decisions is permitted when an agency acts ultra vires, or outside the bounds of its authority. See
Trudeau v. Fed. Trade Comm’n, 456 F.3d 178, 189-90 (D.C. Cir. 2006) (quoting Dart v. United
States, 848 F.2d 217, 221 (D.C. Cir. 1988) and Aid Ass’n for Lutherans v. U.S. Postal Serv., 321
F.3d 1166, 1173 (D.C. Cir. 2003)) (finding “‘judicial review is available when an agency acts
ultra vires,’ even if a statutory cause of action is lacking”). This non-statutory review of agency
action, however, is “intended to be of extremely limited scope.” Griffith v. Fed. Labor Relations
Auth., 842 F.2d 487, 493 (D.C. Cir. 1988).
Notably, Plaintiffs have not alleged or argued that HHS acted beyond its statutory
authority when it granted DHR’s request for expansion, but instead worry about the possibility of
such action at an unspecified time in the future. Their worry does not constitute a case or
controversy. Fed. Election Comm’n v. Akins, 524 U.S. 11, 20 (1998) (quoting Coleman v.
Miller, 307 U.S. 433, 460 (1939) (Frankfurter, J., dissenting)) (“[C]ourts will not ‘pass upon . . .
abstract, intellectual problems,’ but adjudicate ‘concrete, living contest[s]’ between
adversaries.”); Ry. Mail Ass’n v. Corsi, 326 U.S. 88, 93 (1945) (controversy must be “definite
and concrete, not hypothetical or abstract”). The Court will decline to review HHS’s application
of the process of granting expansion rights to DHR as clearly prohibited by § 1395nn(i)(3)(I).
10
IV. CONCLUSION
Defendant HHS’s Motion to Dismiss [Dkt. 10] will be granted, Intervener
Defendant DHR’s Motion to Dismiss [Dkt. 17] will be granted, and the case dismissed. A
memorializing Order accompanies this Opinion.
Date: June 28, 2016 /s/
ROSEMARY M. COLLYER
United States District Judge
11