Dignity Health v. Burwell ( 2017 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
DIGNITY HEALTH d/b/a DOMINICAN
HOSPITAL,
Plaintiff,
v.
Civil Action No. 15-804 (RDM)
THOMAS E. PRICE, M.D.,1 in his official
capacity as Secretary of the United States
Department of Health and Human Services,
Defendant.
MEMORANDUM OPINION
This case is before the Court on plaintiff Dignity Health’s motion for summary judgment,
Dkt. 13, and the government’s cross-motion for summary judgment, Dkt. 15. Dignity challenges
the Secretary of Health and Human Services’s calculation of the Medicare “wage index,” which
is used to adjust Medicare payment rates to reflect differences in wage costs between different
geographic areas, for the Santa Cruz area in 2004. Another hospital in the area failed to provide
documentation to support its wage rates for the time period in question, leading to lower
Medicare reimbursement rates for all hospitals in the area, including Dignity. Dignity’s
complaint asserts a single count, challenging the accuracy of the wage data the Secretary relied
on in formulating the wage index. Dkt. 1 at 8-10 (Compl. ¶¶ 35-45). For the reasons explained
below, the Court concludes that Dignity lacks Article III standing. The Court will, accordingly,
dismiss the complaint for lack of subject matter jurisdiction and will deny both Dignity’s motion
1
In accordance with Federal Rule Civil Procedure 25(d), Thomas E. Price M.D. is substituted as
the official-capacity defendant in this action.
for summary judgment, Dkt. 13, and the Secretary’s cross-motion for summary judgment, Dkt.
15, as moot.
I. BACKGROUND
A. Statutory and Regulatory Background
Medicare is a federally funded nationwide health insurance program for people aged
sixty-five or older, those with disabilities, and those with end-stage renal disease. See 42 U.S.C.
§§ 1395 et seq. For acute-care inpatient services, Medicare reimbursement operates under the
Prospective Payment System (“PPS”). Id. § 1395ww(d); see also Shands Jacksonville Med. Ctr.
v. Burwell, 139 F. Supp. 3d 240, 244–45 (D.D.C. 2015). That system compensates hospitals on
the basis of a pre-established formula tied to the national average cost of treating a given ailment
or condition, rather than on the basis of the actual costs incurred in treating patients. See 42
U.S.C. § 1395ww(d). Congress intended for this system to “reform the financial incentives
hospitals face and [to] promote efficiency in the provision of services.” Anna Jacques Hosp. v.
Burwell, 797 F.3d 1155, 1158 (D.C. Cir. 2015) (alterations and citation omitted). The system
thus aims to avoid rewarding hospitals for operating at higher-than-average cost.
At the same time, however, the system was not intended to penalize hospitals for
operating in high-cost areas. Wages and wage-related costs, in particular, “are a significant
component of the Medicare payment that qualifying hospitals receive,” and those costs “vary
widely across the country.” Regents of the Univ. of Cal. v. Burwell, 155 F. Supp. 3d 31, 37
(D.D.C. 2016) (citation omitted), aff’d mem., No. 16-5098 (D.C. Cir. March 2, 2017). In
recognition of this reality, Congress directed the Secretary of Health and Human Services to
adjust the “proportion” of PPS payments attributable to “wages and wage-related costs” for “area
differences in hospital wage levels[.]” 42 U.S.C. § 1395ww(d)(3)(E)(i). To do so, the Secretary
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must compute a “factor” that “reflect[s] the relative hospital wage level in the geographic area of
the hospital compared to the national average,” id., which is commonly referred to as the “wage
index,” Se. Ala. Med. Ctr. v. Sebelius, 572 F.3d 912, 914–15 (D.C. Cir. 2009). In most cases, the
geographic area for which a wage index is calculated corresponds to one of the “metropolitan
statistical areas” (“MSAs”) defined by the Office of Management and Budget. 42 C.F.R.
§§ 412.63(b), 412.64(b). The wage index is a ratio of costs in a geographic area to national
average costs. A wage index of 1.0 means a given area is average; an index above 1.0 indicates
higher than average wage costs, and thus a correspondingly higher payment level through the
PPS, and an index below 1.0 means a lower than average cost area, with lower PPS payments.
See Anna Jacques Hosp., 797 F.3d at 1159. Because there are typically multiple hospitals in any
MSA, each hospital’s wage data affects the ultimate wage index for all hospitals in the area, and
thus data errors or omissions by one hospital can lower (or increase) PPS rates for other hospitals
in its area.
The Centers for Medicare and Medicaid Services (“CMS”), the component of the
Department of Health and Human Services responsible for administering Medicare, calculates
the wage index each year “on the basis of a survey.” 42 U.S.C. § 1395ww(d)(3)(E)(i). To gather
the necessary information, CMS requires hospitals to submit their cost data to their “fiscal
intermediaries,”—third party organizations, usually insurance companies, under contract with
CMS to handle much of the direct administration of Medicare.2 See Regents of the Univ. of Cal.,
155 F. Supp. 3d at 38. Because it takes time for hospitals to complete and submit their cost
reports, the wage index for any given year typically reflects costs actually incurred a few years
2
“Fiscal intermediaries” are now known as “Medicare Administrative Contractors,” but for
simplicity the Court will use the “fiscal intermediary” appellation, which was in use at all times
relevant to this case.
3
before. See, e.g., 2005 IPPS Final Rule, 69 Fed. Reg. 48916, 49049 (Aug. 11, 2004) (calculating
fiscal year 2005 wage index based on fiscal year 2001 data); Regents of the Univ. of Cal., 155 F.
Supp. 3d at 38.
The process of calculating the annual wage index begins with the cost data—including
total salaries and total paid hours—that hospitals must file annually with their fiscal
intermediaries on Worksheet S-3. See Regents of the Univ. of Cal., 155 F. Supp. 3d at 38;
Parkview Med. Assocs. L.P. v. Shalala, 94-cv-1941, 1997 WL 470107, at *2 (D.D.C. Aug. 13,
1997). The fiscal intermediaries conduct a “desk review” of that data to determine, among other
things, whether the percentage cost increase reported by a hospital exceeds certain predetermined
(but confidential) “edit thresholds.” CMS, Program Memorandum: Intermediaries, Annual Desk
Review Program for Hospital Wage Data: Cost Reporting Periods Beginning on or after October
1, 1999, through September 30, 2000 (For FY 2004 Wage Index) (Oct. 4, 2002), Dkt. 21-1 at
352–54. If any items “fall outside the established [edit] threshold[],” the fiscal intermediary
must “address” those items and, where “necessary,” make “adjustments.” Id. at 353. “If
adjustments are necessary,” the fiscal intermediary “must communicate them to the affected
hospitals” and must provide them with “an opportunity to respond.” Id. The fiscal intermediary
is also required to inform the relevant state hospital association if any hospital fails to respond to
issues raised in the desk review process and to alert the association that “a hospital’s failure to
respond to matters raised by the [fiscal intermediary] can result in lowering an area’s wage index
value.” Id. The fiscal intermediary must complete its review and transmit the relevant data—
including any adjustments—to CMS by mid-November. Id. at 352.
CMS then compiles and publishes a “preliminary public use” file containing the cost data
from all hospitals in a given area, and it instructs the fiscal intermediaries to inform their
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hospitals that the file is available and about the procedures and deadlines for requesting revisions
to the data. See, e.g., Proposed Changes to the Hospital Inpatient Prospective Payment System
and Fiscal Year 2004 Rates, 68 Fed. Reg. 27,154, 27,193 (May 19, 2003) (“Proposed 2004
Rule”). CMS publishes the “preliminary public use” file on its website, and hospitals have a
period of time to propose corrections to the data by submitting “complete, detailed supporting
documentation” to their fiscal intermediaries. Id. The fiscal intermediaries then (1) revise the
data, (2) notify hospitals whether they have accepted the proposed revisions and (3) explain why,
before sending the revised data to CMS. Id. If a hospital continues to disagree with its fiscal
intermediary’s determination, it may raise the issue with CMS by the specified deadline. Id.
27,193–94. In conducting its review, however, CMS does “not consider issues such as the
adequacy of a hospital’s supporting documentation,” because CMS “believe[s] that fiscal
intermediaries are generally in the best position to make evaluations regarding the
appropriateness of these types of issues (which should have been resolved earlier in the
process).” Id. at 27,194.
After receiving the revised data from the fiscal intermediaries, the Secretary publishes a
proposed wage index in the federal register as part of the proposed annual PPS rule. Id. At that
point, a hospital may request changes to data only “in those very limited situations involving an
error by the intermediary or CMS that the hospital could not have known about before its review
of the final wage data file.” Id. The Secretary then publishes the final wage index. Id. After the
final index has been published, it is still possible for a hospital to seek a mid-year correction, but
only “if [the] hospital can show that the intermediary or CMS made an error in tabulating its
data.” Id. A hospital may not seek a mid-year correction “to revise another hospital’s data that
may be affecting the requesting hospital’s wage index.” Id.
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B. The 2004 Santa Cruz Wage Index
This case concerns the wage index for the Santa Cruz MSA for fiscal year 2004. Three
hospitals operated in the Santa Cruz MSA at the relevant time: Dominican Hospital, operated by
Dignity Health, the plaintiff in this action; Watsonville Community Hospital; and Sutter
Maternity & Surgery Center. Dkt. 21-1 at 5. The 2004 wage index was based on data compiled
for fiscal year 2000. Id. The hospitals submitted their initial data in the fall of 2002, and on
October 4, 2002, CMS issued a memorandum to the fiscal intermediaries outlining the process
and timeline for processing that year’s data and ultimately publishing the final wage index. Dkt.
21-1 at 403. The memorandum gave fiscal intermediaries until November 15, 2002, to complete
and submit their desk reviews, and until early to mid-December to notify state hospital
associations about any area hospitals that failed to respond to issues raised in the desk review
process; it gave CMS until January 10, 2003, to publish the “preliminary public use” file on its
website, and gave hospitals one month, until February 10, 2003, to request revisions to that data
“and to provide documentation to support the request;” it gave fiscal intermediaries until April 4,
2003, to submit revised Worksheet S-3 wage data to CMS, gave hospitals until that same date to
request CMS’s intervention where they disagreed with the intermediaries’ conclusions, and
provided that the proposed rule would be published around early April; it provided that the final
wage data “public use” file was to be released on May 9, 2003, and gave hospitals until June 6,
2003, to submit final correction requests to CMS and the fiscal intermediaries; and it set August
1, 2003, as the publication date and October 1, 2003, as the effective date for the final 2004 wage
index. Id. at 413–15.
Watsonville’s cost report for fiscal year ending July 31, 2001 reported average hourly
wages of $26.78. Dkt. 21-1 at 107. That figure exceeded its as-reported hourly average of
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$24.87 for fiscal year ending July 31, 2000, id. at 106, by 7.68%. But Watsonville’s as-adjusted
hourly wage costs for fiscal year 2000 was $23.02. Id. at 126. Watsonville’s as-reported 2001
figure thus exceeded its as-adjusted 2000 figure by 16.33%. Although the precise edit threshold
remains confidential, there is no dispute that the 16.33% variance exceeded the threshold.3 Dkt.
21-1 at 205. Watsonville’s fiscal intermediary, United Government Services (“UGS”),
accordingly, reduced Watsonville’s average hourly wage from $26.78 (the as-reported average)
to $23.02 (the as-adjusted rate from the most recent year for which a final adjusted figure was
available) “pending an explanation from” Watsonville. Dkt. 21-1 at 6; see also id. at 204–05.
CMS notified Watsonville of the proposed adjustment in a letter dated November 11,
2002 (and received by Watsonville on November 14, 2002). Dkt. 21-1 at 356. That letter gave
Watsonville ten days to dispute the adjustment and to provide “explanations and documentation
for any disagreed items.” Id. Watsonville did not respond. Dkt. 13-1 at 11; Dkt. 15-1 at 14. A
month later, on December 13, 2002, CMS wrote to the California Healthcare Association
(“CHA” or the “Association”), the state hospital association that represents Santa Cruz-area
hospitals, to alert the Association that Watsonville had not responded to the request for more
information stemming from the desk review and to “advise the hospital association to inform its
member hospitals that a hospital’s failure to respond to matters raised by the intermediary can
result in the data being disallowed, thereby, possibly lowering an area’s wage index value.” Dkt.
21-1 at 365. As discussed below, it is disputed whether the CHA ever actually received the
3
Dignity argues that the UGS audit report, which accompanied the November 22, 2002, letter,
actually noted a 40.06% variance between Watsonville’s 2001 and 2000 rates, see Dkt. 13-1 at
9–10, but all agree that the consequence of exceeding the edit threshold were the same whether
the variance was 16.33% or 40.06%.
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letter. Watsonville, however, was copied on the CMS letter, id. at 366, and there is no indication
in the record that it did not receive the correspondence.
CMS wrote to Watsonville again on January 6, 2003, to alert it that CMS would publish
the “preliminary public use” file on January 10, 2003, and that the deadline for hospitals to
submit requests for revisions of their wage data was February 10, 2003. Dkt. 21-1 at 370–71.
The letter explained that “a hospital that wishes to revise its data must submit its request along
with complete appropriate detailed documentation to its [fiscal] intermediary” by the February
10, 2003, deadline. Id. at 371 (emphasis in original). As promised, CMS released the
“preliminary public use” file on January 10, 2003, Proposed 2004 Rule, 68 Fed. Reg. at 27,193,
but it extended the deadline for proposed revisions to February 17, 2003, id. Watsonville,
however, “failed to pursue [the] administrative remedy created specifically to address” any
dispute it may have had with its fiscal intermediary regarding the wage data included in the
“preliminary public use” file. Dkt. 21-1 at 8.
The Secretary published the “final public use” file on May 9, 2003, see Dkt. 21-1 at 161;
id. at 307, and published the proposed wage index on May 19, 2003, see Proposed 2004 Rule, 68
Fed. Reg. at 27,245–352. Shortly after CMS published the proposed wage index, CHA wrote to
UGS, indicating that CHA had not received the “required notice from . . . UGS . . . regarding
Watsonville’s difficulty with the desk review process” and expressing concern that the “wage
index adjustment for Santa Cruz, California will be negatively affected by errors in Watsonville
Hospital’s wage data submission.” Dkt. 21-1 at 298. According to CHA, had it received that
notice, it would have contacted Watsonville and would have “offer[ed] the association’s
assistance” in correcting the data. Id. CHA requested that UGS give Watsonville “the
opportunity to provide the additional documentation necessary to correct the wage date before
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the June 6 deadline” and added: “We understand that the facility has the information ready and
is eager to work with UGS to get the data corrected.” Id.
UGS met with representatives of all three Santa Cruz-area hospitals on June 3, 2003.
Dkt. 21-1 at 110; id. at 170. Watsonville did not, however, provide documentation “sufficient”
to address the concern raised in the course of the UGS “desk review,” and, in particular, did not
provide “the payroll data supporting the number of hours [worked, or] the amounts paid for those
hours.” See Dkt. 21-1 at 210. The next day, June 4, 2003, Watsonville wrote to CMS—and
copied UGS—requesting that CMS accept the $26.78 hourly rate it had originally filed. Dkt. 21-
1 at 6; Dkt. 21-1 at 304–05. Watsonville asserted three errors: (1) that CHA did not receive the
required notice, (2) that UGS “[m]iscalculated the percentage change between 2001 and [the]
prior year,” and (3) that UGS should not have used adjusted data for “two years in a row.” Id. at
304. Although that letter asserts that it was accompanied by “[a]n outline and supporting
documentation with regard to the fiscal intermediary errors,” it appears that this “documentation”
consisted of the same material provided at the June 3, 2003, meeting, id. (citing to “summary of
meeting with UGS on June 3, 2003”), and that, to this day, Watsonville has not provided
“auditable and verifiable documentation establishing what the wages [were] in [the] years” at
issue, id. at 164 (Tr. 41).
CMS denied Watsonville’s request in an undated letter received by Watsonville on July
14, 2003, stating that the request “does not meet the conditions for processing revisions to the
final wage data,” because only requests “to correct errors due to the intermediary’s or CMS’s
handling of the data that the hospital could not have known about before the release of the final
wage index public use file on May 9, 2003” could be processed at that time. Dkt. 21-1 at 307.
The Secretary published the final wage index on August 1, 2003. See Medicare Program;
9
Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2004 Rates, 68
Fed. Reg. 45,346 (August 1, 2003) (“Final 2004 Rule”).
C. Proceedings Before the Provider Reimbursement Review Board
On January 15, 2004, Plaintiff—along with Watsonville and Sutter Maternity & Surgery
Center—timely requested a hearing before the Provider Reimbursement Review Board
(“Board”), an independent administrative tribunal within CMS responsible for adjudicating
disputes relating to Medicare reimbursement issues. 42 U.S.C. § 1395oo(a); 42 C.F.R.
§ 405.1837; Dkt. 21-1 at 7, 286–88. The Board dismissed Watsonville’s appeal because the
hospital did not respond to UGS’s November 11, 2002 letter, and thus failed to exhaust
administrative remedies. Dkt. 21-1 at 7 n.14. The appeal proceeded, however, with respect to
the two remaining petitioners, and the Board conducted a hearing on January 29, 2014. Id. at 4,
7. The Board issued its decision on April 2, 2015. Id. at 12.
The Board’s decision first considered whether the “the case was appropriate for expedited
judicial review.” Id. at 7–8. Under the governing statute and regulations, if (1) a case “involves
a question of law or regulations,” and (2) the Board concludes that “it is without authority to
decide the question,” the provider may bring a civil action within sixty days of receiving notice
of that determination and without engaging in the futile process of exhausting an unavailable
administrative remedy. 42 U.S.C. § 1395oo(f)(1); see also 42 C.F.R. § 405.1842. Here, the
Board concluded that it, in fact, lacked authority to afford the hospitals any relief, because the
Secretary had failed “to provide a remedy for other hospitals in the same MSA which are harmed
by the hospital that failed to furnish correct wage index data.” Dkt. 21-1 at 8. Yet, it nonetheless
held that “expedited judicial review” was unavailable because Plaintiff’s challenge did not
involve a question of law and, instead, turned on “disputed facts surrounding whether the
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Watsonville wage data was incorrect.” Id. To add to this confusion, the Board further concluded
that, despite the unavailability of a remedy, it had jurisdiction over the dispute. Id. at 7–8. The
Board, therefore, reached what it aptly characterized as “an anomalous result”—that is, that it
was required to “resolve the fact issue even though it ha[d] no authority to grant a remedy.” Id.
at 8.
Turning to the first factual issue, the Board acknowledged the dispute over whether UGS
had provided the required notification of Watsonville’s failure to respond during the desk review
process to CHA, but it declined to resolve that dispute. Id. at 9. As the Board explained, CHA
was not a party to the appeal and, in any event, the relevant rules “provide no remedy for a State
hospital association or a hospital in an MSA in which another hospital is nonresponsive to a
wage index audit request for additional information.” Id. “In this regard,” the Board observed, it
“ha[d] no authority to disregard documentation obligations of one hospital to the benefit of other
hospitals in an MSA.” Id. Even putting this difficulty to the side, however, the Board found
“that there [was] sufficient evidence of other communications between [UGS], Watsonville, and
CHA which otherwise put the parties on notice of Watsonville’s noncompliance with [UGS’s]
request and provided the parties with opportunity for purposes of this appeal to supply the
data/documentation to refute [UGS’s] adjustment.” Id. (emphasis in original). In particular, the
Board found that CMS published the “preliminary public use” file in January 2003, and that “a
comparison to the prior two years’ wage index for Watsonville would have shown a flat wage
index for Watsonville for three years.” Id. at 10. The Board, therefore, concluded “that, for
purposes of this appeal, the Hospitals (and CHA through the Hospitals) . . . had sufficient
opportunity to submit to the” fiscal intermediary “any documentation and/or information to
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support correction of the alleged error in Watsonville’s FFY 2004 wage index.” Id. (emphasis in
original).
The Board was also unpersuaded on the merits, finding that the fiscal intermediary’s
“requests for additional documentation from Watsonville during its review of both FFY 2003
and FFY 2004 wage index data were proper under Medicare rules” and that “Watsonville failed
to provide the necessary documentation to justify its wage data for either of th[o]se years.” Id. at
11. It was not, in the Board’s view, the fiscal intermediary’s “‘error’ but rather Watsonville’s
lack of response to . . . requests for supporting documentation to justify its wage data that caused
the wage rate issue for all hospitals within the geographic area.” Id. And, the Board further
found “that, as part of this appeal,” none of the hospitals “provide[d] sufficient documentation to
support reversal of the” fiscal intermediary’s “adjustment.” Id. Their “generic ‘reasonableness’
arguments” were, according to the Board, an inadequate substitute for the required “provider-
specific information or documentation.” Id. The Board, accordingly, found that “the [h]ospitals
ha[d] not met their burden of proof” and that the determinations of the fiscal intermediary and
CMS must stand. Id.
Providers “have the right to obtain judicial review of any final decision of the Board . . .
by a civil action commenced within 60 days of the date on which notice of any final decision by
the Board . . . is received.” 42 U.S.C. § 1395oo(f). Plaintiff timely filed its complaint in this
Court on June 1, 2015. Dkt. 1.
II. ANALYSIS
Although neither party has raised the issue, the Court must assure itself that it has
jurisdiction before turning to the merits. See, e.g., Utility Air Regulatory Grp. v. EPA, 320 F.3d
272, 277 (D.C. Cir. 2003). The Court’s jurisdiction is, of course, limited to “actual cases or
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controversies between proper litigants,” Fla. Audubon Soc’y v. Bentsen, 94 F.3d 658, 661 (D.C.
Cir. 1996) (en banc), which means, among other things, that Plaintiff must have Article III
standing, see Abulhawa v. U.S. Dept. of Treasury, 15-cv-2186, 2017 WL 883609, at *4 (D.D.C.
March 4, 2017). In general, “[t]he plaintiff bears the burden of invoking the court’s subject
matter jurisdiction, including establishing the elements of standing.” Arpaio v. Obama, 797 F.3d
11, 19 (D.C. Cir. 2015). Because these elements are “an indispensable part of the plaintiff’s
case, each element must be supported in the same way as any other matter on which the plaintiff
bears the burden of proof, i.e., with the manner and degree of evidence required at the successive
stages of the litigation.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992).
“[T]he irreducible constitutional minimum of standing contains three elements:” The
plaintiff must establish (1) that it has suffered an “injury in fact” that is “actual or imminent” and
“not conjectural or hypothetical;” (2) that “a causal connection [exists] between [that] injury and
the conduct complained of;” and (3) that it is “likely, as opposed to merely speculative, that the
injury will be redressed by a favorable decision.” Id. at 560–61 (citations omitted). Although
this case is before the Court on cross-motions for summary judgment, which might ordinarily
require that Plaintiff submit evidence to support its standing, this is not a case in which
declarations or other evidence are necessary. As the Court of Appeals has observed, there are
times at which a plaintiff’s “standing to seek review of [an] administrative action is self-
evident,” so that “no evidence outside the administrative record is necessary for the court to be
sure of it.” Sierra Club v. EPA, 292 F.3d 895, 899–900 (D.C. Cir. 2002). The same principle
applies, moreover, where the absence of standing is evident from the administrative record.
Here, the principal difficulty Plaintiff confronts is not the product of a lack of evidence, but,
rather, appears on the face of the administrative record.
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As the Board found, there is little doubt that Plaintiff was “adversely affected by the
Watsonville FFY 2004 wage data determination,” Dkt. 21-1 at 7, and, accordingly, Plaintiff
readily satisfies the “injury in fact” requirement. Similarly, the Court does not doubt that
Plaintiff can establish a causal link between that injury and its claim that the Secretary should
have applied Watsonville’s wage data as-reported—and not as-adjusted—to calculate the Santa
Cruz-area wage index. Redressability, however, poses a more substantial hurdle.
“Redressability examines whether the relief sought, assuming the court chooses to grant it,
w[ould] likely alleviate the particularized injury alleged by the plaintiff.” Fla. Audubon Soc’y,
94 F.3d at 663–64. When redressability “depends on the unfettered choices made by
independent actors not before the court[] and whose exercise of broad and legitimate discretion
the courts cannot presume either to control or to predict,” moreover, “it becomes substantially
more difficult to establish standing.” Scenic Am., Inc. v. U.S. Dep’t of Trans., 836 F.3d 42, 50
(D.C. Cir. 2016) (quotation marks omitted); see also West v. Lynch, 845 F.3d 1228, 1237 (D.C.
Cir. 2017); Abulhawa, 2017 WL 883609, at *7. Plaintiff’s challenge to the Secretary’s decision
raises two potential redressability problems.
A. Watsonville’s Documentation
First, to the extent Plaintiff contends that the Court should order the Secretary to now
permit Watsonville to submit the documentation that it failed to submit years ago in support of
its as-reported FFY 2002 wage data, see Dkt. 1 at 10, it is far from clear that Watsonville would
do so. The hospital was repeatedly offered the opportunity to submit this documentation in the
administrative process, yet it failed to take advantage of those opportunities. See, e.g., Dkt. 21-1
at 356 (“Please review the adjustments” and provide “explanations and documentation for any
disagreed items” within “10 days[.]”). It is now fourteen years later, Watsonville has been
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denied relief on the ground that it failed to exhaust administrative remedies, and there is no
evidence that it is now “likely” to produce the long-missing documentation. Under these
circumstances, and given the reluctance of courts to “speculate how independent actors not
before them might exercise their broad and legitimate discretion,” West, 845 F.3d at 1237
(quotation marks and alteration omitted), the Court cannot conclude that an order directing the
Secretary to accept the documentation would redress Plaintiff’s asserted injury. Although this
does not dispose of Plaintiff’s entire challenge—much of which is directed at the record as it
existed at the time CMS denied Watsonville’s request to accept the as-reported FFY 2002 wage
data—it does mean that Plaintiff lacks standing to argue that Watsonville should now be
permitted to supply the requested documentation. See id. at 1235 (“[S]tanding is not dispensed
in gross but instead may differ claim by claim[.]”) (citation omitted).
B. The Board’s Alternative Holding
This, however, leads to a second and more fundamental redressability problem: The
Board’s decision rested on two independent grounds, and Dignity challenges only one of them.
Before it considered the merits, the Board concluded that it lacked authority to “grant a remedy”
to Plaintiff based on a challenge to Watsonville’s wage data. Dkt. 21-1 at 7–8. Although the
Board did go on to address the merits of Plaintiff’s challenge to the accuracy of Watsonville’s as-
adjusted wage data, it recognized that it was “anomalous” to resolve that issue in a case in which
it had “no authority to grant a remedy.” Id. at 8. In a case with “two alternative grounds on
which [an agency] based its finding,” and in which the plaintiffs “have not challenged” one of
those grounds, the D.C. Circuit has held that the Court “must assume, at least for the purposes of
[its] standing analysis, that the . . . unchallenged finding . . . was valid.” Cnty. of Del., Pa. v.
Dep’t of Transp., 554 F.3d 143, 149 (D.C. Cir. 2009). As a result, “[o]verturning the [first
15
ground] will not redress the [plaintiff’s] harm,” and the plaintiff will, accordingly, lack standing.
Id. at 149–50 This is such a case: Given the Board’s alternative holding, even if the Court were
to set aside the Board’s decision on the merits and were to sustain Plaintiff’s claim that the
Secretary unreasonably relied upon inaccurate wage data, Plaintiff would not be entitled to any
relief on remand; the Board would still lack “authority to grant a remedy” to Plaintiff, and thus
Plaintiff’s asserted injury would remain unredressed.
Although neither party frames the issue in terms of standing, they do address the Board’s
alternative holding on the merits, and those arguments substantially overlap with this
jurisdictional inquiry. As the Secretary explains, the Board based its conclusion that Plaintiff
was not entitled to challenge Watsonville’s wage data on the August 1, 2003, final rule setting
the 2004 wage index. See Dkt. 21-1 at 7–8 (citing Final 2004 Rule, 68 Fed. Reg. 45,346). The
Final 2004 Rule, like the Proposed 2004 Rule, “created [a] process . . . to resolve all substantive
wage data correction disputes,” and like the Proposed 2004 Rule, it explained that “[i]f a hospital
wished to request a change to its data as shown in [the wage data file], the hospital was to submit
corrections along with complete, detailed supporting documentation to its intermediary by” the
specified date. Final 2004 Rule, 69 Fed. Reg. 45,401–02 (emphasis added); Proposed 2004
Rule, 68 Fed. Reg. 27,193 (emphasis added). The Final 2004 Rule further observed that the
Proposed 2004 Rule “described the process for hospitals to review and revise their . . . wage
data.” 68 Fed. Reg. 45,401 (emphasis added). And, the Final 2004 Rule explained that
“[h]ospitals were notified of [the] deadline and . . . the requirement to review and verify their
data as posted on the preliminary wage data file” and that, after the final wage data file was
published, a hospital would still have a limited ability to seek a correction of “its wage data.” Id.
at 45,401-02 (emphasis added). Given this focus on a hospital’s ability to challenge its own
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wage data, it is not surprising that the Board concluded that the Secretary did not “provide a
remedy for other hospitals in the same MSA which are harmed by the hospital that failed to
furnish correct wage index data.” Dkt. 21-1 at 8 (emphasis added).
The Secretary contends that, in light of this conclusion, Plaintiff cannot prevail in the
present litigation. As he explains, “Plaintiff is complaining not about its own data but the data
that CMS used for a different hospital in the MSA;” the Board “reasonably held that the
Secretary’s regulations do not grant a provider the right to challenge another provider’s data in
the correction process;” and “Plaintiff does not challenge this aspect of the final agency
decision.” Dkt. 15-1 at 26–27. In response, Plaintiff makes only two arguments. First, it
contends that it is not “challenging another provider’s data,” but rather “the FFY 2004 wage
index for the Santa Cruz MSA and the manner in which the Secretary established that wage
index.” Dkt. 17 at 12. Second, it argues that it is “entitled” to bring such a challenge and,
indeed, that the Board “said as much in its opinion.” Id. The Court is not convinced on either
point.
As an initial matter, the Secretary is correct that Plaintiff did not challenge the Board’s
reading of the Final 2004 Rule or the rule’s procedural requirement that the only hospital that
may challenge the reporting hospital’s wage data is the reporting hospital itself. To the contrary,
the complaint makes one, and only one, claim: that the Secretary “improperly determined the
wage index for [the] Santa Cruz MSA FFY 2004.” Dkt. 1 at 2, ¶ 5; see also id. at 8, ¶ 35
(“CMS, through [UGS], made improper adjustments for Watsonville that resulted in an improper
and inaccurate determinate of the average hourly wage for Watsonville.”). To be sure, the
complaint does note that the Board concluded that it lacked “the authority to grant the remedy”
that Plaintiff sought, id. at 7, ¶ 29, but it only does so in describing the background; it never
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alleges that that conclusion was arbitrary, capricious, or contrary to law. The contention that the
annual wage index calculation process must permit every provider to cross-challenge every other
provider’s wage data, moreover, is far too significant to read into the complaint in the absence of
any affirmative allegation. Nor is Plaintiff entitled to amend its complaint by raising an
argument in a reply brief. See, e.g., Harrison v. Office of the Architect of the Capitol, 964 F.
Supp. 2d 81, 95 n.4 (D.D.C. 2013). Absent such a challenge to the Board’s conclusion that it
lacked authority to provide Plaintiff with a remedy, however, Plaintiff cannot establish
redressability. See Cty. of Del., Pa., 554 F.3d at 149. The absence of a challenge to the Board’s
conclusion that it lacked authority to grant Plaintiff “a remedy” thus stands as an insurmountable
roadblock to review of the Board’s factual determination about the accuracy of the wage index.
See Dkt. 21-1 at 8.
Plaintiff attempts to sidestep this difficulty, arguing that it is not “challenging another
provider’s data,” but rather “the manner in which the Secretary established [the] wage index,”
and that the Board actually affirmed its entitlement to bring such a challenge. Dkt. 17 at 12. In
support of this contention, Plaintiff observes that the Board concluded that Plaintiff had “‘the
right to hearing’” regarding the amount of its payments, and it points to the CMS Administrator’s
decision in D.C. Hospital Association Wage Index Group Appeal, HCFA Administrator Decision
(Jan. 15., 1993), reprinted in [Sept. 1992–March 1993 Transfer Binder], Medicare & Medicaid
Guide (CCH) ¶ 41,025, at 34,425 (“D.C. Hosp. Ass’n”); id. (quoting Dkt. 21-1 at 7–8), which the
Board cited in its decision. Neither contention, however, withstands scrutiny.
Plaintiff is correct that the Board concluded that Plaintiff had “the right to a hearing
before the Board.” Dkt. 21-1 at 7. That right, however, was a hollow one. As the Board put it,
although it had “jurisdiction over the Hospitals, it lack[ed] the authority to grant the remedy that
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[they sought], namely updating the Santa Cruz MSA wage index with the alleged correct
Watsonville [fiscal year] 2004 wage index data.” Id. at 8. Although the Court is not convinced
that the Board was required to “resolve the fact issue even though it ha[d] no authority to grant a
remedy,” id., it did not, by doing so, disavow its independent conclusion that it lacked authority
to correct Watsonville’s wage index data. Nor does Plaintiff’s reliance on D.C. Hospital
Association advance its cause. That administrative decision merely holds that a provider may
bring a challenge to the Secretary’s final determination setting the wage index, rather than
waiting to file a cost report and then challenging the provider’s individual reimbursement
determination. See D.C. Hosp. Ass’n, Medicare & Medicaid Guide (CCH) ¶ 41,025 at 34,425–
26. And, even though the D.C. Hospital Association decision implicitly recognizes that a
provider may challenge the Secretary’s determination of the wage index without “seeking to
correct [that] individual facility’s wage data,” Dkt. 21-1 at 8, it does not even hint at the
proposition that the Secretary must adjust the wage index for an MSA based on a challenge to a
specific hospital’s wage data brought by a different hospital. Rather, in that case, a group of
D.C. hospitals argued that the Secretary incorrectly included all of them in an MSA that also
included Maryland and Virginia. D.C. Hosp. Ass’n, Medicare & Medicaid Guide (CCH)
¶ 41,025 at 34,425.
The Court, accordingly, concludes that the Board’s rejection of Plaintiff’s administrative
appeal stands on an independent ground, which Plaintiff has not challenged in its complaint.
Because Plaintiff, as a result, would not be entitled to relief even if it were to prevail on the
claims alleged in the complaint, the Court concludes that Plaintiff’s claims are not redressable
and that Plaintiff, therefore, lacks standing to pursue those claims. See, e.g., Renal Physicians
Ass’n v. U.S. Dep’t of Health and Human Servs., 489 F.3d 1267, 1278 (D.C. Cir. 2007).
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CONCLUSION
For the reasons explained above, the Court will dismiss the action for lack of jurisdiction
and will deny both Plaintiff’s motion for summary judgment, Dkt. 13, and the Secretary’s cross-
motion for summary judgment, Dkt. 15, as moot.
A separate order will issue.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: March 21, 2017
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