UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ________________________________________ ) CHILDREN’S HOSPITAL ASSOCIATION OF ) TEXAS; CHILDREN’S HEALTH CARE d/b/a ) CHILDREN’S HOSPITAL AND CLINICS OF ) MINNESOTA; GILLETTE CHILDREN’S ) SPECIALTY HEALTHCARE; CHILDREN’S ) Civil Action No. HOSPITAL OF THE KING’S DAUGHTERS, ) 17-844 (EGS) INC.; and SEATTLE CHILDREN’S HOSPITAL, ) ) Plaintiffs, ) ) v. ) ) ALEX AZAR, in his official ) capacity, Secretary of Health and ) Human Services; SEEMA VERMA, in her ) official capacity, Administrator of ) the Centers for Medicare and Medicaid ) Services; and CENTERS FOR MEDICARE ) AND MEDICAID SERVICES, 1 ) ) Defendants. ) ________________________________________) MEMORANDUM OPINION Medicaid is a federal program that helps to cover the costs of providing medical care to qualified individuals. Some hospitals treat significantly higher percentages of Medicaid- eligible patients than others. Because Medicaid does not generally provide the same level of reimbursement as other types 1 Pursuant to Federal Rule of Civil Procedure 25(d), the Court substitutes as defendant the Secretary of Health and Human Services, Alex Azar, for former Secretary of Health and Human Services, Thomas E. Price. 1 of insurance coverage, such hospitals are often at a financial disadvantage. To rectify this disadvantage, and thereby encourage hospitals to serve Medicaid-eligible patients, Congress has provided for supplemental Medicaid payments to such hospitals. The supplemental payments are subject to limits to ensure that no hospital receives payments that would result in a profit, rather than covering Medicaid-related costs to rectify the disadvantage. This case concerns the method of calculating the limit of these supplemental payments. Specifically, this lawsuit challenges a final rule that defines how “costs” are to be calculated for purposes of determining the limit on the amount of the supplemental payment a hospital serving a disproportionate share of Medicaid-eligible individuals is entitled to receive. See Medicaid Program: Disproportionate Share Hospital Payments – Treatment of Third Party Payers in Calculating Uncompensated Care Costs, 82 Fed. Reg. 16114-02, 16117 (Apr. 3, 2017) (“Final Rule”). Defendants – the Secretary of Health and Human Services (“the Secretary”), Centers for Medicare and Medicaid Services (“CMS”), and the CMS Administrator – claim that the Medicaid Act permits them to define “costs” in the Final Rule as “costs net of third-party payments, including, but not limited to, payments by Medicare and private insurance.” 42 C.F.R. § 447.299(c)(10)(i). Plaintiffs – one children’s hospital association, whose members 2 are eight free-standing children’s hospitals in the state of Texas, and four other free-standing children’s hospitals located in Minnesota, Virginia, and Washington – ask the Court to vacate the Final Rule as contrary to the plain language of the Medicaid Act and as arbitrary and capricious under the Administrative Procedures Act. Pending before the Court are plaintiffs’ combined motion for a preliminary injunction and for summary judgment, defendants’ motion to strike exhibits supporting plaintiffs’ motion for summary judgment, defendants’ motion for summary judgment, and plaintiffs’ motion for a status hearing. Upon consideration of the parties’ memoranda, the parties’ arguments at the motions ...
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