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Commonwealths, Department of Human Services v. United States Department of Health & Human Services

United States District Court, M.D. Pennsylvania

March 13, 2017



          Christopher C. Conner, Chief Judge

         The Commonwealth of Pennsylvania Department of Human Services ("Commonwealth") appeals the decision of the United States Department of Health and Human Services Departmental Appeals Board ("Appeals Board") concerning a Medicaid reimbursement dispute. The Centers for Medicare & Medicaid Services ("CMS"), a division of the United States Department of Health and Human Services, disallowed $3, 001, 536 in federal funding claimed by the Commonwealth. The Appeals Board sustained the disallowance. The Commonwealth contests this decision in its motion (Doc. 17) for summary judgment. Defendants have filed a cross-motion (Doc. 24) for summary judgment in support of the Appeals Board's decision, as well as a motion (Doc. 32) to exclude the Commonwealth's Exhibit A.

         I. Factual Background & Procedural History [[1]]

         The Commonwealth participates in the Medicaid program, which is jointly funded by state and federal governments. (Doc. 19 ¶¶ 2-3; see Doc. 26 at 2). CMS is the Department of Health and Human Services' subdivision that controls the federal government's role in Medicaid by determining federal financial participation in states' Medicaid plans. (Doc. 26 at 2-3; see Doc. 18 at 2). The federal government reimburses state Medicaid costs at varying rates depending upon the type of expenditure. (Doc. 19 ¶ 3; Doc. 26 at 3-4). The federal financial participation rate is 50% for most costs associated with "administration" of the Medicaid program. (Doc. 19 ¶ 4; Doc. 26 at 4).

         In the early 1990s, Region III (Philadelphia) CMS staff developed an initiative to drastically reduce utilization of physical restraints in nursing homes. (Doc. 19 ¶ 6; Doc. 25 ¶ 8). This initiative arose in response to new federal regulations delineating, inter alia, rights of nursing home residents to be free from restraints. (Doc. 19 ¶¶ 5-6; Doc. 25 ¶¶ 7-8). The Commonwealth established the Pennsylvania Restraint Reduction Initiative ("PRRI") to provide training to nursing facility staff on reduction of resident restraints. (Doc. 19 ¶¶ 8-9; Doc. 25 ¶¶ 9, 11). The Commonwealth contracted with Kendal Outreach LLC ("Kendal") to implement the PRRI program. (Doc. 19 ¶ 11; Doc. 25 ¶¶ 12-13). The training project began in 1996, and the Commonwealth claimed and received $3, 001, 536 in federal financial participation funds to help pay for this program from 1996 to 2011. (Doc. 19 ¶ 13; Doc. 25 ¶¶ 9, 35). At all times relevant hereto, the Commonwealth claimed PRRI costs as "Medicaid program administration" expenses. (Doc. 19 ¶ 13; Doc. 25 ¶ 25).

         In 2012, the Department of Health and Human Services' Office of Inspector General audited the Commonwealth's reimbursement claims for PRRI provider training. (Doc. 19 ¶ 16; Doc. 25 ¶ 26). The office issued a final report in July of 2012 that recommended disallowance of PRRI funding. (Doc. 19 ¶¶ 16, 23; Doc. 25 ¶¶ 26-27). On June 23, 2014, CMS issued a disallowance notice of the $3, 001, 536 in federal financial participation funds, noting its concurrence with the Office of the Inspector General. (Doc. 19 ¶¶ 1, 23; Doc. 25 ¶¶ 6, 27). The disallowance notice indicates that: (1) the Social Security Act allows states to claim federal reimbursement for miscellaneous costs as long as they are "found necessary by the Secretary for the proper and efficient administration of the State plan, " 42 U.S.C. § 1396b(a)(7); (2) reimbursable costs must be "necessary and reasonable for the proper and efficient performance and administration of Federal awards, " 2 C.F.R. Part 225, App. A. ¶ C.l.a; and (3) CMS issued a "State Medicaid Director Letter" dated December 20, 1994 ("1994 SMDL") explicitly stating that provider training is not a reimbursable administrative cost. (Doc. 6 at 26-29; Doc. 25 ¶¶ 29-32).

         On August 22, 2014, the Commonwealth appealed CMS's disallowance. (Doc. 19 ¶ 24; Doc. 25 ¶ 36). The Appeals Board issued a decision on April 13, 2015, sustaining the disallowance. (Doc. 19 ¶ 35; Doc. 25 ¶ 37). The Commonwealth consequently filed a complaint contesting the Appeals Board's decision on June 12, 2015 against the Department of Health and Human Services and Sylvia Matthews Burwell, Secretary of Health and Human Services (collectively "CMS"). (Doc. 1). The parties have filed cross-motions (Docs. 17, 24) for summary judgment. CMS has also moved to exclude the Commonwealth's Exhibit A (Doc. 28-1) to its reply brief in support of its motion for summary judgment. (Doc. 32). All three motions are fully briefed (Docs. 18, 26, 28, 33, 35, 37) and ripe for disposition.

         II. Legal Standard

         Through summary adjudication, the court may dispose of those claims that do not present a "genuine dispute as to any material fact" and for which a jury trial would be an empty and unnecessary formality. Fed.R.Civ.P. 56(a). Courts are permitted to resolve cross-motions for summary judgment concurrently. See Lawrence v. City of Phila., 527 F.3d 299, 310 (3d Cir. 2008); see also Johnson v. Fed. Express Corp., 996 F.Supp.2d 302, 312 (M.D. Pa. 2014); 10A Charles Alan Wright et al., Federal Practice and Procedure § 2720 (3d ed. 2015).

         The cross-motions in the case subjudice seek judicial review under the Administrative Procedure Act ("APA"), and summary judgment is the "mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review." La. Forestry Ass'n, Inc. v. Solis, 889 F.Supp.2d 711, 720 (E.D. Pa. 2012) (quoting Sierra Club v. Mainella, 459 F.Supp.2d 76, 90 (D.D.C. 2006)), aff d sub nom. La. Forestry Ass'n Inc. v. Sec'y U.S. Dep't of Labor, 745 F.3d 653 (3d Cir. 2014). The customary summary judgment standard does not apply. Uddin v. Mayorkas, 862 F.Supp.2d 391, 399 (E.D. Pa. 2012) (quoting UPMC Mercy v. Sebelius, 793 F.Supp.2d 62, 67 (D.D.C. 2011)). Instead, the court applies the appropriate APA standard, to wit: the court may "hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). Under this narrow standard of review, the court will consider "whether the agency 'examine[d] the relevant data and articulate[d] a satisfactory explanation for its action, ' while being careful 'not to substitute [its] judgment for that of the agency.'" Christ the King Manor, Inc. v. Sec'y U.S. Dep't of Health & Human Servs., 730 F.3d 291, 305 (3d Cir. 2013) (quoting Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). The agency must articulate a "rational connection between the facts found and the choice made." Prometheus Radio Project v. FCC, 373 F.3d 372, 389-90 (3d Cir. 2004), as amended (June 3, 2016) (quoting State Farm, 463 U.S. at 43).

          III. Discussion

         A. Supplementation of the Administrative Record

         As a threshold matter, the Commonwealth seeks to supplement the administrative record before the court with its Exhibit A. (Doc. 28 at 1-4; Doc. 28-1). Case law is clear, however, that our review must be based on the existing administrative record, not "some new record made initially in the reviewing court" or "post-hoc rationalizations" by the agency in question. Christ the King Manor, 730 F.3d at 305 (quoting Rite Aid of Pa., Inc. v. Houstoun, 171 F.3d 842, 851 (3d Cir. 1999)). We may look beyond the administrative record only "when the action is adjudicatory in nature and the agency factfinding procedures are inadequate, " or "when issues that were not before the agency are raised in a proceeding to enforce nonadjudicatory agency action." NVE, Inc. v. Dep't of Health & Human Servs., 436 F.3d 182, 189 (3d Cir. 2006) (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415 (1971)).[2] Neither circumstance exists sub judice. Hence, Exhibit A is an impermissible supplement to the administrative record.

         As an end around the restrictions on record supplementation, the Commonwealth requests that the court take judicial notice of Exhibit A. (Doc. 37 at 2-4). A judicially noticed fact is one that is not subject to reasonable dispute. LaSalle Nat'l Bank v. First Conn. Holding Grp., LLC, 287 F.3d 279, 290 (3d Cir. 2002). But the Commonwealth is not asking the court to take notice of the fact of the policy statement set forth in of Exhibit A, which is undisputed; it is asking the court to interpret the text of Exhibit A. The interpretation of the policy outlined in Exhibit A is disputed by the parties and therefore cannot be judicially noticed. The court observes objectively, and without prejudice to either party, that Exhibit A could be interpreted as the type of "post-hoc rationalization" by an agency that is aptly excluded by a reviewing court. See Christ the King Manor, 730 F.3d at 305 (quoting Rite Aid of Pa., 171 F.3d at 842). The court declines to take judicial notice of the policy statement. Consequently, we will grant CMS's motion (Doc. 32) to exclude the Commonwealth's Exhibit A.

         B. The ...

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