United States District Court, M.D. Pennsylvania
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF HUMAN SERVICES, Plaintiff
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, and SYLVIA MATHEWS BURWELL, SECRETARY OF HEALTH AND HUMAN SERVICES, Defendants
Christopher C. Conner, Chief Judge
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.
Factual Background & Procedural History
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).
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
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
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.
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).
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).
Supplementation of the Administrative Record
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)). Neither circumstance exists sub
judice. Hence, Exhibit A is an impermissible supplement
to the administrative record.
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.