2014.12.29 - MEMORANDUM Opinion GRANTING Pltfs Mot for Preliminary Injun... (1)

8/10/2019 2014.12.29 - MEMORANDUM Opinion GRANTING Pltfs Mot for Preliminary Injun... (1)

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UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

________________________________)

TEXAS CHI LDREN S HOSPI TAL and )

SEATTLE CHI LDREN S HOSPI TAL, ))Pl ai nt i f f s, )

)v . )

) Ci vi l Act i on No. 14- 2060 ( EGS)SYLVI A MATHEWS BURWELL, )Secr et ar y, Uni t ed St at es )Depar t ment of Heal t h and )Human Ser vi ces, et al . , )

)Def endant s. )

________________________________)

MEMORANDUM OPINION

Medi cai d i s a f eder al pr ogr am t hat hel ps t o cover t he cost s of

pr ovi di ng medi cal car e t o cer t ai n i ndi vi dual s. Some hospi t al s

t r eat si gni f i cant l y hi gher per cent ages of Medi cai d- el i gi bl e

pat i ent s t han ot her s. Because Medi cai d does not gener al l y

pr ovi de the same l evel of r ei mbur sement as ot her f orms of

cover age, such hospi t al s ar e of t en at a f i nanci al di sadvant age.

To r ect i f y t hi s di sadvant age, and t her eby t o encour age hospi t al s

t o ser ve Medi cai d- el i gi bl e pat i ent s, Congr ess has pr ovi ded f or

suppl ement al Medi cai d payment s t o such hospi t al s. The

suppl ement al payment s are subj ect t o l i mi t s t o ensure t hat no

hospi t al r ecei ves such a l ar ge payment t hat i t makes a pr of i t ,

r at her t han mer el y cover i ng i t s Medi cai d- r el at ed cost s. Thi s

case concer ns t he met hod of cal cul at i ng t hat l i mi t .

Case 1:14-cv-02060-EGS Document 20 Filed 12/29/14 Page 1 of 46


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Pl ai nt i f f s, Texas Chi l dr en s Hospi t al ( Texas Chi l dr en s) and

Seat t l e Chi l dr en s Hospi t al ( Seat t l e Chi l dr en s) , al l ege t hat

t he Secr etar y of Heal t h and Human Ser vi ces ( t he Secr et ar y) ,

t he Cent ers f or Medi car e and Medi cai d Ser vi ces ( CMS) , and the

Admi ni st r at or of CMS have modi f i ed t he met hod f or cal cul at i ng

t he hospi t al - speci f i c l i mi t wi t hout f ol l owi ng not i ce- and- comment

pr ocedur es, and i n a way t hat conf l i ct s wi t h t he Medi cai d Act .

Because def endant s cal cul at i on i s al l egedl y bei ng used t o f or ce

Texas and Washi ngt on t o r ecoup si gni f i cant amount s of money f r om

t he pl ai nt i f f s, and because such r ecoupment s ar e al l egedl y bot h

i r r evocabl e and i mmi nent , pl ai nt i f f s seek a pr el i mi nar y

i nj unct i on. Upon consi der at i on of t he pl ai nt i f f s mot i on, t he

r esponse, r epl y, and sur r epl y ther et o, t he appl i cabl e l aw, and

t he ent i r e r ecor d, t he Cour t GRANTS pl ai nt i f f s mot i on.

I.

Background

Pl ai nt i f f s ar e t wo not - f or - pr of i t pedi at r i c t eachi ng and

r esear ch hospi t al s dedi cat ed t o t he t r eat ment and speci al needs

of chi l dr en and t he advancement of pedi at r i c medi ci ne. Compl .

1. They t r eat [ c]hi l dr en wi t h cri t i cal i l l nesses and speci al

needs . . . f r om t hr oughout t he Uni t ed St at es, and do so

regar dl ess of t hei r f ami l i es abi l i t y t o pay f or t hei r car e.

Id. Mor e t han 50 per cent of Pl ai nt i f f s pat i ent s ar e Medi cai d

pat i ent s, whi ch means t hat t hey t r eat a di spr opor t i onat el y

l ar ger shar e of Medi cai d pr ogr am pat i ent s. Id. 23.



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Pl ai nt i f f s al so serve many . . . ver y si ck and medi cal l y

f r agi l e chi l dr en, meani ng t hat t hey have an unusual number of

pat i ent s who meet t he qual i f yi ng cr i t er i a f or Medi cai d

el i gi bi l i t y f or r easons ot her t han i ncome st at us. Id. 48.

A. The Medicaid Act

Medi cai d, 42 U. S. C. 1396, et seq., pr ovi d[ es] f eder al

f i nanci al assi st ance t o St at es t hat choose t o r ei mbur se cer t ai n

cost s of medi cal t r eat ment f or needy per sons. Harris v. McRae,

448 U. S. 297, 301 ( 1980) . I n addi t i on t o cover i ng l ow- i ncome

i ndi vi dual s, Medi cai d al so pr ovi des benef i t s t o chi l dr en wi t h

cer t ai n ser i ous i l l nesses, wi t hout r egar d t o f ami l y i ncome. See,

e.g., 42 U. S. C. 1396a( 10) ( A) ( i ) ( I I ) ( chi l dr en ar e el i gi bl e f or

Medi cai d i f t hey ar e el i gi bl e f or Suppl ement al Secur i t y I ncome) ;

42 C. F. R. 416. 926a( m) ( 6) ( chi l dr en bor n wei ghi ng l ess t han

1, 200 gr ams ar e el i gi bl e f or Suppl ement al Secur i t y I ncome) .

To encour age st at es t o par t i ci pat e i n Medi cai d, [ f ] eder al and

st at e gover nment s j oi nt l y shar e t he cost . Va. Dept of Med.

Assistance Servs. v. Johnson, 609 F. Supp. 2d 1, 2 ( D. D. C.

2009) . Par t i ci pat i ng st at es admi ni st er t hei r own pr ogr am

pur suant t o a st ate Medi cai d pl an whi ch must be revi ewed and

appr oved by t he Secretary. Id.; see also 42 U. S. C. 1396a.

Once t he Secr et ar y or her desi gnee appr oves a st ate pl an, t he

st at e r ecei ves f eder al f i nanci al par t i ci pat i on t o cover par t of

t he cost s of i t s Medi cai d pr ogr am. 42 U. S. C. 1396b( a) ( 1) . I f a



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st at e f ai l s t o compl y wi t h t he st at ut or y or r egul at or y

r equi r ement s gover ni ng Medi cai d, t he f ederal government may

r ecoup f eder al f unds f r om t he st at e. See id. 1316( a) , ( c)( e) .

I n 1981, f aci ng gr eat er cost s . . . associ at ed wi t h t he

t r eat ment of i ndi gent pat i ent s, D.C. Hosp. Assn v. District of

Columbia, 224 F. 3d 776, 777 (D. C. Ci r . 2000) , Congr ess amended

Medi cai d t o r equi r e st at es t o ensur e t hat payment s t o hospi t al s

t ake i nt o account . . . t he si t uat i on of hospi t al s whi ch ser ve

a di spr opor t i onat e number of l ow- i ncome pat i ent s wi t h speci al

needs. 42 U. S. C. 1396a(13) ( A) ( i v) . Thi s amendment r ef l ect ed

Congr ess s concer n t hat Medi cai d r eci pi ent s have r easonabl e

access t o medi cal ser vi ces and t hat hospi t al s t r eat i ng a

di spropor t i onat e shar e of poor peopl e r ecei ve adequat e suppor t

f r om Medi cai d. W. Va. Univ. Hosps. v. Casey, 885 F. 2d 11, 23

( 3d Ci r . 1989) . The i nt ent was t o st abi l i ze t he hospi t al s

f i nanci al l y and pr eser ve access t o heal t h car e ser vi ces f or

el i gi bl e l ow- i ncome pat i ent s. Johnson, 609 F. Supp. 2d at 3.

The amendment cr eated payment adj ust ment [ s] f or qual i f yi ng

hospi t al s . See 42 U. S. C. 1396r - 4( c) . Such payment s are

avai l abl e to any hospi t al t hat t r eat s a di spr opor t i onat e shar e

of Medi cai d pat i ent s ( a di spr opor t i onat e- shar e hospi t al or

DSH) . See id. 1396r - 4( b) .

I n 1993, t he progr am was amended to l i mi t DSH payment s on a

hospi t al - speci f i c basi s . See id. 1396r - 4( g) . Thi s was done to



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assuage concer ns t hat some hospi t al s were r ecei vi ng DSH payment s

i n excess of t he net cost s, and i n some i nst ances t he t ot al

cost s, of oper at i ng t he f aci l i t i es. H. R. Rep. No. 103- 111, at

211 ( 1993) , reprinted in 1993 U. S. C. C. A. N. 278, 538.

Accor di ngl y, a DSH payment may not exceed:

[ T] he cost s i ncur r ed dur i ng t he year of f ur ni shi nghospi t al servi ces (as det er mi ned by t he Secr et ar y andnet of payment s under t hi s subchapt er , ot her t hanunder t hi s sect i on, and by uni nsur ed pat i ent s) by thehospi t al t o i ndi vi dual s who ei t her ar e el i gi bl e f ormedi cal assi st ance under t he St ate pl an or have noheal t h i nsur ance ( or ot her sour ce of t hi r d par t ycover age) f or servi ces pr ovi ded dur i ng t he year .

42 U. S. C. 1396r - 4( g) ( 1) ( A) .

I n 2003, t o ensur e t he appr opr i ateness of DSH payment s,

Medi cai d was amended t o requi r e that each st ate pr ovi de an

annual r eport and an audi t of i t s DSH pr ogr am. See id. 1396r -

4( j ) . The audi t must conf i r m, among ot her t hi ngs, t hat :

( C) Onl y t he uncompensat ed care cost s of pr ovi di ngi npat i ent hospi t al and out pat i ent hospi t al ser vi ces t oi ndi vi dual s descri bed i n [ Sect i on 1396r - 4( g) ( 1) ( A) ] .. . ar e i ncl uded i n t he cal cul at i on of t he hospi t al -speci f i c l i mi t s [ ; ]

( D) The St at e i ncl uded al l payment s under t hi ssubchapt er , i ncl udi ng suppl ement al payment s, i n t hecal cul at i on of such hospi t al - speci f i c l i mi t s[ ; and]

( E) The St ate has separatel y document ed and r etai ned ar ecor d of al l of i t s cost s under t hi s subchapt er ,cl ai med expendi t ur es under t hi s subchapt er , uni nsuredcost s i n determi ni ng payment adj ust ment s under t hi ssect i on, and any payment s made on behal f of t heuni nsured f r om payment adj ust ment s under t hi s sect i on.



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Id. 1396r - 4( j ) ( 2) . Over payment s must be recouped by t he st ate

wi t hi n one year of t hei r di scover y or t he f eder al gover nment may

r educe i t s f ut ur e cont r i but i on. See id. 1396b( d) ( 2) ( C) , ( D) .

B.

The 2008 Final Rule

I n 2005, CMS i ssued a Not i ce of Proposed Rul emaki ng r egardi ng

t hese audi t and r epor t i ng r equi r ement s. See Di spr opor t i onat e

Share Hospi t al Payment s, 70 Fed. Reg. 50, 262 (pr oposed Aug. 26,

2005) . A Fi nal Rul e was i ssued on December 19, 2008 ( t he

Rul e) . See Di spropor t i onat e Shar e Hospi t al Payment s, 73 Fed.

Reg. 77, 904 ( Dec. 19, 2008) . The Rul e requi r es t hat t he st at es

annual l y submi t i nf or mat i on f or each DSH hospi t al t o whi ch t he

Stat e made a DSH payment . 42 C. F. R. 447. 299(c) . One such

pi ece of i nf or mat i on i s t he hospi t al s t ot al annual

uncompensated car e cost s, whi ch t he Rul e def i ned as an

enumerated set of cost s mi nus an enumerated set of payment s :

The t ot al annual uncompensat ed car e cost equal s t het ot al cost of car e f or f ur ni shi ng i npat i ent hospi t aland out pat i ent hospi t al ser vi ces t o Medi cai d el i gi bl ei ndi vi dual s and t o i ndi vi dual s wi t h no sour ce of t hi r dpar t y cover age f or t he hospi t al ser vi ces t hey recei vel ess t he sum of r egul ar Medi cai d [ f ee- f or - ser vi ce]r at e payment s, Medi cai d managed car e organi zat i onpayment s, suppl ement al / enhanced Medi cai d payment s,uni nsur ed r evenues, and Sect i on 1011 payment s.

Id. 447. 299( c) ( 16) . The regul at i on speci f i cal l y def i ned each

t ype of cost and payment . 1

1 See id. 447. 299( c) ( 10) ( Tot al Cost s f or Medi cai d Ser vi ces:The t ot al annual cost s i ncur r ed . . . f or f ur ni shi ng . . .



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To ease t he t r ansi t i on t o t he new audi t and r epor t i ng r egi me,

CMS pr ovi ded f or a si x- year t r ansi t i on, t o avoi d subj ect i ng any

state to i mmedi at e penal t [ i es] t hat woul d r esul t i n t he l oss of

Feder al mat chi ng dol l ar s. 73 Fed. Reg. at 77, 906. Accor di ngl y,

any audi t s f r om Medi cai d St at e pl an r at e year 2005 t hr ough

2010 woul d be used onl y f or t he pur pose of determi ni ng

pr ospect i ve hospi t al - speci f i c cost l i mi t s and t he act ual DSH

payment s associ at ed wi t h a par t i cul ar year . Id. For 2011

payment s, t he audi t of whi ch must be compl et ed by December 31,

2014, Si mon Decl . , ECF No. 3- 8 18, and al l subsequent year s,

DSH over payment s must be r ecover ed by the st at e and ret urned t o

t he f eder al gover nment , unl ess t hey ar e r edi st r i but ed by the

St at e t o ot her qual i f yi ng hospi t al s. 73 Fed. Reg. at 77, 906.

C. FAQ Number 33

On J anuary 10, 2010, CMS post ed answers t o f r equent l y asked

quest i ons r egar di ng t he audi t and r epor t i ng r equi r ement s. See

Addi t i onal I nf or mat i on on t he DSH Repor t i ng and Audi t i ng

Requi r ement , ht t p: / / www. medi cai d. gov/ Medi cai d- CHI P- Progr am-

ser vi ces t o Medi cai d el i gi bl e i ndi vi dual s); id. 447. 299( c) ( 14) ( Tot al Cost s f or Uni nsur ed I ndi vi dual s: [ T] het ot al cost s i ncur r ed f or f ur ni shi ng . . . ser vi ces t oi ndi vi dual s wi t h no sour ce of t hi r d par t y cover age) ; id. 447. 299( c) ( 6) ( 8) ( def i ni ng each Medi cai d- r el at ed payment ) ; id. 447. 299( c) ( 12) ( Uni nsured Revenues: Tot al annual payment sr ecei ved . . . by or on behal f of i ndi vi dual s wi t h no sour ce oft hi r d par t y cover age) ; id. 447. 299( c) ( 13) ( Sect i on 1011Payment s: [ P] ayment s f or . . . ser vi ces pr ovi ded t o Sect i on1011 el i gi bl e al i ens wi t h no sour ce of t hi r d par t y cover age) .



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I nf or mat i on/ By- Topi cs/ Fi nanci ng- and- Rei mbur sement / Downl oads/

Addi t i onal I nf or mat i onont heDSHRepor t i ng. pdf ( l ast vi si t ed Dec.

29, 2014) . Quest i on Number 33 f orms t he cr ux of t hi s case:

33. Woul d days, cost s, and revenues associ at ed wi t hpat i ent s t hat have bot h Medi cai d and pr i vat e i nsurancecover age ( such as Bl ue Cr oss) al so be i ncl uded i n t hecal cul at i on of t he . . . DSH l i mi t i n t he same waySt ates i ncl ude days, cost s and r evenues associ at edwi t h i ndi vi dual s dual l y el i gi bl e f or Medi cai d andMedi car e?

Days, cost [ s] , and r evenues associ at ed wi t h pat i ent st hat ar e dual l y el i gi bl e f or Medi cai d and pr i vat ei nsur ance shoul d be i ncl uded i n t he cal cul at i on of t heMedi cai d i npat i ent ut i l i zat i on r at e ( MI UR) f or t hepur poses of det er mi ni ng a hospi t al el i gi bl e t o r ecei veDSH payment s. Sect i on 1923( g) ( 1) does not cont ai n anexcl usi on f or i ndi vi dual s el i gi bl e f or Medi cai d andal so enr ol l ed i n pr i vat e heal t h i nsur ance. Therefore,days, costs, and revenues associated with patients

that are eligible for Medicaid and also have private

insurance should be included in the calculation of the

hospital-specific DSH limit.

Id. at 18 ( emphasi s added) .

D. Factual Background

1. Seattle Childrens

On J une 15, 2011, t he Washi ngt on St ate Heal t h Care Aut hor i t y

i nf or med Seat t l e Chi l dr en s t hat t he agency woul d be revi si ng

i t s [ hospi t al - speci f i c l i mi t ] cal cul at i on f or t he . . . 2012

Medi cai d DSH appl i cat i on. Ki nzi g Decl . , ECF No. 3- 14 14. The

Aut hor i t y st at ed t hat r ecent audi t s r eveal ed t hat some

hospi t al s wer e not r epor t i ng al l char ges and payment s r ecei ved

f or pr ovi di ng car e t o Medi cai d- el i gi bl e pat i ent s and t her ef or e



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mandat ed t hat i n t he case that a Medi cai d- el i gi bl e pat i ent has

i nsur ance or ot her t hi r d- par t y cover age, t hese char ges and

payment s shoul d be i ncl uded i n t he DSH cap cal cul at i on. Id.

Seat t l e Chi l dr en s submi t t ed i t s 2012 DSH appl i cat i on i n J ul y

2011, but t he new cal cul at i on r ender ed i t s hospi t al - speci f i c

l i mi t negat i ve, maki ng i t i nel i gi bl e f or DSH payment s. See id.

16. Seat t l e Chi l dr en s was al so advi sed . . . t hat i f t he audi t

pr ocess . . . det er mi ned t hat t he hospi t al was pai d mor e t han

i t s DSH cap . . . t he st at e woul d f or ce t he hospi t al t o pay back

t o t he st at e any i dent i f i ed over payment . Id. 18.

Seat t l e Chi l dr en s hi r ed a consul t ant t o i dent i f y why [ t he

Washi ngt on St ate Heal t h Care Aut hor i t y] was usi ng a new

cal cul at i on; [ t ] he consul t ant det er mi ned t hat [ t he] new

cal cul at i on was dr awn f r om . . . FAQ No. 33. Id. 19. Seat t l e

Chi l dr en s sent mul t i pl e l et t er s t o t he st at e agency i n Oct ober

and November of 2011 descr i bi ng thi s i mpact . See id. 24. The

agency r esponded, and has consi st ent l y advi sed i n . . .

communi cat i ons and, f i nal l y, i n a meet i ng hel d . . . on J ul y 23,

2014, . . . t hat i t woul d f ol l ow CMS i nst r uct i ons and, t her ef or e

woul d have to r ecoup Medi cai d DSH payment s i n excess of a

[ hospi t al - speci f i c l i mi t ] . Id. 25.

Seat t l e Chi l dr en s has al so l odged mul t i pl e appeal s wi t h [ t he

Washi ngt on St at e Heal t h Car e Aut hor i t y] , si nce 2012, al l t o no

avai l . See id. 26. I n each i nst ance i n whi ch [ Seat t l e



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Chi l dr en s] sought r el i ef f r om t he appl i cat i on of FAQ No. 33,

[ t he St at e] deni ed [ t hose] appeal s. Id. I n 2012, 2013, and

2014, moreover , t he Washi ngt on St ate Heal t h Care Aut hor i t y

deni ed Seat t l e Chi l dr en s appl i cat i on f or any DSH payment s. See

id. 2729. On J ul y 23, 2014, however , Seat t l e Chi l dr en s met

wi t h t he Washi ngt on St ate agency, whi ch agr eed t o support

Seat t l e Chi l dr en s ef f or t s t o l obby CMS t o modi f y FAQ 33. See

Har r i s Decl . , ECF No. 16- 1 29.

I n Sept ember 2014, Seat t l e Chi l dr en s r ecei ved a pr el i mi nar y

r eport on t he audi t of i t s 2011 DSH payment s. See Ki nzi g Decl . ,

ECF No. 3- 14 31. That audi t r et r ospect i vel y cal cul at ed

Seat t l e Chi l dr en s 2011 [ hospi t al - speci f i c l i mi t ] t o be

negat i ve. Id. As such, t he audi t or s f ound t hat al l of t he

$7, 060, 567 i n 2011 DSH f unds . . . exceeded Seat t l e Chi l dr en s

2011 adj ust ed [ hospi t al - speci f i c l i mi t ] . Id. The Washi ngt on

St at e Heal t h Car e Aut hor i t y, mor eover , has consi st ent l y war ned

t hat i t has t he power t o recoup any DSH payment s i n excess of a

[ hospi t al - speci f i c l i mi t ] , and t o r edi st r i but e t hose f unds t o

other DSHs. Id. 32. The Washi ngt on St ate Heal t h Care Aut hor i t y

i s i n t he pr ocess of pr omul gat i ng r ul es r egar di ng t he r ecoupment

and di st r i but i on pr ocess, but t he pr oposed r ul es do not of f er

an admi ni st r at i ve pr ocess f or r ever si ng a r ecoupment or

r ecover i ng payment s t hat have been r edi st r i but ed. See id. 33.



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2. Texas Childrens

I n December 2010, Texas Chi l dr en s l ear ned that i t s 2011

hospi t al - speci f i c l i mi t was bei ng cal cul at ed at appr oxi mat el y

$8 mi l l i on l ess t han . . . expect ed. Si mon Decl . , ECF No. 3- 8

23. I t di d not t hen know about FAQ 33. See id. I n Mar ch 2012,

Texas Chi l dren s l earned t hat i t s 2012 hospi t al - speci f i c l i mi t

woul d be si gni f i cant l y l ower t han expected, due t o t hr ee

cal cul at i on er r or s and a $12 mi l l i on r educt i on . . .

r esul t i ng f r om [ t he Texas Heal t h and Human Ser vi ces

Commi ssi on s] use of t hi r d- par t y i nsur ance payment s t o of f set

Medi cai d- al l owabl e cost s. Id. 24. The Texas Heal t h and Human

Ser vi ces Commi ssi on ( t he Commi ssi on) ul t i mat el y cor r ect ed t he

cal cul at i on er r or s, but r ej ect ed Texas Chi l dr en s appeal of t he

t hi r d- par t y- payment of f set . Id. I n r evi ewi ng t hi s i ssue i n

2012, Texas Chi l dr en s l ear ned t hat t he same i ssue was t he cause

of i t s l ower- t han- expected 2011 DSH payment . See id. 25.

Texas Chi l dren s cont act ed t he Commi ssi on i n an at t empt t o

r esol ve t hi s i ssue. See Har r i s Decl . , ECF No. 16- 1 3. Texas

Chi l dr en s met wi t h t he Commi ss i on, whi ch subsequent l y agr eed

i n an Oct ober 2012 l et t er t o wor k wi t h Texas Chi l dr en s i n

seeki ng a cl ar i f i cat i on f r om [ CMS] r egar di ng t he DSH [ hospi t al -

speci f i c l i mi t ] cal cul at i on i ssues. Id. 4; see also id. 5.

A December 14, 2012 l et t er f r om t he Commi ss i on t o CMS al so

suppor t ed Texas Chi l dr en s: [ T] he chi l dr en s hospi t al s have



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i dent i f i ed a l egi t i mat e i ssue of f eder al l aw and pol i cy t hat

woul d benef i t f r om a cl ar i f i cat i on by CMS. Ex. A- 2 t o Pl s.

Repl y, ECF No. 15- 3 at 4.

Texas Chi l dren s wr ot e t o CMS i n November 2012 t o r equest a

f ace- t o- f ace meet i ng t o di scuss FAQ No. 33. Har r i s Decl . , ECF

No. 16- 1 6. A meet i ng was hel d on December 18, 2012 wi t h CMS

at whi ch r epr esent at i ves of Seat t l e Chi l dr en s and Texas

Chi l dr en s set f or t h t he i ssues and t he speci f i c manner i n

whi ch t he FAQ appr oach was i ncor r ect and i nconsi st ent wi t h t he

st at ut e and r egul at i ons. Id. 9. CMS agr eed t o consi der t he

pr oposed opt i ons and respond. Id.

I n March 2013, bel i evi ng i t was bound by FAQ 33, t he

Commi ssi on proposed new r egul at i ons t hat woul d have

i ncor por at ed a cal cul at i on met hodol ogy si mi l ar t o t he FAQ No.

33 met hodol ogy. Id. 11. Texas Chi l dr en s t hen t ur ned i t s

at t ent i on t o chal l engi ng t he adopt i on of t he new st at e r ul es.

Id. Thi s chal l enge was compl i cat ed when, on May 26, 2013, t he

Texas Stat e Legi sl at ure adopt ed a change t o st at e l aw t hat

decl ar ed t hat t he cal cul at i on of hospi t al - speci f i c l i mi t s woul d

not i ncl ude pr i vat e- i nsur ance payment s f or Medi cai d- el i gi bl e

pat i ent s. See S. B. 7, 83d Leg. , Reg. Sess. ( Tex. 2013) . Despi t e

t hi s change, Texas cont i nued to oper at e under a st at e Medi cai d

pl an t hat i t vi ewed as i ncor por at i ng FAQ 33 s cal cul at i on. See

Har r i s Decl . , ECF No. 16- 1 20.



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Texas Chi l dren s accor di ngl y cont i nued t o l obby CMS. I n Apr i l

2013, CMS wr ot e Texas Chi l dr en s r egar di ng t he i ssue:

The 2008 f i nal r ul e and t he [ FAQ Document ] . . .

cl ar i f i ed how cost s and r evenues associ at ed wi t hi ndi vi dual s dual l y el i gi bl e f or Medi cai d and Medi car eand i ndi vi dual s who ar e el i gi bl e f or Medi cai d and havepr i vat e i nsur ance cover age must be t r eat ed whencal cul at i ng Medi cai d hospi t al - speci f i c DSH l i mi t s.

Let t er f r om Kr i st i n Fan, Act i ng Di r ect or , Fi nanci al Management

Gr oup, CMS, t o Susan Fei gi n Har r i s, Counsel f or Texas Chi l dr en s

( Apr . 17, 2013) , ECF No. 15- 5 at 1. The l et t er nonet hel ess

i ndi cat ed that CMS was open t o meet i ng to di scuss t hi s

i nf or mat i on and our i nt er pr et at i on i n gr eat er dept h and t hat

[ w] e ar e cont i nui ng t o r evi ew DSH pol i ci es as a r esul t of t he

audi t s and i n ant i ci pat i on of f ur t her DSH r evi si ons i ncl uded i n

t he Af f or dabl e Car e Act . Id. at 1, 2.

Texas Chi l dren s and Seat t l e Chi l dren s next began t o l obby

t hei r congr essi onal r epr esent at i ves. See Har r i s Decl . , ECF No.

16- 1 15. Thi s r esul t ed i n a ser i es of meet i ngs on Capi t ol

Hi l l , id. 16, and, on J ul y 11, 2013, t he Texas congr essi onal

del egat i on sent a l et t er t o CMS st at i ng t hat t he FAQ 33

i nt er pr et at i on . . . does not seem consi st ent wi t h our

under st andi ng of how t he DSH pr ogr am shoul d wor k. Let t er f r om

Texas Congr ess i onal Del egat i on, t o Kat hl een Sebel i us, Secr et ar y,

U. S. Depar t ment of Heal t h and Human Servi ces ( J ul y 11, 2013) ,

ECF No. 15- 7 at 2.



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At t he same t i me, t he Commi ss i on cont i nued t o suppor t t he

ef f or t s of Texas Chi l dr en s. On Apr i l 22, 2013, t he Commi ssi on

sent an emai l t o a r epr esent at i ve of Texas Chi l dr en s:

[ W] e d be sol i dl y behi nd an ar gument t hat suppor t s t hewor k of t he chi l dr en s hospi t al s and encour ages CMS t ot ake a br oader vi ew of t he i mpact . I t hi nk we need t oaddress t he doubl e payment myt h.

Emai l f r om St eve Ar agon, Chi ef Counsel , Texas Heal t h and Human

Ser vi ces Commi ssi on, t o Susan Fei gi n Har r i s, Counsel f or Texas

Chi l dr en s ( Apr . 22, 2013) , ECF No. 15- 6 at 1. Lat er t hat year ,

af t er meet i ng wi t h CMS, t he Commi ss i on s Execut i ve Commi ss i oner

i nf or med a r epr esent at i ve f or Texas Chi l dr en s t hat he

under st ood t hat we may have t o t ake more aggr essi ve act i on and

subsequent l y, sent . . . a t ext message i ndi cat i ng t hat [ Texas

Chi l dr en s] shoul d sue hi m. Har r i s Decl . , ECF No. 16- 1 19.

On August 2, 2013, Texas Chi l dr en s di d j ust t hat , f i l i ng a

l awsui t t o enj oi n Texas f r om appl yi ng t he cal cul at i on codi f i ed

by FAQ 33. See id. 20; Tex. Childrens Hosp. v. Tex. Health &

Hum. Servs. Commn, No. D- 1- GN- 13- 002619 ( 200t h Di st . Ct . ,

Tr avi s Cnt y. f i l ed Aug. 2, 2013) . Texas Chi l dren s obt ai ned a

t emporary i nj unct i on on November 15, 2013. Harr i s Decl . , ECF No.

16- 1 20. On March 31, 2014, however , t he st ate cour t deni ed

t he hospi t al s r equest f or decl ar at or y j udgment and per manent

i nj unct i on, wi t hout a wr i t t en opi ni on. Id. Texas Chi l dren s

el ected not t o appeal because an appeal woul d nei t her have



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st ayed t he 2013 di st r i but i on, al l owed l at er r ecover y of t hose

l osses as damages, [ n] or had any bi ndi ng ef f ect on CMS. Id.

Whi l e t hat l awsui t was st i l l ongoi ng, t he Commi ssi on pr oposed

t o CMS an amendment t o t he Texas Medi cai d Pl an t hat woul d have

r evi sed t he cal cul at i on t o r ef l ect t he l aw passed by t he st at e

l egi s l at ure. See id. 22. I n Febr uary 2014, CMS request ed

addi t i onal i nf or mat i on r egar di ng t he pr oposal , and Texas

Chi l dr en s par t i ci pat ed i n t hi s pr ocess by submi t t i ng comment s

on t he Commi ss i on s pr oposed r esponse. See id. 23. CMS di d not

act unt i l J ul y 14, 2014, when i t deni ed t he pr oposed amendment .

See id. 24. I n denyi ng t he pr oposal , CMS r el i ed at l east i n

par t on FAQ 33, whi ch CMS not ed cl ar i f i ed t hat al l t hi r d

par t y payer r evenues r ecei ved by t he hospi t al on behal f of

[ i ndi vi dual s el i gi bl e f or Medi cai d wi t h a sour ce of pr i vat e

i nsur ance cover age] must be i ncl uded i n t he cal cul at i on of t he

hospi t al - speci f i c DSH l i mi t . Compl . 55; see also Har r i s

Decl . , ECF No 16- 1 24. Texas had si xty days f r om t he J ul y 14,

2014 deci si on t o appeal , but decl i ned t o do so [ d] espi t e Texas

Chi l dr en s ur gi ng. Har r i s Decl . , ECF No. 16- 1 24.

At t hi s poi nt , Texas Chi l dr en s r et ur ned t o i t s Congr essi onal

del egat i on t o t est CMS s pr i or expr essi ons of wi l l i ngness t o

f ur t her consi der i t s posi t i on wi t h r espect t o FAQ No. 33. Id.

25. A meet i ng t ook pl ace on August 29, 2014, bet ween

r epr esent at i ves of Seat t l e Chi l dr en s, Texas Chi l dr en s, and



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CMS, but CMS r ef used t o change i t s posi t i on. Id. 26.

Meanwhi l e, t he audi t of f i scal - year 2011 DSH payment s was

ongoi ng. See id. 27. Texas Chi l dr en s di d not r ecei ve i t s

pr el i mi nar y audi t r epor t unt i l Oct ober 7, 2014. See Si mon Decl . ,

ECF No. 3- 8 28. The pr el i mi nar y r epor t i ndi cat ed t hat Texas

Chi l dr en s woul d have i t s hospi t al - speci f i c l i mi t r educed t o a

negat i ve number . See id. On Oct ober 20, 2014, Texas Chi l dr en s

l ear ned of t he Commi ssi on s det er mi nat i on t hat t he ent i r et y of

i t s 2011 DSH payment $21, 707, 266was an over payment . See id. The

Commi ssi on s not i ce i ndi cat es t hat i t wi l l r ecoup any

over payment of DSH f unds t hat i s i dent i f i ed i n t he st at e s

f i nal 2011 audi t r epor t t o CMS. Id.; see also Ex. 2- B t o Si mon

Decl . , ECF No. 3- 10 at 1. On November 19, 2014, Texas Chi l dr en s

appeal ed t hat f i ndi ng, but i t s appeal was deni ed on November 24,

2014. See Si mon Decl . , ECF No. 3- 8 30.

E. Procedural History

Pl ai nt i f f s f i l ed t hi s l awsui t on December 5, 2014. That same

day, t hey f i l ed a mot i on f or a pr el i mi nar y i nj unct i on, whi ch

r equest s t hat t he Cour t enj oi n t he def endant s f r om enf or ci ng or

appl yi ng FAQ 33, and t hat t he Cour t di r ect t he def endant s t o

send a l et t er t o t he st at e agenci es i n Texas and Washi ngt on

not i f yi ng t hem t hat t he Cour t has enj oi ned FAQ 33. See Mem. i n

Supp. of Mot . f or Pr el i m. I nj . ( Mot . ) , ECF No. 3- 1. The

def endant s f i l ed t hei r opposi t i on on December 12, 2014. See



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Gov t s Opp. t o Mot . f or Pr el i m. I nj . ( Opp. ) , ECF No. 14. The

pl ai nt i f f s f i l ed t hei r r epl y br i ef on December 15, 2014. See

Pl s. Repl y ( Repl y), ECF No. 15. I n l i ght of pl ai nt i f f s

i ncl usi on of addi t i onal exhi bi t s wi t h t hei r r epl y br i ef , t he

Cour t di r ect ed t he gover nment t o f i l e a sur r epl y, whi ch was

f i l ed on December 19, 2014. See Gov t s Sur r epl y ( Sur r epl y) ,

ECF No. 17. The mot i on i s r i pe f or t he Cour t s consi der at i on.

II. Standard of Review

A pl ai nt i f f seeki ng a pr el i mi nar y i nj unct i on must est abl i sh

( 1) a subst ant i al l i kel i hood of success on t he mer i t s, ( 2) t hat

i t woul d suf f er i r r epar abl e i nj ur y i f t he i nj unct i on wer e not

gr ant ed, ( 3) t hat an i nj unct i on woul d not subst ant i al l y i nj ur e

ot her i nt er est ed par t i es, and ( 4) t hat t he publ i c i nt er est woul d

be f ur t her ed by t he i nj unct i on. Chaplaincy of Full Gospel

Churches v. England, 454 F. 3d 290, 297 ( D. C. Ci r . 2006) . The

pur pose of a pr el i mi nar y i nj unct i on i s mer el y t o pr eserve t he

r el at i ve posi t i ons of t he par t i es unt i l a t r i al on t he mer i t s

can be hel d. Univ. of Tex. v. Camenisch, 451 U. S. 390, 395

( 1981) . I t i s an ext r aor di nar y and dr ast i c r emedy and shoul d

not be gr ant ed unl ess t he movant , by a cl ear showi ng, car r i es

t he bur den of per suasi on. Mazurek v. Armstrong, 520 U. S. 968,

972 ( 1997) ( emphasi s omi t t ed) . I n t hi s Ci r cui t , t he f our f act or s

have t ypi cal l y been eval uat ed on a sl i di ng scal e, such t hat i f

t he movant makes an unusual l y st r ong showi ng on one of t he



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f act or s, t hen i t does not necessar i l y have t o make as st r ong a

showi ng on anot her f act or . Davis v. Pension Benefit Guar.

Corp., 571 F. 3d 1288, 129192 ( D. C. Ci r . 2009) .

I n t he wake of t he Supr eme Cour t s deci si on i n Winter v.

Natural Resources Defense Council, 555 U. S. 7 ( 2008) , t he D. C.

Ci r cui t has suggest ed t hat a posi t i ve showi ng on al l f our

pr el i mi nar y i nj unct i on f act or s may be r equi r ed. Holmes v. FEC,

No. 14- 1243, 2014 WL 5316216, at *3 n. 4 (D. D. C. Oct . 20, 2014) ;

see also Sherley v. Sebelius, 644 F. 3d 388, 393 ( D. C. Ci r . 2011)

( [ W] e r ead Winter at l east t o suggest i f not t o hol d t hat a

l i kel i hood of success i s an i ndependent , f r ee- st andi ng

r equi r ement f or a pr el i mi nar y i nj unct i on. ) ( quot at i on mar ks

omi t t ed) . Nonet hel ess, t he Ci r cui t has had no occasi on t o

deci de t hi s quest i on because i t has not yet encount er ed a post -

Winter case wher e a pr el i mi nar y i nj unct i on mot i on survi ved t he

l ess r i gor ous sl i di ng- scal e anal ysi s. ConverDyn v. Moniz, No.

141012, 2014 WL 4477555, at *8 n. 2 ( D. D. C. Sept . 12, 2014) .

III.Analysis

A. Plaintiffs Are Likely to Succeed on the Merits.

Pl ai nt i f f s ar gue t hat FAQ 33 was pr omul gat ed i n vi ol at i on of

t he Admi ni st r at i ve Pr ocedur e Act and t hat i t i s cont r ar y to t he

Medi cai d Act . The def endant s di sput e t hi s and al so asser t t hat

pl ai nt i f f s are unl i kel y t o succeed on t he mer i t s because they

l ack st andi ng. Under l yi ng t hese ar gument s i s a more f undament al



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di sagr eement about t he nat ur e of t hi s case: The par t i es agr ee

t hat t he def endant s have a pol i cy of r equi r i ng t he i ncl usi on of

pr i vat e- i nsur ance payment s f or Medi cai d servi ces i n t he

cal cul at i on of a hospi t al - speci f i c l i mi t , but t hey di sagr ee on

t he l egal basi s f or t hat pol i cy. Pl ai nt i f f s asser t t hat nei t her

t he Medi cai d Act nor t he 2008 Rul e pr ovi des a basi s f or t he

pol i cy, so FAQ 33 must be i t s sour ce. The def endant s mai nt ai n

t hat FAQ 33 i s not t he sour ce of t he pol i cy, but i t t ook some

t i me f or t hem t o i dent i f y what is t he sour ce. Dur i ng t he

December 8, 2014 st atus hear i ng, t he government coul d not do so. 2

The gover nment now cont ends t hat t he 2008 Rul e provi des a l egal

basi s f or i t s pol i cy. The Cour t must r esol ve t hi s di sput e bef or e

assessi ng t he par t i es l egal ar gument s.

1.

Plaintiffs Are Likely to Show that FAQ 33 Has

Independent Effect.

Def endant s pol i cy i s not codi f i ed by t he Medi cai d Act , whi ch

def i nes t he hospi t al - speci f i c l i mi t as:

[ T] he cost s i ncur r ed dur i ng t he year of f ur ni shi nghospi t al servi ces (as det er mi ned by t he Secr et ar y andnet of payment s under t hi s subchapt er , ot her t hanunder t hi s sect i on, and by uni nsur ed pat i ent s) by thehospi t al t o i ndi vi dual s who ei t her ar e el i gi bl e f or

2 See Tr anscr i pt of Dec. 8, 2014 Hear i ng, ECF No. 13 at 20: 221: 12. Def endant s agr eed t hat [ t ] he agency s posi t i on i sessent i al l y t hat whi ch i s i n FAQ 33. Id. at 20: 1617. Theycoul d not i dent i f y why, however , st at i ng [ i ] t may be that t her ear e ot her document s t hat st at e t hat . . . pr i nci pl e whi ch webel i eve t o be l ongst andi ng. Id. at 20: 2325. When asked by t heCour t [ w] el l , what i s t he f i nal agency act i on? t he gover nmenthad no answer . See id. at 21: 1012.



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medi cal assi st ance under t he St ate pl an or have noheal t h i nsur ance ( or ot her sour ce of t hi r d par t ycover age) f or servi ces pr ovi ded dur i ng t he year .

42 U. S. C. 1396r - 4( g) ( 1) ( A) . The Act does not i ncl ude pr i vat e-

i nsurance payment samong t hose t hat are speci f i cal l y enumerated

as of f set s. Onl y Medi cai d payment st hose under t hi s

subchapt er are ment i oned. See id. At most , t he st at ut e mi ght

have del egat ed t o t he Secr et ar y t he abi l i t y t o det er mi ne by

r egul at i on t hat addi t i onal payment s shoul d be consi der ed.

Even i f t he Secr et ar y had such di scr et i on, she di d not

exer ci se i t i n t he 2008 Rul e. Al t hough def endant s cl ai m t hat t he

Rul e suppor t s t hem, t hey l ar gel y i gnor e i t s t ext i n f avor of

sel ect ed por t i ons of i t s Preambl e. The gover nment i s cor r ect

t hat t he Pr eambl e st at es t hat t he cost s t o be consi der ed i n

cal cul at i ng t he hospi t al - speci f i c l i mi t ar e t he unr ei mbur sed

cost s of pr ovi di ng . . . ser vi ces t o Medi cai d el i gi bl e

i ndi vi dual s and t he unr ei mbur sed cost s of pr ovi di ng . . .

ser vi ces t o i ndi vi dual s wi t h no sour ce of t hi r d par t y

r ei mbur sement . 73 Fed. Reg. at 77, 920; see also id. at 77, 914.

Accordi ng t o t he government , t he t erm unr ei mbur sed cost s means

t hat cost s i ncl uded i n cal cul at i ng t he hospi t al - speci f i c l i mi t

must be onl y t hose f or whi ch no r ei mbur sement i s r ecei ved f r om

any sour ce. As a pl ai n- meani ng r eadi ng of t he phr ase, t hi s

ar gument may have some appeal . The phr ase, however , cannot be

di vor ced f r om i t s cont ext whi ch i ncl udes a speci f i c def i ni t i on



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of t he cal cul at i on and al l r el evant i nput s. See Colautti v.

Franklin, 439 U. S. 379, 392 n. 10 ( 1979) ( a def i ni t i on whi ch

decl ar es what a ter m means . . . excl udes any meani ng t hat i s

not st at ed) ( quot at i on mar ks omi t t ed) ; Fla. Dept of Banking &

Fin. v. Bd. of Governors of Fed. Reserve Sys., 800 F. 2d 1534,

1536 ( 11t h Ci r . 1986) ( I t i s an el ement ar y pr ecept of st at ut or y

const r ucti on t hat t he def i ni t i on of a t er m i n t he def i ni t i onal

sect i on of a st at ut e cont r ol s t he const r uct i on of t hat t er m

wher ever i t appear s t hr oughout t he st at ut e. ) . I t i s t hi s

cont ext t hat r enders t he def endant s argument unt enabl e.

Fi r st , t he st at ement s i n t he Pr eambl e ci t ed by t he gover nment

ar e not r epr esent at i ve. The Pr eambl e al so st at ed on mul t i pl e

occasi ons t hat t he Rul e di d not ef f ect any change i n t he

cal cul at i on of t he hospi t al - speci f i c l i mi t . See 73 Fed. Reg. at

77, 921 ( [ W] e di sagr ee t hat t hi s r ul e changes t he def i ni t i on of

uncompensated car e that i s count ed i n cal cul at i ng t he hospi t al -

speci f i c DSH l i mi t . ) ; id. at 77, 906 ( Thi s r egul at i on does not

al t er any of t he subst ant i ve st andar ds r egar di ng t he cal cul at i on

of hospi t al cost s. ) . Despi t e t hi s l anguage, t he def endant s have

i dent i f i ed t he Rul e as i mpl ement i ng a new met hod of cal cul at i ng

t he hospi t al - speci f i c l i mi t .

Second, a pr eambl e does not cr eat e l aw; t hat i s what a

r egul at i on s t ext i s f or . The actual r egul at or y t ext i ncl uded a

st ep- by- st ep gui de t o cal cul at i ng t he unr ei mbur sed cost s,



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i ncl udi ng speci f i c def i ni t i ons of what makes up t he cost si de

of t he equat i on and what makes up t he payment s i de. To t he

ext ent t hat t hi s def i ni t i on i s cont r adi cted by t he Rul e s

Pr eambl e, t he def i ni t i on cont r ol s. See Barrick Goldstrike Mines,

Inc. v. Whitman, 260 F. Supp. 2d 28, 36 ( D. D. C. 2003) ( when t he

pr eambl e to [ a] r ul emaki ng i s i nconsi st ent wi t h t he pl ai n

l anguage of t he r egul at i on, i t i s i nval i d) ( ci t at i on omi t t ed) ;

Natl Wildlife Fed. v. EPA, 286 F. 3d 554, 56970 ( D. C. Ci r .

2002) ( The pr eambl e t o a r ul e i s not more bi ndi ng t han a

pr eambl e t o a st at ut e. A pr eambl e no doubt cont r i but es t o a

gener al under st andi ng of a st at ut e, but i t i s not an oper at i ve

par t of t he st at ut e and i t does not enl ar ge or conf er power s on

admi ni st r at i ve agenci es or of f i cer s. ) ( quot i ng Assn of Am.

R.Rs. v. Costle, 562 F. 2d 1310, 1316 ( D. C. Ci r . 1977) ) .

The f or mul a codi f i ed by t he Rul e di d not cont empl at e t he

i ncl usi on of pr i vat e- i nsur ance payment s f or Medi cai d- el i gi bl e

servi ces. I t def i ned t ot al annual uncompensated car e cost s as:

[ T] he t ot al cost of car e f or f ur ni shi ng i npat i enthospi t al and out pat i ent hospi t al ser vi ces t o Medi cai del i gi bl e i ndi vi dual s and t o i ndi vi dual s wi t h no sour ceof t hi r d par t y cover age f or t he hospi t al ser vi ces t heyr ecei ve l ess t he sum of r egul ar Medi cai d [ f ee- f or -

ser vi ce] r ate payment s, Medi cai d managed car eorgani zat i on payment s, suppl ement al / enhanced Medi cai dpayment s, uni nsur ed r evenues, and Sect i on 1011payment s.



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See 42 C. F. R. 447. 299( c) ( 16) . These component s ar e f ur t her

def i ned, maki ng no ment i on of payment s f r om pr i vat e i nsurance

f or Medi cai d- el i gi bl e pat i ent s. See id. 447. 299( c) ( 6) ( 15) .

Def endant s of f er no convi nci ng i nt er pr et at i on of t hi s

r egul at i on. They ar gue t hat t he r egul at i on s def i ni t i on of

cost s f r om whi ch var i ous Medi cai d payment s are l at er

subt r acted shoul d be read t o mean unr ei mbur sed cost s. Sur r epl y

at 12. But t he r egul at i on def i nes t he cost - si de of t he equat i on

and does not l i mi t i t t o cost s t hat ar e unr ei mbur sed or

uncompensat ed. 42 C. F. R. 447. 299( c) ( 10) . Thi s i s sensi bl e,

as t he regul at i on separ at el y descr i bes t he var i ous payment s t hat

ar e subt r act ed f r om t he cost s t o obt ai n t he annual

uncompensated cost s. See id. 447. 299( c) ( 6) ( 9) . Def endant s

r eadi ng woul d appear t o doubl e count Medi cai d- r el ated payment s

( f i r st as r ei mbur sement s t o be subt r act ed t o ar r i ve at t he

cost f i gur e, t hen agai n as payment s speci f i cal l y enumer at ed i n

t he r egul at i on as bei ng subt r act ed f r om t he over al l cost f i gur e

t o obt ai n t he unr ei mbur sed cost s) . Accor di ngl y, pl ai nt i f f s ar e

l i kel y to succeed i n ar gui ng t hat t he Rul e cannot suppor t

def endant s pol i cy and t hat FAQ 33 i s t he sol e aut hor i t y f or i t . 3

3 To be sure, t he Cour t must gi ve subst ant i al def er ence t o anagency s i nt er pr et at i on of i t s own r egul at i ons. ThomasJefferson Univ. v. Shalala, 512 U. S 504, 512 (1994) . Thegover nment , however , has of f ered a pl ai nl y er r oneousi nt er pr et at i on, id., whi ch i gnor es a speci f i c def i ni t i on



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2. Plaintiffs Likely Have Standing to Challenge these

Defendants Enforcement of FAQ 33.

Havi ng f ound t hat FAQ 33 has i ndependent l egal ef f ect , t he

Cour t addr esses def endant s ar gument t hat pl ai nt i f f s ar e

unl i kel y t o succeed on t he mer i t s because they l ack st andi ng. To

establ i sh Ar t i cl e I I I standi ng, pl ai nt i f f s must establ i sh t hat

( 1) [ t hey] suf f er ed an i nj ur y- i n- f act; ( 2) t her e i s a causal

connect i on between the i nj ur y and the conduct compl ai ned of ; and

( 3) t he i nj ur y wi l l l i kel y be r edr essed by a f avor abl e

deci s i on. Associated Builders & Contractors, Inc. v. Shiu, No.

13- 1806, 2014 WL 1100779, at *4 ( D. D. C. Mar . 21, 2014) ( quot i ng

In re Polar Bear Endangered Species Act Listing, 627 F. Supp. 2d

16, 24 ( D. D. C. 2009) ) . The r edr essabi l i t y pr ong of t hi s t est

asks whether t he r el i ef sought , assumi ng t hat t he cour t chooses

t o grant i t , wi l l l i kel y al l evi at e t he part i cul ar i zed i nj ury

al l eged by t he pl ai nt i f f . Food & Water Watch v. EPA, 5 F. Supp.

3d 62, 78 ( D. D. C. 2013) . [ E] ven at t he pl eadi ng st age,

[ pl ai nt i f f s] must make f act ual al l egat i ons showi ng t hat t he

r el i ef [ t hey] seek[ ] wi l l be l i kel y t o r edr ess [ t hei r ] i nj ur y.

Renal Physicians Assn v. U.S. Dept of Health & Hum. Servs.,

489 F. 3d 1267, 1276 ( D. C. Ci r . 2007) . Def endant s make t wo

st andi ng ar gument s, bot h of whi ch chal l enge pl ai nt i f f s abi l i t y

t o obt ai n r edr ess f r om t hi s Cour t .

pr ovi ded by t he r egul at i on, and r el i es sol el y on cr eat i ver eadi ngs of cer t ai n por t i ons of t he Rul e s Pr eambl e.



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25

Def endant s f i r st ar gument i s t hat t he Cour t cannot r edr ess

pl ai nt i f f s i nj ur i es because FAQ 33 has no l egal ef f ect . See

Opp. at 2223. As di scussed above, t hi s i s i ncor r ect . See supra

Par t I I I . A. 1. A Cour t or der enj oi ni ng t he enf or cement of FAQ 33

woul d l i kel y al l evi at e t he par t i cul ar i zed i nj ur y al l eged by

[ pl ai nt i f f s] . Food & Water Watch, 5 F. Supp. 3d at 78.

Def endant s second ar gument i s t hat pl ai nt i f f s i nj ur y i s

caused by t he pendi ng r ecoupment by st ate Medi cai d agenci es,

nei t her of whi ch ar e par t i es t o t hi s case, maki ng i t i mpossi bl e

f or t he Cour t t o gr ant r el i ef . See Opp. at 2324. Def endant s

argue t hat any i nj unct i on agai nst t he enf orcement of FAQ 33 by

CMS woul d have no ef f ect on ei t her t he st at es obl i gat i on t o

compl y wi t h t he December 2008 f i nal r ul e or t he st at es ef f or t s

t o recoup any excess DSH payment s f r om pl ai nt i f f s. Id. at 24.

For one, t he Rul e has no bear i ng on t hi s i ssue. See supra Part

I I I . A. 1. As f or t he ef f ect an i nj unct i on agai nst CMS s

enf orcement of FAQ 33 woul d have, t he r el at i onshi p between CMS

and t he st at e agenci es i s not as i ndependent as def endant s aver .

When t he sui t i s one chal l engi ng t he l egal i t y of gover nment

act i on or i nact i on . . . [ and] a pl ai nt i f f s asser t ed i nj ur y

ar i ses f r om t he gover nment s al l egedl y unl awf ul r egul at i on . . .

of someone el se . . . i t becomes t he bur den of t he pl ai nt i f f t o

adduce f acts showi ng that t hose choi ces have been or wi l l be

made i n such a manner as t o pr oduce causat i on and permi t



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26

r edr essabi l i t y of i nj ur y. Lujan v. Defenders of Wildlife, 504

U. S. 555, 56162 ( 1992) ( emphasi s omi t t ed) ; see also Simon v. E.

Ky. Welfare Rights Org., 426 U. S. 26, 4142 ( 1976) . I n such

ci r cumst ances, mere unadorned specul at i on as t o t he exi st ence

of a r el at i onshi p between t he chal l enged government act i on and

t he t hi r d- par t y conduct wi l l not suf f i ce t o i nvoke t he f eder al

j udi ci al power . Natl Wrestling Coaches Assn v. Dept of

Educ., 366 F. 3d 930, 938 ( D. C. Ci r . 2004) ( quot at i on mar ks

omi t t ed) . St andi ng may be est abl i shed on t he basi s of i nj ur i es

caused by regul at ed t hi r d par t i es wher e t he r ecor d pr esent [ s]

subst ant i al evi dence of a causal r el at i onshi p bet ween t he

gover nment pol i cy and t he t hi r d- par t y conduct , l eavi ng l i t t l e

doubt as t o causat i on and t he l i kel i hood of r edr ess. Id. at

941. To show t hi s, t he D. C. Ci r cui t ha[ s] r equi r ed onl y a

showi ng t hat t he agency act i on i s at l east a subst ant i al f act or

mot i vat i ng t he t hi r d par t i es act i ons. Tozzi v. U.S. Dept of

Health & Hum. Servs., 271 F. 3d 301, 308 ( D. C. Ci r . 2001)

( quot at i on mar ks omi t t ed) .

The r ecoupment deci si ons of t he st at e Medi cai d agenci es ar e

i next r i cabl y i nt er t wi ned wi t h t he def endant s enf or cement of FAQ

33. Medi cai d i s a cooper at i ve vent ur e bet ween t he f eder al and

st ate government s, Johnson, 609 F. Supp. 2d at 2, al i gni ng t he

st at e Medi cai d agenci es wi t h t he def endant s. The def endant s

enj oy si gni f i cant aut hor i t y over t hi s vent ur e: t hey can r ej ect



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27

st at e pl ans t hat do not compor t wi t h t hei r vi ew of Medi cai d s

r equi r ement s ( as t hey di d f or Texas s s t at e pl an whi ch sought t o

avoi d FAQ 33) , and may revoke f eder al f i nanci al par t i ci pat i on.

See 42 U. S. C. 1316( a) , ( c) ( e) , 1396a, 1396b. Agai nst t hi s

backdr op, FAQ 33 f unct i ons t o r equi r e t he st at es t o i ncl ude

pr i vat e- i nsur ance payment s f or Medi cai d- el i gi bl e ser vi ces i n

cal cul at i ng a hospi t al - speci f i c l i mi t . At a mi ni mum, t hi s makes

def endant s enf or cement of FAQ 33 a subst ant i al f act or

mot i vat i ng t he t hi r d par t i es act i ons. Tozzi, 271 F. 3d at 308.

Not onl y i s FAQ 33 enf or ced agai nst t he st at e agenci es, t he

st at e agenci es have al so i ndi cat ed t hei r suppor t f or pl ai nt i f f s

posi t i on; t hey f ol l ow CMS s l ead onl y because t hey have t o. See

Har r i s Decl . , ECF No. 16- 1 45, 19, 2224, 29; Ex. A- 2 t o

Pl s. Repl y, ECF No. 15- 3 at 4; Emai l f r om St eve Ar agon, Chi ef

Counsel , Texas Heal t h and Human Ser vi ces Commi ssi on, t o Susan

Fei gi n Har r i s, Counsel f or Texas Chi l dr en s ( Apr . 22, 2013) , ECF

No. 15- 6 at 1. FAQ 33 i s t he onl y t hi ng st andi ng between t he

pl ai nt i f f s and r edr ess of t hei r i nj ur i es; i n ot her wor ds, t he

st at e agenci es act i ons ar e not made subst ant i al l y i ndependent

of t he def endant s enf orcement of FAQ 33. Competitive Enterp.

Inst. v. Natl Highway Traffic Safety Admin., 901 F. 2d 107, 116

( D. C. Ci r . 1990) . For t hat r eason, an i nj unct i on agai nst t he

def endant s enf or cement of FAQ 33 woul d l i kel y r edr ess

pl ai nt i f f s i nj ur i es.



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3. Plaintiffs Are Likely to Show that FAQ 33 Violates the

Administrative Procedure Act.

Havi ng f ound t hat FAQ 33 l i kel y has i ndependent l egal ef f ect

and t hat pl ai nt i f f s ar e l i kel y t o have st andi ng t o chal l enge i t s

enf or cement , t he Cour t t ur ns t o pl ai nt i f f s ar gument t hat FAQ 33

vi ol at es t he Admi ni st r at i ve Pr ocedur e Act . Two i nt er r el at ed

i ssues ar i se. Fi r st , whet her FAQ 33 i s f i nal agency act i on

t hat may be chal l enged under 5 U. S. C. 704. Second, whet her FAQ

33 i s subj ect t o t he not i ce- and- comment r equi r ement s of 5 U. S. C.

553, whi ch ar e t r i ggered unl ess t he agency has pr omul gated

i nt er pr et at i ve r ul es, gener al st at ement s of pol i cy, or r ul es of

agency or gani zat i on, pr ocedur e, or pr act i ce.

Fi nal agency act i on ar i ses upon sat i sf act i on of t wo

condi t i ons:

Fi r st , t he act i on must mark t he consummat i on of t he

agency s deci si onmaki ng pr ocessi t must not be of amer el y t ent at i ve or i nt er l ocut or y nat ur e. And second,t he act i on must be one by whi ch r i ght s or obl i gat i onshave been determi ned, or f r om whi ch l egal consequenceswi l l f l ow.

Bennett v. Spear, 520 U. S. 154, 17778 ( 1997) ( quotat i on marks

and ci t at i ons omi t t ed) . Thus, a r ul e t hat has no l egal ef f ect

i ndependent of t he sour ce i t pur por t s t o i nt er pr et i s not f i nal

agency act i on. See, e.g., Am. Tort Reform Assn v. OSHA, 738

F. 3d 387, 395 ( D. C. Ci r . 2013) . The def endant s ar gue t hat FAQ 33

i s not f i nal agency act i on because CMS s i nt er pr et at i on i s



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embodi ed i n the 2008 f i nal r ul e. As such, FAQ 33 changes

not hi ng. Opp. at 25.

Rel atedl y, an agency pr onouncement r equi r es publ i c not i ce and

comment i f i t has f or ce and ef f ect of l aw. Natl Mining Assn

v. McCarthy, 758 F. 3d 243, 250 ( D. C. Ci r . 2014) ( quot at i on mar ks

omi t t ed) . Not i ce and comment i s not r equi r ed f or [ a] n agency

act i on t hat mer el y i nt er pr et s a pr i or st at ut e or r egul at i on, and

does not i t sel f pur por t t o i mpose new obl i gat i ons or

pr ohi bi t i ons or r equi r ement s on r egul at ed par t i es. Id. at 252;

see also Mendoza v. Perez, 754 F. 3d 1002, 1021 ( D. C. Ci r . 2014)

( The cour t s i nqui r y i n di st i ngui shi ng l egi sl at i ve r ul es f r om

i nt er pr et at i ve r ul es i s whet her t he new r ul e ef f ect s a

subst ant i ve regul at or y change t o t he st at ut or y or r egul at or y

r egi me. ) ( quot at i on mar ks omi t t ed) . An i nt er pr et i ve r ul e i s one

t hat der i ve[ s] a pr oposi t i on f r om an exi st i ng document whose

meani ng compel s or l ogi cal l y j ust i f i es t he pr oposi t i on.

Mendoza, 754 F. 3d at 1021 ( quotat i on marks omi t t ed) . The

def endant s make essent i al l y t he same argument her eFAQ 33

merel y expl ai ns how t he Secretary s exi st i ng December 2008 r ul e

appl i es . . . and FAQ 33 does not modi f y or depar t f r om t hat

ear l i er r ul e. Opp. at 26.

The ar gument s t heref or e over l ap si gni f i cant l y: FAQ 33 i s a

f i nal agency act i on i f i t i s one by whi ch r i ght s or obl i gat i ons

have been det er mi ned, or f r om whi ch l egal consequences wi l l



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f l ow, Bennett, 520 U. S. at 178 ( quot at i on mar ks omi t t ed) , and

i t i s subj ect t o mandat or y not i ce and comment i f i t has t he

f or ce and ef f ect of l aw. Natl Mining Assn, 758 F. 3d at 250.

The Cour t addresses t hese r el at ed i ssues j oi nt l y. 4

I n det er mi ni ng whet her FAQ 33 has l egal ef f ect suf f i ci ent t o

make i t a f i nal agency act i on t hat r equi r es not i ce and comment ,

[ t ] he most i mpor t ant f act or concer ns t he act ual l egal ef f ect

( or l ack t her eof ) of t he agency act i on i n quest i on on r egul at ed

ent i t i es . Natl Mining Assn, 758 F. 3d at 252; see also

Mendoza, 754 F. 3d at 1021 ( [a] rul e i s l egi s l at i ve i f i t . . .

ef f ect s a subst ant i ve change i n exi st i ng l aw or pol i cy) . FAQ 33

modi f i es t he f or mul a f or cal cul at i ng t he hospi t al - speci f i c l i mi t

i n a manner t hat i s not pr ovi ded f or by any pr i or r ul e or

st at ut or y sour ce. See supra Par t I I I . A. 1. Def endant s argument

t hat FAQ 33 s addi t i on of pr i vat e- i nsur ance payment s f or

Medi cai d servi ces i s a mer e gl oss on t he Rul e s use of t he t er m

cost s i s whol l y unconvi nci ngt hat t er m was def i ned i n t he Rul e

i n a manner t hat does not i ncl ude pr i vat e- i nsurance payment s f or

Medi cai d- el i gi bl e ser vi ces. See supra at 23. Thi s i s not a

si t uat i on wher e t he chal l enged agency act i on as a l egal mat t er

. . . i s meani ngl ess. Natl Mining Assn, 758 F. 3d 252. Rat her ,

4 Al t hough t her e i s an addi t i onal r equi r ement f or a f i ndi ng off i nal agency act i ont hat t he act i on . . . mar k t heconsummat i on of t he agency s deci si onmaki ng pr ocess , Bennett,520 U. S. at 178 ( quotat i on marks omi t t ed) t he def endant s havenot pr essed t hat poi nt .



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FAQ 33 ef f ect s a subst ant i ve change i n exi st i ng l aw, whi ch

subj ect s i t t o not i ce- and- comment r equi r ement s, Mendoza, 754

F. 3d at 1021; r el at edl y, i t al t er [ s] t he l egal r egi me t o whi ch

t he act i on agency i s subj ect , whi ch r ender s i t f i nal agency

acti on. Bennett, 520 U. S. at 178.

The change wr ought by FAQ 33 i s al so bi ndi ng on st at e Medi cai d

agenci es, a f actor t hat bol st er s pl ai nt i f f s ar gument . See

Natural Resources Defense Council v. EPA, 643 F. 3d 311, 320

( D. C. Ci r . 2011) ( EPA gui dance t hat bi nds EPA r egi onal

di r ect or s const i t ut ed f i nal agency act i on) . I ndeed, FAQ 33

has been ci t ed as suppor t f or CMS act i ons, i ncl udi ng i t s

r ej ect i on of t he pr oposed amendment t o t he Texas Medi cai d pl an.

See Har r i s Decl . , ECF No 16- 1 24. Thi s, t oo, counsel s i n f avor

of f i ndi ng t hat FAQ 33 has l egal ef f ect aki n t o a f i nal

l egi s l at i ve rul e:

I f an agency act s as i f a document i ssued atheadquar t er s i s cont r ol l i ng i n t he f i el d, i t i f t r eat st he document i n the same manner as i t t r eat s al egi sl at i ve r ul e, i f i t bases enf or cement act i ons ont he pol i ci es or i nt er pr et at i ons f or mul at ed i n t hedocument , i f i t l eads pr i vat e par t i es or St at eper mi t t i ng aut hor i t i es t o bel i eve t hat i t wi l l decl ar eper mi t s i nval i d unl ess t hey compl y wi t h t he t er ms oft he document , t hen the agency s document i s f or al l

pr act i cal pur poses bi ndi ng.

Appalachian Power Co. v. EPA, 208 F. 3d 1015, 1021 ( D. C. Ci r .

2000) .



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FAQ 33, moreover , ef f ect i vel y amends t he 2008 Rul e, whi ch was

a l egi sl at i ve r ul e. Thi s wei ghs i n f avor of f i ndi ng t hat FAQ 33

i s al so a l egi s l at i ve rul e. See Shalala v. Guernsey Meml Hosp.,

514 U. S. 87, 100 ( 1995) ( APA r ul emaki ng woul d st i l l be r equi r ed

i f [ t he agency s Medi car e r ei mbur sement cal cul at i on] adopt ed a

new posi t i on i nconsi st ent wi t h . . . exi st i ng r egul at i ons) ;

Mendoza, 754 F. 3d at 1021 ( [a] rul e i s l egi s l at i ve i f i t . . .

adopt s a new posi t i on i nconsi st ent wi t h exi st i ng r egul at i ons) .

Thi s i s i ntui t i ve: [ I ] f a second r ul e r epudi at es or i s

i r r econci l abl e wi t h a pr i or l egi sl at i ve r ul e, t he second r ul e

must be an amendment of t he f i r st ; and, of course, an amendment

t o a l egi s l at i ve r ul e must i t sel f be l egi s l at i ve. Am. Mining

Cong. v. Mine Safety & Health Admin., 995 F. 2d 1106, 1109 ( D. C.

Ci r . 1993) ( quot at i on mar ks and al t er at i ons omi t t ed) .

Because FAQ 33 makes a subst ant i ve change t o the f ormul a f or

cal cul at i ng a hospi t al s DSH l i mi t , bi nds st at e Medi cai d

agenci es, and ef f ect i vel y amends t he 2008 Rul e, i t l i kel y

const i t ut es a f i nal agency act i on t hat may be chal l enged

pur suant t o 5 U. S. C. 704, and may onl y be pr omul gat ed i n

accor dance wi t h t he not i ce- and- comment pr ovi si ons of 5 U. S. C.

553. Ther e i s no di sput e that FAQ 33 was not subj ect t o not i ce-



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and- comment pr ocedur es, so pl ai nt i f f s ar e l i kel y t o succeed i n

argui ng that FAQ 33 must be set asi de as unl awf ul . 5

B. Plaintiffs Face Irreparable Harm.

The f ai l ur e t o demonst r at e i r r epar abl e har m i s gr ounds f or

r ef usi ng t o i ssue a pr el i mi nar y i nj unct i on, even i f t he ot her

t hr ee f actor s . . . mer i t such r el i ef . Natl Mining Assn v.

Jackson, 768 F. Supp. 2d 34, 50 ( D. D. C. 2011) ( quot i ng

Chaplaincy of Full Gospel Churches, 454 F. 3d at 297) . I n t hi s

Ci r cui t , a l i t i gant seeki ng a pr el i mi nar y i nj unct i on must

sat i sf y a hi gh st andar d f or i r r epar abl e i nj ur y. ConverDyn,

2014 WL 4477555, at *8 ( quot i ng Chaplaincy of Full Gospel

Churches, 454 F. 3d at 297) . The movant must demonst r ate t hat i t

f aces an i nj ur y t hat i s bot h cer t ai n and gr eat ; i t must be

act ual and not t heor et i cal , and of a nat ur e of such i mmi nence

t hat t her e i s a cl ear and pr esent need f or equi t abl e r el i ef t o

pr event i r r epar abl e har m. Wis. Gas Co. v. FERC, 758 F. 2d 669,

674 ( D. C. Ci r . 1985) ( quot at i on mar ks and emphasi s omi t t ed) .

Pl ai nt i f f s asser t t hat t he def endant s enf or cement of FAQ 33

creat es i r r epar abl e har m i n t hr ee ways: ( 1) pl ai nt i f f s

i mmi nent l y wi l l be f or ced t o r epay mi l l i ons of dol l ar s i n DSH

5 Because pl ai nt i f f s ar e l i kel y to ar gue successf ul l y that t her ei s no val i dl y pr omul gat ed r ul e codi f yi ng t he def endant s pol i cy,t he Cour t decl i nes t o r each t he par t i es compet i ng Chevronar gument s. Consi der at i ons of j udi ci al economy and r est r ai ntcounsel agai nst deci di ng whet her 42 U. S. C. 1396r - 4( g) ( 1) ( A)coul d suppor t a val i dl y pr omul gat ed r ul e t hat codi f i ed t hedef endant s pol i cy i n t he f ut ur e.



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f undi ng . . . wi t h no possi bl e r ecour se to r ecover t he DSH

payment s; ( 2) pl ai nt i f f s ar e shut out of t he DSH pr ogr am

ent i r el y; and ( 3) pl ai nt i f f s must r eal l ocat e even mor e

r esour ces f r om ot her sour ces t o subsi di ze t he act ual l osses t hey

cont i nue t o i ncur i n t r eat i ng Medi cai d pat i ent s. Mem. at 3642.

[ I ] n gener al , economi c l oss does not , i n and of i t sel f ,

const i t ut e i r r epar abl e har m. ConverDyn, 2014 WL 4477555, at *9

( quot i ng Wis. Gas. Co., 758 F. 2d at 674) . Economi c l osses may be

suf f i ci ent wher e t he l oss t hr eat ens t he ver y exi st ence of t he

movant s busi ness. Wis. Gas. Co., 758 F. 2d at 674.

Addi t i onal l y, i f a movant seeki ng a pr el i mi nar y i nj unct i on wi l l

be unabl e t o sue to recover any monet ary damages agai nst a

gover nment agency i n t he f ut ur e . . . f i nanci al l oss can

const i t ut e i r r epar abl e i nj ur y. Natl Mining Assn, 768 F. Supp.

2d at 52; see also Bracco Diagnostics, Inc. v. Shalala, 963 F.

Supp. 20, 29 ( D. D. C. 1997) . [ T] he f act t hat economi c l osses may

be unr ecover abl e does not absol ve t he movant f r om i t s

consi der abl e bur den of pr ovi ng t hat t hose l osses are cer t ai n,

gr eat and act ual . Natl Mining Assn, 768 F. Supp. 2d at 52

( quot at i on mar ks and emphases omi t t ed) . Ul t i mat el y, [ i ] f a

pl ai nt i f f has shown t hat f i nanci al l osses ar e cer t ai n, i mmi nent ,

and unr ecover abl e, t hen t he i mposi t i on of a pr el i mi nar y

i nj unct i on i s appr opr i at e and necessar y. Id. at 53.



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Pl ai nt i f f s i nj ur i es, whi l e economi c i n nat ur e, ar e cer t ai n,

i mmi nent , and unr ecover abl e. Id. They ar e unr ecover abl e because

nei t her Washi ngt on nor Texas has a pr ocedur e f or r ecover i ng DSH

f unds once t hey have been r ecouped by t he st ate. See Ki nzi g

Decl . , ECF No. 3- 14 3234; Wal l ace Decl . , ECF No. 3- 17 8,

11; Si mon Decl . , ECF No. 3- 8 3233. Si mi l ar l y unr ecover abl e

economi c l oss has been f ound to be mor e than suf f i ci ent ,

especi al l y when consi der ed wi t h t he ot her [ pr el i mi nar y-

i nj unct i on] f act or s, t o j ust i f y a [ pr el i mi nar y] i nj unct i on.

Brendsel v. Office of Fed. Hous. Enterprise Oversight, 339 F.

Supp. 2d 52, 67 (D. D. C. 2004) ; see also Kan. Health Care Assn

v. Kan. Dept of Soc. & Rehab. Servs., 31 F. 3d 1536, 1543 (10t h

Ci r . 1994) ( Because t he El event h Amendment bars a l egal r emedy

i n damages, and . . . no adequate st ate admi ni st r at i ve r emedy

exi sted . . . pl ai nt i f f s i nj ury was i r r eparabl e. ) . 6

6 Pl ai nt i f f s ci t e a number of deci si ons i n suppor t of t hei r cl ai mt hat t hey coul d not have sued t he st at es i n t hi s Cour t due tot he El event h Amendment . See Springfield Hosp. v. Hoffman, No. 9-cv- 254, 2010 WL 3322716, at *67 ( D. Vt . Apr . 9, 2010)( hospi t al s cl ai m agai nst a st at e f or r et r ospect i ve DSH payment sand a cor r espondi ng decl aratory j udgment i s bar r ed by theEl event h Amendment ) , affd 488 F. App x 534, 534 ( 2d Ci r .2012) ; cf. Davidson v. Howe, 749 F. 3d 21, 28 ( 1st Ci r . 2014)( s t ates do not wai ve thei r El event h Amendment i mmuni t y merel ybe par t i ci pat i ng i n t he Medi cai d pr ogr am) ( quot at i on mar ks andal t er at i on omi t t ed) . Def endant s r esponded wi t h a cur soryar gument made i n a f oot not e, st at i ng t hat pl ai nt i f f s i gnor e[ ]t he many cases i n whi ch such r i ght s of act i on have been f ound t oexi st . Sur r epl y at 14 n. 5. Def endant s ci t ed not a si ngl eaut hor i t y i n suppor t of t hat pr oposi t i on, and t he Cour t decl i nest o cr edi t an unsupport ed, cur sor y ar gument made onl y i n a



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Pl ai nt i f f s har ms ar e cer t ai n because t he st at e agenci es

must r ecoup t he al l eged overpayment s wi t hi n one year of

di scover i ng t hem, 42 C. F. R. 433. 312( a) , or t he f eder al

gover nment wi l l r ecoup i t s shar e. 42 U. S. C. 1316( a) , ( c)( e) .

I ndeed, t he Texas Heal t h and Human Ser vi ces Commi ssi on has

al r eady i nf or med Texas Chi l dr en s t hat i t wi l l r ecoup any

over payment of DSH f unds t hat i s i dent i f i ed i n t he st at e s

f i nal 2011 audi t r epor t t o CMS. Si mon Decl . , ECF No. 3- 8 28;

see also Ex. 2- B t o Si mon Decl . , ECF No. 3- 10 at 1. Washi ngt on s

Medi cai d agency has al so i ndi cat ed t hat t he st at e woul d f or ce

t he hospi t al t o pay back t o t he st at e any i dent i f i ed

over payment . Ki nzi g Decl . , ECF No. 3- 14 18.

The har ms ar e i mmi nent because t he f i nal audi t r epor t s f or t he

2011 DSH payment s ar e due on December 31, 2014, and as soon as

t hey are submi t t ed, compl ete recoupment may occur . Si mon Decl . ,

ECF No. 3- 8 18, 28. Def endant s asser t t hat t hi spotential

t hat t he st at es coul d wai t unt i l Sept ember 2015 t o r ecoup t he

f unds counsel s agai nst a f i ndi ng of i mmi nence, Opp. at 16, but

t hi s mi sses t he poi nt : The st at es coul d move t o recoup t hose

f unds i mmedi at el y and i r r evocabl y on J anuar y 1, 2015. See Tucker

Anthony Realty Corp. v. Schlesinger, 888 F. 2d 969, 975 ( 2d Ci r .

1989) ( f i ndi ng i r r epar abl e har m wher e t her e i s ampl e evi dence

f oot not e. See Jones v. Ottenbergs Bakers, Inc., 999 F. Supp. 2d185, 188 n. 3 ( D. D. C. 2013) ( ci t i ng Hutchins v. District ofColumbia, 188 F. 3d 531, 539 n. 3 ( D. C. Ci r . 1999) ) .



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of pl ai nt i f f s i mmi nent bankrupt cy, absent t he i ssuance of a

pr el i mi nar y i nj unct i on i n l i ght of var i ous l i abi l i t i es

i ncl udi ng l oans due on demand, i ncl udi ng some t o i ndi vi dual s

who coul d demand payment at any t i me and . . . br i ng down t he

whol e house of car ds) ( quot at i on mar ks omi t t ed) .

Pl ai nt i f f s, mor eover , ar e not f or - pr of i t ent i t i es f aci ng t he

l oss of pr of i t ; r at her , t hey ar e non- pr of i t s f or whom l ost f unds

woul d mean r educi ng hospi t al ser vi ces t o chi l dr en, many of whom

ar e Medi cai d- el i gi bl e. The f unds t hat Texas Chi l dr en s st ands t o

l ose coul d:

[ P] ay t he hospi t al s cost s of : 52 hear t or l ungt r anspl ant s and r el at ed hospi t al st ays . . . ; 61 l i vert r anspl ant s; 78 bone mar r ow t r anspl ant s; 123 ki dneyt r anspl ant s; 955 newbor n C- sect i on del i ver i es;hospi t al car e f or 1, 052 l ow- wei ght newbor ns . . . ;32. 6 per cent of t he phar maceut i cal s pur chased annual l yby Texas Chi l dr en s; over 40 per cent of TexasChi l dr en s annual unf unded r esear ch oper at i ons; or

t he annual sal ar i es and benef i t s f or 192 f ul l - t i mer egi st er ed nur ses.

Mem. at 38 ( ci t i ng Si mon Decl . , ECF No. 3- 8 34) . Si mi l ar l y,

t he appr oxi mat el y $7, 000, 000 t hat Seat t l e Chi l dr en s st ands

i mmi nent l y t o l ose can pay t he hospi t al s cost s of : 5 hear t

t r anspl ant s and r el at ed i npat i ent st ays; 2530 l i ver

t r anspl ant s; 3035 i nt est i nal t r anspl ant s; 5055 ki dney

t r anspl ant s; or 2530 bone marr ow t r anspl ant s. Id. ( ci t i ng

Ki nzi g Decl . , ECF No. 3- 14 22) . Thi s i mmi nent l oss i s

compounded by pl ai nt i f f s ef f ect i ve excl usi on f r om t he DSH



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pr ogr am, whi ch adds addi t i onal mi l l i ons i n l ost f unds annual l y.

Fi nal l y, t he r ecoupment of t he 2011 over payment s f r om

pl ai nt i f f s har ms ot her i mpor t ant servi ces and pr ogr ams f unded

by Pl ai nt i f f s by f or ci ng t hem t o r eal l ocat e r esour ces t o cover

even mor e of t he cost s of t r eat i ng Medi cai d pat i ent s. Mem. at

39; see also Si mon Decl . , ECF No. 3- 8 3536. Whi l e t hi s har m

woul d not dr i ve pl ai nt i f f s out of busi ness, i t i s di f f er ent i n

ki nd f r om economi c l oss suf f er ed by a f or - pr of i t ent i t y. 7

Def endant s ar gument t hat pl ai nt i f f s i nexpl i cabl y wai t ed

year s t o f i l e t hi s sui t , t her eby creat i ng t hei r own pur por t ed

emergency, Opp. at 12, i s unconvi nci ng. Excess i ve del ay may

counsel agai nst a f i ndi ng of i r r epar abl e har m [ i ] f t he

pl ai nt i f f has f ai l ed t o pr osecut e i t s cl ai m f or i nj unct i ve

r el i ef pr ompt l y, and i f i t has no r easonabl e expl anat i on f or i t s

del ay. NRDC v. Pena, 147 F. 3d 1012, 1026 ( D. C. Ci r . 1998) ; see

also Newdow v. Bush, 355 F. Supp. 2d 265, 292 ( D. D. C. 2005) ( An

unexcused del ay i n seeki ng ext r aor di nar y i nj unct i ve r el i ef may

be gr ounds f or deni al because such del ay i mpl i es a l ack of

7 Def endant s argument t hat monet ar y l oss const i t ut es i r r epar abl ehar m onl y wher e t he l oss t hr eat ens t he ver y exi st ence of t he[ movant s] busi ness, Opp. at 17, mi sses t he poi nt pl ai nt i f f smay not be dr i ven out of busi ness, but pr ogr ams t hey pr ovi de maybe. Mor eover , t he case ci t ed by the def endant s i n suppor t oft hi s ar gument , Bill Barrett Corp. v. United States Department ofInterior, 601 F. Supp. 2d 331 ( D. D. C. 2009) , r el i ed on t he f actt hat t he evi dence was at best , i nconcl usi ve as t o whet her [ t hehar m pl ai nt i f f sought t o avoi d] i s l i kel y t o occur and t hepl ai nt i f f ha[ d] not est abl i shed t hat cor r ect i ve or compensat or yr el i ef i s ot her wi se unavai l abl e. Id. at 335, 336.



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ur gency and i r r epar abl e har m. ) . Pl ai nt i f f s, however , have

expl ai ned why they f i l ed sui t when t hey di d.

Pl ai nt i f f s di d not become awar e of t he pol i cy unt i l J une 2011

( Seat t l e Chi l dr en s) and Mar ch 2012 ( Texas Chi l dr en s) . See

Ki nzi g Decl . , ECF No. 3- 14 14; Si mon Decl . , ECF No. 3- 8 24. 8

I n l i ght of t he nont r adi t i onal nat ur e of FAQ 33an answer t o a

f r equent l y- asked quest i on post ed on an agency websi t epl ai nt i f f s

r easonabl y pur sued non- l i t i gat i on avenues f i r st . They l obbi ed

CMS to make cl ear t hat FAQ 33 was t he sol e source f or t he new

cal cul at i on and t her ef or e an unl awf ul r egul at i on, pr ot est ed wi t h

t hei r st at e Medi cai d agenci es, and pr essed t he i ssue wi t h

sympat het i c member s of Congress . See supra at 913, 15.

Texas Chi l dren s engaged i n f ur t her st eps, sui ng i t s st at e

Medi cai d agency, whi ch f ound i t sel f bound by CMS s gui dance, and

pr essi ng t he st at e to amend i t s Medi cai d pl an t o avoi d FAQ 33.

See supra at 1415. Texas Chi l dr en s had not exhaust ed t hese

opt i ons unt i l mi d- Sept ember 2014, when t he st ate deci dedover

Texas Chi l dren s obj ect i onsnot t o appeal CMS s r ej ect i on of

i t s proposed amendment . See Har r i s Decl . , ECF No. 16- 1 24.

Meanwhi l e, nei t her hospi t al r ecei ved t he r esul t s of t he audi t

of 2011 payment st he f i r st audi t t hat t r i gger s r ecoupment unt i l

8 Def endant s asser t t hat pl ai nt i f f s shoul d have been awar e of t hei nj ury t hey seek t o r emedy on December 19, 2008, when the Rul ewas promul gat ed. See Opp. at 13. Thi s i s i r r el evant because t heRul e di d not codi f y t he pol i cy. See supra Par t I I I . A. 1.



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t he f al l of 2014. I n Seat t l e Chi l dr en s case, t hey l ear ned of

t he resul t on Sept ember 19, 2014, Ki nzi g Decl . , ECF No. 3- 14

31, Texas Chi l dr en s l ear ned t hat i t s pr ot est of t he pr el i mi nar y

audi t r esul t had been unsuccess f ul on November 24, 2014. See

Si mon Decl . , ECF No. 3- 8 30. Thi s case was f i l ed soon af t er ,

on December 5, 2014.

I n l i ght of pl ai nt i f f s di l i gent pur sui t of a var i et y of

avenues f or r eversi ng a pol i cy t hat now appear s t o have been

based sol el y on an answer t o a f r equent l y- asked quest i on post ed

on an agency s websi t e, pl ai nt i f f s del ay does not gi ve r i se

t o an i nf er ence t hat t he har m i s not i r r epar abl e and i mmi nent .

See, e.g., Kan. Health Care Assn, 31 F. 3d at 1544 ( Wi t hi n

t hr ee mont hs of havi ng f ai l ed t o r each such a set t l ement

[ r egar di ng Medi cai d payment s] pl ai nt i f f s commenced t hi s act i on.

Under t hose ci r cumst ances, we ar e r el uct ant t o hol d t hat

pl ai nt i f f s del ay shoul d be f at al t o t hei r cl ai m of i r r epar abl e

i nj ury. ) . 9Even i f pl ai nt i f f s had wai t ed r at her t han pur sui ng a

9 The deci si ons ci t ed by def endant s i nvol ved extensi ve del ay,unexpl ai ned del ay, or del ay that r ender ed t he di sput e moot . See,e.g., Indep. Bankers Assn v. Heimann, 627 F. 2d 486, 488 ( D. C.Ci r . 1980) ( wei ghi ng agai nst a f i ndi ng of i r r epar abl e har m t hef act t hat t he pl ai nt i f f wai t ed t wel ve year s bef or e commenci ngt hi s act i on, even t hough i t had st andi ng t o do so year sear l i er , when i t s member s began t o exper i ence the al l egedl yunl awf ul ef f ect s of t he r egul at i on) ; Fund for Animals v.Frizzell, 530 F. 2d 982, 98788 ( D. C. Ci r . 1975) ( denyi ng r equestf or a pr el i mi nar y i nj unct i on i n par t due t o t he del ay of t heappel l ant s i n seeki ng one wher e t hey del ayed br i ng any act i onunt i l 44 days [ af t er t hei r i nj ur y ar ose] and an i nj unct i on



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var i et y of r emedi es, t he t ot al i t y of t he har m woul d not

necessar i l y have been i mmedi at el y appar ent . [ T] ar di ness i s not

par t i cul ar l y pr obat i ve i n t he cont ext of ongoi ng, wor seni ng

i nj ur i es because t he magni t ude of t he pot ent i al har m becomes

appar ent gr adual l y, under mi ni ng any i nf er ence t hat t he pl ai nt i f f

was sl eepi ng on i t s r i ght s. Arc of Cal. v. Douglas, 757 F. 3d

975, 990 ( 9t h Ci r . 2014) ( quot at i on mar ks omi t t ed) ; id. at 991

( wher e t he har m al l eged . . . r el at ed i n par t t o t he cont i nued

economi c vi abi l i t y of ser vi ce pr ovi der s i n t he f ace of cut s i n

compensat i on, t he i mpact may take t i me t o become i r r eparabl e,

so wai t i ng t o f i l e f or pr el i mi nar y r el i ef unt i l a credi bl e case

f or i r r epar abl e har m can be made i s prudent r at her t han

di l at ory) ; see also Kan. Health Care Assn, 31 F. 3d at 1544

( cour t s ar e rel uct ant t o cr i t i ci ze pl ai nt i f f s f or awai t i ng

speci f i c and concr et e document at i on of t he adequacy of t hei r

Medi cai d r ei mbur sement r ates [because] [ w] i t hout such

document at i on, t hey r un t he r i sk of havi ng t hei r cl ai med i nj ur y

be deemed specul at i ve) . Accor di ngl y, t he har m t he pl ai nt i f f s

f ace i s i r r epar abl e.

woul d be al l but f ut i l e at t hi s t i me, . . . [ wher e t he har m] wasadmi t t ed t o be pr et t y wel l over on t he day t he case was ar guedi n t hi s court ) ; Mylan Pharms., Inc. v. Shalala, 81 F. Supp. 2d30, 44 ( D. D. C. 2000) ( cl ai m by gener i c- dr ug maker t hat i tsuf f er ed i r r epar abl e har m due t o i t s pr oduct bei ng kept of f t hemarket was undermi ned by ei ght - mont h del ay; [ t ] hough such adel ay i s not di sposi t i ve of t he i ssue, i t f ur t her mi l i t at esagai nst a f i ndi ng of i r r epar abl e har m) .



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C. The Balance of Equities Favors an Injunction.

The bal ance- of - equi t i es f act or di r ect s t he Cour t t o bal ance

t he compet i ng cl ai ms of i nj ur y and . . . consi der t he ef f ect on

each par t y of t he gr ant i ng or wi t hhol di ng of t he request ed

r el i ef . ConverDyn, 2014 WL 4477555, at *12 ( D. D. C. Sept . 12,

2014) ( quot i ng Winter, 555 U. S. at 24) . When t he i ssuance of a

pr el i mi nar y i nj unct i on, whi l e pr event i ng har m t o one par t y,

causes i nj ur y t o t he ot her , t hi s f act or does not wei gh i n f avor

of gr ant i ng pr el i mi nar y i nj uncti ve r el i ef . Id.; see also Serono

Labs., Inc. v. Shalala, 158 F. 3d 1313, 1326 ( D. C. Ci r . 1998) . By

cont r ast , t he bal ance of equi t i es may f avor a pr el i mi nar y

i nj unct i on t hat ser ves onl y t o pr eser ve t he r el at i ve posi t i ons

of t he par t i es unt i l a t r i al on t he mer i t s can be hel d. Rufer

v. FEC, No. 14- 837, 2014 WL 4076053, at *7 ( D. D. C. Aug. 19,

2014) ( quot i ng Camenisch, 451 U. S. at 395) .

Pl ai nt i f f s l ar gel y seek t o pr eser ve t he st at us quo. Absent an

i nj unct i on, t he 2011 DSH payment s t hey al r eady r ecei ved wi l l be

subj ect t o i mmedi ate and i r r evocabl e r ecoupment by t hei r

r espect i ve st at e Medi cai d agenci es. See supra at 36. The

cor ol l ar y to pl ai nt i f f s ar gument i s t hat t he i ssuance of a

pr el i mi nar y i nj unct i on may mean t hat t he pl ai nt i f f s woul d r et ai n

f unds t hat woul d ot her wi se have been r ecover ed by t he government

or di st r i but ed t o ot her DSHs. Def endant s, however , di d not ar gue

t hat t hi s poses t he same i mmi nent and i r r evocabl e r i sk. I ndeed,



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t he deadl i ne f or t he st ates t o recoup t he 2011 DSH overpayment s

i s one year f r omt he di scover y of any over payment appr oxi matel y

Sept ember 2015. See 42 C. F. R. 433. 312( a) . Mor eover , i f t he

st ate- r ecoupment per i od l apsed, t he f ederal government woul d

st i l l have t he r i ght t o adj ust [ ] . . . t he Feder al payment t o

[ t he] St ate on account of such over payment . 42 U. S. C.

1396b( d) ( 2) ( C) . I t i s t hus not t he case t hat t he al l eged

i r r epar abl e economi c i nj ur y suf f er ed by t he Pl ai nt i f f s woul d be

of f set by the cor r espondi ng economi c i nj ur y t o t he Secr et ar y.

Allina Health Servs. v. Sebelius, 756 F. Supp. 2d 61, 69 ( D. D. C.

2010) . The bal ance of equi t i es t her ef or e f avor s an i nj unct i on.

D. The Public Interest Weighs in Favor of an Injunction.

Cour t s have f r equent l y f ound t hat i t i s i n t he publ i c i nt er est

t o i ssue an i nj unct i on i n connect i on wi t h t he Medi cai d Act . See

e.g., Edmonds v. Levine, 417 F. Supp. 2d 1323, 1342 ( S. D. Fl a.

2006) ( I ssuance of an i nj unct i on t o enf or ce t he f eder al

Medi cai d Act i s wi t hout quest i on i n t he publ i c i nt er est ) ;

Childrens Meml Hosp. v. Ill. Dept of Pub. Aid, 562 F. Supp.

165, 174 ( N. D. I l l . 1983) ( t he publ i c i nt er est was ser ved by

i ssui ng a pr el i mi nar y i nj unct i on t o pr ohi bi t t he i mpl ement at i on

of Medi cai d i n a way t hat

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