Health Reform WK-EDGE Judicial review of physician-owned hospital expansion decision foreclosed by Congress
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Thursday, July 7, 2016

Judicial review of physician-owned hospital expansion decision foreclosed by Congress

By Wolters Kluwer Editorial Staff

A Court will not reach the merits of a challenge to a final decision by HHS to approve the expansion of a physician-owned hospital because Congress has specifically foreclosed judicial review of such decisions. The U.S. District Court for the District of Columbia granted HHS’ and a physician-owned hospital’s motions to dismiss a suit brought by competing hospitals in the same county (Knapp Medical Center v. Burwell, June 28, 2016, Collyer, R.).

Background. Knapp Medical Center, McAllen Hospitals, L.P., and Cornerstone Regional Hospital, L.P. (competing hospitals), are hospitals located in Hidalgo County, Texas. They compete with Doctors Hospital at Renaissance, Ltd. (physician-owned hospital) which operates an acute care hospital with a Level III trauma facility, also in Hidalgo. There are no Level I or Level II trauma centers in the area. The physician-owned hospital filed an application with HHS on March 20, 2014, seeking to expand by 100 percent to enable it to establish the infrastructure needed to support a Level I trauma center. That application was never acted upon because HHS was in the middle of formal rulemaking on the issue. The new Final Rule issued by HHS expanded the universe of evidence that could be offered by applicant physician-owned hospitals that want to expand, and went into effect on January 1, 2015. The physician-owned hospital filed an "amended and restated" application on January 2, 2015, and it was published in the Federal Register on May 8, 2015 and made available on an HHS website. On September 11, 2015, HHS approved the physician-owned hospital’s request to expand the hospital, after considering the public comments and rebuttal thereof by the applicant. HHS concluded that the physician-owned hospital satisfied the Medicaid inpatient admissions, bed capacity and bed occupancy criteria under the relevant statutory and regulatory scheme.

The competing hospitals filed a suit in district court alleging that HHS’s decision was contrary to the statutory criteria governing the application process. The physician-owned hospital intervened as a defendant, and along with HHS, filed motions to dismiss, arguing that the court lacked statutory jurisdiction to deal with the suit.

Analysis. The court declined to review HHS’s application of the process of granting expansion rights to physician-owned hospitals. Section 6001(a)(3) of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) amended the Stark Law (42 U.S.C. §1395nn(i)(3)) to govern when physician-owned hospitals may expand. The court held that the provision’s language clearly and convincingly reflects a congressional intent to preclude judicial review of the process itself and decisions resulting from the process. Not only does the provision apply to substantive and procedural objections, but also that judicial review is foreclosed under Medicare "or otherwise," under other statutes.

The court refused to separate the process for approving expansion of physician-owned hospitals from a decision arrived at under that process. The court noted that the competing hospitals’ claims—that HHS (1) erred by failing to publish the physician-owned hospital’s original application in the public record; (2) failed to bar the physician-owned hospital’s amended application as filed too soon; and (3) acted arbitrarily in assessing the physician-owned hospital’s compliance with the statutory requirements —were attacks on HHS’s application of the process established in 42 U.S.C. sec. 1395nn(i)(3)(A)(i) and, thus, barred from judicial review.

The court also rejected the competing hospitals’ argument that without judicial review, HHS could easily exceed its authority to grant requests by physician-owned hospitals to expand under 42 U.S.C. sec. 1395nn(i)(1)(B). The court noted that judicial review of agency decisions is permitted when the agency acts outside the bounds of its authority, but that the competing hospitals did not allege or argue that HHS acted beyond its statutory authority. Instead, they expressed concern about the possibility of such action at an unspecified time in the future. The court concluded that the worry of the competing hospitals did not constitute a case or controversy.

The case is No. 15-cv-1663 (RMC).

Attorneys: Amy E. Garber (Bradley Arant Boult Cummings LLP) for Knapp Medical Center and McAllen Hospitals, L.P. d/b/a South Texas Health System. Steven A. Myers, U.S. Department of Justice, for Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services

Companies: Knapp Medical Center; McAllen Hospitals, L.P. d/b/a South Texas Health System; Cornerstone Regional Hospital, L.P.; Doctors Hospital at Renaissance, Ltd.; U.S. Department of Health and Human Services

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