CHILDREN'S HOSPITAL OF THE KING'S DAUGHTERS, INC., Plaintiff - Appellee,
ALEX M. AZAR II, in his official capacity, Secretary, Department of Health and Human Services; SEEMA VERMA, in her official capacity, Administrator, Centers for Medicare & Medicaid Services; CENTERS FOR MEDICARE AND MEDICAID SERVICES, Defendants - Appellants.
Argued: May 9, 2018
from the United States District Court for the Eastern
District of Virginia, at Norfolk. Rebecca Beach Smith, Chief
District Judge. (2:17-cv-00139-RBS-LRL)
Samantha L. Chaifetz, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants.
Geraldine E. Edens, MORGAN, LEWIS & BOCKIUS LLP,
Washington, D.C.; Christopher Howard Marraro, BAKER &
HOSTETLER, LLP, Washington, D.C., for Appellee.
A. Readler, Acting Assistant Attorney General, Mark B. Stern,
Tara S. Morrissey, Civil Division, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C.; Dana J. Boente, United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Alexandria,
Virginia; Brian R. Stimson, Acting General Counsel, Janice L.
Hoffman, Associate General Counsel, Susan M. Lyons, Deputy
Associate General Counsel for Litigation, David L. Hoskins,
Lindsay S. Goldberg, Office of the General Counsel, Centers
for Medicare & Medicaid Services Division, UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN SERVICES, Washington, D.C.,
Feigin Harris, MORGAN, LEWIS & BOCKIUS LLP, Houston,
Texas, for Appellee.
TRAXLER, AGEE, and WYNN, Circuit Judges.
in part and vacated in part by published opinion. Judge Wynn
wrote the opinion, in which Judge Traxler and Judge Agee
Alex Azar, in his official capacity as Secretary of the U.S.
Department of Health & Human Services (the
"Secretary"), appeals an order of the U.S. District
Court for the Eastern District of Virginia enjoining the
Secretary from enforcing a Medicaid policy set forth in a
Frequently Asked Questions document ("FAQ 33").
See Children's Hosp. of the King's Daughters,
Inc. v. Price, 258 F.Supp.3d 672 (E.D. Va. 2017). The
FAQ 33 policy purported to clarify the methodology for
calculating the maximum amount of financial assistance
available to hospitals, like Plaintiff-Appellee
Children's Hospital of the King's Daughters, Inc.
("Children's Hospital"), that serve a
disproportionate number of low-income or special needs
patients (commonly referred to as "disproportionate
share hospitals" or "DSHs"). Under the
methodology in FAQ 33, Children's Hospital would have to
repay $19.1 million in DSH payments it received from the
district court enjoined the Secretary from enforcing the FAQ
33 policy against Children's Hospital for two reasons:
(1) the promulgation of the FAQ 33 policy failed to comply
with the procedural requirements set forth in the
Administrative Procedural Act ("APA") and (2) the
FAQ 33 policy contradicted the plain and unambiguous language
of the governing statute.
reasons that follow, we conclude that the district court
correctly determined that the policy set forth in FAQ 33
constituted a "legislative rule" and, therefore,
that the APA mandated that the agency establish the FAQ 33
policy through notice-and-comment rulemaking. See 5
U.S.C. § 553(a)-(c). We thus affirm the district
court's judgment enjoining the Secretary from enforcing
the policy set forth in FAQ 33 against Children's
Hospital. Because we conclude that the policy violated the
APA's procedural requirements, we decline to reach the
substantive challenge by Children's Hospital to the FAQ
33 policy and vacate the part of the district court's
opinion addressing whether that policy conflicts with the
language of 42 U.S.C. § 1396r-4(g).
42 U.S.C. § 1396 et seq., is a cooperative
federal-state program through which the federal government
provides financial assistance to state Medicaid programs,
which in turn provide medical insurance to qualifying
individuals. Children's Hosp., 258 F.Supp.3d at
677. Although states have some discretion in determining
which individuals are qualified to participate in their
Medicaid programs, the vast majority of beneficiaries qualify
to participate because their "income and resources are
insufficient to meet the costs of necessary medical
services." 42 U.S.C. § 1396-1. Additionally,
Medicaid programs "provide benefits to children with
certain serious illnesses, without regard to their
family's income." Children's
Hosp., 258 F.Supp.3d at 678 (emphasis ...