Navajo Hospital, IHS Reach Short-Term Deal In Funding Row

By Emma Whitford
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Law360 (December 11, 2020, 3:14 PM EST) -- The Indian Health Service has agreed to provide funding to a Navajo Nation hospital for at least three months and promptly consider the hospital's latest federal contract proposal, according to a stipulation filed in New Mexico federal court.

The agreement follows negotiations Thursday between Navajo Health Foundation-Sage Memorial Hospital in northern Arizona and the IHS. It comes nearly two months after the hospital filed suit demanding that the IHS immediately renew its tribal self-determination contract to avoid compromising patient care during the coronavirus pandemic.

As part of the agreement, Sage Memorial has agreed to drop its November preliminary injunction motion seeking either automatic renewal of its lapsed contract or month-to-month funding while the case proceeds.

"Defendants will award a three-month Indian Self-Determination and Education Assistance Act contract … to plaintiff by 12:00 p.m. Mountain Time on Friday, Dec. 11, 2020," the stipulation states. "This three-month contract will be paid in full (i.e., three months of funding)."

The IHS has also agreed to consider Sage's Oct. 21 proposal for a new contract under the ISDEA, a federal law that allows tribes to enter contracts to administer programs the government would otherwise manage directly.

The agency will either award or decline the contract by Jan. 19, according to the stipulation.

"If the parties have not signed a Fiscal Year 2021 contract … by the expiration of the three-month contract, defendants agree to continue issuing month-to-month contracts until the resolution of the litigation," according to the stipulation.

In the underlying dispute, Sage Memorial has maintained that it followed the rules to be considered for an automatic renewal of its 2017-2020 contract, citing ISDEA language that the federal government must approve renewal contracts and funding agreements that are "substantially" similar to their predecessors.

But the IHS is treating Sage's October proposal as a new contract, requiring a longer consideration period. In recent filings, the IHS argued that Sage failed to submit a valid renewal contract with tribal authorization from the Navajo Nation.

The Navajo Nation Council issued a resolution on Oct. 20 reauthorizing Sage, according to its complaint, but the IHS declined to recognize the hospital's subsequent renewal proposal, saying it would now be treated as a new contractor.

Counsel for Sage memorial celebrated Thursday's agreement, framing it as an about-face by the IHS.

"I think it's a complete capitulation," said Lloyd Miller of Sonosky Chambers Sachse Miller & Monkman LLP. "They had refused to award a contract until they went through their own unlawful procedure. Now they've turned around 180 degrees and agreed to award a contract today."

If the IHS declines to award Sage a three-year contract next month, Miller added, the hospital will keep pursuing one through the courts.

There are also damages considerations regardless of the IHS' decision, Miller said, noting the hospital has suffered from the lapse in funding that began in October.

According to Sage's initial complaint, without a contract, the hospital risked losses of $1.8 million per month in operating costs, needed for the planned construction of a new hospital, as well as personal protective equipment from federal suppliers and a federal loan repayment program to attract doctors.

The IHS also issued a news release on Oct. 2 urging Navajo patients to travel to other regional hospitals while Sage was lapsed, the hospital claimed, prompting patients to "travel long distances" to Gallup, New Mexico, or Chinle or Fort Defiance in Arizona.

Sage is a nonprofit corporation located near the southwest border of the Navajo Nation reservation. It has contracted with the federal government since 2009.

The IHS and U.S. Department of Health and Human Services did not immediately respond to a request for comment Friday, nor did the Navajo Nation or its health department.

A status conference will take place between Jan. 20 and 22, according to Thursday's agreement.

Sage Memorial Hospital is represented by Lloyd B. Miller and Rebecca A. Patterson of Sonosky Chambers Sachse Miller & Monkman LLP.

The federal government is represented by Paula R. Lee of the U.S. Department of Health and Human Services.

The case is Navajo Health Foundation-Sage Memorial Hospital Inc. v. Azar et al., case number 1:20-cv-01185, in the U.S. District Court for the District of New Mexico.

--Editing by Philip Shea.

For a reprint of this article, please contact reprints@law360.com.

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