Summary
holding that PM A-99-62 was not a policy change requiring notice to hospitals, but a "clarification of existing policy"
Summary of this case from Baptist Memorial Hospital v. SebeliusOpinion
Civil No. 02-3479 (DWF/SRN)
June 9, 2003
Richard A. Duncan, Esq., and Elizabeth Hendricks Schmiesing, Esq., Faegre Benson, Minneapolis, MN and J.D. Epstein, Esq., and Gregory N. Etzel, Esq., Vinson Elkin, Houston, TX, counsel for Plaintiff.
Karen Y. Stewart, Esq., United States Department of Justice, Washington, DC, counsel for Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on May 23, 2003, pursuant to cross motions for summary judgment. This case involves a dispute over the Secretary of Health and Human Services's administration of the Medicare program. For the reasons set forth below, Plaintiff's motion is denied, and Defendant's motion is granted.
Background
This case involves the formula for reimbursing hospitals under the Medicare program, a federal health insurance program that covers the elderly and disabled. Medicare provides prospective reimbursement to hospitals on a per-patient basis, with the amount based upon the patient's "diagnosis-related group" or "DRG." See 42 U.S.C. § 1395ww. In addition, Medicare provides certain payment adjustments based upon hospital-specific factors. One such hospital-specific adjustment is the "disproportionate share hospital" or "DSH" adjustment. Congress originally mandated the DSH adjustment in the Consolidated Omnibus Budget Reconciliation Act of 1985, Pub.L. No. 99-272, § 9105, 100 Stat. 158 (1986) ("COBRA"). DSH adjustments are designed to offset costs incurred by hospitals that "serve a significantly disproportionate number of low-income patients. . . ." 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). In determining whether and to what extent a hospital is entitled to a DSH adjustment, the Secretary of Health and Human Services ("the Secretary") must employ a formula prescribed by Congress at 42 U.S.C. § 1395ww(d)(5)(F)(vi). The formula is the sum of two fractions, the "Medicare fraction" — which is not at issue here — and the "Medicaid fraction."
The "Medicaid fraction" is
the fraction (expressed as a percentage) the numerator of which is the number of hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under subchapter XIX of [the Social Security Act], but who were not entitled to benefits under [Medicare] Part A, and the denominator of which is the total number of the hospital's patient days for such period.42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). In other words, the numerator of this fraction is the number of patient days which consist of patients eligible for Medicaid but not Medicare.
Hospitals file detailed cost reports with a private "fiscal intermediary," and the fiscal intermediary determines how much the hospital is entitled to for reimbursement and additional adjustments. If a hospital is dissatisfied with the Notice of Program Reimbursement ("NPR") issued by the fiscal intermediary, the hospital may, within 180 days, appeal the NPR to the Provider Reimbursement Review Board ("PRRB").
The controversy giving rise to this litigation began as a result of inconsistencies in the way various fiscal intermediaries interpreted 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II) and the related regulations promulgated by the Centers for Medicare and Medicaid Services ("CMS"), the division of the Department of Health and Human Services charged with overseeing the Medicare program. Specifically, some fiscal intermediaries informed the hospitals under their purview that patient days for patients eligible for state general assistance programs (as distinct from state programs approved under the Medicaid program) should not be included in the numerator of the Medicaid fraction, while other fiscal intermediaries interpreted the statute and regulation to apply to all low-income health assistance, whether approved by the Medicaid program or not.
CMS was formerly known as the Health Care Financing Administration ("HCFA").
The record suggests that general assistance days were improperly included in the Medicaid fraction in as many as 22 states. It is unclear whether the fiscal intermediaries in these states affirmatively believed that general assistance days should be included or whether the fiscal intermediaries were simply unaware that the figures provided by the hospitals — as provided to them by the relevant state agencies — contained both true Medicaid days and general assistance days.
In 1998 and 1999, CMS and the fiscal intermediaries for Pennsylvania and New York realized that the fiscal intermediaries for those states had been improperly allowing hospitals to include general assistance days in their calculation of the Medicaid fraction. The fiscal intermediaries began sending overpayment notices to the hospitals involved. In New York alone, fiscal intermediaries sought to recover roughly $1 billion in overpayments. Federal politicians from both Pennsylvania and New York intervened.
The record suggests that Congress was considering passing legislation that would not only prevent CMS from recovering overpayments, but would also amend the legislation to allow for inclusion of general assistance days in the DSH calculation. In light of that possibility, which would have resulted in CMS incurring significantly higher obligations to hospitals, CMS adopted a compromise position.
On October 15, 1999, CMS issued a letter that conceded the ambiguity of the statute and the implementing regulations. The letter further conveyed CMS's intent to hold harmless those hospitals that had been overpaid as a result of the confusion.
Frankly, the Court finds this concession to be remarkably generous. The statute clearly states that the numerator of the Medicaid fraction applies to patient days for patients eligible for a state plan approved under subchapter XIX (the Medicaid provisions) of the Social Security Act. How someone could, in good faith, read this to mean both state plans approved as Medicaid programs and state plans that are not approved as Medicaid programs remains a bit of a mystery.
On December 1, 1999, CMS issued Program Memorandum A-99-62 ("the Program Memo"). The Program Memo stated clearly and unequivocally that general assistance days would be excluded from DSH calculations for cost reporting periods beginning after January 1, 2000; hospitals that received DSH overpayments for cost reports settled before October 15, 1999, could keep the funds; and for cost reporting periods beginning before January 1, 2000, hospitals that did not receive payments based on general assistance days, but that had filed an appeal with the PRRB on that issue prior to October 15, 1999, would receive the funds without the necessity of further appeal.
Plaintiff United Hospital ("United") is a private hospital located in St. Paul, Minnesota. United filed timely appeals with the PRRB for its cost reporting years 1992 and 1993; neither of these appeals, however, requested credit for general assistance days with respect to the DSH adjustment calculations. In 2000, prior to any PRRB hearing, United amended the appeals to request credit for general assistance days in the calculation of its DSH adjustment. United and its fiscal intermediary settled all issues of both appeals, with the exception of the inclusion of general assistance days in the DSH adjustment calculation, before any hearing before the PRRB.
The PRRB denied United's claim for relief with respect to the inclusion of general assistance days. Specifically, the PRRB determined that United did not fall within the categories of hospitals entitled to payment for general assistance days by virtue of the Program Memo because United did not have a pending appeal on the specific issue of the general assistance days as of October 15, 1999.
United brings the instant appeal of the PRRB decision asserting that: (1) United does meet the requirements for relief outlined in the Program Memo; (2) if United does not meet the requirements of the Program Memo then the Program Memo illegally limits United's statutory right to appeal; (3) the Secretary's application of the "new" DSH interpretation to some hospitals, but not others, is arbitrary and capricious; and (4) the Secretary's application of the "new" DSH interpretation to some hospitals, but not others, violates United's right to equal protection pursuant to the United States Constitution.
Discussion
1. Standard of Review
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court must view the evidence and the inferences which may be reasonably drawn from the evidence in the light most favorable to the nonmoving party. Enterprise Bank v. Magna Bank of Missouri, 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated, "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy, and inexpensive determination of every action.'" Fed.R.Civ.P. 1. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986).
The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enterprise Bank, 92 F.3d at 747. The nonmoving party must demonstrate the existence of specific facts in the record which create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik, 47 F.3d at 957.
The case at bar is an appeal of an administrative decision by the PRRB. Judicial review of that decision is governed by the Administrative Procedure Act, 5 U.S.C. § 706. See 42 U.S.C. § 1395oo(f). Although the Court reviews an agency's legal determinations de novo, the Court must afford substantial deference to an agency's interpretation of its own rules and the laws it is charged to implement. See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44 (1984); Vue v. INS, 92 F.3d 696, 699 (8th Cir. 1996). An agency's implementation of a statute entrusted to it or interpretation of its own regulation will be rejected by the Court only if it is clearly contrary to express legislative intent or if it is arbitrary and capricious. Id.
2. Scope of the Program Memo
United argues that it falls within the scope of the Program Memo because it had a jurisdictionally proper appeal of the 1992 and 1993 cost reporting years as of October 15, 1999, and that appeal, by definition, could extend to any and all issues relevant to the 1992 and 1993 cost reporting years. Specifically, United notes that "once [PRRB] jurisdiction pursuant to subsection (a) obtains, anything in the original cost report is fair game for a challenge by virtue of subsection (d)." HCA Health Services of Oklahoma, Inc. v. Shalala, 27 F.3d 614, 617 (D.C. Cir. 1994) (citing Bethesda Hosp. Ass'n v. Bowen, 485 U.S. 399, 406 (1988)). In other words, filing a timely appeal on any issue pertaining to a cost report preserves the right to challenge any other issue pertaining to the same cost report, no matter how untimely, so long as the challenge is made before the PRRB hearing. United argues that, as a result, the date of raising a new issue in a PRRB appeal should relate back to the date of the original appeal. As creative as the argument is, it simply does not hold water.
The legislative and case law cited by United stands for the proposition that a timely — and hence jurisdictionally proper-appeal on one issue will serve to toll the limitations period for raising additional issues. It does not necessarily follow that the Court should engage in the judicial fiction that later-raised issues shall be construed to have been raised from the outset.
The Program Memo does not extend to all hospitals that had filed a jurisdictionally proper appeal before October 15, 1999, and that raised the issue of the exclusion of general assistance days. Rather, on its face, the Program Memo extends only to hospitals that had filed a jurisdictionally proper appeal on the issue of the exclusion of general assistance days before October 15, 1999. In other words, on its face, the Program Memo requires that, in order to be eligible for relief, a hospital must have raised the precise issue of exclusion of general assistance days before October 15, 1999.
3. Does the Program Memo Affect Appeal Rights?
United further argues that, to the extent that the Program Memo seeks to preclude United from amending its jurisdictionally proper appeal to add certain issues, the Program Memo alters United's statutory appeal rights. As noted above, 42 U.S.C. § 1395oo(d) allows the PRRB to consider any and all issues arising out of a cost report for which there is a timely appeal filed, regardless of whether the appeal raises the issue or whether the fiscal intermediary considered the issue in its initial determination. United argues that the Program Memo, by limiting relief to hospitals that raised a particular issue by a particular date, runs afoul of the liberal appeal rights granted by 42 U.S.C. § 1395oo(d). The Court disagrees.
The cases cited by United in conjunction with this argument relate to the PRRB's jurisdiction to consider certain issues, see, e.g., HCA Health Services of Oklahoma v. Shalala, supra, not to the appellant's right to relief. Nothing in the Program Memo seeks to remove jurisdiction over the DSH payment calculation from the PRRB; rather, the Program Memo defines who is entitled to relief on the merits of the issue. In other words, the Program Memo does not preclude United from appealing the issue, it only precludes United from obtaining relief.
4. Is the Program Memo Arbitrary and Capricious?
United further argues that the Program Memo is arbitrary and capricious in that it results in similarly situated hospitals being treated differently because the October 15, 1999, deadline for relief bears no relation to the Medicare schedule and because the October 15, 1999, deadline actually precedes the December, 1999, notice of the deadline. The Court does not agree.
United concedes that the scope of the Court's review is narrow.
The court is not empowered to substitute its judgment for that of the agency. The agency must articulate a "rational connection between the facts found and the choice made." While we may not supply a reasoned basis for the agency's action that the agency itself has not given . . . we will uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned.
Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-286 (1974) (citations omitted). Here, the "agency's path" is clear: the agency intended to hold harmless hospitals that had reasonably relied up on a false belief that they were entitled to compensation for general assistance days. Those hospitals include both hospitals that received payments for those days and hospitals that believed they were entitled to payments for those days. A hospital that did not file an appeal on this issue prior to October 15, 1999 — the date on which CMS announced the resolution to the confusion over inclusion of general assistance days — did not manifest a belief, independent of the Program Memo, that it was entitled to such payments and, presumably, would not have made budget decisions based on a belief in such entitlement.
United seeks to characterize the Program Memo as a change or a reversal of CMS's policy of which hospitals should have been given notice. Yet the Program Memo is, on its face, a clarification of existing policy. The record indicates that CMS's policy has consistently been that general assistance days are not relevant to the Medicaid fraction, and the Program Memo simply reiterates that position. The fact that hospitals other than United misunderstood the policy and acted in reliance upon that misunderstanding and the fact that CMS decided to provide those hospitals with relief from their own mistake do not lead to the conclusion that CMS had some obligation to extend additional benefits to other hospitals.
5. Equal Protection
United alleges that the Program Memo violates the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution.
The parties disagree about the equal protection standard to be applied in this case. The Secretary argues that an equal protection challenge to the Program Memo, which suspends enforcement of the long-standing (albeit, allegedly unclear) policy regarding general assistance days as to certain hospitals, is tantamount to a selective enforcement claim; as a result, United must establish that the Secretary's action was motivated by invidious discrimination or bad faith. See United States v. Deering, 179 F.3d 592, 594 (8th Cir. 1999) (setting forth the elements of a prima facie case for selective prosecution). United, on the other hand, argues that it must only show that the Secretary's disparate treatment of certain hospitals bears no rational relation to any legitimate government interest. See Arkansas Pharmacists Ass'n v. Harris, 627 F.2d 867, 871 (8th Cir. 1980) ("in reviewing economic and social welfare regulations, a court must uphold the regulations if they bear a rational relation to a legitimate congressional purpose").
Whether the Program Memo should be construed as an "economic [or] social welfare regulation" or as a suspension of prosecution of such a regulation poses an interesting question. However, it is one that the Court need not address. Under either standard of review, the Court finds that the Program Memo does not violate United's equal protection rights.
First, there is absolutely no evidence that the division drawn by the Program Memo — the October 15, 1999, deadline — was motivated by discrimination based on race, religion, exercise of constitutional rights, etc. Moreover, as discussed above, the October 15, 1999, deadline does bear a rational relationship to a legitimate government interest. Specifically, to the extent that the Secretary sought to provide relief to hospitals that had an independent and genuine belief that they were entitled to general assistance days while simultaneously exercising fiscal responsibility, the October 15, 1999, deadline separates hospitals that genuinely believed they were entitled to general assistance days from hospitals that did not believe they were entitled to such days until the issuance of the Program Memo. In other words, the deadline separates those hospitals who were legitimately confused from those hospitals who sought to benefit from the confusion of others.
Accordingly, the Court finds that United has failed to establish that the Secretary's action violates United's right to equal protection under the laws.
For the reasons stated, IT IS HEREBY ORDERED:
1. Plaintiff's Motion for Summary Judgment (Doc. No. 4) is DENIED;
2. Defendant's Motion for Summary Judgment (Doc. No. 23) is GRANTED; and
3. The COMPLAINT is DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.