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STORMONT VAIL REGIONAL MED. CTR. v. BOWEN

September 25, 1986

STORMONT-VAIL REGIONAL MEDICAL CENTER, Plaintiff,
v.
OTIS R. BOWEN, M.D., Secretary, Department of Health and Human Services, Defendant; SISTERS OF CHARITY HOSPITAL, Plaintiff, v. MARGARET M. HECKLER, Secretary, Department of Health and Human Services, Defendant; BOULDER COMMUNITY HOSPITAL, et al., Plaintiffs v. MARGARET M. HECKLER, Secretary, Department of Health and Human Services, Defendant; CARRINGTON HOSPITAL, et al., Plaintiffs, v. MARGARET M. HECKLER, Secretary, Department of Health and Human Services, Defendant



The opinion of the court was delivered by: RICHEY

 INTRODUCTION

 This case consolidates the appeals of four hospitals from the decision of the Deputy Administrator of the Health Care Financing Administration of the Department of Health and Human Services (HHS) denying payment of the full amount of reimbursement sought for routine services rendered inpatient Medicare beneficiaries.

 The parties have filed cross motions for summary judgment and numerous supplemental pleadings. Plaintiffs allege the formula used to calculate reimbursement for routine services provided Medicare beneficiaries is arbitrary and capricious in that it forces non-Medicare routine patients to subsidize the routine care provided Medicare beneficiaries. Defendant disagrees, claiming the current reimbursement scheme avoids statutorily impermissible subsidies.

 The Court has reviewed the pleadings filed by all parties, heard counsel elucidate their positions at several status conferences, and has had the benefit of oral argument. For the reasons articulated below, the Court finds that plaintiffs' Motion for Summary Judgment must be granted and defendant's Motion, denied.

 BACKGROUND

 The Labor/Delivery Room Issue

 The relevant particulars of the Medicare program were set forth in two prior cases involving the regulation at issue here, Saint Mary of Nazareth Hospital Center v. Schweiker, 231 U.S. App. D.C. 47, 718 F.2d 459 (D.C. Cir. 1983) (St. Mary I) and Saint Mary of Nazareth Hospital Center v. Heckler, 245 U.S. App. D.C. 287, 760 F.2d 1311 (D.C. Cir. 1985) (St. Mary II). In the interests of brevity, only the salient points of the Medicare program will be recapitulated.

 Hospitals may provide Medicare patients with either routine or ancillary care. Hospitals are reimbursed separately for each. Routine services are those for which an additional charge is not usually made. Ancillary areas are those where special services (e.g., x-rays, surgery) are provided. Labor and delivery rooms are ancillary areas. See, St. Mary I, 718 F.2d at 462 n. 4.

 Medicare reimbursement for routine care is calculated in two steps: first, the average cost per diem for routine services is derived by dividing the total cost of routine services by the total number of inpatient days. The resulting quotient is multiplied by the total of Medicare inpatient days. The product is the reimbursement received by the hospital for routine care provided Medicare inpatients. The process can be represented as follows:

 (1) average cost per diem = total cost of routine services/total number of inpatient days

 (2) amount reimbursed = (average cost per diem) X (number of Medicare beneficiary inpatient days).

 St. Mary II, 760 F.2d at 1314; St. Mary I, 718 F.2d at 462 n.7.

 To derive the total number of patient days (i.e., the denominator in the first step of the calculation) hospitals take a patient census each day at midnight. In this census patients in ancillary areas are properly counted as routine patients because a patient's presence "in an ancillary-care area at midnight is nothing more than an artifact of the particular time when the patient receives ancillary services. [The] patient was receiving routine care before the receipt of ancillary care and will receive them afterwards, and thus contribute to routine costs." St. Mary II, 760 F.2d at 1314.

 Section 2345 of the Provider Reimbursement Manual requires that Medicare providers include labor/delivery room days as inpatient routine days when calculating the average per diem costs used to determine the amount of Medicare reimbursement owed hospitals.

 The government contends that it is necessary to include labor/delivery room patients in the midnight census. Once maternity patients are admitted to routine beds they will incur higher routine costs. Therefore, they need to be added to the count to avoid a subsidy of non-Medicare patients by Medicare patients. Defendant's Brief, at 11, 16-17.

 St. Mary I and St. Mary II

 The validity of Section 2345 (the labor/delivery room regulation) is hardly a question of first impression. This regulation was twice the subject of decisions of this circuit's Court of Appeals and has been litigated in other circuits as well. See, cases listed at Sioux Valley Hospital v. Bowen, 792 F.2d 715, 722 (8th Cir. 1986); St. Mary I, 718 F.2d at 465 n. 11 ("The labor/delivery issue has produced a flood of appeals to the PRRB, leading one service to conclude that it is 'one of the most controversial issues facing Medicare reimbursement'".)

 In St. Mary I plaintiff hospitals alleged the regulation was irrational. HHS defended the policy by arguing first, that the court should defer to agency expertise, and then suggesting six reasons why the decision of the Deputy Administrator should be affirmed:

 
(1) the definition of an inpatient day in the regulations is broad, and no reason appears to exclude labor/delivery room patients from that category; (2) many [hospitals], including some involved in this appeal, actually charge their labor/delivery room patients for a day of routine care even if the patient has not left the labor/delivery area; (3) routine care at all times is available to the labor/delivery area patients; (4) these patients will move to routine areas, and standby costs therefore should be attributed to them; (5) any disparity between costs and reimbursement is a result of averaging, which is a basic and judicially accepted component of the Medicare reimbursement scheme; (6) this accounting of labor/delivery patients is consistent with the accounting for patients in all other ancillary areas.

 718 F.2d at 466.

 The court did not feel that, in this instance, deference needed to be paid to agency expertise. It then rejected the government's first five arguments outright. However, the court recognized that the distortion caused by including labor/delivery patients in the routine census might be offset by a disproportionately large number of Medicare patients in other ancillary areas at the census hour. Therefore, the case was remanded for the "limited purpose of taking evidence on the issue of whether the use of other ancillary services by Medicare beneficiaries at the census taking hour suffices to compensate for the dilution of Medicare reimbursement caused by including labor/delivery area patients in the calculation of average general routine costs per diem". Id. at 474.

 On remand, HHS conceded that it could not make such a showing, Saint Mary of Nazareth Hospital v. Heckler, 587 F. Supp. 937, 938 (D.D.C. 1984), but argued that it should be allowed to introduce evidence concerning routine costs. This court ruled that the government's proffer was beyond the scope of the remand and judgment was entered for the plaintiffs.

 The Instant Litigation

 HHS is again before this Court, defending its labor/delivery room policy. The facts are undisputed.

 Plaintiffs are four non-profit hospitals. The parties are contesting the validity of the formula for calculating the reimbursement due plaintiffs for inpatient routine services provided Medicare beneficiaries as set forth in Provider Reimbursement Manual § 2345.

 Application of section 2345 resulted in plaintiffs' fiscal intermediaries reducing the hospitals' claimed reimbursement. Plaintiff Stormont-Vail's reimbursement was reduced $198,570. Plaintiff Sisters of Charity's reimbursement was reduced $53,121. The plaintiffs in Boulder Community Hospital, et al., had their reimbursement reduced $1.8 million. The plaintiffs in Carrington Hospital, et al., had their reimbursement reduced $191,627. Plaintiffs' Statement of Material Facts Not In Dispute, paras. 3, 8, 14, 20.

 All plaintiffs filed timely appeals with the Provider Reimbursement Review Board (PRRB). The PRRB ruled in favor of the plaintiffs and "[held] that labor/delivery room days should not be included within the count of routine inpatient days when calculating routine inpatient per diem costs". Defendant's Statement of Material Facts Not In Dispute, para. 3.

 In Stormont-Vail Regional Medical Center, No. 85-4011, the Deputy Administrator reversed the PRRB's decision and upheld the labor/delivery room policy. Plaintiff is now appealing this decision of the Deputy Administrator.

 The plaintiff hospital in Sisters of Charity Hospital, No. 85-3651, was also a party in St. Mary II. The Deputy Administrator remanded this case to the PRRB for further consideration of the Fitzmaurice and Cromwell affidavits. These affidavits were before the PRRB when it made its decision. Plaintiff appealed the remand to this Court. In compliance with this Court's Order of January 23, 1986, the Deputy Administrator issued a final agency decision. This decision reversed the PRRB. Plaintiff is now before the Court, appealing this final decision.

 In Boulder Community Hospitals, et al., No. 85-0031, the Deputy Administrator remanded the case to the PRRB for consideration of the Fitzmaurice and Cromwell affidavits. These affidavits were not considered by the Board in its earlier proceedings. Plaintiff appealed this remand to this Court. Pursuant to the January 10, 1986 Order of this Court the Deputy Administrator issued a final agency decision reversing the PRRB. It is this decision from which plaintiff appeals.

 In Carrington Hospital, et al., No. 85-3241, the defendant requested an oral hearing before the PRRB. This request was denied. Subsequently, as in Sisters of Charity, the Deputy Administrator remanded this case to the PRRB for further consideration of the Fitzmaurice and Cromwell affidavits. As in Sisters of Charity this evidence had been available to the PRRB. Plaintiff appealed the remand. Pursuant to this Court's Order of January 23, 1986, the Deputy Administrator issued a final agency decision. This decision reversed the PRRB and upheld the labor/delivery room policy. It is this decision from which plaintiff appeals.

 In a status call on January 22, 1986, the parties agreed that these four cases should be consolidated. In accordance with the stipulated schedule, the consolidation Order was issued on February 27, 1986.

 IN ST. MARY II THE EVIDENCE CONTAINED IN THE FITZMAURICE AND CROMWELL AFFIDAVITS WAS RULED INSUFFICIENT TO SUSTAIN THE LABOR/DELIVERY ROOM POLICY. THEREFORE, THE DOCTRINE OF STARE DECISIS PROHIBITS ...


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