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HEALTHCARE SAN ANTONIO, INC. v. MENDEZ

October 31, 1990

HEALTHCARE SAN ANTONIO, INC., Plaintiff,
v.
ENRIQUE MENDEZ, JR., M.D., Defendant


George H. Revercomb, United States District Judge.


The opinion of the court was delivered by: REVERCOMB

GEORGE H. REVERCOMB, UNITED STATES DISTRICT JUDGE

 I. BACKGROUND

 This case is before the Court on cross motions for summary judgment. The plaintiff, a health care provider doing business as Laurel Ridge Hospital, provides inpatient psychiatric services under the Civilian Health and Military Program of the Uniformed Services ("CHAMPUS"). In its complaint, the plaintiff claims that it has been paid lower rates than those required by the Defense Department's regulations for the services it provides to CHAMPUS beneficiaries. The defendant, the Acting Assistant Secretary of Defense for Health Affairs, asserts that the rate applicable to the plaintiff was calculated in accordance with the plain language of the regulations and, therefore, is not subject to challenge.

 II. REGULATORY SCHEME

 In 1989, CHAMPUS implemented a new provider payment program. Prior to that date, providers had been reimbursed for charges actually billed for services rendered. This retrospective charge-based system was replaced by a prospective rate-based system. Under the new program, providers of hospital inpatient psychiatric services are divided into two categories, lower volume providers and higher volume providers. Higher volume hospitals are those for which there exists sufficient historical data regarding service charges to CHAMPUS upon which to calculate a valid, hospital-specific per diem, per patient rate. Hospital-specific per diem rates, on the other hand, cannot be determined for lower volume providers, because such hospitals have insufficient history of charges to CHAMPUS upon which such a calculation could be made. Accordingly, lower volume providers are paid on the basis of regional per diem rates based on all CHAMPUS claims for the applicable region.

 The CHAMPUS regulations provide a detailed scheme for establishing the per diem rates for high volume hospitals. 32 C.F.R. § 199.14 The scheme involves two administrative determinations: (1) the determination of whether a hospital qualifies as a higher volume provider, and (2) a determination of the specific per diem rate applicable to that hospital.

 a. Determination of Higher Volume Hospital Status

 When the new payment program was first implemented, all participating hospitals were classified as either lower or higher volume providers. The regulation defines a higher volume hospital as "any hospital or unit that had an annual rate of 25 or more CHAMPUS discharges of CHAMPUS patients during the period July 1, 1987 through May 31, 1988." Id. § 199.14(a)(2)(v)(A). Hospitals satisfying this criterion shall be considered to be higher volume providers during the 1989 federal fiscal year and all subsequent years. Id.

 The regulation also includes a section concerning hospitals that subsequently become higher volume providers and an additional section that authorizes a retrospective adjustment of program payments for new hospitals which are designated as higher volume providers after the initial implementation of the rate-based payment program. Id. § 199.14(a)(2)(v)(B), (C). The retrospective adjustment provision was intended to "assure proper recognition of what may be high capital costs and other special circumstances of new hospitals." 53 Fed. Reg. 34288 (1988). Finally, the regulation provides a mechanism by which hospitals may seek review of what it believes is the erroneous failure of the Office of CHAMPUS to designate it as a higher volume provider. 32 C.F.R. § 199.14(a)(2)(v)(D). *fn1"

 32 C.F.R. § 199.14(a)(2)(ii) provides, in part:

 
(A) Per Diem Amount. A hospital specific per diem amount shall be calculated for each hospital and unit with a high volume of CHAMPUS discharges. The base period per diem amount shall be equal to the hospital's average daily charge in the base period. The base period amount, however, may not exceed the cap described in paragraph (a)(2)(ii)(B) of this section. *fn2"

 This provision is further clarified by a later section defining base period calculations, which explains: "Base period calculations shall be based on actual claims paid during the period July 1987 through May 31, 1988, trended forward to represent the 12-month period ending September 30, 1988 on the basis of the Medicare inpatient hospital market basket rate." Id. § 199.14(a)(2)(iv)(A). The base period per diem amount determined pursuant to these provisions shall apply in the fiscal year 1989 and all subsequent fiscal years. In the case of new hospitals, per diem rates are calculated in the same manner as hospitals originally designated as higher volume providers, *fn3" ...


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