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TRANSITIONAL HOSPITALS CORP. v. SHALALA

March 25, 1999

TRANSITIONAL HOSPITALS CORPORATION OF LOUISIANA, INC., AND TRANSITIONAL HOSPITALS CORPORATION OF TEXAS, INC., PLAINTIFFS,
v.
DONNA E. SHALALA, SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT.



The opinion of the court was delivered by: Kennedy, District Judge.

ORDER AND JUDGMENT

Pursuant to Fed.R.Civ.P. 58 and for the reasons stated by the court in its memorandum docketed this same day, it is this 25th day of March, 1999 hereby

ORDERED AND ADJUDGED that judgment is entered in favor of the plaintiffs; and it is further

ORDERED AND ADJUDGED that the defendant's regulations at 42 C.F.R. § 412.22(d) and 412.23(e) are declared to be invalid to the extent that they preclude newly participating long-term care hospitals from securing an exemption from the Medicare Prospective Payment System for inpatient hospital services pursuant to 42 U.S.C. § 1395ww(d)(1)(B)(iv)(I); and it is further

ORDERED AND ADJUDGED that within 30 days of the date of this order, that the defendant shall cause its fiscal intermediaries to reimburse the plaintiffs on the basis of their reasonable costs of providing inpatient hospital services for their 1993 fiscal years; and it is further

ORDERED AND ADJUDGED that the defendant pay to the plaintiffs the interest on the contested amount, pursuant to 42 U.S.C. § 1395oo(f)(2), and pay to the plaintiffs their costs and reasonable attorney's fees herein.

MEMORANDUM

The federal legislation that established Medicare requires the Secretary of the United States Department of Health and Human Services to exempt any hospital in which patients have an average length of stay greater than 25 days ("long-term care hospitals") from the Medicare Prospective Payment System ("PPS" or "Prospective Payment System"). 42 U.S.C. § 1395ww(d)(1)(B)(iv). The plaintiffs, Transitional Hospitals Corporation of Louisiana, Inc., and Transitional Hospitals Corporation of Texas, Inc., operate two long-term care hospitals that furnish acute care services. They contend that the Secretary's regulations which implement the exemption from PPS for long-term care hospitals, 42 C.F.R. § 412.22(d), 412.23(e), are unlawful because they do not allow long-term care hospitals to be reimbursed in accordance with the mandate of the Medicare statute.

Before the court are the parties' cross motions for summary judgment. Upon consideration of the motions, the oppositions thereto, and the record of this case, the court concludes that the plaintiffs' motion for summary judgment must be granted. The regulations at issue in this case are invalid because they do not conform to Medicare's payment scheme for long-term care hospitals, the precise issue Congress addressed when it exempted long-term care hospitals from the Prospective Payment System. Moreover, even were it determined that Congress has not addressed the precise question at issue, the Secretary's regulations are not the product of a reasonable interpretation of the legislation they purport to implement.

I. BACKGROUND

The Secretary of Health and Human Services is responsible for administering the Medicare Program. However, part of the administration of the Medicare Program has been delegated to the Health Care Financing Administration (HCFA) and to "fiscal intermediaries," which generally are private insurance companies. 42 U.S.C. § 1395h.

When the Medicare Program was first established, hospitals were reimbursed for the "reasonable costs" of providing services, subject to certain limits. 42 U.S.C. § 1395f(b)(1), 1395x(v) (1982). In 1983, in an effort to contain the increasing costs of the health care system, Congress enacted a new reimbursement system, the Prospective Payment System. Pub.L. No. 98-21 (1983) (codified at 42 U.S.C. § 1395ww(d)). Under the Prospective Payment System, hospitals are paid a predetermined rate, which is based upon the "diagnostic related group" classification of the patient's illness at the time of admission. Certain types of hospitals were excluded from the Prospective Payment System, however. 42 U.S.C. § 1395ww(d)(1)(B)(i)-(v). Congress provided that these hospitals would continue to be paid based upon the "reasonable costs" of services provided. 42 U.S.C. § 1395f (b)(1), 1395x(v)(1)(A).

The Medicare statute sets out which hospitals will be exempt from the Prospective Payment System as follows:

  As used in this section, the term `subsection (d)
  hospital' means a hospital located in one of the
  fifty States or the District of Columbia other than —
    (i) a psychiatric hospital (as defined in section
    1395x(f) of this title),
    (ii) a rehabilitation hospital (as defined by the
    Secretary),
    (iii) a hospital whose inpatients are predominantly
    individuals under 18 years of age,
    (iv)(I) a hospital which has an average inpatient
    length of stay (as determined by the secretary) of
 ...

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